We will remain focused on the numerical targets set in our mid-term plan and rigorously implement measures to bolster our production capability and strengthen our organizational makeup. In this way, we will strive to achieve net sales of ¥1 trillion—and to establish an organizational makeup that is appropriate for a company of that size—by 2016, when NSK will mark the 100th anniversary of its establishment.
In the year ended March 31, 2012, our business activities were significantly affected by large-scale natural disasters: the Great East Japan Earthquake and the flooding in Thailand. Due to slowing economic growth in emerging countries and to the fiscal and financial crises in Europe, the global economic situation became increasingly uncertain. In addition, Japanese companies faced a number of challenging issues, such as the extreme strength of the yen and electricity shortages. In this operating environment, we worked to maintain stable supply conditions in accordance with changes in production by our customers, to ensure quality in various supply chain scenarios, and to increase sales and profits. As a result, we recorded higher sales and profits for the second consecutive year. One key factor in this performance was strong sales in the Industrial Machinery Business in the first half of the fiscal year. There was solid demand for products for machine tools and construction equipment, mainly in emerging countries. In addition, during the second half, the recovery of automotive manufacturing following the earthquake led to a pickup in the Automotive Business.
The year ending March 31, 2013 is the final year of the mid-term plan that we announced in November 2009. Looking at the operating environment, while situations in Japan remain difficult, economic conditions are gradually recovering with support from reconstructionrelated demand. On the other hand, conditions in the global economy are expected to remain uncertain. It appears that some time will be required to resolve the problems in Europe, and despite the fact that business conditions in the United States are relatively firm, a strong recovery is not expected. In addition, economic trends in China do not support an optimistic outlook. Our forecast for net sales in the year ending March 31, 2013 is ¥780.0 billion, which is in line with the target set in the mid-term plan. On the other hand, we are forecasting operating income of ¥50.0 billion, which is less than the mid-term plan target of ¥66.0 billion. The principal reason is the appreciation of the yen. However, to succeed in global competition, we must build a profit structure that can withstand currency fluctuations. To that end, we will increase our overseas production ratio, reduce direct costs through localization and local procurement, increase the efficiency of existing facilities, and take steps to boost our production capability, such as expanding our supply chain base. In these ways, we will do our utmost to come as close as possible to our mid-term targets for strengthening our organizational makeup.
In our mid-term plan, we identified expanding our business base in China and increasing sales of electric power steering (EPS) as pillars of our growth strategy. In the past year, we made strong progress with these initiatives. In China, our production bases have been concentrated in coastal areas. In the fiscal year under review, we opened two plants in Shenyang, Liaoning Province in the northeast, one for ball screws and the other for large bearings. In China’s inland region, in October 2012 we will start production of standard-size ball bearings at our 12th production base in China, in Hefei, Anhui Province. In addition, on the sales front we continued to expand our sales bases and our distributor network. In technology, at the R&D base that we relocated and upgraded in 2009, we enhanced the design development function and improved customer service. Our sales in China have increased to the ¥100.0 billion level—the target set out in the mid-term plan—and establishment of a strategy for further expansion will be the theme of our next mid-term plan.
With regard to EPS systems, sales are expanding at a pace that will exceed the mid-term plan’s target of ¥140.0 billion. For the year ending March 31, 2013, we expect sales of EPS systems to surpass ¥150.0 billion. In addition to our sales to Japanese automakers, we have expanded our business to include European automakers as well. For production bases, we expanded our capacity in China, India, and Thailand in addition to Japan, Europe, and the United States. Moreover, we have divided our technological development organization into two divisions, one to handle EPS mass production projects and one to specialize in advanced development. Further, together with Toshiba we have established a joint venture company to develop electronic control technologies for EPS systems. Through these measures, we have enhanced our development capabilities.
We are currently in the process of creating the next mid-term plan, which will cover the three-year period starting in the year ending March 31, 2014. In this plan, we will outline specific measures to reach our goals of achieving net sales of ¥1 trillion in 2016, when NSK will mark the 100th anniversary of its establishment, and of establishing an organizational makeup worthy of a ¥1 trillion company. As we move forward, we will continue to follow our growth strategy based on the optimal allocation of management resources. We will implement measures to strengthen our profit structure so that we can succeed amidst intensifying global competition. Moreover, we will rebuild and strengthen our highly transparent governance and compliance systems, which will support the initiatives mentioned above. In these ways, we will strive to increase our corporate value.
I would like to ask for the continued understanding and support of our shareholders, investors, and other stakeholders.
President and Chief Executive Officer