2012 Mid-term Management Plan
Progress and Prospects

May 10, 2012

Hiroaki Nakanishi
President
Hitachi, Ltd.
© Hitachi, Ltd. 2012. All rights reserved.

1

2012 Mid-term Management Plan
Progress and Prospects

Contents
1. Opening

2. Progress Overview
3. Global Expansion of the Social Innovation Business
4. Strengthening the Management Base and Global Growth
Strategies
5. As a Global Major Player© Hitachi, Ltd. 2012. All rights reserved.

2

2012 Mid-term Management Plan
Progress and Prospects

Contents
1. Opening

2. Progress Overview
3. Global Expansion of the Social Innovation Business
4. Strengthening the Management Base and Global Growth
Strategies
5. As a Global Major Player© Hitachi, Ltd. 2012. All rights reserved.

31. Opening
One year after the earthquake:

Responses to floods in Thailand:

Reconstruction

BCP *measures

Building disaster-resistant urban functions
Establish strong IT infrastructures
Ensure power and accelerate diversificationof power sources

Establishing risk management structures
Maintaining infrastructure operations(data centers, etc.)
Building a framework for procurement
and production

Contribute to the creation of sustainable social infrastructures

Accelerate Social Innovation Business Strategies Execution
GlobalFusionEnvironment

Leverage Hitachi’s strengths to promote a global growth strategy
Focus business resources on the Social Innovation Business
Strengthen the business structure to stabilize profitability* Business Continuity Plan

© Hitachi, Ltd. 2012. All rights reserved.

4

2012 Mid-term Management Plan
Progress and Prospects

Contents
1. Opening

2. Progress Overview
3. Global Expansion of the Social Innovation Business
4. Strengthening the Management Base and Global Growth
Strategies
5. As a Global Major Player© Hitachi, Ltd. 2012. All rights reserved.

52-1. Progress Overview [Financial Results]

FY2010FY2011

Revenues¥9,315.8 billion¥9,665.8 billion

Operating income(ratio)(4.8%)¥444.5 billion(4.3%)¥412.2 billion

Net income
attributable to Hitachi¥238.8 billion¥347.1 billion

D/E ratio*
Total Hitachi, Ltd.
Stockholders’ equity ratio

1.03 times

0.86 times(Manufacturing, services and Others:
0.68 times)(Manufacturing, services and Others:
0.56 times)

15.7%

18.8%

(Manufacturing, services and Others:
17.0%)(Manufacturing, services and Others:
20.5%)*Including non-controlling interests, and also including liabilities associated with the consolidation of securitized entities.

© Hitachi, Ltd. 2012. All rights reserved.

6

2-2. Progress Overview [FY2012 Forecast]

FY2012 Target*1

FY2012 Forecast*2

Revenues¥10,000 billion¥9,100 billion

Operating income
ratioOver 5%5.3%

Net income
attributable to Hitachi

Consistently generate
at least ¥200 billion¥200 billion

D/E ratio*3

0.8 times or below

Total Hitachi, Ltd.
Stockholders’ equity ratio

20%

0.80 times(Manufacturing, services and Others:
0.50 times)

20.0%(Manufacturing, services and Others:
22.0%)*1 As of June 9 , 2011 (includes impact of HDD business transfer). Exchange ratio: 80 yen to the U.S. dollar and 110 yen to the euro.
*2 Exchange ratio: 75 yen to the U.S. dollar and 100 yen to the euro.
*3 Including non-controlling interests, and also including liabilities associated with the consolidation of securitized entities. © Hitachi, Ltd. 2012. All rights reserved.

7

2-3. Progress Overview [FY2012 Forecasts by Business Segment ](Billion yen)
Revenues
Information & Telecommunication
Systems

YoY

OperatingincomeYoY

1,760.0

100%

120.0

+18.2

840.0

101%

22.0

+55.9

Social Infrastructure & Industrial Systems

1,230.0

102%

55.0

+5.8

Electronic Systems & Equipment

1,120.0

102%

52.0

+2.0

850.0

106%

82.0

+18.8

1,450.0

101%

98.0

+20.9

Automotive Systems

800.0

99%

37.0

0

Digital Media & Consumer Products

830.0

97%

0

+10.9

Financial Services

320.0

91%

26.0

(4.2)

1,150.067%

40.0(32.7)(1,250.0)－(52.0)(28.1)

9,100.0

94%

480.0

+67.7

Power Systems

Construction Machinery
High Functional Materials & Components

Others (including transport system, etc.)

Eliminations & Corporate Items
Total*Effective from April 1, 2012, there has been a change in classifications of the Components & Devices Segment andOthers segment following the abolishment of the Components & Devices Segment.

© Hitachi, Ltd. 2012. All rights reserved.

8

2-4. Progress Overview [Outlook for Overseas Revenues Ratio]
Overseas Revenues Ratio
Revenues by Region
Asia and others
Asia and others

[17]

[14]
Emerging
China countries[11]

Europe[8]
North
America

Japan

China

[59]

[10]

Overseas
Revenues
Ratio
41%

[8]
North
AmericaHeadcount

FY2010**Includes impacts of transfer ofsmall- to medium-sized display
business and HDD business

212k
100k

312k

[32%]

Japan

[57]

Overseas
Revenues
Ratio
43%

Europe[8][ ]: % ratio

Emerging
countries[8]

FY2012 Forecast

Japan

212k

Overseas

125k

Total

337k

[37%]

© Hitachi, Ltd. 2012. All rights reserved.

9

2012 Mid-term Management Plan
Progress and Prospects

Contents
1. Opening

2. Progress Overview
3. Global Expansion of the Social Innovation Business
4. Strengthening the Management Base and Global Growth
Strategies
5. As a Global Major Player© Hitachi, Ltd. 2012. All rights reserved.

103-1. Global Expansion of the Social Innovation BusinessSocial Innovation
Business
Reform management
structures using market needs
as the starting point

Strengthen
Management BaseStrengthen financial position
Execute cost structurereforms

Global Growth
Strategies
Globalize corporate functions
Accelerate businessstrategies in China

Establish 5-Group Structure(April 2012)- Create new businesses through fusion of IT andsocial infrastructures- Establish new Social Innovation Business
Project Division

Stabilize Earnings- Execute the Hitachi Smart Transformation
Project- Generate cash required for investments ingrowthEstablished Chief Executive
Officer for Asia Pacific (April 2012)- Expand business targeting ASEAN, Myanmar- Expand sales in China (1.6times FY2010 levels)© Hitachi, Ltd. 2012. All rights reserved.

113-2. Social Innovation Business
1. Reform management structures from perspective of customers’ & market needs
Create new
businesses andtechnologies
from a customer
perspective
Anticipatechanges in themarket and thecompetition

Infrastructure Systems Group

Speed updecision-making

Information & Telecommunication
Systems Group

Optimizebusiness portfolios

Power Systems Group
Construction Machinery GroupHigh Functional Materials &Components Group
Financial Services and Others

Establish structures
to enhance global
competitiveness2. Create new businesses through fusion of IT and social infrastructures
Established New Social Innovation Business Project Division
1) Business proposals for growth regions and industries
2) Create new businesses, including new services© Hitachi, Ltd. 2012. All rights reserved.

12

3-3. Social Innovation Business [Smart City Business]
Global expansion for the smart city business with demonstration models
Global expansion ofdemonstration results

EnergySmart city demonstration model(Expand globally)

Overseas:
Hawaii, New Mexico
Spain (Malaga), Singapore
Guangzhou, Tianjin, DalianJapan:
Rokkasho-mura, Kashiwa-no-ha
Yokohama

Demonstration Modelconstruction in Hawaii
Agreement at Japan-US Summit (Nov. 2009)
Started test demonstrations on the Hawaiian
island of Maui (Nov. 2011)*EV： Electric Vehicle

Telecommunications

Transportation

Water

New technologies application
Developing grid controls to simplify use ofrenewable energy
EV* management system© Hitachi, Ltd. 2012. All rights reserved.

13

3-4. Social Innovation Business [Infrastructure Systems Field]
Global growth in response to market needs
Comprehensive compressor business
contract with Saudi Aramco(First Japanese manufacturer to win)

(June 2011)

Smart community plan in
Dahej coastal industrial Park

Collaborate with Dalian Cityand companies in Dalian
Water processing projects
Smart city projects

Development Agreement for
Seawater Desalination Projectin Dahej, India (March 2012)(Nov. 2011)

Completed MoU on water infrastructure businesswith Recycling Industry Model
Industrial zone
(March 2012)

Energy management inresidences, buildings, etc.

Recycling center

Start construction on elevator
production base in Chengdu, China(March 2012)

Full-scale startup for train manufacturing/
maintenance business in UK
Intercity Express
Programme (IEP) provided
opportunity to promote
global manufacturing
Base image: Northeast UK;
scheduled to begin operations in 2015

Water
Processing
discharge

Photovoltaic
Power Systems

Industrial
Water
water Re-use
discharge
supplySea
water

Seawaterdesalination© Hitachi, Ltd. 2012. All rights reserved.

14

3-5. Social Innovation Business[Information & Telecommunication Systems Field]

Global business expansion through usage of Big Data technologies
Dedicated Big Data market team
Established Smart Business
Innovation Laboratory (April 2012)
Testing and proposing optimized systems tocustomers (Stream data processing, ultra
high-speed databases, etc.)

Financial

Education

Health/medical

Government

Manufacturing/
distribution

Transportation

Water

EnergySafe, secure, easy-to-use services
Expanding the storage business

Big Data usage technologies

BlueArc Corporation (U.S.) acquired(Sept. 2011)

Shoden Data Systems Pty. (Ltd.)(South Africa) acquired(Oct. 2011)

StorageAnalysis/
predictions

Searches

Information

Expanding global business fields

Collaboration with Founder (China) in cloud/smart city field (Dec. 2011)
Partnership with Microsoft Japan to strengthen global cloud business(April 2012)© Hitachi, Ltd. 2012. All rights reserved.

15

3-6. Social Innovation Business [Power Systems Field]
Accelerate global expansion of business
Thermalpower

Nuclearpower

Received order for supercriticalpressure boiler from NTPC*1
in India(April 2012)
Signed the Concession Agreementin Lithuania

Received order for No. 9 & No.10 units
The highest power generation capacity in South Korea(1050 million W)(March 2012)

Wind
power

Agreement on the assignment of Fuji
Heavy industries wind turbine
generator system business (March 2012)

Power

Signed a technical cooperationagreement with FGC UES*2
in Russia(April 2012)transmission

Taean Thermal power plant

Quick resolution on boiler material issues
Identified cause of welding cracks in boiler
materials developed on a German national project;
Completed tests on improvement methods(currently implementing improvements in actual
plants)

Layout of Taean Thermal Power Plant of Korea Western Power Co. Ltd.

Strengthening business base1) Transform cost structure2) Strengthen project management
3) Reinforce sales targeting large
overseas accounts*1 National Thermal Power Corporation, India, *2 Federal Grid Company Of Unified Energy Sysytem © Hitachi, Ltd. 2012. All rights reserved.

16

2012 Mid-term Management Plan
Progress and Prospects

Contents
1. Opening

2. Progress Overview
3. Global Expansion of the Social Innovation Business
4. Strengthening the Management Base and Global Growth
Strategies
5. As a Global Major Player© Hitachi, Ltd. 2012. All rights reserved.

174-1. Strengthen the management base [Cost Structure]
Execute the Hitachi Smart Transformation Project (Overall 5% cost reduction)
Production
costs

Total costs:
Approx.
¥9 trill.

Directmaterials
costs

Indirectcosts

Overall costs
全コスト・ Production costs

Cost
areas

・ Build global value chain

・ Globalize common processes
・ Strengthen global procurement capabilities
・ Use procurement engineering
・ Create specialized division to handle
shared work/expenses
・ Promote global usage of shared services

Organizations
5 business groups

・ Direct material costs
・ Indirect costs

Global business strategies

Areas
Japan

China

Asia

India

All Hitachi Groupbusiness entities

U.S.

EuropeIT strategies

HR strategies© Hitachi, Ltd. 2012. All rights reserved.

18

4-2. Strengthen the management base [Reinforce Financial Position]
Improve profitability and strengthen the financial position
Implement cost structure reforms- Execute the Hitachi Smart
Transformation Project

Strengthen stockholders’equity by increasing net income
Minimize overall assets andincrease efficiency
Generate cash
for growth investments

・ Net income:Consistently generate at least¥200 billion
・ D/E ratio*: 0.8times or below
・ Total Hitachi, Ltd. Stockholders’equity ratio: 20%*Including non-controlling interests, and also including liabilities
associated with the consolidation of securitized entities.

Focus management resources
Concentrate management resources on the Social Innovation Business
Expand investments targeting key regions based on global strategies
Optimize use of borderless human resources and increase efficiency© Hitachi, Ltd. 2012. All rights reserved.

194-3. Global Growth Strategies
Globalize corporate functions

China Business Strategy 2015

Chief Executive Officer
for Asia Pacific established (Apr. 2012)

Business expansion measures- Accelerate opening of markets
in China and other Asian regions- Promote alliances with close ties
to specific regions- Strengthen partnering- Promote/Expand focus on localization

Increase China sales by 1.6 times(vs. FY2010)

Strengthen planning, negotiation,and engineering functions

Key target regions

Strengthen/expand businessin ASEAN region- Expand / strengthen social / IT
infrastructure business- Promote/expand localization in
Thailand, Indonesia, Vietnam, etc.

Start up business in Myanmar- Establishment of local office scheduled- Capital foundations for social / IT
infrastructure business- Expand business fields by resolving
issue of economic sanctions© Hitachi, Ltd. 2012. All rights reserved.

20

4-4. Global Growth Strategies[Optimize use of human resources and increase efficiency]

Global HR Strategies
Optimum and borderless use for human resources to increase efficiency
Develop Global HR Management

Strengthen capability to accelerate
overseas business

Complete to build HR
Infrastructure in 2012

Accelerate diversification ofhuman resources

Develop human resources database
Develop Global Grading system basedon job evaluation
Standardize evaluation criteria for
management
Create HR management structures in
key regions

Hire human resources
with global mindset
Train local staff

Develop / Recruit non-Japanese
executives

Global Management Development Program
staffing / training / job rotation(Start in FY2012)© Hitachi, Ltd. 2012. All rights reserved.

21

4-5. Global Growth Strategies [Strengthening governance]
Responding to globalized management
Increase non-Japanese Directors: from 1 to 3*
Utilize global perspective of new Directors in developing
basic management policies:- Extensive knowledge and experience in infrastructure
related companies and organizations- Extensive knowledge and experience in fostering global
industry with a focus on ASEAN countries*Nominees for the Shareholders’ meeting in June, 2012

New non-Japanese outside
directors nominees

Mr. George Buckley

Mr. Philip Yeo

Strengthening supervisory functions
More than half of Directors to be outside directors:
7 of 13 nominees* (2 non-Japanese outside directors)[4 of 12 existing outside directors (no non-Japanese outside directors) ]*Nominees for the Shareholders’ meeting in June, 2012

Reduce Executive Officers in the Board by half:
FY2012: 1 nominee (Current: 2)* Hitachi has adopted a committee-based corporate governance system in June, 2003
© Hitachi, Ltd. 2012. All rights reserved.

22

4-6. Global Growth Strategies [Value Creation and CSR]
Hitachi Strives to Offer Value:
Value created and shared with customers and partners
Value that lasts for future generations
Value based on our role and mission as a manufacturer
Contributions to the environment (Targetsby FY2025)

Respect for human rights
Ensure activities in accordance withinternational frameworks

Help to reduce annual CO2 emissions to 100
million tons
*1

Make all Hitachi Group products Eco-Products

Regional social contribution activities

Understand and respect different regional
cultures and values

Dialogues with stakeholders

Mentor young Asian leaders

Dialogue with WBCSD*2
President Bakker

Promote environmental literacy and educationin the sciences

Mutual understandingof issues in each country
as well as business
opportunities for Hitachi*1 Products that meet our criteria under the DfE (Design for Environment) assessment system*2 WBCSD: World Business Council for Sustainable Development© Hitachi, Ltd. 2012. All rights reserved.

23

2012 Mid-term Management Plan
Progress and Prospects

Contents
1. Opening

2. Progress Overview
3. Global Expansion of the Social Innovation Business
4. Strengthening the Management Base and Global Growth
Strategies
5. As a Global Major Player© Hitachi, Ltd. 2012. All rights reserved.

24

5. Becoming a Global Major Player

Execute growthstrategies

Focus on key businesses and regions

Cost structure reforms

Execute the Hitachi Smart
Transformation Project

Business model
innovations

Organize structure to compete in the
global arena

HR strategies

Optimum and global use
for human resources

A company that grows
with the region

Make social contributions and demonstrate
respect for diversity

Respond to global needs throughthe Social Innovation Business© 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:•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 acceptancefor such 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 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,
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;•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 competitivenessand other 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. 2012. All rights reserved.

26

© Hitachi, Ltd. 2012. All rights reserved.