Hitachi Koki Interim Financial Report April 2001

1. Hitachi Koki's Basic Management Policies

The Hitachi Koki Group's fundamental management policy is to contribute to the betterment of society by developing products based on its outstanding original technologies. In each of its three product groups--power tools, printing systems, and scientific instruments-- Hitachi Koki supplies easy-to-use and safe products in markets worldwide. Moreover, in accordance with its "Customer First" philosophy, Hitachi Koki aims to rapidly introduce appealing new products while engaging in vigorous marketing and service activities. Hitachi Koki is fortifying its global consolidated operations by strengthening its ties with various Hitachi Koki Group companies. In the 21st century as well, the Hitachi Koki Group will strive to become the number-one company globally in each of its product and business fields as it meets challenges to "create products" by drawing on its world-class technologies.

2. Strategies For Building An Organization For Managing Business Activities
The Hitachi Koki Group recorded net losses for the two consecutive fiscal years ended March 31, 1999, and March 31, 2000. In view of this performance, Hitachi Koki has moved decisively to reform its business structure and its operations with the goals of strengthening its business organization and fortifying its competitiveness. Specifically, on April 1, 2000, Hitachi Koki 1) introduced a business group system, 2) introduced an executive officer system, 3) spun off businesses as separate companies, 4) transferred businesses to subsidiaries, and 5) strengthened its marketing capabilities. Thanks to the implementation of these measures, Hitachi Koki recorded a profit in the fiscal year ended March 31, 2001. Nevertheless, Hitachi Koki believes that it has yet to recover to full strength. To achieve a full-fledged recovery in business performance, we are maneuvering decisively to establish an organization for managing our business activities from the perspective of global consolidated management. Steps taken include speeding up new product development, strengthening our marketing capabilities, and consolidating or eliminating overseas production bases.

3. Medium-Term Management Strategy

The Hitachi Koki Group has formulated its Medium-Term Management Plan and has worked toward attaining the objectives of this plan, which is guiding the Group's operations from fiscal 2001 through fiscal 2003. However, faster-than-anticipated changes in the economic and business environment have prompted Hitachi Koki to reevaluate this management plan to more effectively respond to this evolving environment. As such, we recently carried out a revision of our Medium-Term Management Plan. Amid the increasingly severe business environment, we are taking steps to attain newly established targets under this plan and are pressing ahead with the implementation of aggressive management strategies.

An Outline of Hitachi Koki's Medium-Term Management Plan

(1) Target Values
The Hitachi Koki Group aims to record consolidated net sales of ¥150 billion, operating income of ¥8.4 billion, recurring income of ¥7.2 billion, income before income taxes of ¥6 billion, and net income of ¥4.2 billion in fiscal 2002, ending March 31, 2003. To attain these targets, the Hitachi Koki Group will strengthen consolidated operations, make extensive efforts to raise the efficiency of its management, strengthen its cost-competitiveness, and fortify its new product development capabilities.

(2) Measures for Achieving Targets
a. Strengthen the Hitachi Koki Group's consolidated management
· Thorough implementation of global management (includes consolidating or eliminating overseas bases)
· Carry out a sweeping reform of unprofitable bases (problem companies)
· Facilitate the independence of affiliated subsidiaries and expand revenues at these subsidiaries
b. Fortify Group business strategies
· Strengthen marketing and product planning capabilities
c. Extensively implement highly efficient management
· Progress with highly efficient management through the Companywide introduction of total supply chain management (TSCM)
· Improve consolidated cash flow
d. Strengthen our cost-competitiveness
· Focus on lean management through Six Sigma activities
· Reduce costs through the strategic procurement of materials and components (Procurement Renewal Project (PRP))
· Reevaluate unprofitable products
· Mutually supplement product lines by vigorously promoting alliances
e. Strengthen new product development capabilities
· Concentrate on the development of strategic new products (through ties with the Hitachi Group)
· Reduce product development times through the aggressive promotion of analytical lead designs.

(3) Strategies for Achieving the Objectives set by Each Product Group
1) Power Tools Group
a. Review production bases
The Power Tools Group intends to enhance production efficiency globally by taking such steps as establishing the new Manufacturing Control Department on April 1, 2001, and building a single structure for controlling domestic and overseas production bases. We are particularly devoting significant efforts toward increasing and strengthening production facilities at our production bases in China to expand and upgrade the capabilities of these plants as production bases for supplying markets worldwide.
b. Fortify sales capabilities
The Power Tools Group is working energetically to expand sales via home center channels through such measures as establishing a Home Center Business Promotion Department on July 1, 2000. As an additional measure, on April 1, 2001, Hitachi Koki absorbed the Parts Sales and Service Division of Hitachi Koki Parts Center Co., Ltd., a subsidiary, with the aim of raising efficiency and expanding sales.
c. Focus on the development of new products as well as speed up new product development
The Power Tools Group is concentrating on developing products with a large market, such as cordless power tools. In keeping with these efforts, in March 2001, we commenced sales of a super cordless impact driver that features optimal design achieved through computer analysis.

2) Printing Systems Group
a. Develop next-generation continuous-paper laser printers
The Printing Systems Group is developing even higher-speed, higher- image quality printers that integrate the world's fastest printing speed technologies. These printers have output quality that reaches 600 dpi at speeds as high as 324 pages per minute.
b. Develop cut-sheet laser printer series
Following the launch of the DDP 70 high-speed cut paper laser printer in fiscal 2000 ended March 31, 2001, this group is strengthening sales of its print-on-demand products, which includes the planned launching of the DDP92 series that achieves even higher speeds.
c. Develop high-end color printers
As a new business, the Printing Systems Business Group has designated the development of high-speed, high-end color printers as one of its strategic projects and is working ambitiously to develop such products.
d. Strengthen its solutions business and fortify independent marketing
The Printing Systems group is forging stronger ties with Hitachi, Ltd. for the development of such products as controllers and systems as well as is proceeding with the independent marketing of print-on- demand products.
e. Rebuild the management of HIKIS
The Printing Systems Group has been rebuilding the management of HIKIS (Hitachi Koki Imaging Solutions, Inc.). However, along with a delay in the initial plan, we reworked this plan amid an extremely volatile business environment. This group is now vigorously implementing the reworked plan, which contains such measures as making large reductions in workforce, consolidating or eliminating marketing bases, and expanding product sales.

3) Scientific Instruments Group
a. Expand sales of centrifuges for use in biotechnology fields
The Scientific Instruments Group is strengthening its product development capabilities in such fields as genome drugs, and these efforts include the launching of sales of the Microplate Robot AP series in March 2001.
b. Strengthen global business capabilities in centrifuges
The Scientific Instruments Group has strengthened its ties with Kendro Laboratory Products, of the United States. Besides traditional ultrahigh-speed preparative ultracentrifuges, in 2000 we inaugurated sales of a large-scale continuous flow ultracentrifuge used in the manufacture of various types of vaccines developed using biotechnologies.

4. Management Idices That Will Serve As Targets

Through the various strategies of the previously mentioned Medium-Term Management Plan, Hitachi Koki is striving to expand sales and reduce its costs to improve consolidated profitability and achieve a recurring profit to consolidated sales ratio of 5% for the period ended March 31, 2003.
Hitachi Koki is also working toward the establishment of a structure that will enable it to achieve a consolidated ROE of 5% in the near term and more than 8% over the long term. In addition, Hitachi Koki aims for a consolidated ROA of 4% in the near term and more than 6% over the long term.

5. Policy On The Distribution Of Profits

Hitachi Koki's basic policy regarding the allocation of profits is to distribute a portion of profits to shareholders as well as to allocate profits to its internal reserves on making a comprehensive consideration of a diverse range of factors, such as future business plans, business results, and its financial situation.
Emphasizing the efficient use of its internal reserves, Hitachi Koki concentrates investments made with internal reserves primarily for the creation of new core products and technologies and for the rationalization of facilities.
Regarding dividends, based on a careful evaluation of various circumstances, Hitachi Koki will pay ¥4 of cash dividends per share. Together with an interim dividend already paid, the total annul dividend becomes ¥8 per share, an increase of ¥2 as compared to the previous year.

6. Basic Policies Regarding Related Parties

Looking at Hitachi Koki's shareholders' situation, Hitachi, Ltd. holds approximately 23% of Hitachi Koki's outstanding shares, making it the Company's largest shareholder. Companies in the Hitachi Group, including Hitachi, Ltd., hold a total of approximately 32% of the shares in Hitachi Koki.
In this manner, Hitachi Koki maintains close ties with the Hitachi Group. Hitachi Koki engages in business activities based on these strong affiliations, which include cooperating with Hitachi, Ltd. as a partner in developing printer products while commissioning with Hitachi. Ltd. for the sales of a portion of Hitachi Koki's printer products.
One of Hitachi Koki's eight directors and two of its four auditors assume offices concurrently with those of Hitachi, Ltd.


		Financial Report, 2001, to TSE
		This page is taken from a report on Hitachi Koki's management policy and business results for the year ended March 31, 2001, which was filed with the Tokyo Stock Exchange on April 27, 2001, in advance of the annual shareholders' meeting. -Management Policies- 1. Hitachi Koki's Basic Management Policies The Hitachi Koki Group's fundamental management policy is to contribute to the betterment of society by developing products based on its outstanding original technologies. In each of its three product groups--power tools, printing systems, and scientific instruments-- Hitachi Koki supplies easy-to-use and safe products in markets worldwide. Moreover, in accordance with its "Customer First" philosophy, Hitachi Koki aims to rapidly introduce appealing new products while engaging in vigorous marketing and service activities. Hitachi Koki is fortifying its global consolidated operations by strengthening its ties with various Hitachi Koki Group companies. In the 21st century as well, the Hitachi Koki Group will strive to become the number-one company globally in each of its product and business fields as it meets challenges to "create products" by drawing on its world-class technologies. 2. Strategies For Building An Organization For Managing Business Activities The Hitachi Koki Group recorded net losses for the two consecutive fiscal years ended March 31, 1999, and March 31, 2000. In view of this performance, Hitachi Koki has moved decisively to reform its business structure and its operations with the goals of strengthening its business organization and fortifying its competitiveness. Specifically, on April 1, 2000, Hitachi Koki 1) introduced a business group system, 2) introduced an executive officer system, 3) spun off businesses as separate companies, 4) transferred businesses to subsidiaries, and 5) strengthened its marketing capabilities. Thanks to the implementation of these measures, Hitachi Koki recorded a profit in the fiscal year ended March 31, 2001. Nevertheless, Hitachi Koki believes that it has yet to recover to full strength. To achieve a full-fledged recovery in business performance, we are maneuvering decisively to establish an organization for managing our business activities from the perspective of global consolidated management. Steps taken include speeding up new product development, strengthening our marketing capabilities, and consolidating or eliminating overseas production bases. 3. Medium-Term Management Strategy The Hitachi Koki Group has formulated its Medium-Term Management Plan and has worked toward attaining the objectives of this plan, which is guiding the Group's operations from fiscal 2001 through fiscal 2003. However, faster-than-anticipated changes in the economic and business environment have prompted Hitachi Koki to reevaluate this management plan to more effectively respond to this evolving environment. As such, we recently carried out a revision of our Medium-Term Management Plan. Amid the increasingly severe business environment, we are taking steps to attain newly established targets under this plan and are pressing ahead with the implementation of aggressive management strategies. An Outline of Hitachi Koki's Medium-Term Management Plan (1) Target Values The Hitachi Koki Group aims to record consolidated net sales of ¥150 billion, operating income of ¥8.4 billion, recurring income of ¥7.2 billion, income before income taxes of ¥6 billion, and net income of ¥4.2 billion in fiscal 2002, ending March 31, 2003. To attain these targets, the Hitachi Koki Group will strengthen consolidated operations, make extensive efforts to raise the efficiency of its management, strengthen its cost-competitiveness, and fortify its new product development capabilities. (2) Measures for Achieving Targets a. Strengthen the Hitachi Koki Group's consolidated management · Thorough implementation of global management (includes consolidating or eliminating overseas bases) · Carry out a sweeping reform of unprofitable bases (problem companies) · Facilitate the independence of affiliated subsidiaries and expand revenues at these subsidiaries b. Fortify Group business strategies · Strengthen marketing and product planning capabilities c. Extensively implement highly efficient management · Progress with highly efficient management through the Companywide introduction of total supply chain management (TSCM) · Improve consolidated cash flow d. Strengthen our cost-competitiveness · Focus on lean management through Six Sigma activities · Reduce costs through the strategic procurement of materials and components (Procurement Renewal Project (PRP)) · Reevaluate unprofitable products · Mutually supplement product lines by vigorously promoting alliances e. Strengthen new product development capabilities · Concentrate on the development of strategic new products (through ties with the Hitachi Group) · Reduce product development times through the aggressive promotion of analytical lead designs. (3) Strategies for Achieving the Objectives set by Each Product Group 1) Power Tools Group a. Review production bases The Power Tools Group intends to enhance production efficiency globally by taking such steps as establishing the new Manufacturing Control Department on April 1, 2001, and building a single structure for controlling domestic and overseas production bases. We are particularly devoting significant efforts toward increasing and strengthening production facilities at our production bases in China to expand and upgrade the capabilities of these plants as production bases for supplying markets worldwide. b. Fortify sales capabilities The Power Tools Group is working energetically to expand sales via home center channels through such measures as establishing a Home Center Business Promotion Department on July 1, 2000. As an additional measure, on April 1, 2001, Hitachi Koki absorbed the Parts Sales and Service Division of Hitachi Koki Parts Center Co., Ltd., a subsidiary, with the aim of raising efficiency and expanding sales. c. Focus on the development of new products as well as speed up new product development The Power Tools Group is concentrating on developing products with a large market, such as cordless power tools. In keeping with these efforts, in March 2001, we commenced sales of a super cordless impact driver that features optimal design achieved through computer analysis. 2) Printing Systems Group a. Develop next-generation continuous-paper laser printers The Printing Systems Group is developing even higher-speed, higher- image quality printers that integrate the world's fastest printing speed technologies. These printers have output quality that reaches 600 dpi at speeds as high as 324 pages per minute. b. Develop cut-sheet laser printer series Following the launch of the DDP 70 high-speed cut paper laser printer in fiscal 2000 ended March 31, 2001, this group is strengthening sales of its print-on-demand products, which includes the planned launching of the DDP92 series that achieves even higher speeds. c. Develop high-end color printers As a new business, the Printing Systems Business Group has designated the development of high-speed, high-end color printers as one of its strategic projects and is working ambitiously to develop such products. d. Strengthen its solutions business and fortify independent marketing The Printing Systems group is forging stronger ties with Hitachi, Ltd. for the development of such products as controllers and systems as well as is proceeding with the independent marketing of print-on- demand products. e. Rebuild the management of HIKIS The Printing Systems Group has been rebuilding the management of HIKIS (Hitachi Koki Imaging Solutions, Inc.). However, along with a delay in the initial plan, we reworked this plan amid an extremely volatile business environment. This group is now vigorously implementing the reworked plan, which contains such measures as making large reductions in workforce, consolidating or eliminating marketing bases, and expanding product sales. 3) Scientific Instruments Group a. Expand sales of centrifuges for use in biotechnology fields The Scientific Instruments Group is strengthening its product development capabilities in such fields as genome drugs, and these efforts include the launching of sales of the Microplate Robot AP series in March 2001. b. Strengthen global business capabilities in centrifuges The Scientific Instruments Group has strengthened its ties with Kendro Laboratory Products, of the United States. Besides traditional ultrahigh-speed preparative ultracentrifuges, in 2000 we inaugurated sales of a large-scale continuous flow ultracentrifuge used in the manufacture of various types of vaccines developed using biotechnologies. 4. Management Idices That Will Serve As Targets Through the various strategies of the previously mentioned Medium-Term Management Plan, Hitachi Koki is striving to expand sales and reduce its costs to improve consolidated profitability and achieve a recurring profit to consolidated sales ratio of 5% for the period ended March 31, 2003. Hitachi Koki is also working toward the establishment of a structure that will enable it to achieve a consolidated ROE of 5% in the near term and more than 8% over the long term. In addition, Hitachi Koki aims for a consolidated ROA of 4% in the near term and more than 6% over the long term. 5. Policy On The Distribution Of Profits Hitachi Koki's basic policy regarding the allocation of profits is to distribute a portion of profits to shareholders as well as to allocate profits to its internal reserves on making a comprehensive consideration of a diverse range of factors, such as future business plans, business results, and its financial situation. Emphasizing the efficient use of its internal reserves, Hitachi Koki concentrates investments made with internal reserves primarily for the creation of new core products and technologies and for the rationalization of facilities. Regarding dividends, based on a careful evaluation of various circumstances, Hitachi Koki will pay ¥4 of cash dividends per share. Together with an interim dividend already paid, the total annul dividend becomes ¥8 per share, an increase of ¥2 as compared to the previous year. 6. Basic Policies Regarding Related Parties Looking at Hitachi Koki's shareholders' situation, Hitachi, Ltd. holds approximately 23% of Hitachi Koki's outstanding shares, making it the Company's largest shareholder. Companies in the Hitachi Group, including Hitachi, Ltd., hold a total of approximately 32% of the shares in Hitachi Koki. In this manner, Hitachi Koki maintains close ties with the Hitachi Group. Hitachi Koki engages in business activities based on these strong affiliations, which include cooperating with Hitachi, Ltd. as a partner in developing printer products while commissioning with Hitachi. Ltd. for the sales of a portion of Hitachi Koki's printer products. One of Hitachi Koki's eight directors and two of its four auditors assume offices concurrently with those of Hitachi, Ltd. - Business Results - Although housing construction remained flat, the Japanese economy showed signs of recovery in the first half of the fiscal year under review, owing to such factors as an increase in capital investment. In the second half, however, the economy began losing steam and was unable to emerge from its overall slump. In overseas economies, the U.S. economy decelerated sharply in the second half of the year, and the effects of this downturn spread to Europe and elsewhere in Asia. Under these conditions, the Hitachi Koki Group strengthened its consolidated management, took extensive steps to raise efficiency, fortified its cost-competitiveness, and bolstered its product development capabilities as part of aggressive measures aimed at achieving a full-scale recovery in business results. Against this background, in fiscal 2001, the Hitachi Koki Group recorded consolidated net sales of ¥130.7 billion. At the profit level, successful efforts to reduce costs and expenses enabled the Company to record recurring income of ¥1.2 billion and net income of ¥3.0 billion. By posting a profit during the fiscal year under review, Hitachi Koki was able to break its string of two consecutive years of net losses. 1) Power Tools Group The Power Tools Group strengthened its marketing capabilities and introduced new products as it worked to expand sales. These measures notwithstanding, sales remained virtually level compared with those of the previous fiscal year, due to such factors as the adverse effects of the rapidly slowing U.S. economy during the second half of the fiscal year. Nevertheless, this group recorded a profit thanks to the implementation of measures to rationalize its operations, reduce product costs, and lower expenses. As a result of these developments, sales of the Power Tools Group amounted to ¥76.5 billion. 2) Printing Systems Group Sales in the Printing Systems Group rose in the first half of the fiscal year under review but were down slightly in the second half, mainly reflecting a cooling off of demand in the market for high-speed printers. However, the rapid market introduction of the already developed DDP series of printers compensated for the overall decline in sales. During the fiscal year under review, this group implemented a plan to rebuild the operations at HIKIS, a subsidiary that had suffered poor results. These rebuilding measures included introducing a new management team, making large workforce reductions, consolidating and eliminating marketing bases, and expanding sales of Hitachi Koki's products. Reflecting these factors, sales in the Printing Systems Group amounted to ¥50.6 billion. 3) Scientific Instruments Group In the Scientific Instruments Group, higher sales of large and small volume ultracentrifuges as well as high-speed refrigeration centrifuges were supported by vigorous activities in bioresearch in Japan and efforts to strengthen its product lineup by introducing new products. Overseas, this group also achieved higher sales of the large and small volume ultracentrifuges and production-use ultracentrifuges by strengthening our alliance with Kendro Laboratory Products, of the United States. By geographic region, this group posted firm sales in Asia, the United States, and Europe. As a result, total sales in the Scientific Instruments Group amounted to ¥3.6 billion. Business conditions are expected to remains less than favorable in the next fiscal year. Domestically, Japan is currently experiencing deflation and is faced with the problem of dealing with non- performing loans amid growing concerns about a long-term economic slowdown. Overseas, there are mounting concerns about a lagging recovery of the U.S. economy. In the next fiscal period, Hitachi Koki is expecting to record consolidated net sales of ¥138 billion. This is expected to include sales of ¥85.2 billion in the Power Tools Group, ¥49.1 billion in the Printing Systems Group, and ¥3.7 billion in the Scientific Instruments Group. Hitachi Koki also expects to record recurring income of ¥3.4 billion, income before income taxes of ¥2.2 billion, and net income of ¥1 billion.
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