Agc Inc Unsp/Adr

Hello everyone, thank you very much for joining us.

We will start in three minutes. This is a hybrid briefing session, so if you are joining us remotely, there are several things that I'd like to clarify with. Please make sure to join webinar from one device. and please download the materials from our website. If you have any questions, please call the contact number. The phone number is 03-3218-5096. So please wait for a few more minutes. Thank you. Now I'd like to start the four-year financial results briefing for FY25 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, NCFO, Yoshio Takegawa. General Manager of Finance and Control Division, Tomoyuki Shiokawa. So today, first, our CFO, Takegawa, will present the financial results for the four-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 4.45 p.m. So I'd like to ask for your cooperation. Now I'd like to invite Mr. Takegawa to you.

Thank you.

This is Takegawa CFO. Thank you very much for joining us today. So let me get started. Please go to page three. This shows the key points of FY25 results and FY26 outlook. For the FY25 4-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 FY26. 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.

I'd like to explain further on the results.

Net sales were 258.8 billion yen down 8.8 billion yen year-on-year. Net sales increase factors include product mix improvement and pricing policies affecting automotive, pricing policies affecting 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 EOD mask blanks, and lower sales prices in architectural glass in Asia. Operating profit was 127.5 billion yen, up 1.6 billion yen. 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 124.8 billion yen, up 174.8 billion yen, significant increase. In addition to the earlier mentioned factors, disappearance of the losses from share sales in connection with the Russian business transfer and large impairment losses related to biopharmaceutical CDMO booked last year. Please go to page 17. This is a performance by segment. Sales and profit of architectural glass and automotive increased, while the sales and profit of electronics, chemicals and life science declined.

Regarding operating profit, I would like to explain the factors contributing to the difference year on year.

South Korean price and product mix contributed positively, ¥19.9 billion YOY. 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 4.6 billion and other costs of 13.7 billion both had negative impacts. Resulting OP increased by 1.6 billion yen to 127.5 billion yen.

Please turn to page 9.

This is a balance sheet. Total assets amounted to 2.9501 trillion yen, an increase of 60.4 billion from the end of last year. The ratio stood at 0.37%. Please turn to page 10. Operating cash flow was at 274.5 billion, investment cash flow was minus 178.4 billion, and resulting free cash flow was 96.1 billion. Please turn to page 11. I would like to explain CapEx depreciation and R&D expenditure on this page. CapEx amounted to 251.3 billion yen, depreciation 179.8 billion yen, and R&D expenses 60.3 billion yen. Main CapEx projects are listed on this slide. We will now move on to the explanation by segment released under page 13. Starting with the architectural glass segment, Nets Health increased by 3.2 billion yen to 441.1 billion yen, while OP rose by 0.9 billion yen to 17.3 billion yen. In Asia, Nets Health decreased by 4.4 billion yen 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 Russian business in February of the previous fiscal year, net sales increased by 7.6 billion benefiting from the effects of pricing policy and weaker yen. OP increased by 900 million despite higher costs such as labor costs due to the aforementioned sales growth factors. Self-segment 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 21.8 billion yen to 520.6 billion yen, and OP increased by 15.3 billion yen to 39.3 billion yen. Shipments declined in Europe but increased in Japan. In addition to improvements in product mix and the pricing policies, in fact, the weekend also contributed. OP increased by 15.3 billion, driven by the revenue growth factors which was mentioned before, despite increases in costs such as raw materials and labor expenses. Please refer to page 15. Next is the electronic segment. Net sales decreased by 9.5 billion yen to 355.1 billion yen, and OP decreased by 6.9 billion yen to 47.5 billion yen. The display segment saw a 5.5 billion yen increase in lead cells due to higher shipments in LCD glass substrates. Electronic materials saw a 15.1 billion yen decrease in revenue due to the transition period towards higher functionality of optoelectronics, coupled with a decrease in shipments in UV mask banks. OP decreased by 6.9 billion, reflecting the negative drivers that was explained, and the costs associated with withdrawal from the Special Equalize 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 the chemical products segment.

Next is chemicals segment. Net sales were 584.2 billion yen, down 9.4 billion yen. Operating profit was 53 billion yen, down 3.7 billion yen. Essential chemicals net sales were down by 28.4 billion yen 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 18.2 billion yen. Operating profit was down by 3.7 billion yen due not only to the lower essential chemical sales but also to manufacturing cost deterioration related to the facility repairs and others. Sub-segment ratio to operating profit is 20% from the essential chemicals and 80% performance chemicals. Please go to page 17. This is life cycle segment. Net sales were 133.1 billion yen down 8.1 billion yen. Operating loss 22.3 billion yen down 1.1 billion yen. Net sales of the small molecule pharmaceuticals and agrochemicals CDMO remain steady. Net sales of biopharmaceuticals CDMO were affected by disappearance of one of 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 bioinformatics article CDMO in the US 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 cells mentioned before, please go to page 18. Strategic businesses net sales were 501.5 billion yen down 1.8 billion yen year-on-year. Operating profit was 58.7 billion yen down 8.6 billion yen. Overall, operating profit decreased year-on-year due to the lower shipments of electronics and decreased net sales of life science, although net sales of performance chemicals and mobility increased. Please go to page 20. This is our book for FY2026 that explained assumptions for the major economies and markets in 26. While some markets continue to face challenging conditions and despite uncertain geopolitical situation, global economy is expected to grow moderately with expanding AI-related investments and monetary easing of major economies. Stagnation is expected for Europe and China, while the U.S. economy will trend strongly. Looking at 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 focus net sales of ¥2.2 trillion, an increase of ¥141.2 billion, and the OP of ¥150 billion, an increase of ¥22.5 billion. ROE is forecast to improve to 5.2%. Exchange rates are assumed to be 155 yen to the US dollar and 180 yen 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 class, in Asia, shipments are expected to increase due to recovering demand in Thailand and Indonesia. We will continue up pricing policy and productivity improvement initiatives. In Europe and Americas, the economic downturn is expected to continue with unlimited 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 relation to improving product mix and pricing policy, we will continue our efforts towards structural reform and productivity improvements. Moving on to electronics. In this place, shipments of LCD glass substrates are expected to decline slightly. We will continue our profit improvement measures. Within electronic materials, shipments of semiconductor-rated materials such as EUV mask bags 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, electronics, and chloralkali products. Essential chemicals. Southeast Asia is expected to see increased shipments due to the cooperation of expanded facilities.

Moving on to life science.

Cells for synthetic pharmaceuticals and agrochemical CDMO are expected to increase by launch of extended 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 a four-year performance outlook for strategic businesses for 2026. Net sales is projected to reach 560 billion yen driven by growth across all strategic businesses. OP is forecast to reach 80 billion, primarily driven by profit improvement in life science. Please turn to page 26. CapExil 2026 is forecast to be 190 billion yen, depreciation 183 billion yen, and earned expenditure 62 billion yen. CapExil will be smaller in 2026 as the major capacity construction investment concluded in 2025.

Thank you very much.

Next, I'd like to invite Mr. Hirai.

This is Hirai speaking, CEO. So as Takigawa-san explained, last year, slight increase, three 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 my side, I'd like to talk about how drastically I try to improve the profitability. That would be the major part of my 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 regrets. 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 ROCA? This is last year's results. ROE of 8%, ROCE is considered to be around 10%, so that is the basics. level. Electronics on the left and the performance chemicals, which is strategic, and the integrated chemicals. Electronics integrated chemicals have had a 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 2022 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 of 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 target 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 150 billion yen, strategic business operating profit 80 billion yen. And as a result, by 0.2% 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 R, 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 a 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 on the left. I showed electronics, integrated chemicals with a high level and 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 plants, 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. 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 wanted to make sure that we can deliver our products which are suitable for them to the customers. So the two nano, we have already completed 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 chloralkali in Japan, are 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 three major areas, especially electronics, as you've shown on the right-hand side. One of them is the semiconductor manufacturing equipment use, and another is the semiconductor process application. So those are high value that we can offer to have a high profitability. now moving on to the automotive 2020 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 three years but we have taken the various measures to improve so productivity has been increasing our ce of 10 percent 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 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, 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. now as for the architectural class 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 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 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 the low productivity line and the large-class 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 RCE 10% is the target for 2027. Now, in terms of challenges, we have essential chemicals, as the Asian situation. Capacity expansion in Thailand has been finished, and it started being operational in the fourth quarter last year, and for the operation of 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 as opposed to 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 improve the margin through better relationship with our customers so that we can achieve higher profitability. Lastly, our 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 a small molecule in 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

So in gene therapy and small molecule pharmaceuticals, these are stable and they're 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, a cost was big, and it was generating huge losses. The majority of this ¥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 ¥10 billion. So we announced last August to withdraw from this business, and also the fact that we were entering the vestiture 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 vestiture, 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 headcounts dramatically. And using the AT Group's capabilities, we stabilized the production. And as was mentioned before, in Copenhagen, Europe, capacity was increased. and there was an increased fixed cost related to the facility, so we want to increase the orders and improve the utilization of this line. This is very important for profitability improvement. So we stopped the 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 an announcement, but unfortunately, after we take the order, and then the actual production starts, and that's reflected into the profit, it takes time. So we get inquiry, and something goes in the pipeline, and the actual manufacturing starts maybe one and a half 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 next generation products. We also are focusing on new markets, introducing new technologies, creating new businesses. So these are two different directions. And in terms of R&D investment breakdown, since I was the CTO of this organization, we have 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 a headlamp display. And the 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 one million times, it's hard to believe, but it's one 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 companies. 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 tip 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 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 a multitude of holes, very long vias 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, new expansion would be dramatically shrunk, so we would focus on collecting the return for investment. And as for shareholder return policy, the OE 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 the 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 the Audit and Supervisor Committee, and this is expected to be approved at the AGM at the end of March.

So we started inviting outside directors, two of them in 2002.

This is how the corporate governance reform started. And then we established 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 company with audit and supervisory committee, majority of the board will be outside directors, which will strengthen the supervisory 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 of the realization of value creation and evaluating and appointing executive officers. This is the oversight function. The board would have these three 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'd 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 would come back to this room. So at the beginning, we would get the questions from this room. But we would like to ask you to ask one 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. Thank you very much for your presentation. So, one question. ROE, ROCE, current situation and other challenges and future will explain. So, I have a question on that point. Life science and essential chemicals those are some of the challenges that you're 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 pre-tax profit, operating profit is probably a little bit weak. So before 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, our CE 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, would be difficult. But by closing the Colorado sites, there was a major reduction of the fixed costs. 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 would become a very serious matter. Another is the essential chemicals. In terms of the timeline, it would probably take longer. 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 at 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 costs. How do we make sure that we can maintain such profitability? FI26 pre-tax profit you mentioned.

Yes.

I would ask the general manager of the finance. Yes. fiscal 25, other revenue, other expenses, there was 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 FY26, as of now, other expenses do we do not expect any major ones so a normal fixed asset depreciation and also the removal and so forth so um in some cases the effects loss will emerge but we do not expect any specific ones but this is the normal factors or the items thank you very much

Any other questions from the floor?

This is Nishiyama from Citigroup Securities.

Thank you for the opportunity.

I have a question about lifelines.

Well, the New Year top line says the 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. So considering the current status of business environment and also based on the current pipeline, what is the likelihood of you achieving this top-line target? And also, your assumption for the profit change, I think he's 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, a 27 OP is expected at 5 billion or so. But net sales grows at the market pace, and then depreciation cost increase is maybe incorporated. Is that the correct way of reading this? Thank you. Hirai-san, as you explained. This year's top line, as you have mentioned, industry is recovering in the United States. However, the interest rate cut is slow, so this is still uncertain. But we believe that a Seattle site can be recovered this year. So last year we increased the capacity, and we now have fixed costs 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 exiting pipeline, it's not just Seattle, but it's also Copenhagen that we need to see recovery and the sales increase at. 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 feel 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, marginal profit is quite big.

And once you cross a 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 already 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, 2025 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, SAFO, to respond. Yes, by fourth quarter, our expectations compared to that, 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. Opto-electronic products' volume increased in Q4. So higher sales, those two, and as for the profit, The major ones is the architectural, auto, and chemicals. First of all, about the architectural, Europe price policy effect 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 Oto 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, the sales and profit both were positive or higher than expected. Thank you.

Next question.

2026, four-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 company, sales increase and profit increase, and with specific factors, In terms of lead 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, Foreign-related product shipment is expected to increase and also supply capacity increase in Thailand now. This is operational, so therefore we can increase the shipment there. And as for life science, bio CDMO cells is expected to increase and also in Spain small pharmaceuticals and chemical CDMO capacity was increased and it will become on per operational contributing to increase cells 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,

Structure reform and productive improvement 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.

About the future investments, the policies is the next question. So I'll ask Hirai-san to respond. Thank you, but materials investment is difficult to understand, but after making one investment, maintaining and updating would also require investment. 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 2025, 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 for 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 amortization, and half of that will be for the maintenance and updating. Thank you.

Next question.

For 2026, OP of 150 billion yen. 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 uh it is um 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 150 billion yen, are there any upside potential or downside risks? If there are, could you talk about what they are? So I would ask Mr. Shimogawa to comment. Yes, sorry, Shiokawa to comment. Upside and downside were the questions. So, we have various businesses, and 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. Thank you.

Next question is about electronics.

OP focus for this year, well, 2.5 billion at down in profit. This is the plan. Can you please explain the drivers, factors behind this? And this is going to be answered by Ms. Takegawa.

Yes.

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 the 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.

Here is the question.

I would ask CEO Hirai-san to respond. Yes. Before talking about 25, I would like to look at 24. We expected 40 billion sales in 2025, but it was brought forward to 2024. 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, 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-Gorado site, the visitor. 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, want to conclude the deal. So please understand that the negotiation is still underway.

Next question.

Southeast Asia PBC 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 caustics order in PBC, 26 expectations.

Right now, the market, we believe, is at the bottom.

So at the beginning of Q1, 26, it was at the bottom. And in Q2 and onwards, 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 would 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 abolition 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 would be a positive impact on us. Thank you.

Thank you very much.

Now we want to come back to the venue and receive questions from the audience.

Maeda-san, please. Thank you. This is Maeda from Shiniko. Question about electronics over mid to long term.

Page 57, 58, show strategy for semiconductor and the multiple items. So, in 2026 and beyond, or thinking about 2028 or 2030, right now, it's a mass banks and optoelectronics being the key. But over the mid to long term, do you think the drivers will change, for example, glass core 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. UV mask banks and the CLP slurry demand are expected to grow over time, so 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 2037. 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 2037. 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-san.

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 strategic framework, 100 billion yen. M&A and share buyback. Could you talk about your views on that? And on page 60. It 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 Takigawa-san, a shareholder, 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 cash in, it is being declining and the strategy The total strategic framework is becoming smaller, so we need to wait and see what happens. As for the share buyback, we'd 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 ways, 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 City.

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 the 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 for 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 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 the 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 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.

Those of you who are joining online, if you have any questions, please use the Q&A box and enter your question succinctly into the box. The questions that we already received, I'd like to introduce. Rare metal procurement risk, the higher precious metal price, the impact from it, and those are not, they are factored into the forecast of the performance. So I would ask Kashioka-san to respond. Yes. 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 it will be impacted. But as of now, we do not expect this to be a major factor.

If you have a question, please forward your question through the Q&A button on the Zoom screen. 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.

So, 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?

Thank you. Nishiyama from Citi.

About 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 I mentioned that the deficit is likely to continue for the fiscal year. go here, 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. The top line with CapEx, the line investment is done in Seattle 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 Seattle. So that's about top-line. As you said correctly, for the whole year, turnaround will start from fiscal 27. But for that, second half of this year, I don't know whether it would be monthly or quarterly, but we need to turn it around based on that. So cost reduction and expansion of the orders would be something that we'll be working on. The handling of that is over, so the regular order expansion and the regular production phase will be starting, so we'd like to make sure that we do this well.

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. When you close the Zoom screen, you will be directed to a questionnaire screen. Please respond to the questionnaire so that we can improve our eye activities going forward. And that concludes four-year earnings call for 2025. Thank you very much for joining us despite your very busy schedule.