Urban Planning and Development Systems
Business Strategy
Hitachi IR Day 2013
June 13, 2013

Toshio Ikemura
Vice President and Executive Officer
Infrastructure Systems Group
President & CEO
Urban Planning and Development Systems Company
Hitachi, Ltd.

© Hitachi, Ltd. 2013. All rights reserved.

Urban Planning and Development Systems
Business Strategy

Contents
1. Business Overview
2. Market Trends and Competitive Environment
3. Business Policy and Growth Strategy
4. Transformation
5. Business Performance Outlook and Targets© Hitachi, Ltd. 2013. All rights reserved.

1-1. Business Overview
Elevator andEscalator Business (78%)
Manufacture, sales, installation,
maintenance and modernizationof elevators and escalators

Starting fromthe elevatorand escalator
business

Building-related Services, etc.
(22%)

Energy saving
Security
FY2012
Consolidated
Revenues
491 billion yen

Development of the building-related business
Energy saving (visualize, assess and control)
Security (monitoring cameras, room access control systems)
Building facility maintenance, modernization

Providewholebuilding
solution© Hitachi, Ltd. 2013. All rights reserved.

31-2. Business Overview
Value Chain of Urban Planning and Development Systems Company
Development

Sales

DesignManufacture

Installation

MaintenanceModernization

Three Core Values
Development

 High-performance product development capabilities(Develop unrivaled products)

Manufacture Globally developed production system(Supply products from optimal locations to global markets based on
local production for local consumption)

Maintenance Industry-leading service infrastructure and high-value-added services(remote monitoring, diagnosis and control using predictive diagnosis
technology)© Hitachi, Ltd. 2013. All rights reserved.

41-3. Business Overview
Main Development, Manufacturing, Sales and Service Bases
TianjinTurkeyChengduJapan

Shanghai

KuwaitSaudi Arabia

UAE

Oman

India

China regional HQ
Guangzhou(Guangzhou)
ThailandPhilippines
Vietnam

Regional HQ
Development and design bases
Manufacturing and assembly plants
Parts plants
Sales and service bases

Malaysia

Singapore
Asia regional HQ(Hitachi Elevator Asia)

Indonesia* Shaded indicates factories and bases established or strengthened in FY2012

Promote globalization centered on regional HQs© Hitachi, Ltd. 2013. All rights reserved.

51-4. Delivery Record (FY2012)
InterContinental Doha Hotel
59 floors, 220 m
12 high-speed elevators

Nation Towers

Taikoo Hui

40 floors, 212 m
102 ultra-high-speed andhigh-speed elevatorsand escalators

64 floors, 273 m
55 high-speed elevators

Abu Dhabi
Doha

(UAE)

(Qatar)

TCG Financial Centre
12 floors, 61 m
5 high-speed elevators, etc.

Mumbai

Guangdong(China)Manila(Philippines)(India)Gramercy Residences

75 floors, 302 m(The tallest building in the Philippines)
10 ultra-high-speed andhigh-speed elevators© Hitachi, Ltd. 2013. All rights reserved.

6

Urban Planning and Development Systems
Business Strategy

Contents
1. Business Overview
2. Market Trends and Competitive Environment
3. Business Policy and Growth Strategy
4. Transformation
5. Business Performance Outlook and Targets© Hitachi, Ltd. 2013. All rights reserved.

2-1. Market Trends
FY2013→FY2015 New Installation Market Trends (Thousand units, Hitachi estimates)

430
32

505

21

Japan

36

Middle East

827
38

31

China

733

India
FY2013

FY2015

Asian belt zone
demand units

553
thousand
units
<100>

640
thousand
units
<116>

Hitachi unit
orders received

<100>

<143>

*<>: Base year of FY2013=100

17

20

18

Southeast Asia

553
FY2013Global640 Asian belt
zone

FY2015

Asian belt zone
accounts for around
75% of world demand

Focus on business expansion in the Asian belt zone
© Hitachi, Ltd. 2013. All rights reserved.

8

2-2. Competitive Environment
Hitachi’s Positioning (Elevators and Escalators) and Growth Targets
Growth rate for revenues(growth rate comparing most recent year with two years ago)

(FY2015)

HitachiOverseas company C
Japanese company E
Overseas company D
Japanese company F

Overseas company A
Overseas company B

0%Japanese company G*Circle: scale of revenues

10%
Operating income ratio (Most recent)

Become one of the world’s top 3 in FY2015© Hitachi, Ltd. 2013. All rights reserved.

9

Urban Planning and Development Systems
Business Strategy

Contents
1. Business Overview
2. Market Trends and Competitive Environment
3. Business Policy and Growth Strategy
4. Transformation
5. Business Performance Outlook and Targets© Hitachi, Ltd. 2013. All rights reserved.

3-1. Business Policy and Growth Strategy
Business policy: 13% global share in FY2015
China
Quickly become No.1 in China(No.1 in FY2014 in terms of market share, brand value and customer satisfaction)

 Expand sales in new installation market and enhance production system Raise brand value by developing and introducing the world’s No.1 productsSoutheast Asia, India and the Middle East
Enhance production system, and expand business in India

New Regions
Penetrate new markets by cooperating with local partners

Japan
Expand and strengthen service business (maintenance, modernization)© Hitachi, Ltd. 2013. All rights reserved.

113-2. Growth Strategy (China)
Expand Sales in the New Installation Market (No.1 market share in FY2014)
Strengthen sales capabilities ininland areas and regional cities

New Installation Market Share(FY2012, Hitachi estimate)Expansion of Sales andService Network

No. of branches
and bases(including investees)

90

73

FY2015

Win flagship projects(raise Hitachi’s presence)Develop and launch the world’s
fastest elevators(more than 1,000 m/min)

Hitachi
15%

Company G
6%Company B
13%

Company F
6%～

FY2013

Other
30%

Company A
16%

Company C
8%Company D
6%Share No.1 18%

20%

16%

Market Share
New installation
orders(thousand units)

70

83

FY2013

FY2014100
FY2015New installation order received units: FY2013 70,000 units → FY2015 100,000 units© Hitachi, Ltd. 2013. All rights reserved.

12

3-3. Growth Strategy (China)
Enhance Production System
Increase production capacity to cope with sales expansion
 Build new plants and lift capacity at existing bases to increase production capacity

Locally produce ultra-high-speed elevators and increase in-house production
New Chengdu
plant
Tianjin
ShanghaiCommenced productionin April 2013

New motor plantCommence productionin July 2013

(Guangzhou Science City)

Guangzhou
Science City

Respond to demand expansion
in the Western region

New escalator
plant

ChengduGuangzhou

Commenced productionin March 2013

(Guangzhou Science City)

Expand escalator market share

Rationalize and improve efficiency of
production system throughcentralization

Production capacity: FY2013 70,000 units → FY2015 100,000 units© Hitachi, Ltd. 2013. All rights reserved.

13

3-4. Growth Strategy (Southeast Asia, India and Middle East)
Enhance Production System and Expand Business in India
Enhance production system Centralize production by making the newThai plant as the core plant(Production capacity: FY2013 2,500 units → FY2015
5,000 units) Create global production and supply system

MiddleEast

Delhi

Supply components
from China

 Expand target customer base byintroducing models specifically for the
Indian market
 Investigate establishment of sales bases inthe south of the country
 Investigating construction of an India plant(FY2013: decide construction of new plant)

ThailandIndia

Operational fromFeb. 2013

Kuala Lumpur
Manufacturing and assembly plants
Main sales bases

Expand business in India

Singapore

Delhi
Ahmedabad

Kolkata

Mumbai Towards the south
Pune
HyderabadBangalore
Chennai

Sales bases
Key cities

New installation order received units: FY2013 2,300 units → FY2015 5,400 units© Hitachi, Ltd. 2013. All rights reserved.

14

3-5. Growth Strategy (New Regions)
Penetrate New Markets by Cooperating with Distributors and Partners
TurkeyTianjinChengduKuwaitSaudi Arabia

UAE
Oman

India

Guangzhou

Shanghai

China regional HQ(Guangzhou)

MyanmarThailandRegional HQ
Manufacturing,assembly and parts plants
Sales and service bases
Bases for enhancing cooperation
Newly established bases

VietnamPhilippines

Malaysia

Singapore
Asia regional HQ(Hitachi Elevator Asia)

Indonesia

Enhance cooperationin markets already entered

Acquire equity interest or establish JVs

Explore new markets

Step up efforts to capture demand for new installations
in countries in the Mekong River Basin
Look at entering Eastern Europe and Central Asia
© Hitachi, Ltd. 2013. All rights reserved.

15

3-6. Growth Strategy (Japan)
Market Environment
Modernization market is expanding due toincreased number of aging elevators
Increasing demand for repairing existingelevators to comply with the amended BuildingStandards Act and for energy efficiency

Hitachi’s Elevators and Escalators
Comparison of Modernization and New
Installation Order Received Units
New installation
Modernization

Strengthen modernization business Expand modernization product lineup
・ Strategically launch products targeting energy saving,earthquake resistance, etc.
 Shorten installation times by improving installation
methods

Enhance the maintenance business Refine preventive maintenance by improving predictive
diagnosis precision, etc. (utilize Big Data)*(Thousand units)<36> <35> <41> <47> <52>

Business Strategy- Evolve from equipment sales to service business -<>Modernization ratio

7.3
4.7

2.6

8.0
5.2

2.8

8.8
5.2

3.6

9.5
5.0

4.5

10.5
5.0

5.5

FY2011 FY2012 FY2013 FY2014 FY2015

Expand orders for modernization (FY2013 3,600 units → FY2015 5,500 units)© Hitachi, Ltd. 2013. All rights reserved.

16

Urban Planning and Development Systems
Business Strategy

Contents
1. Business Overview
2. Market Trends and Competitive Environment
3. Business Policy and Growth Strategy
4. Transformation
5. Business Performance Outlook and Targets© Hitachi, Ltd. 2013. All rights reserved.

4-1. Transformation
Globalize and reform business structure
Strengthen development capabilities to respond to market
needs in each region
Supply products from optimal locations to global markets
based on local production for local consumption
Bolster service business (overseas maintenance,
modernization)

Leverage global talent to lead business
Utilize global shared human resources management platform
Optimize assignment through personnel rotation in Japan andoverseas
Promote participation in management of regional HQ
employees© Hitachi, Ltd. 2013. All rights reserved.

18

4-2. Promote Hitachi Smart Transformation Project
Cost Structure Reforms
Productioncosts Raise production efficiency by centralizing
production of common components
 Apply modular design

Direct materials
costs Expand global procurement
 Strengthen cost planning and development
purchasing
 Unify global IT platform Reduce indirect manufacturing costs throughimproved operational efficiency

Indirectcosts

Estimated effect FY2011 – 2015 total : 10 billion yen

Cash Flow Management Enhancement
Issues and Areas to Strengthen
Increase asset efficiency
corresponding to the increase of
new installation sales in China

Earnings Improvement Initiatives
・ Improve number of days inventory on hand
・ Strengthen installation capabilities for copingwith increased new installation sales© Hitachi, Ltd. 2013. All rights reserved.

19

Urban Planning and Development Systems
Business Strategy

Contents
1. Business Overview
2. Market Trends and Competitive Environment
3. Business Policy and Growth Strategy
4. Transformation
5. Business Performance Outlook and Targets© Hitachi, Ltd. 2013. All rights reserved.

5-1. FY2012 Result/FY2013 Forecast(Billion yen)

FY2012Previous
forecast

Result

FY2013
YoY

Forecast

YoY

Revenues(Overseas revenue ratio)

425.0
(36%)

491.0
(41%)

118％
-

500.0
(50%)

102%
-

EBIT*

33.3

36.4

112%

40.0

110%

 Generated higher revenues in FY2012 as a whole due to strong performanceof overseas elevator and escalator business, particularly in China

Revenues  Projecting higher revenues on expansion in the overseas elevator andescalator business, despite centralizing business in the Infrastructure
Systems Company from FY2013 to strengthen building facility managementbusiness

EBIT Generated operating income from increased revenues in the overseas elevatorand escalator business in FY2012
 Projecting higher income for FY2013*EBIT: Earnings before Interest and Taxes© Hitachi, Ltd. 2013. All rights reserved.

21

5-2. Business Performance Trends

400

200

29.8

<442.7>417.3<570.0>560.0 56.0

<510.0>500.0<501.2>
491.0
36.4

40.0

32.6

Over
10%

8.0%
7.4%

7.8%

EBIT
(Billion yen)
60
50

～
～

300

41%

34%

<394.5>
404.5

～
～

500

56%

Overseas Revenue Ratio 50%

Revenues(Billion yen)
31%
600

40
30
20

7.4%

10

0

0

FY2010FY2011

Revenues < > Orders

FY2012EBIT

FY2013
Forecast～～

100

FY2015
TargetEBIT ratio© Hitachi, Ltd. 2013. All rights reserved.

22

5-3. FY2015 Targets

FY2015 Targets
Revenues: 560 billion yen (overseas revenue ratio: 56%)
EBIT (operating income) ratio: over 10%
Gross margin: 1.1 point improvement (Vs. FY2012)
SG&A expense ratio: 2.4 point improvement (Vs. FY2012)

Aim to expand business further, centered on overseas business,
and actively promote the Hitachi Smart Transformation Project.

© Hitachi, Ltd. 2013. All rights reserved.

23

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 andEurope, including, without limitation, direct or indirect restrictions by other nations on imports and differences in commercial and business customs including, without limitation, contract terms
and conditions 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.

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