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May 11, 2017

New Medium-term Management Plan "Change & Growth" and Long-term "Hitz 2030 Vision"

Hitachi Zosen Corporation has formulated a medium-term management plan, Change & Growth, covering the three-year period starting in FY2017, and a long-term Hitz 2030 Vision, mapping out the ideal image of the Hitachi Zosen Group in 2030. This long-term vision provides the direction of the group’s business and the details of it goals of expanding operations and strengthening profitability. While significant changes in the business environment can be expected over the next 13 years, and goals and strategies will be reviewed at regular intervals, the aim is to be a corporate group with public recognition not only for scale of operations but also for profitability and soundness of management.

Under the previous medium-term management plan, Hitz Vision II, covering the period from FY2014 to FY2016, Hitachi Zosen saw steady expansion in scale of operations. For the most part it achieved its three-year targets in order intake and net sales, but fell below target in all profit-related indices. Initiatives to expand operations saw a certain level of success, namely in business conducted by Hitachi Zosen Inova AG (Switzerland) and by NAC International Inc. (United States), overseas sales in large desalination plant projects, and growth in AOM projects in Japan; however, an uphill struggle continued in creating new products and businesses. Initiatives to strengthen profitability have not yet produced results owing to stagnant overseas projects, sluggish overseas subsidiaries and joint ventures, and technical issues in manufacturing divisions. In efforts to strengthen its financial structure, Hitachi Zosen raised the shareholders’ equity ratio to 29.4% (against a target of 30.6%) and obtained funding through subordinated loans to improve resilience to risks.

Against this backdrop, Hitachi Zosen first drew up the long-term Hitz 2030 Vision with the hope of realizing it through initiatives to close the gap between the present and its future ideal under the new medium-term management plan Change & Growth.

I. Positioning of the new medium-term management plan
Change & Growth is positioned as the first step of growth in the aim to realize Hitz 2030 Vision. Under the three-year plan, Hitachi Zosen intends to rebuild its business foundation, improve productivity, demonstrate group synergy, and strengthen its consolidated management system toward enhancing the strengths of the Hitachi Zosen Group and improving its business infrastructure in the lead-up to 2030.

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II. New long-term Hitz 2030 Vision
1. Hitachi Zosen Group management targets for FY2030 under Hitz 2030 Vision

• 1 trillion yen in net sales and at least 10% in operating margin
• At least 50% in overseas sales and 40% in shareholders’ equity ratio

2. Direction of Hitachi Zosen Group business
Exacerbating environmental pollution and food, water, and energy shortages are two global challenges anticipated in the future. The Hitachi Zosen Group defines “energy” and “water” as its core business segments in the environmental field, and aims to be a provider of solutions that contribute to a “Recycling Society.”

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3. Key initiatives for realizing Hitz 2030 Vision
Hitachi Zosen will work on the five initiatives below toward realizing Hitz 2030 Vision.
(1) Expand the Hitz value chain
Engineering and manufacturing form the foundation of business at Hitachi Zosen. To expand its business in future, the group will aim to branch out into high-profitability fields such as business planning and servicing, thereby boosting overall profits and at the same time differentiating itself from the competition.

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(2) Upgrade existing technologies
Hitachi Zosen will introduce Advanced technology into existing businesses to promote automatic operation and labor saving, optimize performance, and improve prevention and maintenance efforts toward creating added value and enhancing productivity.
(3) Create new products and businesses
Hitachi Zosen will classify new products and businesses into three categories—energy business, water business, and new business—and promote synergy with existing businesses with the aim of commercialization.
(4) Promote globalization
The previous long-term Hitz 2016 Vision sought to expand overseas bases. Hitz 2030 Vision will divide the globe into four broad regions, establish a general headquarters for each, and provide customers with localized products and services toward expanding community-based businesses outside Japan. Through aggressive M&A activity at overseas business companies, it will also continue to expand overseas operations.
(5) Promote diversity management
To foster employee motivation and high productivity, Hitachi Zosen will aim to encourage diverse work styles through talent management—the hiring of diverse human resources, appointment of optimal human resources, and vigorous development of human resources—and the introduction of ICT, AI, and robotics.

III. New medium-term management plan “Change & Growth”
1. Basic strategies of Change & Growth
First step of growth in the aim to realize Hitz 2030 Vision: Improve business infrastructure

Basic strategy 1: Restructure business foundation and improve productivity
Basic strategy 2: Maximize Hitz Group comprehensive strengths
Basic strategy 3: Promote portfolio management

 2. Restructure business foundation and improve productivity
(1) Expand business segments
In engineering and manufacturing divisions, expand the Hitz value chain from the conventional design, manufacturing, and construction only to include upstream business planning and downstream servicing plus business investment, and enhance profitability.
(2) Use ICT
Make use of ICT and robotics to enhance productivity in manufacturing and design divisions, and also in back office divisions.
In efforts to expand AOM projects, work in areas such as extending remote monitoring services to other products (e.g., shield tunneling machines, marine engines), and utilizing big data for stable operation of Energy-from-Waste plants.
(3) Reinforce the Structure of risk management
Strengthen quality control systems to improve risk management in M&A and orders and to reduce technical issues.
(4) Confirm and promote measures to improve profitability
Analyze the external environment and strengthen internal resources for each product model, and devise powerful initiatives (e.g., build technical advantage, fortify solutions, develop new products, standardize, reduce costs) to promote profitability.
(5) Strengthen financial structure and increase reserves for investing in growth
Secure profits through execution of the medium-term management plan, obtain funding through subordinated loans, and otherwise strengthen the group’s financial structure with the aim of upgrading its rating, increasing reserves for investing in growth, and improving resilience to risks.

3. Maximize Hitz Group comprehensive strengths
(1) Strengthen group strategies
Form segment-based clusters of business conducted by Hitachi Zosen and group companies, and aim to maximize group synergy.
(2) Emphasize consolidated business management
Reinforce management of orders and profits on a consolidated basis.

4. Promote portfolio management
Create a categorized portfolio of Hitachi Zosen Group businesses, select growth areas, and concentrate management resources in these areas. For struggling businesses, draw up a scenario to high profitability and promote transformation. Also, actively invest in human resources development to boost the Hitz business infrastructure.

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5. Numerical targets (consolidated)

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INFORMATION