Infrastructure Systems
Business Strategy
Infrastructure Systems Company
Hitachi Industrial Equipment Systems Co., Ltd.
Hitachi IR Day 2013
June 13, 2013

Toshiaki Higashihara
Senior Vice President and Executive Officer
President & CEO
Infrastructure Systems Group andInfrastructure Systems Company
Hitachi, Ltd.
© Hitachi, Ltd. 2013. All rights reserved.

Infrastructure Systems
Business Strategy
Contents
1. Business Overview
2. Market Environment
3. Performance Summary
4. Business Strategy
5. Conclusion© Hitachi, Ltd. 2013. All rights reserved.

of Social Infrastructure &1-1. Position
Industrial Systems Segment

Provide total systems for supporting social and industrial infrastructure

Consolidated Revenues (FY2012)
Infrastructure Systems Business

Financial
Services
OthersHigh
Functional
Materials &Components
Construction
Machinery

Information &Telecommunication
Systems

9,041.0 billion yen

Automotive
Systems

Power Systems

Social Infrastructure &Industrial Systems
1,313.8 billion yen

Digital Media &ConsumerElectronic Systems &Products
Equipment

Rail Systems
Business

Urban Planning andDevelopment Systems
Business

Infrastructure Systems Group© Hitachi, Ltd. 2013. All rights reserved.

31-2. Position of Infrastructure Systems Business
Drive the social infrastructure business, centered on Social Infrastructure & Industrial Systems

Consolidated Revenues (FY2012)
Financial
Services
OthersHigh
Functional
Materials &Components
Construction
Machinery

Information &Telecommunication
Systems

9,041.0 billion yen

Automotive
Systems

Power Systems

Social Infrastructure &Industrial Systems
1,313.8 billion yen

Digital Media &ConsumerElectronic Systems &Products
Equipment

Infrastructure Systems Business
Provision of systems andcomponents for information,
power and transportation fields
168.2 billion yen＋
Infrastructure business centeredon the Social Infrastructure &Industrial Systems Segment617.3 billion yen＝
Infrastructure Systems Company
Hitachi Industrial Equipment Systems Co., Ltd.

785.5 billion yen© Hitachi, Ltd. 2013. All rights reserved.

41-3. Composition of Infrastructure Systems Business
Expand total solutions for social infrastructure globally
Infrastructure solutions business

Plant systems business Energy management systems
 Water environment systems
 Smart mobility

 Chemicals and Oil&Gas
pharmaceuticals  Industrial components
for steel plants
 Air conditioning

Solutions andservices
Information systems

42%

FY2012785.5
billion yen

39%

Operation and services

Engineering

19%

Monitoring & control systems

Design and construction

Top Share in Japan
Components
Controllers

Inverters

MotorsDistribution Compressors
transformers

Ink-jetprinters

Large-sizedcomponents

Components business© Hitachi, Ltd. 2013. All rights reserved.

5

Infrastructure Systems
Business Strategy
Contents
1. Business Overview
2. Market Environment
3. Performance Summary
4. Business Strategy
5. Conclusion© Hitachi, Ltd. 2013. All rights reserved.

2-1. Market Trends
Synchronized improvement of social infrastructure and plant development
Global Infrastructure Investment Forecast(US$ trillion)

3
Developed
countries

・ Aging society
・ Aging
infrastructure
高度インフラEmerging
countries,etc.

・ Increase in urban
population
・ Electricity and water
shortages

2

1

0

2000

2010

2020
Source: GLOBAL INSIGHT

Growth rate
(2000 → 2020)

Business Opportunities
Developed
countries

Increased investment to rebuild and improve the efficiency ofinfrastructure

1.6 times

Emerging
countries, etc.

Increased investment in social and industrial infrastructure such as
natural resources, water, electricity and transportation

4.0 times© Hitachi, Ltd. 2013. All rights reserved.

7

2-2. Competitive Environment
Realize growth by expanding service business and accelerate global business development
Circle size indicates revenue size

Average growth rate ofrevenues (%)

10(Social Infrastructure &Industrial Systems Segment)

Hitachi（2012） Hitachi（2015）
Company A（2012）

Company C（2012）

5Company B（2012）* Hitachi represents revenues of theSocial Infrastructure & Industrial
Systems Segment; other companies
represent figures from similar
segments* Average growth rate of revenues
represents the 3-year average for
the FY2010-FY2012 period* Years in ( ) are fiscal years

Company D （2012）

0

5

10

Strengths
Provide total solutions from components to engineering,procurement and construction (EPC) and informationand control systems
Cover a broad range of infrastructure businessdomains through cooperation with Hitachi Group
companies

15 Operating income ratio (%)

Initiatives
Expand service business toimprove profitability
Strengthen the global supply chain
to expand in emerging countries© Hitachi, Ltd. 2013. All rights reserved.

8

Infrastructure Systems
Business Strategy
Contents
1. Business Overview
2. Market Environment
3. Performance Summary
4. Business Strategy
5. Conclusion© Hitachi, Ltd. 2013. All rights reserved.

3-1. Performance Summary(1) FY2012 Results

FY2010(Results)

FY2011(Results)

FY2012(Results)(Target as of June 2012)

715.5 billion yen

769.7 billion yen

785.5 billion yen

790.0 billion yen

Overseas revenue
ratio

17%

19%

21%

23%

EBIT
(operating income)16.8 billion yen(16.0 billion yen)

33.4 billion yen(30.7 billion yen)

31.1 billion yen(28.6 billion yen)34.5 billion yen(32.7 billion yen)

EBIT ratio(operating income
ratio)

2.3%(2.2%)

4.3%(4.0%)

4.0%(3.6%)

4.4%(4.1%)

Revenues

FY2012The FY2012 overseas revenue ratio and EBIT (operating income) ratio were
below target mainly due to reduction in capital expenditures on power systems
in Japan and the temporary slowdown in the Chinese economy
EBIT: Earnings before Interest and Taxes© Hitachi, Ltd. 2013. All rights reserved.

103-2. Performance Summary(2) Strengthen base for growthBusiness growth

Apr. 2013
Established an overseas powertransmission consulting
joint venture with TEPCO

Sept. 2010
China:Cooperation with Chengdu Xingrong Group Co., Ltd.

Water
environment,
EnergyOil&GasBase strengthening

Establishment ofoverseas bases

May 2011
China:Cooperation with Dongda Group,
DalianJun. 2011
Signed corporate
procurement agreement in
the compressor businesswith Saudi Arabian
Oil Company

Sept. 2011
India:Formed equity-based
business alliancewith Hi-Rel Electronics

Jan. 2013
India:Signed a water purchase agreement for
the Dahej seawater desalination project
Dec. 2012
Brazil:Established industrial equipment maintenancejoint venture with Mayekawa ManufacturingJun. 2012
Saudi Arabia:Acquired Saihati,
established industrial equipment maintenance services company
Dec. 2012
India:Began operations at new powerelectronics plant

Dec. 2011 to May 2012
Singapore, Vietnam, Thailand, Indonesia, India andQatar:Established EPC companies
Apr. 2012
Integrated the former
Information & Control
Systems Company andthe former Industrial &Social Infrastructure
Systems Company

Framework
strengthening

FY2011FY2012

1H 2013
Saudi Arabia:
Established EPC company
Apr. 2013
Merged with
Hitachi Plant Technologies
Apr. 2013
Transferred
the urban solutions business to
the Infrastructure Systems Company

FY2013© Hitachi, Ltd. 2013. All rights reserved.

11

Infrastructure Systems
Business Strategy
Contents
1. Business Overview
2. Market Environment
3. Performance Summary
4. Business Strategy
5. Conclusion© Hitachi, Ltd. 2013. All rights reserved.

4-1. Business Strategy
Become the best solutions partner by providing answers to business challenges
faced by global customers

FY2015 Targets
 Revenues: 1 trillion yen

Growth drivers

 EBIT (operating income) ratio: over 7%

Strengthen solutions
capabilities
Expand service business

Implement operation
reforms

21%

33%

Service revenue ratio

Create customer value

Establish growth
platform

Overseas revenue ratio

Strengthen global supply
chain
Strengthen management base
(Hitachi Smart Transformation Project)

Investments for FY2013-FY2015(including capital expenditures)

28%

Over 35%

FY2012FY2015

Overseas employees
4,200 people

6,200 people

FY2012FY2015

Cost
reduction
benefits

41 billion yen
Cumulative for
FY2011-FY2015

80 billion yen© Hitachi, Ltd. 2013. All rights reserved.

13

4-2-1. Growth Drivers - Create customer value Achieving a sustainable society

Drive growth by strengthening solutions
capabilities to provide answers to businesschallenges and expand service business

Smart cities
Smart grids
Smart mobility
Intelligent water systems

 Leading-edge expertise Experience

Respond to global customers’ issues
Energy-saving, business continuity,
・・・
productivity enhancement, etc.

Strengthen solutions capabilities

Expand service businessIT・ Apply demonstrated technologies

・ Strengthen cloud-based lifecycle
support business・ Leverage distinctive technologies toexpand into growth markets
・ Provide total solutions withtotal engineering

Product

Service・ Expand infrastructure operation
service business© Hitachi, Ltd. 2013. All rights reserved.

14

Strengthen solutions capabilities(1)4-2-2. Apply demonstrated technologies
Provide heat and electricity energy management solutions for customers’ energy-saving needs
PlantsAdvanced Demonstration Projects

Buildings ・ Peak-time cuts and shifts(FEMS, BEMS)

Shopping malls

Urban developmentareas

・ Visualization of electricalusage for tenants
・ ESCO services

・ Improve real estate values(area EMS, EV charging infrastructure)

Packaging of leading-edge
technologies and know-how

・ Environment and BCP(solar power generation, storage
battery solutions)・ Kashiwa-no-ha (area EMS)

Provided by Mitsui Fudosan Co., Ltd.

・ Hawaii (Island smart grid)・ In-house (FEMS, BEMS)

・ Solutions for various lifestyles(energy-saving guidance,
reward point services)
FEMS : Factory Energy Management System BEMS : Building Energy Management System
BCP : Business Continuity Plan
ESCO : Energy Service Company
EMS : Energy Management System
EV: Electric Vehicle© Hitachi, Ltd. 2013. All rights reserved.

15

Strengthen solutions capabilities(2)4-2-3. Leverage distinctive technologies to expand into growth markets
Provide total solutions in the chemical and pharmaceuticals fields
Growth Markets
・ High-functional
materials, bioplastics
・ Anti-body drugs,
vaccineTotal engineering
Manufacturing
management
systems(HITPHAMS)

Control systems

ＩＴ
Process technologies

Peripheral
components
High-functional plastics
production facility

Basic plansand design

Construction

Utilities

・ High-viscosity plastic manufacturing technologies(chemical plants)
・ Fermentor design simulation technologies(pharmaceutical plants)

Expand into growth markets in Japan and Asia
© Hitachi, Ltd. 2013. All rights reserved.

16

Strengthen solutions capabilities(3)4-2-4. Provide total solutions with total engineering
Provide one-stop solutions for plants and industrial parks of stable operation and energy-saving

Production systems

Power Equipment

Monitoring and control
systems

Motor drive systems

Processing equipments

 High-efficiency motors
 Industrial inverters
 Uninterrupted power
supplies

Utilities
Substations
 Amorphous transformers

Plants and industrial parks

Total engineering
FY2012 Energy Conservation Grand Prize*

Air conditioning and water
treatment systems
Wind and solar power
generation systems

Air Powered Systems
 Compressors

・ Consulting, design support
・ Global procurement
・ Project management
・ Maintenance andmanagement services* Sponsor: The Energy Conservation Center, Japan

Accelerate global business development focusing on the Asian belt zone
© Hitachi, Ltd. 2013. All rights reserved.

17

4-2-5. Expand service business
Service revenue ratio
FY2012FY201528%
Over 35%

Provide total services from operation and maintenance tobusiness operation
Infrastructure
solutions business
Service businessBusiness
operation

Operation andmaintenance

Systems
and
EPC

Components

Plant systems
business

Components
business

Infrastructure operation

Cloud-based lifecycle support + operation and maintenance

Grid monitoring
systems
Water environment
systems
Traffic management
systems

PCS for solar power andwind power generation

Industrial plants
Air conditioning
systems
Amorphoustransformers
Compressors

Inverters
Motors

PCS: Power Conditioning System© Hitachi, Ltd. 2013. All rights reserved.

18

Expand service business(1)4-2-6. Strengthen cloud-based lifecycle support business“IT × plant know-how” support for raising utilization rate and improving management efficiency of
customers’ facilities

Remote monitoring and diagnostics services for cranes (since December 2011), andair compressors (since April 2013)
Comprehensive maintenance and management services for water purification andsewage treatment facilities (since April 2011)

Customer

Hitachi Group

Owners, site operators
Improved utilization rate・ Remote monitoring
・ Energy-saving andpredictive diagnosis offaults・ Preventive maintenance,
etc.

Plant andproduct knowhow(manufacturing,
EPC, maintenance)

Efficient plant and equipment operation

Sites
Big data utilization

Data collection

Highly reliable cloudcomputing services
Components

Plants© Hitachi, Ltd. 2013. All rights reserved.

19

Expand service business(2)4-2-7. Expand Infrastructure Operation Service Business
Create a business model utilizing business operation company knowhow
Stable Earnings Model Expansion

Partnership

BOO

Water environment fieldSeawater desalination business

Cooperation with Hyflux (Singapore),
which has a track record inlarge seawater desalination projects(Dahej, India)

Profit sharing-type modelWater environment business(developed countries in Europe, North America andelsewhere)
O&M participation

Operating expense
reduction

Recover (reinvest)

Profit growth

Introduce IT and infrastructure technologies
・ Optimal management simulator for water resources
・ Water leak detection, facility management systems, etc.

Business
operation
knowhow

Concluded Water Purchase Agreement for
Dahej seawater desalination project in India(January 2013)

Energy field
Established a company with TEPCO,
which has expertise related toplanning, operating and maintaining
power transmission facilities(April 2013)

BOO: Build, Own and Operate© Hitachi, Ltd. 2013. All rights reserved.

20

4-3-1. Strengthen global supply chain
Expand customer-centric businesses in growth markets
Utilize EPC bases, strengthen local sales and front engineering organization
Establish relationships with big accounts
Cooperate with local partners
Expand in emerging markets leveraging local production bases
Europe,Russia
Americas

China
Middle East

Establish local subsidiaries
and offices in growing
Asian belt zone

India

Southeast Asia
(Thousand)10

Overseas employees

[25%]
5

0

[18%]
4,200
peopleFY2012

6,200
peopleOverseas revenue ratio
FY2012FY201521%●

33%

EPC, manufacturing and service bases (local subsidiaries)
Sales bases (offices)

FY2015*[ ] shows overseas employee ratio* Hitachi Industrial Equipment Systems’ sales bases have been
omitted from the map.
© Hitachi, Ltd. 2013. All rights reserved.

21

Strengthen global supply chain(1)4-3-2. Establish relationships with big accounts
Expand the oil & gas solutions business by working collaboratively with big accounts
within resource-rich countries

Saudi Arabian Oil Company
Saudi Arabian state-run oil company
Oil and gas
production andrefining
Petrochemical
product sales
Urban
development, etc.
Picture image

Hitachi Group
Signed corporate procurementagreement related to supply andservice of compressors(June 2011)
Won turn-key order for EPC
utility facilities for large oil
refinery (December 2012)
Propose Hitachi Group’s
oil & gas- and infrastructurerelated products and solutions

Extend business development to other resource-rich countries (Brazil, Russia, etc.)© Hitachi, Ltd. 2013. All rights reserved.

22

Strengthen global supply chain(2)4-3-3. Expand in emerging markets leveraging local production bases
Increase production of power electronics products in India, and expand into growth markets

Hitachi Hi-Rel PowerElectronics Pvt. Ltd.(India)

Export core modules,
license technologies

Japan

India
MiddleEast

AfricaProvide products andsolutions matchingregional needs

Southeast
Asia

Manufacture and sell high-voltage
inverters, uninterrupted power supplies,
solar power generation PCS, etc.
Conduct R&D locally matching regional
needs

Expand into the industrial plant and oil and gas markets through EPC bases© Hitachi, Ltd. 2013. All rights reserved.

23

Strengthen Management Base(1)4-3-4. Promote “Hitachi Smart Transformation Project”
Drive robust cost structure reforms
Main initiatives
2012
Mid-term
Management
Plan

Establish manufacturing, EPC and service bases to build a global supply chain
Expand overseas procurement and centralized purchasing, strengthen
engineered sourcing
Reduce operating expenses, standardize workflow, and promote the use ofshared services

Create synergies from organizational restructuring, in addition to existing initiatives

Main initiatives
2015
Mid-term
Management
Plan

Centralize overlapping operations and resources, and improve efficiency
Build an optimal business framework, including Group companies
Reduce costs through modular design-based product reforms, andprocess reforms due to the application of standard work breakdown structure
Nourish local staff and appoint locals to management positions, and promotelocalization(Benefits) FY2011-FY2015 (cumulative): 41 billion yen© Hitachi, Ltd. 2013. All rights reserved.

24

Strengthen Management Base(2)4-3-5. Strengthen Cash Flow Management
Issues and Areas to Strengthen

Earnings Improvement Initiatives

Improve operating
cash flows

Expand service business tosecure stable earnings and expand
production and procurement in
optimal locations globally Generate higher businessearnings and accelerate
globalization
 Improve number ofdays of working capital

Reduce lead time bypromoting modular design

Improveinvestment efficiency

Prioritize investments
 Improve investment
efficiency
 Early return of investments

Utilize Hitachi Capital to invest in andrecoup investments in long-term
service business and increase
efficiency© Hitachi, Ltd. 2013. All rights reserved.

25

Infrastructure Systems
Business Strategy
Contents
1. Business Overview
2. Market Environment
3. Performance Summary
4. Business Strategy
5. Conclusion© Hitachi, Ltd. 2013. All rights reserved.

5-1. Business Performance Trends～～

Revenues Overseas revenue ratio(Billion yen)
19%

22%

21%

Over 35%～30%

Service revenue ratio 28%

33%
EBIT
(Billion yen)

17%

1,000
800

Amount oforders received(Billion yen)

715.5

100

1,000
809.9

790.9

769.7

785.5

859.0
840.0

Over 7%( Over 7%)

600
4.0%

3.7%

（4.0%）（3.6%）（3.7%）

50

～
～

4.3%
400

Over
70.0

2.3%
（2.2%）

200

33.4

31.1

31.3

16.8

～
～

0
FY2010Infrastructure solutions business

FY2011FY2012

Plant systems business

FY2013Components business

0
FY2015EBIT

EBIT ratio*（）: Operating income ratio* A certain amount of orders received, revenues, EBIT and operating income of the Infrastructure Systems Company are included in the Information &Telecommunication Systems Company, the Power Systems Company and the Rail Systems Company© Hitachi, Ltd. 2013. All rights reserved.

27

5-2. Conclusion

FY2015 Targets
Revenues: 1 trillion yen (overseas revenue ratio: 33%)
EBIT (operating income) ratio: over 7%
Gross margin: 1.7 point improvement (Vs. FY2012)
SG&A expense ratio: 1.8 point improvement (Vs. FY2012)

Become the best solutions partnerby providing answers to business challenges
faced by global customers© Hitachi, Ltd. 2013. All rights reserved.

28

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.

29