power systems business strategy - · pdf filetepco/higashidori unit #1 fy2007 fy2013...

Copyright © Hitachi, Ltd. 2005 All rights reserved.1

Shigeharu ManoPresident & Chief Executive Officer

Power Systems

October 6, 2005

Power Systems Business StrategyInitiatives Toward 2015

Hitachi, Ltd.


2.Market Trends

3.Management Vision

4.Technologies and Products

1.Overview of the Power Systems

5.Business Framework

6.Conclusion



2.Market Trends

3.Management Vision




6.Conclusion



Position of the Power Systems1-1.

Hitachi’s Revenues by Industry Segment

Total¥9,027.0 bil.

High Functional Materials & Components

Electronic Devices

Digital Media &Consumer Products

Financial Services

Logistics, Services& Others

Information & TelecommunicationSystems

Power & IndustrialSystems

24％

Power Systems¥520.4 bil.

Industrial SystemsAutomotive SystemsUrban Planning and Development SystemsHitachi Air Conditioning Systems Co., Ltd.Hitachi Construction Machinery Co., Ltd.Hitachi Industrial Equipment Systems Co., Ltd.Hitachi Kiden Kogyo, Ltd.Hitachi Via Mechanics, Ltd.Hitachi Plant Engineering & Construction Co., Ltd., othersFY04 Consolidated Basis (ended March 31, 2005)

※Total revenues are the total after eliminations and corporate items; shares of total revenues by segment are computed based on revenues before eliminations

　¥2,515.3 bil.

Position of Power Systems in Power & Industrial Systems Segment


Overview of the Power Systems

Hokuriku Electric Power CompanyShika Nuclear Power Plant(Steam turbine generators)

Tokyo Electric Power Company (TEPCO)Hitachinaka Power Station(Coal-fired Power Plant)

University of TsukubaProton Medical Research Center(Proton Beam Therapy System for Cancer Treatment)

Power Systems Revenues by Business

Total:¥520.4 bil.

Japan 　74%

Overseas 　26%

Total:¥520.4 bil.

Thermal &Hydroelectric

Systems41%

Nuclear Systems 　37%

Medical Systems1%

Power & Industrial Systems 21%

FY04 Consolidated Basis (ended March 31, 2005)

1-2.

Ratio of Overseas Sales in Power Systems


Power Systems Products

Thermal & Hydroelectric SystemsCoal-fired Power Plant, Boiler, Air Quality Control System, Steam Turbine, Gas Turbine, Combined Power Plant, Hydraulic Turbine, Wind Generator System,Electrical Power Selling, Preventive Maintenance

Nuclear SystemsNuclear Power Plant, Reactor Pressure Vessel, Reactor Internals,Component/Piping Support Structure, Nuclear Fusion Equipment, Accelerator and Superconducting Application System, Condenser, Nuclear Fuel Cycle Facility, Transport and Storage Dual-Purpose Dry Cask, Preventive Maintenance

Power & Industrial SystemsGenerator, General-Purpose Motors, Traction Motors, Substation Equipment, Control and Monitoring System, Power Device, Uninterruptible Power Supply System,Bifacial Photovoltaic Solar Module

Medical SystemsProton Beam Therapy System for Cancer Treatment, Positron Emission Tomography System with Semiconductor Detector,Supporting and Solution Service for Clinical PET

*PET: Positron Emission Tomography

1-3. 1( )


Power Systems Products

Boilers Steam Turbine Generators

Environmental Control Systems

(Desulfurization Systems)

H-25 Gas Turbines

Turbine Runners Nuclear Reactors

Transmission Equipments

Wind-turbine Generators

Uninterruptible Power Supplies Power Devices Small-scale Nuclear

Reactors

Linear Accelerators Accelerators Gantries (Medical Systems) Monitoring and Control Equipments

1-3. 2( )


2.Market Trends

3.Management Vision




6.Conclusion



Domestic Market Trends

Source: Ministry of Economy, Trade and Industry, Summary of Electricity Supply Plan, FY 2005

* Source: computed from actual plant and 　　　　　equipment projects carried out by 10 power 　　companies

■Outlook

FY1993=100%

(¥ bil.)(FY)

３７％

19934,934.1

100%

19983,553.1

72%

20031,770.6

36%

2005(Plan)1,690.7

34%

20041,512.6

31%

13　0.07116.9Hydroelectric

1115.4922.46Incl. BWR*

1216.3233.37Nuclear

2212.34107.99Thermal

No. of Plants

Planned (MW)

No. of Plants

Under Construction (MW)

■Future Power Capacity Development PlansPower capacity scheduled to come on line in next 10 years (FY2005~2014) FY05 planned capital expenditures are expected

to rise year on year for the first time in 12 years

In terms of new capacity, demand is expected to remain firm for thermal power plants and new construction of nuclear power plants is also anticipated

Demand for upgrades to existing facilities is expected to rise to boost output and renew aging equipment

Capital Expenditures of 10 Japanese Power Companies

Gradualincrease

*BWR: Boiling Water Reactor

2-1.


Overseas Market Trends

*Source: International Energy Agency’s International Energy Outlook 2005

Trends in Electricity Consumption

21,400 tril.Wh14,300 tril.Wh 18,900 tril.WhTotal:2015 (forecast)2010 (forecast)2002 (actual)

4.6

3.4

3.31.1

4.3

3.2

2.81.0

U.S.

Europe

China

Others

3.7

2.91.5

Japan 1.0

9.07.6

5.2

(Unit: tril. Wh)

■Outlook for World Electricity Consumption 1.5 times2002 level1.3 times

2002 levelThe U.S., Europe and China will remain theworld’s three largest electricity consumingregionsWorld electricity demand is expected tocontinue expanding

2-2. 1( )


Overseas Market Trends

Coal Oil GasHydroelectric

Other Nuclear

U.S. 51.3% 20.2

*Source: Energy Balances of OECD Countries 2001-2002, others

Features of the Three Largest Electricity Consuming Regions

China 77.2%

Europe 26.9% 33.7%

Stable price of coal prompts reappraisal of coal-fired thermal power generation 　　

Briskness of new facility construction in the U.S.for the first time in almost three decades

The price of crude oil will remain high

More stringent environmental regulations will be imposed on gas emissionsEnergy security will be reviewed

Coal-fired and nuclear power generation underpins the supply of electricity in the world’s three largest consuming regions

■Medium- and Long-term Outlook■Electricity Generating Capacity by Type (2002)

2-2. 2( )

Growing demand for environmental control equipment (flue gas treatment systems) 　　Moves to add this equipment to existing plants worldwide

Increased activity in construction and renewal of nuclear power plantsEnactment of the Energy Policy Act of 2005 in the U.S.


2.Market Trends

3.Management Vision




6.Conclusion



Power Systems Management Vision

Succeed in the global marketplace

Overwhelmingly powerful technologies and products

Business framework deeply rooted in regional markets

3-1.


Coal-fired Power Plants

Focus on Overwhelmingly Powerful Technologies and Products

Maintain and strengthen “monozukuri” (manufacturing) capabilities

Nuclear Power Plants

Proton Beam Therapy Systems forCancer Treatment

Business Policy3-2. 1( )


Create a Business Framework Deeply Rooted in Regional Markets

Domestic OperationsMaintain a powerful sales system based on relationships of trust with customers

Global OperationsDomestic: Globalize Japan—strengthen support functions as the general headquartersOverseas: Localize overseas operation—promote local operations in each region

3-2. 2( )Business Policy


Revenue and Operating Margin Targets

1,000

800

600

400

[(Unit: ¥ billion)]

26% 42% 53%Overseas sales ratio

FY2004 FY2010 FY2015

200

0

10% operating margin

41%

137

21

About40%

About 35

About 10About 15

About45%

About 35

About 5About 15

6% operating margin

Revenue: ¥800.0 billion (FY2015)Operating profit margin: At least 10% (FY2015)

520.4

730.0800.0

Thermal & Hydroelectric Systems

Nuclear Systems

Medical Sytems

Power & Industrial Systems

3-3.

Revenues


2. Market Trends

3. Management Vision

4. Technologies and Products

1. Overview of the Power Systems

5. Business Framework

6.Conclusion



Coal-fired Power PlantsStrengthen key components, including boilers, steam turbines, generators and environmental control systems (AQCS)

Nuclear Power PlantsDevelop key technologies, including next-generation nuclear reactors and preventative maintenance technologies

Proton Beam Therapy Systems for Cancer TreatmentDevelop key technologies, including accelerators and rotating gantry

Focus on Overwhelmingly Powerful Technologies and Products

Maintain and strengthen “monozukuri” (manufacturing) capabilities

Accelerator(Proton Beam Therapy System for Cancer Treatment)

Environmentalcontrol system

Exhaust flue

Desulfurization equipment

Electrostatic precipitator

Denitrificationequipment

Small-scale nuclear reactor

Mainstay Products and Technologies4-1.

*AQCS: Air Quality Control system


Coal-Fired Power Plants

Further refine ultra-super critical pressure coal-fired thermal power generation technology proven in Japan and differentiate Hitachi by improving the performance of key components and leveraging integrated strengths

Trust and brand powerTechnologies for achieving high efficiency using ultra super critical pressure (high temperatures, high pressure)Production of BTG and AQCS equipment with proprietary technologies

Project management capabilities in EPCKnow-how in operating and managing power plants

Boiler Flue gasCoal

Steam

Environmentalequipment

(AQCS)

Steam turbine Generator Electricity

Coal-fired Thermal Power Generation

Strengths of the Hitachi Group

*BTG: Boilar, Turbine and Generator*AQCS: Air Quality Control system*EPC: Engineering, Procurment and Construction

4-2. 1( )



(India) BHEL28.4%

Hitachi27.5%

Mitsubishi Heavy Industries, Ltd.

10.3%

Toshiba Corp.5.7%

(U.S.) GE2.9%

Others25.2%

Share of Orders for Steam TurbinesUsed in Coal-fired Thermal Power Plants

*Source: McCoy Power Reports 2004excluding Chinese manufacturers

Share of Orders for BoilersUsed in Coal-fired Thermal Power Plants

(India) BHEL 21.2%

Hitachi24.7%

(U.S.) B&W17.1%

(U.S.) FW7.3%

(France) ALSTOM6.7%

Others4.4%

Global Share in Key Components (1)

4-2. 2( )

(South Korea) Doosan Heavy Industries

18.6%

*BHEL: Bhart Heavy Electricals Limited *B&W: Babcock & Wilco Company *FW: Foster Wheeler Corporation



*Source: Estimate by Hitachi

Total number of delivery records as of 2002

MHI -Cormetech24％

*IHI: Ishikawajima-Harima Heavy Industries Co.,Ltd.

Hitachi30%

(Germany)Siemens

14%

IHI*9%

Others23%

Hitachi51%(U.S.) GE

13%

Others23%

Global Share in Key Components (2)

Share of Market for Flue Gas Denitration Unit

Share of Market forFlue Gas Desulfurization Unit

4-2. 3( )

Mitsubishi Heavy Industries, Ltd.

13%


Supplied to MidAmerican Energy Company (U.S.)Council Bluffs Energy Center Unit 4(Capacity: 790kW)

Coal-Fired Power Plants (4)4-2.

Strengthen Key Components

Develop highly efficient, low-cost steam turbines and large-scale generators

Develop low-cost boilers with a small environmental impact

Develop high-performance, low-cost AQCS

Slated to come on line in 2007



Steadily complete domestic BWR projects and focus on developing key technologies for preventative maintenance technology as well as next-generation nuclear reactors

Strengths of the Hitachi GroupCapable of handling everything from nuclear reactors to turbinesAbility to create proposals for increasing output of a plant andupgrading aging facilitiesTechnology development capabilities rooted in “monozukuri” DNA

Sophisticated preventative maintenance technologies such as Water Jet Peening (WJP)

Slated to come on line in March 2006

Supplied to Hokuriku Electric Power CompanyShika Nuclear Power Plant No. 2(Capacity: 1,358kW)

WJP is a maintenance technique whereby a high-pressure water jetis applied to the surface of steel structures to reduce the residual tensile stress on surfaces. WJP is effective for maintenance work insidenuclear reactor pressure vessels.

SteamSteam turbine Generator

Electricity

Nuclear Power Plant

Nuclearreactor

Fuel

4-3. 1( )



FY2013FY2007TEPCO/Higashidori Unit #1

After FY2015After FY2009TEPCO/Higashidori Unit #2

FY2014FY2009The Chugoku Electric Power Co., Inc./Kaminoseki Nuclear Power Station No. 1 unit

FY2016FY2011Tohoku-Electric Power Co., Inc./HigashidoriNuclear Power Station No. 2

FY2017FY2012The Chugoku Electric Power Co., Inc./Kaminoseki Nuclear Power Station No. 2 unit

Start of Operations

Start of ConstructionCompany/Plant Name

Oct. 2012Apr. 2007TEPCO/Fukushima Daiichi Unit #8

Oct. 2011Apr. 2007TEPCO/Fukushima Daiichi Unit #7

Mar. 2012Aug. 2006Electric Power Development Co., Ltd. (J-POWER)/Oma Nuclear Power Plant

Dec. 2011Sept. 2005The Chugoku Electric Power Co., Inc./Shimane Nuclear Power Station No. 3 unit

*Source: Ministry of Economy, Trade and Industry, Summary of Electricity Supply Plan, FY 2005

Power Plants Planned in the Next 10 Years (Through FY2014)

Development Plans for ABWR Nuclear Power Plants in Japan

BOPACRAECL(Canada)Canada

BOP

Nuclear reactor-relatedBOP

Nuclear reactor-relatedBOP

Scope

CANDUAECL (Canada)

Reactor Type

Cooperating ManufacturersRegion

ABWRGE (U.S.), Toshiba Corp.

China

ESBWRGE (U.S.), Toshiba Corp.U.S.

Overseas Nuclear Power Plant Projects

*AECL:Atomic Energy of Canada limited*ESBWR:Economic and Simplified BWR*ABWR:Advanced Boiling Water Reactor*CANDU:Canadian Deuterium Uranium Reactor*ACR:Advanced Canadian Deuterium Uranium Reactor*BOP: Balance of Plant (steam turbines, generator-related)

4-3. 2( )


Proton Beam Therapy Systems for Cancer Treatment

Help treat cancer patients worldwide through the creation of proton beam cancer therapy systems that apply atomic accelerator technology.

Market for Radiotherapy Equipment

Particularly effective in the treatment of prostate, breast, lung, ovarian and liver cancersCan be used to treat more than 60% of all cancer patients

Estimated at approx. ¥1.6 tril. worldwide (2004)

Efficacy of Proton Bean Cancer Therapy

Computer graphic of radiotherapy

chamber

Irradiationequipment

Patient Rotating gantry

4-4. 1( )

Quality of Life before and after treatment maintained, minimizes physiological and psychological burden

Non-invasive and few side-effectsFeatures Strength

Irradiation delivered in sync with patient’sbreathing (Hitachi patent)

Technology to control proton beam accurately and safely


U.S.MD Anderson Cancer Center

One of the world’s largest cancer centers, with 65,000 outpatients per year

Applying for U.S. FDA approval : scheduled to start using the system in 2006 Plans to use the system to treat some 3,400 patients a year

4-4. 2( )Proton Beam Therapy Systems for Cancer Treatment

Around 500,000 people diagnosed with cancer each year

Over 300,000 treatable with this system

JapanAround 1 million people diagnosed with cancer each year

Over 600,000 treatable with this system

North America

*FDA:Food and Drug Administration


The backbone supporting the development and production ofcompetitive technologies and products

Maintain and Strengthen“Monozukuri” (Manufacturing) Capabilities

Handing Down Skillsand Technology

A program for databasing Hitachi’s core skills (held by highly skilled veterans) using the latest digital media technologies; skills then transferred to other employees ・Content consists of image, narration and

explanatory text・Covers a wide range of fields, including

machinery processing, assembly, welding and quality control　

・Aids in both strengthening and improving 　　the efficiency of production and design, 　　　including job automation

Participation in World Skills Competition・Hands-on skills learning・Instill pride and confidence in monozukuri・13 Hitachi employees from nuclear systems 　have won the gold medal, the top award

・A technical training school for engineers etc.(Established in August 1959)

e-Meister Activities

Hitachi Technical College

4-5.


Ibaraki

Saitama

TokyoChiba

Kanagawa Hitachi Research Laboratory(Hitachi-city, Ibaraki)Materials, devices, components

Mechanical Engineering Research Laboratory (Hitachikana-city, Ibaraki)Mechatronics systems

Babcock-Hitachi K.K. (Kure Works and Laboratory)(Kure-city, Hiroshima) Boilers and environmental control systems

Hitachi Region Kokubu Region

Power & Industrial Systems R&D Laboratory (Hitachi-city, Ibaraki)Turbines, generators and electrical machinery, transmission

equipment, receiving and transforming equipment, protectionand control systems, power devices

Hitachi Engineering Co., Ltd.Hitachi Engineering & Services Co., Ltd.Other Group companies(Ibaraki)Generation equipment, electrical equipment, inspection facilities, etc.

4-6. Technologyand Product Development Bases

Hitachi Works (Hitachi-city, Ibaraki)

Core electric power and energy systems technologies


2. Market Trends


4． Technologies and Products


5．Business Framework

6．Conclusion



Create a Business Framework Deeply Rooted in Regional Markets

Domestic OperationsMaintain a powerful sales system based on relationships of trust with customers

Global OperationsDomestic: Globalize Japan—strengthen support functions as the general headquartersOverseas: Localize overseas operation—promote local operations in each region

Create a Business Framework for Each Region 5-1.


Global Operations—Domestic—

Upgrade general headquarters’ functions to respond to the needs of each region worldwide

Strengthen support capabilities for overseas operations

Increase the number of foreign employees in Japan・Increase from around 40 at present by at least 5 people a year・Energize communication at the “monozukuri” frontline (design and manufacturing) and

make Japanese employees constantly aware of the world marketplaceIncrease the number of Japanese employees overseas・Around 70 at present・Including design, quality assurance, procurement and other areas, in addition to salesMake greater use of job rotation with overseas bases

5-2.

Globalize Japan


Global Operations—Overseas—

Localize overseas bases

Strengthen partnerships・North America　GE, leading engineering companies・Canada　AECL, leading engineering companies・Europe　Leading engineering companies・China　Dongfang Electric Corporation, Harbin Electric Machinery Co., Ltd., others

・Employ local management personnel・Employ local engineers・Strengthen project management capabilities and local procurement capabilities・Disseminate local information and business proposal to Japan

Push ahead with business localization in each region to create a business framework that dovetails with local markets

5-3.

Localize overseas operation


Hitachi Power Systems AmericaThermal power plant sales, engineering, procurement, EPC project management

■ Established thermal power systems operating company　 (February 2005)

■ Utilization of manufacturing bases

■ Strengthen alliances with GE, AECL, others

Hitachi Canadian Industries Ltd.Manufacture of generating equipment, maintenance services(established in April 1988)

■ Build a collaborative framework with engineering 　 companies

■ Synergy with Hitachi America, Ltd.

Coal-fired thermal power plantsNext-generation nuclear power plants


Hitachi America, Ltd.(U.S.A./Tarrytown, NY)

<Key Markets>

5-4. Initiatives in North America


Babcock-Hitachi Europe GmbHBoiler engineering, procurement, installation, test operation(acquired in May 2003, made a wholly owned subsidiary inDecember 2003)

■ Made German boiler company a subsidiary(May 2003)

■ Build a collaborative framework with engineering companies

Hitachi Power Systems Europe (tentative)Thermal power plant sales, engineering, procurement, EPC project management

■ Establish thermal power systems operating company(scheduled for around spring 2006)

■ Synergy with Hitachi Europe Ltd.

Coal-fired thermal power plantsEnvironmental control systems (AQCS)

Badcock Hitachi Europe GmbH(Germany/Oberhausen)

5-5. Initiatives in Europe


<Key Markets>


■ Cooperation with Dongfang Electric Corporation

■ Cooperation with Harbin Electric Machinery Co., Ltd.

■ Made manufacturing joint venture a wholly ownedsubsidiary (June 2005)

■ Synergy with Hitachi (China) Ltd.

Dalian Hitachi Machinery & Equipment Co., Ltd.Design and manufacture of thermal, nuclear and hydroelectric power generation equipment, petrochemical plants, cast products,etc.(JV established May 1997, made a wholly owned subsidiary June 2005)

Local partner in thermal power plantsBegan licensing thermal power technology and extending cooperation for local production in 1991Signed transfer agreement for ultra-super critical pressure technologyin 2004

Cumulative orders from Dongfang in China exceed ¥100 billion

Local partner in hydroelectric power plantsBegan licensing technology and cooperating on local productionin 1980

Coal-fired thermal power plantsEnvironmental control systems (AQCS)Nuclear and hydroelectric power plants

Dalian Hitachi Machinery & Equipment Co., Ltd.(Dalian, Liaoning, China)

5-6. Initiatives in China


<Key Markets>


2. Market Trends


4． Technologies and Products


5．Business Framework

6．Conclusion



Revenue: ¥800.0 billion (FY2015)Operating margin: At least 10% (FY2015)

Succeed in the global marketplace with overwhelmingly powerful technologies and products, and a business framework deeply rooted in regional markets

6. Conclusion


CAUTIONARY STATEM ENT Certain statem ents found in this docum ent 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 m ay 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 lim ited to: - fluctuations in product dem and and industry capacity, particularly in the Information & Telecommunication Systems

segment, Electronic Devices segment and Digital M edia & Consumer Products segment; - uncertainty as to Hitachi’s ability to continue to develop and market products that incorporate new technology on a timely

and cost-effective basis and to achieve market acceptance for such products; - rapid technological change, particularly in the Information & Telecommunication System s segment, Electronic Devices

segment and Digital M edia & Consumer Products segment; - increasing commoditization of information technology products, and intensifying price competition in the m arkets for such

products; - fluctuations in rates of exchange for the yen and other currencies in which Hitachi makes significant sales or in which

Hitachi’s assets and liabilities are denominated, particularly between the yen and the U.S. dollar; - uncertainty as to Hitachi’s ability to implement measures to reduce the potential negative impact of fluctuations in product

demand and/or exchange rates; - general socio-economic and political conditions and the regulatory and trade environment of Hitachi’s major markets,

particularly, the United States, Japan and elsewhere in Asia, including, without lim itation, a return to stagnation or deterioration of the Japanese economy, or direct or indirect restriction by other nations on im ports;

- 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 success of restructuring efforts to improve management efficiency and to strengthen competitiveness; - uncertainty as to the success of alliances upon which Hitachi depends, some of which Hitachi m ay not control, w ith other

corporations in the design and development of certain key products; - uncertainty as to Hitachi’s ability to access, or access on favorable terms, liquidity or long-term financing; and - uncertainty as to general market price levels for equity securities in Japan, declines in which may require Hitachi to write

down equity securities it holds. The factors listed above are not all-inclusive and are in addition to other factors contained elsewhere in this document and in othermaterials published by Hitachi.

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