Hitachi, Ltd. · TSE:6501

Hitachi — Investor Day (June 2016)

64 slides from Hitachi's investor day presentation, Jun 1, 2016

1. Slide 1: Power and Energy Business Strategy

   Power and Energy Business Strategy Hitachi IR Day 2016 June 1, 2016 Masaaki Nomoto Vice President and Executive Officer, CEO of Energy Solutions Business Unit Hitachi, Ltd. Atsushi Oda Vice President and Executive Officer, CEO of Power Business Unit Hitachi, Ltd. Katsumi Nagasawa Vice President and

2. Slide 2: Contents

   Power and Energy Business Strategy [Contents] 1. Business Overview 2. Summary of 2015 Mid-term Management Plan 3. 2018 Mid-term Management Plan 4. Business Unit Strategies 4-1. Energy Solutions 4-2. Power 4-3. Nuclear Energy 5. Summary © Hitachi, Ltd. 2016. All rights reserved.

3. Slide 3: 1-1 Business Overview

   1-1 Business Overview Strengthen front engineering capabilities in response to market changes Energy Solutions BU 7% Power BU 57% Photovoltaic power Supervisory control systems generation systems*2 FY2015 Revenues Wind turbine generation system Advanced wide-area special protection system Meter data

4. Slide 4: 1-2 Basic Strategies

   1-2 Basic Strategies Growth Strategies Targets Energy Solutions BU  Maximize customer value through solutions using digital techniques by integrating “IT” and “OT”. Ensure stable revenues in  Focus on optimal solutions for further energy reforms, domestic base business, and harnessing experience g

5. Slide 5: 1-3 Market Environment

   1-3 Market Environment Market trends  World electricity generation is expected to expand.  New legal framework was ratified, and global  Full liberalization of the electricity market Overseas warming countermeasures are picking up pace  Expanding needs for enhanced grid connection Japan (COP21 “

6. Slide 6: 1-4 Target Position

   1-4 Target Position Expand business and strengthen earning power to become a major global player Operating income ratio (%) 40 30 20 FY2018 Company D Company F 10 Hitachi Company E 0 Company B Company C -10 FY2015 ～ ～ -20 ‐30 Company A -30 Revenue -40 0 1,000 2,000 （Billion yen) *1 Exchange rates: 1

7. Slide 7: Contents

   Power and Energy Business Strategy [Contents] 1. Business Overview 2. Summary of 2015 Mid-term Management Plan 3. 2018 Mid-term Management Plan 4. Business Unit Strategies 4-1. Energy Solutions 4-2. Power 4-3. Nuclear Energy 5. Summary © Hitachi, Ltd. 2016. All rights reserved.

8. Slide 8: Summary of 2015 Mid-term Management Plan

   2 Summary of 2015 Mid-term Management Plan （Reference) Initial Target under FY2015 Results Previous Forecast*1 Difference 2015 Mid-term Management Plan*2 Revenues 519.5 billion yen 460.0 billion yen +59.5 billion yen 500.0 billion yen Adjusted operating 2.2% 2.2% - - income ratio EBIT ratio 1.1% 5.9

9. Slide 9: Contents

   Power and Energy Business Strategy [Contents] 1. Business Overview 2. Summary of 2015 Mid-term Management Plan 3. 2018 Mid-term Management Plan 4. Business Unit Strategies 4-1. Energy Solutions 4-2. Power 4-3. Nuclear Energy 5. Summary © Hitachi, Ltd. 2016. All rights reserved.

10. Slide 10: 3-1 Business Performance Trends

    3-1 Business Performance Trends Orders received 598.3 465.3 Order Backlog 642.8 645.1 Service revenue ratio 47% 48% 40% Overseas revenue ratio 9% 13% 16% Adjusted operating 8,000 Revenues 39.0 70.0 800 income/EBIT （Billion yen） [7.1%] [12.7%] （Billion yen) 6,000 600 519.5 550.0 600 60 3.0 463.0 [0.6

11. Slide 11: 3-2 Business Performance Trends

    3-2 Business Performance Trends Revenue Increased business （Billion 6,000yen） Fewer large-scale scale Effect of 550.0 projects Lower selling exchange +87.0 519.5 (55.4) prices rates 5,000 500 (1.9) +0.8 463.0 400 4,000 ～ ～ 0 3,000 FY2015 (Result) FY2016 (Forecast) FY2018 (Target) Adjusted Operating

12. Slide 12: 3-3 Cost Reductions

    3-3 Cost Reductions Strengthen operating foundations by reviewing business efficiency Improvement rate  Overhaul fixed costs in Japan (%) 3.3 SG&A Gross Profit Margin - Optimize workforce in Japan - Promote BPO for indirect operations SG&A Margin 1.5  Review indirect costs - Continuously review bu

13. Slide 13: 3-4 Conclusion

    3-4 Conclusion FY2018 Target Provide solutions based on collaborative creation to all customers in the energy value chain  Provide solutions using digital techniques to the new markets  Provide highly reliable systems and services to the electricity infrastructure market FY2018 Vs. FY2015 Revenue

14. Slide 14: Contents

    Power and Energy Business Strategy [Contents] 1. Business Overview 2. Summary of 2015 Mid-term Management Plan 3. 2018 Mid-term Management Plan 4. Business Unit Strategies 4-1. Energy Solutions 1） Business Overview 4-2. Power 2） Business Performance Trends 4-3. Nuclear Energy 3） Business Strategy 5.

15. Slide 15: 1)-1 Aim of Establishment

    4-1 Energy Solutions BU 1)-1 Aim of Establishment Provide solutions to energy challenges through collaborative creation with customers. Provide energy solution core to Front BU for different markets. Macro- Fluctuating Environmental Technical Deregulation environment resource prices problems innovat

16. Slide 16: 1)-2 Main Businesses

    4-1 Energy Solutions BU 1)-2 Main Businesses Provide optimal solutions through IoT platform and SI, and collaborative creation with customers Energy Solutions Solutions using digital techniques BU Micro-grid Energy storage system for Advanced wide-area Decision-making power systems special protectio

17. Slide 17: Contents

    Power and Energy Business Strategy [Contents] 1. Business Overview 2. Summary of 2015 Mid-term Management Plan 3. 2018 Mid-term Management Plan 4. Business Unit Strategies 4-1. Energy Solutions 1） Business Overview 4-2. Power 2） Business Performance Trends 4-3. Nuclear Energy 3） Business Strategy 5.

18. Slide 18: 2) Business Performance Trends

    4-1 Energy Solutions BU 2) Business Performance Trends Overseas revenue ratio 1% 6% 24% Revenues* Business expansion through （Billion yen) strengthening of solutions Temporary increase using digital techniques 110.0 in revenue 100 1,000 New 85.1 domain 75.0 50 500 0 FY2015 2015年度 FY2016 2016年度 FY201

19. Slide 19: Contents

    Power and Energy Business Strategy [Contents] 1. Business Overview 2. Summary of 2015 Mid-term Management Plan 3. 2018 Mid-term Management Plan 4. Business Unit Strategies 4-1. Energy Solutions 1） Business Overview 4-2. Power 2） Business Performance Trends 4-3. Nuclear Energy 3） Business Strategy 5.

20. Slide 20: 3)-1 Business Policy

    4-1 Energy Solutions BU 3)-1 Business Policy We focus on providing solutions using digital techniques, and consolidating position in the global market. Hitachi Provide solutions using digital techniques by integrating “IT” and “OT” Energy Vigorously push ahead New market (Energy solutions) Solutions

21. Slide 21: 3)-2 Direction aimed at Maximization of Customer Value

    4-1 Energy Solutions BU Maximization 3)-2 Direction aimed at of Customer Value Leverage the knowhow and experience of the Hitachi Group to provide optimal solutions. Maximize customer value through solutions using digital techniques. FY 2018 Target High Optimization of Management through Business in

22. Slide 22: 3)-3 Domestic Business

    4-1 Energy Solutions BU Responding 3)-3 Domestic Business to Energy System Reforms Provide solutions using digital techniques which are essential for energy system reforms to a wide range of customers. Value Experience Business Focus Area provided Backbone system of the High Voltage  Started operat

23. Slide 23: 3)-4 Approach to Global Market

    4-1 Energy Solutions BU 3)-4 Approach to Global Market Ensure “Stable Revenue” in Japanese domestic base business, and achieve growth by focusing priority investment on the North American market Europe and Asia North America Examine alliances and collaboration with Focus on growth areas in the U.S

24. Slide 24: 3)-5 Specific Initiatives to actual business development

    4-1 Energy Solutions BU From demonstration project 3)-5 Specific Initiatives to actual business development Accelerate early commercialization and generation of high revenues & profitability through strategic initiatives. UK: Japan: U.S.: NEDO Manchester Smart Kashiwa-no-ha Smart City New Jersey Gri

25. Slide 25: 3)-6 Overseas Business (North American Business Expansion)

    4-1 Energy Solutions BU 3)-6 Overseas Business (North American Business Expansion) Start expanding business in the U.S. region with a large market size. Establish base in New York (in May) and accelerate Solutions Business using digital techniques. Establishment of North American base Business Focus

26. Slide 26: 3)-7 Business Model Reform

    4-1 Energy Solutions BU 3)-7 Business Model Reform Expand business by establishing “Revenue Models” through collaborative creation with customers and rolling out to other industries Problem sharing/ Services/ System construction Performance-based reward Horizontal Rollouts Service design Big Data an

27. Slide 27: Contents

    Power and Energy Business Strategy [Contents] 1. Business Overview 2. Summary of 2015 Mid-term Management Plan 3. 2018 Mid-term Management Plan 4. Business Unit Strategies 4-1. Energy Solutions 1） Business Overview 4-2. Power 2） Business Performance Trends 4-3. Nuclear Energy 3） Business Strategy 5.

28. Slide 28: 4) Conclusion

    4-1 Energy Solutions BU 4) Conclusion Priority initiatives for achievement of 2018 Mid-term Management Plan Provide solutions using digital techniques which integrate “IT” and “OT”  Focus on optimal solutions for approaching energy system reforms  Provide innovative solutions based on a wealth of

29. Slide 29: Contents

    Power and Energy Business Strategy [Contents] 1. Business Overview 2. Summary of 2015 Mid-term Management Plan 3. 2018 Mid-term Management Plan 4. Business Unit Strategies 4-1. Energy Solutions 4-2. Power 1） Business Overview 4-3. Nuclear Energy 2） Business Performance Trends 5. Summary 3） Market En

30. Slide 30: 1) Business Overview

    4-2 Power BU 1) Business Overview Co-creation of innovations with various customers, by harnessing a wealth of knowledge and technical expertise Needs of Energy Market Global warming countermeasures 3E+S Smartification by IoT (e.g., COP21 “Paris Agreement”) (e.g., Electricity system reform) (e.g., I

31. Slide 31: Contents

    Power and Energy Business Strategy [Contents] 1. Business Overview 2. Summary of 2015 Mid-term Management Plan 3. 2018 Mid-term Management Plan 4. Business Unit Strategies 4-1. Energy Solutions 4-2. Power 1） Business Overview 4-3. Nuclear Energy 2） Business Performance Trends 5. Summary 3） Market En

32. Slide 32: 2)-1 Business Performance Trends

    4-2 Power BU 2)-1 Business Performance Trends Create cash from service business and expand Power Generation Solutions and Transmission and Distribution Systems Service Revenue Ratio 40% 40% 40% Overseas Revenue Ratio 14% 16% 17% CAGR Business transfer Revenues (2015→2018) (Billion yen) 320.0 6% 270.

33. Slide 33: 2)-2 Status of Initiatives to Address Issues

    4-2 Power BU 2)-2 Status of Initiatives to Address Issues Item Initiatives Achievements  Promote minimization of costs  Already put all plants in Europe into operation incurred through collaboration with Thermal power  Countermeasure construction work Mitsubishi Hitachi Power Systems, at domestic

34. Slide 34: Contents

    Power and Energy Business Strategy [Contents] 1. Business Overview 2. Summary of 2015 Mid-term Management Plan 3. 2018 Mid-term Management Plan 4. Business Unit Strategies 4-1. Energy Solutions 4-2. Power 1） Business Overview 4-3. Nuclear Energy 2） Business Performance Trends 5. Summary 3） Market En

35. Slide 35: 3) Market Environment

    4-2 Power BU 3) Market Environment  Electricity liberalization is creating the need for various solutions and services Japan  The introduction trend of renewable energy is shifting towards wind power  Growing need for strengthening of grid connections  Growing need for global warming countermeas

36. Slide 36: Contents

    Power and Energy Business Strategy [Contents] 1. Business Overview 2. Summary of 2015 Mid-term Management Plan 3. 2018 Mid-term Management Plan 4. Business Unit Strategies 4-1. Energy Solutions 4-2. Power 1） Business Overview 4-3. Nuclear Energy 2） Business Performance Trends 5. Summary 3） Market En

37. Slide 37: 4)-1 Growth Strategies

    4-2 Power BU 4)-1 Growth Strategies Growth Strategies Target Initiatives ■Service Business  Promote utilization of IoT in  Promote utilization of IoT and  Increase revenues renewable power generation creation of high-value-added by 20% systems services  Double High-value-  Expand comprehensive

38. Slide 38: 4)-2 Service Business (1)

    4-2 Power BU 4)-2 Service Business (1) Contribute to expansion of customers’ business scale and profitability through co-creation services. Provide solution services combining IT with field services knowhow. Complex Creation of high-value-added service Expansion of business domains ⇒ Expansion of cu

39. Slide 39: 4)-3 Service Business (2)

    4-2 Power BU 4)-3 Service Business (2) Expansion of high-value-added services Expansion of comprehensive maintenance services  Profit share-type O&M services  BPO-type maintenance services through ・Broaden application to renewable energy cooperation between Group companies solutions business ・Alle

40. Slide 40: 4)-4 Renewable Energy Solutions Business

    4-2 Power BU 4)-4 Renewable Energy Solutions Business Contribute to more widespread adoption of renewable energy in Japan through total solutions. Ensure top share of domestic market for wind power generation systems in Japan, and expand into Asia region (region with natural conditions similar to th

41. Slide 41: 4)-5 Distributed Power Source Solutions

    4-2 Power BU 4)-5 Distributed Power Source Solutions Meet diverse power source needs, spanning from equipment to solutions. Expand social innovation business through cogeneration (combined heat and power) systems based on local production for local consumption. power grid Strengths of Power Business

42. Slide 42: 4)-6 Transmission and Distribution Systems Business

    4-2 Power BU 4)-6 Transmission and Distribution Systems Business Contribute to needs to strengthen grid connection by leverage high level of technical expertise Target position Global SCM  Earn steady revenues in focus regions Chinese market North American market ・Japan, North America, Asia, Middle

43. Slide 43: 4)-7 Hitachi Smart Transformation Project

    4-2 Power BU 4)-7 Hitachi Smart Transformation Project Initiatives to Reform the Cost Structure Production Cost Manufacturing reform from ECM/SCM perspective  Achieve high quality at low cost with global SCM  Promote utilization of modular designs  Strengthen core production technology at mother

44. Slide 44: Contents

    Power and Energy Business Strategy [Contents] 1. Business Overview 2. Summary of 2015 Mid-term Management Plan 3. 2018 Mid-term Management Plan 4. Business Unit Strategies 4-1. Energy Solutions 4-2. Power 1） Business Overview 4-3. Nuclear Energy 2） Business Performance Trends 5. Summary 3） Market En

45. Slide 45: 5) Conclusion

    4-2 Power BU 5) Conclusion 2018forMid-Term Priority initiatives achievementManagement Plan of 2018 Mid-term Management Plan Generate high revenues in both the Service Business and the Solutions Business.  Promote use of the IoT and creation of high added value in the Service Business.  Provide one

46. Slide 46: Contents

    Power and Energy Business Strategy [Contents] 1. Business Overview 2. Summary of 2015 Mid-term Management Plan 3. 2018 Mid-term Management Plan 4. Business Unit Strategies 4-1. Energy Solutions 4-2. Power 4-3. Nuclear Energy 1） Business Overview 5. Summary 2） Business Performance Trends 3） Market En

47. Slide 47: 1) Business Overview

    4-3 Nuclear Energy BU 1) Business Overview Creating a bright future for the Earth by using advanced nuclear power technologies to address energy and global warming issues Domestic Business Overseas Business Decommissioning of Fukushima Daiichi Nuclear Power Station UK: Horizon Nuclear Power Project

48. Slide 48: Contents

    Power and Energy Business Strategy [Contents] 1. Business Overview 2. Summary of 2015 Mid-term Management Plan 3. 2018 Mid-term Management Plan 4. Business Unit Strategies 4-1. Energy Solutions 4-2. Power 4-3. Nuclear Energy 1） Business Overview 5. Summary 2） Business Performance Trends 3） Market En

49. Slide 49: 2) Business Performance Trends

    4-3 Nuclear Energy BU 2) Business Performance Trends Service Revenue Ratio 90% 90% 75% 50% Overseas Revenue Ratio 1% 1% 1% 30% 300.0 300 280.0 100.0 Overseas Revenues (Billion yen) Temporary increase in revenue 200.0 200 187.2 165.0 150.0 153.7 1.0 1.2 1.0 Japan 100.0 100 164.0 180.0 152.5 149.0 0.0

50. Slide 50: Contents

    Power and Energy Business Strategy [Contents] 1. Business Overview 2. Summary of 2015 Mid-term Management Plan 3. 2018 Mid-term Management Plan 4. Business Unit Strategies 4-1. Energy Solutions 4-2. Power 4-3. Nuclear Energy 1） Business Overview 5. Summary 2） Business Performance Trends 3） Market En

51. Slide 51: 3) Market Environment

    4-3 Nuclear Energy BU 3) Market Environment Market Macrotrends • Capacity of world electricity generation is expected to • Nuclear power is positioned as an important baseload expand. power source in Japan’s energy mix. Overseas • Following the signing of the Paris Agreement at COP21, Japan • Nuclea

52. Slide 52: Contents

    Power and Energy Business Strategy [Contents] 1. Business Overview 2. Summary of 2015 Mid-term Management Plan 3. 2018 Mid-term Management Plan 4. Business Unit Strategies 4-1. Energy Solutions 4-2. Power 4-3. Nuclear Energy 1） Business Overview 5. Summary 2） Business Performance Trends 3） Market En

53. Slide 53: 4)-1 Business Strategies

    4-3 Nuclear Energy BU 4)-1 Business Strategies Leverage domestic business to achieve growth and increased revenues in overseas business Domestic business (core business) Common measures  Continue decommissioning work at the Fukushima Daiichi Nuclear Power Station.  Continue supporting reviews and

54. Slide 54: 4)-2 Domestic Business (1)

    4-3 Nuclear Energy BU 4)-2 Domestic Business (1) Facilitate the decommissioning of the Fukushima Daiichi Nuclear Power Station, while prioritizing safety  Continued support for reconstruction of Fukushima  Improve the stability of measures to treat contaminated water • Stabilize facilities by putt

55. Slide 55: 4)-3 Domestic Business (2)

    4-3 Nuclear Energy BU 4)-3 Domestic Business (2) Step up initiatives to accelerate restarts and achieve long-term stable operation Pipes  Concentrate on BWR restarts and reflect knowledge Support gained in successor plants.  Promote fire prevention measures and seismic reinforcement work.  Adopt

56. Slide 56: 4)-4 Overseas Business (1) UK's Horizon Project

    4-3 Nuclear Energy BU 4)-4 Overseas Business (1) UK’s Horizon Project Increase business value by making steady progress on project and strengthening framework  Steadily push ahead with Generic Item Schedule 2012 2013 2014 2015 2016 Completion of GDA 2017 2018 2019 2020 From 2021 of main (scheduled

57. Slide 57: 4)-5 Overseas Business (2)

    4-3 Nuclear Energy BU 4)-5 Overseas Business (2) Expand business by sharing experience gained in UK project globally. Approach countries promoting the construction of nuclear power plants as a priority (cooperation with GEH). UK Poland Lithuania Canada U.S. • Push ahead • Expand • Signing of memoran

58. Slide 58: 4)-6 Common Measures

    4-3 Nuclear Energy BU 4)-6 Common Measures Establishment of robust and efficient business structure (Promotion of Hitachi Smart Transformation Project) Strategies for Maintaining and Improving Technologies Strengthening of Project Management and Human Resources  Apply construction project managemen

59. Slide 59: Contents

    Power and Energy Business Strategy [Contents] 1. Business Overview 2. Summary of 2015 Mid-term Management Plan 3. 2018 Mid-term Management Plan 4. Business Unit Strategies 4-1. Energy Solutions 4-2. Power 4-3. Nuclear Energy 1） Business Overview 5. Summary 2） Business Performance Trends 3） Market En

60. Slide 60: 5) Conclusion

    4-3 Nuclear Energy BU 5) Conclusion 2018 Mid-Term Management Plan Leverage domestic business to achieve growth and increased revenues in overseas business.  Continue decommissioning work at the Fukushima Daiichi Nuclear Power Station.  Step up initiatives to accelerate restart process and achieve

61. Slide 61: Contents

    Power and Energy Business Strategy [Contents] 1. Business Overview 2. Summary of 2015 Mid-term Management Plan 3. 2018 Mid-term Management Plan 4. Business Unit Strategies 4-1. Energy Solutions 4-2. Power 4-3. Nuclear Energy 5. Summary © Hitachi, Ltd. 2016. All rights reserved.

62. Slide 62: Summary

    5 Summary FY2018 Target Provide solutions based on collaborative creation to all customers in the energy value chain  Provide solutions using digital techniques to the new markets  Provide highly reliable systems and services to the electricity infrastructure market FY2018 Vs. FY2015 Revenue 550.0

63. Slide 63: Cautionary Statement

    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

64. Slide 64: © Hitachi, Ltd. 2016. All rights reserved.

    © Hitachi, Ltd. 2016. All rights reserved.

Hitachi — Investor Day (June 2016) on 6ix