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Social Report

Engagement with Stakeholders

Date:June 13, 2013
Attendee : Takao KanaiManaging Director Fundamental Analysis Citi Research Citigroup Global Markets Japan Inc.
Michiyo MorisawaJapan Director of PRI, Japan Director of CDP, PhD University of Tokyo
Shun-ichiro UchimuraVice President and Executive Officer, General Manager of New Business Development Headquarters Hitachi Chemical Co., Ltd.
Hisashi MaruyamaExecutive Officer, Deputy General Manager of CSR Management Sector Hitachi Chemical Co., Ltd.

Moving Ahead the Next 50 Years

Marking its 50th anniversary, the year 2012 represented a major milestone for the Hitachi Chemical Group. A management workshop was held in which all executive directors, including the president, discussed the past, present and future of the Hitachi Chemical Group, and senior management's thoughts were summed up in a management message. In this special feature, we convey the impressions aired during an exchange of opinions between key figures and Executive Officers that used the management message as a basis for discussion.

Entire Group Workforce's Participation in Management

To encourage the participation of all employees in management, a communication workshop—in which the entire Group workforce could participate—was held following the 50th anniversary. For the event, each of the participants expressed his or her thoughts about the future in One Word (P.20), derived from their respective feelings about the management message, and shared them with senior management. The work of art in the background of the photo above is a communication art photo mosaic created from images next 50 years of Hitachi Chemical. The artwork comprises photos from 16,341 employees, or 96% of the total workforce. Some of these are at the foot of pages 20 to 22.

Management Message Looks to the Future

Michiyo Morisawa Japan Director of PRI, Japan Director of CDP PhD University of Tokyo

Takao Kanai Managing Director Fundamental Analysis Citi Research Citigroup Global Markets Japan Inc.

Shun-ichiro Uchimura Vice President and Executive Officer, General Manager of New Business Development Headquarters Hitachi Chemical Co., Ltd.

Hisashi Maruyama Executive Officer, Deputy General Manager of CSR Management Sector Hitachi Chemical Co., Ltd.

Our Business Leveraging its core competencies, Hitachi Chemical's future business vision is revealed

Maruyama:

Hitachi Chemical is mainly focused on the electronics and automotive fields. To remain sustainable, however, the Company remains aware of the need to get back to basics, of adding function to its core competencies in materials and technologies, and of providing high-end products in step with changes in its business environment. Emphasizing aspects of organizations that have a business perspective and those that take the environment as well as occupational safety and health into consideration, Hitachi Chemical is planning to place more of a focus on each of these areas.

In addition, while maintaining a common awareness, the employees underpinning Hitachi Chemical's operations are continuing to reinvent themselves on a daily basis to become World Class Professionals that can take on the world.

Uchimura:

Our future vision of the business has Hitachi Chemical going beyond chemicals, expanding its business areas, and creating value for the future. This does not mean changing our chemical-based raw materials business and core competencies. In addition to providing materials as well as the processes for their use, steps have also been taken to expand business activities into such areas as efficient parts assembly and modules. To give one example, I mean things like having integrated the energy storage devices business in which Shin-Kobe Electric Machinery was previously involved into Hitachi Chemical, to expand Hitachi Chemical's materials business into the renewable energy field.

Morisawa:

In terms of the UN Principles for Responsible Investment, one criterion for determining which companies will probably survive over the long term uses not only financial information but also environmental, social, and governance (ESG) information. Although the weighting of ESG information may differ depending on the particular sector or business, we can expect investors to highly value Hitachi Chemical when disclosing more information regarding its energy storage devices business.

Kanai:

From the investor perspective, in the case of social issues that include those in the environmental and energy fields, many other companies will be eyeing the same fields, in other words because these are growth areas. A company that clearly possesses unique core competencies and of course has a clear picture of how they will be utilized cannot very easily tie them into profit amid intense competition if that company has no mechanism for ensuring profit built into its own management system.

Hitachi Chemical's medium-term management plans will be incorporating the introduction of Return On Invested Capital (ROIC) as an investment indicator to enhance profitability. As far as I am aware, this is the first time this has been tried at a Japanese chemical company. Expected to become established practice in the years to come, this move should further raise Hitachi Chemical's profitability.

Our Value A marketing eye is indispensable in business-creating R&D

Uchimura:

Hitachi Chemical is setting up a marketing role in its Research and Development Section. As it had proven difficult to forecast the market over the next 10 or 20 years, and development can never keep pace with the needs of a market that is changing on a daily basis if you adopt a wait and see approach, we are now conducting training of marketing with experts.

Maruyama:

We recognize that our ability to link the Company's technologies, or in other words its seeds, to the needs of customers through marketing is both a major challenge and critical issue.

Kanai:

Also, as investors have a feel for and understand the unprecedented changes in the market, it seems there is a possibility that management efforts of a company like yours would win approval. It's vitally important that there is the system that can create new businesses.

Morisawa:

Appearing only in quarterly financial analyses and taking time to produce results, the R&D portion is not easily evaluated. It is my belief that the mechanism for having R&D fairly assessed is responsible investment. Promoting the disclosure of information of a non-financial nature, such as R&D, could as a result be expected to attract more investment than before.

Uchimura:

In addition, Hitachi Chemical makes it a point to conduct an environmental compatibility assessment at the time of each R&D design review. There are also instances where costs are reduced when environmentally conscious products are brought to the market. For example, modifications to manufacturing processes that result in lower energy consumption help to pare down costs at the same time. Moving forward, Hitachi Chemical is working diligently to promote environment-friendly management across the entire supply chain from procurement to product use by the customer.

Morisawa:

Regarding supply chain management, increasing emphasis is also being placed on not only the environment, but also governance, labor, and employment practices of suppliers. It is desirable to visualize the associated risks and make procurement traceable.

Maruyama:

Customers are increasingly expecting us to monitor and manage our suppliers to address environmental concerns. In this regard, Hitachi Chemical has continued to conduct supplier surveys for some time and will do so in the future.

Morisawa:

With activities precisely such as these, I think it perfectly fine for Hitachi Chemical to be more proactive in its disclosure of information. For progressive activities as well, stakeholders can understand for the first time only when we communicate this through information disclosure.

Kanai:

Outside Japan, and particularly when compared with Asian companies, what Japanese companies undertake as a matter of course will lead to reliability. After taking into consideration product competitiveness, potential and profitability, these undertakings can be expected to become increasingly important going forward.

Our People Human resources are very much a company asset. Educating employees who are capable of reinventing themselves every day

Maruyama:

In step with globalization, the work conditions that satisfy employees that they can benefit from working all over the world—and the environment for them to reinvent themselves and study on a daily basis—have to be created beyond borders. Therefore, with a view to standardizing an evaluation system at a global level, we will commence the operation of a new evaluation system from October 2013. Although I think it will prove very challenging, this is simply something we have to do. The plan is to gradually deploy the system overseas in the years to come.

Morisawa:

For Hitachi Chemical to still be a sound company in 50 years time, the most important factor will be its people. For example, if personnel who have been heavily involved in R&D end up quitting, new business possibilities may fade. In other words, the establishment of a fair and impartial human resource evaluation system not only has a social aspect in curbing the number of employees who leave, it is also a benefit for Hitachi Chemical business itself.

A woman has been appointed as the Outside Director, but as going from zero to one marks a radical departure, I believe that you will want to continue and intensify your efforts in this respect.

Kanai:

I believe that the introduction of a standardized human resource evaluation system will be a pioneering initiative within the chemical industry. However, you have no foreign nationals at the Director or Executive Officer level. As there is no denying that Hitachi Chemical lags behind the industry in this respect, this is something that you will definitely want to address.

In addition, profit is the foundation of all management activities. If there is profit, you can achieve what you first set out to achieve. As this is connected to a number of factors, including workforce motivation and the sense of having a presence in society, and as you will know linked to value, I will certainly be hoping to restore profit.

Our DNA In Summary Revitalizing Hitachi Chemical's DNA, Moving Ahead the Next 50 Years

Uchimura:

Based on the view that they are always needed to create new businesses, Hitachi Chemical's technological developments—we don't venture to use the words research and development—are incorporated in the New Business Development Headquarters. Hitachi Chemical has constantly been a pioneer of the times, and from that very pioneering spirit may derive ideas that form the source of developments.

Moreover, Hitachi Chemical plans to shift its attention to the environment, energy and life sciences as the next pillars to carry on from the current information and communication-centered lineup of electronics and automotive fields. In this way, Hitachi Chemical shows flexibility in its ability to select markets in which challenge in keeping with the times. This is a feature of our company, in other words could be said to be part of our DNA.

Maruyama:

I may be repeating something here, but that kind of flexibility is being leveraged by the core competencies for the first time. For Hitachi Chemical to continue developing by combining and amalgamating materials technologies and compound technologies in the same way it has up to now will mean basing its business on customer needs that change on a daily basis; in other words developing a business that is strongly customer-oriented will be an absolute requirement. We hope to be able to continue to offer some expert advice.

Each thought put into One Word

At the end of the communication workshop, each participant expressed his or her thought on the future by writing a single kanji character or word; we present some of them here. They represent the determination expressed by each and every Hitachi Chemical Group employee as they aim for the next 50 years.

Hitachi Chemical Europe GmbH Sebastian Fine "Improvement." A key word for the Company to build a long, dynamic, and bright future; to respond to an ever-changing business environment; and to remain world class professional.

Shinichi Arai Japan Brake Industrial Co., Ltd. Shin ("Confidence"). The future is anyone's guess. That's why it is important to maintain the belief that anything can be achieved if you try. If this mindset is linked to colleagues in whom we have complete faith then we can face any challenge and build a better future.

Masanori
Sukenobu Hitachi Kasei Polymer Co., Ltd.Uruoi ("Graceful"). I chose this character because I hope that the Hitachi Chemical Group will be still prosperous and graceful in 50 year time.

Zhang Yan Hitachi Chemical (Nantong) Co., Ltd. Kizuna ("Emotional Ties") The importance of maintaining close ties was realized following the unprecedented disaster that struck Japan in 2011. So that Hitachi Chemical makes further advances over the next 50 years, I want us to ensure close ties as we globally move ahead arm in arm.

Naoki Asano Hitachi Chemical Co., Ltd. I am involved in new product R&D. I chose idomu (meaning "to defy") to convey my thoughts about defying the boundaries of our existing business areas, of taking on the challenges of new fields, and of creating new products that will be recognized by customers for their value.

Saki Murakami Hitachi Kasei Shoji
Co., Ltd. "Diversity." It's only to be expected that each of us is different. But if we combine those diverse capabilities, I believe that Hitachi Chemical will be able to overcome any difficulty that comes its way over the next 50 years.

Hitachi Chemical (Thailand) Co., Ltd. Thasan Tochan My word is heng, which is Thai for "good luck". I chose this word in the hope that something good will come from it, so that the Hitachi Chemical will remain a group of companies able to make wonderful contributions to society through the development of superior technologies and products.

Kenji Hansaki Namie Hitachi Chemical Co., Ltd. Fuku ("Good fortune"). I wrote a character that implies that, as long as everyone's happy, good fortune will beckon for the Company, too. I also chose this character because it's used to write Fukushima, my home prefecture, a place I like and that will always be close to my heart.

 
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