Rail Systems

Business Strategy
Hitachi IR Day 2013

June 13, 2013

Hiroshi Nakayama
Vice President and Executive Officer
President & CEO, Rail Systems Company
Infrastructure Systems Group
Hitachi, Ltd.
© Hitachi, Ltd. 2013. All rights reserved.
Rail Systems Business Strategy

Contents
1. Overseas Business Development
2. Business Performance Trends and Targets
3. Business Overview and Market Environment
4. Growth Strategies
5. Conclusion

© Hitachi, Ltd. 2013. All rights reserved.

1-1. Overseas Business Development (1)

Turn-key orders for “Urban Railway Line 1” in Ho Chi Minh City, Vietnam(June 11, 2013)

Project Overview
A new line that is scheduled to become operational in early 2018. The 19.7 km line
includes both underground and elevated tracks. It will connect Ben Thanh in the
center of Ho Chi Minh City with Suoi Tien, a bus terminal to the northeast of the city.

 Customer : Management Authority for Urban Railways

of the People’s Committee of Ho Chi Minh
City Excerpt from Ministry of Land,
Infrastructure, Transport and
 Contract scope : 17 train sets (total of 51 cars), signaling Tourism materials
and telecommunication system, power
supply system, platform screen doors, Suoi Tien
and depot facilities.
Line 3B
Maintenance for five years following
Line 2
the start of commercial operations
(separate agreement is to be concluded
at later stage)
 Delivery date : 2016 (first series of train sets) Line 1 (Japanese
 Contract value : approx. 37 billion yen ODA loan project)
Line 6 Saigon
･Total track length:
Station approx. 20 km
Ben Thanh ･Signed ODA loan
Meanings for Hitachi agreements including
STEP in March 2007
Foothold for expanding business opportunities in the urban Line 5 Line 4
transport railway business in Southeast Asia and other region
Line 3A

© Hitachi, Ltd. 2013. All rights reserved. 3

1-2. Overseas Business Development (2)

UK IEP (Intercity Express Programme) Order (July 24, 2012)

Project Overview
 Customer : UK Department for Transport
 No. of rolling stocks : 596
 Delivery : from 2017 to 2019
 Procurement method : PPP (Public Private Partnership) project

Meanings for Hitachi

1. Participate in Rolling stock lease business
Inverness
2. Wide-area expansion of maintenance services
Aberdeen
(Ashford in existence + 11 bases)
3. Establishment of Newton Aycliffe,UK production base Edinburgh

(production starts in FY 2015 ,hiring up to 730) Newcastle

Newton Aycliff
Make this bases as EU production hub （生産拠点予定）
(Planned production base)

Leeds

Doncaster

Maliphant
(Swansea) Worcester Bounce Green
(London)
North Pole
(London)
Stoke Gifford
(Bristol) Ashford
(（現有車両基地）
Existing Depot)

© Hitachi, Ltd. 2013. All rights reserved. 4

1-3. Overseas Business Development (3)

Order for UK Railway Traffic Management System Prototype (August 29, 2012)
Project Overview
A large-scale traffic management system upgrade project encompassing the entire
existing UK rail network (approx. 25,000 km). The project involves separation into
sections and centralized management at 14 operating centers of more than 800
signaling locations.
 Customer : Network Rail Infrastructure Limited (state-run company that owns
and manages railway infrastructure throughout Britain)
 Contract scope : Prototype for evaluation of companies for rollout across the entire
rail network in the UK
 Evaluation announcement : End of 2013 Present
Around
2030
Meanings for Hitachi More than 800 Centralized
1. Europe’s first traffic management signaling locations management at
system project 14 operating centers
2. Foothold for developing across
the UK

© Hitachi, Ltd. 2013. All rights reserved. 5

Rail Systems Business Strategy

Contents
1. Overseas Business Development
2. Business Performance Trends and Targets
3. Business Overview and Market Environment
4. Growth Strategies
5. Conclusion

© Hitachi, Ltd. 2013. All rights reserved.

2-1. FY2012 Results and FY2013 Forecast

(Billion yen)
FY2011 FY2012 FY2013
Results Results YoY Forecast YoY

Revenues 139.6 146.7 105% 150.0 102%

Operating income 4.7 5.0 +0.3 5.1 +0.1

(EBIT) (5.8) (5.2) (-0.6) (4.8) (-0.4)

 FY2012 revenues were higher year over year due mainly to an increase
in traffic management system sales in Japan,
Revenues despite lower sales of electrical components to China.
 Projecting higher revenues in FY2013 year over year due to higher
Shinkansen sales in Japan and higher overseas project sales.

 FY2012 operating income increased year over year due to higher earnings
accompanying the increased revenues from traffic management systems
Operating
in Japan, despite the lower electrical component sales to China, and the
Income benefits from the Hitachi Smart Transformation Project.
 Projecting operating income in FY2013 slightly above FY2012
EBIT: Earnings before Interest and Taxes
© Hitachi, Ltd. 2013. All rights reserved. 7
2-2. Business Performance Trends

Overseas Revenue Ratio Operating

Revenues 65% income

～
(Billion yen) 60% (Billion yen)
39%
20
250 24% 28% 26% 240.0
8.0%
200.0
200 15
6.5% 8.0%
146.7 150.0
150 133.1 139.6 6.5%
4.2% 10
3.6% 3.4%

～
100
1.5% 3.4% 3.4% 3.2% 5
50
1.4%

～
0 0
FY2010 FY2011 FY2012 FY2013 FY2015 FY2016
Forecast Target Target

Rolling stock systems Transport management Operating Operating

EBIT ratio
revenues & control systems revenues income income ratio

© Hitachi, Ltd. 2013. All rights reserved. 8

2-3. Orders

Orders
(Billion yen)

296.7
300 280.0

200

147.6

116.5
100

0
FY2010 FY2011 FY2012 FY2013
Forecast

© Hitachi, Ltd. 2013. All rights reserved. 9

2-4. Differences From Previous Forecast

Revenues IEP schedule Operating

(Billion yen) changed income ratio (%)
320.0 10
300
8
8.0%

～～
200 8.0% 6
146.7
139.6 133.0 6.5%
240.0 4
100 200.0
3.4% 3.4% 2
2.7%

～
0 0
FY2011 FY2012 FY2015 Target FY2016 Target

Revenues Revenues Operating income ratio Operating income ratio

(result land revised forecast) (previous forecast) (result and revised forecast) (previous forecast)

Main Reasons for Differences

FY2012 FY2015
Increase in traffic management Adjustment to target setting
Revenues systems, signaling equipment, based on organic growth and
etc. in Japan changed schedule of IEP
Increase in traffic management
Operating income
systems, signaling equipment, IEP schedule changed
ratio
in Japan.

© Hitachi, Ltd. 2013. All rights reserved. 10

Rail Systems Business Strategy

Contents
1. Overseas Business Development
2. Business Performance Trends and Targets
3. Business Overview and Market Environment
4. Growth Strategies
5. Conclusion

© Hitachi, Ltd. 2013. All rights reserved.

3-1. Revenues by Systems and Products & Services

Transport management & control systems Rolling stock systems

Signaling/
traffic management systems Rolling stock/maintenance

Signaling/train control systems High-speed trains Regional trains

FY2012
39% Consolidated
Revenues
146.7 billion yen
61%
Commuter trains Monorails
Traffic management systems/
power management systems

Electrical components

Air conditioning/ Maintenance

Main circuit/
main motor air-moving systems
Power supply systems Platform gates

No.1 share in Japan

© Hitachi, Ltd. 2013. All rights reserved. 12

3-2. Market Trends

Conditions
18 trillion yen per year (2009-2011 average) ⇒ 20 trillion yen per year (2015- 2017 average) (CAGR 2.6%)
High growth in service and signaling/control businesses
Increased investments in railway networks in emerging countries

Source: UNIFE World Rail Market Study 2012

 Market Size by Segment (1 euro=120 yen)
7.6%
20 trillion yen/year

18 trillion yen/year 0.10 2.9% Others

Systems
integration 1.72 3.0%
9.6%
0.08
Signaling/
control 1.44 4.12 2.1% Asia & 2.1%
Infrastructure 3.63 PacificBy region Europe
Services 26.8% 2015-2017 46.4%
(maintenance, 7.88 2.9% 20 trillion yen
etc.) 6.62
1.9%

North America
Rolling
5.72 6.57 2.3% 17.2%
stock
2.8%

2009-2011 2015-2017 2011-2017 CAGR

© Hitachi, Ltd. 2013. All rights reserved. 13
3-3. Global Position

Hitachi’s Position
Revenues *Figures are for FY2012
(Billion yen)
Overseas Company D
Overseas Company E

1,000
～
～
Overseas Company B
Overseas Company C
Overseas Company A
500
～
～
(FY2016 Target)
(FY2015 Target) 240.0 billion yen
Hitachi (FY2012) 200.0 billion yen
146.7 billion yen

Japanese Company F
0 Operating
5% 10% income ratio
© Hitachi, Ltd. 2013. All rights reserved. 14
3-4. Strengths and Key Targets

Rolling stock systems Transport management & control systems

Higher efficiency, lower environmental impact High reliability, lower environmental impact
Aluminum train technology Signaling/
(high-speed trains, commuter trains) train control systems technologies
 Highly economical next-generation rolling  Signaling systems compliant with European
stock (A-train) standards (ETCS)
Inverter technology  Wireless train control system (CBTC)
 Develop compact, lightweight, low noise Traffic management system technologies
(world-class) products  Provide high-performance, highly functional
systems to support high-density transportation
Hybrid traction system technology
Energy-conserving technologies
 World’s first to enter service
(developed jointly with East Japan Railway
 B-CHOP
(Regenerative Energy Storage System)
Company)
 Smart grid technologies for rail systems
ETCS:European Train Control System
Proven track record in maintenance business (UK) CBTC:Communication Based Train Control

Total project integration (turn-key)

Global business expansion with own core systems technologies
in traffic management, signaling, power supply and rolling stock
© Hitachi, Ltd. 2013. All rights reserved. 15
Rail Systems Business Strategy

Contents
1. Overseas Business Development
2. Business Performance Trends and Targets
3. Business Overview and Market Environment
4. Growth Strategies
5. Conclusion

© Hitachi, Ltd. 2013. All rights reserved.

4-1. Growth Strategy

Rail Systems Business Growth Strategy

Global
 Expand existing bases further (Japan, UK, and China)
 Actively develop new bases (India, Brazil, and Southeast Asia)

Transformation
 Reshape business portfolio
Expand services businesses, increase sales of signaling/
transport management systems, expand the turn-key business
 Expand and enhance product portfolio
Global A-train, global signaling systems, next-generation inverters

Innovation
 Total rail solutions
Propose total rail systems by linking infrastructure control systems and
IT systems
Rail energy management systems concept (GREEN)

© Hitachi, Ltd. 2013. All rights reserved. 17

4-2. Growth Strategy (Global Expansion)

● Europe ● China
・ Expand maintenance business ・ Establish signaling/ control system
throughout the U.K. manufacturing base (2013)
・ Establish rolling stock ・ Expand electrical component
manufacturing base (2015) manufacturing bases (2014)
・ Enter signaling/traffic management
system markets

● Japan
・ Strengthen core product
competitiveness
・ Create new businesses and products
(Energy-conserving systems, etc.)

▲ India
・ Establish new operation
centers ▲ Southeast Asia ▲South America
・ Enter signaling/traffic ・ Complete Urban Railway Line 1 ・ Establish manufacturing
management system markets in Ho Chi Minh City base in Brazil (2014)
・ Establish new engineering centers
Expand and enhance existing bases ・ Capture turn-key projects
Develop new bases

© Hitachi, Ltd. 2013. All rights reserved. 18

4-3. Growth Strategy (Transformation (1))

Reshape business portfolio

Expand service businesses
Expand maintenance business
 Depots in U.K. (Ashford in existence +11 bases)
Expand rolling stock lease business
 IEP rolling stock
Service business ratio Increase Ashford Depot IEP rolling stock
to 15% (2020) (Class 395) (image)

Expand sales of signaling/traffic management systems

Participate nationwide installation project after completion of
UK rail traffic management system prototype project
European standard Signaling systems (ETCS)
Wireless train control system (CBTC)
Expand sales of total project integration (turn-key)
Complete Urban Railway Line 1 in Ho Chi Minh City,
step up efforts to capture turn-key business
Focus on monorail systems
© Hitachi, Ltd. 2013. All rights reserved. 19
4-4. Growth Strategy (Transformation (2))

Expand and enhance product portfolio

Global A-train
Optima product lineup by use
 AT100 (metro/Commuter)  AT200 (regional)
 AT300 (high-speed)  AT400 (monorail)

Global signaling systems

Develop products compliant with
global (European) standards
 UK: Expand ETCS sales through joint development with
Network Rail (apply to IEP train signaling system) AT300 rolling stock (image)
 China: Expand sales of Chinese train control
systems (CTCS)
 India: Expand sales of TPWS (ETCS1)

Next-generation inverters
 Develop SiC inverters for reducing power loss to
contribute to greater energy savings
Inverter control system

SiC: Silicon carbide

© Hitachi, Ltd. 2013. All rights reserved. 20
4-5. Growth Strategy (Innovation (1))

Total rail solutions concept

Integrate services leveraging infrastructure
control systems and IT systems
On-board guidance
Seat reservations system Transport plan

Communications
Control Systems Traffic control

Digital signage Maintenance

IT
Product sales
IC cards
Electronic money
Urban transport
services

Provide total transport solution

from train service to customer service
© Hitachi, Ltd. 2013. All rights reserved. 21
4-6. Growth Strategy (Innovation (2))

GREEN (Rail energy management system concept)

Achieve greater energy conservation by facilitating railcar control synced
with optimal electricity control via the TrainLink wayside and onboard
communications system
Conserve energy through optimal
control by making onboard
systems more intelligent

Base station Tablet terminals

TrainLink Wireless
Wayside and onboard Information
Base station communications sharing server

Wind power SCADA

B-CHOP
generation (Supervisory Control And Data Acquisition)

Optimal energy management synced with

EMS onboard control information

Solar power Batteries EMS : Energy Management System

generation GREEN : Green Rail for Ecological Environment toward the Next generation
© Hitachi, Ltd. 2013. All rights reserved. 22
4-7. Hitachi Smart Transformation Project Progress

Main Initiatives (Complied)

Production Shortened rolling stock production lead times
costs Increased product syncing efficiency

Direct
Increased global procurement efficiency ratio
materials
costs Promoted centralized purchasing

Reduced indirect costs by centralizing and standardizing

Indirect
administrative and overlapping functions
costs Actively utilized global human resources

Main Initiatives (Plan)

1. Further promote local manufacturing bases and global procurement
(UK, China, Brazil, and India)
2. Optimize global logistics
3. Centralize IT and business systems

Targeting cumulative Hitachi Smart Transformation Project benefits of

11 billion yen over the period from FY2011 to FY2015
© Hitachi, Ltd. 2013. All rights reserved. 23
4-8. Measures to Strengthen Cash Flow Management

Areas for Improvement and Issues Specific Initiatives

1. Generate cash flows by shortening

production lead times
Operating cash flows

・Improve asset
efficiency to generate 2. Implement Vendor Managed
the necessary Inventory (VMI)
working capital for 3. Strengthen global supply chain
executing large management in conjunction with
projects Group companies*
* Hitachi Capital, Hitachi High-Technologies and Hitachi
Transport System
投資Improve
効率の改善

1. Strictly select investments

・Increase investment
2. Bolster post-investment
efficiency

returns
monitoring and quickly respond
investment

・Accelerate 3. Reduce capital expenditure

investment return through global procurement

© Hitachi, Ltd. 2013. All rights reserved. 24

Rail Systems Business Strategy

Contents
1. Overseas Business Development
2. Business Performance Trends and Targets
3. Business Overview and Market Environment
4. Growth Strategies
5. Conclusion

© Hitachi, Ltd. 2013. All rights reserved.

5. FY2015 Targets

FY2015 Targets
Revenues: 200 billion yen (overseas revenue ratio: 60%)
Operating income (EBIT): 13 billion yen
(operating income ratio (EBIT ratio): 6.5%)
Gross margin: 1.0 point improvement (Vs. FY2012)
SG&A expenses ratio: 2.1 point improvement (Vs. FY2012)

Accelerate globalization with

technologies developed in Japan
Promote Social Innovation Business

© Hitachi, Ltd. 2013. All rights reserved. 26

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;
 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 acceptance for 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 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 and Europe,
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. 2013. All rights reserved. 27