One of my duties as I perceive them is setting the stage for various “dynamic attacking” measures by TDK that steer us in the direction of our growth strategy through such means as verifying investment recovery plans and procuring capital. At the same time, my approach is to look squarely at the act of voluntarily assuming risk amid growing levels of uncertainty, carefully verify the nature of our businesses, and make sure to apply the brakes when reaching the conclusion that we should come to a halt. There are a considerable number of TDK shareholders and investors who expect that our corporate value will grow over the long term. Over time, I have taken the liberty of reflecting the valuable feedback that they have imparted to us in our various strategies. Going forward as well, I intend to continue viewing the act of keeping a dialogue with our shareholders and investors as a key role of mine, listening earnestly to what they say and tying their opinions into the growth of our corporate value.
Under our Medium-Term Plan (from the fiscal year ended March 2016 to the fiscal year ending March 2018; see pages 20–21 for details), we are aggressively conducting growth investment that includes between ¥430 billion and ¥480 billion in planned capital expenditure and approximately ¥250 billion in planned research and development expenses. The size of this investment is the amount we anticipate to be necessary in order to achieve an operating income ratio of over 10%, one of our medium-term management targets, without sacrificing our operating income ratio in the immediate term.
Originally, TDK did not undergo any major changes in its business domains. Apart from the case of EPCOS Group, which we acquired in 2008, by and large we kept all the investments that we made, M&As or otherwise, within the limits of our operating cash flow. Conversely, given the large-scale rearrangement of our business structure that we are currently advancing, TDK's policy today is to fund our investments not only through our operating cash flow but also by taking cash that we will acquire through the transfer of our high-frequency components business to Qualcomm and allocate it to our growth businesses.
TDK has the option of selling 49% of its stake in the joint venture that it has with Qualcomm 30 months after the date on which we concluded our agreement with that company. Should this right be exercised, we anticipate that the total value of the resulting gains to us will come to approximately US$3 billion in the end. Based on this, we are in the process of conducting certain investments, such as the corporate acquisition of Micronas, and capital expenditure ahead of schedule to elevate our management speed.
* Estimated total value of gains by TDK should the option be exercised. Includes payment upon conclusion of the agreement between TDK and Qualcomm, agreements concerning the sale of high-frequency filters by the JV and mutual cooperation between Qualcomm, QTI, and TDK, and future additional payments to be made to TDK, such as the exercise price of the option.
In the electronic components industry where we base ourselves, the rate of technological innovation is extremely rapid. Additionally, the industry is affected by currency exchange rates and other market conditions, as well as macro-environmental shifts. In order to sustainably elevate our competitiveness amid such a situation, we need to continually make growth investments, particularly those in new products and technologies within key fields, based on long-term prospects. For that reason, TDK designs both its growth strategy and its optimum capital structure around a long-term timeline. Based on the idea that a certain degree of solidity in our shareholders' equity is absolutely necessary in order for us to make stable research and development investments and capital expenditure even as our business performance fluctuates in the short term, we seek to continue maintaining a shareholders' equity ratio in the range of 50%. At present, we are aggressively conducting advance investment in our leading businesses while implementing a structural rearrangement on a business level. For that reason, our debt-to-equity ratio following the resulting increase in the procurement of funds through borrowings reached approximately 0.5 in fiscal 2016. However, our policy is to build a formidable financial constitution over the medium to long term by both expanding the earnings of our existing businesses and ensuring returns on our M&As and other investments.
With regard to dividends, we have set a dividend payout ratio target of 30%. As we endeavor to steadily increase dividends through growth in profit per share, we also recognize the acquisition of treasury stock as one of our policies for returning profits to shareholders. We intend to meet the expectations of shareholders who have supported our long-term strategies.
In formulating our Medium-Term Plan, after affirming our awareness of the cost of capital, TDK set its ROE target value at “over 10%.” To ensure that we realize improved capital efficiency going forward, we manage control indicators in tandem with ROE that can serve as targets under the business activities of each business group that are responsible for generating earnings.
Starting in 1999, TDK set forth an indicator that we call “TVA,” or “TDK Value-Added.” This indicator serves to compare return (income margin before interest and after taxes) versus the cost of capital (shareholders' equity plus interest-bearing liabilities). From there, we controlled that indicator on a companywide level while remaining mindful of the cost of capital. TVA has also served as the basis for computations of discount cash flow versus capital expenditure, terms of ROI when conducting M&As, and so forth. As an indicator, however, TVA was difficult to manage on a business level due largely to the fact that the concept of “capital” does not tie into business departments directly. As such, under our existing plan, we have elected to manage and control “Business ROA” as a KPI instead. Business ROA represents our profit margin versus inventory, fixed assets, and other assets under each business, which we collectively call “TVA assets.” Subtracting the cost of capital from Business ROA yields the added value generated by each business, or TVA. In other words, under this system, pursuing inventory turnover periods, accounts receivable collection periods, and other relatively familiar indicators along with operating income and investment profit ratios causes capital efficiency across our entire organization to go up even without our people on the front lines being directly mindful of ROE. Going forward as well, we will bring together the total capability of the TDK Group and strive to achieve improved Business ROA, and we intend to gradually elevate our companywide ROE by realizing the maximization of the added value of each business.
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