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I am Keita Kato, Representative Director and Senior Managing Executive Officer, Head of the Business Strategy Department. Thank you for coming today despite your busy schedules.
I'd like to now start presenting the results for the third quarter. The foreign exchange rate assumptions are shown on this page. Net sales increased substantially by JPY 37.4 billion year-over-year, reaching JPY 829 billion, due to an upswing in the number of houses sold and the impact of newly consolidated companies. Operating income decreased by JPY 2.9 billion, but the degree of the decline narrowed slightly compared to the first half. Ordinary income decreased by JPY 4.9 billion due to nonoperating losses incurred in the third quarter.
This page shows net sales and operating income by divisional company. The chart on the left shows results for the third quarter, October through December. For Q3, company-wide net sales and operating income increased due to the substantial upswing in earnings in the Housing business. By divisional company, profit decreased by JPY 800 million in the HPP, High Performance Plastics Company, due to a sudden slowdown in overseas market conditions from the latter half of Q3, mainly in China. The Housing Company was able to recover from the impact of natural disasters in the first half, achieving a substantial increase in profits, recording a JPY 2.3 billion increase in operating income even on a cumulative basis in Q3 year-over-year.
Operating income for the UIEP, Urban Infrastructure and Environmental Products Company, was roughly the same level as the previous year. Despite an upswing in growth domains such as the overseas business and prioritized products, general purpose products in the domestic market struggled.
This page shows the current market outlook. The blue-dotted lines were our assumptions as of October last year. The black bold lines represent the actual results as well as our assumptions for the fourth quarter. The electronics market was far below expectations during Q3. Demand is expected to shrink even further in Q4. The automobile market in Q3 performed substantially below expectations in China and in Europe and is projected to go below last year levels in Q4 as well.
Domestic naphtha prices stayed high up until the third quarter, but a substantial decline is projected for Q4. Tough business conditions are expected to continue for the fourth quarter overall.
This page shows the forecast for the second half of fiscal year 2018. The projection for total operating income is JPY 57.9 billion, mainly accounting for the downward revision in the second half plans for the HPP Company due to continued deterioration in the HPP business market conditions. However, the projected operating income is expected to reach second half record highs. The Housing and UIEP companies are projected to achieve second half plans.
This page shows the details of net sales and operating income by divisional company for the second half quarters. On a company-wide basis, we will strive to increase earnings by JPY 3.7 billion in Q4 by expanding sales into the HPP growth fields that are relatively defensive to market deterioration as well as continued expansion of the UIEP growth domain.
In HPP, we will focus on sales expansion in growth regions such as Japan and the U.S., where heat release materials new function products are doing well, and automobile production is brisk. Also, by reducing costs and controlling fixed expenses, we plan to return back to profit growth in Q4.
For the Housing business, we will focus on addressing the concentration of construction during the fiscal year-end, so as to secure a high level of operating income.
This page shows the forecast for the second half and the analysis of net sales and operating income. Looking at the bottom-left bar graph, net sales is forecasted to reach JPY 606.1 billion in the second half, up by JPY 32.8 billion. Even after taking out the contribution from new consolidations worth JPY 3.8 billion, the increase on a net basis is expected to be JPY 29 billion.
As for the analysis of operating income, we will strive to increase sales quantity and composition significantly for each divisional company, but even so we expect to come in below beginning-of-year expectations. Moreover, although we will make efforts to control fixed cost, this will not be enough to make up for the shortage. However, despite not reaching the original plan, operating income will grow by JPY 4.7 billion year-over-year.
This page shows the full year forecast by divisional company. With the Housing and UIEP companies expected to record an increase in net sales and profits and the HPP Company keeping the decrease in operating income small despite an ongoing market deterioration, total company net sales and operating income are expected to increase with operating income reaching record highs at JPY 100 billion.
This page shows the overview of the fiscal year 2018 forecast. We aim to grow both net sales and profits. Operating income is expected to increase for 10 consecutive years in a row. After operating income, all income lines are expected to reach record highs. Operating income and net income are projected to reach record highs 6 fiscal years in a row. Compared to the October plan, however, expectations have been lowered by JPY 2 billion each for net sales, operating income and ordinary income.
Now I'd like to go into the details of the second-half forecast by divisional company. I will first cover the HPP company. Net sales is forecasted to reach JPY 211.5 billion, up by JPY 10.9 billion. After taking out new consolidations worth JPY 3.8 billion, it is expected to grow by JPY 7.1 billion on a net basis. As for operating income, sales quantity and composition is projected to fall short of plan due to a downturn in market conditions in the building and infrastructure field overseas, such as in the Middle East and India and other regions as well as the sudden deterioration of the electronics and automobile markets. The business environment may be challenging, but we will strive to achieve second-half earnings by expanding sales in growth areas while engaging in cost reduction and fixed cost control.
Next, I'd like to elaborate on the 4 strategic fields of HPP Company. Electronics saw sudden market condition deterioration in the latter half of Q3, and conditions during the fourth quarter is projected to worsen compared to expectations. On the other hand, we've been working on portfolio transformation during the past few years, and the development into the packaging and semiconductor field has made steady progress.
Regarding automobiles and transportation, the larger-than-expected drop off in automobile production in China and Europe had an impact on our high-share, high-performance products. However, in regions that are doing well, such as the U.S. and Japan, we will focus on extending sales of high-performance products.
For building and infrastructure, CPVC suffered from sluggish markets such as the Middle East and South Korea as well as intensified competition in India. The market share gains planned for the U.S. was behind plan. These reasons all led to a decline in net sales for Q3.
On the other hand, regarding fire-resistant materials in the domestic market, steady progress was made with acquired company SoflanWiz in realizing synergies.
As for life science, firm growth is underway led by the overseas diagnostic reagents business.
We will continue to strive to grow the pharmaceuticals and drug development businesses even further.
Overall, when you compare this year's Q3 and Q4 numbers with last year results, all 4 fields have recorded revenue growth due to portfolio transformation and M&A.
Next, I'll talk about the housing company. Net sales are expected to increase by JPY 13.7 billion, reaching JPY 267.1 billion. As you can see in the analysis chart on the right, the leveling-out efforts progressed in Q3, and the second half is developing in line with plan. Securing order backlog for the next fiscal year is progressing steadily as well. Towards the end of the fiscal year, we will address the concentration of a construction so as to achieve Q4 plans.
Looking at the analysis of operating income, Housing business profits are expected to increase by JPY 1.1 billion with an increase of 230 houses year-over-year, which will enable us to control the surge in wooden-materials cost and make up for the fixed-cost increases associated with the reinforcement of the sales force.
For the Renovation business, a JPY 700 million increase in profits is projected. We aim to achieve this by making efforts to firmly capture disaster recovery demand and by striving to improve profitability through fixed cost reduction.
We also project an increase in profits from the domestic Frontier business, which is mainly real estate, and aim for a JPY 2.2 billion increase in profits overall for the housing company.
This page shows the status of new housing orders. New housing orders in the third quarter exceeded plan, growing by 6% year-on-year. As shown on the chart for detached houses, orders for both steel-frame and wood-frame housing increased steadily. Visitors during Q3 increased by 12% year-on-year. The market environment in Q4 is expected to remain the same as Q3, so we forecast Q4 housing orders to grow by 6% year-on-year, and we have thus kept the outlook for the second half unchanged.
Regarding measures to acquire orders in the second half, we will continue to strengthen our product lineup. We will strengthen the lineup of products addressing the needs for first-time buyers and ZEH, zero-energy housing, needs. On January 26, we started to sell the Grand to You V ZEH model. We will also make efforts to have a stronger lineup of products that address post-consumption tax hike.
In addition, we will continue to strengthen the land subdivision housing strategies and will actively procure land. Regarding the sales force, headcount increased by 6% as of the end of Q3 year-on-year. We will further strengthen model houses and roll out nationwide experience-based showrooms.
Next, I'll talk about the UIEP Company. Net sales are expected to increase by JPY 5.3 billion, reaching JPY 132.5 billion. In the domestic business in Q3, a drop off in demand from housing complexes led to lower general products sales, resulting in lower-than-expected sales quantity and selling price compared to plan. However, in Q4, prioritized products in the growth domain will drive growth. We will ensure that we capture demand from disaster recovery, so as to increase sales quantity and composition. In the overseas business, aircraft sheets, pipeline renewal, FFU for railway sleepers are expected to grow steadily. We will continue to contain fixed cost, and as a result, forecast a JPY 1.3 billion increase in operating income in Japan and a JPY 900 million increase overseas, totaling JPY 2.2 billion operating income growth for the UIEP Company in total.
This page covers the 3 strategic fields for the UIEP Company. A substantial increase in sales is expected for piping and infrastructure and advanced materials. However, for building and living environment, difficult conditions are likely to continue due to the downturn in housing complex demand. For piping and infrastructure, piping materials for buildings in Japan and pipeline renewal products overseas are expected to drive overall sales.
For building and living environment, we will strive to grow sales by successfully capturing disaster recovery in demand for building materials. However, sales is expected to decrease due to the impact from the downturn housing complex demand. In advanced materials, aircraft sheets that experienced a sudden decline in demand last fiscal year recovered steadily and expanded and is expected to grow even further going forward due to the capacity-expansion investment impact from Q4.
As for FFU, for railway sleeper applications, adoptions are increasing, mainly in overseas markets such as Europe and the Americas. The capacity expansion at the retail factory in Shiga Prefecture will be completed during Q4.
Prioritized product sales, shown at the bottom right, is also growing steadily. Sales are projected to be JPY 21.2 billion in the second half, which is 18.4% of total company sales. New product launches are broadly in line with plan as we expect to introduce 18 items in the second half.
This concludes the presentation on the status of our divisional companies and our strategies. By steadily implementing sales expansion measures and reducing fixed costs during Q4, we will strive to achieve JPY 100 billion in operating income for the full fiscal year.
From this page onwards, details of financial results are presented for your reference.
This concludes my explanation. Thank you for your attention.