Hitachi Integrated Report 2020 Year ended March 31, 2020 The challenges we face as a society are unprecedented, but so are the opportunities. Together, let’s start powering good. Let’s call on our heritage, our spirit of collaboration and our technology to do better for generations to come. Contents Editorial Policy for Hitachi Integrated Report 2020 Where We Are Going 3 Editorial Policy In this Hitachi Integrated Report 2020, we illustrate Hitachi's aspirations and the competitive advantages, strategies and management system to achieve Business of the Hitachi Group them, while reviewing the history and progress of the Hitachi Group up to fiscal 2019 (year ended March 31, 2020), as well as the achievements and The Hitachi Group Identity and Social Innovation challenges of our initiatives. The expanded impact of Covid-19 has Business significantly changed the social and economic environment around the world. Even in the midst of these changes, Hitachi is committed to contribute Hitachi’s Basic Policy for Responding to COVID-19 to realizing a sustainable society while co-creating with customers and society to enhance their social, environmental, and economic value. In this CEO Message report, we focused on illustrating such an approach to Hitachi. In editing this report, we referred to the International Integrated Reporting Council’s (IIRC’s) International Integrated Reporting Framework and the How We Will Grow 17 Ministry of Economy, Trade and Industry of Japan’s Guidance for Collaborative Value Creation. The Value Creation Process About Cover Page Looking Back on Past Mid-term Management Plans Hitachi contributes to enhancing the social, environmental, and economic value of our Strategy and Resource Allocation customers by providing novel solutions utilizing digital technologies across the five sectors of IT, Strategy 1: Expand Revenues by Accelerating Energy, Industry, Mobility, and Smart Life. The the Social Innovation Business cover image of this report depicts people who are enhancing their lives through Hitachi's Strategy 2: Reinforce Global Competitiveness business. Strategy 3: Reinforce Management System to Improve Profitability Reporting Scope CFO Message Period: April 1, 2019, to March 31, 2020 (Certain subsequent activities and information presented Value Creation Story in 5 Sectors after April 2020 is also included.) Companies: Hitachi, Ltd., and its consolidated subsidiaries Scope of Data: How We Will Achieve Sustainability 59 Social data: The scope of the data are individually described. Environmental data: 815 companies (Hitachi, Ltd., and 814 consolidated subsidiaries) For environmental performance data associated with Addressing Risks and Opportunities business operations, Hitachi, Ltd., and consolidated subsidiaries whose environmental load comprises Promotion of Information Security 90% of the total (based on Hitachi calculations) are included. Occupational Health and Safety, Employee Health Accounting Standard: Unless otherwise noted, this report is prepared in Value Chain Responsibilities accordance with U.S. GAAP through fiscal 2013 and with the International Financial Reporting Standards Quality Assurance (IFRS) from fiscal 2014. Compliance Contact Corporate Governance Hitachi, Ltd. 6-6, Marunouchi 1-chome, Chiyoda-ku, Tokyo 100-8280 Message from Independent Directors TEL: +81-3-3258-1111 E-mail: [email protected] Leadership Investor Relations https://www.hitachi.com/IR-e/ (English) https://www.hitachi.co.jp/IR/ (Japanese) Data Section 89 Sustainability https://www.hitachi.com/sustainability/ (English) Where We Are Going https://www.hitachi.co.jp/sustainability/ (Japanese) 10-year Financial Data Disclaimer Regarding Forward-looking Statements Business of the Hitachi Group 4 5-year Non-financial Data Certain statements regarding the future of the Company set forth in this Report may constitute “forward-looking statements,” such as “plan,” The Hitachi Group Identity and Social Innovation Business 6 Segment Highlights “forecast,” “target,” and “strategy.” Although forward-looking statements contained in this report are based upon what the Company has determined to Hitachi’s Basic Policy for Responding to COVID-19 8 Hitachi Group Business Operation Framework be reasonable assumptions at the time of disclosure, actual performance and other results may differ materially from those anticipated in such statements. Hitachi's Current Management Policy for Response to COVID-19 9 Corporate Data / Stock Information and a Message For the major factors regarding these differences, please see “Addressing from the Editor-in-chief Risks and Opportunities” on page 60 of this Report. CEO Message 10 2 Hitachi Integrated Report 2020 3 Where We Are Going Business of the Hitachi Group Our 2021 Mid-term Management Plan, launched in April 2019, focuses on simultaneously improving social, environmental Systems integration and economic value, and establishes five business sectors (IT, energy, industry, mobility and smart life) for the creation of Consulting Control systems social innovation. These are areas in which Hitachi can make use of the technological know-how it has built up through its Cloud services many years of developing social infrastructure. Through each of these business sectors, we will utilize Lumada to improve Software IT products (Storage, servers) people’s quality of life (QoL), as well as corporate value at our client companies. ATMs Revenues Adjusted Operating Income IT Energy Energy solutions Composition ratio (%) Composition ratio (%) (Nuclear, Renewable energy, Thermal, Power grid) Others Others Hitachi Chemical Hitachi Chemical 5% 3% 5% 7% Hitachi Metals 2% 22% IT Hitachi Metals Hitachi 11% 9% Revenues Construction Adjusted operating Revenues of by segment income IT Hitachi Machinery 37% Construction Energy by segment 4% Lumada Business Machinery 9% 10% billion Hitachi High-Tech Elevators, escalators, ¥8,767.2 ¥661.8 billion building services (FY2019) 9% Industry billion (FY2019) Railway system ¥1,037.0 7% Smart Life 9% Hitachi High-Tech (FY2019) 2% Energy 12% Mobility 8% 15% P.24 Grow Highly Profitable Businesses 14% Mobility Industry Smart Life Mobility Industry with Digital Technology Note: Figures for each subsegment include intersegment transactions. Revenues by Region Revenues/Adjusted Operating Income Ratio/ Smart Life Composition ratio (%) Net Income Industry & distribution system Europe Revenues (¥ billion) Adjusted operating income ratio (%) Medical equipment Water & environment system ¥924.4 billion Net income attributable to Smart life & eco-friendly system Asia Industrial products ¥1,767.5 billion Hitachi, Ltd. stockholders (¥ billion) (Refrigerator, washing machine, 10% North America air conditioner, commercial air 13% 10,034.3 conditioning system) ASEAN, India ¥1,102.9 billion 9,368.6 9,480.6 and others 9,162.2 8,767.2 Automotive systems 10% Japan (Powertrain, chassis parts, ¥896.4 billion 8.0 ¥4,529.0 billion 7.6 7.5 advanced driving assistance 20% Outside Japan 6.3 6.4 system) China 10 % ¥4,238.1 billion 362.9 ¥871.1 billion Total ¥8,767.2 billion Japan 231.2 222.5 5% 52% (FY2019) ¥4,529.0 billion 172.1 87.5 Hitachi Construction Machinery Hitachi Metals Hitachi High-Tech Hitachi Chemical Other Areas ¥443.1 billion Ownership percentage of Ownership percentage of Became a wholly owned subsidiary in Deconsolidated in April 2020 FY2015 FY2016 FY2017 FY2018 FY2019 voting rights: 51.5% voting rights: 53.5% May 2020 Main products and services Main products and services Main products and services Main products and services Hydraulic excavators Specialty steel products Medical and life science products Functional materials Wheel loaders Functional components and equipment Analytical equipment (Electronics materials, printed wiring board Mining machinery Magnetic materials and applications Semiconductor processing equipment materials, electronic components) Maintenance and services Power electronics Manufacturing and inspection equipment Advanced components and systems Construction solutions Wires, cables, and related materials Advanced industrial products (Mobility components, energy storage Mine management systems devices and systems, life science related products) 4 Hitachi Integrated Report 2020 5 Where We Are Going The Hitachi Group Identity and Social Innovation Business Grounded in the Hitachi Group Identity, we will raise the social, environmental and economic value we provide to customers and aim to achieve a sustainable society by focusing on our Social Innovation Business. The present world is said to be an era of volatility, uncertainty, complexity and ambiguity (VUCA), in which the future is difficult to predict. Looking around the world, we can see a wide variety of steadily approaching change that will have an impact on people's lives, including climate change, resource shortages, demographic changes due to aging, problems related to urbanization, and responding to COVID-19. Since its establishment, Hitachi has operated under the Mission expressed by its founder: “Contribute to society through the development of superior, original technology and products.” In accordance with this Mission, we have solved challenges facing society during each era through the development of social infrastructure technologies while raising people's quality of life and, in recent years, contributing to the achievement of a sustainable society. Originally set by Hitachi founder Namihei Odaira, the Mission has been carefully passed on to generations of employees and stakeholders throughout the Company's