Management Strategy

Hitachi’s History of Transformation (Fiscal 2004 – Fiscal 2013)

Recovery from management crisis and on to a new growth stage. In ﬁ scal 2013, Hitachi achieved new record highs in operating income and EBIT (earnings before interest and taxes). However, for a company such as Hitachi that aims to be a leader in global markets, we are still just at the starting line. Going forward, Hitachi will accurately track changes in society, accelerate the process of transformation to achieve new growth, and strive to increase corporate value.

Transformation of Business Portfolio

Fiscal 2004 – Fiscal 2005 Fiscal 2006 – Fiscal 2008

Strengthening Initiatives Strengthening Initiatives • Established joint venture with OMRON Corporation • Made Clarion a consolidated subsidiary in the ATM business • Established joint venture with GE, of the United States, • Merged with automotive systems equity method company in nuclear power generation systems business TOKICO and subsidiary Hitachi Unisia Automotive through • Made Hitachi Kokusai Electric a consolidated subsidiary absorption-type mergers • Made Hitachi Koki a consolidated subsidiary • Established joint venture with NEC Corporation in backbone router/ Rebuilding Initiatives switch business • Acquired plasma display business and related patents from • Sold precision small motor business to Nidec Corporation Fujitsu Limited • Withdrew from consumer PC business • Transferred semiconductor manufacturing subsidiary in Singapore Rebuilding Initiatives to a semiconductor foundry • Established joint venture with Casio Computer Co., Ltd. in mobile phone business • Transferred printer business to Ricoh Company, Ltd.

(Millions of yen) 25.0% 600,000 23.7% 22.9% 20.6%

500,000 Stockholders’ equity ratio Fiscal 2006

400,000 • Recorded additional costs due to turbine damage at a nuclear power station in Japan and to thermal power EBIT (earnings before interest and taxes)* (left scale) 11.2% plant construction overseas

300,000 • Falling sales prices for hard disk drives and digital media

Fiscal 2008 200,000 • Financial crisis caused by Lehman Shock • One-off write-down 100,000 of deferred tax assets

0 Net income (loss) attributable to Hitachi, Ltd. stockholders per share (right scale) Fiscal 2007

–100,000 • Implemented one-off write-down of deferred tax assets due to worsening of

–200,000 conditions in digital media ﬁ eld

–300,000 2004 2005 2006 2007 2008

* EBIT is presented as income before income taxes less interest income plus interest charges. 2 Hitachi, Ltd. | Annual Report 2014

Fiscal 2009 – Fiscal 2012 Fiscal 2013

Strengthening Initiatives Strengthening Initiatives • Made ﬁ ve listed companies* wholly owned consolidated subsidiaries • Hitachi Metals and Hitachi Cable were merged * Hitachi Information Systems; Hitachi Software Engineering; Hitachi Systems & Services; • Established joint venture with Mitsubishi Heavy Hitachi Plant Technologies; and Hitachi Maxell Industries, Ltd. in thermal power generation • Established joint venture in the hydroelectric power generation business systems business with Mitsubishi Electric Corporation and Mitsubishi Heavy Industries, Ltd. • Made Hitachi Medical a wholly owned subsidiary • Acquired BlueArc, a network storage solution business in the United States • Absorbed Hitachi Plant Technologies • Dissolved joint venture in the transmission and distribution business • Acquired a nuclear energy company in the United Kingdom Rebuilding Initiatives Rebuilding Initiatives • Transferred printed circuit board production equipment business to an investment fund • Integrated Renesas Technology, an equity method company • Relisted Hitachi Maxell shares in the semiconductor business, with NEC Electronics • Transferred business in large LCD panels for TVs to Panasonic Corporation • Transferred plasma display panel plant to Solar Frontier K.K. • Transferred hard disk drive business to Western Digital Corporation, of the United States • Integrated small and medium-sized LCD business with Japan Display Inc. • Stopped in-house production of ﬂ at-panel TVs

(Yen) Fiscal 2010 120 • Celebrated 100th anniversary of founding 24.1% 21.2% • Introduced in-house company system 18.8% 100

15.7% 14.3% 80

Fiscal 2009

• Raised funds through 40 the issuance of new shares

0 Fiscal 2011 Fiscal 2012 Fiscal 2013 ～ • Achieved new record high in net income • Introduced Group system • Achieved new record • Transferred hard disk drive business • Increased number of highs in operating income –260 • Started cost structure reform project non-Japanese directors, and EBIT outside directors became majority –280

2009 2010 2011 2012 2013 –300 (FY)

3 Management Strategy

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

Recovering from the Management Crisis Management Focus Results under 2012 Mid-term Management Plan INNOVATION (Fiscal 2010 – Fiscal 2012)

Strengthen service businesses that maximize Revenues the utilization of IT and bring about innovation

3-year average • Grow the Social Innovation Business by working with customers to identify their challenges and by providing innovative solutions ¥9,340.9 billion • Strengthen and expand services businesses by providing solutions for customers’ issues and product services

EBIT ratio (operating income ratio)

3-year average

4.9% (4.6%) GLOBAL

Net income attributable to Hitachi, Ltd. Deliver innovation to customers stockholders and society globally

• Enhance engineering teams to strengthen solutions-provision 3-year average system and accelerate global business initiatives • Sales growth in North America and China in addition to Asia ¥253.7billion • Globalization of management and use of global resources in R&D

Net income attributable to Hitachi, Ltd. stockholders per share

3-year average TRANSFORMATION ¥55 Transform to deliver innovation by standardized and speedy operation Total Hitachi, Ltd. stockholders’ equity ratio (manufacturing, services & others) • Advancing the Hitachi Smart Transformation Project, a cost structure reform project (reevaluating operations to strengthen competitiveness and generate cash) Fiscal 2012 • Leverage global talent to lead businesses

23.2%

4 Hitachi, Ltd. | Annual Report 2014

Hitachi’s Vision Hitachi delivers innovations that answer society’s challenges. With our talented team and proven experience in global markets, we can inspire the world.

Society’s Challenges • Securing water resources, energy and food • Replacement of aging infrastructure systems

• Reduction of CO2 emissions • Improving transportation systems • Responding to lower birthrate and aging • Promoting material recycling

Macro trends

• The shale gas revolution is making the energy-supply portfolio change and oil and gas prices are ﬂ uctuating • Japanese market: Finance sector: Increased IT investment Public sector: National resilience Power sector: Deregulation and separation of generation from transmission and distribution • Conventional markets such as healthcare, agriculture, etc., are growing by employing innovation • Shift from “concentration, ownership, and consumption” to “distribution, sharing, and recycling”–a trend that is accelerating

5 Cases of Service Business

Water business solutions U.K. rail Elevator and escalator business Addressing global demand for water through intelligent Resolving issues by increasing rolling stock operating Product services supporting the entire product life water systems using recycled water and IT ratio and implementing measures for aging rail cars cycle, such as operation and maintenance.

Global Strategy

Hitachi has reconﬁ rmed the position of China and China North America as priority regions and is now • Buildings • Governments aiming for further growth. • Construction • Finance • Healthcare FY2013 FY2015 North America Europe ¥1,073.6 billion billion ¥1,220.0 • Automobiles • Finance • Oil and gas • Railways • Nuclear power • Healthcare [13.6%] • Power • Healthcare

FY2013 FY2015 FY2013 FY2015

¥812.1billion billion ¥860.0 ¥910.2 billion billion Asia ¥1,000.0 [5.9%] 9.9% • Energy • Water • Buildings • Railways [ ] • Manufacturing • Automobiles

FY2013 FY2015

¥989.9 billion ¥1,290.0 billion [30.3%] [growth rate]

Cost Structure Reform

Hitachi Smart Transformation Project: Shift to an enterprise that generates cash to achieve growth

～FY2012 FY2013 FY2014 FY2015 FY2016～

Reforms focused on cost areas and functions Process-focused reforms

Accelerate centralized purchasing of Full-scale development of Accelerate global usage of shared services direct and indirect materials global SCM reforms and modular design and indirect operation reform

Production Concept formulation Global SCM reforms costs Concept formulation Expand applications of modular design Promote process reforms Direct Accelerate centralized purchasing Expand speciﬁ c reforms into area reforms materials costs Strengthen engineered sourcing (increase procurement engineers) • Advance, standardize, and centralize businesses and Concept formulation Global logistics reforms work processes – Supply chain (in Japan) Centralize common operating expenses (Globally) – Project management Indirect costs Concept formulation Expand introduction of shared services in Japan and overseas – Indirect operations in Japan, etc. • Operational reforms Headquarters reforms • Shift to a global business process Concept formulation Group structure reforms

6 Hitachi, Ltd. | Annual Report 2014

Target Performance

Service revenue ratioo Revenues

Fiscal 2015 Target

FY2015 ¥10 trillion Over Fiscal 2013 Result

40% ¥9,616.2 billion

EBIT ratio (operating income ratio)

FY2013 Fiscal 2015 Target 32% Over 7% (Over 7%) Fiscal 2013 Result % (5.5%) Overseas revenue ratioatioattioo 6.0

Net income attributable to Hitachi, Ltd. stockholders

FY2015 Over Fiscal 2015 Target 50% Over ¥350.0 billion Fiscal 2013 Result

¥264.9 billion FY2013 45% Net income attributable to Hitachi, Ltd. stockholders per share

Fiscal 2015 Target

Cost reduction benefiefifi tss Over ¥70 Single year (Billions of yen) Cumulative (Billions of yen) Fiscal 2013 Result 400.0 ¥54.86 90.0 310.0 Hitachi, Ltd. stockholders’ equity ratio 90.0 220.0 (manufacturing, services & others)

110.0 Fiscal 2015 Target 110.0

75.0 35.0 Over 30%

FY2011 FY2012 FY2013 FY2014 FY2015 Fiscal 2013 Result Result Result Result Forecast Target 27.4 %