Rail Systems Business
Strategy
Hitachi IR Day 2012

June 14, 2012

Hiroshi Nakayama
Vice President and Executive Officer
President & CEO, Rail Systems Company
Infrastructure Systems Group
Hitachi, Ltd.
© Hitachi, Ltd. 2012. All rights reserved.

Rail Systems Business Strategy

Contents
1. Overview
2. Market Environment
3. Business Performance Trends and Targets
4. Business Policy and Growth Strategy
5. Conclusion© Hitachi, Ltd. 2012. All rights reserved.

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

Rolling stock systems

Signaling/traffic management systems

Rolling stock/Overseas maintenanceSignaling/train control systems

32%

High-speed trains Limited express trains

FY2011
Consolidated
Revenues¥139.6 billion

68%
Traffic management systems/
power management systems

Commuter trains

Monorails

Electrical components
Main circuit/main motor

Air-conditioning/
air-moving systems

Overseas maintenancePower supply systems Platform gates© Hitachi, Ltd. 2012. All rights reserved.

3

Rail Systems Business Strategy

Contents
1. Overview
2. Market Environment
3. Business Performance Trends and Targets
4. Business Policy and Growth Strategy
5. Conclusion© Hitachi, Ltd. 2012. All rights reserved.

2-1 Market Environment
Global rail business environment and Hitachi’s initiatives
Market environment

Solutions

Increased
environmental
awareness

Demands fortransportation
systems with low
environmental impact

n Make lightern Make more energy efficientn Apply smart grid technologies to rail systems

Growth of
emerging
countries

Increasingly heavy
traffic congestionn Propose comprehensive rail system solutionsn Total project integration (E&M*)

Increasedawareness ofsafety andreliability

Increasingly
sophisticateddemands for safetylevelsn High reliability• Signaling/train control systems• Traffic management systems

Intensifying
competition

New players entering
the market

Financial
instability

Emergence ofprotectionism
Increased demand for
private-sector funds*E&M : Electrical & Mechanical*2 LCC : Life Cycle Costn Low-cost, low-LCC*2n Offer high-value-added systems utilizing
distinctive technologies
n Promote localizationn Cooperate with local partners
n Introduce PPP*3, respond to demand for
projects requiring finance*3 PPP : Public Private Partnership© Hitachi, Ltd. 2012. All rights reserved.

5

2-2 Market Trends
Japan
Increasing investment in services and environment-related areas, but major growth in capital
expenditures cannot be expected
Drop-off in construction of new Shinkansen lines, and increasing demand for
replacement/upgrading aging lines, etc.

Overseas¥11 trillion per year (2007-2009 average)⇒ ¥13 trillion per year (2015-2016 average) (CAGR 2.3%)
High growth in service and signaling/control segments
Increased investments in railway networks in emerging countries
n Market Size by Segment¥13 trillion/year¥11 trillion/year
3.2%
1.55
Signaling/
control

1.25
2.31

Infrastructure
Services(maintenance, etc.)

3.15

2.47
4.00

Others
4.5%
16%

1.0%
3.3%

Asia &
Pacific
27%
1.3%

Rolling stock

4.20

4.83

2007-2009(3-year average)

2015-2016(2-year average)

2.0%

By region
2015-2016¥13 trillion

Europe
36%

2.2%

North
America 2.4%
21%Show CAGR from 2009 to 2016
Source: UNIFE World Rail Market Study 2010
© Hitachi, Ltd. 2012. All rights reserved.

6

2-3 Competitive Environment and Hitachi's Position
Position as a Total Systems Integrator
Position

Presence

Billion yen
1,000

Overseas Company D

Rolling stock
systems

Transport
management &control systems

Rolling Electricalstock components

Signaling/traffic
management

P

P

P

Overseas
Company A

PP PP

PP

Overseas
Company B

PP PP

PP

Overseas
Company C

PP PP

PP

Overseas
Company D

PP

P

P

Japanese Rolling
Stock Company E

P

−

−

Overseas Signaling
Company F

−

−

PP

(%) Overseas Signaling

−

−

PP

HitachiOverseas Company B
Revenues

Overseas Company C
Overseas Company A

500

Hitachi¥320.0 billion(FY2015 target)

Hitachi¥139.6 billion(FY2011)
Japanese
Rolling Stock
Company E

Overseas Signaling
Company G
Overseas Signaling
Company F

0510Operating income ratio

15

Company G*Figures are for FY2011© Hitachi, Ltd. 2012. All rights reserved.

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2-4 Strength and Key Targets
Rolling stock systems

Transport management & control systems

Higher efficiency, lower environmental impact

High reliability

Aluminum train technology(High-speed trains, commuter trains)n Highly economical next-generation rolling

Signaling/train control systems
technologies
n Developing signaling systems compliant

stock (A-train)

Inverter technology
n Develop small, lightweight, low noise(world-class) products

Hybrid technology
n World’s first to enter service (Ki-Ha E200
series for East Japan Railway Company)

Proven track record in maintenance business(U.K.)

with European standards (ETCS*)

n Wireless train control system (CBTC*2)

Traffic management system technologies
n Provide high-performance, highly functional
systems to support high-density
transportation with advanced control
technologies (Top share in Japan)*ETCS：European Train Control System*2 CBTC：Communication Based Train Control

Total project integration (E&M)
Develop globally with own core systems technologies in traffic
management, signaling, power supply and rolling stock© Hitachi, Ltd. 2012. All rights reserved.

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Rail Systems Business Strategy

Contents
1. Overview
2. Market Environment
3. Business Performance Trends and Targets
4. Business Policy and Growth Strategy
5. Conclusion© Hitachi, Ltd. 2012. All rights reserved.

3-1 FY2011 Results and FY2012 Forecast(Billion yen)

FY2010
Actual

FY2011
Actual

FY2012
YoY

Forecast

YoY

Revenues

133.1

139.6

105％

133.0

95％

Operatingincome

2.0

4.7

+2.7

3.6

-1.1

Revenues• FY2011 revenues were higher year over year due to an increase in overseas
and alleviation of the parts shortages caused by the Great East Japan
Earthquake.
• Projecting lower revenues in FY2012 year over year because of lower sales ofrolling stock systems in Japan and signaling/transport management systems.

Operatingincome• FY2011 operating income increased year over year due mainly to the higher
revenues and progress cutting costs.
• Projecting lower operating income in FY2012 due mainly to expenses for global
business expansion.
© Hitachi, Ltd. 2012. All rights reserved.

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3-2 Business Performance Trends and Targets
60%
[60%]
Revenues(Billion yen)[320.0]320.0

Overseas revenues (%)

300

24%

28%
[31%]

32%
[31%]

[134.0]139.6[140.0]
133.0

８．０%

Operating income
ratio(%)

8.0% [8.0%]

200

133.1
100

Transport
management &control systems
Rollingstock
systems

5

3.4%[1.5%]

2.7%[2.7%]

1.5%
0

FY2010FY2011FY2012
ActualActualForecast*[ ]：Previous forecasts or targets announced on June 16, 2011

FY2015
Target0© Hitachi, Ltd. 2012. All rights reserved.

11

Rail Systems Business Strategy

Contents
1. Overview
2. Market Environment
3. Business Performance Trends and Targets
4. Business Policy and Growth Strategy
5. Conclusion© Hitachi, Ltd. 2012. All rights reserved.

4-1 Business Policy
Accelerate globalization with technologies developed in Japan
TargetStrategies

Revenues : ¥320.0 billion
Overseas revenues ratio :Over 60%
Operating income ratio : 8%¥320.0 billion
Transport management &control systems

Expand salesn Strengthen Japan business basen Expand overseas business
Achieve highly profitable structuren Realign product and businessportfolios• Focus on maintenance, E&M,

Rolling stock systems

Overseas¥139.6 billion

signaling/ traffic management systems• Promote environmental and energy-saving
businesses• Win projects requiring finance

n Promote standardizationJapan• Rolling stock (global A-train）• Signaling (ETCS and CBTC)• Components(standard electrical components)

FY2011(Actual)

FY2015(Target)n Promote Hitachi Smart
Transformation Project© Hitachi, Ltd. 2012. All rights reserved.

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4-2 Expand Sales (Sustainable Growth in Japan)
Rolling Stock Systems
Expand sales of aluminum trains (A-train) to municipal
and private railways
Secure Shinkansen market share [Hokuriku Shinkansen]
Expand sales of electrical components

Signaling/Train Control Systems
Complete Shinkansen signaling system projects(Hokuriku/Hokkaido)[Hokuriku Shinkansen (Takasaki to Kanazawa),
Hokkaido Shinkansen (Shin-Aomori to Shin-Hakodate) ]Maintain and ensure high share in traffic management
systems (81% for JR companies)

Expand Business by Promoting New Businesses
Build energy-saving systems for optimizing power
Demand - Apply smart grid technologies to rail systems
and lithium-ion battery technologies[Hybrid Ki-Ha*, B-CHOP*2]

Bolster core products by applying new technologies
n Develop SiC*3 inverters for reducing power loss
*Joint development with East Japan Railway Company*2 B-CHOP (Energy Storage for Traction Power Supply) *3 SiC: Silicon carbide© Hitachi, Ltd. 2012. All rights reserved.

144-3 Expand Sales (Expand Overseas Business)

Rolling stock systems
Expand maintenance business
Promote standardization(global A-train and standardized inverters)

Signaling/train control systems
Expand sales focusing on products compliant with European
standards (ERTMS*/ETCS and CBTC)

Total project integration (E&M)
Promote alliance with Mitsubishi Heavy Industries and local partners tostrengthen project integration
Shift from selling individual products to becoming a total systems
integrator*ERTMS : European Rail Traffic Management System© Hitachi, Ltd. 2012. All rights reserved.

15

Highly Profitable Structure
4-4 Achieve(Realign Product and Business Portfolios)
Rolling stock systems
Establish highly profitable business model by capturing orders for projects
with maintenance contracts and PPP projects

Class 395 maintenance business
Intercity Express Programme (IEP)n Under negotiationn Project overview
High Speed Trains (HST*) replacement package(rolling stock, maintenance)

Ashford Depot(Class 395)

• No. of vehicles: approx. 500 cars + options• Maintenance period: 30 years(Expand maintenance business throughout the U.K.)

Commuter trains and replacement of aging trains
n U.K.: Rolling stock for suburban lines and subways
in London

IEP rolling stock(image)*HST : High Speed Train© Hitachi, Ltd. 2012. All rights reserved.

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Highly Profitable Structure
4-5 Achieve(Realign Product and Business Portfolios)
Generate earnings by focusing on signaling/train control systems projects

China

U.K. and Europe

Medium- to high-speed railways
n Expand sales of Chinese train

Expand sales through joint
development with Network Rail

control systems (CTCS*)• Dedicated high-speed passenger line
Entered revenue service in GuangzhouShenzhen Railway (December 2011)
Extension planned from Shenzhen to
Hong Kongn On-board units complying with
European standard (ETCS)n Plan to start trial running in 2012n Expand sales ofcomputerized-interlocking

India• Continuous orders at the level of
100 stations/year

Urban transportationn Expand sales of CBTC
• Chongqing Line 3 entered revenue

Enter the market with ETCSn Establish a local engineeringbase

service (September 2011)
Received orders for Southern extension
section (revenue service planned in
December 2012)*CTCS : China Train Control System© Hitachi, Ltd. 2012. All rights reserved.

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Highly Profitable Structure
4-6 Achieve(Realign Product and Business Portfolios)
Generate earnings by capturing orders for total project integration (E&M)

Increasing demand for total project integrationn Target projects• Urban transportation systems(metro, monorail)n Target regions• Southeast Asia, Brazil and India

Strengthen capabilities for E&M
n Sales and engineering• Established dedicatedorganization for E&M• Strengthen local operations

Signaling

CommunicationPowersupplyStationfacilities

E&M
ElectricalandMechanical
Tracks

DepotsRolling
stockElectrificationn Project management• Strengthen alliance with Mitsubishi Heavy Industries© Hitachi, Ltd. 2012. All rights reserved.

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Highly Profitable Structure
4-7 Achieve(Promote Standardization)
Generate earnings by standardizing products
Global A-train
Optimal product lineup by use
n AT100 (metro)n AT300 (high-speed)n AT200 (regional)n AT400 (monorail)

ETCS, CBTC
Develop products compliant with
European standards
n U.K.

: Expand sales through joint development with
Network Railn China : Expand sales of Chinese train control systems(CTCS)n China : Expand sales of CBTCn India : Established a local engineering baseStandard inverters
n China : Enhance manufacturing bases
n U.K. : Capture replacement orders for electricalcomponents
n India : Enter market via collaboration with partners© Hitachi, Ltd. 2012. All rights reserved.

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Highly Profitable Structure
4-8 Achieve(Promote Standardization)
Global A-train (1)AT100 (metro)n Specifications• Maximum service speed

AT200 (regional)

160 Km/h• Line length 20 to 26 m/car© Hitachi, Ltd. 2012. All rights reserved.

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Highly Profitable Structure
4-9 Achieve(Promote Standardization)
Global A-train (2)AT300 (high-speed)n Specifications• Maximum service speed
200〜240Km/h• Line length
20〜26 m/car

AT400 (monorail)n Specifications
Large

Medium

Small

Train
formation(4 cars)

61m

57m

38m

Train width

3.0m

3.0m

2.8m

Train height

5.3m

5.3m

4.8m

Voltage

DC 1,500V

DC 750V© Hitachi, Ltd. 2012. All rights reserved.

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4-10 Promote Hitachi Smart Transformation Project
Shift from management focused on the Japanese market to truly global management

Rigorously promote localization
Strategy

Production
costs

DirectMaterials
costs

Indirectcosts

Globalization of the total value chainn Establish overseas manufacturing bases and operation
centers outside of Japan, China and the U.K.
n Reduce costs by selecting optimal manufacturing basesn Build global supply chain(Establish global procurement network)
n Strengthen engineered sourcing

n Reduce indirect costs by centralizing and standardizing
administrative and overlapping operationsn Actively utilize global human resources© Hitachi, Ltd. 2012. All rights reserved.

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4-11 Global Supply Chain●U.K.

●China•Expand maintenance businessthroughout the U.K.
•Establish manufacturing bases forrolling stock•Enter signaling/train control systems
market•Expand and enhance procurement
bases•Expand manufacturing bases forelectrical components•Further develop signaling/train
control systems businesses•Strengthen alliances with local
companies▲ Southeast Asia
•Establish new engineering centers•Establish new procurement bases▲ India▲ Europe•Consider establishing a
manufacturing base forelectrical components•Establish new engineering centers•Establish new procurement bases•Strengthen alliances with local
companies•Establish manufacturing bases forrolling stock and signaling/control
systems
Expand and enhance existing bases
Develop new bases▲ Brazil•Establish a manufacturing basefor rolling stock by JV•Strengthen alliances with local
companies© Hitachi, Ltd. 2012. All rights reserved.

23

Rail Systems Business Strategy

Contents
1. Overview
2. Market Environment
3. Business Performance Trends and Targets
4. Business Policy and Growth Strategy
5. Conclusion© Hitachi, Ltd. 2012. All rights reserved.

5 Conclusion

FY2015 Targets
Revenues : ¥320 billion
Overseas revenues ratio : Over 60%
Operating income ratio : 8%

Accelerate globalization with technologies
developed in Japan© Hitachi, Ltd. 2012. All rights reserved.

25

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 notdirectly relate to any historical or current fact. Words such as “anticipate,” “believe,” “expect,” “estimate,” “forecast,” “intend,” “plan,” “project” and similar expressions whichindicate 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 those projected 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 not prove to be accurate. Undue reliance should not be placed on “forwardlooking 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 notlimited to:neconomic 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;
nexchange 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;
nuncertainty as to Hitachi’s ability to access, or access on favorable terms, liquidity or long-term financing;nuncertainty as to general market price levels for equity securities, declines in which may require Hitachi to write down equity securities that it holds;
nthe potential for significant losses on Hitachi’s investments in equity method affiliates;
nincreased 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;
nuncertainty 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 acceptancefor such products;
nrapid technological innovation;nthe 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;
nfluctuations 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,
or shortages of materials, parts and components;
nfluctuations in product demand and industry capacity;
nuncertainty 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
shortages of materials, parts and components;
nuncertainty as to Hitachi’s ability to achieve the anticipated benefits of its strategy to strengthen its Social Innovation Business;nuncertainty as to the success of restructuring efforts to improve management efficiency by divesting or otherwise exiting underperforming businesses and to strengthen competitivenessand other cost reduction measures;
ngeneral 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;nuncertainty 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;
nuncertainty as to Hitachi’s access to, or ability to protect, certain intellectual property rights, particularly those related to electronics and data processing technologies;
nuncertainty 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;
nthe possibility of incurring expenses resulting from any defects in products or services of Hitachi;nthe possibility of disruption of Hitachi’s operations by earthquakes, tsunamis or other natural disasters;
nuncertainty 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;
nuncertainty as to the accuracy of key assumptions Hitachi uses to evaluate its significant employee benefit-related costs; andnuncertainty 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. 2012. All rights reserved.

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