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Revamped Hitachi gearing up for acquisition spree

Conglomerate triples war chest to $9bn: CEO

Hitachi President and CEO Toshiaki Higashihara

TOKYO -- On top of consolidating 14 business operations into four segments, Hitachi is dedicating 1 trillion yen ($8.82 billion) over the next two years toward acquisitions, the CEO told The Nikkei.

Simplification

The Japanese technology giant has been busy transforming itself since booking a 787.3 billion yen net loss in fiscal 2008, the biggest in Japanese manufacturing history. "The profit margin is still low compared with General Electric in the U.S. and Siemens in Germany," said President and CEO Toshiaki Higashihara. Hitachi's operating margin hovers at around 6%, compared with well more than 10% at the two rivals.

In order to raise its competitive advantage, Hitachi will "identify core areas and continue to concentrate resources," said Higashihara. Starting this April, the multinational will reorganize operations into four main segments: energy; industry and distribution; finance and public-sector business; and urban enterprises. Executive vice presidents in charge of each field will draft operational and investment strategies.

The group will seek to maximize synergies between business operations, tapping into the growing prevalence of the "internet of things." For instance, the urban business incorporates household appliances and vehicle components, as well as building management and rails.

"This will lead to new business opportunities, such as submitting the most ideal urban development proposals based on data collected from high-tech appliances and electric vehicles," said Higashihara.

Hitachi raked in 10.03 trillion yen in sales in fiscal 2015. However, its maze of businesses stretches from infrastructure and industrial equipment all the way to defense. "The strategic direction and core areas are difficult to determine," said a securities analyst.

Slimming down for an offensive

Hitachi is able to undertake such a large-scale structural reorganization because it laid the groundwork for massive spending increases. Back in fiscal 2008, the group was briefly considered a sinking ship as it dealt with the fallout of the global financial crisis. But Hitachi's earnings ended up making a dramatic V-shaped recovery.

Then-Chairman Takashi Kawamura demonstrated his leadership skills during the crisis period, and successor and current Chairman Hiroaki Nakanishi paved the way for a resurgence after the storms subsided.

After Higashihara took the reins as CEO from Nakanishi in April 2016, he rapidly began offloading stakes in order to boost operating margins. Hitachi sold off portions of its roughly 60% stakes in Hitachi Transport System and Hitachi Capital to SG Holdings and Mitsubishi UFJ Financial Group, respectively. The conglomerate announced plans in January to sell off its entire ownership of power tools subsidiary Hitachi Koki to American private equity firm Kohlberg Kravis Roberts. Hitachi's three-year plan ending in fiscal 2018 calls for lifting operating margins above 8%.

Free cash flow for the three quarters ended in December stood at 372.4 billion yen. "Our finances are largely stable, and this is a golden opportunity to boost asset efficiency and expand growth investments," said Higashihara.

Hitachi will spend 1 trillion yen on acquisitions over the next two fiscal years, or triple the amount allocated in the previous two years. The funds will mainly go toward accelerating overseas acquisitions within the urban and industry-distribution business segments. The company will also continue to appoint foreign-born and outside talent to its management ranks. Mitsubishi Corp. alum Yoshihiko Kawamura will head up the new investment strategy division.

(Nikkei)

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