Agc Inc Unsp/Adr

It is time, so 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 Industrial Relations, serving as moderator. Today's attendees are Shinji Miyagi, 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 Miyagi to start his presentation. Thank you. This is Shinji Miyagi, the CFO. Please turn to page 3. The highlights. Net sales for the first nine months totaled ¥1,512.1 billion, down ¥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 94.8 billion, up 0.8 billion on effects of profit improvement measures and 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 145.9 billion at 39.5 billion yen due to the aforementioned positive factors and the non-recurrence of last year's loss and sale of shares related to the Russian business transfer and large impairment losses in biopharmaceutical CDMO. Operating profit for the third quarter exceeded 40 billion yen for the first time in three years since Q2 of 2022, following profit improvement measures such as pricing policies for European architectural glass and automotive glass. Four-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 eight

I will explain the factors behind year-on-year variance in operating profit, sales volume, prices, product mix resulted in a positive impact of 10.9 billion yen. 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. performance chemicals. Raw material prices differences resulted in a 8.1 billion decrease and cost and other differences, a 2 billion yen decrease. As a result, operating profit increased by 0.8 billion to 94.8 billion yen. Page 9, please. Next, the balance sheet. The total assets amounted to 2 trillion, 874.2 billion yen, down 15.5 billion from the end of last year. The DE ratio was 0.42 times. Please turn to page 10. This is the cash flow statement. Operating cash flow was 164.7 billion yen. Investment cash flow, negative 126.4 billion yen. Consequently, free cash flow was 38.4 billion yen. Page 11, please. I will now explain CapEx depreciation and R&D expenses. CapEx totaled ¥174.1 billion, depreciation amounted to ¥132.6 billion, and R&D expenses ¥44.1 billion. Major capital investment projects are listed as shown. Next, I will move to the segment by segment presentation. Please turn to page 13. First, architectural glass segment. Sales were 320.8 billion yen, operating profit 10 billion yen. In Asia, sales decreased by 3.8 billion to 109.7 billion due to lower prices in Indonesia and other regions, coupled with reduced shipments. In Europe and America, sales decreased by 5.2 billion yen to 209.2 billion yen due to low 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 4 billion yen 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 America's about 70%. Please turn to page 14. Automotive segment sales increased by 10.6 billion to 385.6 billion yen and operating profit increased by 12 billion to 23.4 billion yen. 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 electronic segment sales reached 259.7 billion yen, operating profit 36 billion yen. The display segment saw sales increase by 4 billion to 136.2 billion yen, driven by higher shipments of LCD glass substrate. The electronics materials segment experienced a 11.1 billion decrease in sales to 122.2 billion yen due to lower shipments of EUV mask lengths compounded by the impact of yen's appreciation. As a result, operating profit decreased by 400 million yen. In operating profit, 70% was represented by electronic materials and 30% by displays. Please turn to page 16.

Next, chemicals. Net sales, 431.3 billion yen, and operating profit, 39.7 billion. Essential chemical sales were down 20 billion at 284.6 billion yen on a declining prices of PVC. Sales in performance chemicals up 11.4 billion at 143.6 billion yen 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 96.1 billion yen and operating loss 16.2 billion. Sales were down despite increased shipments on expanded bio-formats called CGMO capacity due to the non-recurrence of last year's one-time 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 half a billion yen, seriously affected by aforementioned revenue-reducing factors. Page 18 strategic businesses net sales were down 2.2 billion at 363.3 billion year on year despite growth in performance chemicals and mobility affected by a temporary slowdown in electronic shipments and the non-recurrence of one-time revenue from contract project settlements in life science It's down 7.2 billion at 40.7 billion yen, 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 a 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 and 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 slight decrease in shipments of LCD glass substrates. Electronic materials expects shipments of semiconductor-related materials to be flat quarter and quarter. Up to electronics 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 parts for semiconductors and transportation applications are expected to remain firm. Next, life sciences. Contract sales for small molecular pharmaceuticals and agrochemicals CDMO are expected to increase. For biopharmaceuticals 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 four-year outlook for strategic businesses. Page 25. There are also no changes to the four-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 the stable dividend policy targeting at a DOE of about 3% remained unchanged. Please turn to page 28. I will now explain the two 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 chemical segment. As shown in the left of the slide, the chloride 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 sub-segment structure for the chemical 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 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, four 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 in 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.

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 profits a bit stronger than our expectation that is overall for the company by segment the situation was as follows first architectural class sales were 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 projection for automotive Sales and operating profit were both better than our projection for sales. Improvement in product mix, based on the 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 for sales. electronics overall sales were slightly better than projection whereas for operating profits slightly lower than our projection for sales some did better than others but for operating profits 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 profits was slightly lower than our projection. For chemicals, sales were slightly lower than our projection, operating profits 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 projection.

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. As 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're 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 decline. There is going to be increase in shipment in Japan, but because of shipment decline in Europe and America, so we are going to see decline in both revenue and profit. As for electronics, sales are expected to be the same as third quarter, but are going to cease decline in profit. As for electronic materials, in terms of sales, Especially after electronics materials are going to, has already passed a peak in shipments. So in the fourth quarter, we are expected to see some decline. And as for LCD glass substrate, this demand is a bit weaker compared to third quarter. So operating profit will be affected by that. and decline. And operating profit is going well in electronics, but the display, but 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 production facility that will come online. And so there will be an 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 size, we are expecting increase in both revenue and profit. In terms of sales, sales are expected to increase in the sites in Copenhagen, and operating profit will also increase accordingly. And fixed costs in sites in Colorado will improve, and so costs will be declined. The fourth 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.

Next question. Were EUV mask plants on quarter-and-quarter or year-on-year basis? What is the situation? This is a question. And compared to the plan, how were the situation in the third quarter?

Well, here again,

not much change in our stories in 2020 we saw a big growth in this business but this year or 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's concerns not very exciting we don't disclose the season by season changes but the overall story remains unchanged in taiwan and others are clients there And we are continuing to expand our customer base, and we are seeing the effects of that.

Once again, EUV Mask Blank's question. In major customers, there are various news headlines that are being heard. So compared to three months before, is there any change in your outlook for demand? That was a question. So EEV manufacturers, as you know, are all those that you already know. And in those manufacturers, there is various capital policies that are announced and there is subsidy provided by the government. So basically, this has been 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 visual thinking.

Next question, also on AUV 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 sector 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 a 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 is 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 sites, 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. As 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 redundancies have been announced. It's going to decline 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 would be easiest to understand. As for Seattle, In the past, there were some production disruptions, but 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 have 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 melan genetic cells, 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

Next question is for life science business overall. A sale is behind an 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 behind 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 nine months for small molecule pharmaceuticals slightly below our projection but uh 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 lifestyle business as a whole, if you look at the third quarter action results, Cost and other contributors turn out to be negative on a year-on-year basis. So was there any particular one-time factor like withdrawal costs? What is the breakdown of this item? So in comparison to the third quarter last year, in 2024, third quarter, there was a one-time revenue. I think this was cancellation fee. There was a one-time revenue in quite some amount. So there's no such thing. That was a big factor.

Next question is about the Boulder sites. the production issues continued but uh 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 chemical segment. Essential chemicals and performance chemicals both seem to have improved in profitability. What is the factor behind this? Well, yes, this is about comparison to the last fiscal year, right? so in comparison to the previous year is it the question is 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 previously so there is no specification about the time period so as compared to the second quarter i would guess on an annual basis there is a decline in profits. 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 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 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 chemical 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 substituents 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 a chemical chain. And in Japan, in the upstream, the chlorine alkali business, and in the downstream is 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. there are my products each other so if you look at the Japanese chemical chain as a whole you can further there's a further room for more optimization so we have changed our gear to have optimization of the total chain so rather than upstream and downstreams looking looks at separately We look at volume of caustic soda and chloride and optimize them in the whole chemical chain. And essential chemicals, Southeast Asia, will be separated out because they had been totally independent business separate from Japanese industry. essential chemicals from the beginning, but they were in the same SVU with 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? Three 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 and quarter.

It's not double-digit increase. The profit increase from Q2 was 0.8 billion yen, I think. For automotive, in the second quarter, 7.4 billion yen. up to 8.3 billion in the third quarter so 900 million yen or 0.9 billion yen 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 two factors combined was better than our projection. And therefore, Q3 was better than Q2, but not a big jump.

We're running out of time, so this will be the last question. So for architectural glass, in Europe, demand has been sluggish, but prices seem 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 markets. 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. We have not been able to recover on that immediately from the gas crisis, and the spread has worsened significantly because of that late catch-up. The gas increase or cost increase passed on to the product price has been implemented, and that result has been effected 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 onwards, there were some effects from maintenance of prices. So as you know, 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 is 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.

There 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 0332185096. 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.