2015 Mid-term Management Plan
Progress and Prospects
May 14, 2015

Toshiaki Higashihara
President & COO
Hitachi, Ltd.

© Hitachi, Ltd. 2015. All rights reserved.

Contents
1. Outline of 2015 Mid-term Management Plan
2. FY2014 Progress Overview
3. Execution of Growth Strategy and Measures in FY2015
4. Toward Social Innovation Business
5. FY2015 and Beyond© Hitachi, Ltd. 2015. All rights reserved.

2

1. Outline of 2015 Mid-term Management Plan

© Hitachi, Ltd. 2015. All rights reserved.

31. Outline of 2015 Mid-term Management Plan

Management
Focus

2015 Mid-term Management Plan
- Achieving Growth and Hitachi’s Transformation -Innovation

GlobalTransformation

Strengthen service
businesses that maximize
the utilization of IT andbring about innovation

Deliver Innovation to
Customers and Society
globally

Transform Hitachi:
To deliver innovation bystandardized and speedy
operation© Hitachi, Ltd. 2015. All rights reserved.

4

2. FY2014 Progress Overview© Hitachi, Ltd. 2015. All rights reserved.

5

2.1 FY2014 Progress Overview and FY2015 Forecast
FY2013 Actual(US GAAP)

FY2014 Actual(US GAAP)

FY2015 Forecast(US GAAP)(IFRS)*1

Revenues*1

9,563.7B

9,761.9B

9,900.0B

9,950.0B(Operating Income Margin)(5.6 %)(6.2 %)(6.7 %)(6.8 %)

Operating Income

538.2B

600.4B

660.0B

680.0B*2(EBIT Margin)(6.1 %)(5.6 %)(6.6 %)(6.2 %)

EBIT*3585.6B

551.0B

650.0B

620.0B

264.9B

241.3B

330.0B

310.0B

270.4B

294.0B

334.0B

314.0B▲5.5B▲52.7B

▲4.0B

▲4.0B

27.4 %

27.3 %29 %29 %Net Income
attributable to Hitachi, Ltd.
Stockholders[Breakdown]Continuing operations
Discontinued operations*4

Stockholder’sEquity Ratio(Manufacturing, Service
and others)*1 IFRS: International Financial Reporting Standards*2 This column shows “operating income after adjustments.” (an "Adjusted Operating Income" presented as revenues less cost of sales as well as selling, general and administrative expenses)*3 EBIT: Earnings Before Interest and Taxes (Net earnings before interest income and payment interest adjustments)*4 A part of the thermal power generation systems business is classified as a discontinued operation in accordance with the provision of ASC 205-20, "Presentation of Financial
Statements - Discontinued Operations," which was not transferred to Mitsubishi Hitachi Power Systems, Ltd for the business integration in the thermal power
generation systems with Mitsubishi Heavy Industries, Ltd. The results of the discontinued operation are reported separately from continuing operations. In line
© Hitachi, Ltd. 2015. All rights reserved.
with this classification, the results of the business for the year ended March 31, 2014 are reclassified as the discontinued. 2014 have been reflected.

62.2 FY2014 Revenue and Operating income 【US GAAP】】

Hitachi group: Stable increase in profitability
Revenues [Billion yen]
106

108

110

9,563.7

9,761.9

9,900.0

MarginA/C systems
ー Overseas
businessWaupaca＋ Foundry

Operating Income [Billion yen]
5.6%
128 +12%

etc.

538.2

6.7%

6.2%
142

600.4

+10%

156

660.0
OthersAutomotive Systems
High Functional
Materials & Components
Construction
Machinery
Electronic Systems &Equipment
Social Infrastructure& Industrial Systems

ー Thermal power generation
systems businessー Hitachi Maxell

Information &Telecommunication
Systems

2013

2014

2015 [FY]

2013

2014

2015 [FY]

Growth index (FY2012 = 100)
© Hitachi, Ltd. 2015. All rights reserved.

7

2.3 FY2014 Progress Overview

Results

 Stable increase in profitability: Operating income
is increasing at a rate of more than 10% per year Expand global business:
Business in North America is increasing Expand Social Innovation Business: Strengthen front-line
capabilities, and support customers’ growth Business structure reforms to anticipate changes in themarket environment
 IT Platform business (communication networks, servers)
 T&D equipment business etc.
Challenges
 Strengthen cash-generating capability
 Although sales costs have decreased, CCC(manufacturing, services and others) are on par with theprevious year
Discontinued
Operations

When Hitachi’s thermal power generation systems business was integrated with MHI, someprojects remained with Hitachi. A part of these projects have been wrapped up and are now
recognized as “discontinued operations”, so net losses of 52.7 billion yen were posted in
FY2014.

* CCC: Cash Conversion Cycle * T&D: Transmission & Distribution* MHI: Mitsubishi Heavy Industries© Hitachi, Ltd. 2015. All rights reserved.

8

2.4 FY2014 Challenges
Execute business structure reforms with expenses on a scaleof 50 billion yen in 1H FY2015 (expenses already incorporated),
expecting performance improvement mainly from the following
businesses in and after 2H FY2015.

Business
structurereforms

Cashgeneration

 IT Platform Business From April, accelerate business structure reforms in thetelecommunications business in response to reduced investments bydomestic carriers.
⇒Shift resources to growing business fields including IoT.
 T&D Business Accelerate structure reform of products business in response to intensifiedcompetition in the products market.
⇒Strengthen cost competitiveness.

Increase profit and cash, and improve CCC(manufacturing, services and others) by strengthening andreorganizing the Hitachi Smart Transformation Project.

* IoT: Internet of Things© Hitachi, Ltd. 2015. All rights reserved.

93. Execution of Growth Strategy and Measures in FY2015© Hitachi, Ltd. 2015. All rights reserved.

10

3.1 Key Performance of Growth Strategy

FY2015Initial target

1

Global business expansion2

Service business expansion

3

Cost reductions through the
Hitachi Smart Transformation PJ

FY2015
Forecast

Ratio ofRatio ofoverseas revenues overseas revenues

Over 50%

50%

Ratio of service
revenues

Ratio of service
revenues

Over 40%

38%

Cumulative cost
reduction benefits

Cumulative cost
reduction benefits

400 billion yen

420 billion yen*Cumulative cost reduction benefits: Cumulative five years, from FY2011 to FY2015© Hitachi, Ltd. 2015. All rights reserved.

11

3.2 Global Business Expansion(1) 【Overview】】

Global business is expanding steadily,
especially in the North American market
Overseas revenue ratio (including other areas)
FY2013
Actual

FY2014
ActualInitial target Forecast

45%

47%

Over 50% 50%

North America[Billion yen]

Europe CAGR*: 6.4% 1,073.6 1,157.2 1,240.0[Billion yen]

759.7

844.7

2014

860.0

2015 [FY]* CAGR: Compound Annual Growth Rate

910.2

1,060.4

1,230.0

2013

2014

2015 [FY]Asia

CAGR: 5.4%
[Billion yen]

2013
2013

[Billion yen]

FY2015China CAGR: 7.5%

CAGR: 16.2%

2014

989.9

1,059.4 1,100.0

2013

2014

2015 [FY]2015 [FY]© Hitachi, Ltd. 2015. All rights reserved.

12

3.2 Global Business Expansion(2)Global business is expanding steadily,
especially in the North American market
Progress until end of FY2014
 Expanding financial solution services
 Payment services, ATM (India, China)
 Gaining first contract to provide “AT-200”commuter
train (Europe) Launching demonstration of “CrystEna“ energy storage
system (North America) Expanding business in growing North American auto
market Expanded customer base for automotive castproducts by acquiring Waupaca Foundry, Inc. (Hitachi
Metals)Measures for FY2015
 Business rollout in IoT market
 Acquire Pentaho Corporation, which has advanced data
analytics software technologies and an extensive customer
base (North America) Expand solutions using IT (analytics)© Hitachi, Ltd. 2015. All rights reserved.

13

3.3 Service Business Expansion(1) 【Overview】】

O&M services revenue is expanding
Strengthen profitable service business
Service revenues ratio
FY2015 Initial target

FY2015 Forecast

Over 40%

38%

32%

3,100

2013

35%

40%

 Strengthened maintenance service bycloud remote monitoring system
 Expanded operation services of
information business including BPO

38%

Measures for FY2015

3,400

3,800

2014

2015 [FY]Service revenue ratio* O&M: Operation & Maintenance

Progress until end of FY2014[billion yen]

 Expand long-term fee service business(Train and Energy)
 Utilize telecommunication technology
in social infrastructure field⇒ Expand IoT service business Create new service business utilizing
IT (analytics)* BPO: Business Process Outsourcing© Hitachi, Ltd. 2015. All rights reserved.

14

3.3 Service Business Expansion(2) 【China Smart Logistics】】
Provide comprehensive services to customers
combining the Hitachi Group’s assets and capabilities through IT
Procurement Service: Hitachi High-Technologies
Hitachi Capital VMI Operation
 Factoring
Beijing&
Procurement EDI Service: Information
Telecommunication
Systems Company

 e-commerce for procurement business
Logistics Service: 3PL, JIT delivery

Hitachi Transport System,
Infrastructure Systems
Company Seeking opportunity to develop market
in Chinese manufacturing industry
and e-commerce

Collective Logistics

SuzhouShanghai(Start with Japanese domestic manufacturing) Examining IT cost reduction effectthrough the Hitachi Smart Transformation
Project in the Hitachi Group* VMI: Vendor Managed Inventory * EDI: Electronic Data Interchange* 3PL: 3rd Party Logistics, JIT: Just In Time

Guangzhou
Shenzhen© Hitachi, Ltd. 2015. All rights reserved.

15

3.4 Cost Reductions Throughthe Hitachi Smart Transformation PJ(1) 【Overview】

Achieved cost reductions exceeding targets in FY2014
In FY2015, strengthen measures aimed at increasing cash
Cost reduction effects [billion yen] Progress up to FY2014
Single year benefit
Cumulative benefit
Target: 400
Target: 310

220

420

320

 Achieved cost reduction goal of 310 billion yen
as a cumulative total for FY2014
 CCC (manufacturing, services and others) is on par withthe previous year, due to increased inventory
resulting from changes in the market
environment and concentration of sales at theend of the fiscal year
(81.3 days in FY2013 → 81.5 days in FY2014)

100

Measures for FY2015
 To increase operating income and cash

110

110

⇒ Reduction of SG&A and Cost of Sales

75⇒ CCC (manufacturing,+ 100 billion yen
services and others)

2012

2013

2014

2015 [FY]* SG&A: Selling, General and Administrative expenses

5-day reduction,+ 130 billion yen

Consolidated
Cash Flow(manufacturing, services andothers)FCF

FY[billion yen]

2013
2014

104.9
132.7

© Hitachi, Ltd. 2015. All rights reserved.

16

3.4 Cost reductions through【Profitability & Cashthe Hitachi Smart Transformation PJ(2) generation capability】

Key Measures in FY2015
Reduction of Cost of Sales
and SG&A (+100 billion yen)
Reduction of Cost of Sales Further cost reduction throughout theentire value chain
 Promote strategic overseas procurement
 Strengthen cost reductions in overseas
businesses

 Improve operational efficiency;
e.g., design and manufacturing operations

Reduction of SG&A
 Review all aspects of fixed costs in Japan
 Accelerate shift to BPO in indirect operations
 Review indirect operation organizations
 Reduce IT operation costs

 Reduce indirect materials
 Strengthen reductions in indirect materials
overseas

Improvement of CCC(manufacturing, services and others)(5-day reduction, +130 billion yen)
 Review inventory assets
 Minimize the inventory asset
balance throughout the entire
global supply chain
 Improve cash flow
Improve cash flow in overseas projects
Use factoring effectively

 Improve cash management
 Expand the use of IT

 Business process reforms
 Reduce End-to-End lead time

© Hitachi, Ltd. 2015. All rights reserved.

174. Toward Social Innovation Business© Hitachi, Ltd. 2015. All rights reserved.

18

4.1 Hitachi toward Social Innovation Business
Basic Approaches
Create innovation with customeroriented approach
Concentrate and strengthen front-line
resources, including sales,
consulting, and engineering
Deliver solutions under regional
autonomous management

Customer“front-line” Function(Sales, Engineering, SI, Consulting)
Healthcare

RegionEnergyFinance

North
America,
China, etc

・・・“Platform” Function (Analytics, OT)(Common Platform)

Unified development of IT/OT platforms
to deliver Innovation as a Service
Acquire technology base for innovation(Acquisition of Pentaho, etc.)

IT Platform Business
OT Platform Business“Product / Software / Service” Function(Globally-Competitive Business)

Provide cutting-edge products, softwareand service that bring about innovation
Provide globally-competitive products* OT: Operation Technology

Industrial Products Business
IT Products / Software Business
O&M Service Business© Hitachi, Ltd. 2015. All rights reserved.

19

4.2 Expansion ofSocial Innovation Business(1) 【Mgt. & R&D】】

Promote management and R&D
close to customers (front-line)
Global Management

Global R&D

 Expand the Social Innovation Businessby making management decisions ineach region based on the market andcustomer needs
 Start with 4 regions: North America,
Europe, China and Asia

 Reorganized R&D structure Established the Global Center for Social
Innovation to share issues and develop
with customers (Tokyo, North America, China, Europe)

North
America

Energy, Telecommunications,
Healthcare, Connected Car,
Security

EMEA
CIS

Manufacturing・SCM, Energy,
Healthcare

China

Building・Urban, Finance,
Healthcare, Smart Logistics

Asia
Pacific

Healthcare, Finance,
Developer, Conglomerate

Global Center for Social Innovation
Create solution services bycollaborating with global customers
Center for Technology Innovation
Create innovative products andtechnology
Center for Exploratory Research
Explore opportunities to drive
innovation to the next level* EMEA・CIS: Europe, the Middle East and Africa, Commonwealth of Independent States© Hitachi, Ltd. 2015. All rights reserved.

20

4.2 Expansion ofSocial Innovation Business(2) 【Cyber-PoC】】

Accelerate Global Collaborative Creationin the field of Social Infrastructure Business Innovate social infrastructure with customers.
 Projects ongoing with customers in the field of manufacturing, natural resources,financial services, and biotechnology.

Collaborative Creation with Customers
and Establish Business(1) Share
Vision & Issues(2) Develop Prototype,
Demonstrate & Validate(Cyber-PoC)(3) Solutions
Services

Customers/ MarketBusiness
Expansion
Technological Methodologies for
Collaborative Creation with Customers

Promote as “One Hitachi”

Service design, Ethnography
Platforms,
Systems, Products,
Technologies* Cyber-PoC: Cyber-Proof-of-Concept: Visualization simulator which supports customers’ business creation© Hitachi, Ltd. 2015. All rights reserved.

21

4.2 Expansion ofSocial Innovation Business(3) 【Strengthening front-line】】

Create solutions close to customers (front-line)
Strengthen front-line capabilities

Cultivate customers in the energy sectors

 Consolidate SI capabilities infinancial, public and social sectors
 Strengthen SI capabilities by merging Hitachi
Solutions, Ltd.’s business divisions for financial,public and social sectors

 Establish solution-delivering businessgroups Establish Healthcare Company and Energy
Solutions Company and consolidate front-line
capabilities

Collaborative creation with customers
for value creation
 Business collaboration with Sunway Group Agreed to collaborate in the field of energy
management.

 Start up business creation projects jointlywith customers in manufacturing andtransportation fields

 Grid stabilizing solution in the U.S.
 Demonstration Project on Storage Battery
System “CrystEna”

 Solution responding to electricity market
reform in Japan
 System for Organization for Cross-regional
Coordination of Transmission Operators
 ABB: HVDC transmission

 Renewable Energy Wind: 2.1MW (Akita), 5MW (Ibaraki)© Hitachi, Ltd. 2015. All rights reserved.

22

4.3 Strengthening Industrial Products BusinessSupply core products that support
the Social Innovation Business

TargetMargin rate
Over 500
billion yen

10%360
billion yen

FY2014380
billion yen

FY2015

Note：○ expresses sales scale
Total with Industrial Products Company
and Hitachi Industrial Equipments Systems

FY2018TargetConsolidate our industrial products business Strengthen product competitivenessStrengthen Optimize sales, service, andandproduction structures
Optimization  Invest in priority areas, etc.

Industrial Products Company

 Focus on industrial products businessthat support innovation
 Cutting-edge products that are highly
competitive in the global market
 Key next generation products(ex. IoT) Strengthen in-house products, andutilize alliance

Infrastructure
Systems
CompanyCompressors (large)
Pump (large-medium)Inverter (high voltage)
Inverters (high and medium voltage)
Power electronics product (UPS etc)

Power
Systems Motor (high-medium voltage)
Company Substation control devices

HitachiIndustrial Equipment
Systems

 Compressors (medium-small) Motors and inverters (low voltage)
 Transformer (low voltage, etc.)© Hitachi, Ltd. 2015. All rights reserved.

23

4.4 Business Portfolio Realignment 【Actions in FY2014】】
Acquire necessary resources (customer base, sales channel, technologies)
for growth, optimize business portfolios and increase revenue

Strengthen Front-line
Function Prizm Payment Services:
Finance (India) Stone Apple Solutions:
Finance/Industry Customer (Asia)

Strengthen Analytics
 Pentaho: Data analytics

Strengthen Product / Service
 AnsaldoBreda / Ansaldo STS: Railway Business(Europe, Australia, etc)
 Waupaca Foundry: Casting(Automotive, etc.)

Strengthen
Service / Product(JV, Alliance) ABB (JV):
High-voltage DC
power transmission, etc Mitsubishi Heavy Industries(JV):
Thermal power generation
systems business Johnson Controls (JV)
Air-conditioning systems
business© Hitachi, Ltd. 2015. All rights reserved.

24

4.5 Business Portfolio in FY2015
Each Segment in FY 2015(growth rate and profitability)
Revenues Growth Rate
(FY2014 to FY2015)
10.0%

High Functional
Materials &Components

8.0%

6.0%

Smart Life &Ecofriendly
Systems

Electronic
Systems &Equipment

4.0%

2.0%

0.0%
0.0%
-2.0%

Automotive
Systems

Others(Logistics andOther services)

Financial Services
Information &Telecommunication
Systems
SocialInfrastructure &Industrial Systems

5.0%

10.0%

Operating
IncomeMargin(FY2015)

Construction
Machinery-4.0%* Smart Life & Ecofriendly Systems: Data after adjustment for effects of overseas Air-conditioning systems business© Hitachi, Ltd. 2015. All rights reserved.

25

5. FY2015 and Beyond© Hitachi, Ltd. 2015. All rights reserved.

26

5. FY2015 and Beyond 【US GAAP】】
Solid execution of growth strategy and business restructuring
Improve financial performance to meet goals set in 2015 Mid-term Management Plan

[JPY]2015 Mid-term Plan
(Initial target)

FY2013(Actual)

FY2014(Actual)

FY2015(Forecast)

Revenues

10,000.0B

9,563.7B

9,761.9B

9,900.0B

EBIT Margin

Over 7.0 %(Over 7.0 %)6.1 %(5.6%)

5.6 %(6.2%)

6.6 %(6.7 %)Net Income
attributable to Hitachi, Ltd.
Stockholders

Over 350.0B

264.9B

241.3B

330.0BNet Income
attributable to Hitachi, Ltd.
stockholders per share

Over 70

54.86

49.97

68.34

Over 30 %27.4 %

27.3 %

29 %(Operating Income Margin)

Stockholder’sEquity Ratio(Manufacturing, Service
and others)© Hitachi, Ltd. 2015. All rights reserved.

27

Serving the World with
Our Social Innovation Business
SOCIAL INNOVATION‐INNOVATION‐IT’S OUR FUTURE© Hitachi, Ltd. 2015. 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 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
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;• 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;• 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 fromsales;• 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, or shortages 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
shortages of 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 affiliates 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 affiliates;• 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 suchas 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. 2015. All rights reserved.

29