2018 Mid-term Management Plan
May 18, 2016

Toshiaki Higashihara
President & CEO
Hitachi, Ltd.
© Hitachi, Ltd. 2016. All rights reserved.

Contents
1. Summary of the 2015 Mid-term Management Plan
and Direction for the Future
2. What to Achieve in the 2018 Mid-termManagement Plan
3. Strengthening the Social Innovation Business
4. Strengthening the Management Base

5. Moving Forward to 2018
© Hitachi, Ltd. 2016. All rights reserved.

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1. Summary of the 2015 Mid-term Management Plan
and Direction for the Future© Hitachi, Ltd. 2016. All rights reserved.

3

1.1 2015 Mid-term Management Plan: Results
FY2013

FY2014(IFRS)(IFRS)

9,666.4
billion yen

9,774.9billion yen

10,034.3
billion yen

10,000.0
billion yen(6.3 %)(6.6 %)(6.3 %)

Over 7%
Over 7%(IFRS)

Revenues(ratio)Adjusted operating
income*2(ratio)FY2015604.7 billion yen

641.3 billion yen

634.8 billion yen(7.2 %)(5.5 %)(5.3 %)

EBIT*3691.2 billion yen

534.0 billion yen

531.0 billion yen

Net income attributable
to Hitachi, Ltd.
stockholders

413.8 billion yen

217.4 billion yen

172.1 billion yen(4.8 %)(6.1 %)(8.6 %)(margin)Operating Cash Flow

(Manufacturing, Services and Others)

Free Cash Flow

(Manufacturing, Services and Others)

Initial Target*1(US GAAP)

Over
350.0 billion yen

460.8 billion yen

586.4 billion yen

843.1 billion yen-

73.1 billion yen

137.2 billion yen

324.4 billion yen-*1 Announced on May 16, 2013
*2 [Adjusted operating income] = [Revenues] – [Cost of sales] – [Selling, general and administrative expenses]*3 EBIT (Earnings Before Interest and Taxes) is presented as income from continuing operations, before income taxes less interest income plus interest charges. © Hitachi, Ltd. 2016. All rights reserved.

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1.2 Summary of the 2015 Mid-term Management Plan
and Direction for the Future
Continuous investment in Social Innovation
Evolution of Social Innovation using digital technology
 Lead reforms in society through Social Innovation
 Concentrate investment on Social Innovation

Acquisition
CapitalAlliance

FY2013-2015

As of May 2016

Sales increase: 0.6 trillion yen per year-

- Rail, IT analytics, payment, casting, etc.

Sales decrease: 0.9 trillion yen per year
- Thermal power system,
overseas air-conditioning system, etc.

Sales decrease: 1.1 trillion
yen per year

- Logistics, financial service, etc.

Countermeasures for shortfall in targets of 2015 Mid-term Management PlanProject management in overseas big projects : Focus on areas of specialty
Delay in response to market change of: Acceleration of management
network & telecommunication and storage© Hitachi, Ltd. 2016. All rights reserved.

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2. What to Achieve in the 2018 Mid-termManagement Plan

© Hitachi, Ltd. 2016. All rights reserved.

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2.1 Social Innovation Business ahead of the Times
Deliver innovations to customers and society throughfusion of OT, IT, and products/systems

OT

IT

Control・Operation

Monitoring・Analyzing
・Forecasting

Products / Systems
Hardware・Materials・EPC・SI

OT: Operational Technology© Hitachi, Ltd. 2016. All rights reserved.

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2.2 Expanding Opportunities for Social Innovation Business

Digitalization has accelerated the reorganizationof industries and social infrastructures
Europe

China

Japan

Asia

North America

Industrie 4.0

Made in China 2025

Society 5.0

Smart city

Industrial Internet

Digitalization
Robotics

Products

Analytics

AI

Security

Outcomes

Own

Share

ClosedOpen

Individual
optimization

Overall
optimization© Hitachi, Ltd. 2016. All rights reserved.

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2.3.1 Evolution of Social Innovation Business:
Industry and Distribution

Innovate the whole industry and distribution structure~Hitachi connects proven social innovations using digital technology~
Logistics Companies

Financial Institutions

Reduce waiting time for goods arrival
Minimize the impact of traffic jams
RecordSettlement by digital network(FinTech)Smart logistics (China)
Robot/AI warehouse (Japan)

Record Settlement solution (India)

Manufacturers, Suppliers
H ITA CH I N et Sh o p p in g

Manufacturing which does not lead toexcess inventory
RecordTotal supply chain management (China/Japan)
ERP/MES collaborative operation (Japan)
Predictive maintenance (Europe/Japan)

ERP : Enterprise Resource Planning , MES : Manufacturing Execution System

Distributors /E-commerce Providers
Securing goods which meet customers’
needs without any dead stock
Record Demand forecasting

solutions (Japan)© Hitachi, Ltd. 2016. All rights reserved.

92.3.2 Evolution of Social Innovation Business: Urban
Realize more convenient, comfortable and eco-friendly lifestyles~Hitachi connects proven social innovations using digital technologies~
Buildings

Developers

Control elevator operation
based on crowd flow

Select store locations that
contribute to increased sales
Operate office buildings achieving
high occupancy rates

Building/elevator
management (Japan)
RecordEnergy management (Japan)
Robot service (Japan)

Rail operators
Flexible operation diagram
in response to change
in passengers
Traffic control of Tokyo
Recordmetropolitan area railway(Japan)IEP (U.K.)
IEP: Intercity Express Programme , AEMS : Area Energy Management System

RecordStore operation utilizing AI(Japan)Video surveillance (U.S.)Analysis of traffic amount(Vietnam)

Utility companies /Local governments
Supply energy in response to
demand conditions
Smart grid (Hawaii)

Record Kashiwa-no-ha AEMS (Japan)© Hitachi, Ltd. 2016. All rights reserved.

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2.4 Hitachi in 2018

An Innovation Partner for the IoT Era
Accelerate collaborative creation with customers
through the advanced Social Innovation Business

Four focus business domains

Power・Energy

Industry・Distribution・
Water

Urban

Finance・
Public・
Healthcare© Hitachi, Ltd. 2016. All rights reserved.

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3. Strengthening the Social Innovation Business© Hitachi, Ltd. 2016. All rights reserved.

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3.1 Advancing the Social Innovation Business to Next Stage
Strengthen products/material business, SI and EPC, and growth using digital technology
Drive Hitachi’s overall growth with digitalized Social Innovation

Collaborative Creation (Open)(EPC business)

Focus on areas of specialtyImprove profitability

System integration(SI business)

Base
Business

Promotion of large-scale projects
Continuous reinforcement ofproject management(Service business)
IoT Platform

Products(Products/materials business)

General (scalable)

Individual (order made)Large-scale projects

Digitalized Social Innovation
Business

DriverBusiness〇10：0860.00HzOUTPUT FQ

Concentrating on strong
products
Strengthening digitalization
60.00Hz◀

OUTPUT FQ

60.00Hz▶

OUTPUT FQ

60.00Hz◀

Base
Business

Driver of overall growth

Local

Command source

Independent (Closed)

RemoteBaseBusiness© Hitachi, Ltd. 2016. All rights reserved.

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3.2 Accelerating the Social Innovation Business
The front delivers Hitachi’s technologies and expertiseto customers as services
BeforeFrom FY2016

Customers

Customers

Front
Sales

Sales

SI
EPC

Business
Division

Business
Division

Regional bases
Customer segments (12 Business Units)

PlatformCore of Social Innovation

Products

PlantsPlantsIndustrial products,
automotive parts, materials, etc.

Develop andprovide services
close to thecustomers
Use platform toprovide services
quickly andefficiently
Provide value
through products© Hitachi, Ltd. 2016. All rights reserved.

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3.3 IoT Platform “Lumada”
Core of Social Innovation

Means for customers to enjoy digitalized innovation quickly and easily
Characteristics ofＬｕｍａｄａCustomers

Customers

Customers

Customers

Lumada = illuminate data

Platform,
１ Single
Multiple Solutions

Front of Hitachi

Realize solutions in various business fields“Cross Domain Business EcoSystem”

２ OpenOpen architecture
available for partners

３

Adaptable

Solution functions
Power
EnergyEasily connected to customers’ assets
Graduated dilatation is possible(Symbiotic Autonomous Decentralization)

４ Verified and Secure
Reliable technologies based on
experiences in Social Innovation

Customers’
andPartners’
platforms

IoT Platform Lumada
Industry
Distribution
Water

Urban

FinancePublicHealthcare

Basic functions
Analytics

Artificial
Intelligence

Hitachi AI Technology/H

Symbiotic
Autonomous
Decentralization

IT, OT, IoT

SecuritySociety 5.0
Industrie 4.0
Industrial
Internet
Made in China
2025
,etc.

© Hitachi, Ltd. 2016. All rights reserved.

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3.4 Strengthening the Front
Increase front manpower by 20,000
Business structure from FY2016

Customers

Front
Regional bases
Customers’ segments (12BUs)

PlatformCore of Social Innovation

Products
Industrial products,
automotive parts, materials, etc.
BU: Business Unit

110,000 (FY2015)

130,000 (FY2018)

incl. an increase of 2,000 in platform staff[ component ratio 34% → 37% ]Japan: +3,000
Overseas: +17,000Internal shift & new recruits* Number of sales, SE, consultants and platform developers

 Expand overseas hiring

 Roll out the Social Innovation Businesstargeting the customers of acquired
overseas companies
 Foster manpower through special training
programs→ 19,000 employees in 3 years (started March 2016)© Hitachi, Ltd. 2016. All rights reserved.

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3.5 R&D that Supports Strengthening the Front
Promoting R&D close to the customers[R&D structure from FY2015]

Business structure from FY2016

Customers

Front
Regional bases
Customers’ segments (12BUs)

PlatformCore of Social Innovation

Global Center for Social Innovation
Developing services in keeping with
the needs of customers in each region
North America 100

Asia 65

Europe 70

China 115

Japan 200 [Total: 550 people]

Center for Technology Innovation
Establishing Global No.1 Technologies(Platforms, products)[Japan: 2,050 people]

Products

Center for Exploratory Research

Industrial products,
automotive parts, materials, etc.

Resolving future social issues[Japan: 100 people]© Hitachi, Ltd. 2016. All rights reserved.

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3.6 Strengthening Products
Expanding digitalized products that support innovation
Focusing on investing in globally competitive products
Strengthening digitally connected products
AnalysisOT x IT Feedback to the front lines
expertise Creating measures

Data-gatheringand storage

ＭＥＳ

Focusing on globally competitive products

Sales and adjusted operating income
ratio of major products*

ＳＣＡＤＡ

5.4%

6.4%

(billion yen)

IoT Controllers

Communication
terminals

7.9%

6.9%

CAGR(FY12-15)[8.2%]

2,000
1,500

1,000
Motors /Inverters/
Automation

Equipment andfacilities〇10：0860.00HzOUTPUT FQ

60.00Hz◀

OUTPUT FQ

60.00Hz▶

OUTPUT FQ◀

60.00Hz
Local

Command source

Remote500
0FY2012FY2013

FY2014FY2015* Industrial products, automotive parts and elevators/escalators© Hitachi, Ltd. 2016. All rights reserved.

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3.7 Global Rollout of the Social Innovation BusinessBest response to innovation
in industry and social infrastructure in each region
EuropeIndustrie 4.0

North America

Industrial Internet

China

Made in China 2025
HQ of Rail business
Large-scalerailway markets

Japan
Society 5.0

Asia
Asia Smart City

HQ of Platform businessCutting-edge region
for innovations© Hitachi, Ltd. 2016. All rights reserved.

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4. Strengthening the Management Base© Hitachi, Ltd. 2016. All rights reserved.

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4.1 Management Acceleration for Growth and Profits

Reform Hitachi’s management baseSpeed upmanagement

Rapid decision-making and quick execution
Reduce the layers of management

Expand global
business

Expand global partners and customers

Increase businessprofitability

Judgment on low-profitability businesses

Invest in growthbusinesses

Investments totaling 1 trillion yen over threeyears

Evolution of Hitachi Smart Transformation

FY2013 - FY2015: 510.9 billion yen© Hitachi, Ltd. 2016. All rights reserved.

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4.2 Strengthening Capability to Generate Cash
Evolution of Hitachi Smart Transformation
Re-examine cost
structures

Design target costs andreduce procurement costs / fixed costs

Increase efficiency
of operating capital

Use IT to reduce production lead times anddecrease inventory

Redefine cost-related KPIs on a revenue basis

Increase efficiency of
Share production facilities among plants
investments and assets

Utilization of IoT Platform “Lumada” (AI, analytics and IoT)
© Hitachi, Ltd. 2016. All rights reserved.

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4.3 Investment Policy
Speedily increasing profit through investment in products business
Concentrating investment in front to accelerate the Social Innovation[ Record in 2015 Mid-term Management Plan ]Customers

Concentrated investment in front(Investment for growth and acquisition)
RecordFront• Rail signaling system• ATM service

In-house development(Investment for development and acquisition)

Platform

Record• Data analytics

Investment selection

Products(Combination of growth investment,
acquisition and capital alliance)

Record• Casting business• Overseas air-conditioning business© Hitachi, Ltd. 2016. All rights reserved.

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5. Moving Forward to 2018

© Hitachi, Ltd. 2016. All rights reserved.

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5.1.1 Hitachi Group’s Position in FY2018 (1)Front develops and provides services
to drive expansion of revenues and profits
Front revenue ratio FY2015 36% → FY2018 40%
Front

Revenues: 3,596.9 → 4,000.0 billion yen

Industry /Distribution /WaterPower /
EnergyRevenues (billion yen) Revenues (billion yen)

519.5

550.0

FY2015FY2018

790.7

840.0

FY2015 FY2018

Target adjusted operating income ratio: 8％

Urban

Finance /Public /Healthcare

Revenues (billion yen) Revenues (billion yen)

1,056.5

1,400.0

1,230.2 1,380.0

FY2018FY2015FY2015FY2018Platform

Revenues:

Products

Revenues: 7,389.3 → 6,820.0 billion yen * Target adjusted operating income ratio: 7％

278.6 → 330.0 billion yen

Target adjusted operating income ratio: 11％* Figures for FY2018 reflect the conversion of Hitachi Transport System, Ltd. and Hitachi Capital Corporation
into equity-method associates and joint ventures.

© Hitachi, Ltd. 2016. All rights reserved.

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5.1.2 Hitachi Group’s Position in FY2018 (2)Strengthening focused areasfor expansion of the Social Innovation Business
Front
Industry /Distribution / Water

Power / Energy-Transition to distributed
power supply utilizing IT・Microgrid, Regionalenergy management
・Renewable energy
Investment
focus

・Strengthening grid andengineering- Use “Lumada” IoT
platform to optimize
value-chain forindustry and distribution
Investment
focus

・Strengthening engineering
・Predictive Maintenance・Optimized Factory

Platform

Investment
focus

Products

Investment
focus

Finance / Public /Healthcare

Urban-Improvement of Qualityof Life in communities-From Rail as a Service to
Outcome Delivery
Investment
focus

・Development of urban
solution・Expansion of the railbusiness area

-FinTech / My-number-Healthcare Service(Platform)

Investment
focus

・Strengthening healthcare
informatics

社会イノベーションのコア

Strengthening Lumada

産業機器、自動車部品、材料
等 materials businesses
Expanding of Industrial products and© Hitachi, Ltd. 2016. All rights reserved.

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5.1.3 Hitachi Group’s Position in FY2018 (3)Railway business grows substantially in Europe;
Businesses in North America also continues to grow

Growth by services and products utilizing digital technologies
China

Europe Elevators/Escalators
 Healthcare Industry/Distribution

 Railway
 Nuclear power Energy
FY20150.95 trillion yen

North America

FY20181.15 trillion yen

FY20151.05 trillion yen

CAGR 6.5％ (10.2％)

FY2018
1.1 trillion yen

CAGR 1.4％ (3.1％)

 Energy
 Automotive parts, casting Healthcare
FY20151.28 trillion yen

FY2018
1.46 trillion yen

CAGR 4.5％ (5.6％)

Asia
 Finance Industrial equipment
FY20151.05 trillion yen

FY20181.22 trillion yen

Overseas revenue ratio
FY2015 48% → FY2018 55%

CAGR 4.9％ (6.4％)
Note 1) CAGRs in the brackets are based on figures for FY 2015 excluding revenues of Hitachi Transport Systems, Ltd. and Hitachi Capital Corporation
2) Regions except for those which are listed above (including Japan): FY2015 5.69 trillion yen → FY2018 5.07 trillion yen© Hitachi, Ltd. 2016. All rights reserved.

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5.2.1 2018 Mid-term Management Plan Targets (1)FY2015FY2018 Targets

Front business１
expansion

Front revenue ratio

Front revenue ratio

36%

40%

Global business２
expansion

Overseas revenue ratio

Overseas revenue ratio

48%

Over 55%

Strengthening cash３
generating capability

Operating cash flow margin*1

Operating cash flow margin*1

ROA*1,2

ROA*1,2

2.6%

Over 5%

Improving asset
４
profitability

8.6%

Over 9%*1 Manufacturing, Services and Others*2 ROA(Return on Asset) = [Net income] / [Total Asset (Average between the end of current fiscal year and the end of previous fiscal year)] x 100© Hitachi, Ltd. 2016. All rights reserved.

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5.2.2 2018 Mid-term Management Plan Targets (2)FY2015FY2018 Targets

10,034.3
billion yen

10,000.0
billion yen

Adjusted operating
income ratio

6.3%

Over 8%EBIT ratio

5.3%

Over 8%172.1
billion yen

Over 400.0
billion yen

Revenues

Net income attributable
to Hitachi, Ltd.
stockholders* Foreign exchange rate assumption ：110yen/dollar, 120yen/euro© Hitachi, Ltd. 2016. All rights reserved.

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Delivering new value to society throughcollaborative creation with our customers and partners© Hitachi, Ltd. 2016. All rights reserved.

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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 materiallyfrom 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 “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 levelsof 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;
 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 forsuch products;
 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; credit conditions of Hitachi’s customers and suppliers; 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;
 increased commoditization of and intensifying price competition for products;
 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 acquisitions of other companies, joint ventures and strategic alliances and the possibility of incurring related expenses;
 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 associates and joint ventures
have become or may become parties;
 the possibility of incurring expenses resulting from any defects in products or services of Hitachi;
 the potential for significant losses on Hitachi’s investments in equity-method associates and joint ventures;
 the possibility of disruption of Hitachi’s operations by natural disasters such as earthquakes and tsunamis, the spread of infectious diseases, and geopolitical and social instability such as
terrorism and conflict; 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. 2016. All rights reserved.

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