Rail Systems
Business Strategy
Hitachi IR Day 2013

June 13, 2013

Hiroshi Nakayama
Vice President and Executive Officer
President & CEO, Rail Systems Company
Infrastructure Systems Group
Hitachi, Ltd.
© Hitachi, Ltd. 2013. All rights reserved.

Rail Systems Business Strategy

Contents
1. Overseas Business Development
2. Business Performance Trends and Targets
3. Business Overview and Market Environment
4. Growth Strategies
5. Conclusion© Hitachi, Ltd. 2013. All rights reserved.

1-1. Overseas Business Development (1)Turn-key orders for “Urban Railway Line 1” in Ho Chi Minh City, Vietnam(June 11, 2013)

Project Overview
A new line that is scheduled to become operational in early 2018. The 19.7 km line
includes both underground and elevated tracks. It will connect Ben Thanh in thecenter of Ho Chi Minh City with Suoi Tien, a bus terminal to the northeast of the city.
 Customer: Management Authority for Urban Railwaysof the People’s Committee of Ho Chi Minh
Excerpt from Ministry of Land,
City
Infrastructure, Transport and Contract scope : 17 train sets (total of 51 cars), signaling
Tourism materials
and telecommunication system, power
supply system, platform screen doors,
Suoi Tien
and depot facilities.
Line 3B
Maintenance for five years following
Line 2the start of commercial operations(separate agreement is to be concluded
at later stage) Delivery date
: 2016 (first series of train sets)
Line 1 (Japanese
ODA loan project)
 Contract value : approx. 37 billion yen
Line 6

SaigonStationMeanings for Hitachi
Foothold for expanding business opportunities in the urban
transport railway business in Southeast Asia and other region

Line 5

Ben Thanh･Total track length:
approx. 20 km･Signed ODA loan
agreements including
STEP in March 2007

Line 4

Line 3A© Hitachi, Ltd. 2013. All rights reserved.

31-2. Overseas Business Development (2)UK IEP (Intercity Express Programme) Order (July 24, 2012)
Project Overview
 Customer: UK Department for Transport
 No. of rolling stocks : 596
 Delivery: from 2017 to 2019
 Procurement method : PPP (Public Private Partnership) project

Meanings for Hitachi
1. Participate in Rolling stock lease business
2. Wide-area expansion of maintenance services(Ashford in existence + 11 bases)
3. Establishment of Newton Aycliffe,UK production base(production starts in FY 2015 ,hiring up to 730)
Make this bases as EU production hub

Inverness
Aberdeen
Edinburgh
Newcastle
Newton Aycliff(Planned production base)（生産拠点予定）
Leeds
Doncaster

Maliphant(Swansea) Worcester

Bounce Green(London)North Pole
(London)Stoke Gifford(Bristol)

Ashford(（現有車両基地）
Existing Depot)© Hitachi, Ltd. 2013. All rights reserved.

41-3. Overseas Business Development (3)Order for UK Railway Traffic Management System Prototype (August 29, 2012)
Project Overview
A large-scale traffic management system upgrade project encompassing the entire
existing UK rail network (approx. 25,000 km). The project involves separation into
sections and centralized management at 14 operating centers of more than 800
signaling locations.
 Customer: Network Rail Infrastructure Limited (state-run company that owns
and manages railway infrastructure throughout Britain)
 Contract scope: Prototype for evaluation of companies for rollout across the entire
rail network in the UK
Around Evaluation announcement : End of 2013
Present
2030

Meanings for Hitachi
1. Europe’s first traffic management
system project
2. Foothold for developing acrossthe UK

More than 800
signaling locations

Centralized
management at
14 operating centers© Hitachi, Ltd. 2013. All rights reserved.

5

Rail Systems Business Strategy

Contents
1. Overseas Business Development
2. Business Performance Trends and Targets
3. Business Overview and Market Environment
4. Growth Strategies
5. Conclusion© Hitachi, Ltd. 2013. All rights reserved.

2-1. FY2012 Results and FY2013 Forecast(Billion yen)

FY2011Results
Revenues
Operating income(EBIT)FY2012
Results

FY2013
YoY

Forecast

YoY

139.6

146.7

105%

150.0

102%

4.7

5.0

+0.3

5.1

+0.1

(5.8)

(5.2)

(-0.6)(4.8)(-0.4)

 FY2012 revenues were higher year over year due mainly to an increase
Revenues

in traffic management system sales in Japan,
despite lower sales of electrical components to China.
 Projecting higher revenues in FY2013 year over year due to higher
Shinkansen sales in Japan and higher overseas project sales.

 FY2012 operating income increased year over year due to higher earnings
Operating
Incomeaccompanying the increased revenues from traffic management systems
in Japan, despite the lower electrical component sales to China, and thebenefits from the Hitachi Smart Transformation Project.
 Projecting operating income in FY2013 slightly above FY2012

EBIT: Earnings before Interest and Taxes© Hitachi, Ltd. 2013. All rights reserved.

7

2-2. Business Performance Trends
Overseas Revenue Ratio

250～

Revenues(Billion yen)

65%

60%

39%
28%

24%

8.0%

200.0

8.0%

6.5%
133.1

139.6
4.2%

146.7

20

240.0

26%

200
150

Operatingincome(Billion yen)

150.0

15

6.5%

3.4%

3.4%

3.2%

10

～

3.6%
100
3.4%

1.5%

5

50
1.4%

～

0

FY2010FY2011

Rolling stock systems
revenues

FY2012FY2013
Forecast

Transport management& control systems revenues

Operatingincome0

FY2015
Target

FY2016
TargetOperatingincome ratio

EBIT ratio© Hitachi, Ltd. 2013. All rights reserved.

8

2-3. Orders
Orders(Billion yen)

296.7

300

280.0

200

147.6
116.5
100

0

FY2010FY2011FY2012FY2013
Forecast© Hitachi, Ltd. 2013. All rights reserved.

92-4. Differences From Previous Forecast
Revenues(Billion yen)

IEP schedulechanged320.0

Operatingincome ratio (%)

10

300
8

139.6
100

2.7%

FY2011

Revenues(result land revised forecast)

8.0%

8.0%
6.5%

3.4%

FY2012
Revenues(previous forecast)

6

240.0

200.0

4
2

～

0

3.4%

133.0

146.7

～～

200

FY2015 Target

FY2016 Target

Operating income ratio(result and revised forecast)0

Operating income ratio(previous forecast)Main Reasons for Differences

Revenues

FY2012FY2015

Increase in traffic management
systems, signaling equipment,
etc. in Japan

Adjustment to target setting
based on organic growth andchanged schedule of IEP

Increase in traffic management
Operating income
systems, signaling equipment,ratio
in Japan.

IEP schedule changed© Hitachi, Ltd. 2013. All rights reserved.

10

Rail Systems Business Strategy

Contents
1. Overseas Business Development
2. Business Performance Trends and Targets
3. Business Overview and Market Environment
4. Growth Strategies
5. Conclusion© Hitachi, Ltd. 2013. All rights reserved.

3-1. Revenues by Systems and Products & Services
Transport management & control systems

Rolling stock systems

Signaling/traffic management systems

Rolling stock/maintenanceSignaling/train control systems

39%

FY2012
Consolidated
Revenues
146.7 billion yen

High-speed trains

Regional trains

Commuter trains

Monorails

61%

Traffic management systems/
power management systems

Electrical components
Main circuit/main motor
Power supply systems

Air conditioning/
air-moving systems

MaintenancePlatform gates

No.1 share in Japan© Hitachi, Ltd. 2013. All rights reserved.

123-2. Market Trends
Conditions
18 trillion yen per year (2009-2011 average) ⇒ 20 trillion yen per year (2015- 2017 average) (CAGR 2.6%)
High growth in service and signaling/control businesses
Increased investments in railway networks in emerging countries
Source: UNIFE World Rail Market Study 2012
(1 euro=120 yen)

 Market Size by Segment

7.6%

20 trillion yen/year
18 trillion yen/year

Systems
integration
Signaling/
control

0.08
1.44

Infrastructure

3.63

Services(maintenance,
etc.)

Rolling
stock

6.62

0.10
1.72

2.9%

4.12

2.1%

7.88

Others

9.6%

3.0%

2.9%

Asia &
Pacific

2.1%

By region Europe
26.8% 2015-2017 46.4%
20 trillion yen
1.9%

5.72

6.57

2009-20112015-2017

North America
2.3%
2.8%

17.2%
2011-2017 CAGR
© Hitachi, Ltd. 2013. All rights reserved.

13

3-3. Global Position
Hitachi’s Position
Revenues(Billion yen)

*Figures are for FY2012

Overseas Company D

1,000

Overseas Company E～～
Overseas Company B
Overseas Company C

500

Overseas Company A～～(FY2016 Target)(FY2015 Target) 240.0 billion yen
200.0 billion yen

Hitachi (FY2012)146.7 billion yen

Japanese Company F
0
5%

10%

Operatingincome ratio© Hitachi, Ltd. 2013. All rights reserved.

143-4. Strengths and Key Targets
Rolling stock systems

Transport management & control systems

Higher efficiency, lower environmental impact

High reliability, lower environmental impact

Aluminum train technology(high-speed trains, commuter trains) Highly economical next-generation rolling

Signaling/train control systems technologies
 Signaling systems compliant with European

stock (A-train)

Inverter technology
 Develop compact, lightweight, low noise(world-class) products

Hybrid traction system technology
 World’s first to enter service(developed jointly with East Japan Railway
Company)

Proven track record in maintenance business (UK)standards (ETCS) Wireless train control system (CBTC)

Traffic management system technologies
 Provide high-performance, highly functional
systems to support high-density transportation

Energy-conserving technologies
 B-CHOP(Regenerative Energy Storage System) Smart grid technologies for rail systems
ETCS:European Train Control System
CBTC:Communication Based Train Control

Total project integration (turn-key)
Global business expansion with own core systems technologies
in traffic management, signaling, power supply and rolling stock© Hitachi, Ltd. 2013. All rights reserved.

15

Rail Systems Business Strategy

Contents
1. Overseas Business Development
2. Business Performance Trends and Targets
3. Business Overview and Market Environment
4. Growth Strategies
5. Conclusion© Hitachi, Ltd. 2013. All rights reserved.

4-1. Growth Strategy
Rail Systems Business Growth Strategy
Global Expand existing bases further (Japan, UK, and China)
 Actively develop new bases (India, Brazil, and Southeast Asia)

Transformation
 Reshape business portfolio
Expand services businesses, increase sales of signaling/transport management systems, expand the turn-key business Expand and enhance product portfolio
Global A-train, global signaling systems, next-generation inverters

Innovation
 Total rail solutions
Propose total rail systems by linking infrastructure control systems andIT systems
Rail energy management systems concept (GREEN)© Hitachi, Ltd. 2013. All rights reserved.

174-2. Growth Strategy (Global Expansion)● Europe● China・ Expand maintenance business・ Establish signaling/ control systemthroughout the U.K.
・ Establish rolling stock
manufacturing base (2015)
・ Enter signaling/traffic management
system markets

manufacturing base (2013)
・ Expand electrical component
manufacturing bases (2014)● Japan・ Strengthen core productcompetitiveness・ Create new businesses and products(Energy-conserving systems, etc.)▲ India・ Establish new operation
centers
・ Enter signaling/traffic
management system markets
Expand and enhance existing bases▲ Southeast Asia
・ Complete Urban Railway Line 1
in Ho Chi Minh City・ Establish new engineering centers
・ Capture turn-key projects▲South America
・ Establish manufacturingbase in Brazil (2014)

Develop new bases© Hitachi, Ltd. 2013. All rights reserved.

18

4-3. Growth Strategy (Transformation (1))
Reshape business portfolio
Expand service businesses
Expand maintenance business Depots in U.K. (Ashford in existence +11 bases)

Expand rolling stock lease business IEP rolling stock

Service business ratio Increase
to 15% (2020)

Ashford Depot(Class 395)

IEP rolling stock(image)Expand sales of signaling/traffic management systems
Participate nationwide installation project after completion of
UK rail traffic management system prototype project
European standard Signaling systems (ETCS)
Wireless train control system (CBTC)

Expand sales of total project integration (turn-key)
Complete Urban Railway Line 1 in Ho Chi Minh City,
step up efforts to capture turn-key business
Focus on monorail systems© Hitachi, Ltd. 2013. All rights reserved.

19

4-4. Growth Strategy (Transformation (2))
Expand and enhance product portfolio
Global A-train
Optima product lineup by use AT100 (metro/Commuter)  AT200 (regional) AT300 (high-speed) AT400 (monorail)

Global signaling systems
Develop products compliant with
global (European) standards
 UK:

Expand ETCS sales through joint development with
Network Rail (apply to IEP train signaling system)
 China: Expand sales of Chinese train control
systems (CTCS)
 India: Expand sales of TPWS (ETCS1)

AT300 rolling stock (image)

Next-generation inverters
 Develop SiC inverters for reducing power loss tocontribute to greater energy savings
Inverter control system
SiC: Silicon carbide© Hitachi, Ltd. 2013. All rights reserved.

20

4-5. Growth Strategy (Innovation (1))
Total rail solutions concept
Integrate services leveraging infrastructure
control systems and IT systems
Seat reservations

Communications

On-board guidancesystemTransport plan

Control Systems

Traffic control

Digital signage

Maintenance

IT
Product sales
Electronic money

IC cards
Urban transport
services

Provide total transport solution
from train service to customer service© Hitachi, Ltd. 2013. All rights reserved.

21

4-6. Growth Strategy (Innovation (2))
GREEN (Rail energy management system concept)
Achieve greater energy conservation by facilitating railcar control syncedwith optimal electricity control via the TrainLink wayside and onboard
communications system
Conserve energy through optimal
control by making onboard
systems more intelligent

Base station

TrainLink

Base station

Wind power
generation

Batteries

Wireless
Wayside and onboard
communications

Information
sharing server

SCADA(Supervisory Control And Data Acquisition)

B-CHOP

EMS
Solar power
generation

Tablet terminals

Optimal energy management synced withonboard control information
EMS : Energy Management System
GREEN : Green Rail for Ecological Environment toward the Next generation© Hitachi, Ltd. 2013. All rights reserved.

22

4-7. Hitachi Smart Transformation Project Progress
Main Initiatives (Complied)
Production
costs

Shortened rolling stock production lead times
Increased product syncing efficiency

Directmaterials
costs

Increased global procurement efficiency ratio
Promoted centralized purchasing

Indirect
costs

Reduced indirect costs by centralizing and standardizing
administrative and overlapping functions
Actively utilized global human resources

Main Initiatives (Plan)
1. Further promote local manufacturing bases and global procurement(UK, China, Brazil, and India)
2. Optimize global logistics
3. Centralize IT and business systems

Targeting cumulative Hitachi Smart Transformation Project benefits of
11 billion yen over the period from FY2011 to FY2015© Hitachi, Ltd. 2013. All rights reserved.

23

4-8. Measures to Strengthen Cash Flow Management
Areas for Improvement and Issues

Operating cash flows

・Improve asset
efficiency to generate
the necessary
working capital for
executing large
projects

Specific Initiatives

1. Generate cash flows by shortening
production lead times
2. Implement Vendor Managed
Inventory (VMI)
3. Strengthen global supply chain
management in conjunction withGroup companies** Hitachi Capital, Hitachi High-Technologies and Hitachi
Transport Systemefficiency

investment
投資Improve
効率の改善

・Increase investment
returns・Accelerate
investment return

1. Strictly select investments
2. Bolster post-investment
monitoring and quickly respond
3. Reduce capital expenditurethrough global procurement© Hitachi, Ltd. 2013. All rights reserved.

24

Rail Systems Business Strategy

Contents
1. Overseas Business Development
2. Business Performance Trends and Targets
3. Business Overview and Market Environment
4. Growth Strategies
5. Conclusion© Hitachi, Ltd. 2013. All rights reserved.

5.

FY2015 Targets

FY2015 Targets
Revenues: 200 billion yen (overseas revenue ratio: 60%)
Operating income (EBIT): 13 billion yen(operating income ratio (EBIT ratio): 6.5%)
Gross margin: 1.0 point improvement (Vs. FY2012)
SG&A expenses ratio: 2.1 point improvement (Vs. FY2012)

Accelerate globalization withtechnologies developed in Japan
Promote Social Innovation Business© Hitachi, Ltd. 2013. All rights reserved.

26

Cautionary Statement
Certain statements found in this document may constitute “forward-looking statements” as defined in the U.S. Private Securities Litigation Reform Act of 1995. Such “forward-looking statements”
reflect management’s current views with respect to certain future events and financial performance and include any statement that does not directly relate to any historical or current fact. Words
such as “anticipate,” “believe,” “expect,” “estimate,” “forecast,” “intend,” “plan,” “project” and similar expressions which indicate future events and trends may identify “forward-looking
statements.” Such statements are based on currently available information and are subject to various risks and uncertainties that could cause actual results to differ materially from thoseprojected or implied in the “forward-looking statements” and from historical trends. Certain “forward-looking statements” are based upon current assumptions of future events which may notprove to be accurate. Undue reliance should not be placed on “forward-looking statements,” as such statements speak only as of the date of this document.
Factors that could cause actual results to differ materially from those projected or implied in any “forward-looking statement” and from historical trends include, but are not limited to: economic conditions, including consumer spending and plant and equipment investment in Hitachi’s major markets, particularly Japan, Asia, the United States and Europe, as well as levels of
demand in the major industrial sectors Hitachi serves, including, without limitation, the information, electronics, automotive, construction and financial sectors;
 exchange rate fluctuations of the yen against other currencies in which Hitachi makes significant sales or in which Hitachi’s assets and liabilities are denominated, particularly against the U.S.
dollar and the euro; uncertainty as to Hitachi’s ability to access, or access on favorable terms, liquidity or long-term financing; uncertainty as to general market price levels for equity securities, declines in which may require Hitachi to write down equity securities that it holds;
 the potential for significant losses on Hitachi’s investments in equity method affiliates;
 increased commoditization of information technology products and digital media-related products and intensifying price competition for such products, particularly in the Digital Media &Consumer Products segments;
 uncertainty as to Hitachi’s ability to continue to develop and market products that incorporate new technologies on a timely and cost-effective basis and to achieve market acceptance for suchproducts;
 rapid technological innovation;
 the possibility of cost fluctuations during the lifetime of, or cancellation of, long-term contracts for which Hitachi uses the percentage-of-completion method to recognize revenue from sales; fluctuations in the price of raw materials including, without limitation, petroleum and other materials, such as copper, steel, aluminum, synthetic resins, rare metals and rare-earth minerals, orshortages of materials, parts and components;
 fluctuations in product demand and industry capacity; uncertainty as to Hitachi’s ability to implement measures to reduce the potential negative impact of fluctuations in product demand, exchange rates and/or price of raw materials or shortagesof materials, parts and components;
 uncertainty as to Hitachi’s ability to achieve the anticipated benefits of its strategy to strengthen its Social Innovation Business;
 uncertainty as to the success of restructuring efforts to improve management efficiency by divesting or otherwise exiting underperforming businesses and to strengthen competitiveness;
 uncertainty as to the success of cost reduction measures;
 general socioeconomic and political conditions and the regulatory and trade environment of countries where Hitachi conducts business, particularly Japan, Asia, the United States and Europe,
including, without limitation, direct or indirect restrictions by other nations on imports and differences in commercial and business customs including, without limitation, contract terms andconditions and labor relations; uncertainty as to the success of alliances upon which Hitachi depends, some of which Hitachi may not control, with other corporations in the design and development of certain key products;
 uncertainty as to Hitachi’s access to, or ability to protect, certain intellectual property rights, particularly those related to electronics and data processing technologies;
 uncertainty as to the outcome of litigation, regulatory investigations and other legal proceedings of which the Company, its subsidiaries or its equity method affiliates have become or may
become parties;
 the possibility of incurring expenses resulting from any defects in products or services of Hitachi;
 the possibility of disruption of Hitachi’s operations by earthquakes, tsunamis or other natural disasters;
 uncertainty as to Hitachi’s ability to maintain the integrity of its information systems, as well as Hitachi’s ability to protect its confidential information or that of its customers;
 uncertainty as to the accuracy of key assumptions Hitachi uses to evaluate its significant employee benefit-related costs; and uncertainty as to Hitachi’s ability to attract and retain skilled personnel.
The factors listed above are not all-inclusive and are in addition to other factors contained in other materials published by Hitachi.

© Hitachi, Ltd. 2013. All rights reserved.

27