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AGC Inc. semiconductor-related business briefing. My name is Nakagawa from the Corporate Communications and Investor Relations division. I'll serve you as a moderator today.

I'd like to introduce you today's speakers. Mr. Hideyuki Kurata, Representative Director, Executive Vice President, Mr. Nobuyuki Suzuki, Executive Vice President, President of Electronic Company. Mr. Tatsuo Momii, Senior Executive Officer, President of Chemicals company.

First, Mr. Kurata will present AGC Group's technology development strategy and semiconductor-related businesses. He will be followed by Mr. Suzuki, who will discuss the electronic semiconductor business, and then Mr. Momii will present the Performance Chemical Semiconductor business. After the presentations, we will move on to the question-and-answer session. We expect to conclude approximately 05:45, and we appreciate cooperation.

Mr. Kurata, the floor is yours.

My name is Kurata, CTO today. I'd like to explore our semiconductor-related business. We are engaged in a wide range of businesses as a material manufacturer. And recently, in particular, we have been seeing a significant increase in interest in our semiconductor-related products. I'd like to introduce how our company was founded and how a technology development has evolved explaining why you have such a broad portfolio of semiconductor-related products.

Before handing over to the Head of the Electronic Chemicals company for more detailed explanation. Mitsubishi founding family member and the second Son of Yanosuke Iwasaki a founder, Toshiya Iwasaki, took on challenge on domesticating the production of flat glass in Japan despite the difficulties and succeeded, Our spirit the Never way out, but confront difficulties corporate culture today. In addition, the founding aspiration of contributing to society through materials has been continuously passed down through the generations.

This is directly reflected in our corporate philosophy look beyond looking ahead and supporting people's lives around the world through our unique materials and solutions. Our industrial domains and product applications continue to grow and evolve even today. Since our founding in 1907 by continuously providing products needed in each era, our business has diversified from architectural glass to automotive glass and further into electronics, chemicals and life sciences.

We have consistently supplied products that meet the needs of the times, including glass for LCD displays, a wide range of functional chemical products and materials and components for semiconductors. It can be said that AGC has opened up new market through its unique capability to combine materials and solutions.

Over a long history, we have built up composite technologies based on both inorganic and organic materials technologies as well as design and processing technologies that enable higher functionality. In addition, our manufacturing capabilities, including stable production and design technologies for specialized products have become major differentiation factors, including Black Box technologies. The ability to integrate and combine these strong core technologies is one of the AGC's greater strength and provides the foundation that enables us to offer a wide range of products in the semiconductor field.

Since 2015, with a clear vision of what we aspire to be in 2030, we have clearly defined our core businesses and strategic businesses and have pursued growth through Ambidextrous Management approach that balance us both. Through these medium- to long-term initiatives, we are advancing both the contribution to a sustainable society and a commitment to continuous growth and evolution.

We defined the 5 businesses that we have actually operated, which is Architectural, Automotive, Display, Essential Chemicals and Ceramics. As our core businesses, and these businesses provide a strong and stable long-term earnings foundation. We have designated 4 areas: Mobilities, Electronics, Life Science, Performance Chemicals. As a strategic businesses, we have taken on both challenges and drive the expansion of both revenue and profit.

Through this strategy, we aim to transform our business portfolio into its optimal form and become a company that continuously creates a value. The semiconductor-related businesses we are introducing today fall within the areas of Electronics and Performance Chemicals and are truly key drivers of our growth. By clearly identifying our sources of growth, we believe we can continue to accelerate the expansion of our growth areas in the years ahead.

Looking at the performance trend of our strategic business, revenue has grown to approximately 2.4x the 2017 level. In particular, focusing Electronics and Performance Chemicals, which include semiconductor businesses, we have achieved growth at CAGR of 8.9%. Although the growth in operating profit has been limited due to underperformance of Life Science, earnings from Electronics and Performance Chemicals have expanded in line with revenue growth. Going forward, we will continue to polish on our strategic businesses as key growth drivers and further accelerate the expansion.

By promoting Ambidextrous Management, our priorities for R&D investment have been clearly defined using a matrix of market customers and organization capabilities and technologies, we construct our R&D investment portfolio by combining existing and new initiatives. A comparison of 3-year aggregate shares investment in strategic businesses that exceeds 70%, demonstrating a strategy to accelerate the growth of strategic areas. That is how we have changed the allocation so that we will be able to grow strategic areas. Regarding current and future technologies, we are striving to increase the probability of success by defining key technology fields and focus areas. We are paying particular attention to fields that will be next growth drivers.

And among next-generation electronics, semiconductor-related materials is being a key focus area. As you know, in the semiconductor industry, while following Moore's Law, the history of process node miniaturization has involved changes in lithography light source from i-line to Krf to Arf and Arf immersion and now to EUV. AGC began producing synthetic quartz, a lens material for lithography equipment in 1985. And in step with the evolution of semiconductors, we have provided core products that are essential to semiconductor manufacturing.

And the core products are shown on this slide. Technology will continue to evolve in the future. And AGC will continuously work on the development of new products that will make us indispensable to the semiconductor industry in the future as well. We will contribute to the semiconductor industry without missing the right timing to enter the market.

This slide shows a product lineup divided into the front-end process for semiconductor with manufacturing and the back-end packaging process. We further categorize it into semiconductor process products and semiconductor manufacturing equipment products. Regarding our main products, I believe the heads of the relevant companies will explain them in detail later.

So I will meet them here. Going forward, we will also focus on packaging materials, which is a growth area. From front-end to back-end processes and from process products through equipment products, we will offer proposals to our customers based on the breadth and depth of AGC's technology.

Next is Mr. Suzuki, President of the Electronics company to talk about AGC's semiconductor-related businesses. Mr. Suzuki, please start your presentation.

So this is Suzuki, President of the Electronics Company, and I will explain AGC's semiconductor-related businesses. I will explain the key features of AGC's technology and development across the entire electronics sector.

Our company is capitalized by our ability to supply products that combine outstanding technologies in materials, processing, design and evaluation .A unique aspect of our material is that we possess both inorganic and organic materials. In terms of processing, we possess a wide range of technologies, including not only simple glass cutting, but also polishing, high-precision coating, patterning as well as laser and molding.

Furthermore, we do not nearly paint [indiscernible] products, but we also require expertise in composition design, optical design and advanced simulation technology as well as high-performance inspection, evaluation and analysis skills. By combining these capabilities, we can provide unique solutions and have consistently broad cutting-edge and composite materials to the market. The same applies to our semiconductor products.

For example, CMP slurries, we use organic and inorganic materials to supply cutting-edge high-quality products. Further synthesis of high-precision abrasive particle synthesis, dispersion processing technology, composition design, polishing and evaluation using the same equipment as our customers. In the field of CPO, which is expected to expand in the future, we believe we can offer unique products by combining polymers and inorganic materials with processes such as photolithography, etching and laser processing and integrating them with optical design and optical property evaluation.

As explained earlier, using them sustainable growth strategy in the semiconductor field based on the technologies we described on this previous page will be explained. We have long focused on our business development or materials for advanced semiconductors. As shown in the graph on the left, advanced semiconductors will continue to drive that business going forward. In particular, we hold a high market share in fields with high technical differentiation and expected long-term growth. Representative examples of existing products include blanks, CMP slurries and components of semiconductor equipment.

Going forward, we will also focus on the back-end packaging processes, which is expected to see significant growth driven by AI and high-performance service. Furthermore, the CCL technology acquired through a M&A will become even more important. We have prepared a separate slide regarding the back-end process. For existing products, we will continue to increase the proportion of products for advanced semiconductors by leveraging the partnerships we have cultivated with leading companies and strengthening the development of next-generation products. I knew needs and requirements will continue to emerge in the back-end process.

So development of the new product is essential. In the back-end process, we aim to establish a status as a provider of cutting-edge packaging solutions by offering new products and solutions to leading companies through our unique composite materials that combine organic and inorganic technologies.

Additionally, since coordination with other materials and the equipment is crucial in the back-end process, we aim to accelerate more through opening [indiscernible] Such as participation in JOINT3. In both front and back-end processes, we possess unique chemical products. And by conducting joint marketing, we aim to provide our customers with a broader range of solutions.

Next, please. This slide explains the global presence to strengthen our relationship with leading companies, we are enhancing local marketing efforts. Outside of Japan, U.S., Thailand, South Korea, China, Europe and Singapore. These are the areas that we have semiconductor-related marketing offices. In Taiwan, China and United States, we operate these offices jointly with our chemical business, creating synergies. While development in centers in Japan, we also have development centers in Taiwan and in the U.S. In Japan into [indiscernible] Yokohama Technical Center, we conducted development at each manufacturing site, creating a system that enables the effective product development, including basic research and prototyping. In Taiwan and other areas, we conduct in local marketing, so strengthening our partnerships with leading companies.

Next, we will introduce our representative products. First is Lens Materials for lithography equipment. Although this has not received much attention in the past, AGC holds a high market share in products for semiconductor equipment. And while EUV is attracting attention in semiconductors for AI and data centers, demand is also increasing for Arf, another advanced lithography technology as well as Krf and i-line.

AGC differentiates itself from competitors through the superior properties and quality of its synthetic quartz lens materials and holds a top market share for Arf lithography tools. Demand for synthetic quartz from customers is very strong, and we will continue to expand sales for Krf and i-line applications in addition to Arf. For semiconductor equipment silicon carbide, which offers excellent heat resistance is also one of our products with a high market share.

Next, I'd like to discuss EUV mask blanks. Since joining the consortium in 2003, AGC has continuously advanced its research and devolvement effort in this field. We are recognized by our customers as the only mask blank manufacturer capable of providing end-to-end production. As you know, the use of AUV [indiscernible] is expected to continue expanding, particularly for AI and high-performance server applications. While there are concerns last year that market might slow down, but increasing demand, including the memory devices, along with the comments from ASML, I support our view of the market will continue to grow steadily.

With higher utilization rate and improved lithography tools throughput, we expect the number of masks used for lithography to increase which could further strengthen demand and we are monitoring this trend closely. We achieved the sales of JPY 40 billion in 2024. Also sales were temporarily declined last year. They have recovered this year, and we expect continued growth going forward. While leading manufacturers are currently in mass production are 2-nanometer node for logic devices and DRAM degeneration for DRAM, AGC is already developing next and future generation ologies in preparation for further scaling.

Shipment volumes for [indiscernible] mass production are increasing, and we are also supporting products for PSM application in volume production. Evaluation for high NA EUV applications are progressing steadily. Our manufacturing site are located at AGC Electronics Motomiya and Koriyama plants. We have continued to invest in line with the growing customer demand and intend to maintain an active investment strategy going forward.

Next page, please. Next, I'd like to CMP slurries, which are used in polishing processes for semiconductor manufacturing. Since mass production started in 2003, AGC has expanded its business by focusing specifically on Ceria slurries. We have maintained a leading position in Ceria slurry market for many years. Because slurries are used during semiconductor manufacturing, demand increases semiconductor production capability expense and the number of layers are using Ceria slurry growth.

Our slurries are used in high-quality demand applications such as SDI layers because substitution is difficult, we expect demand to continue growing alongside semiconductor market expansion. One of AGC's key advantage is our fully integrated production system spanning from raw material, with abrasive powder through the finished slurry product. This enable us to respond directly to customer requirement and provide high-quality slurries and provide ceria solutions.

End-to-end production also provide advantages in many quality consistently both quality and consistent supply stability. As a new application area, we see promising opportunities in advanced packaging for 3D integration in back end. While silica slurry is currently the primary solution in this field, demand for Ceria slurries begin to emerge. In addition, our chemicals business is developing cleaning agents used after slurry polishing processes by leveraging ACG's combined technologies, thanks we aim to provide customers with comprehensive and integrated solutions.

Next page, please. This slide introduces CCL, a copper clad laminates. CCL consists of glass cloth impregnated with resin laminated between copper foils in both sites. The copper layers are patterned to form electrical circuit. CCL's used in the very range of applications, the market is making particularly strong growth in AI-related applications.

On the resin side, ACG has developed low dielectric loss resins based on its chemical technologies along with the coating technologies and electrical performance evaluation capabilities built around these materials. So we are reducing dielectric loss depends on both the material use for glass cloth and lowering the dialectic loss of the resin impregnated into the both glass cloth.

I think I need to speak up. So reducing dielectric loss depends on the both the material used for glass cloth and lowering the dielectric loss of the resin impregnated in the glass cloth. Cloth is the material that offers the lowest dielectric loss for glass cloth, but it is difficult to manufacture and also has a certain performance trade-off.

By using AGC's low dielectric loss resin, higher performance can be achieved with the same glass cloth or the required performance can be maintained when using one lower-grade glass cloth. Given the current tight supply-demand balance for glass cloth, our resin technology can also contribute to the improved supply stability across the industry. We have already begun supplying prototypes for next-generation 2 to 4 giga bps applications. And if these products are adapted, we expect the sales growth beginning next year.

One of our new product in this field is our RCC resin coated copper. RCC eliminates the glass cloth in CCL. As a result, it can be made thinner and smoother and making multilayer structure, easier to manufacture. As communication speeds continue to increase and have surface smoothness is expected to become a major advantage because it uses signal degradation and improve signal integrity.

Next page please. Finally, I'd like to explain AGC's initiative in the semiconductor packaging field. This is a cross-section view of advanced semiconductor package, memory and logic chips are connected to the substrate through an interposer. At the bottom is a PCB, which provides a connection to the overall circuit system to support higher speed data transmission, photonics electronics convergence technologies are employed, enabling the integration of both electric and optical signals.

AGC is a deploying glass interposer for connecting semiconductor chips to substrate. For the substrate layer, we are developing glass core and buildup films. In particular, we are placing significant emphasis on the Glass core technology because it is expected to play a critical role in larger packaging format, chiplet architecture. And lower power consumption, making a potentially large future market.

For PCB applications, we are already supplying copper clad laminations in mass production or also developing RCC as a process material, we are currently mass producing and supplying glass carriers. In the field of photonic electronic convergence, which supports both electric and optical transmission, we are developing both MLAs, micro lens arrays and optical control and polymer and glass wave guides for signal transmission.

The product I have discussed so far handled within the electronics business in addition Chemicals business is developing low dielectric underlying other fields low fluoropolymer resins and silica fillers for various packages. We are supplying release films for process materials.

As you can see, AGC has a broad portfolio and product covering multiple years within the packaged structure. Furthermore, by leveraging expertise across individual layers, we aim to process optimized solutions that take advantage -- adjacent layers. This concludes my presentation AGC's Electronic Technologies semiconductor business strategy and key products.

This concludes Electric's element of today's presentation. Thank you very much for your attention.

Thank you very much Suzuki-san. I'm sorry that the audio volume was a little bit low. If you still have problems, please let us know. so Momii-san, please.

Yes. I'm Momii, Chemicals President, and I'd like to talk about semiconductor-related performance of chemicals. So this [indiscernible] department is using fluorochemicals [indiscernible], we are providing the multiple the high functional materials. I'd like to talk about semiconductor-related business growth strategy and 5 chemical main products. So this is about Performance Chemicals and fluorochemicals.

We are using the brine electronics and using the bases and fluorine and the the natural gases are using that as a material to have a solid business foundation for the fluorochemicals has a heat and also chemical resistance and very good electrical and optical characteristics. And this the material can not be replaced by other materials.

On the right-hand chart, for the semiconductor equipment, we have the release film, particular raw materials, heat transfer food packaging materials. So the very wide range of the processes, we provide the product. We have full strength. First is the fluorochemical synthesis technology. Second, supply chain.

Using the strong and competitive supply chain, starting from the brine electrolysis and extend through in the in-house production. Number 3 is resource procurement and recycling. Number 4 is group synergies within AGC Group. This is a strategy for our strategy field. We have 2 directions.

One, is the extending area where fluoropolymers and fluoroelastomers are used. The heat and also chemical resistant, which is differential technologies and also we have Performance Chemicals mother plant, Chiba plant extended the capabilities to meet customers' demand. The second strength is future business expansion areas, which is semiconductor process products.

We have built and established the customer relationship, and we expand into semiconductor process materials and accelerate deployment into high-speed communication material market. for AI and semiconductor and for AI and data center, miniaturization and high-speed communications we plan to meet customers the emerging demand by our product.

So the -- our 2025 performance chemical sales was JPY 171.9 billion and the 24% of Electronics applications, and that is almost -- the majority is our semiconductor business. And I'd like to talk about details of product and also the product we are currently developing. The first one is fluoropolymer fluoroelastomer component for semiconductor manufacturing equipment, which is called AFLAS FFKM.

So for FFKM the higher performance of fluoroelastomer with a fully fluorinated structure, in which all hydrogen atoms are replaced by Flourine, which is used as a sealing materials in the semiconductor manufacturing equipment and which is very essential for sealing. What we pay attention to is a stable replacement demand, particularly for the etching processes, the harsh plasma environment requires a placement once every quarter.

So demand is stable in line with the semiconductor manufacturing. For the supply chain, we produce FFKM and O-ring manufacturers make sealing materials and supply to semiconductor equipment. So this is a supply chain structure. Our FFKM strength is the industry-leading heat and plasma resistance. The plasma of the environment is very harsh, but our product can be used with stability. And in terms of the environmental concerns, the normally that the emergence and also the [ Fluorescent ] polymers not used we have free the emulsion and fluorosolvent free. We are a leading company to do that.

And we have 2 pillars for the future development. First, we will meet the semiconductor miniaturization advances so that we improved heat and plasma resistance. And second one, is the -- we recover discarded Florine and recycling is at the circular floors part, achieving industry-leading recycling level so that we will become even more sustainable and as a differentiation. So we have a product to support different temperature. So less than 200 and also over 300 the temperature target in the future.

Next is about ETFE-based release film. AFLAS is my next topic. This product is used in semiconductor back-end molding process, which is on the right-hand side. This is the consumables. IC Tip is sealed with the resin. This is placed between to mold and resin. This is very important to have a release of the mold.

At AGC, we have #1 share in the world. So demand increases in relation with the semiconductor manufacturing. So also used in HBM, which is a next-generation semiconductor memory. In terms of the supply chain, Equipment manufacturers are molding the resin -- the manufacturers are recommending our resin.

So you see, ETFE-based release film, the Aflex, it has its proprietary resin design and modern technology. And as you can see on the right, ETF resin. It has a film strength and also excellent mode of following capability and also release capability. These 3 are shown, and we have that factor standard in the industry. And in addition, AGC is the #1 supplier of ETFE resin film from the resin to the film. So we are the only company that can follow from that resin to the actual development and production.

And the molding process is very difficult. So it's very difficult to change to competitors' products. So we can sustain high maintenance level. So HBM we are going to see endurance and also new protection. So that is going to mean that the new lineup of these is films will be offered going forward.

Next, I want to talk about the Pellicle raw material CYTOP. So Pellicle, as you can see on the right-hand side of the slide, in the photomask service is protected using this pellicle so photomask, we have foreign matters. And it protects it from having these being reflected. So it is very important from the quality control point of view. So format is it is not attached to the wafer. So we will be able to avoid any defects. So AGC has this site up and it is offered for this Pellicle material.

So when it comes to the market going forward, because of the expansion of the semiconductor production sites and photomask demand increases we believe that this is going to bring a very strong growth going forward. The strength of this CYTOP is Arf and Krf Pellicle raw material, there are virtually no substitute for them. So we have established a very strong position.

The differentiation factors. One is that because it is capable for film coating as it is a solution-based. Number two, it is amorphous structure, and it provides high transparency, and it delivers the different properties simultaneously, such as electrical insulation, water and oil repellency, UV transmitters and chemical resistance.

And in the later chart on the right, these are Pellicle. What is very important is the UV durability and UV transmittance in both CYTOP compared to competitor products that shows a superiority. So it cannot be replaced. And that is why we have a strong position in the market. Number four, this is under development. This is Thermal medium from semiconductor. It is called AMOLEA AF-164.

So during the semiconductor manufacturing, of course, when it comes to precise temperature control is needed for semiconductor manufacturing processes like deposition, etching and ion implantation and of course, the temperature control is going to be very important for the yield, et cetera. So precise temperature control is needed.

And of course, this is a JPY 30 billion market. And for AI servers its leading, and it is showing a growth rate of more than 10%. AGC is working on the mid temperature range. The existing competitors is focusing high temperature range and low temperature range. So mid temperature range is a core market that we are targeting. And that is a position that we have established. So AF-164 has 3 strengths.

Number one, it has 164 degrees. So it can be used in many different temperature ranges. For customers, they are not -- they did not have to use any multiple temperature devices. Therefore, the total cost can be reduced and also the equipment operation and procurement burdens are low. And it's a small environment impact with low GWP is another strength.

So when we look at the robust environmental control going forward, I think this is going to be a big advantage. And AF-164, we are using and producing this domestically in Japan from upstream raw materials. So it has low geopolitical risk. As you can see on the right, the temperature range can be used in environmental consideration and geopolitical risk. All these 3 access are covered very highly with AF-164. So we'd like to utilize the relationship we have with our partners so that we'll be able to penetrate into the market further.

And this is our last product, this is under development. This is Post-CMP Cleaner and CMP, as Suzuki from Electrics company mentioned, this is for polishing. And in the processes, this is very important for removing microparticles in the -- and of course, there are some micro particles and chemical residues remaining on the wafer surface. And it's very important to have this removed.

And I'd like you to focus within AGC, we have a synergy to be able to provide this product. So Electrica company provide the CMP and the chemical company provides this solution. So this is a total solution that we can offer as a company. So CMP process is expanding, and we believe that we will see strong growth in the demand for solutions going forward.

So the strength of this per CMP cleaner is that we are focusing on the entire process, leveraging its know-how accumulated technology specialized in ceria-based CMP slurry. And CMP post process, it shows a very high performance for removing these particles. So we were able to design this because we have a very good know-how of this CMP slurry, which makes this possible.

Taiwan in one area, we have created a technical center, we are able to grab the needs of the customer, and we are able to provide a proposition of the products and we'll be able to develop these new products. So the we would like to target demand for leading etching nodes and advanced packaging going forward. And we like to see stable growth centered on high-value eco-friendly products going forward. So that was from the Performance Chemicals semiconductor-related business explanation.

Thank you very much for your attention.

Thank you very much Mr. Kurata, Mr. Suzuki and Mr. Momii. Now, we'd like to ask Mr. Kurata to give us a summary.

So in summary, AGC aims to double revenues in the semiconductor-related businesses by 2030 compared to 2025. And we plan to achieve this through continued growth of existing high market share products and the launch of new products, including packaging materials.

There are 3 key drivers of this growth. Number one, strong demand for existing products, the EUV mask blanks, lens materials lithography and CMP slurries and release films. Among others, we ensure a strong market position and stable earnings through these products. Number two, expansion of the product portfolio.

By focusing on materials for back-end packaging processes, we will broaden our revenue structure, which is currently centered on front-end processes and strengthen our ability to propose solutions spanning the entire supply chain from upstream downstream. Number three, group-wide technology and supply chain. AGC's ability to provide integrated solutions from materials to components and processes through the synergy between Electronics and Performance chemicals is a key differentiator.

So based on these factors, we aim to achieve sustainable revenue growth by steadily executing investment plans in growth areas, leveraging our portfolio of products and technologies with clear competitive advantages.

With that, we'd like to end our presentation. Thank you very much for your attention.

I'm sorry, that was a very important slide at the very end. Now we will start the Q&A session.

[Operator Instructions] Now we'd like to start the Q&A.

My name is Matsuda, Mizuho Security. Can you hear me?

Yes, we can hear you.

I have 2 simple questions. The first question, this is a very elementary question. I just want to make a confirmation. So Page 37, the last slide I'm looking at that. And particularly this in pink, electronics, the semiconductor product in electronics, it's approximately JPY 100 billion. So I think a pink is about the JPY 70 billion to JPY 80 billion.

So lens from to CCL, you talked about 4 products for each. Would you please give us the breakdown out of JPY 70 billion to JPY 80 billion? It doesn't have to be exact. I just want to have an image. That's my first question.

And also this pink still. How about the profitabilities? So for the Electric company, there's a display and also electric materials component. So out of components, I think the semiconductor is there. How about the breakdown or the ratio of each product? And for the semiconductor-related business well electronics, what would be the -- could you please give us a certain image about the profit -- profitabilities?

Thank you very much for your question. Okay. So most Electronics discussions. So Suzuki-san, please.

Yes. Thank you for your question. First of all, the first question Currently, actually, I'm not able to talk about details like a detailed breakdown. However, the largest sales is blanks.

Next, second is CMP slurry and CCL business is following the blanks. And then after that is semiconductor lithography lens. So that is the order in terms of the size. So second question about the profit. We are developing a lot of product, but for the semiconductor related business and also electronics. We don't give the specific breakdown, but the electric components out of that opt in the semiconductor for both sales and profit, it's 50-50.

However, in the future, we would like to grow semiconductor-related businesses. So in terms of business size, we think that the semiconductor-related business side will grow in the future.

Next is on CCL. Of course, from material to the very. I just want to ask you about the sensors that you have for these materials. When it comes to resin, you have talked about the PTFE. And also, you have hydrocarbon that you're working on at the moment. So PTFE and hydrocarbons, including all these 2, what the areas that you want to target in the data centers. What are the CCL?

Have they been adopted already or are you still working on the sample work? So what is your future direction in these areas?

So this was a question on CCL. So I'd like to ask Suzuki-san to answer this question.

So I'd like to explain about CCL as you mentioned, we have a strong characteristics with the resins. When it comes to chemical development we are leading, therefore, with resin, we are using 2 companies to develop. And this is a unique position when it comes to CCL makers. And of course, we are working on new products with dielectric properties.

And in AI, for example, routers and switch. These are the areas that we are offering and being adopted. So 224 gigabps the resin's dielectric property is going to be very important. So using this new resin, we are trying to increase our sales, and we are probably not providing samples. And from next year going forward, we believe it will be replaced by 224.

So we believe that from next fiscal year, we will be making the contribution to the company's performance. So there will be some dielectric properties that are going to be the focus going forward. So that will be our focus going forward. Thank you very much.

Kono-san from from Nomura Securities.

I'm Kono from Nomura Securities. So by 2030, you would like to double the sales. So you have to increase the sales by JPY 100 billion in 5 years. What products are the driver for sales increase in terms of the contribution or maybe size that what product can increase the sales by how much?

So the -- we have a product for both Electric and Performance Chemicals. We'd like to ask the Suzuki-san and Momii to answer your question.

Yes, from electronics, yes, please from electronics. So we think that in total, yes, this also be doubled, but for the electronics, this actually a back-end new product is not really included in this target. So actually, we expect the existing product to grow.

For back end, we do not know for sure what product we will have for the back end. So we don't want to mislead you. However, having said that, as I touched upon earlier, blanks growth and CCL, we think these drivers and as a polishing and lithography. These really dependent on equipment number of units, and they are increased. These products will grow for sure.

So for the synthesized quartz and also the -- yes, the lithography that's the second group to drive the sales.

And Momii-san,would you please talk about the Performance Chemicals?

Yes. Would you please show us the Page 25 of the slide? Yes. For Performance Chemicals, as I explained today, this the equipment -- semiconductor manufacturing, the materials focusing -- centering on the resin, there's the semiconductor process the materials. For the Performance Chemicals, yes, we'd like to double the sales. Also, but for the semiconductor manufacturing equipment products, we would like to make organic growth in this area.

And for the semiconductor process products, we are developing the cleaner and also the the heat resistant product. We would like to the strengthen the Performance Chemicals business in this time called the process products. Thank you very much. Did we answer your question?

I'd like to ask another question, if I may. Looking at Page 22. The packaging-related solution, which is going to be a focus going forward. On Page 22, there are many products as shown here. In the next 5 years, which are the products that you expect the sales to grow? And when do you think those products will start to show sales contribution?

Thank you very much. I'd like to ask Suzuki-san to this question first, and Momii-san to add some comments.

Yes, when it comes to semiconductor packaging, we are a number of products involved here. The market, which is expected to grow is a glass core. The reason is used here at the moment, however with a larger packaging because of large size packaging, if it's a resin, there will be some slides or it may be some heat-related issue. So glass is a focus right now to replace it.

So glass core if we are able to produce good products and provide us an industry, then there will be replacements or for high functionality, we believe glass will be used more. So if it's going to get larger, I think it is going to be glass core. I think glass core is going to grow further.

And when you capture CCL, these now provided as products. that AI service that I mentioned earlier, the 224 gigabps, this is what is needed. And if CCL can enter that area, naturally, because this is already available, we believe that the growth will be quite large. And also, this is another area in which we are going to see this combination -- and we believe that this is an area that we will be able to see a great enhancement.

So glass core and also in CCL and also when it comes to optical materials on the electric convergence, this is another area that we can expect the growth coming from going forward.

Thank you very much. Momii-san, would you like to add some comments?

In Performance Chemicals, on this slide, this the resin is what we are looking at. And this is though the electric resin raw material. The adoption is going with the differences of manufacturers. And we believe with AI server market being grown, we will see supply to increase. And we believe that this lower resin raw material combined with fluoropolymer resin is going to be very important going forward, especially for high-speed communications.

And of course, the silica filler dielectric, this is something that we are preparing for mass production going forward, and this is going to be serving the needs for AI servers going forward.

Thank you very much. Anything else? Thank you very much.

Now next question, please. Nishiyama-san from Citigroup Securities.

My name is Nishiyama, Citigroup Security. So Page 21, please. I have a question about CCL. So one lower grade glass is being used. So is that the low decade second generation is used but fast generation is possible but maybe the second generation can replace the other or the higher grade glass.

And also [indiscernible] wave. You have the integrated the [ PTE ], but this is ELL-Series. Is this PTFE or hydrocarbon? Would you please talk about that?

Yes. So this is for CCL. So Suzuki-san would you please take discussion?

Yes. The first question is about glass cloth and resin relationship. Right now, especially what we're targeting at 224 area. So in that sense, the existing resin, quartz is necessary to achieve the high performance required performance. But right now, 112 is using is NER, this type of product can be used in combination. So the past existing resin needed quartz, but existing cloth can be used to reach the required performance. That's what we are aiming for.

And for ELL -- sorry about that. I mean we can answer questions in a later date after this briefing. Is that okay? Yes, I need to check my document. So can we answer questions later?

Okay. Can I ask you another question?

For the second question, we will answer your second question through IR division.

Can I ask you a different question?

Of course, go ahead.

As for EUV blanks, so CPU demand is going to get bigger. So from a major customers demand, is it getting better from the beginning of the year in 2024? The sales was over JPY 40 billion, I believe. So do you think you'll be able to capture that kind of level when you capture sales?

And are you looking for mass production from customers out of a new major customer in this area. So this is that we must like.

Suzuki-san, please.

As for EUV mask blanks, I'd like to explain. I cannot give you details about the different customer situation. However, comparing this year from last year for each of the customers, the EUV, the blanks usage is increasing, and it is stabilizing.

And last year, one specific customers demand lowered, but the usage by this customer is recovering this year. When it comes to the outlook, the current market situation and supply situation, we can expect a stable demand going forward. And when it comes to customers, for EUV mask blanks customers, there aren't many. However, for each of the customers, the usage of our product is increasing.

So compared to 2024, looking at the customer portfolio, we believe that stable growth can be expected. That is a change that we're seeing in the trend. Therefore, last year was the bottom. And this year, we are seeing recovery. And after 2024 and the demand in 2024, how can I say this, in that term, we believe that we will exceeded this year. And next year, we will exceed the number further. Thank you very much.

We'd like to take the next question. Maeda-san, SMBC Nikko Securities.

My name is Maeda from SMBC Nikko. I have 2 questions. The first question is about Page 25 about Performance Chemicals, semiconductor-related but it could be electronics application. For each product, would you please give us the sales breakdown? I'd like to understand the ratio against the sales. About the contribution to the profit, which product has the largest particularly significant contribution?

Okay, that is Performance Chemicals, the contribution to sales and profit. Momii-san, is going to explain.

Thank you very much for your question. To answer to your question about the detail, the sales volume, sales numbers about the breakdown, I'm not able to disclose that information. But in terms of contribution, for sales and the profit, which are productive drivers.

So the areas that will grow. For example, for the semiconductor manufacturing equipment product are currently still already that this product for that application has the good the OP margin. So actually, also, we'd like to launch the products for semiconductor process products which is currently is doing well.

I have another question. The GP architecture for AI materials may be used in the back plane. I think that is something that we are hearing. So do you see this as a business opportunity going forward? And of course, when it comes to Fluorites, the control risk regulation risk is there anything that we need to be concerned about in this area?

First for the PFAS control, as you mentioned, the PFAS regulation currently, the direct impact on our business and product, we believe, is limited. However, as you know, in Europe, this discussion is ongoing. Therefore, in the Performance Chemicals business, we do believe this is a significant risk that we need to recognize. But we believe that 5G and 6G, the communication related usage and also the semiconductor-related products that we talked about, these are essential for making in semiconductors.

So we would like to continue to supply the products then we need to reduce the environmental building from production processes. And of course, we need to sophisticate how we control -- and of course, we need to look at replacement and alternative technologies as well. And of course, we are looking at dielectric properties. So we believe that this is another perspective that we can work on when it comes to fluorine products. But this is something that we are working on in development as well.

So in your development processes, what is your positioning of your company in their development field?

Well, in that sense, our company from that dielectric property, we do have that material that we can offer, but we believe that the demand is going to be higher going forward. And it is not as if we are leading or we are delayed. So I don't think we are able to do that kind of assessment yet. Thank you very much.

Next question. Yes. Chiba-san from BofA Securities.

I'm Chiba, BofA Securities. Can you hear me?

Yes, we can hear you.

Just have 2 questions. Page 22, please. So out of this glass core and glass interposer. These are my questions. So TV, TGV Glass core is actually sample...

Chiba-san, I'm sorry, we are not able to hear you well. Could you please repeat? Would you please speak into the microphone?

Can you hear me better?

Yes, please.

On Page 22. glass core, there's a TGV the substrate sample shipment has started. So at AGC, there's a rumor that it's going to be behind maybe later 2030. So when do you think you have the production? So if you have any outlook for the glass core TGV.

So the TGV substrate when you start the production, what is our plan of forecast? Suzuki-san, please.

For -- this is the TGV glass core, rather substrate, I think when we can start the production shipment, there's a technical models not only with us, but for the industry. The full target -- our original target of 2028, but I have a personal feeling. I think it will be sometime around 2029. That is the start-up production. So our customers are not going to they start using in the large scale, but they'll start using gradually from 2029, then when glass core supply becomes a good in size, then I think we'll see the ramp up of the production in sales.

So to answer to your question, the timing is about 2029.

Understood very well. May I ask one more question please? So this is also on Page 22, but dielectric products. And I don't think this is included in the double revenue by 2030. But when do you think it will come to make the contribution?

Thank you very much. Suzuki-san, would you like to answer the question?

Yes. Thank you very much. Maybe Mr. Maeda will be able to answer this question. So Mr. Maeda, would you like to answer this question.

My name is Maeda from electronics company. About the optical materials for photonic and electronic convergence. So NVIDIA Switch has been launched, and that is where we have started adoption. And we make proposals now.

And as Suzuki-san mentioned earlier. Our Microlens array this is optical. This is using parallel gate so that it can be used for grading. And that is a kind of product in which we are getting a lot of inquiries about. And also going to the future, there will be [indiscernible] going forward, and that is something that we can work on.

And as was mentioned earlier, of course, the copper power-related products, we have lots of inquiries, and we are providing samples at the moment. So as for the scale of revenue going forward, we are not able to give specific values. It will depend on how much we'll be able to expand the value chain. Therefore, we can give you a new thing specific, but it would be a multibillion dollar level of our business scale that we would like to target as we continue with the development.

Thank you very much. So it will be a few billions of yens of market. So we'd like to take a part of that market. So this market is going to grow. And in FY '28 to FY '29, we hope that it can be started and that is the kind of inquiries that we are receiving. So we hope that for tonic electronic convergence will start to grow after 2030.

And my follow-up question is, you said that adoption has already started. In other words you mean that new products of your company has been adopted already. What did you mean by adoption by customers?

Well, our current situation is that development and also trials is now being done. So when it comes to mass production, that has not started yet.

So I'd like to move to the next question. Hirakawa-san of Daiwa Securities.

Yes. I'm Hirakawa of Daiwa Securities. I have 1 question. So I have a question about the entire flow actually. So you talked about AI so like dielectric glass like CCL is getting attraction. But when we have a glass score, what do you think about will happen to CCL? Do you think that will be replaced by the glass core? And you have the fluororesin. And what will be the chemistry or affinity with the glass core?

So I have a -- what the glass core is going to impact CCL or the fluororesin and what will be the timeline that these product is going to grow? And again, if you have any math these new products is going to replace the old products. That's my question.

Thank you about the package material. So first, I think Suzuki-san can answer your question. And then Momii-san, can respond to the question about fluorochemicals.

Yes. About packaging, glass core and CCL PCV relationship glass core was that would be penetrated in the future. The PCV, meaning CCL's demand will not be replaced. It's not going to be converged. The glass core is for the resin for the substrate is going to be glass core.

So PCV will stay. Therefore, cannibalization that doesn't happen to us. And then for the future, maybe the photonic-electronic convergence and also substrate could be integrated. But that will be a positive business opportunity. So again, it's not a cannibalization. So about the fluorine for each layer.

We -- they don't offer how to make everything high functional, but if any of the product is going to be integrated into the new product to close the cannibalization, we don't think that will happen.

In Performance Chemicals, when it comes to is dielectric, it is not used independently. So it will be used in combination with other materials. And as Suzuki-san mentioned, there would not be any cannibalization with glass core. So it will be case by case, it will be in combination with different materials that customers are considering its use. So in that manner, I think they will be used as products going forward.

So today in the market, Florence are focus of the market. And therefore, here, glass core and also there will be some good compatibility with the copper. Therefore, we believe that Florence would continue to grow. Is that the possibility that you're seeing? That is our understanding as well. Thank you very much.

It is time. So with that, we'd like to end the Q&A. [Operator Instructions] With that, we'd like to end the explanation session of semiconductor-related business. Thank you very much for your participation.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]

We have reached the hour. We would like to start AGC's fiscal '26 Q1 results briefing. I will be the MC today. I'm Tamaki from Corporate Communications, Investor Relations. I'd like to first introduce who is here on our side. Representative Director, Executive Vice President, CFO, Yoshio Takegawa; Executive Officer, GM of Finance and Control, Tomoyuki Shiokawa. First, our CFO; Mr. Takegawa, will present Q1 fiscal '26 results. And then after, we would like to move on to Q&A. We plan to end at 3:45 p.m. Japan time. Over to you, Mr. Takegawa.

I am Takegawa, the CFO. Thank you for your time today. First, please look at Page 3. Page 3 shows the key points of Q1 fiscal '26 results and fiscal year '26 outlook. In Q1 results, net sales increased by JPY 38.4 billion, and operating profit rose by JPY 12.6 billion year-on-year. Net sales increased, thanks to the effects of yen depreciation as well as higher shipments in Essential Chemicals, Southeast Asia, and pricing policies effect in Architectural Glass in Europe. Operating profit benefited not only from the above aforementioned net sales growth factors, but also from profitability improvement in Life Science and decline in natural gas prices in Europe. The full year outlook remains unchanged from the announcement that we made in February. We currently expect only a minimal impact from the Middle East developments.

Please turn to Page 6. These are the highlights of the financial results for Q1 fiscal '26. Net sales increased by JPY 38.4 billion to JPY 538 billion. Net sales increase factors such as the impact of yen depreciation, higher shipments in Essential Chemicals, Southeast Asia, and pricing policies affecting Architectural Glass in Europe outweighed decrease factors, including lower sales prices in Essential Chemicals, Southeast Asia, and lower shipments in Architectural Glass in Europe and Americas.

Operating profit increased by JPY 12.6 billion to JPY 38.5 billion. In addition to the factors mentioned earlier, profitability improvement on Life Science and decline in natural gas prices in Europe contributed to the results. Profit before tax increased by JPY 18 billion to JPY 35 billion. Along with the improvement in operating profit, foreign exchange gains also contributed. Profit for the period attributable to owners of the parent increased by JPY 16.2 billion to JPY 22.8 billion.

Please look at Page 7 next. This is the performance comparison by business segment. Architectural Glass, Automotive, Chemicals, and Life Science saw increases in both sales and profit, while Electronics saw an increase in sales but a decrease in profit compared to the same period last year.

Please turn to Page 8. Next is the Chemicals segment (sic) [ Variance Analysis on OP ]. OP increased by JPY 8.6 billion due to differences in sales volume prices and product mix. Increased shipments in Essential Chemicals, Southeast Asia, as well as pricing policies for Architectural Glass in Europe drove the increase. The impact of raw material and fuel price differences was plus JPY 2 billion. Natural gas prices in Europe declined. Costs and Others contributed a positive JPY 2 billion. Profitability in Life Science segment improved. As a result, OP increased by JPY 12.6 billion to JPY 38.5 billion.

Page 9, next. Next, the balance sheet. Total assets amounted to JPY 2.9955 trillion, an increase of JPY 45.5 billion from the end of last year. Of this, JPY 5.9 billion was attributable to foreign exchange fluctuations. The D/E ratio is 0.41.

Page 10, please. This is the cash flow statement. Operating cash flow for the period was plus JPY 42.6 billion, while investment cash flow was minus at JPY 59.7 billion. As a result, free cash flow was minus JPY 17.1 billion. As discussed on the next page, although CapEx decreased compared to the same period last year, we had payments for accounts payable and thus a larger minus for investment cash flow.

Please turn to Page 11. I will now explain our capital expenditures, depreciation expenses and R&D expenses. In Q1, CapEx totaled JPY 44.1 billion, a decrease of JPY 5.5 billion Q-on-Q. Depreciation amounted to JPY 48.1 billion and R&D totaled JPY 13.9 billion. The major capital expenditure projects are as listed.

Next, segment-by-segment breakdown. Please turn to Page 13. First, the Architectural Glass segment. Net sales increased by JPY 8 billion to JPY 112 billion and OP rose by JPY 5.6 billion to JPY 4.7 billion. In Asia, while shipments declined in Japan, they increased in Southeast Asia. Sales prices in Southeast Asia fell. In Europe and the Americas, shipments declined, but the yen depreciation and pricing policies in Europe contributed to the results. OP was driven not only by the revenue growth factors mentioned earlier, but also by the fact that natural gas prices in Europe were lower than the same period of the previous year. The breakdown of OP was approximately 10% Asia, approximately 90% for Europe and the Americas.

Please turn to Page 14. Next is the Automotive segment. Net sales increased by JPY 8.9 billion to JPY 137.6 billion, and operating profit rose by JPY 1 billion to JPY 8.6 billion. In addition to the revenue boost from the weaker yen, the product mix improved in Japan, Europe and North America due to progress and functionality enhancements. Although manufacturing costs increased, operating profit rose as the revenue growth factors mentioned earlier more than offset this increase.

Page 15. Next is the Electronics segment. Net sales increased by JPY 3.6 billion to JPY 90.3 billion, while OP decreased by JPY 1.8 billion to JPY 12.3 billion. In the Display, revenue increased by JPY 2.3 billion due to higher sales prices for LCD glass substrates. In the Electronic Materials, while shipments of EUV mask blanks are in the process of recovering, revenue increased by JPY 1.2 billion due to higher shipments of other semiconductor-related materials and optoelectronics materials. As for operating profit for the Electronics segment, as I just explained, revenue increased in both the Display and Electronic Materials. However, profit decreased due to higher manufacturing costs and the negative impact of the weak yen for Display. The breakdown of the OP was approximately 30% for Display and 70% for Electronic Materials.

Page 16, please. Next is the Chemicals segment. Net sales increased by JPY 13.1 billion to JPY 157.2 billion, and operating profit rose by JPY 4.1 billion to JPY 15.2 billion. Integrated Chemicals saw a sales increase of JPY 6.7 billion due to higher shipments of electronics-related products. In Essential Chemicals, Southeast Asia, although sales prices for PVC and caustic soda declined, net sales increased by JPY 7.2 billion due to higher shipments from capacity expansion in Thailand and the effect of yen depreciation. Operating profit increased due to the sales growth factors mentioned as well as improvements in manufacturing costs and onetime gains. Regarding the subsegment ratio to operating profit, Integrated Chemicals accounted for 80% and Essential Chemicals, Southeast Asia, for 20%.

Please look at Page 17. Finally, the Life Science segment. Net sales increased by JPY 4.6 billion to JPY 35.6 billion, and operating profit improved by JPY 2.8 billion, resulting in a loss of JPY 3.3 billion. Both small-molecule and Biopharmaceutical CDMO saw sales increases due to yen depreciation and growth in contract orders. Operating profit improved as the effects of fixed cost reduction measures, including the closure of the Biopharmaceutical CDMO Colorado sites were realized. Furthermore, compared to the previous quarter, Q4 contract orders and productivity at the Copenhagen site, et cetera, showed improvement.

Please turn to Page 18. Next, I will explain the performance of the strategic businesses. Overall net sales for strategic businesses increased by JPY 13.2 billion to JPY 130.6 billion, and operating profit rose by JPY 7.6 billion to JPY 18.5 billion compared to the same period last year. Sales in all strategic businesses remained firm with Performance Chemicals growth and Life Science improvement driving the increase in operating profit. Operating profit from strategic businesses accounts for 48% of the total consolidated operating profit.

Please turn to Page 20. Next is the full year outlook. But first, I will explain the impact of Middle East developments. In Q1, nat gas and crude oil prices increased. While preemptive production adjustments were made for certain raw materials, the overall impact on performance was minimal. While the situation from Q2 onward is difficult to predict, we currently expect only a limited impact on the full year outlook. We will implement measures to ensure a stable supply regarding the procurement of raw materials and fuels as well as manufacturing and sales.

The main anticipated impacts and countermeasures are summarized in the lower section. Possible risks include procurement risks and price increases for fuels and raw materials as well as the risk of reduced sales volumes of PVC, caustic soda, et cetera, due to production adjustments and lower shipments in Automotive Glass caused by reduced exports to the Middle East. On the other hand, price adjustments in Architectural Glass and higher sales prices in chemicals are expected. As countermeasures, we will diversify procurement sources, reduce costs, adjust production levels appropriately, and optimize pricing.

Please turn to Page 21. Regarding the full year outlook, while the crude oil price assumption has been revised from USD 70 a barrel to USD 100 a barrel, outlook remains unchanged from the announcement in February.

Please turn to Page 22. So we are maintaining our full year outlook by segment. Further details are provided on the following pages.

Please turn to Page 23. First, Architectural Glass. In Asia, shipments are expected to increase due to a recovery in demand in Thailand and Indonesia. While there is a possibility of rising costs due to higher fuel prices, we will continue our efforts to adjust prices and improve productivity. In Europe and the Americas, the economic downturn in Europe is expected to continue and the recovery in shipments is expected to be limited. We will implement price adjustments and cost-cutting measures.

Next, Automotive. Shipments are expected to decline due to automotive production volumes and a drop in exports to the Middle East. We will continue our efforts to improve product mix and enhance productivity in response to the trend towards functionality enhancements. We will also implement price adjustments and in response to rising fuel costs.

Please turn to Page 24. Next, Electronics. In Display, shipments of glass substrates for LCDs are expected to decline slightly. We will continue to implement measures to improve profitability. Among electronic materials, shipments of semiconductor-related materials such as EUV mask blanks are expected to increase. Shipments of optoelectronics materials are expected to remain at the same level as the previous quarter.

Next, Chemicals. Integrated Chemicals is expected to see an increase in shipments of products for the electronics application. Essential Chemicals, Southeast Asia, is expected to see an increase in shipments as expanded facilities in Thailand have come into full operation. In both segments, we anticipate rising prices for raw materials and fuel as well as corresponding increases in selling prices. We will strive to secure raw materials that are not dependent on the Middle East.

Page 25, please. Next is Life Science. Sales of small molecule pharmaceuticals and agrochemical CDMO are expected to increase, driven by the start of operations at our newly expanded facilities. In the Biopharmaceutical CDMO, we anticipate not only an increase in sales, but also an improvement in productivity. The closure of our Colorado facility in the U.S. is expected to significantly reduce our net loss.

Page 26. We are maintaining our full year outlook for strategic businesses as well, projecting net sales of JPY 560 billion, an increase of JPY 58.5 billion from the previous fiscal year, and operating income of JPY 80 billion, an increase of JPY 21.3 billion from the previous fiscal year.

Please turn to Page 27. We have not revised our forecast for capital expenditures, depreciation expenses or R&D expenses. We plan to reduce capital expenditures by JPY 61.3 billion year-on-year.

This will conclude my presentation. Thank you.

Thank you, Mr. Takegawa. We would like to now move on to Q&A. We have received some questions beforehand. But we will be taking new questions, if any. [Operator Instructions].

So regarding the questions we have received beforehand, we would like to take them first. The first one is about Q1 2026 and your results. At the beginning of the year, compared to your expectations by segment, can you compare the current status of the segments and how it's different? Mr. Takegawa will take that question.

For Q1 results, first, regarding net sales, Automotive and Electronics beat, and for operating profits, Electronics and Chemicals beat our expectations. First, regarding net sales, for Automotive, due to product mix improvement and higher shipments for Japan, Europe and North America, we were able to exceed expectations. For Electronics, for optoelectronics shipments and electronic components, there has been push forward shipments; and semiconductor-related component shipments were greater than expected, and also for Displays. And for Electronics, for OP, we had a higher impact on profits due to higher sales in Electronic components. And for Chemicals, Integrated Chemicals, there was a revision of the consolidation. So there was some one-off gains in association with that. And also, apart from that, due to adjustments in how we close the books also had an impact. That's all for me.

So we would like to entertain the next question that was submitted beforehand. So for 2026 Q2, your forecast and outlook. So you did mention that the first half outlook remains unchanged. But from Q1 to Q2, can you please illustrate the segment trends in terms of profit? So can you please give us your outlook as to how the segments will trend from Q1 to Q2? So again, Takegawa-san will respond.

So for Q2, all in all, we anticipate a dip in profit as well as net sales. Now in terms of net sales, for Chemicals, we will see an increase. But for Automotive and Electronics, we will see a dip. And for operating profit for Electronics and Chemicals, we will see a dip in profit. Now the breakdown is as follows: In terms of net sales, Automotive, for Q2, we do have seasonality, so there will be a decline in shipments. So this is the same trend year after year. So that is why we are seeing the dip. And for Electronics, for the electronics materials, again, this is a result of the CV shipment decline, which again is a seasonality factor.

Now moving on to Display. For Q2 as well in comparison to Q1, we will see a decline in shipments, and this is because of the product mix. Now for Chemicals, well, Integrated Chemicals, Essential, Southeast Asia, for both, we will see an increase in shipments. Now in regards to this operating profit for Electronics and Chemicals, we will see a decline, and especially for Electronics, net sales will decrease. And because of this decrease, profit will also decrease in accordance. Now for the Chemicals, sales will increase. But for Q1, the Integrated Chemicals, which was the onetime of profit that we enjoyed, will disappear. And so that will impact us, and as a result, we will see a decline. That's it.

Moving on to the next question. Let me read out the questions we received in advance. You have revised up the crude oil market assumptions from $70 to $100 a barrel. However, the full year sales and operating profit forecast for segments remain unchanged. Can you qualitatively explain the direct and indirect negative impacts of higher crude oil prices on each segment as well as countermeasures incorporated into the outlook? So that's the question. Mr. Takegawa will respond.

We have revised the assumption for crude oil prices and what's happening right now is prices of crude oil, ethylene and propylene has been increasing. And mainly around Architectural Glass, Chemicals, and Automotive businesses, costs have been increasing, as well as there is a risk that there may be higher costs as well as production adjustments and demand declines. We will ensure that we diversify procurement sources and make production adjustments while also implementing cost reductions and price revisions for the affected segments. The assumption is that increased costs resulting from higher crude oil prices can be offset through productivity improvements, cost reduction measures and price adjustments.

So we do have a related question. So this is about the impact of the Middle East situation. And the questioner believes that there will be impact in glass as well as chemicals, so Architectural Glass and Chemicals. But apparently, that is slightly different from the anticipation of the company. So the request is that, can you elaborate on the impact of the Middle East situation by segment. And so if you could perhaps elaborate. And Takegawa-san will respond to this question as well.

So Chemicals and Architectural Glass, yes, there is some impact acknowledged. And if we see a glitch in material procurement, then obviously, that will impact possibly the production. But for the time being, we have secured enough materials. And especially for Chemicals, for instance, Thailand is not dependent in the Middle East. So we can secure the ethylene regardless of what is happening in the Middle East. And natural gas, ethylene, has been secured within the country, Thailand. So there's no impact. And also in Indonesia as well, they are dependent on North America, not the Middle East. And so that is how they are procuring their raw materials. So once again, there is no impact.

Now in relation to fuel prices and material prices, the commodity prices will hike. Some we are already seeing some spikes, which does mean that it is noticeable that price adjustments and pass-throughs are confirmed.

The next question is also related to the Middle East situation. In the presentation, you say that the impact on current expectations is limited, but what this means? Does it mean that there is negative impact, but you're going to make efforts to offset it? Or is the negative impact negligible to begin with? Can you give us more nuance on what you're stating? So that we can understand the current status. Please go into detail and explain. So that's the question. So Mr. Takegawa will take that question once again.

Yes, there will be a certain level of negative impact. That's our view. However, we believe that we are able to offset that negative impact through countermeasures. For raw materials and fuel cost and sales volume, we expect negative impact of about JPY 10 billion, respectively, for the full year. That's what we're expecting. However, through pricing as well as cost reduction measures and other measures, we envision that we will be able to recover that negative impact. That's all from me.

I'd like to move on to the next question. So this is about the Chemicals segment. So for Q1, Chemical business, can you explain why there was this upside? So Cost and Others was plus JPY 6.8 billion. So can you break this number down for us? So Shiokawa-san from finance will respond to this question.

So allow me to explain. So we are improving our cost for production. And also amongst the Chemical products, for Q1, there were some that saw a rise in selling price. So when prices come down, we recalculate our inventory, but obviously, when prices do hike, there are some adjustments made, and also tentative or onetime revenue or sales. Starting this fiscal year, within AGC Group companies, for companies that have low contribution have been deconsolidated. However, for this segment, we are applying the equity method depending on the contribution level. And especially for the Chemicals segment, early double-digit impact has tentatively been acknowledged.

Next question. With regards to the assumptions for the full year forecast for the Chemicals segment, can you talk about your outlook and the impact on changes with respect to the chemicals market, cost push and so forth?

Regarding the market outlook right now, due to the impact from the Middle East, there is some level of uncertainty. For ethylene and PVC market prices, we are assuming that March levels are going to continue. For instance, last year, it has been declining. But in January and February, we have been seeing a bottoming out process, and we expect the prices to stay at March levels. For caustic soda, we haven't changed the assumptions since February. We expect that the levels from February will be ongoing. For cost increases associated with higher raw material and fuel prices, through price adjustments and diversification of procurement, we will be responding.

Now moving on to the next question. So this is again for Chemicals segment. So ethylene procurement status, can you please explain the current situation? So I do believe we have received similar questions so far, but perhaps in more detail, where are you procuring from, i.e., regions or areas? So Takegawa-san will respond.

So for ethylene, which I briefly mentioned, the main regions would be Southeast Asia, Essential Chemicals. I'll start off with Thailand. So within the country of Thailand, ethylene created from natural gases, we have a solid procurement. And another is Indonesia. And in the past, Indonesia did have a dependency upon the Middle East. But currently, they are sourcing the material for ethylene from North America. So for the time being, for both countries, we believe that we can stabilize our production.

Next question. For the new factory in Thailand and its utilization status, can you share that with us? Takegawa-san will take that question as well.

For Q1, for the new factory in Thailand and its utilization, we did make some adjustments, although the impact is small. For the source of raw materials, we were not able -- it's not because we weren't able to obtain the source, it was more about making adjustments for the operation of the facilities. That's the type of adjustments we were making. But it's expected to be utilized at high rates from Q2 onwards. That's our assumption.

Next question. So Q1 for Chemicals segment operating profit has surged. And so can you explain the reasons why we saw this increase? So Takegawa-san, please?

So versus last year, shipments have increased. And why we saw an increase in profit? It's not just about increase in shipments per se, but also as Shiokawa-san just explained, we did have some onetime intake of profit as well. And some of that -- also, we reviewed some of our consolidated companies as well as adjustments in our financials. At the same time, the cost cutting has progressed quite greatly in comparison to last year as well. So all of these contributed to the improvement in profit.

Next question is about the Life Science segment. Please provide an update on the planned sale of the Colorado site in the U.S. Mr. Takegawa will take the question again.

Regarding the planned sales of the Colorado site, ever since last year, we've been explaining that we are trying to close the sale as soon as possible in early '26. So we are continuing negotiations. Regarding any fixed costs that may be outstanding, there are no more personnel expenses. However, depreciation, fixed asset taxes and administrative expenses still remain. So those costs are still being incurred. But personnel cost was the greatest item, and that is gone, which has led to a substantial cost reduction.

Moving on to the next question. On Page 17 of the presentation material, Q-on-Q in comparison to Q4 of last year, the Copenhagen saw an increase in consignments, but European sales in comparison to Q4 last year, I do not think there is an increase. So in actuality, what is the level of improvement? Can I interpret this as it does include productivity improvements as well? So Takegawa-san will respond.

So for Copenhagen, for Q4 of last year, we do see an increase in consignments. And for European net sales, in comparison to Q4 of last year, there is not a major increase. Why? Because there has been some increase because of Copenhagen, but for the Biopharmaceuticals, we saw a dip, the CDMO that is. And Copenhagen Q4 productivity was still low. But in Q1, we saw improvements, and we saw an increase in consignments as well. So the contribution to profit is in the double-digit hundreds of millions.

Next question is about the Electronics segment. Q1 results in the Electronics segment sales mainly due to Electronic Materials declined by JPY 5.1 billion Q-on-Q, yet profit increased by JPY 700 million Q-on-Q. Please explain why this is the case. Mr. Takegawa will take the question.

For Displays, sales decreased. Last year, in Q4, there was special glass disposal costs that were absent this time around. However, profits increased. For Electronic Materials, it recorded both lower sales and lower profits. So all in all, Electronics revenue went down by JPY 5.1 billion, but profits increased by JPY 700 million.

Now moving on to the next question. Again, for Electronics segment. Page 15 of the material, Cost and Others in comparison to the same period last year, it is a plus. So Cost and Others is Q-on-Q larger. So can you explain the backdrop to this, the reasons? So it is minus JPY 5.7 billion, I believe. Yes. So in other words, this increase in cost, can you explain why? So Takegawa-san will respond.

So Cost and Others, this is because of production cost increase, but not just that, the impact of the weaker yen placed upon the Displays. So it's not just that the cost deteriorated, but also we are impacted by the exchange rate.

Next question is about EUV mask blanks. How were inquiries from key customers? That's the question. Mr. Takegawa will take the question again.

For inquiries from key customers of EUV mask blanks, unfortunately, we are not able to speak to specific products or specific customers, unfortunately, so I would like to withhold. But shipments for mask blanks overall were flattish compared to the previous term.

So in relation to that, another question for semiconductor materials. A major CPU manufacturer, they are improving greatly their outlook. So AGC's mask blanks as well as slurries in relation to semiconductors, and semiconductor all in all, how do you anticipate the impact? So Takegawa-san, please?

So for 2026 fiscal year, globally, the semiconductor-related shipments and products will continue to increase, and that is our expectation. Now in conjunction with this increase, our EUV mask blanks as well as slurries, in other words, semiconductor materials in comparison to the previous year, they should increase as well.

Next question is about optoelectronics. Can you give us an update on demand trends? Are there any changes? Takegawa-san will respond.

When we announced results in February, we said that -- we communicated, but there are no major changes ever since. For shipments for this fiscal year, in fiscal '26, we're expecting flattish trends compared to last year, because we are in a transition period to further higher functionality.

The next question pertains to CCL. And so what was the situation for Q1? And then for the full year outlook, how far did you progress? And for raw materials and fuel prices, they are on the increase, will you be impacted by this trend as well? So Takegawa-san will respond.

So again, I cannot comment on individual products. However, for CCL as well, we do see steady demand. For FY '26 as well, especially for high-speed communication markets and especially the momentum in the AI server markets, we do believe that very strong demand will continue, which does mean that for us as well, we can anticipate stronger shipments.

Next question is regarding Displays. Volume price trends for Q1 results, how did they trend? And can you give us direction for Q2 and beyond? Mr. Takegawa will take the question again.

For Displays, compared to Q4 last fiscal year, volume in the first quarter went up slightly. It was in low single-digit percentage growth. Prices were flattish compared to last fiscal year. There is no changes in our outlook for annual shipments at this moment.

And again, for Display, we have another question. So Page 15 of the presentation material, it refers to sales price increase. So the question is, when did you raise your prices? And Q-on-Q, are prices still on the rise? And Takegawa-san will respond.

So for Display, for 2025, last year that is, for the second half of 2025 vis-a-vis the first half, we saw a price increase in the first half of the single digits. And for Q4 and onwards, on to Q1, the prices have been flat.

I mentioned that we're going to take on questions earlier. [Operator Instructions]. So moving back to the questions that we received in advance. For Architectural Glass, can you give us some trends on volume and prices by region for Q1? And can you also talk about profitability trends from Q2 and beyond? Mr. Takegawa will take the question.

For Japan and Asia, volume in Japan went down; and for Asia, it went down slightly. And for prices in Japan and Asia, prices went up slightly in Japan and prices went slightly down in Asia. As for Europe, in Q1, volume was up by approximately 10% plus. But for Southern America or Latin America, it was down by 10%. And for Europe, prices were down by several percentage points, but for Americas, it went down by single-digit percentage points. From Q2 onwards, due to the impact from the Middle East and rising fuel and material prices, there is a risk that costs may increase. However, by engaging in cost reductions and price adjustments, and other countermeasures, we believe the impact on profitability is going to be limited. And there has been some surcharges since April onwards and sales prices are expected to go up from that for Europe, that is.

So moving on with the raw materials and fuel prices increasing, you mentioned price pass-through, but demand is not that strong. But if you pass through the prices, perhaps this will actually impede demand increase. Do you not have that worry or concern? So Takegawa-san, please?

So as the question points, it is not that we are free of worries or concerns. So inflation deepening as well as cost increases, obviously, there will be some impact we can assume. So we will have to keep careful watch of the demand trends and come up with initiatives, including price pass-throughs as well. But I would like to add that there are major regional differences. So we will have to be very careful in understanding what is needed for each of the specific regions and undertake initiatives as necessary.

Next question is about the Automotive business. Can you give us trends for Q1 with respect to volume and prices by region as well as the outlook from Q2 onwards? Mr. Takegawa will take the question.

We would like to withhold the details with respect to volume and price trends by region. But for volume, we do refer to auto production numbers. For Q2 and beyond, due to the impact from the Middle East, there is a risk that fuel and material prices may increase leading to higher cost. But by engaging in cost reduction as well as price adjustments and other countermeasures, we believe that the impact on profitability is going to be limited.

Thank you. And we do have some additional questions uploaded. And for the subtle nuances, because there are some overlapping questions, I believe, if you can please inquire the IR team. So since we have approached the scheduled time, we would like to conclude the Q&A session. And if you do have individual questions, please contact the liaison number. I will call up the number, 3218-5096. So that will be the contact number for any individual questions. And when you close the Zoom screen, you will jump to the survey screen. So please, we encourage you to fill this in. This will help us to improve our sessions in the future.

On that note, we would like to conclude the 2026 Q1 performance call, and thank you very much for your attendance today.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]

Now, we'd like to start the full year financial results briefing for FY '25 for AGC. The moderator is myself. My name is Tamaki of Corporate Communications and IR. Let me introduce the participants from AGC. We have Mr. Yoshinori Hirai, the President and CEO; Executive Vice President and CFO, Yoshio Takegawa; General Manager of Finance and Control Division, Tomoyuki Shiokawa.

So today, first, our CFO, Takegawa, will present the financial results for the full year 2025. And then our CEO, Mr. Hirai will talk about toward profitability improvement, and then we take questions. We plan to end this session around 04:45 p.m. So I'd like to ask for your cooperation. Now I would like to invite Mr. Takegawa for you.

This is Takegawa, CFO. Thank you very much for joining us today. So let me get started. Please go to Page 3. So this shows the key points of FY '25 results and FY '26 outlook. For the FY '25 full year results, net sales were flat and operating profit rose slightly year-on-year. Improvement of automotive contributed the operating profit increase. Profit attributable to owners of the parent improved significantly. ROE improved to 4.7%.

Outlook for FY '26. Operating profit is expected to increase driven by a recovery in Life Science. Profit attributable to owners of parent is also expected to improve. ROE is expected to improve to 5.2%.

Please go to Page 6. So I'd like to explain further on the results. Net sales were JPY 2.0588 trillion, down JPY 8.8 billion year-on-year. Net sales increase factors include product mix improvement and pricing policies affecting automotive, pricing policies effect and higher shipments in Performance Chemicals and pricing policies affecting Architectural Glass in Europe and Americas. Decrease factors include lower sales price of PVC, decrease in shipments of EUV mask blanks and lower sales prices in architectural glass in Asia.

Operating profit was JPY 127.5 billion, up JPY 1.6 billion. Despite the higher raw materials and fuel prices and deterioration in manufacturing costs and others, the realization of the earnings improvement measures in Display and others pushed up the profit in addition to the earlier mentioned factors.

Profit before tax was JPY 124.8 billion, up JPY 174.8 billion, significant increase. In addition to the earlier mentioned factors, disappearance of the losses on share sales in connection with the Russian business transfer and large impairment losses related to biopharmaceutical CDMO booked last year.

Please go to Page 7. This is the performance by segment. Sales and profit of Architectural Glass and Automotive increased, while the sales and profit of the Electronics, Chemicals and Life Science declined. Regarding operating profit, I would like to explain the factors contributing to the difference year-on-year. Sales volume, price and product mix contributed positively, JPY 19.9 billion Y-o-Y. PCB price and shipments of semiconductor-related materials were down, but the product mix for automotive glass improved. Pricing policy had positive impact and also pricing policy for architectural glass in Europe and America and Performance Chemicals contributed. Raw materials and fuel costs of JPY 4.6 billion and other costs of JPY 13.7 billion, both had negative impacts.

Resulting OP increased by JPY 1.6 billion year-on-year to JPY 127.5 billion. Please turn to Page 9. This is our balance sheet. Total assets amounted to JPY 2.9501 trillion, an increase of JPY 60.4 billion from the end of last year. D/E ratio stood at 0.37.

Please turn to Page 10. Operating cash flow was JPY 274.5 billion. Investment cash flow was minus JPY 178.4 billion, and resulting free cash flow was JPY 96.1 billion.

Please turn to Page 11. To explain CapEx, depreciation and R&D expenditure on this page. CapEx amounted to JPY 251.3 billion; depreciation, JPY 179.8 billion and R&D expenses, JPY 60.3 billion. Main CapEx projects are listed on this slide. We will now move on to the explanation by segment.

Please turn to Page 13. Starting with the Architectural Glass segment. Net sales increased by JPY 3.2 billion to JPY 441.1 billion, while OP rose by JPY 0.9 billion to JPY 17.3 billion. In Asia, net sales decreased by JPY 4.4 billion due to lower shipments and lower sales prices in Indonesia and other regions. In Europe and Americas, although shipments declined in Europe, and there was a revenue reduction impact due to the transfer of the Russian business in February of the previous fiscal year, net sales increased by JPY 7.6 billion, benefiting from the effects of pricing policy and weaker yen. OP increased by JPY 900 million despite higher costs, such as labor costs due to the aforementioned sales growth factors. Subsegment ratio of OP was approximately 20% for Asia and 80% for Europe and Americas.

Please turn to Page 14. Next is the Automotive segment. Net sales increased by JPY 21.8 billion to JPY 520.6 billion, and OP increased by JPY 15.3 billion to JPY 29.3 billion. Shipments declined in Europe but increased in Japan. In addition to improvements in product mix and the pricing policies impact, the weak yen also contributed. OP increased by JPY 15.3 billion, driven by the revenue growth factors, which was mentioned before, despite increases in costs such as raw materials and labor expenses.

Page 18. Next is the Electronics segment. Net sales decreased by JPY 9.5 billion to JPY 355.1 billion, and OP decreased by JPY 6.9 billion to JPY 47.5 billion. The Display segment saw a JPY 5.5 billion increase in net sales due to higher shipments in LCD glass substrates. Electronic Materials saw a JPY 15.1 billion decrease in revenue due to the transition period towards higher functionality of optoelectronics, coupled with a decrease in shipments in EUV mask blanks. OP decreased by JPY 6.9 billion, reflecting the negative drivers that was explained and the costs associated with the withdrawal from the specialty glass for chemical strengthening business. The breakdown of OP was approximately 70% from Electronic Materials and 30% from displays.

Please turn to Page 16. Next is Chemicals segment. Net sales were JPY 584.2 billion, down JPY 9.4 billion. Operating profit was JPY 53 billion, down JPY 3.7 billion. Essential Chemicals net sales were down by JPY 28.4 billion due to lower PVC sales price. In Performance Chemicals, pricing policies effects and higher shipments of fluorine-related products for electronics and mobility applications contributed to the net sales increase of JPY 18.2 billion. Operating profit was down by JPY 3.7 billion due not only to the lower Essential Chemicals sales, but also to manufacturing cost deterioration related to the facility repairs and others. Subsegment ratio to operating profit is 20% from the Essential Chemicals and 80% Performance Chemicals.

Please go to Page 17. This is the Life Cycle segment. Net sales were JPY 133.1 billion, down JPY 8.1 billion. Operating loss, JPY 22.3 billion, down JPY 1.1 billion. Sales of the small molecule pharmaceuticals and agrochemical CDMO remained steady. Net sales of biopharmaceutical CDMO were affected by disappearance of one-off revenues associated with the settlement of contracted projects booked last year and the negative impact of the closure of U.S. Colorado sites. Although fixed cost reduction measures taken at the biopharmaceutical CDMO in the U.S. have shown positive effects, fixed costs increased due to the facility expansion in Europe, which started operation last year in addition to the negative factors on the sales mentioned before.

Please go to Page 18. Strategic businesses net sales were JPY 501.5 billion, down JPY 1.8 billion year-on-year. Operating profit was JPY 58.7 billion, down JPY 8.6 billion. Overall, operating profit decreased year-on-year due to the lower shipments of electronics and decreased net sales of Life Science, although the net sales of Performance Chemicals and mobility increased.

Please go to Page 20. This is the outlook for FY 2026. Let me explain the assumptions for the major economies and markets in '26. While some markets continue to face challenging conditions and despite the uncertain geopolitical situation, global economy is expected to grow moderately with expanding AI-related investments and monetary easing of major economies is expected for Europe and China, while the U.S. economy will trend strongly.

Looking at the market environment, auto, smartphone, TV, we cannot expect the production growth. However, we expect that the shift to high function and larger size will continue. Caustic soda, PVC prices in Southeast Asia remain low. And the semiconductor market is continuing to grow, driven by AI-related demand. Biopharmaceutical CDMO market is expected to gradually recover.

Please go to Page 21. I would like to explain the outlook for the full year. Although the business environment remains challenging, we forecast net sales of JPY 2.2 trillion, an increase of JPY 141.2 billion Y-o-Y and OP of JPY 150 billion, an increase of JPY 22.5 billion. ROE is forecast to improve to 5.2%. Exchange rates are assumed to be JPY 155 to the U.S. dollar and JPY 180 to the euro.

Please turn to Page 22. Outlook breakdown by segment is shown on this slide. Improvements in Life Science are expected to contribute. Further details will be explained on the following pages.

Please turn to Page 23. Starting with Architectural Glass. In Asia, shipments are expected to increase due to recovering demand in Thailand and Indonesia. We will continue our pricing policy and productivity improvement initiatives. In Europe and Americas, the economic downturn is expected to continue with only limited recovery in shipments anticipated. We will focus on maintaining price levels and reducing costs.

Next is automotive glass. Shipments are expected to decline due to decrease in automotive production. In addition to improving product mix and pricing policy, we will continue our efforts towards structural reform and productivity improvements.

Moving on to Electronics. In display, shipments of LCD glass substrates are expected to decline slightly. We will continue our profit improvement measures. Within electronic materials, shipments of semiconductor-related materials such as EUV mask blanks are expected to increase. Shipments of optoelectronic materials are expected to remain at the same level as the previous year.

Please turn to Page 24. Moving on to Chemicals. Integrated Chemicals is expected to increase the shipment of fluorine-related products for electronics and chlor-alkali products. Essential Chemicals, Southeast Asia is expected to see increased shipments due to the full operation of expanded facilities.

Moving on to Life Science. Sales for synthetic pharmaceuticals and agrochemical CDMO are expected to increase by launch of expanded facility. This is an increase of net sales. In addition to the increased sales, the biopharmaceutical CDMO is expected to see a significant reduction in losses due to the closure of the Colorado site in the United States.

Please turn to Page 25. This is the full year performance outlook for strategic businesses for 2026. Net sales is projected to reach JPY 560 billion, driven by growth across all strategic businesses. OP is forecast to reach JPY 80 billion, primarily driven by profit improvement in Life Science.

Please turn to Page 26. CapEx for 2026 is forecast to be JPY 190 billion; depreciation, JPY 183 billion and R&D expenditure, JPY 62 billion. CapEx will be smaller in 2026 as the major capacity expansion investment concluded in 2025. So this is '26 and beyond.

That concludes my explanation. Thank you very much for your kind attention.

Thank you very much. Next, I would like to invite Mr. Hirai.

As Takegawa-san explained, last year, a slight increase, the 3 years in a row, the profit declined, but we turned it around. So as a result of the various initiatives, I think we have hit the bottom to some extent. However, what is important is that how can we go to the full-fledged recovery. So from our side, from my side, I'd like to talk about how drastically we try to improve the profitability. That will be the major part of my part of presentation.

Let's look at the business performance, the operating profit. At the beginning of the year, we did not achieve the forecast, and we revised it downwards. That's one of the major requests. Last year, finally, we increased the profit. However, our expectations were not good enough. So that was one of the major issues. And the major issue is that the stability of earnings. There was a major impairment display in '22 and biopharmaceutical CDMO in '24. So those major impairments made us fail to increase the ROE.

Now what about ROCE? This is last year's results. ROE of 8%. ROCE is considered to be around 10%. So that is the basic level. Electronics on the left and the Performance Chemicals, which is strategic and the integrated chemicals. Electronics Integrated Chemicals have had high profitability, so 15% or higher ROCE. Last year, among the core businesses, automotive achieved higher than 10% ROCE. So that's the result of the initiatives that we have taken. The major impairment was booked in '22 in display. And we have also taken the initiatives to improve the profitability, and we are seeing the improvements. And the major challenge that we see is the Essential Chemicals Southeast Asia. The stagnation continues and the Life Science still is in red. So we want to turn it around, and we are still not able to do so.

Now for this fiscal year, financial targets is 5% of ROE. We will make sure that we achieve that '27 and onwards as soon as possible, we would like to achieve 8% or higher ROE above the shareholder capital cost. So operating profit of JPY 150 billion, strategic business operating profit, JPY 80 billion. And as a result, 5.2% or higher ROE is something that we would like to achieve.

Now ROCE improvement, what kind of measures? In all the businesses, the way of thinking is the same. So first, it's to increase our -- that's shown on the left. So to lower the cost, clearly. And it's not just cost cutting, but because that is not sustainable. So we want to have a stable production and improve the productivity. And then we would like to reduce cost. That is important.

And the next is the pricing policy. a price which is suitable for the value is something that we like to offer to the customers and agree with the customers. I think that's very important. The third clearly is to increase the value of products. And at the same time, denominator side, that is the CE operating asset. We want to be meticulous in selecting investments and also the major portion is the inventory. So we want to reduce the inventory level as much as possible.

And another thing is to consider the exit from some of the businesses. And we want to make sure that if there are any questions about the growth potential, we will make a big decision to exit or sell such businesses. On the right-hand side, in 2025, those are the major exits that were announced. Now earlier, I talked about the ROCE chart from the left, I showed the electronics integrated chemicals with a high level and the Life Science on the right-hand side.

Let me explain each one of them. And first, about the electronics. Last year, unfortunately, optoelectronics was changing one generation of the product to another. So the growth was stagnant. And EUV mask blanks, the demand was coming down for us. So because of those reasons, there was a negative growth in terms of the profit. But from now on, optoelectronics, the new generation will be starting, and we intend to expand our added value.

As for the semiconductor, EUV mask blanks compared to last year will become positive. So last year, it was down for both, but we think that we can go back to the growth trajectory. The key for that is the EUV mask blanks. Leading-edge node, we would like to make sure that we can deliver our products, which are suitable for them to the customers. So the 2 nano, we have already completed the development and moving toward mass production and also the next 0.7 nano is what we are focused upon. As for the integrated chemicals, mainly the performance chemicals, the upstream, the chlor-alkali in Japan were integrated to the integrated chemicals.

So here, in the chain of the production or the chemical chain, there are upstream and downstream, and we should really not separate them clearly. We want to have an integrated operation to have a total optimization. So that's why we made this organizational change. Now highly profitable performance chemicals, electronics, energy, mobility, those are the 3 major areas, especially electronics, as you're shown on the right-hand side, one of them is the semiconductor manufacturing equipment use and another is semiconductor process application. So those are high value that we can offer to have a high profitability.

Now moving on to the automotive. 2020, because of the pandemic due to the lockdown, it almost stopped in Western markets. So it came down and it could not recover. So we struggled for about 3 years. But we have taken various measures to improve. So profitability has been increasing. ROCE of 10% is something that we achieved last year. So, so far, we have taken the measures to improve the profitability, and we will continue to make those initiatives and achieve 15% ROCE. And to set the pricing policy is important and also to improve the productivity, we need to look into the structural reform and to have higher functionality and higher added value. So through those, we would aim for ROCE of 15%. And what becomes important is to increase the percentage of the high-function mobility products.

So it's not just shifting to the EVs, but the next-generation cars, the autonomous driving at different levels are being promoted. And it's not just the EV, but hybrid and plug-in hybrid various cars are emerging. So new technologies need to be deployed. As for the architectural glass, this is really the regional businesses. So in Europe, the market condition is not very good right now, but the supply is being controlled. So supply-demand balance is good and the price has been kept at a high level.

The South American market is strong. Now the Japanese market is not growing, but the refurbishment or renovation is strong. And with that, a certain level of the demand exists. Southeast Asia is the most difficult region. So the price competition is happening right now. And in each region, we have to look into the different strategies. For Europe and Japan, we need to increase the percentage of the highly value-added products so that we can have stable prices. And as for the Southeast Asia, we have to enhance the competitiveness so that we need to work on the structural reform.

We have been implementing measures that we decided in 2020 when we had a major impairment and ROCE is improving every year. And we expect ROCE to exceed 10% by 2027. stopping low productivity line and the large glass substrate, G11 line, we want to concentrate on this high-performance line. And we also want to present a price that is proportional to the value that we provide. So this is pricing policy, a new attempt in display industry. And thirdly, by introducing new technologies, we want to improve productivity of manufacturing as well.

Now this third part, the technology part will start contributing fully from this fiscal year. So ROCE, 10% is the target for 2027. Now in terms of challenges, we have Essential Chemicals, Southeast Asian situation. Capacity expansion in Thailand has been finished and it started operation in fourth quarter last year and fully operational this year. In Southeast Asia, the markets themselves are growing continuously. There is strong demand. And the PCB and caustic soda, we can basically sell as we produce because we manufacture.

The problem -- the challenge is the Chinese economic stagnation, especially surrounding real estate. So whatever is not sold in China is coming out of that country at a very low price. So there is demand in Southeast Asia, but the price is being pushed down because the products are coming in from outside of these Southeast Asian countries. So demand is strong. And within this region, we have 50% share and that's our strength. Including logistics, we will be trying to reduce the cost and increase the margin through better relationship with our customers so that we can achieve higher profitability.

Lastly, Life Science, current status. Please look at the left-hand side. This is the AGC status by modality. 70% on the right-hand side, this is biopharmaceutical. And then we have small molecule pharmaceuticals and agrochemicals, 30%. And half of the biopharmaceuticals is a mammalian antibody business. And then within bio, there is microbiome, bio and also cell gene therapy, leading-edge modality as well. Now microbials and cell and gene therapy and small molecule pharmaceuticals, these are stable and always producing profit. And the biggest challenge is mammalian cells, which is about half of this total.

So what has been challenging about mammalian cells? As you can see at the bottom left, our cost was big, and it was generating huge losses. Majority of this JPY 20 billion loss was generated from mammalian business. And as for last year, Colorado large SUS-based mammalian production was the biggest challenge. We were basically running loss of more than JPY 10 billion. So we announced last August to withdraw from this business and also the fact that we were entering the divestiture process. The production is completely suspended. There is no more fixed cost being generated basically. So this loss should be resolved in '26.

As for the divestiture, we wanted to conclude this before the end of last year, but still this is ongoing. Now cost reduction. So we stopped Colorado. And also, we reorganized the headcount dramatically. And using the AGC Group's capabilities, we stabilized the production. And as was mentioned before, in Copenhagen in Europe, capacity was increased. And there was increased fixed costs related to the facility. So we want to increase the orders and improve the utility -- utilization of this line. This is very important for profitability improvement. So we stopped Colorado, we stopped the major bleeding.

The production is now stable. And now we want to make sure that the utilization of the expanded capacity will increase. well, we wanted to be profitable before the end of '26, and we made such announcement. But unfortunately, after we take the order and the actual production starts and that's reflected into the profit, it takes time. So we get inquiry and something was in the pipeline and the actual manufacturing starts maybe 1.5 years later. So for the full year, we will not be profitable for this business in '26. We have to wait until 2027.

Now R&D investment policy. So we have market and technology perspectives. We have existing market and customers. We want to innovate the production engineering capabilities and basic technology. We also want to create the next-generation products. We also are focusing on new markets, introducing new technologies, creating new businesses. So these are 2 different directions. And in terms of R&D investment breakdown, since I was the CTO of this organization, we have been always been focusing on the scope of the strategic business. And we have an example of automotive mobility at the top.

In January this year, CES was held in Las Vegas, and we received the innovation award at that conference. This is a new type of head-up display. And example at the bottom, this is drilling really, really tiny holes on the glass at a very high speed. And this is a joint research with the University of Tokyo. And this is actually 1 million times. It's hard to believe that it's 1 million times faster than the conventional methodology. It's really, really fast.

And on the next page, you can see the semiconductor-related, especially back-end process technologies. And this is where this new technology can be leveraged. In semiconductor business, Well, we have electronics and also performance chemicals. And in both, we are providing the latest leading-edge materials as a strategic business to semiconductor. So not just the front end, but the back end is now attracting a lot of attention these days. As you can see at the bottom of the slide, multiple chips can be mounted on top of each other in order to increase the density because each chip is as dense as they can be.

So now the idea is to mount multiple chips on a single substrate so that they can increase the density. And our organic materials and inorganic materials can be effectively leveraged in this effort. Accurately processed and also stably produced, we have this technology. And this is the new area of industry, semiconductor packaging. We can provide solutions to this industry and contribute to the semiconductor industry as a whole.

So I talked about making tiny holes. Substrate basically means glass. And you need to drill multitude of holes, very long wears on these glass substrates and how fast you can do would determine that cost reduction.

Now in terms of CapEx, in '25, we have basically completed major investments for capacity expansion. So '26 and beyond, our new expansion will be dramatically shrunk. So we will focus on collecting the return for investment. And as for shareholder return policy, ROE of approximately 3%, which we announced in '24, we are still maintaining this. And in '26, we will keep the dividend level flat from '25. But from '27 and beyond, going into the future, depending on the level of recovery of performance, we may take another look at our shareholder return policy.

Moving on to corporate governance. We want to further enhance corporate governance. And to that end, we will become a company with Audit and Supervisory Committee. And this will be -- is expected to be approved at the AGM at the end of March. So we started inviting outside director, 2 of them in 2002. This is how the corporate governance reform started. And then we started -- established a voluntary Nominating and Compensation Committee. And now Chairman of the Board as well as the Chairman of the Nomination and Compensation Committee are external directors. And by transitioning to a company with Audit and Supervisory Committee, majority of the Board will be outside directors, which will strengthen the supervisory function -- overseeing function of the Board.

In line with the change of this governance, we have redefined the role of Board of Directors. First of all, setting the overall direction of management from a long-term perspective. So this is policy direction. And another is to encourage appropriate risk taking by the management. So this is a supporting function. And further overseeing the management to the realization of value creation and evaluating and appointing executive officers. This is the oversight function. Board would have these 3 functions to help support the management. And also we will endeavor to further enhance our corporate value based on a competitive advantage. Thank you.

Now I would like to take questions. So first, we take questions from those people who are here with us. And then after that, we would take questions which were asked beforehand. And if we still have time, we will come back to this room. So at the beginning, we will get the questions from this room, but we would like to ask you to ask 1 question per person. Thank you very much for your cooperation. So any questions? The person sitting in the first row, is it Maeda-san?

Yes, Maeda from SMBC Nikko. One question, ROE, ROCE, current situation and other challenges in future were explained. So I have a question on that point. Life Science and essential chemicals, those are some of the challenges that you are faced with. So drastic review of the business is also possible. So what is the time frame or the size? And what kind of options or menus are you considering? And also, looking at your forecast, the pretax profit or operating profit is probably a little bit weak. So before going -- moving on to the next medium-term plan, are there any actions that you'll be taking? Thank you.

So I would ask Hirai-san, CEO, to respond.

So first of all, those Essential Chemicals and Life Science on the right-hand side, those are the challenges. As for Life Science, if it becomes normal condition, ROCE of 15% to 20% is possible because in the past, we had those numbers. So that's the type of business. So that's why it is included in the strategic businesses. But the issue is what is the time frame? So fiscal '26 by the end will be difficult. But by closing the Colorado sites, there was a major reduction of the fixed cost. So we'd like to see the higher orders, and it would take 1.5 years to 2 years before we see that impacting our performance. So maybe within 2027, we should be able to recover to some extent. Otherwise, that will become a very serious matter. Another is the essential chemicals. In terms of the time line, it will probably take longer.

Now right now, I think it is the bottom and China -- the product coming via China, I think that they are lower than the cash cost. So currently, we are at the bottom. And with the improvement initiatives, we can take advantage of the relationship with the customers and increase the margin and to improve the profitability. But it will take time. That's the key here. 50% share is what we have. And even the market condition is so poor, it is the business that will give us some kind of a profit. But going beyond the shareholder capital cost, how do we make sure that we can maintain such profitability will be the key.

FY '26 pretax profit you mentioned. Yes. Fiscal '25, other revenue, other expenses, there were some sale of the assets, net plus was the condition. And the foreign exchange fluctuation also was quite volatile. And it was slightly profitable. So this would be the plus side, the positive side. But FY '26, as of now, other expenses, we do not expect any major ones. So normal fixed asset depreciation and also the removal and so forth. So in some cases, the FX loss will emerge, but we do not expect any specific ones, but it's just the normal factors or the items.

Any other questions from the floor?

This is Nishiyama from Citigroup Securities. I have a question about Life Science. For the new top line net sales increase of 20% is forecast. So this seems to be quite aggressive. In the United States, bio-related financing is getting better, I heard. However, in Europe, your peers are struggling. What is the likelihood of you achieving this top line target? And also your assumption for the profit change, I think you're just looking at the increase in marginal profit only. But what about cost? Are there any changes, differences year-over-year? Can you please supplement? And on Page 55, when I look at this graph, '27 OP is expected at JPY 5 billion or so. But -- so sales -- net sales grows at the market pace and then depreciation cost increase is may be incorporated. Is that the correct way of reading this?

Thank you. Hirai-san, our CEO will explain.

This year's top line, as you have mentioned, industry recovering in the United States. However, the interest rate cut is slow. So this is still uncertain, but we believe that our Seattle site can be recovered this year. So last year, we increased the capacity, and we now have fixed cost in Copenhagen. And how much recovery can we see in terms of order and production in Copenhagen. I think this is going to be the key for profitability improvement. And with the existing pipeline, it's not just Seattle, but it's also Copenhagen that we need to see recovery in and the sales increase. So that's part of the plan.

However, we are not achieving overall profitability in '26 because compared to the increase in fixed cost, we have not been able to show a difference just by a higher level of top line. I hope you understand the situation. Rather than looking at the overall growth, we are doing this bottom-up of what's happening at each site. And as you may know, the marginal profit is quite big. And once you cross the threshold, the profit that can be generated can be quite huge. So profitability improvement is totally dependent on the order recovery, order expansion. So we are really focusing on the order expansion.

Any other questions from this room? No? Okay. So let's move on to the questions that we received beforehand. First, Q4 results. How were they in comparison to your expectations? Could you comment on that? That was one of the questions that we received. So we would ask Takegawa-san, CFO, to respond.

Yes, '25 fourth quarter, our expectations compared to that, the sales and operating profit, overall company base, it was higher. That was the results. The reasons for that, basically, first of all, in terms of net sales, automotive the volume were higher and the product mix was also another factor. And another is electronics. Optoelectronic products volume increased in Q4. So higher sales, those 2.

And as for the profit, the major ones is the architectural, auto and chemicals. First of all, about the architectural Europe price policy effect, it was one of them. And also in the architectural, the raw materials cost was lower than what we expected. So the cost came down. And with that, profit was positive. And also about auto said that the higher sales led to higher profit. And lastly, the Chemicals, the Performance Chemicals demand was stronger than what we expected. So that contributed to the profit. So as a whole, sales and profit both were positive or higher than expected.

Next question, 2026 full year forecast, how does it compare against 2025? What are some of the key differences? Takegawa-san will answer this question.

2026 forecast, how does it relate to the actual '25? For the overall company, sales increase and profit increase and with specific factors, in terms of net sales, architectural glass, chemicals and life science would contribute positively. Architectural Glass, Japan, Asia pricing policy and also demand in Asia will increase from the second quarter onwards, and we believe that will push up the sales. For chemicals, fluorinate-related product shipment is expected to increase and also alkali capacity increase in Thailand. Now this is operational. So therefore, we can increase the shipment there.

And as for Life Science, bio CDMO sales is expected to increase. And also in Spain, small molecule pharmaceuticals and agrochemical CDMO capacity was increased, and it will become operational, contributing to increased sales.

With regard to profit, some of the factors -- positive factors will come from Architectural Glass, Science and Life Science. Architectural Glass, we have a pricing policy in Europe, and also we expect to see the demand in Asia to grow. And the cost reduction in Europe will continue to progress. As for auto, structural reform and productivity improvements are the key points. And in Europe and Americas, we should be able to recover from the lower production and profit-wise, this should be a positive contributor as well.

For chemicals, shipment will increase. And in Thailand, chlor-alkali expanded capacity has started operating, contributing to profitability. And we also expect fluorine-related products to increase in shipment. And life improvement of profitability due to the closure of Colorado and also overall sales increase.

So about the future investments, the policies is the next question. So I would ask Hirai-san to respond.

About the materials investment, it's difficult to understand. But after making one investment, maintaining and updating would also require investments. So roughly speaking, half of the investment is for the maintenance and updating. So it does not lead to the capacity expansion. So after making an environment, in order to maintain it, half of that investment needs to be kept or maintained. Up to last year, up to '25, what we did was expansion investment that was higher than the maintenance and the updating. But from this year, we would only focus on the expansion investment to only the necessary ones.

So high productivity of the auto electronics investment will continue, but the major investment for expansion have already been done. So from now on, we will focus on the updating and maintaining. So roughly speaking, our future investments will be within the depreciation and amortization and half of that will be for the maintenance and updating.

Next question. [ OP ] of JPY 150 billion. Is this the company's commitment? Is it the right way to understand it? This will be responded by Hirai, our CEO.

Whenever we announce a number externally, we intend the number to be a commitment, but I know that we have not achieved our commitments for several years in a row. So we have to really apologize. And this year, based on our past experience of not meeting the target, we believe that this is a level that the market would require us at the minimum level. And also, this is the level that we believe that we can achieve. So yes, it is okay to see this as commitment line. I know that we have failed in the past, but it is high this year.

Related question. So for this year, operating profit of JPY 150 billion, are there any upside potential or downside risks? If there are, could you talk about what they are? So I would ask Mr. Shiokawa to comment.

Upside and downside were the questions. So we have various businesses in each one of them, there are both upside and downside risks usually. But among them, this fiscal year expectations, as Hirai-san mentioned, this is a commitment and especially about the downside, as of now, what we can are already factored in. So in that sense, the further upside or rather downside is not something that we expect as of now.

The next question is about electronics. OP forecast for this year, well, JPY 2.5 billion down in profit. This is the plan. Can you please explain the drivers, factors behind this? And this is going to be answered by Mr. Takegawa.

So we believe that we will have reduced profit in Electronics. This is for display and digital materials, both for display, slight decline in shipment is the general factor. It's not that the total market is coming down, but there is a slight decline overall. So this is one factor and also impact of weaker yen. And this is why we have lower profit in display. And Electronic Materials is the same. Optoelectronics had an impact. Optoelectronics materials is currently in a transitional period moving into higher value-added products. So there is a flattening and this is why there is a slight decline in profit. It's not that the whole market is declining or our production is disappearing. This is due to some transitional period, and there is only a slight decline within the normal range of slight decline or increase.

Next is about the EUV mask blanks from '25 to '26, the shipment outlook is the question. I would ask our CEO, Hirai-san, to respond.

Yes. Before talking about '25, I'd like to look at '24. We expected JPY 40 billion sales in '25, but we were -- it was brought forward to '24. Last year, in comparison, the sales came down. In terms of percentage, I cannot give you the details, but the double-digit decline in percentage was what we saw. But for this year, it's not the lower profit, but the higher profit is what we expect. And is this going to happen very quickly? The recovery would be moderate or weak. So the major customers recovery and also other expansion of the customer base. But the profit is going to increase year-on-year, but it's not going to be a big growth. So that is our view.

Moving on to the next question. Life Science, Bio Colorado site divestiture. Can you please update us on the progress? Hirai-san will answer this question.

In the middle of last year, we announced the withdrawal and the sales of this business. And since then, we have been discussing with multiple candidates -- by our candidates, but it hasn't been concluded. We're still discussing with multiple potential partners. And hopefully, within the first quarter, we want to conclude the deal. So please understand that the negotiation is still underway.

Next question, Southeast Asia, PVC and caustic soda market conditions. Could you talk about the outlook from the AGC's perspective? And also, what would change or turn the market condition around? Takegawa-san will respond.

First of all, as of now, the caustic soda and PVC '26 expectations. Right now, the market, we believe, is at the bottom. So at the beginning of -- or in Q1 '26, it was the bottom. And in Q2 and onwards, a gradual recovery is what we expect. But for the full year, it will be much higher than the year before. We do not think that it will be much higher than the year before. But what could trigger the turnaround of the market?

As of now, there are some uncertainties, but the major ones would be the exports from China to Southeast Asia. What would happen to that flow? I think that would be one of the keys. It is not definite, but April this year and onwards, export from China, there will be an evolution of some of the tax-related matters and also the production cost of China is increasing. We have that information. So from China to Southeast Asia, the flow will come down or the price will go up. If that happens, our chemicals market, Southeast Asia for us, that will be a positive impact on us.

Now we want to come back to the venue and receive questions from the audience. Maeda-san, please.

This is Maeda from SMBC Nikko. Question about electronics over the mid- to long term. Page 57, Page 58 show strategy for semiconductor and multiple items. So in 2026 and beyond or thinking about 2028 or 2030, right now, it's mask blanks and optoelectronics being the key. But over the mid- to long term, do you think the drivers will change, for example, glass substrate or maybe the laser that you have shown us today? And how soon will they ramp up? And what kind of size should we expect?

Yes, this will be answered by Hirai-san.

We believe that the back-end process centering on packaging will definitely grow, but it doesn't mean that the front end will disappear. EUV mask blanks and the CMP slurry demand are expected to grow over time. So this is -- these are still growth drivers. What's important is what will be the next pillar? Glass interposers or glass cores, yes, we do have some additional expectations there, but not just that. Because if you look at the packaging materials, you can see that a whole variety of different materials are used in the packaging process for semiconductor. So we want to get in there based on the relationship that we have with the customers.

Now glass core and glass interposer is attracting the most attention right now. But in the beginning, we expect this to actually materialize in 2027. But you cannot do this alone. All the different companies need to get aligned. So there is a possibility that it could be later than '27. But clearly, 2030 and beyond, this is going to be one of the pillars of the materials for the next generation of semiconductors.

Yes. Next question, Nishiyama from Citi.

Nishiyama from Citi. Capital allocation is my question. So a year ago, you showed us cash allocation slide, and we did not see that this time. So is there any change? And the strategic framework, JPY 100 billion, M&A and share buyback. Could you talk about your views on that? And on Page 60, shows that '27 and onwards, it says that the return policy could be revisited. So what is the direction? Cash allocation and the shareholder return policy?

Okay. So I would ask Takegawa-san, CFO, to respond.

First of all, about the cash allocation, strategic investments, we had that until now, the repayment of the loan and the shareholder return, strategic investments, there are different applications. But as of now, the destination or allocation have not been finalized. But in comparison to the cash in, it is being declining and the strategic -- total strategic framework is becoming smaller. So we need to wait and see what happens. As for the share buyback, we would like to look at the potential investments and also the cash situation to make a comprehensive decision.

We have not yet decided whether to do the buyback or not. We'd like to look into the situations. But we do not plan to buy or repurchase our own shares just to push up the share prices. That is not something that we plan to do because that would only have a short-term impact. So in any way, we would like to look at the total picture comprehensively before making a decision.

Any further questions from the room? Yes, please.

This is Nishiyama from Citi. Electronics assumptions for the new fiscal year, I would like to get more information. Display shipment is expected to go down, but Page 20 shows that the size will be larger according to the market outlook. So is the market share going to go down? Is that your outlook? And Page 52 shows you will continue to implement pricing policy in '26. So are you expecting price increase? And for optoelectronics, you said that profit will go down. But on Page 23, I can see that the shipment of optoelectronics is actually flat. So is there a downward pressure on the price?

And also high value-added products. You mentioned that the product is a transitional period. So foldable, mechanical aperture, I know that there are many changes happening. So can you please elaborate a little bit more?

Yes. This is going to be answered by CFO, Takegawa-san.

Yes. With regard to display, shipment slightly down, but the profit decline will not be very big. Basically, we will be promoting larger size more and more. The profit looks down slightly. This is due to product mix. So this is a transitional period to larger size. So this is just due to product mix. And Optoelectronics is in the same situation basically. It's not the question of the volume going up or down. Well, there's going to be a slight increase and slight decline and that cycle gets repeated. So this is not a big drastic decline in profit or increase in profit. Now we want to connect this to the next high functionality product. So right now, we are in a transitional period. So the number is not going up or down dramatically. In other words, it's a little bit on the stagnant side. I hope that's how you can interpret it.

[Operator Instructions] The questions that we already received, I would like to introduce rare metal procurement risk, the higher precious metal price, the impact from it. And those are not -- are they factored into the forecast of the performance. So I would ask Shiokawa-san to respond.

Well, it is true that recently, the precious metal prices are at high level. And so the procurement risk exists. But in our case, as of now, we do not expect that this becoming the major risk or major issue. If it becomes a long-term issue, it is possible that we will be impacted. But as of now, we do not expect this to be a major factor.

[Operator Instructions] We have already received another question. You mentioned that the 2-nanometer level of EUV mask blanks has been developed -- development is completed. What about the status of certification? This is going to be answered by our CEO, Hirai-san.

Development is completed. And with some customers, certification is also completed. And with other customers, we are in the middle of being certified. We cannot really comment on the specific status of each customer. So 2-nanometer already completed. And next is 1.4 nanometer. So this is the development process that we have just entered.

Questions from the online participants, we have already covered all the questions. Are there any other questions from the participants in the room? Nishiyama-san?

Nishiyama from Citi. Life Science, the top line 20% increase in the new fiscal year. I think that's the sum of each site. And based upon the backlog, is it likely to get to that level? And you mentioned that the deficit is likely to continue for the fiscal year, but it will be higher in the second half. So when do you think that you can expect to turn it around?

Our CEO will respond.

About the top line with the CapEx, the line investment is done in CRO and Copenhagen. As for Copenhagen, as mentioned, right now, we are starting it up, and we will plan to increase the orders. So from this year, it will start to contribute, but the major contribution is expected for CRO. So that's about top line. As you said correctly, for the full year, turnaround will start from fiscal '27. But for that, second half of this year, I don't know whether it will be monthly or quarterly, but we need to turn it around based on that. So cost reduction and expansion of the orders will be something that we'll be working on. So border, the handling of that is over. So the regular order expansion and the regular production phase will be starting. So we would like to make sure that we do this well.

It's time to close the Q&A session at this point in time. If there are further questions, please contact the IR representative or contact us at the following phone number 03-3218-5096, 03-3218-5096. [Operator Instructions] And that concludes full year earnings call for 2025. Thank you very much for joining us despite your very busy schedule.

Let us get started. Welcome to the earnings briefing of AGC Inc. for the third quarter of fiscal year 2025. I'm Kazumi Tamaki, General Manager, Corporate Communications and Investor Relations, serving as moderator. Today's attendees are Shinji Miyaji, Executive Vice President, Executive Officer and CFO; and Tomoyuki Shiokawa, Executive Officer, General Manager of Finance and Control Division. We will first have CFO Miyaji, provide an overview of the financial results for the third quarter, followed by a Q&A session. We are planning to finish at 3:45 p.m. Your cooperation is appreciated.

Without further ado, I ask CFO, Miyaji, to start his presentation.

Thank you. This is Shinji Miyaji, the CFO. Please turn to Page 3. The highlights. Net sales for the first 9 months totaled JPY 1,512.1 billion, down JPY 22.1 billion year-on-year. Positives included an improved product mix and pricing policies for automotive glass, increased shipments and pricing policies for Performance Chemicals and pricing policies for architectural glass in Europe and the Americas, while negatives included a PVC price decline, decreased shipments of EUV photo blanks and European architectural glass and the impact of last year's Russian business transfer.

Operating profit was JPY 94.8 billion, up JPY 0.8 billion on effects of profit improvement measures in displays and others despite the adverse impact of the aforementioned factors as well as higher raw materials and fuel costs. Net income attributable to the owners of the parent was up JPY 145.9 billion at JPY 39.5 billion due to the aforementioned positive factors and the nonrecurrence of last year's loss on sale of shares related to the Russian business transfer and large impairment losses in biopharmaceutical CDMO.

Operating profit for the third quarter exceeded JPY 40 billion for the first time in 3 years since Q2 of 2022, following profit improvement measures such as pricing policies for European architectural glass and automotive glass. Full year outlook remains unchanged from that announced in August.

Page 6. Net sales and operating profit were as explained earlier. Profit before tax included profit increasing factors mentioned earlier in relation to the net income attributable to the owners of the parent as well as impairment losses and foreign exchange losses in biopharmaceutical CDMO during Q2.

Page 7. By segment, Architectural Glass, Electronics and Chemicals saw a decrease in the sales and profit. Automotive posted higher sales and profit. Life Science posted lower sales but improved profit.

Page 8. I will explain the factors behind year-on-year variance in operating profit. Sales volume, prices, product mix resulted in a positive impact of JPY 10.9 billion. While there was a decline in the selling price of PVC and in shipments of semiconductor-related materials and architectural glass in Europe, there were positive effects from improvements in the product mix and pricing policies for automotive glass and for architectural glass in Europe and the U.S. in Performance Chemicals. Raw material prices differences resulted in a JPY 8.1 billion decrease and cost and other differences, a JPY 2 billion decrease. As a result, operating profit increased by JPY 0.8 billion to JPY 94.8 billion.

Page 9, please. Next, balance sheet. The total assets amounted to JPY 2,874.2 billion, down JPY 15.5 billion from the end of last year. The D/E ratio was 0.42x.

Please turn to Page 10. This is the cash flow statement. Operating cash flow was JPY 164.7 billion. Investment cash flow, negative JPY 126.4 billion. Consequently, free cash flow was JPY 38.4 billion.

Page 11, please. I will now explain CapEx, depreciation and R&D expenses. CapEx totaled JPY 174.1 billion, depreciation amounted to JPY 132.6 billion, and R&D expenses of JPY 44.1 billion. Major capital investment projects are listed as shown.

Next, I'll move to the segment-by-segment presentation. Please turn to Page 13. First, Architectural Glass segment. Sales were JPY 320.8 billion; operating profit, JPY 10 billion. In Asia, sales decreased by JPY 3.8 billion to JPY 109.7 billion due to lower prices in Indonesia and other regions, coupled with reduced shipments. In Europe and Americas, sales decreased by JPY 5.2 billion to JPY 209.2 billion due to lower shipments in Europe and transfer of Russian business in February of the previous year. The effects of our pricing policy began contributing from the second quarter onward. Operating profit decreased by JPY 4 billion due to the revenue decline factors that I mentioned earlier and rising raw material and fuel costs. Asia accounted for about 30% of operating profit, while Europe and Americas, about 70%.

Please turn to Page 14. Automotive segment sales increased by JPY 10.6 billion to JPY 385.6 billion, and operating profit increased by JPY 12 billion to JPY 23.4 billion. Shipments decreased in Europe, but increased in Japan. To counter rising raw material and fuel prices and manufacturing costs, we implemented structural reforms and productivity and product mix improvements and pricing strategies.

Please turn to Page 15. The Electronics segment sales reached JPY 259.7 billion; operating profit, JPY 36 billion. The Display segment saw sales increase by JPY 4 billion to JPY 136.2 billion, driven by higher shipments of LCD glass substrate. The Electronics Materials segment experienced a JPY 11.1 billion decrease in sales to JPY 122.2 billion due to lower shipments of EUV mask blanks, compounded by the impact of yen's appreciation. As a result, operating profit decreased by JPY 400 million. In operating profit, 70% was represented by electronic materials and 30% by displays.

Please turn to Page 16. Next, Chemicals. Net sales, JPY 431.3 billion and operating profit, JPY 39.7 billion. Essential chemicals sales were down JPY 20 billion at JPY 284.6 billion on a declining prices of PVC. Sales in Performance Chemicals, up JPY 11.4 billion at JPY 143.6 billion on increased shipments and higher prices of fluorine-related products for semiconductors and transport applications. Profit breakdown was Essential Chemicals, about 30%; Performance Chemicals around 70%.

Page 17. Life Science. Net sales, JPY 96.1 billion and operating loss of JPY 16.2 billion. Sales were down despite increased shipments on expanded biopharmaceutical CDMO capacity due to the nonrecurrence of last year's onetime revenue from the contract project settlements and production issues at the Boulder site.

Despite effective fixed cost reductions in biopharmaceutical CDMO, profit improvement was only JPY 0.5 billion, seriously affected by aforementioned revenue-reducing factors.

Page 18. Strategic Businesses. Net sales were down JPY 2.2 billion at JPY 363.3 billion year-on-year. Despite growth in Performance Chemicals and Mobility, affected by a temporary slowdown in electronic shipments and the nonrecurrence of onetime revenue from contract project settlements in Life Science. Operating profit was down JPY 7.2 billion at JPY 40.7 billion, strongly affected by declining electronics shipments.

Page 20. The full year forecast remains unchanged from August.

Page 21. No changes to the full year forecast by segment either.

Page 22. Comparing the fourth quarter forecast to the third quarter by segment, Architectural glass expects increased shipments in Japan with the demand increasing for renovation to energy-saving glass. Asia also expects increased shipments on a recovering demand. South America expects shipments to remain strong. Europe expects flat shipments quarter-on-quarter affected by the continued weak economy. In automotive, shipments to increase in Japan, but decrease in Europe and the Americas. We'll continue working on pricing policies and structural reforms. In electronics, display expects a slight decrease in shipments of LCD glass substrates. Electronic Materials expects shipments of semiconductor-related materials to be flat quarter-on-quarter. Optoelectronics expects decreased shipments due to the entry into the adjustment period.

Page 23. Next, chemicals. Essential Chemicals. Although regular facility maintenance is planned in Southeast Asia, shipments are expected to increase driven by a gradual startup of the expanded facility in Thailand. Performance Chemicals. Shipments of fluorine-related products for semiconductors and transportation applications are expected to remain firm. Next, Life Sciences. Contract sales for small molecule pharmaceuticals and agrochemical CDMO are expected to increase. For biopharmaceutical CDMO, the loss is expected to narrow due to sales increase at a site in Denmark and the structural reform of the Colorado sites.

Turn to Page 24, please. There are no changes to the full year outlook for strategic businesses.

Page 25. There are also no changes to the full year outlook for CapEx, depreciation and R&D expenses.

Please turn to Page 26. With regard to shareholder returns, the dividend forecast remains unchanged as a stable dividend policy targeting at a DOE of about 3% remain unchanged.

Please turn to Page 28. I will now explain the 2 organizational changes announced today together with the earnings results. So let me go over the details. The first is one aimed at improving the profitability of the Chemicals segment. As shown on the left of the slide, the chlor-alkali business was previously categorized as essential chemicals, while the business centered on fluorine-related products was categorized as Performance Chemicals. Starting from January 2026, next year, the entire chemical chain in Japan from upstream electrolysis to downstream performance chemicals products will be integrated into a single SBU, strategic business unit, in order to optimize the overall business and improve profitability. That is shown on the right of the slide at the bottom. The essential chemicals business in South Asia, on the other hand, will become an independent SBU, strategic business unit to accelerate its profitability improvement. So going forward, from next year onward, the subsegment structure for the Chemicals segment in our earnings announcements will also align with this organizational change.

Now please turn to Page 29. The second organizational change is to accelerate productivity innovation. As you can see in this diagram, up until now, the Information Systems division handled IT infrastructure development, while the digital and innovation promotion division focused on business process innovation using digital technologies. And these functioned as separate entities collaborating on digital initiatives.

Now as you can see in this diagram, as a superstructure, we are establishing a new digital and innovation management division to oversee these functions. As you can see on the right bottom corner, our company has been selected as a DX stock fifth time 4 years in a row, and our DX initiatives have been rated highly externally as one of the most advanced companies. In this regard, through its organizational reform, we will pursue synergies and strategies and technologies and human resources. Furthermore, we will advance digital solutions as business innovation under a unified digital strategy to enhance corporate value and strengthen competitiveness further.

That concludes my presentation. Thank you for your attention.

We will now take questions. If you wish to ask questions, please push the Q&A button and type in your questions. We will first go over the questions we received in advance. The first question. The actual results for the third quarter, how it compared to the projected results. Miyaji would respond.

For the third quarter, sales on par with our projection for operating profit, a bit stronger than our expectation. That is overall for the company by segment, the situation was as follows. First, architectural glass sales or slightly lower, but operating profit was slightly higher than projection. Especially since the second quarter, in the -- in Europe and the Americas, policy -- pricing policies and cost reductions measures have proven to be effective. As a result, operating profit was better than our projections.

For automotive, sales and operating profit were both better than our projection for sales. Improvement in product mix based on our strategy of volume to value, we saw effect. And we also implemented prices, reflecting that. And this strategy proved to be effective. And as a result, both sales and operating profit were better than our projection. Electronics, overall, sales were slightly better than projection, whereas for operating profit, slightly lower than our projection. For sales, some did better than others. But for operating profit, in particular, in display, we saw a temporary cost increase, and we had some impacts in foreign currency with higher Asian currencies. So as a result, operating profit was slightly lower than our projection.

For chemicals, sales were slightly lower than our projection. Operating profit, slightly better. Especially in operating profit, Essential Chemicals and Performance Chemicals, both saw the effect of cost improvements, resulting in slightly better results than expectation. Life Science sales slightly lower, operating profit on par with our projection. For sales in small molecule pharmaceuticals, sales were not that exciting. But for operating profit, both biopharmaceuticals and small molecule pharmaceuticals were on line with our projections.

Next question. Earlier, you talked about outlook for the fourth quarter qualitatively. But once again, if you compare this to the third quarter, how do you expect the fourth quarter to play out? Can you give us more details? That was the question.

So for the fourth quarter outlook, in terms of sales revenue, those will be on par with the third quarter probably. But in terms of operating profit compared to third quarter, we are going to see a decline probably. So that's the overall outlook. By segment, as I said earlier, for architectural glass, both sales and operating profit will be in line with the third quarter. In our view and for Japan and Asia, demand is expected to increase. But in Europe and others. Because of seasonality partially, there will be a decline. So overall, both sales and profit will be in line with the third quarter. As for automotive business, in U.S. and Europe in the fourth quarter, because of seasonality, we're expecting a decline. There is going to be increase in shipment in Japan, but because of the shipment decline in Europe and Americas, we are going to see a decline in both revenue and profit.

As for Electronics, sales are expected to be as the same as the third quarter, but we're going to see a decline in profit. As for electronic materials, in terms of sales, especially after electronics materials are going to -- has already passed the peak in shipments. So in the fourth quarter, we are expected to see some decline. And as for LCD glass substrate, the demand is a bit weaker compared to third quarter. So operating profit will be affected by that decline. And operating profit is going well in Opto electronics, but the display, but for -- this cannot cover the electronic material decline in profit.

And as for Chemicals, we are going to see increase in revenue but decline in profit. Especially in Thailand, there will be a production facility that will come online. And so there will be shipment increase. And as for fluorine products, in the fourth quarter, demand is a bit stronger. So we're expecting the sales to increase. But as for operating profit, in essential chemicals, there will be scheduled maintenance -- turnaround maintenance, and there is going to be a slight dip. So there is going to be a decrease in profit. And Life Science, we're expecting increase in both revenue and profit. In terms of sales, the sales are expected to increase in the sites in Copenhagen and operating profit will also increase accordingly. And fixed cost in sites in Colorado will improve. And so costs will be declined. The full-scale effect will be from the next fiscal year, but there will be a slight effect that will be already materialized in the fourth quarter.

The next question for EUV mask blanks on quarter-on-quarter or year-on-year basis. What is the situation, is the question. And compared to the plan, how were the situation in the third quarter?

Here again, not much change in our stories. In 2020, we saw a big growth in this business. But this year, rather in 2024, we saw a big growth in this business. But for this year, due to the demand situation for our main clients, we expect the shipments to decrease. For 2026 onward, we expect sales to increase -- start to increase again. But as far as this year is concerned, not very exciting. We don't disclose the season-by-season changes, but the overall story remains unchanged. In Taiwan and others, our clients there, and we are continuing to expand our customer base, and we are seeing the effects of that.

This, once again, EUV mask blanks question. In major customers, there are various news headlines that are being heard. So compared to 3 months before, is there any change in your outlook for demand? That was the question.

So EV manufacturers, as you know, all those that you already know. And in each in those manufacturers, there is various capital policies that are announced and there's subsidy provided by the government. So basically, this has been favorite -- favorable for us. And there is also a lot of news and in-house production is going to start up in foundries first. And so the demand that we initially assumed is now coming to materialize. So there are slightly less concern with a little bit of less visual thinking.

Next question. Also on EUV mask blanks. Other than your main customer, how is your market share increasing. And what about the situation of certification in state-of-the-art areas, including 2-nanometer?

It's very difficult to give you the details. But regarding our market share, other than our main customers, we have yet to see a rapid increase in our market share. 2 nanometer, 1.4 nanometer, we are developing those to be certified. We will continue our efforts in these areas, and we are seeing the effect to a certain degree. For this year, with this factor in mind, sales are not growing that rapidly either. So starting next year, we would like to supply to new customers as well as increased supplies to existing customers.

Next question. With regard to image sensor glass filters, was there any entry by competitors? And from the next fiscal year onward, what will be your outlook for shipments, inclusive of the competitive landscape. That was the question.

So for glass filter for image sensors, there are a lot of different manufacturers that have been around. And we are targeting at super high-end products or customers that are producing those products. Those are the main customers. So in that sense, whether there are competitors or not, well, there are many competitors in image sensors, but as for super high-end segment, there is very limited competition. So that has not changed. But I'm not saying that there's no competitor whatsoever. So we keep providing cutting-edge products to lead and get ahead of the pack and to secure the dominant position. And that exclusive strong position has not changed.

Moving on to Life Science. What is the effect of the sale of the Colorado sites? Where are you on that? And once the sales materialize, what impact would it have on your results?

The Colorado site sales, we are working towards that. But so far, there is nothing that we can make any announcement on. Quite a number of companies are showing interest in this site itself. So we will continue to pursue early sale. But this is November already. So it seems not very likely that we will have the sale complete by the end of this year, meaning it's going to be next year that is a more likely scenario.

Next question is for biopharmaceutical business. Can you explain the status by site?

By site. Well, what is easiest to understand is Colorado. It is going to be closed and the redundancies have been announced. Headcounts declined. And the cost is expected to decline further to the end of this year, and this is going to be a contributor for the next fiscal year. That will be easiest to understand. As for Seattle, in the past, there were some production disruptions, but major -- many of those have been resolved. So in terms of production, there's much less concern now. So we are now striving to obtain demand or orders, and we are seeing some results, and there is an obvious increase in inquiries.

But as I've been saying all along, it takes time to move to the full-scale production. So the full-scale recovery is not expected until 2027. So overall, what we can say is that in Europe, in Copenhagen, we have increased the production capacity and there were some problems that we faced, but those have been now resolved. So in terms of manufacturing products, there is no concern. So we have to get orders, win orders and produce products. We are totally focused on that now. And as for animal cells, that is how we are. But in Heidelberg microbes and the Milan genetic sales, they are all performing quite well. So there's no concern and apprehension and things are going well. So animal cells have to be restructured, and we have to increase the capacity utilization, and we're striving for that. And the order taking is increasing steadily. But when it comes to really solid performance, we have to wait until 2027.

The next question is for Life Science business overall. Sales is behind and operating profit is on track it appears compared to the full year forecast. Is the demand tracking behind your projection? If that's the case, why is it that profit is doing well.

Well, we can't really say that profit is doing well. But so far, we've been able to do what we have been planning to do, assuming to do. Up to third quarter, the first 9 months for small molecule pharmaceuticals, slightly below our projection. But this is a real seasonal business, lots of sales in the fourth quarter, so we're not concerned. So overall, we are seeing steady progress, both for small molecule and biopharmaceuticals. So next year is going to be very important.

As for the Life Science business as a whole, if you look at the third quarter actual results, cost and other contributors turn out to be negative on a year-on-year basis. So was there any particular onetime factor like withdrawal costs. So what is the breakdown of this item. So in comparison to the third quarter last year, in 2024 third quarter, there was a onetime revenue I think this was cancellation fee. There was a onetime revenue in quite some amount. So there's no such thing that was a big factor.

The next question is about the Boulder sites. The production issues continued, but how about the third quarter. Did you continue to see the production issues in the third quarter?

For our Boulder sites operation, since we decided to discontinue our operation there, the third quarter is already preparing for that. So it's not really production issues. It's just that preparation for the business withdrawal took place during this period.

The next question is about Chemicals segment. Essential Chemicals and Performance Chemicals, both seems to have improved in profitability. What was the factor behind this?

Well, yes, this is about a comparison to the last fiscal year, right? So in comparison to the previous year, is it the question. The question is about the comparison. So improvement, is it from the second quarter in what comparison to what, I'm not sure. But this was a question that was pre-received. So there is no specification about the time period.

So as compared to the second quarter, I would guess, on an annual basis, there's a decline in profit. So probably profitability has increased from the second quarter. So in comparison to second quarter, so what has improved? Well, more or less, Essential Chemicals improved more, especially outside of Japan, shipments have increased and cost has declined. Cost was reduced in the Essential Chemicals, both in Japan and overseas. As for Performance Chemicals, cost has decreased. In Japan, essentials and performance chemicals, utility charges have declined. But as compared to the second quarter, profits have increased.

Next question is on Essential Chemicals. The capacity increase in Thailand, what is the current status? By the end of the year, you expect full capacity operation. Does that remain unchanged?

Yes, we have started the operation, and we expect full capacity operation at the year-end. So things are proceeding as planned. And the impact is, as explained earlier, for this year, profit-wise, no contribution, but steady ramp-up.

Next question is about Chemicals segment. From next year, there's going to be organizational change. What is the purpose behind this once again?

Well, the same slide is now shown here. So previously, our subsegments were divided as shown on the left, but this will be changed to what is shown on the right. So we start with electrolysis and with electrolysis, chlorine and caustic soda are generated and using chlorine as a feedstock, chlorine and other Performance Chemicals products are produced. And the whole thing is called chemical chain. And in Japan in the upstream, the chlor-alkali business. And in the downstream, there's Performance Chemicals products, and they belong to different business headquarters, business units. So it's not about optimization of chains, but it's about optimization of business units.

So they are byproducts to each other. So if you look at the Japanese chemical chain as a whole, you can further -- there's further room for more optimization. So we have changed our gear to have optimization of the total chain. So rather than upstream and downstreams looked at separately, we look at volume of caustic soda and chlorine and optimize them in the whole chemical chain. And Essential Chemicals, Southeast Asia will be separated out because they had been a totally independent business separate from Japanese essential chemicals from the beginning, but they were in the same SBU with the Japanese Essential Chemicals, but Southeast Asia business is self-complete. So as a strategic business unit, it became independent and profitability improvement initiative that is underway has to be accelerated in this regard.

Next question for automotive. The situation in the third quarter. 3 months ago, you were expecting a decline in revenue and profit from Q2 to Q3. The actual was a double-digit growth in profit. What were the differences?

So we're talking about quarter-on-quarter. It's not double-digit increase. The profit increase from Q2 was JPY 0.8 billion, I think. For automotive, in the second quarter, JPY 7.4 billion, up to JPY 8.3 billion in the third quarter. So JPY 900 million or JPY 0.9 billion. So it's not really double digit. But, especially in Japan and Asia, we continue to see strong business. That's one big factor. And North America is recovering somewhat. So combined -- those 2 factors combined was better than our projection. And therefore, Q3 was better than Q2, but not a big jump.

We are running out of time. So this will be the last question. So for architectural glass, in Europe, demand has been sluggish, but prices seems to have increased significantly. So what was the factor for this? Was there any supply capacity decline? And also, you haven't seen signs for bottoming out in Asian market. Can you tell us your outlook for demand in Asia?

So there's a question about Europe and Asia. As for Europe, last year, we have to go back to the end of last year. There was a severe winter weather and gas prices surged. And we have not been able to recover on that immediately from the gas prices and the spread has worsened significantly because of that late catch-up. So the gas increase or cost increase passed on to the product price has been implemented, and that result has been reflected in the second quarter onward. On the other hand, in order to increase price, you have to look at the capacity. And so our company and whole industry, including our company, has taken some supply reduction.

And from the second quarter onward, there were some effects from maintenance of prices. So as you know, the European economy has been quite weak, so we cannot expect too much from the demand increase, but prices are expected to be maintained at a relatively higher level. On the other hand, for Asia, demand is not strong, especially in Thailand, industrial structure is not that favorable. So it's a bit difficult. In Indonesia, there is going to be a gradual recovery. But compared to the past, there's an industrial structural issue that still remains. And so in terms of architectural glass, the profit improvement in Southeast Asia is a challenge for us.

It is now time, so we're going to end the Q&A session here. For the answers, we couldn't respond, the IR personnel will come back to you later. If you have any further questions, please call us in Japanese at 03-3218-5096, that is for questions in Japanese. And if you wish to communicate in English, please send to us at this address and please fill out the survey sheets that you will see after you leave. Thank you very much. Have a good day.

Ladies and gentlemen, thank you very much for joining us today for Q&A session of AGC's Life Science business. I am Tamaki from PR and IR. It is my pleasure to serve you as [ EMC ]. Let me introduce the speaker of the day, our Senior Executive Officer and President of Life Science Company, Tadashi Murano.

This is Murano speaking. Thank you very much for joining us today.

First off, we would like to have Murano-san give you an outline of our Life Science business, followed by questions and answers. The materials to be used have been uploaded through our website. We plan to close the session at around 6:00 today. Thank you very much for your understanding. Murano-san, over to you.

Thank you very much for your time today. Once again, I am Murano, President of Life Science Company. We received several questions from you. And out of that, I'd like to give some accounts on 3 common questions that have been raised by our investors. Some parts will overlap with the QA for our financial calls. I ask you for your understanding.

First of all, about our operating profit revision. Back in August, we announced the downward revision of our performance. Life Science businesses include biopharmaceuticals. We have Colorado and Longmont in Colorado in the United States. And we've been talking about the suspension of production in Boulder. And for Longmont, we also suspended our operation previous year.

Although we have started a small scale of production because of our customers' conditions, we had to once again suspend the production from Boulder. And there have been some inquiries from other customers. However, it is likely to take time for the market to recover and therefore, will cause further expenses to be incurred. We decided to suspend the operations. We have already done some layoffs of the personnels. And before the end of the year, we would like to transfer the assets to a buyer.

Now Life Science have suffered in performance over the past several years. I'd like to describe the background. And as you can see, the Life Science business, about JPY 141 billion in revenue and biopharmaceuticals CDMO accounts for 70%, whereas small molecule pharmaceuticals and agrochemicals CDMO accounts for 30%. Life Science business at AGC began in 2017. As chemicals department, we were handling the business, which had already started back in 2000. And then in 2016 and onward, we expanded our business and the operating profit of JPY 17 billion was once recorded, as you can see, back in 2022. After that, as the line graph indicates, the operating profit began declining and that has continued for the past couple of years.

After 2023, we experienced a decline in our business, and that has been explained a number of times during our financial calls. There were many factors behind. Simply put, however, I think we can summarize that into 2. Number one, CDMO demand remains brisk. And as you can see on this slide, in 2018 and 2019 and onwards, biopharmaceuticals and small molecules, pharmaceuticals and agrochemicals, we increased the capacity across the globe. This rapid expansion resulted in the lack of resources on our part, especially in Europe. There were some external factors like Ukraine invaded by Russia, and we also experienced some production problems. We could not really link this brisk demand to our production. AGC is a strength -- has a strength of materials manufacturer and our technological assets could have been used for short-term recoveries. However, after 2020, under COVID, Japanese engineers' technological support had largely been delayed, especially the support for North America was slow.

And with regard to demand, specifically for bio business, up to 2023, contract for COVID vaccine had a strong demand based on societal needs. And we've activated more in this part in '23, the demand shrunk quickly. And also around the same time, biotech industry, which is a major customer, faced high interest rate in the United States and experienced low inflow of finance and the demand suffered.

Active investment is usually made in CDMO and during the investment phase, the profit is usually negative. From 2016, we had some M&A and we thought it was in line with the demand and we experienced profit from 2022 quite early on. But as you can see from this slide, from 2021, we experienced the second stage of large capacity investment in various regions. And this is expensed in 2023 and beyond in the following years. So the expense was increased and also development business was slow and that led to a huge loss. Especially bio, North America large investment and also new investment -- upfront investment in Japan were the 2 big factors.

We have received questions about Life Science business, future outlook. And I would like to explain this as my third point. Bio business accounts for 70% of Life Science. So allow me to explain about that. Bio CDMO business, this is basically focusing on single-use bag or SUB technology for small to middle-sized manufacturing, and we were basically a pioneer in this field, and we were growing our business in this field. So contract in early phase development phase was the mainstay of our business development.

When it comes to something like biosimilar, which is a huge contract, large volume, that is not what we're pursuing. We signed a contract with the customer and start manufacturing very quickly and switch them around in 2 to 3 years. So this was the way we were doing business.

In bio and CDMO, people often talk about backlog over long-term contract, but that is not our business model. However, as I explained earlier, sudden shrinkage of demand in vaccine and the absence of business taught us that commercialized late phase contract should be increased over the long term into the future. We are trying to do that now. So when we open up new sites this year and next year in Japan, in terms of single-use bag, 5,000 liters, largest level of single-use bag facility will be available. And the Colorado Boulder plant that we will be transferring uses a stainless steel or SUS, not SUB. SUS is a large-sized bioreactor. Our original strength comes from the SUB, single-use bag technology. So our growth will be shifted toward this type of demand. And demand in this particular market is recovering gradually.

We have implemented some measures for Colorado -- including Colorado. So from 2022, we want to start turning this profitable and go back to the original trajectory from beyond 2026. We have sufficient capacity. So we have not planned for any additional investments so far, at least for the time being.

Operation management, quality management and also technological engineering. These are the expertise that we have. We will concentrate in this business to build trust with our customers and repeatedly receive contracts from our customers. So this is very similar to how we do business in other business segments within AGC, which means that we can leverage our capabilities. For example, the Seattle site in the United States, through support from AGC, was strengthened from 2024 and FDA inspections were done repeatedly, and we were successful. And the plan from 2025 and beyond is also quite solid.

So these are some of the questions that we had received in advance. And I just wanted to cover some of the common questions. Now we would like to open the floor for questions.

Murano-san, thank you very much. [Operator Instructions] So let's begin with some questions that we have previously received. Now as you announced your transfer of business in Colorado, what sort of feedbacks have you received from your customers? You have told us that trust is extremely important in the pharmaceutical business. But what is your take on this?

Thank you very much for your question. Now as for this transfer of business from Colorado, especially stainless steel bioreactors business in Colorado, certainly have been studied well for possible impacts. And thus, we made this decision. We received inquiries from other customers. Therefore, we talk with them thoroughly as well before we make this decision. Now from the market, AGC's biopharmaceutical business is regarded as something more fitting to single usage bag type of technology. Therefore, customers do understand the reason why we made this decision and our decision is in line with our customers' expectations. Japan, the U.S. and Europe are the 3 pillars of our business, and we have built a maturity in our business, which will be a great service to our customers who trust us.

Moving on to the next question. By letting all the large-size SUS, would it mean that there will be a negative impact on the single-use-bag business? Maybe you'll get a smaller contract.

Thank you for your question. As far as we can sense, we do not feel any immediate negative impact like the one you have just asked. Single-use bag is our main technology, and we have rich experience in manufacturing and inspection globally. And single -- as far as single-use bag goes, we are second largest in the world. And as we announced before, we will be opening a new site in Yokohama, where we will have the largest size single-use bag 5,000 liters size reactor. We will be able to flexibly respond to a whole variety of needs by our customers once we are ready.

Let us move on to the next question. In your financial statement, Colorado and other bases performances have been disclosed. But it still seems that other than Colorado, you still experienced deficits. What are the factors behind that?

Thank you for your question. Now this is something that we used at our financial call. In the Life Science segment, the biggest deficit was suffered at the Colorado basis in the United States. As for other bases, there are differences. Especially in the biopharmaceutical businesses, we launched some major bases. An example would be Copenhagen as well as Yokohama. I mentioned this as our new manufacturing base. And those are the areas where we made investments before the launch of business. Other than that, other bases are making profit and performance is brisk.

Next question. In Q2 earnings announcement, the performance for Life Science business downgraded. And the biggest factor, I understand, is the transfer of Colorado. But looking at the full year forecast after this downgrade, the net sales level stays flat year-on-year. The market has bottomed out. And Copenhagen new site will be operational, but why is this still flat year-over-year?

Thank you for your question. Net sales is shown as bar graph on this slide. From '24 to '25, the number stays flat. I think that is a question that is being asked. The reason this is flat is in '24, Colorado Boulder commercial production was already online. So this net sales was included in the 2024 numbers. And the COVID-19 contract was finished, and we were experiencing some one-off incomes revenues coming in, in 2024. So excluding all these special factors, the net sales from all the other sites are growing healthily. That is how this can be interpreted. So bio business, Copenhagen new plant, at the end of last year, the operation actually started in this site. And during the second half of '26 or '27, we can expect a big impact coming from this site.

Let's move on to the next question. What is the annual growth rate of your top line? Compared to the market, how should we view your expectation for the top line growth?

Thank you very much for your question. As for the top line growth, as you can see on the pie chart, our Life Science includes 70% of biopharmaceuticals, small molecule and agrochemicals, 30%. Each market has different levels of growth, especially in biopharmaceuticals. This includes many modalities, antigen, mammalian cells, gene and cell therapies which are expected to grow and microbial. So there are different modalities with different rate of growth.

So simply put, the market itself is expected to grow about 10% per annum or probably more as the markets expect. In our case, now we have sufficient capacity from 2025 to 2030, CAGR of mid-10% of growth can be expected. So with that kind of outlook, our current investment as well as capacity and construction, we'll be able to cater to achieving that level of growth. And especially recently, when it comes to pharmaceuticals, there are increased uncertainties because of international geopolitical situations. So we will continue to watch how things will unravel and make our decisions flexibly.

Next question. Profit contribution is expected to start in 2027. But out of the net sales assumption in 2027, how much of that is already contracted?

Thank you for the question. As I mentioned in the beginning, bio CDMO and single-molecule pharmaceuticals and biochemicals have different forms of contract. It's very difficult to calculate how much of the contract is already in place, when we think about them in the aggregate according to this business model. So bio CDMO, single bag -- single-use bag business model. And this means that after we get the contract, we need to get another contract 2 to 3 years after that. So it is very difficult to say how much of that is already contracted.

But for small-molecule pharmaceutical and agrochemicals, that contract is longer. So it's a little bit more easier for us to calculate. From 2027 and beyond, well, we will see more visibility about what will happen in that time point after we enter FY 2026. What is the demand and also the supply plan? I know that we're receiving many questions about these things. So going forward, we are hoping we can show some indicator to explain this. So once we have that, we will explain.

Earlier, there was a question about the top line growth expectations. On the other hand, from the cost structure perspective, 2026 breakeven probability appears to be high. But how about after 2027, what is your expectation for your profitability growth? Or what is your outlook in your next midterm plan? What is your target in the future of operating profit going forward?

Thank you very much for your question. Well, as we look at the top line, bottom line growth, over the years, actually, the small molecule agrochemical business has been very stable, although the breakdown is not shown here. And we have remained in the block for that. So the challenge remains in the biopharmaceuticals.

We continue to receive inquiries and healthy recovery is expected. After 2025, we expect steady growth in this business segment as well. But that does not mean that I'm optimistic. The biggest challenge of our Colorado basis in the United States, we have done structural reform of that operation, but there have been many uncertainties, the factors impacting our business. Therefore, we have to make sure we have a strength to flexibly respond to such factors.

Now how about the level of operating profit? For the next midterm plan, we would like to see the 2-digit operating profit margin. So as you look at the pre-investment level, that's the cruising speed type of an operating profit level that we expect. So we plan to come back to that at least 10% or possibly the higher in the 10%.

Next question, Life Science business, ROC 10%. When do you believe that you can achieve this target?

Thank you for the question. ROCE is an index of capital efficiency that we especially focus on internally. ROCE of 10% would be the minimum acceptable level by the capital market as far as we believe. Now when will we achieve ROCE of 10%? I should not sound too optimistic, but after 2028, we believe that we can go back to ROCE of 10%.

The layoff at your Boulder's base has been announced. Other than that, in the overall Life Science sector, do you have a need for additional headcount in any part of your business?

Thank you for your question. Well, the biggest challenge, as I mentioned, has been the biopharmaceutical business, the Colorado base in the United States. And we had to do a major layoff there. But at other bases, reduction in headcount is not necessary, and we do not plan to do so. As we continue to receive more orders, we will be addressing that changes in a flexible manner. So at this point in time, however, we do not have a major plan of either increase or decrease of our workforce. But as I mentioned earlier, we are building a new base in Yokohama in 2026 and to early 2027, we expect to see some businesses to be launched. And this certainly will require headcounts. And that's where we will have to increase our resources. Thank you.

Next question. Can you please talk about the status of inquiries and orders. You have mentioned backlog earlier. Can you please explain the situation, if possible, using some kind of indicator or number for us to have a clear picture. That was the question.

Thank you for the question. We have received similar questions in the past. Is it for the whole life cycle Life Science business or for specific parts of that, we want to think about that differentiation and think about the best way to explain this. For bio CDMO business, as I said before, single-use bag, which is used in early phase and clinical trials, this is about 50% of our business. So once we have the contract, we start production very quickly, and this contract is completed within 2 years or sometimes the contract is extended. But either way, it's pretty cyclic, but this is a typical way a single-use bag business is done.

Therefore, basically, we don't see next year's business completely filled because if it's completely filled, then we cannot continue the business. I understand that this business model is difficult to understand. So in order to remove concerns, anxieties, we want to look at something like utilization rate, profitability or order status or outlook. We will look into how we can disclose this information going forward.

But from the geopolitical perspectives and BIOSECURE Act, there is a talk about the potential strengthening of production in the United States. Are you receiving more inquiries in the United States? And how about in Japan and Europe?

Thank you for your question. Well, in terms of our U.S. operations, manufacturing in the United States is something that we have seen even before the current Trump administration. Going forward, depending on what Trump administration chooses to do, there could be multiple possibilities. But in mid- to long term, it is better to supply the U.S. market from the U.S., supply the European market from Europe and supply Japanese market from Japan. So we cannot really be geographically diverse in terms of supply basis.

As for inquiries in the United States, number-wise, I think we are seeing some increases. And outside of the United States, our European and Japanese bases certainly do have their own advantages and characteristics. And all of the bases continue to receive very healthy number of inquiries.

Next question, single-use bag. You have -- sorry, WuXi has the #1 capacity in the world. So what is the advantage, strength of AGC over WuXi?

This is the bio CDMO business of Life Science. And WuXi is our competitor from China. And the question is about our strength, competitive advantage. In the bio CDMO business, as you can see on this slide, the status of a single-use bag player is as seen at the bottom left. WuXi is large. And then we can see the global footprint as well as competitiveness as CDMO, which is the history or track record of inspection. We have a global high-quality GMP manufacturing capabilities in U.S., Europe and Japan. We are able to provide high-quality services from any of these regions in the world. And we -- there's a big impact coming from the inspection track record.

Based on trust and the track record over many years, we have extensive track record for inspection. This is a huge strength because with the track record, customers feel confident and place more orders with us. It turns into a positive cycle. So there were many inspections done in the past. And gene and cell therapy, commercial track record, we have 10 such inspection records, which is the highest in the world. And ex vivo gene therapy in this segment, in the commercial capacity, we do have a track record that is at the top level of the world. AGC Group is a technology company, which is strong with materials. So by leveraging the strength, we believe that we can gain more trust and also a track record from the customers, and we will be competitive in that aspect.

The CFO talked about Life Science business to be the strategic business going forward continuously. However, the Life Science does not have affinity with AGC's existing expertise, therefore, very difficult to manage. Transfer of the Life Science business as a whole being an option? Why only Colorado basis?

Thank you for your questions. Thank you. That's a very good question. And AGC Group since 1970s, have started studying the possibility of Life Sciences. And then in 2000s, we began expanding the Life Science business. Actually, AGC has more than 100 years of chemistry business. So small molecule business expanded into small molecule agrochemicals and fluorinated intermediates. That's the beginning of our business here as a Life Science, AGC's scientific expertise as well as engineering capabilities have been largely leveraged in Life Science. As you saw in our performance graph from 2016, we started acquisitions to expand our capacities. And therefore, we have garnered a steady top line growth.

As for the biopharmaceuticals, which has been the challenge recently, we began this endeavor 40 years ago. In Japan, we are very early in starting this biopharmaceuticals CDMO business at our Chiba base. And as you can see, as the graphic indicates, this business grew quite steadily as well, especially the single-use bag expertise that is our strength is something that we are now focusing on. And other than that, microbials as well as gene therapy, we are now ready to respond to many demands in different modalities. And our track record has been highly appreciated from the market, letting us grow even further into the future.

Now when it comes to CDMO business of ours, customer recognition is very important. In 2025, in the pharmaceuticals industry, the global awards, there are many, but we did receive CDMO leadership awards in 4 divisions: AGC Biologics, 3 divisions; AGC Pharma Chemicals, 1 division we have been awarded. So externally, we have been highly appreciated. Other than that, sustainability as well as employee empowerment are the areas that the market regard us very highly.

In terms of the affinity with AGC's other capabilities, high-quality management is something that AGC has evolved over the past 100 years, and that's exactly what we do in our Life Science business. I've been in this position for the past 1 year and AGC's capabilities as well as resources can be further harness and leveraged going forward.

Next question is somewhat related about the company's approach against modalities. I understand that the company is not investing into new modalities right now, but are you competitive enough? And what about withdrawing from gene or small molecule modalities, Lonza, Samsung, FUJIFILM, they have different business models from AGC. So maybe AGC should focus on niche market instead. What do you think about this approach?

Thank you for the question. On the slide, you can see the different modalities of the pharmaceutical products from embryonic phase all the way to maturity phase. And the purple and green, these are the areas of modality that we cover. Purple is bio and green is small molecule pharmaceuticals and agrochemicals. As you can see, we are broad, but we are not covering necessarily every modality. We are selective. We're actually selecting modalities where we can leverage our strength. I hope that is clear to you.

On the right-hand side, in the maturity phase, we have a protein and also small molecule pharmaceuticals. These are focuses and the performance is strong. Antibody, gene therapy, mRNA will continue to grow. And these are the growing modalities for AGC going forward. So right now, we are not thinking about withdrawing from any of these modalities that we have now.

In the introduction phase, we have gene cell therapy and mRNA, and we already have cases where we're actually leading these segments. And we can leverage the technology we have built in the past. So affinity is very high in this segment.

With regard to stability of business, antibody and protein are in the growth phase and maturity phase, and single-use bag and quick cycle is the business model that we employ for biopharmaceuticals. But we also want to increase the business in later phase as well. So newly invested Yokohama site will carry 5,000-liter large-sized single-use bag. So we plan to invest into that in Yokohama. More stable, more longer-term contracts ratio should be increased over time, and this is what we're thinking.

Now AGC is changing its business portfolio to respond to the market changes. Now strategic business of Life Sciences, certainly, you're affected by the funds inflow from the bio venture capitalists. In that sense, you're rather vulnerable to the changes in the market. What do you think?

Well, thank you for the question. 30% of Life Science comes from small molecule pharmaceuticals and agrochemicals and single-use bag in biopharmaceutical -- pharmaceutical, by the way, accounts for 70%. And that is where we have lots of biotech customers. AGC customers have a strategic business to be able to respond to changes in the market and Life Science is exactly that and small molecule agrochemical is exactly that. But when it comes to biopharmaceuticals, over the past couple of years, it is true we have been affected by the changes in the market.

It's a question of the time line. What sort of horizon you have? The CDMO business in biopharmaceuticals, as we look at the expected growth of the market, we have to have this long-term vision of long-term horizon for our growth trajectory. And small molecule is -- part is unaffected largely by the market changes. So now when it comes to biotechs, especially related to the coronavirus vaccines, new modalities have emerged in developing pharmaceuticals.

You're very right. This is an area where very rapid expansion can happen and also the interest rate policies can make a difference in terms of the inflow of funds from the venture capitalists. There may be some postponement of production on the part of our customers. That is very true. Therefore, when it comes to biotech as well as early-stage investment, growth expectation is very high and gene and cell therapy is an area we expect the largest level of growth going forward. Therefore, we have to continue to keep a close watch on what happens in those markets.

And also in CDMO business, the late stage contracted manufacturing and development will certainly help us and protect us from the changes in the market going forward as well. Our Yokohama base in Japan will be online very soon. Therefore, the CDMO business in Japan, Europe and the United States will be fully serviced. Therefore, we can leverage the flexibility to be able to absorb any market changes.

Next question. In 2024, you replaced some of the management in order to strengthen the business. What is the impact?

This is about the management within Life Science business. We had investment plan and growth plan, as I showed you earlier, JPY 30 billion turning to JPY 140 billion. And then we will be aiming for JPY 200 billion to JPY 300 billion. So this business has been growing very fast. Growth phase in the past versus growth phase in the future will look different. This is why in 2024, we changed the management. Under the new management, including myself, we will be looking at the challenges for the growth and the size of the business. There may be pain of growth. If we grow too fast, maybe turnover will be high, and we may have challenged hiring, which could lead to productivity not improving. These were some of the challenges that were identified. But by changing the management and implementing measures, we are beginning to see signs of improvement for these issues.

In the future, large-scale SUS may come once again into your focus?

Thank you for the question. Well, once again, this is related to our biopharmaceutical CDMO business. Large SUS, the stainless bioreactors business as well as SUBs, the single-use bag applications that AGC has been very good at. There are 2 separate models. Colorado base has been the base for the SUS, the large-scale reactors. And now the business will be transferred. The question is whether we will once again come back to this application of SUS. Well, the single-use bag has been an area we have been making investment and has been planning growth. Therefore, for the immediate future, we will continue to focus on SUBs to ensure sufficient growth, and we can come back to the growth level that we had previously enjoyed under pharmaceuticals, antibody type of a market that you see.

The growth in demand in the yellow -- purple part is the volume zone, the blockbusters largely. And green will be mid- and small-sized pharmaceuticals for orphan drugs, for example. And other than that, we have the clinical trials. The green part is where we expect to see many new technologies to come in, and there will be many small to midsized usages. Therefore, the single-usage bag technology is a perfect fit to this green growth zone. Therefore, for the immediate future, we will capture sufficient growth opportunities. And in 2 years, Yokohama will be ready. It will be the largest 5,000-liter tank for SUB will be operational. Therefore, we will be able to respond to the demand in this area.

When it comes to biopharmaceuticals and CDMO, we have to consider mid- to long-term growth of the business. After 2030, we may have to come back and consider the possibility of once again starting SUS. But having said so, single-use package bag technology is an area we expect to continue to grow for the immediate future.

Next question. Capacity utilization remains low. This is what we hear from the IR team. JPY 50 billion is invested into Yokohama to enhance the capacity, why is this? What is the necessity of this investment? And also another related question to this. What is the order outlook for Yokohama?

Thank you for the question. Life Science, biopharmaceuticals, CDMO, I believe this is what the question is about. Life Science business has 10 locations for biopharmaceuticals at different levels of capacity utilizations. We have made investments one by one. For example, for Copenhagen, we built a new plant, which came online at the end of last year. So there are different levels of operations, varying degrees. And capacity utilization for the newer sites will have to be increased because the overall capacity utilization is low. So this is a challenge for biopharmaceuticals and also Life Science as a whole.

Why are we investing into Yokohama? Biopharmaceuticals business within Life Science over the next 10 or 20 years, will see solid growth, solid demand. We believe there is sufficient demand over the mid- to long term from our customers. Biopharmaceutical CDMO business, once we decide to build something, it takes 3 years to build. Following that, we need to do GMP manufacturing and inspection as well. So all in all, it takes about 5 years to start the capacity for biopharmaceutical CDMO.

Mid- to long-term bio CDMO business globally, looking at what will happen, we have made sufficient investments in Europe. We are transferring Colorado, but in Seattle, we have sufficient capacity for the United States or from the United States. And Japan, well, as a biopharmaceutical CDMO, we were the pioneer with the Chiba plant, but the capacity at Chiba plant is quite small. And also, there was no room for additional investment for Chiba. This is why we decided to invest into Yokohama.

Bio CDMO hardly exists in Japan. And there was no supply chain for vaccine in the recent past, and there was a sense of urgency on the side of the government. So this is supposed to be dual use. In the case of situation of emergency, we will be able to manufacture vaccines for Japan as well. This is one of the intentions for this Yokohama site. So when the bio business grows into the future, in Japan, there is basically very small CDMO capacities.

We're actually using capacity outside of Japan, like Europe and America in order to accommodate what is needed in Japan. So we want to be able to do this within Japan, and for Japanese pharmaceutical manufacturers, as well. And also, we want to capture the demand for growing Asian market as well over the next 5 to 10 years.

Yokohama as a geographical location is very advantageous for us. AGC Group's central research center is located in Yokohama, and this new facility will be built right next to that. So we can collaborate with academia. We can find the global talents and form partnership with various companies or stakeholders. So maybe not immediately, but looking at next 5 to 10 years, we expect Yokohama to be the hub for biopharmaceutical business, and this is why we have decided to invest.

Next question is about small molecule agrochemicals as well as small molecule pharmaceuticals, CDMO. What is the current performance of those businesses as well as your future strategy plus capacity utilization?

Now out of the AGC Life Science business, 30% comes from small molecules pharmaceuticals and agrochemicals. Now this is an area where we can garner long-term purchase contracts, and we are rather immune to market changes. Therefore, the business remains very stable. We are being profitable.

Now as for small molecules, we have synthesis, chemical synthesis to work at the CDMO for both agrochemicals and pharmaceuticals. As for the pharmaceuticals, the Japanese bases are fully utilized in terms of their production capacity. The demand is very high. Therefore, we have made an additional investment in our manufacturing base in Spain. Therefore, for small molecule pharmaceuticals because of such additional investment, we expect the more profitability comes in about 2 years. Now when it comes to agrochemicals, this is related to the agricultural market, but the fluctuation is not so great. We are stable in terms of revenues there.

Net sales for agrochemicals is about 15% of Life Science business are here. What about profitability? How does it compare to the pharmaceutical CDMO business?

Thank you for the question. Pharmaceutical CDMO, specifically biopharmaceutical CDMO, actually, this industry grew in the last decade. Average profitability for CDMO is actually difficult to say. So for example, vaccine and biotech fluctuation occurred. But excluding that, CDMO profit is quite stable. And your question is about agrochemicals. Synthetic chemical technology that AGC already had and also stability and quality have been really appreciated. So maybe the relatively slow growth, but high profitability in terms of operating profit, at least double digit.

This is going to be the last question to be entertained. As for the agrochemicals, you have expanded your capacity in Spain, when will it start contributing to your profit?

Thank you for your question. Now as you see on the slide, when it comes to small molecule pharmaceutical CDMO, we have this Spanish base. Actually, the pharmaceuticals company factory has been acquired by us. And in terms of our investment, actually, in the area of pharmaceuticals, we had this chemical synthesis technology, which was a starting point for us. Currently, our factories in Japan are operating at their full capacity. Therefore, we have been shifting the production to Europe. And in Spain, we expect to see more orders coming in. Therefore, we are now building an additional production lines there. Actually, for this new factory, we just opened it this month, but the full operation starts only next year. And after that, we expect to see increased orders coming in. Therefore, the capacity increase in Spain will contribute to our profit after 2027. Thank you for your question.

Now it's time to close the Q&A session. We do apologize that we could not answer all of the questions that we had received but our IR team will respond to those remaining questions after this. Thank you for your understanding. And if you have anything, please let us know by calling 03-3218-5096. The phone number to call if you have any further inquiries is 03-3218-5096. When you close the Zoom screen, the questionnaire will pop up, please help us by filling out the questionnaire so that we can have better IR activities.

Thank you very much. That concludes today's briefing. We really appreciate your kind participation. Thank you, and goodbye.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]

It's time to begin the ESG briefing by AGC. My name is Tamaki, via IR, master of the ceremony today. Thank you for this opportunity. Let me introduce today's presenters. Representative Director, Executive Vice President, CTO, Hideyuki Kurata; General Manager of Sustainability Division, Corporate Planning and General Division, Yuki Ihara. They will give a presentation with regard to value creation model and the management capital, and it will be followed by a Q&A session. We scheduled to finish at 5:00 p.m. Thanks for your cooperation in advance.

Kurata-san, the floor is yours.

Yes. This is Kurata, CTO. Thank you for this opportunity. Value creation model and management capital is a title of briefing today. And this is the agenda. I'll be following the items shown on this agenda slide. I will begin with the overview of our business segments. As you can see in the pie chart, includes architectural glass, automotive, and this is about 45% of the sales, glass-related business. And then 20% is electronics approximately. Chemicals accounts for 25%, Life Science and Ceramics about 10% each. So glass business is about half. And including high value-added, we have Electronics, Performance Essentials and also Life Science segments.

Our portfolio is very broad. On this slide, you can see our regional segments. We -- our business spans over 30 countries and regions. Our business is global, and we conduct business in those areas and also manufacturing in some of these regions as well. Europe, Japan, Asia and Americas. As you can see in the boxes below, we conduct a whole variety of different businesses in these regions. We have just under 54,000 group employees conducting global business. This slide shows the evolution of products and services, a quick history of AGC.

In 1907, the founder, Toshiya Iwasaki, founded Asahi Glass. So the business actually started with architectural glass. Glass manufacturing was very difficult at the time, and he struggled. And during this time, the first World War broke out. And soda ash as well -- which is an ingredient and also bricks for the furnace and also ceramics could not be imported anymore. But instead of giving up on manufacturing glass, he decided to start manufacturing glass by themselves. So soda ash was involved, and this is why we entered into the chemical business. And also, we started making our own bricks, which translated into ceramics business.

We are still working on the same technologies. And after that, we had motorization, digital communication expanded, TV models changed over time and the camera became digitalized, semiconductor saw huge advancement. And more recently, we are seeing GenAI. Each era had different requirements, and we continue to provide materials and solutions to meet the needs of each era, as indicated in the history of our products and the company. And we have been operating for close to 150 years so far.

Now I would like to take some time to explain our group philosophy. As I have explained, Toshiya Iwasaki struggled a lot during the foundation of this company, but his aspiration was that he wanted to contribute to the development of society through domestic production of flat glass because it was mostly manufactured outside of Japan at that time. He went through a lot of challenges. For example, in order to manufacture bricks and also deal with chemicals, he faced a multitude of challenges and his aspiration is still carrying on in this organization. As you can see on the right-hand side, we have a spirit, "Never take this way out, but confront difficulties."

Each employee at AGC has this spirit -- challenging spirit. At the time of foundation, we were trying to domesticate the flat glass for architectural purposes. Now we do global business and our purpose now is AGC and everyday essential part of our world. Our shared values is shared across the whole organization, innovation and operational excellence, sustainability for blue planet, one team with diversity and integrity and trust. These are our shared values. Look beyond, AGC is always looking beyond what we see now. And this is our corporate philosophy.

Next, I would like to talk about the value creation model of AGC. This is how it's depicted. On the far left, we have changing external environment. As I have just explained, each era has a different need for materials, products and the external environment continuously changes. On the far right-hand side, you can see our purpose, AGC, an everyday essential part of our world. And this is the meaning of existence. And connecting these 2, we have the long-term business strategy in order to achieve look beyond. We have the management that we implement and execute. And we call this value creation model of AGC Group.

And today, I would like to take time to explain each step of this value creation model to you. So we shift from left to right. We start from the left. First of all, we have long-term social issues or material issues. This is the first thing that we need to define. AGC Group's long-term social issues, materiality and our view is explained on this slide. As you can see at the bottom half of the slide, it's separated into 2. One is major risks -- key risks. Social issues to be solved through sound corporate activities. But in addition to risks, there are also major opportunities, social issues to be solved through products and technologies. And we have identified 10 risks and opportunities for this purpose.

Some of them are risks and opportunities. Addressing climate change using resource effectively, of course, we have to lower the risks, but also our products could offer solutions to address these issues as well. And at the top, we have 3 key risks -- major risks. We will do our best to minimize these risks and also to maximize the 5 opportunities shown at the bottom of the slide. This is an opportunity to address these issues. And these are our sustainability objectives, and this is actually reflected in our management strategy.

Next model is about the business activities mainly. So about the business activities, let me explain the following. So this is the extraction of the previous slide. So this shows our technological platform or technology platforms. I will explain the details later, and we will combine the management foundation with the technology platform, and we have a spiral on top. One of the part of the spiral is in purple, the research needs and social issues focusing on the future. And the light blue is to develop the unique materials and solutions that utilize group technologies to solve social issues together with our customers. And with our management resources, we will try to solve those challenges.

And by going through this loop or cycle, we will commercialize products to offer. So that is the business activities. And there are 3 social values. And of course that we have to fulfill those values. So those 3 social values -- those are focused on the major opportunities to realize the sustainable global environment that is blue planet, to lower the environmental burden is one of this. And the second is innovation, creation of an innovative future society. We want to create values. And then well-being contribution and try to provide the products necessary for the daily life in a stable manner. So those are the business and the products that we would like to offer. And we will bring this into improving the value.

So as we satisfy the 3 social values, we will try to pursue economic value. And this is the value creation spiral. And generating social value and economic value and by doing so, we'd like to improve the corporate value, and that would enhance our management capital. And then it will be utilized for our business activities. So this is the spiral cycle that we try to realize. So those are the 6 management capital, financial capital, manufacturers capital, intellectual capital, human capital, social and relationship capital and natural capital. And to maximize our corporate value, we will be enhancing those.

Today, especially, I'd like to talk about intellectual capital and human capital, sharing you with some details. So first -- intellectual capital first. Our strength -- so what are our strengths? As the time changes, we have been evolving our technology, especially inorganics, glass and ceramics have evolved, and we developed this. So that is on the right-hand side. Those are the representative products that we have. And organic materials, we have extended the chemical chain. And now we have gone to the pharmaceutical and agrochemical intermediates. And also recently, we have combined this with the biotechnology. And very important is that even if we have other materials, we have to be able to manufacture. So manufacturing technology, process technology, engineering and also analysis and simulation technology and DX that we have been emphasizing.

So those are the technical background of our materials and solutions. And our business technology platform, let me go further into the details. We have been building this for the past 115 years. And core technology include the glass materials and others and by adding those to the materials, we want to manufacture products. And the basic technologies are shown at the bottom, and we have to have all of them and then we would like to evolve and develop those as time changes.

So there are 3 arrows and there is -- first of all, we have a methodology called business and technology outlook. We analyze macro trend and select 7 key technology fields and focus areas. And then we look into marketability, social issues and sustainability and identify the technologies to develop or sometimes we identify collaboration partners. We do this every year trying to visualize what may happen in the future. Key technology fields and focus areas have been identified like this: there are 7 key technology fields. The top half of the slide is the next growth drivers. So there are 4 items here. And below that, we have technology that support or enable those things. There are 3 items here. And this is where we are allocating our management and development resources.

I will not go into too much details, but on the horizontal axis, we can see the time line up to 2040. And the vertical line is different items in focus areas. This moves very fast. So the target is about 10 years. And also the foundation technologies, this has a longer time span, about 20 years. And this is how we identify the different items where we want to deepen our development. With regard to R&D, I would like to show you the concept initiatives to support this activity. These are the 3 key axes. One sustainability management. CO2 reduction and supply chain burden reduction will be pursued as part of sustainability management. And we want to accelerate DX, which has become essential for companies in order to bring higher value-added tasks, and we are also focused on open innovation.

With regard to promotion of sustainable management and GHG reduction, I would like to explain about the furnace. For float glass, you need to apply a lot of heat to melt down sand. And up until 2019, a lot of heavy oil was used. It was changed to different types of fuel and also electric booster is a methodology that can be applied to apply heat to melt. And instead of using natural gas, you could use ammonia or other types of fuels. We can also recycle, collect used glass from our customers and remelt. We will be combining all of these different technologies in order to achieve carbon neutrality by 2050.

And based on this understanding, we are developing various technologies, not just reducing our own CO2 but also in order to reduce the CO2 for the whole planet, we are contributing through our products. For example, through heat insulating glass, there is a vacuum, dual glass and other types. And this can help lower the burden of heating and cooling at home. In Japan, solar panels don't have a lot of space or place to be installed. So BIPV, building integrated photovoltaic glass is another type of product that we can provide, I'm sure that use air con. And air conditioning, refrigerants should be more environmentally friendly. We are also contributing through polymer electrolyte for fuel cells as well.

More efficient semiconductor and smaller but higher memory density semiconductor. Again, this is another area we're making contributions. This is -- these are 3 examples for the cutting-edge semiconductor manufacturing. Ceria slurry for the finest pitch, this material is used for flattening the surface, and this is a strategic product of ours. And we are talking about several single-digit nanometers. And for that, we provide EUV photomask blanks. On the right-hand side, you can see, with higher density, we achieve the limit and the package is now attracting lot of attention. Multilayered package would require glass co and also silica and fluoropolymer will be used. And not only electrical, but also optical communication will be important, and we provide optical waveguide to the market. We are developing new products.

Moving on to DX. This can be used in various ways. On the left-hand side, you can see one use case, utilization of digital twin environments in glass melting furnaces. Glass is melted at about 1,500 degrees in the furnace. You cannot open up the furnace and see what's going on, but you can use an online simulator to operate the plant. So this is a digital twin that can also help optimize the plant. On the right-hand side, reducing front windshield quality inspection process time. If there is a defect in the windshield, the windshield will break, leading to major traffic accident. We used to spend 30,000 hours to inspect the finish of the glass, but now we have machine learning, measurement equipment and AI. And combining all of these technologies, we can reduce this number of hours of inspection to close to 0. So safer operation, higher productivity and higher profitability at the same time.

On the left-hand side, you can see how we can help sales activities. AR/VR technology can be utilized to show the customer the glass as if it's in front of them, and we can just provide a sample and bring it to them. On the right-hand side, you can see a group of the buildings among Hudson River. We got this business because the customer could identify the right material very quickly and order the material very quickly. So the customer could open the building because of this speed. So that's added value for the customers, and this can be enabled by DX. On the right-hand side, we see material informatics. Instead of doing multiple physical experiments, you can use AI to identify the right material for evaluation assessment in order to minimize that lead time.

Another key point is open innovation. The solutions that will require some partnership, not just on our own. So AGC Yokohama Technical Center was opened. And in 2021 and materials process and facility equipment design, everything can be done, and this was integrated and open innovation organization was created. And with this, with the external partners and academia, customers can get together so that we can quickly provide solutions. So this is the opening of the Yokohama Technical Center. And we have 5 sites, Japan, Shanghai, Singapore, Europe and Silicon Valley. We have a new business and technology exploration hub. Now this shows the 3 directions of the R&D.

So there are 3 points that we focus upon. One is to utilize the existing capabilities to enter into new markets. So those are the new businesses. And second is the new generation and new product development within the existing businesses. And then production and basic technology innovation. Those are the 3, and it's [ 1 to 2 to 1 ] in terms of percentage. So we would like to have a well-balanced ratio among those 3. Especially, we are focused on the core technologies. So we are not going to develop the entirely new ones in the other territory, but try to focus and leverage on our existing IP. So I talked about the R&D and this shows patents and the patents are extremely important.

Now usually, we have applied for the patents to protect technologies. But in our case, in addition to protection, we also need to be more aggressive, and we have to be strategic. So the wide-ranging patents are the ones that we want to apply. We are talking about the materials. So it's not only for one purpose, but for the multiple applications. So when we provide the technology, we can expect a rising licensing revenue. So we want to be defensive as well as offensive and fully utilize our intellectual property. So we are very much focused on the IP. On the left, we are showing the number of the patent application. So it shows 2001 as 1.0. So with the changes of the products and technologies, we increased the number of the patent application and so forth. So there is a fluctuation.

But right now, we are accumulating the new patents for the future, and that would lead to strategic businesses. As for the licensing revenue, every year, it's on the rise, as you can see in the graph on the right. So that concludes the explanation about the intellectual capital. Now I like to -- we would like to focus on the management capital, and I would invite Ms. Ihara to present.

Yes. This is Ihara speaking. I'd like to talk about the human capital as well as the technical and the DX personnel and how we are trying to develop them. So here is the AGC people driving our growth. At the bottom, AGC Group culture is shown. So the good corporate culture is shown here. So good open communication, taking on challenges and encouraging initiative. This is the good corporate culture. And continuously, we have been enhancing and improving this, and we will continue these efforts. So based on this culture, diverse talent, we try to utilize them and try to make sure that the individuals will be able to leverage their capabilities and the individuals can grow on their own.

We want to have an environment to enable that so that would lead to the higher engagement, and there will be a chemical reaction of knowledge and stronger on-site capabilities. So as it was mentioned, the purpose to -- with our materials and technology, we want to support the people's lives in the world. And that is our purpose. And we want to utilize that. And that will lead to the higher corporate value that would attract more capable talent, and they can again grow as individuals and then increase engagement. So we can go through this loop. So this is our way of thinking in the human capital development.

So that is AGC people driving our growth. So this is the human capital initiatives. There are many of them. And I'd like to give you some examples. And based upon the framework, we are taking initiatives. On the right-hand side, as you see the 4 pillars of the medium-term management plan, evolution of ambidextrous strategy, deepening of sustainability management, promotion of value creation DX and strengthening of the management foundation. So those are the major pillars. In order to realize them, the important human capital strategies, there are 3 of them. First, strengthen the next generation of the management candidates and second, the improvement of employee engagement and to secure talent to support business portfolio transformation.

Next slide, please. So here is to identify the next-generation management talent. This shows the decision-making body. Now to identify next-generation management for different grades or for different year of service, we create a talent pool. And every year, we discuss this coming from the different divisions, and we try to certify them. And in the HR committee, we discuss this, the evaluation and then make decisions every year. So we repeat this every year. As you can see on the left-hand side, there is a young potential talent and the group management talent candidates and the higher grade talent pool is created. And on top of that, we have key management positions.

There are 2 bottom ones that will be discussed in the HR committee and when they are approved to have a wide range of experiences and to become the key management position personnel. So today, I would focus on the technical human capital. And concerning that, the corporate R&D experience and also the development experience at the divisions, both of those experiences are important. So we come up with a different career path and the development plan and create a job rotation for each individuals. In some cases, maybe some people is better off experiencing working as a manager. So business side experience is also included in some of the people.

So those people going through the wide-ranging experiences will develop themselves into the potential top management and key management. And so for example, the successor development of the executive officers and successors, the first generation, second generation, we will have a list of those names. So when you are in such a talent pool, nominating committee will talk about the progress of the development. And here again, whether the candidates have had a wide-ranging experiences suitable for becoming the key management positions, how to create such opportunities or we think it's important, for example, to have an experience of the western type of management and at which timing should we provide opportunity to learn about that.

So this nominating committee will review that. So about the technical talent, multiple business units, whether they have had the experiences in the multiple units or experience in the Western type of management become very important. So this is the optimization of the talent portfolio. This is also the technical talent. So we create the technical talent database internally and the basic attributes, career information and skill, how many skills that they have and the themes of the researches, what kind of research is that they have experiences on. So we create a database and as Kurata-san explained, business and technology outlook. This is reviewed every year. So what is necessary for the future technological development, where are the skill gaps, we try to pinpoint that. And if it's -- there is a gap, we try to find someone externally.

And we also have a reskilling opportunities so they can have a wider range of skill experiences. And by using this database, the company's divisions and corporate research labs, when there is a shortage of the talent or when there is excessive talent, we try to complement the talent. And so development and securing the talent and also to make the allocation of the talent in an appropriate manner is done in this effort. So here is for the technical talent and PhD holders, we are trying to increase the percentage of them. Right now, technical development, about 30% have the PhD. And sometimes we employ them as new graduates or a midterm career. So after joining AGC using the internal system, they can -- some of them will be able to acquire PhD.

It's a mixture of this. And we are trying to expand the number of the PhD holders. So those people are working with academia globally, getting the new knowledge or getting involved in the new development using their networks. So creating the next-generation businesses and to secure the competitive edge. Next page, please. So here is the DX personnel talent. Since 2020, we have been working on this. So DX talent development, we have a program. So every year, we have our targets, and we have been making a very steady progress. 2025 targets, we have already mostly completed those targets to achieving those targets.

So right now, toward 2030, next targets are being set. The unique to AGC is it's not just DX technical skills. Of course, we need them, but it's not only that. In addition, the business process knowledge, for example, development, manufacturing, sales, logistics so regular business process knowledge and having the technology skill. So understanding the business side as well as the data management, I think, the dual skill is important. So understanding the front line and to try to promote the DX, which is really help at the front line. So we are enhancing this talent, and we will continue to do so. So increase the dual skill talent. So that's all the slides that I prepared.

And there are other technical skill enhancement initiatives that we have. So for example, registering your skill, you can use the skill map. And you can have a cross-functional activities based on the certain skill, you can come up with a team of people and improve your skills. So there is such group. So that is being done very actively. And to deepen your skill is one thing, but also the skills that you don't have. If you're interested in one particular skill, you can widen your skill. So you can do the reskilling. So that's a way of registration. So deepening or widening the reskilling, that is also something that we have in our platform.

Middle management movement is actually very important. In order to cause change in the intellectual capacity, we need to understand what kind of skills people want to deepen and what kind of skills they have now. There has to be a broad understanding. So people can be developed or teams can be formulated to promote development. In other words, middle management has to be very functional before we see a good chemical reaction of intellectual aspects. So for the middle management, we are really conducting dialogue meetings about the talent development and also facilitation training for middle management is being conducted. How to draw out the actual views and voices of people? So we are strengthening training for middle management as well.

Cross-functional effort to enhance skills. Once this mechanism is in place, employees feel that they can actually grow working at AGC. And this is important because when you feel that you are growing, that actually has the strongest correlation with the engagement score. In order to heighten the employees' engagement, we want to continue to implement activities in order for them to feel that they can grow with AGC. It will take a long time. Just because you feel like you're growing, engagement score doesn't go up immediately. You need to experience the growth over long term, and then we will begin to see the impact. So it will be a slow change, but we believe that this initiative is extremely important. So I hope that we will also take a long-term view on this. That's all from me. Thank you very much.

We would like to move on to Q&A. [Operator Instructions] We will start with a question that we received in advance. The first question is what is the synergy between glass and chemicals? Can we take this opportunity to understand that once again. So Kurata will respond to this question.

Glass and chemicals. Chemicals actually can be functional as material or glass, but it can be compounded as well. For example, glass has transparency and also rigidity. It's different from film, it's rigid. And in that aspect, it can be very functional. But when you add the chemical aspect, both organic and inorganic, on this slide, we're talking about organic, but you can use the chemicals to process the surface of the glass to add additional functionalities. And then we can provide this kind of product that has compounded features.

If it's just a simple material, usually, it's 1 plus 1 equals 2, but sometimes it can be 10 or 100. We can find combinations that will exponentially increase the functionality. So high functionality can be achieved through this type of technology. So we have a glass technology and organic chemicals technology that we have built over a very long time, and now we can exert new strength because there is synergy between the 2.

Next question. There are many focused areas. Among them, which do you think is most promising or the area that you invest more resources in?

Kurata-san will answer to this question.

Yes. Development itself, of course, we have to work on the existing products. We cannot take easy on that, but if you ask me the ones that we are focused upon close to the strategic areas. So 4 areas that is shown here. And if you look at the breakdown, those are the areas we want to grow or in the future, there could be some changes. Of course, existing businesses could change the automotive glass. The next mobility will have a different perspective.

In energy, what we have, alkaline electrolyte is one thing, but there could be new electrolyte. So the technological changes in the growing areas, we want to identify them and then select them as a focus area. So that is shown here. And we are investing our resources for those. Sorry, I'm talking about the wide-ranging ones, but the 7 -- the key technology views are the areas that we are trying to improve or emphasize.

Moving on to the next question. When you explained about intellectual capital patent, I saw that the patent count increased from 2019 and the licensing revenue also increased. This was an interesting information. What was the trigger? And where do you see this growth in which specific field or segment?

We have also received a similar question about patent. Which business is currently the highest number of patent applications? And both of these questions will be answered by Kurata.

Both defense and offense are important, as I said. When changes happen frequently and quickly, then the number of patents will increase in that field and also growth area where new products appear one after the other. More than half of our revenue should come from the strategic business, electronics, mobility, performance chemicals, life science. So these are the areas that we are really focusing on in terms of creating patents for both defense and offense. Strategic patents can be issued. And we changed the reward system for the patent in 2011.

And also some of the patents or technologies could be used by other companies, and that is the basis of giving the reward for that as well. So we changed the system. Internal system has been updated and strategic segments as well as future products are the areas where we see a large number of patents being filed.

Next question about the glass core substrate. NEG, for example, is working on the development. So what are the strength of AGC? Could you talk about the strength of AGC? So here again, Kurata-san will answer to this question.

Well, about the glass core, if you can look at this slide, it's not just the glass substrate. But on top, we have to do the -- make the groups or the holes and so forth on top of the motherboard. So our strength, there are 3 strengths. One is the glass material itself can be worked on. So something that is suitable for the chips or for the wiring, we can create the glass that is suitable for each layer.

In doing the processing -- and I talked about organic and inorganic. So processing technology, we have 2 of those. So in that sense, the best suitable materials can be chosen and do the processing and then completed. And then it can be paid back to the materials and processing. So that is the first and second strength. The third strength is that we try to make this forecast 15 years ago. We have been developing this technology. And the evaluation technology has been enhanced, and that will lead to the better quality and also productivity and mass production.

That is also something that we have been working on. So we have a long history of development. That is another strength that we have. So in that sense, I don't know about other companies, but we have those 3 strengths to try to succeed in this business.

Next question. Our efforts to success is progressing, what is the update of the current situation? And what kind of initiatives have been undertaken for this purpose. Ihara will respond to this question.

Thank you for the question. Succession program is being implemented steadily, but there is no end to human resource development, talent development. And therefore, we want to strengthen this further. As I've explained in my earlier slide, we want employees to experience multiple different businesses and broaden the scope of the experience or experience managing overseas Western companies.

We are steadily increasing the pool of these successes, but we still have a long way to go to where we want to be. So we are discussing this every year and also considering the cost constraint, we have to think about the sequence who should have this experience this year. That means that we cannot increase the number of successes quickly, dramatically, but we are implementing the assignments and tasks in order to make this happen steadily over time.

A related question, in the presentation or your answer to the question, you talked about the Western type of management experiences. So that -- the importance of that was talked about. So are the female employees included? Could you tell us how many of them? And what is the percentage of the female workers?

Well, successor development to enhance the talent pool, the female talent pool is important and also non-Japanese talent pool to improve it is extremely important, too. So we are working on that. So as you asked about the female employee, of course, there are female work employees who are having such experiences, but we still have not sufficient female employees. I cannot really mention the percentage or the number right now, but the information that is made public, it's only 6% in terms of the manager that is the female manager.

So even if we have a 6% in the talent pool, it's still single digit. So the number of female, the percentage is still low, but it's not 0. So gradually, we are increasing and for the women as well as the minority or non-Japanese so that we can increase the talent pool for the future management.

Next question. Fluoropolymer, are you developing an alternative successor of this? In that case, which type of product? Can you please explain? This is going to be answered by Kurata.

Strategic business includes performance chemicals, and we are providing features, functionalities. And fluoropolymers have high durability and also resistance against chemicals. There are various functionalities. And we know how our customers use these products and what their needs are. So wherever we have strength and where fluoropolymers can -- fluorochemicals can replace something, we try to focus on that. Fluorochemicals has high functionality. Sometimes it's difficult to replace. If the customer needs is over a long term, then we are considering replacing fluorochemicals. I think that's it.

Next question about the human capital. I think to have -- the middle management is important to have an exchange of the chemical reaction -- the intellectual chemical reaction. Were there any trigger? Are there any stories that you can share with us about the chemical reaction of knowledge? So Ihara-san and Kurata-san will both respond to this question. So first, Ihara-san, could you start?

Well, specific questions, I'm sure Kurata-san should have them rather than myself, but the trigger or how we started to do this? Well, let me see. The development -- technological development is not something that you can do alone. It's not something that you can do with only your team. So we need a kind of a catalyst. There's a middle management and the researcher, for example, might have some challenges or difficulties. How can we stimulate them to have better research or in the research lab, there is one topic and another topic. And if you combine them, what can you do? So I think that the middle management needs to do a good job so that we can create 3 or 5 from 1.

So if it's closed or siloed, it's -- 1 becomes 0.8 or 0.5. So how can we have created a chemical reaction? We need a catalyst and we need a good work of the middle management so that the efforts of the researchers can bear fruit. So engagement survey in the comments, we did receive such comments. So qualitative comments, we try to pick them up so that we thought that it's important to take the approach to the middle management. So that is something that we noticed from the free comment of the engagement survey.

So Ihara-san talked about as HR. So until last year, she was in charge of HR. So engagement improvement is something that she was engaged with. So that's why she answered in such a way. So about the middle management and importance in the R&D or as a business as a whole, maybe he can make some additional comments.

For middle management, as a basic technology and also at the forefront of the business in many cases. So at the forefront, the middle management, unless the middle management moves, the company doesn't move. So the PhD holders, we are trying to increase. And then they are capable of setting up their own issues and challenges. They have wider perspective. So we have a very high expectation from the middle management. They understand the technological potential, and they can find out about the front line, and we want to make it possible for the middle management to be freely take advantage of their capabilities.

Thank you very much. Well, it's time, so we would like to close the Q&A session. There were some more questions that we were unable to respond, which will be answered by our IR team later on. The phone number is 03-3218-5096, if you have any additional questions. When you close the Zoom screen, there's going to be a questionnaire, please respond to the questionnaire to help us improve our future IR activities. And that concludes our ESG briefing. Thank you very much for joining us despite your very busy schedule. Thank you.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]