Good morning, ladies and gentlemen. Thank you very much for coming to the results briefing of Fuji Electric despite your busy schedule. I sincerely appreciate it. I also appreciate your ongoing support. We announced financial results yesterday. Financial results for the first half, full-year forecast, and interim dividends were decided at the Board of Directors meeting held yesterday. Fortunately, results exceeded our expectations. We also made an upward revision of the full-year forecast. Before I came here, I checked our stock price. It was up 11% and exceeded JPY 760. The number slightly scared me, in order not to fall short of such expectations, I will continue to do my best in my work. In today's briefing, firstly, I will give you a general overview. Secondly, Mr. Arai will discuss financial results forecast and others. Mr. Arai is Corporate General Manager, Corporate Management Planning Headquarters.
He's basically responsible for financial numbers. In April this year, we established Power Electronic Systems Business Group as a basis for growth for Fuji Electric. Through reorganization, we integrated former industrial infrastructure, power electronics, and social engineering systems into one business group. Fuji Electric shifted to sales and business operation in which we can propose entire systems, including components. Mr. Tomotaka is the Head of Power Electronic Systems Business Group. I think you have many questions about the business. I hope you will ask questions. With that in mind, Mr. Tomotaka is joining us today. I think three of us will be able to answer to your questions. We are happy if we can have your frank questions and opinions later. We announced full-year forecast yesterday. Details will be given later. We revised up net sales forecast by JPY 20 billion from JPY 850 billion to JPY 870 billion.
We revised up operating income forecast from JPY 48 billion to JPY 52 billion. That means JPY 54 billion of operating income got within reach. The targets for fiscal year 2018, the final year of the current medium-term management plan, include net sales of JPY 900 billion, operating margin of 6%, and operating income of JPY 54 billion. Although we didn't announce, based on the current situation, we expect orders will exceed JPY 900 billion. Fuji Electric is performing very well for the first time in a long time. Many other companies also made an upward revision. We are following trends and also making steady progress. I talked about Power Electronic Systems a while ago. It has been only six months since April, awareness of our employees changed significantly.
In the past, for example, our employees went to sell single items such as transformers or went to attend technical meetings of transformers and came back after meetings. They are doing activities to sell related products or propose systems centering around the product. As a result, we are receiving additional orders from the same customers. At the same time, we are hearing voices of customers who are surprised at the broad scope of activities of Fuji Electric. I don't think personally it was a wrong decision to establish Power Electronic Systems Business Group and to establish current structures for sales or technological development. In the remaining six months, we will seriously build foundation once again for 2018 and onwards. I think it is an important point.
As for Food and Beverage Distribution, in the vending machine business in China, investment level was not so high as we thought it would be. We said investment level would recover slightly in the second half. Around September, we finally began to see recovery. In particular, new customers became active in investment. We will not be able to achieve initially forecasted figures at all, but we established a foothold for 2018. At the same time, Kubota will exit from vending machine industry. We decided to acquire Kubota's Indonesian vending machine company entirely. Asia is growing at a pace as fast as China, although volume in Asia is lower. We are producing vending machines in our Thai factory. We will discontinue that and consolidate production of vending machines in Indonesia. For vending machine business in Asia, we will manage the business in three locations, including Indonesia, China, and Japan.
Thai factory will be 100% dedicated factory for Power Electronics Systems. Besides, power Semiconductors business is performing very well currently. Specific numbers will be given later. Frankly speaking, whatever is produced, we will sell. That is a situation seen in the market. The issue is to what extent wafer or other parts can be procured. That is the biggest point. As the situation is as I described, we are receiving lots of requests for price increases for direct materials. How we will overcome that situation is a challenge. When direct material cost increase, I often tell our employees to increase our selling prices, but they say it is impossible, so I tell them not to decrease prices. Salespeople for Semiconductors are currently taking actions. When we forecast demand in 2018, we cannot possibly expect a drop in demand, including demand for automotive electronics.
In particular, in 2019 onwards, demand of power Semiconductors for automotive electronics is likely to increase immediately. Activities for specification verification and approval are progressing smoothly. In light of such circumstances, we decided to move up timing of capital investment to this year in anticipation of situation in not only fiscal year 2018, but also fiscal year 2019. Original forecast of capital investment for this fiscal year was JPY 32 billion. For the time being, we are looking to accelerate approximately JPY 17 billion of capital investment in Semiconductors. By doing so, we will somehow be able to handle requested volume from customers. We will make a further capital investment next year and prepare for 2019 onwards. When I look at markets, Power Electronics Systems, Industry Solutions, power Semiconductors business, and ED&C Components business , which was spun off, are performing very well. I think strong performance will continue for some time.
I do not want to take much of your time, and let me close my remarks. For the next six months toward March next year, all of our employees will do our best. I would appreciate your continued support. Thank you very much for today.
Good morning, ladies and gentlemen. I am Arai from Corporate Management Planning Headquarters. As I am a person in charge of finance, I will give an explanation directly to you from this time. As President mentioned earlier, we achieved very good results in the first half. Operating income, ordinary income, and net income attributable to owners of parent reached record highs. Now, I will give you a summary of year-on-year comparison of consolidated financial results for the first half. Net sales were JPY 395 billion, up JPY 43.5 billion year-on-year. Operating income was JPY 12.7 billion, up JPY 6.9 billion year-on-year. Ordinary income was JPY 11.7 billion, up JPY 9 billion year-on-year.
Net income attributable to owners of parent was JPY 6.2 billion, up JPY 6.2 billion year-on-year. As for factors for change in net sales, JPY 8.9 billion was from gain on translation of earnings of overseas subsidiaries. Demand increase, excluding exchange rate effect, pushed up net sales by JPY 34.6 billion. As for factors for change in operating income, price decline pushed down operating income by JPY 7.8 billion and the increase in fixed cost by JPY 1.1 billion. Increase in production and sales volumes pushed up operating income by JPY 7.8 billion, cost reduction by JPY 7 billion, and positive exchange rate effect by JPY 900 million. Positive factors totaled JPY 15.7 billion. As a result, operating income was up JPY 6.9 billion. Non-operating items mainly include JPY 2.2 billion of improvement in foreign exchange losses. As a result, ordinary income increased.
Operating income was up about 115% year-on-year and exceeded record high operating income of JPY 6.9 billion achieved so far by about 85%. For reference, record high ordinary income was JPY 7.6 billion, and record high net income was JPY 4.2 billion. Both were exceeded this time. Let me move on to year-on-year comparison of net sales and operating income by segment. Power Electronics Systems - Industry Solutions drove the entire performance. Electronic Devices was also a significant contributor. Results of other segments were not poor either. I am under the impression that business in each segment was operated steadily. Net sales were up JPY 43.5 billion, and operating income was up JPY 6.9 billion in total. I will look at results by segment. In Energy Solutions, net sales were down JPY 300 million. Operating income was up JPY 300 million.
That means both sales and income were almost flat year-on-year. In this segment, results of ED&C Components were quite strong and offset the drop in three other businesses. As a result, both sales and income were almost flat year-on-year. In the Energy Management business, smart meter sales volumes declined due to volume adjustment by customers. In the Transmission and Distribution Systems business, results were slightly down year-on-year due to the absence of large-scale orders from the industrial field recorded in the previous equivalent period. In the Power Supply Systems business, net sales decreased following lower overseas demand in switchgear and controlgear operations. ED&C Components affect the drop in these businesses. In Industry Solutions, both sales and income increased significantly in the first half. Net sales were up JPY 21.8 billion, and operating income was up JPY 3.2 billion.
In particular, the Factory Automation was a driver for growth in this segment, both in net sales and operating results. In a Factory Automation business, demand mainly for inverters and factory automation components were strong, both in Japan and overseas. The biggest driver in this segment was the Process Automation business, partly due to better economic conditions with increasing cash, replacement demand from customers in manufacturing industry was accelerated in Japan. Demand was very high. Demand was front-loaded from the second half, leading to orders received and sales recognition. Both net sales and operating results increased significantly. In the Environmental and Social Solutions business, net sales increased due to higher overseas demand for electrical equipment for rail cars, but operating results decreased slightly due to disparities in the profitability of different projects.
In the Equipment Construction business, both net sales and operating results decreased slightly year-on-year due to the rebound from large-scale orders recorded in the previous equivalent period. In the IT Solutions business, one of our big subsidiaries received big orders from the public sector or public agencies and from the academic sector or universities this time. As a result, both net sales and operating results increased steadily. In Power and New Energy, net sales were up JPY 7.1 billion, but operating income was down JPY 900 million. As you know, large-scale orders in Japan contributed to higher sales of thermal power generation systems as well as solar power generation systems. Consequently, net sales were up JPY 7.1 billion. There are both high margin projects and low margin projects. The number of low margin projects was relatively high compared to the previous year. As a result, operating income decreased.
Absolute amount of operating income was positive. Electronic Devices was also a big contributor to the results for the first half. Beneficial foreign exchange rates were one of the positive factors. Semiconductors were very strong in the Japanese and Chinese markets. Demand for Semiconductors for the industrial field was strong in particular, although demand for Semiconductors in automotive electronics also increased. In Magnetic Disks , net sales were down slightly year-on-year, but operating results increased year-on-year due to reduction in fixed cost reduction and others. In Food and Beverage Distribution, net sales were up JPY 6.1 billion year-on-year. Operating income was up JPY 200 million. We often receive questions from you about vending machines business in China. Accelerated orders in Japan were higher than drop in vending machines in China, and sales of vending machines increased year-on-year. Store Distribution made a significant contribution.
Net sales and operating results increased due to a rise in demand for store equipment for convenience stores such as equipment for cafe latte. The next page shares year-on-year comparison of net sales of Japan and overseas area for the first half. In total, net sales were JPY 395 billion and JPY 43.5 billion year-on-year from JPY 351.6 billion. Net sales overseas increased JPY 9.3 billion, and net sales in Japan increased JPY 34.1 billion. Japan was a main driving force for results in the first half. Net sales increased in all the areas, including Asia and others, China, Europe and Americas, partly due to exchange rate effects. In Asia, sales of transmission and distribution systems, ED&C Components , Semiconductors, and Magnetic Disks increased. In China, sales of ED&C Components , factory automation components, and Semiconductors increased. In Europe, sales of Electronic Devices increased.
In Americas, sales of Energy Solutions and Industry Solutions increased. We are focusing on sales in Asia and China, and net sales in Asia and China account for approximately 85% to total overseas sales. I personally feel that we should increase sales in Americas a little more. This page shares consolidated financial results for the first half in comparison with previous forecast. Net sales were JPY 25 billion higher than forecast. Operating income was JPY 5.7 billion higher. Ordinary income was JPY 7.2 billion higher, and net income attributable to owners of parent was JPY 5.1 billion higher. In this way, results were significantly higher than forecast. As for breakdown of JPY 25 billion of increase in net sales, JPY 19 billion was from factors excluding exchange rate effects.
Out of JPY 5.7 billion increase in operating income, JPY 5.2 billion was from increase in sales and production volumes and others. This page shows net sales and operating income by segment in comparison with previous forecast. In Power Electronics Systems - Energy Solutions, net sales were higher than forecast. As I mentioned earlier, demand in the ED&C Components business was strong. Above all, Power Electronics Systems - Industry Solutions was a main driving force for results in the first half, as I mentioned in year-on-year comparison. Results for Power and New Energy were almost in line with forecast. In Electronic Devices, both sales and income were higher than forecast, partly due to more beneficial foreign exchange rates and significant market growth. In Food and Beverage Distribution, net sales were JPY 3.1 billion higher, and operating income was JPY 500 million higher than forecast.
Results in comparison with previous forecast showed almost the same trend as year-on-year comparison. Let me move on to consolidated balance sheet. Comparison of balance sheet between March 31st, 2017, and September 30th, 2017, is shown. Notes and accounts receivables, trade receivables decreased. Notes and accounts payables, trade payables also decreased. Inventories increased. That means collection of receivables for big plant-related sales recognized at the end of March progressed. Payment was also made. Stocks were piled up for plant-related sales toward the end of this fiscal year. The point deserving special attention is investments. We hold investment securities, and valuation gain on investment securities was JPY 14.9 billion. In total net assets, other comprehensive income included positive factors. Cash decreased slightly, so we increased interest-bearing debt slightly. Equity ratio increased 1.9 percentage points to 34.7%.
Net interest-bearing debts increased JPY 19.2 billion to JPY 128.5 billion, partly because the first half is in the middle of the fiscal period. Net debt to equity ratio was 0.4 times. Next, I'll touch upon consolidated cash flow. This page shows comparison between the first half of fiscal year 2016 and the first half of fiscal year 2017. Free cash flow turned negative. We sold Fujitsu shares and received cash in the last fiscal year. We paid tax associated with that in this fiscal year. That was JPY 23.5 billion. When we simply take out the tax payment, free cash flow should be about JPY 17 billion. We can say free cash flow was healthy. Now, I'll move on to full year consolidated financial results forecast for fiscal year 2017. This page shows comparison between forecast for fiscal year 2017 and results for fiscal year 2016.
Net sales will be JPY 870 billion, up JPY 32.2 billion. Operating income will be JPY 52 billion, up JPY 7.3 billion. Ordinary income will be JPY 51 billion, up JPY 4.7 billion. Net income attributable to owners of parent will be JPY 31 billion, down JPY 10 billion. Operating income and ordinary income are expected to reach record highs. JPY 13 billion of gain on sales of shares in Fujitsu was included in extraordinary gains in the last fiscal year. I think it is just a timing issue. If we exclude JPY 13 billion of gain on sales of shares, net income attributable to owners of parent will reach record high. By segment, the trend for the full year will be similar to that of the first half. Power Electronics Systems - Industry Solutions will grow significantly. Electronic Devices will also grow.
Negative exchange rate effect is included in net sales of Electronic Devices. That means net sales will increase more than JPY 5 billion excluding negative exchange rate effect. Year-on-year increase is also expected for Food and Beverage Distribution. In total, net sales will increase JPY 32.2 billion, and operating income will increase JPY 7.3 billion. This page shows forecast in comparison with forecast as of July 27th. Net sales were revised up by JPY 20 billion, operating income up JPY 4 billion, ordinary income up JPY 4 billion, and net income attributable to owners of parent up JPY 2 billion. In Power Electronics Systems - Industry Solutions, there are two factors leading to change in forecast. Electronic Devices also includes a positive factor. There are both positive and negative factors in segments.
In Industry Solutions, forecasts for the second half were slightly lowered due to orders moved up from the second half to the first half and our conservative outlook. We revised up net sales forecast for Industry Solutions by JPY 10 billion, operating income by JPY 1.5 billion. In Electronic Devices, the upside in the first half was reflected in revision for full year forecast. We kept previous forecasts unchanged for the second half due to seasonal factors and others. In Food and Beverage Distribution, results for the first half were higher than forecast, but we didn't revise full-year forecast. Every time we talk about vending machines in China, we revise down forecast. We revised down annual forecast for unit sales from 48,000 units to 35,000 units, and this time we made a downward revision again to a slightly more than 20,000 units. We consider it as a must-achieve target.
In Food and Beverage Distribution, I suppose there will be upside in Store Distribution, but we didn't revise full-year forecast. In total, net sales were revised up by JPY 20 billion and operating income by JPY 4 billion. Before moving on to dividends, let me talk about risk factors associated with a revised forecast. I talked to each Corporate General Manager. Through discussions, we found out that possible risks would include risks related to vending machines in China. For vending machines in China, we lowered target to the must-achieve target. Of course, we wonder what will happen going forward. As we discussed so far, we cannot just sell vending machines. Operator functions are necessary for operation of vending machines, so training of operators in China is the most important point, and there has been delay in training from our expectation. We revised down forecast partly due to that.
When we look at the world, the number of vending machines installed is 3.5 million units in Europe, 4.5 million units in America, 2.5 million units in Japan, 200,000 units in China, and 50,000 in Asia. In China, as per capita GDP increases, I'm sure demand for vending machines will increase. In the same context, demand in Asia will also increase. In consideration of necessity for upfront investment, we decided to acquire Kubota's vending machine manufacturing company in Indonesia. We recognize this investment as investment in anticipation of what will happen three years or five years down the road. There is another factor which is not incorporated into this forecast. So far, we have been working on improvement of operational quality through process seven activities. In April this year, we started a new initiative with president as a head.
We started to change work style or content of work. We are now trying to increase efficiency of work through changes made to operation of meetings and materials. We would like to achieve about JPY 1 billion of reduction in expenses through improvement in efficiency. This JPY 1 billion is not included in the forecast. We changed exchange rate assumption for the second half to JPY 105 to the US dollar. Suppose the current exchange rate is maintained. Net sales will probably be about JPY 14 billion higher, and operating income will be about JPY 1.5 billion higher than forecast. Based on all those factors, we set forecast JPY 870 billion in net sales and JPY 52 billion in operating income. Dividends are as shown on this page. We set interim dividends at JPY 6 per share, JPY 1 increase from fiscal year 2016.
Year-end dividends are to be decided. As I discussed with President, if we achieve forecasted income, we need to consider enhancement of level of dividends. As we mentioned before, with 30% payout ratio in mind, we would like to decide year-end dividends. We added supplementary materials to cover questions we always receive. Breakdown of Electronic Devices sales between Semiconductors and Magnetic Disks , and distribution of semiconductor sales by field, including industrial, automotive, and others, is as you see here. Order growth rates and power Semiconductors and inverters are also shown. Comparison with the first quarter and year-on-year comparison is indicated. Please refer to this page. That concludes my presentation.