AGC Inc. (5201) Earnings Call Transcript & Summary

It's time to begin AGC IR Day 2022 day 1. My name's Ogawa from IR, and I would like to explain the schedule to you. Starting from 6, we will have our CFO, Miyaji-san, explain the strategy. And then we will go on to Automotive Company President, Takegawa-san, to explain about the automotive strategy. And from 5:10, we have Shigeki-san, President of AP Architectural Glass, explain the strategy. And then from 6:00 p.m., we have Davide Cappellino, President of Architectural Glass Europe & Americas Company. And we have a Q&A session after each presentation. [Operator Instructions] We have our CFO, Miyaji, explain to you our company strategy. Please begin.

Thank you. I've been given only 10 minutes. So I would like to only focus on the highlights. Please turn to the next page. So this is a simple agenda of business, structure of business. Architectural and automotive glasses was about half of our business in the past. But now the business structure has changed greatly, and we have a larger portion of the Chemicals recently. More recently, electronic materials and also the Chemicals: Chlor-alkali, urethane. And for Chemicals and specialty and life sciences have great investment opportunities and growth opportunities, and our investments are going into these areas. And we believe that this transition is going to be even more pronounced in the future. And this is how the profit structure has changed over time from 2006. Orange is display glass. This was the main business before. And that accounted for majority of the profit in the past. But from 2015, we tried to transform the portfolio and allocate the investment into Chemicals and others with higher profitability, and the profit structure has also changed. In 2020, we saw a dip because of COVID-19 pandemic. But basically, in terms of growth and profitability, we are still underway. And we had the highest level of our profit in 2010 and to this year, JPY 210 billion, higher than this year is expected. And after the first quarter, we have seen a very good performance. So this kind of achievement is something that we have seen so far. Major factor behind the structure change is growth in the chemical products, chlor-alkali profit growing quite fast. Whether this is going to sustain or not is one of the interest of investors, we understand. And with regard to that, I would like to say that the structure has changed. And now we believe that the sustainability is much higher than before. And this is something that we'll explain on the next IR day, not today. We will be talking about the Chemicals then. And I hope that you have a chance to confirm that then. And also within the Electronics, smartphone, semiconductor, EUVL mask blanks. And also in life science, as a strategic business, it is still enjoying a very high growth and also has a big potential growth in the future. We believe that there is a big growth potential for the future. And these changes happened in the last few years. So maybe we have not been able to communicate everything to the investors. This is why we are holding the IR Day events, so that the persons in charge of business will have the opportunity to talk to you directly about this. And yes, that is the reason why we have prepared this event. And we believe that you'll be asking us very direct questions and also giving us candid opinions. Next slide. In terms of our 2030 Vision, we want to achieve both social and economic values. I will not go into details. But in terms of economic value, ROE, 10% or higher. We achieved that last year. But in the past, we could not really sustain this on a stable manner. So we want to provide stable ROE of 10% or higher, and this is something that we need to achieve imminently. And this is one of the more important things that we can to achieve. On the next slide, portfolio is being transformed and, therefore, perspectives that we apply to decide on the direction of this transformation. First of all, commodity has to be taken care of. So we need to be resilient to market fluctuations. We have life science and Electronics, and they are less likely to be affected by the market fluctuations. By growing those businesses, we will have a structure that is more resilient to market fluctuations. In core businesses as well, if you increase the market share, of course, structurally, we can achieve more stability. So we will be implementing those measures as well. Market fluctuations and the volatilities should have been minimized. And our asset efficiency, our ERC still a little bit on the lower side. So we want to invest more into businesses with higher asset efficiency, specifically the strategic businesses. We want to increase the percentage of those businesses. High growth rate. Well, the existing Glass business will not have high growth rates, so Electronics Materials and also Chemicals. These businesses have very high expectation in terms of future growth potential. So we want to grow them. And the fourth perspective is carbon efficiency. In some businesses, this is still low, Glass and the chemical commodities, for example. So energy saving technical innovation should be applied to those businesses. And also by increasing the percentage of high carbon efficiency businesses, we want to increase the overall carbon efficiency. So these are the four perspectives that we believe are important. And this is the Ambidextrous Management. So cash generated from core business is directed to strategic businesses so that we can drive the transformation that I spoke about earlier. And on the next slide, you can see the overall image. Core business profitability is not that bad, but dark blue, the strategic business, should generate half of the profit by 2030. This is something that we try to do. This is an important graph. The horizontal axis is carbon efficiency and the vertical axis, ROCE. And we would like to move right upward as a company. And as for strategic businesses, they satisfy both criteria. So we'd like to increase the proportion of these strategic businesses. And through technological innovation, we'd like to enhance the carbon efficiency of the core businesses as well. And this is just for your reference. The other day, we have come up with a target for Scope 3 emission reduction targets. So it's just for your information this is shown. This is the growth by creating both social value and economic value. In 2025 and 2030, there are some uncertainty, but it is not the case that we will not be able to achieve these. And next one, this is about 2023. So last year, we started the medium-term management plan for 2023, and we have cleared -- overachieved about significantly. So we have made upward revision to the 2023 targets. And these are key issues by segment. But the company President will explain in more detail in their own presentations about the progress against those issues. Next, this is my last slide. So in the company, we'd like to enhance ROCE. And the automotive glass and display are less than 50% or 10%, and they are struggling. And -- but the ROCE, 11% or higher or -- in terms of ROE, we can clear 10% easily for this year and next year, and we are confident of achieving that. So I think my time is up. So I'd like to end my presentation. Thank you for your attention.

Next, we have Yoshio Takegawa, President of Automotive Company to explain his business strategy. Takegawa-san, the floor is yours.

This is Takegawa, Automotive Company. And I would like to explain the overview of automotive business and our initiatives. Thank you very much for this opportunity today. This slide shows today's agenda. I will begin by explaining the general overview of our business and vision, mission and key products. I would also like to explain what kind of societal values we can provide. And then I will go into the core business, the automotive glass, profit improvement measures for mid- to long term. And then I will talk about the business strategy, strategic mobility business, mid- to long-term initiative for the case society. And finally, I will go into AGC Group's technological strength and some of the advanced functionality products. I will not cover everything, but only a part of that. I will begin with the overview of automotive business. Within AGC Group, Automotive Glass is part of the Glass business, and Mobility business included. The total net sales at December 2021 was approximately JPY 350 billion, which accounts for approximately 20% of the net sales of the group as a whole. But compared to the pre-COVID level, the net sales is much smaller. On the next slide, you can see the vision, mission and also the 2030 Vision for the automotive business. We want to provide a whole variety of our societal values. We can do that to the case of society by leveraging our strength and by continuously providing new products, technologies and services. By developing and providing new businesses, we should be able to achieve the Vision 2030. The next couple of slides will talk about AGC technological progress, and based on that, what kind of advanced technologies and functionalities we have. First of all, for core business, exterior glass. These are the highly value-added products that are listed here. I will not go into details about each case, each example. But because of the case arriving in the automotive industry, we expect them to grow even bigger. We will focus on expanding the sales of these technologies and transform our business portfolio so that we can improve the profitability over the midterm range. And some of these products will be explained in greater details later on. On this slide, you can see mobility cover glass for car mount display. This is one of our key businesses. So mass production for this started in 2013. And since then, it has been used for more than -- well, basically 25 million sheets. And we provide high-end cover glass. We focus on the high end of this segment. And we have the reinforced glass. We provide a flat type and also large-scale and difficult complicated shapes. So we have the highest level of production technology. The high-end glass -- cover glass, we already have the highest market share, and the high-end products will be even larger and of higher functionality in the future. Demand will continue to grow. From '21 to '25, the growth is expected to be twofold or higher. And in order to deal with this, in FY 2022, from the beginning, we started mass production of the latest technology plant in China. Next slide shows the global geographical map of our sites. And the pie chart shows the breakdown of the region. Asia, Europe, the U.S., this is basically 5:3:2 ratio. And these are not just manufacturing sites, but also there are three development sites in three different regions. And in glass antenna is manufactured in three different regions as well. We have global network, and we have this network contributing to a strong trust relationship with our OEMs and partners. And this is going to be the source of development of new mobility businesses in the future. Next is sustainable products and technologies in the automotive segment. For AGC Group, there are five societal values that we are focusing on. We are trying to address the societal issues. And in the Automotive business, we are specifically focused on realization of a sustainable global environment and the realization of safe and comfortable urban infrastructure. And we have product, services and technologies to address these. We'll continue to focus on high functionality products. They not only provide societal values, but also provide economic values and expand profitability. On the next slide, you can see the overview of the business. This is the last slide of this section. This shows the automotive production on a macro level and the AGC's sales forecast. To the left, you can see the global production volume of cars. Because of semiconductor shortage and supply chain, which we are still struggling, and we believe that we will see steady recovery, but we will have to wait until 2024 or later before the level goes back to the pre-COVID level. To the right, you can see the Automotive business sales trend. Blue part is automotive glass, and this basically is linked to the car manufacturing volume. So we expect some recovery, but we have to wait until '24 or later to see this recover to the pre-COVID level. But Orange is mobility. This is a strategic focus. We have mostly cover glass and automotive mounted glass. This has not been impacted so much from the supply chain issues, and is growing quite steadily. And manufacturing -- mass manufacturing will start from China plant, contributing to the growth of net sales. Next, I would like to talk about our core business, Automotive Glass business and how to improve the profitability. In the Automotive Glass, these two points that are highlighted here are the major challenges within the current midterm plan. First is expand high value-added products. As I have explained earlier, our functionality product sales has to be expanded and efforts may be made. To that end, for 2030, we want to increase this type of product twofold from the current level. And the second point is productivity and profitability improvement. We are trying to realize the profitability improvement and cost reductions in all of the different areas. And also, we are trying to reorganize our production capacity. This is steadily ongoing. But because of shortage of semiconductors, there's been some supply chain confusions or chaos. And also there was increase in the raw materials and fuel, so productivity deteriorated. In the third quarter '21, we had to post impairment in Europe. And still, the business environment continues to be tough. So in the first quarter of this fiscal year, when we did earnings announcement, we said that we have to revisit the pricing policy and also reorganize the production system in Europe, including the production capacity decrease. So these additional measures are now unavoidable. Based on this situation, two full-fledged improvement of profitability. We have now stipulate revision of price policy, structural reform and higher functionality. For the short-term profitability improvement, we will revisit the pricing policy. This is sort of needed, so that we can regain the appropriate price level. And for the short to midterm, we will continue to reorganize and optimize the manufacturing sites and closure of Belgium plant, and other structural reforms in Europe would help cost reduction and productivity improvement. But plant closure and headcount discount is not something that can be done overnight. Closure of our Belgium plant will take until the end of 2023, which means that the impact will come a little bit later. And the third pillar, mid to long term, as I mentioned before, we will be focusing on expansion of sales of higher functionality products in order to improve the profitability. However, this improvement, again, is not something that can be done overnight. We have to take advantage of a global network. And step by step, we have to increase the ratio of higher functionality products. And as a result of everything by 2025, for Automotive business, we want to achieve ROCE of 10% or higher. Now I would like to talk about what the three pillars of profitability improvement plan individually. First of all, the revised -- revision of the pricing policy. I may be repeating myself, but COVID-19 and shortage of semiconductors, automotive production has been reduced and also raw materials cost has been increasing. So we have been in difficult situation in terms of profitability. So structural reform and productivity and cost improvements have been done, but we need to do additional measures. But in terms of immediate effect, they may not be sufficient, and especially the profitability deterioration has been affected by the soaring raw material and fuel costs. So we have to take immediate measures, to have a fast highly effective price policy revision is important for future profitability improvement. And we have been focusing on the pricing policy, but now we are going to refocus on increasing prices to an appropriate level, especially we are starting with Europe for the negotiation for price increase where there is a more impact. But in other regions, we have already started negotiations as well. Next one, the structural reform initiatives. As you know, in North America in 2019, we posted impairment loss and we formulated improvement plan back then, and we have been steadily implementing the plan. In this difficult situation, we are seeing some results. And for Europe, the demand has declined in 2020 -- since 2020, rather. And productivity improvement, the cost reductions have been pursued. And Czech Republic plant has seen a reduction in the headcount. And in the first half of 2021, we have seen improvement in profitability once. But then the automotive production has declined since then. And because of fuel and raw material cost increase, we have seen significant deterioration and profitability. So JPY 18.7 billion impairment loss was posted in the end of 2021. And so we have to take additional profitability improvement plan. And as we announced, the plant in Belgium and assembly plant in Germany have been decided to be closed. But we are trying to establish a global network. We are going to introduce high-efficiency equipment. And at the same time, we would streamline the production and reduce the lines with low utilization rates. And especially for Europe, we would add more closures of the production sites to accelerate the consolidation of production sites, and we are going to reduce the production capacity by 30% approximately. And the third one is the improvement of -- or the expansion of high value-added products, rather. And in 2030, it is going to be doubled in terms of share of the mix so that profitability can be improved. But on the other hand, the volume increase of strategy would be revisited, and we should not go into the intensive or excessive price competition. And we are departing from low profitability, low value-added products. And as I said, higher functionality products will be pursued and global OEMs that will appreciate those products probably will have more relationship in terms of trust, and that will support our portfolio change to include more higher functionality products. Next is asset efficiency of the Automotive business. For the AGC-wide portfolio operation, as you know, the business is in a very difficult situation. The mobility, which we are counting on, is still being started up as a business. So we're still in the stage of upfront investments. So it is not contributing to asset efficiency improvement. So as I said, therefore, for the short to medium term, we need to take immediate action. And for all improvement plans, we have already started implementation and all of them are quite challenging. But the probability of realization is not that low in our gut feeling. And so through these measures, in 2025, we are going to target ROCE of 10% or more. Next is the mid- to long-term measures to realize case era. And on this page, you can see the expansion and progress in this CASE age. As I explained on the next page, in the automotive business in the mobility, display, antenna, sensors are the three pillars and we're going to do the commercialization of these businesses. The center of the display is car-mounted display cover glasses. They have been commercialized and -- already, and the scale is increasing rapidly. As for antenna production, in the case -- of the case C, collected and O (sic) [ A ], autonomous, for these, they are essential functions and we are expecting lower expansion in our business as well. And as for electrification of vehicles and the environmental protection, they are accelerating much more than expected, as you know, and there are many opportunities for our business. With the electrification of vehicles, we have to capture the opportunity steadily, and we are taking actions for that. And sustainability compatible products will be increasing sales, and we are going to also reduce the S, E in order to be more environmentally friendly. Next one, please. On this page, you can see the mobility society and self-driving and agency initiatives toward them. And with the case expansion, glasses, especially windshield glasses, function could be higher. Why is glass in the first place, especially in the front part? At the upper side, there are glasses in the vehicle. And the nature of the glass, the transparency and with our ability and durability and transparency, in terms of these, they are quite perfect. And also in the laminated glass, inside the glasses, you can have the opportunity to put in various functions. So new businesses can be created for automotive mobility strategy. And as you can see in the bottom, there are three pillars for AGC. The in-vehicle display cover glasses have been commercialized already, and that is a display business. But antenna and sensors are the other two focal points. And as for antennas and sensors for connected and automated driving, they are essential. And front glass and rear glasses are the most appropriate place where these can be inserted. So glass and in-glass antenna design capacity, mass production capability and robust IT system will support us to expand the business. And in terms of profitability of display, a new plant in China has been just launched this year. And as for antenna sensors, the market expansion still have to wait a bit more. So the contribution to profitability in terms of mobility is not until 2025 or later. And now the EV -- converting to EV. As we see the conversion of EV, the sound installation, low emissivity and smart glasses are expected to be increased as higher function products. And there are inquiries from customers, especially the sunroof using heat insulation and smart glasses are actually inquired more from the customers, so we can expect further expansion. The last one, the Automotive business strength. AGC's group technological strengths, which is a source for automotive business expansion. I would like to also cite some examples of the products as well. And the strengths of AGC is material technology, functional design and production technologies. And by combining all these, we can come up with differentiating parts. And the comprehensive technological capabilities of AGC is not just glass material technologies, but organic materials technologies together with inorganic material technologies. And material technologies as a whole, is the basic point. And in automotive business, coating and functional membranes and multifunction products, design technologies are used, and also quality evaluation and assurance technologies from covering from design to production can be also used to have functional design. And also, stable production of high-quality products can be provided through production technologies. And also mass production and unique production technologies have been polished. And by combining those core -- three core technologies, we have been offering high function technologies that have been required by the market. So let me just explain three examples today. Next, please. The first is in-vehicle display cover glass. For The in-vehicle display cover glass is a result of the combination of all technological capabilities where you see the hot bend technologies in the automotive business. You heat up and bend and mold the glass. That's the technology first. And then the glass chemically tempering technologies in the electronic materials and also organic chemical technologies have been nurtured in Chemicals business, the coating technology. And also, the multilayer coating technologies or production technologies. That's the last one. So for the display cover glass with large scale and complex figure can only be produced by AGC. And in a more increasingly complex market, we can take advantage of the strengths of AGC further. And next is the infrared cut glass. Between two sheets of glass, the infrared cut agent is inserted and special membrane is attached to the surface. And you can cut infrared and ultraviolet rays, but radio wave transmissions is still maintained. And you can reduce the temperature within the vehicle by 10 to 15 degrees. So you can increase efficiency of cooling. And so the range of the EV can be extended as well. So by combining the three core technologies, we have been able to come up with this product as well. The next one, this is the last slide for me. More recently, we've been asked -- receiving more questions, the light control and smart glass. With the sunroof, this has been used and the WONDERLITE is the name of the product, and you can control the light flexibly. Between the two sheets of glass, a special film is inserted. So this is a paired and laminated glass, and you can switch over between the clear and opaque mode. And you can always enjoy a sense of openness and realize comfortable in-vehicle space. And you can actually cut 99% of the IR and UV in both modes, and you can also contribute to CO2 emission reduction as well. That's all for me. We are in a very difficult position as automotive business. But through the improvement plans, the three improvement plans that I have explained, we are confident that we will be able to recover and the mobility business can be expanded together with that so that we can transform our business to the business that can grow in the future. Thank you for your attention.

Now we would like to open the floor for questions.

[Operator Instructions] We would like to start with the questions that we received in advance. First question, profitability improvement. What is the expected time line? Automotive business, you have three measures to improve profitability to achieve 10% or higher ROCE by 2025. So for each of these three measures, when do you expect to see the impact? And what will be the trajectory of improvement towards 2025? Specifically, when do we see the deficit of automotive business resolve? And also what kind of profitability level do you expect for 2023 and 2024?

Thank you for your question. Three measures to improve profitability for Automotive business. When do we begin to see the impact? Starting with the pricing policy. With regard to our price policy, we are driving this aggressively. And from the second half of this year, we will begin to see some impact. We will try to lift the price from the -- at least second half of this year, maybe not for the full year. And with regard to the structural reform, which is the second measure, as I have explained before, closure of the Belgium plant will take until the end of 2023, which means that full-fledged impact will be only seen from 2024. But from the middle of next year, we will begin to see some impact in a staged manner. And finally, the advanced functionality. Higher functionality outside of mobility, for example, around the windows of the vehicles, we believe that we are getting already some orders. So we begin to see the impact in 2023. And in addition, there's a fourth pillar, which is mobility, which is not really included, but as I explained, from 2025, we expect to see the impact and it making contribution to the lifting of profitability from them. And deficit of Automotive business, when do we see it resolved? And in '23 and '24, what kind of profitability level do we achieve? Those are also the part of the question. In 2023, we believe that we can be in positive territory into the profit. ROCE of 10% should be achieved in 2025, and we believe that is possible. So '23 and '24, as we have announced, we are looking at 8% and we are looking at stage improvement. That's all for me. Thank you.

Let us move to the next question. You said that you're going to increase the ratio of higher value-added products. But between the general products and higher value-added products, how different the profitability is? And for higher value-added products, can they become the -- definitely the differentiating products from the competitors? Can they set you apart? Well, so to what extent are we going to have higher function or higher value-added products?

I'd like to decline to comment on that. But at least compared to the current status -- current profitability, rather, there is going to be a significant improvement in terms of profitability. So is it going to be the absolute differentiating part? For that question, the strengths of AGC is that we have high-quality glass and services, and we have the global network to enable that. But the biggest strengths for us is that we have Chemicals and Electronics businesses as well. So we have a comprehensive technological capabilities, including those. And as a result, we are going to have mobility business expanding. So the existing -- as for the existing Glass business, there will be higher value-added products, and we will have more capability to achieve that. That's all.

Next question. You're talking about increasing the price and profit level, but minimum of what percentage of cost increase from the materials and logistics increase will be passed on? And what is the current status of price negotiation?

This is a very difficult question for me to answer. But basically, of the raw material and fuel cost and the supply chain cost, increase should be covered. And that is one benchmark rule of thumb. However, what would be the overall ratio? And how much increase do we see in the prices? And who are the specific customers? I'm not really able to share these specifics with you at this point in time. That's all for me. Thank you.

Next question. The -- with the potential growth of car-mounted display glass, so can you show us the current status of incorporation in 2030 and also the sales of the current year and 2030 for car-mounted display glass? So that -- how much the -- how many of the cars have incorporated this car-mounted display glass? That is the first question, and it is about the current status in 2030 and sales for current status and 2030.

Well, as for the in-vehicle cover glass, display cover glass, about 30% of the total or certainly more than 30% has incorporated this glass. But ultimately, towards 2030, we're expecting to have 50% of the vehicles incorporating this cover glass. That's our expectation. And of that, there will be alumina silicate glass that will have even higher function. And of those 30%, about 15% to 20% has this higher function, but ultimately, more than half of the total cover glass will have these higher function in 2030. So in 2030, half of the vehicles have cover glasses. And of that half will use the alumina silicate, which provides us with a higher function. And for alumina silicate glass, AGC has the largest share in the world already. Thank you. That's all.

Thank you. Next question. Question about capacity reduction to 2030. Is there a more concrete schedule? And the reduction will mostly happen before or after 2025?

With regard to capacity reduction, we have announced 30% reduction in Europe. And in Europe, by 2025, 30% minimum reduction is being planned. But in order to advance the higher functionality and the -- transforming the business portfolio, we are looking at the appropriate level of production capacity. And in North America, capacity has already been reduced 2019 impairment. Since then, the structural reform has been steadily progressing. So the capacity has already been reduced there. For Japan and Asia, at this point in time, we don't have a plan to reduce capacity in a big way. But replacement or switch to higher efficiency facilities will mean that a number of facilities may reduce over time.

Let's move to the next question. On Slide 16, there's a question on the pie chart. Can you show the Slide 16? So are the pie charts showing percentage of high value-added products as a proportion of the total products or as a proportion of automotive glass segment revenues. So which one is true? That's the question. And also, how much higher is the average selling price of high value-added products compared to general auto glass products? So those are the two questions.

So what you see here is the value based. So at present, high value-added products represent 15%. This will be increased to 30% in 2030 in terms of the sales value. Mobility is not included in here. So if you add mobility in 2021, the 15% plus 5%, so 20%. And 2030, 30% for higher value-added products with 20% for mobility. So about half of the sales will be represented by higher value-added products, including mobility. And how much higher the ASP is compared to general glass products? We -- I cannot answer the question, I'm afraid. But as I said to the first question, it is sufficiently higher level. That's the only thing I can say. Thank you.

Thank you. Next question. Wonderlite and Coolverre. Wonderlite and Coolverre, films used for those products. Are they manufactured by AGC? Is a technology in the film in your manufacturing capability? And can this deploy for architectural glass, if you haven't already?

Well, this is not made by AGC. We are purchasing this from another company. And when this product was developed, actually, AGC was part of that joint development. And also about the use in the architectural glass, is that possible? Well, it is possible. Yes.

Let us move to the next question. How has the capacity utilization rate for AGC's auto glass business trended over the last few weeks? And what -- so can you just answer the capacity utilization rate trend?

Well, for Automotive Glass business capacity utilization, it varies from region to region and country to country significantly. In Europe, still has not gone up yet. It remained low. But on the other hand, in North America, it has been recovering quite a lot. And in South America, it has -- it is not that low at all. And for Japan, mainly speaking, the lockdown from -- in China has affected us because we have been suffering from shortage of the delivery of the parts. And so the capacity utilization rate has been declining currently in Japan.

So in relation to the capacity tradition rate, what about the capacity increase or restocking by automotive OEMs? What is your sense of OEM's intention to restock?

Well, it's very unclear and uncertain, in my view. The OEMs has -- it's not that OEM has not seen the orders coming in. So they would like to increase the production if they can. However, because of the disruptions in the supply chain, they have not been able to. And to an extent, it can recover. Of course, they will see more increase in production in the second half. But to what extent, we don't know yet.

Next question. Change in the pricing for automotive glass, is that whole industry's direction? Or are you the only company that's doing this? In other words, if the other companies do the same or not the same, what kind of sales strategy would you employ?

This is a very difficult question, and I don't think we're in a position to be able to provide an answer. So I will refrain from giving an answer. Because of the antitrust law, I cannot really provide you with any comments. I hope you understand.

Thank you very much. Let us move to the next question. For the production capacity reduction in automotive glass, when you say capacity reduction, are you talking about mainly the closures of assembly sites? Is that the case? And as for architectural glass in Europe, the supply demand is tight. So you're not going to reduce the melting furnaces in Europe, is that correct?

Well, when you say assembly, I think you are talking about processing for automotive glass as a whole. But what we have in mind is the plant in Belgium. So those plants are mainly engaged in processing plus the assembly. So those are the ones that we're aiming for. So for the float glass production capacity reduction, we don't have that in mind for the moment. That is how we are now.

Any other questions? [Operator Instructions] We don't see any further questions, so we would like to conclude the presentation for the automotive business. Next is architectural glass. We will start the presentation at 10 past 5 Japan time. We will break until then. Thank you. [Break]

Ladies and gentlemen, thank you very much for joining us for AGC IR Day. We will be restarting the session shortly from 10 minutes past 5. We're going to have the session on Architectural Glass Asian company. Please bear with us a few more moment. Thank you. Ladies and gentlemen, thank you very much for waiting. We'd like to resume the AGC IR Day session. The next is the strategy -- business strategy of AGC Architectural Glass Asia company. And the President, Yoshiba, will explain. Mr. Yoshiba, over to you.

I am Yoshiba from Architectural Glass Asia company. I'd like to follow the slides as I go along. Please turn to the next page. So these are the contents. First, I will briefly explain about our business overview and division policy. And then lastly, I will discuss the current medium-term business strategy. So this is the sequence of the presentation. Next page, please. First, the business overview. Next one. So within AGC Group, the architectural glass position is shown here in this pie chart. As you can see, out of JPY 1.7 trillion of the overall one, the JPY 700 billion or more is for glass. And of that, slightly more than JPY 380 billion is architectural glass. As I explain more in detail later, of JPY 381 billion, for Asia and Japan, JPY 120 billion is attributed to Asia and Japan. Next, in Japan and Asia. So those are the production sites for architectural glass. And Japan is on the left, the float glass and figured glass. There are two sites with the furnaces in Kashima in Ibaraki, that is the first one. And the other is in Tsurumi, Yokohama. Figured glass furnace is located in blue. And in red, the architectural processing glass sites are shown, mainly the double glazing glass is the main ones. And there are 17 sites in -- across Japan, so we can cover the whole demand from the country. And as for Asia, Indonesia and Thailand, we have production sites. And in Indonesia, the main market is Jawa Island, and there are two sites in that island. One is 70 kilometers from Jakarta, east of Jakarta, in a city called Cikampek there is one plant. And then there is another one. On the right, in the east side, the second largest city Indonesia in the suburb of Surabaya there's one as well. And as for Thailand, in the suburb of Bangkok, the float glass furnace and architectural processing glass site. In the same site, the float glass and architectural processing glass plant are in the same site. And for -- in Singapore, there's a regional head office for Asia, and it is controlling the whole Asian business. Next page, please. And last year, the Architectural Glass Asia Company has become more independent from the global organization. And back then, we came up with a mission that's called Glass for Quality Life, as you see here. And the glass that we deal with is a material that is of high characteristic and function. As the technological development progresses, they are also evolving to show various functions. And through the product of glass with excellent characteristics, we would like to enrich people's lives, the world and society for sustainable future. Now these are the sales trend. As you can see on the bar chart on the left, in 2020, because of the pandemic, the demand dropped once. However, in this year, we are seeing signs of recovery. And from next year onward, we're expecting the trend to -- going to a positive growth. And for Japan and Asia, we have about JPY 120 billion in total turnover. And if you split between Asia and Japan, Japan represents about 70% and Asia, the remaining 30%. Next page, please. This is a division policy. I'll be brief on this part. As I explained, there is mission for us, Glass for Quality Life. And through this mission, social values and economic values are both pursued to be created. As for social values, as was explained in the whole company business presentation, as you can see on the left bottom of the slide, there are five elements. So from these perspectives, we are hoping to create social values to contribute to society. On the other hand, as for economic values, the stable ROCE generation of 10% or more, and we like to run sustainable business in order to achieve that. So these are the division policies that we are seeking to achieve. Next one, please. So from now, I'll talk about the medium-term business strategies. Next page, please. First, on the top part of this slide, as you can see, the architectural glass is positioned as core business. And for the whole architectural glass, the main issue is, as was referenced in the whole company presentation, we need to create cash in -- as a core business. And in addition, the new business and high value-added products should be expanded to achieve growth. And in addition, climate change and other ESG issues are being addressed. So these are the main issues for the whole architectural business -- architectural glass business. And if you break this down into Japan, Asia, you can see the main issues on the bottom. As for Japan, in the Japanese market, because of population decline, the market is not expected to grow or -- instead, it is expected to contract gradually. But based on this assumption, a stable revenue structure should be established in order to generate stable profit. That is one issue or challenge. And in order to achieve that, energy saving contributing higher value-added products should be pursued. And also what is called BIPV. In the window glass, the solar cells are inserted and also 5G-related in-glass antenna. Those are the new businesses for us, and these are the products that have higher value added. And these are the ones that we have to pursue. And in Japan, in the manufacturing, CO2 reduction technologies will be developed. And those technologies that are developed will be not just used in Japan, but in the rest of Asia, so that we can realize CO2 emission reduction for the whole region. On the other hand, with regard to Asia, the market is basically expected to grow steadily, and we have to capture that growth steadily. But especially the higher value-added products will be the focus for us, and we need to establish a stable revenue structure in that context. That is the mission for Asia. Then there are issues common in Asia, including Japan. And the supply chain that support the growth of the business is very important. And we have to reinforce the supply chain so that we can take leadership in the market. And also, we have to have a stable supply to provide products in the supply chain and reinforce the presence in the market. And ROCE is -- has been mentioned, but we have to enhance asset efficiency further. And you need to improve productivity and reduce costs continuously in order to achieve that. That is the mission or the issues. Next page. As we figure out the strategies, what are the strengths of our business? There are mainly two. The first, as we produce products and do business in certain countries, and we have long history in those countries, and we have established a robust supply chain in those countries. And in each of the markets, we take advantage of those robust supply chain to take the lead in the market. That is one of the strengths for us. And second is the top level of products and processes can be developed. And we do have the technologies to achieve that. And using those technologies, the high function and higher value-added glass products that can represented by energy saving products should be offered. The first strength about supply chain, I would like to elaborate on this point a little bit more. The pie charts on the slide show the float glass share indicated in blue in the markets that we operate. So this is according to estimation. And as you can see, our market share is higher than 40% in all of these different markets. We have a very solid supply chain. And also, we have market-leading position in each of these markets that is being sustained. In Southeast Asia, value-added products are exported to different countries and areas. And the red dots indicate sales sites, and they distributed in various parts of Asian countries. Singapore is serving the headquarter function, and we have a sales network through which we can have an advantage in delivering the value-added products throughout Asia. Next slide. This is the detailed explanation about supply chain in each of these different countries where we manufacture and sell. At the top -- or in the middle, you can see a simple diagram of glass supply chain. So the furnace will produce the glass substrates. They can be produced and sold, and then they can be processed and then sold. And also, they can be, for example, installed into a building. So this is a typical supply chain for architectural glass. Japan, Thailand, Indonesia, in each of these different countries where we operate. As you can see in dark blue arrow, this is where we have supply chain functionalities. And the blue light arrows indicate where our customers are functioning as part of the supply chain. In other words, in each of these different countries, we can leverage our strength and also our customers can play on the strength. And we play different roles. And as a whole for the market, we have a very strong supply chain, which enables us to have a leadership position. Next slide, please. This slide explains about the structure -- market structure of Japan. For a very long time, oversupply situation continued, which was a major problem, but the situation is actually dramatically improving according to our understanding. At the bottom of the slide, for the architectural glass, number of float furnaces are shown. And as you can tell from these numbers, it is declining over time. In 2021 and in 2022, another one actually disappeared. So as a whole for the market, we are seeing a better balance in terms of supply and demand now, which means that healthy profit can now be obtained in the Japanese market. The environment is ready for that. Next slide. Turning our eyes to Asia. As I have explained, this is basically a growth market. And as you can see to the left, in the bar graph, high value-added coating glass. It's safe energy contributes to society in that sense as well. And decarbonization is a major trend. And based on that, demand for such product is growing in Asia/Oceana region. So we believe that the structure will enable us to generate a stable revenue. Next slide. This is another strength in terms of development capabilities of products and processes. And we talk about development capabilities, and this slide is specific about process development capabilities. At the top of the slide, we have the substrate float glass technology, manufacturing technology that is a foundation of our technology. And starting with that, we also have a processing technology. And lower down, we have AGC other businesses technologies, other than glass, that can be combined in terms of taking advantage of the various technologies. This is our strength. And also, we can take this one step further. And close to the bottom of the slide, you see functional design. For example, coating development technologies and also the solar panel development technology. For Automotive business, we have been accumulating the technology for in-glass antenna, and we can apply that to architecture as well. And we have started new businesses and new products, as you can see at the very bottom of the slide. In new products and new businesses, we will be contributing to achieving these five social values. And I will talk about specific product and business explaining how they contribute to societal values. I will start with Low-E double glazing glass. This product contributes to saving energy. About half of the heat entering/leaving the housing pass through windows. So improving the energy saving capability of the windows can contribute greatly to decarbonization and energy saving, and Low-E double glazing glass plays a big part in this aspect. So basically, 2 or sometimes 3 layers of glass are combined. And coating is applied, so only selective rays can be transmitted through these layers of glass. We are trying to improve the performance even further by developing another product called Thermocline. Double glazing traditionally use, I mean, Spacer and Desiccant. And various materials have to be used to make such double glazing glass. But our idea was to develop our own sealing material, which is used as a Spacer and also the Desiccant functionality is also integrated into this, which makes it a lot easier to recycle and also prolong the life of the product. So in the double glazing area, we will continue to expand the sales of Thermocline, which is our own unique product. I have alluded to this slightly earlier, BIPV, building integrated photovoltaics. Simply speaking, solar cells integrated into glass or windows. And it is highly flexible in terms of design. It can be part of the architecture. In the urban area, where there's not a lot of the space, you can use the windows to generate energy from buildings, and this is not just energy saving, but energy generating or energy creating. This is 5G glass antenna. 5G is expected to grow in the future. But 5G is difficult to transmit. And as you can see at the bottom left of the slide, we need a lot of small cells in order to transmit 5G waves. But there are limitations in terms of space, and they don't want to put too many antennas in 1 building. This is where the antenna integrated in the glass can be very useful. So the antenna can be attached to the glass. It doesn't appear with scenery. And also, you can take advantage of many windows in high-rise buildings in the urban area. So this is a new business and a new product. Last but not least, energy-saving glass manufacturing technology. The left diagram shows that heavy oil and natural gas used to be burned with a burner generating CO2 to manufacture glass. And in Japan, we are trying to replace that with ammonia combustion. This is the proof-of-concept, and this is a project that was commissioned by NEDO. Some people talk about hydrogen, too. But Europe is actually making advances in terms of hydrogen infrastructure. So hydrogen combustion is also within the plan for the European business. We have global business, which means that we can develop technology that is suited for each of the different geographies. We still don't know whether ammonia or hydrogen would be the mainstream in the future, and will be ready either way, and that also puts us in an advantage. And as you can see to the left, we also use electric booster. By using electricity, we can support the melting capabilities and therefore, contributing to the CO2 reduction. And this is my last slide. We have a mission, a goal, realization of low-carbon society and the social infrastructure preparation. To that end, we have many initiatives that I have explained today. And as you can see at the bottom of the slide, we are taking advantage of our strength in our businesses and different regions. So this is a summary slide. And that's all for me. Thank you very much.

[Interpreted] Now we'd like to move to Q&A time. [Operator Instructions] But we can also accept questions verbally. If you wish to ask questions verbally, please click reaction at the bottom of the screen and then push the button, raise hand, and then I'll call upon you. [Operator Instructions] If you wish to ask questions in English, we are accepting the questions only through Q&A button.

[Interpreted] So let us answer the questions that have been sent in advance. The first question. In Japan and Asia, this fuel surcharge system that can be introduced if you can touch upon the possibility. That would be appreciated.

[Interpreted] Yes. More recently, because of fuel cost increase, price revision has been done. And I think you were asking about the approach for that. So fuel cost increase is what we are trying to address by figuring out how to do it. And in Europe, fuel surcharge system has been already introduced. And I think you are in discussion based on that fact. And if you look at the structure of the supply chain in the market in order to pass the prices on to the customer, and also business practice or commercial practice, the system that was applied in Europe cannot be transplanted to Asia or Japan so easily as they are. But fuel cost increase is something that we need to address. And as we do so, the fuel surcharge system introduction, we're not ruling out the possibility. That is my answer.

[Interpreted] Next question high value-added demand, you want to expand it, and you showed us how the demand for coating glass will be transitioning. But can you really say Low-E is high value-added? Because with a quota, anybody, any player, could manufacture Low-E, is my understanding.

[Interpreted] Please turn to Page 16. I think it's probably coming from there. As you have pointed out, coating glass and specifically Low-E, quota or the manufacturing equipment manufacturer basically make the equipment. And we actually have technology to make the equipment culture as well in Europe. So equipment sellers of equipment manufacturers, when they sell the equipment, they have a very basic manufacturing recipe that they provide to their customers, which means that when you introduce by a quota, you can manufacture basic level of products. You could say that. But coating glass is not about the basic level product. You need to go beyond the basic level or you need to use it as a foundation and go further, depending on the weather of the area, where you want to do business, and also the energy-saving regulation. And also in that specific country or area, what are the specific colors that your customers would prefer? What kind of reflectivity do you need? And what about the supply chain? Our customers, how would they want to handle the coating glass? And how can we make sure that the quality is sustained throughout the supply chain? So you need to add all of those different factors and design the right product for the right market. And that, I believe, is a source of competitiveness. And that's where we have our strength. And by leveraging the -- such strengths, we can get value-added, and also we can get the market. That is what we believe. So we have those strengths. And that is why we believe that we can differentiate ourselves in this product category, and that is why we can position this product as a high value-added.

[Interpreted] Let us move to the next question. You explained about energy-saving products, but how are the inquiries and the orders that you're receiving for each of the products?

[Interpreted] Well, there are so many energy-saving products that we deal with. So I like to just categorize them into several groups. But in 1 word, for all products, they are all growing, and expect it to grow further in the future. But among them, especially in Japan or in Southeast Asia, especially in the countries that have already achieved a certain level of economic growth, such as Singapore. As I said in the slides, the BIPV the -- which is 1 step in advance of the energy-saving, which is energy creation, the demand for that is growing fast. And this is going to be positioned as one of the pillars for us, and we can at least expect that to be the case.

[Interpreted] Next question. Japanese government has announced a commitment to carbon-zero. And similar to Europe, in Japan, do you think the reform business will grow for a heat insulation glass?

[Interpreted] Well, this question is about how the government policy would advance. And I'm not really in a position to be able to talk about that. But generally speaking, at the global level, decarbonization and carbon-neutral trend is happening. This is something that we need to make happen. Therefore, similarly, net-zero, energy-saving and heat insulation glass popularity will continue to grow. That's what I think.

[Interpreted] Next question, on Page 7, in 2022 and 2023, the architectural glass sales are expected to grow over the pre-pandemic level. But for the past few years since 2015, the sales have been flat. So what are the reasons why the sales have not grown? And how are you going to see each of the regions to grow -- which regions to grow for what reasons? And what is the difference between Japan and the rest of Asia in terms of profitability?

[Interpreted] Well, what are the factors behind sales growth that we can expect? I think that is a question that was asked. Firstly, especially in Japan -- we are expecting our share to increase in Japan. And as I have explained, in Japan and the rest of Asia, higher value-added products are expected to grow in sales, and the sales growth is expected to accelerate further. And that is the reason why we're expecting the sales to grow in the future. With regard to sales value, the pricing level has been improving as well. So that has been also reflected in the growth that we're expecting compared to the past. And also, the profitability difference between Japan and the rest of Asia. Obviously, of course, we can refer to the past levels. There are many reasons. But at the moment, we are achieving mostly the same level of profitability between these 2.

[Interpreted] I understand that the Japanese glass business is expected to improve dramatically in '23. And if the demand supply balance improves, does that mean that you'll be able to increase the price or you have a stronger price negotiation power? And in other materials segments, price is being hiked. And do you think in the glass segment, you can maybe show an attitude to change the traditional conventional attitude?

[Interpreted] Well, I don't know if the pricing power would be the right way of describing this. But as I explained in my presentation, supply-demand balance improvement for us means that it's an environment where we can achieve appropriate profitability. In other words, our understanding is that it is going to be a positive factor, a big positive factor. And maybe the expression is a price increase. I'm not quite sure. But I don't think we're not necessarily changing the custom or the business behavior -- conventional behavior, but we can say that the business itself is turning more positive for us.

[Interpreted] Next question. You talked about sales growth and higher value-added products. Can you explain more about profitability? And architectural glass has seen upper single-digit profitability. But in the first quarter, you've dropped to the mid-single digit and -- in terms of profitability compared to Europe where the surcharge system was introduced, what about the profitability in Japan and Asia? And what is your future outlook?

[Interpreted] Well, with regard to specific profitability margin, I would like to decline commenting that, but it's not just in Europe, but in Asia and Japan, profitability has been improving. And going forward, we believe that we can achieve better profitability, and we are in the process of seeing improvement.

[Interpreted] Next question. What is the demand trend of 5G glass antenna that you spoke about?

[Interpreted] 5G glass antenna. Basically, as I have explained in line with progression of 5G adoption, the demand will continue to increase. And I think it's probably more accurate to say that we are in the proprietary stage right now. But as 5G continues to be deployed, we can expect a steady growth in the demand.

[Interpreted] Thank you very much. There is -- are questions, raising hands in the venue. Azuma-san from Jefferies Securities.

[Interpreted] Azuma from Jefferies. Thank you for your presentation. So as you just explained, the 5G glass antenna is what I'd like to ask about. So in general, what you said is right. But what about the specific adoption trend? In the base station -- installation of base station is not making progress, as I understand. But in 2 years or 3 years' time, once the base stations are actually installed, are you going to see more sales? In other words, have they -- have your products being adopted?

[Interpreted] Well, as for the current status, what you said is right. But with regard to specific timing, well, we have business partners, which are the telecommunication carriers. And based on information from them, we can say that demand is going to really pick up from next year onward.

[Interpreted] Well, so in other words, when the demand is -- picks up, your products have been adopted already. Is that correct?

[Interpreted] Yes. That's what I believe.

[Interpreted] Is there any competitor?

[Interpreted] Well, basically, if you say glass antenna, there is no competition to glass antenna directly. But if you ask us the conventional small cell could be regarded as a competitor. But as I said, compared to the conventional small-cell antennas, our products do have strength over them. Therefore, we can leverage those strengths to increase the volume and take shares.

[Interpreted] Well, the conventional small cell that you mentioned, so would be the indirect competitors as you. In that case -- even smaller in size. I think that's sort of advantage for you. But what about the pricing? Where are disadvantage of your products?

[Interpreted] Well, basically, there's no major weakness in our products.

[Interpreted] So in other words, you can beat them in terms of price as well. Is that correct?

[Interpreted] Well, in what form, the antennas will be installed. So how you compare these products is what matters. But in terms of cost, there's no major disadvantage to us in my view. And in addition, in terms of installation, you can actually have this installed from the inside of the house -- or building rather. So there is that advantage as well to us.

[Interpreted] So in other words, the conventional small cells cannot be installed from the inside of the buildings quite often.

[Interpreted] Well, if you install them from the inside of the buildings, it's easier to do the construction.

[Interpreted] So in small -- conventional small cells, you quite often have to get this installed from the outside of the building?

[Interpreted] Yes.

[Interpreted] So if you include installation cost, you can actually compete with the smaller cells competitors as well also in terms of cost.

[Interpreted] Yes. You can understand that way.

[Interpreted] So if that is the case, at some point in time, I think there will be explosive increase. What about the supply capability or capacity? Do you have enough capacity?

[Interpreted] There's no such concern. Thank you.

[Interpreted] Thank you much. It's time for us to close the Q&A session, and we would like to take a 10-minute break. And the Architectural Glass Europe President, Davide Cappellino will explain about the business strategy in Europe. We'll see you then. [Break]

[Interpreted] Ladies and gentlemen, it's time to resume the session. Architectural Glass Europe and Americas business company, the company President, Mr. Davide Cappellino will explain. And if you wish to listen to the presentation in Japanese translation because the presentation will be in English, please push the interpretation button and select the Japanese language. Now over to you, Mr. Davide.

Hello, everyone. Thank you very much for joining this session. So now I will explain you about the strategy and the business of Architectural Glass Europe and Americas. So I will go through a business overview, we will then see how we are contributing to the strategy of AGC Group, and then we will focus on our strategy and the strong points that we have in our business markets. So as my colleagues already shared before me, so you can see here the portfolio of businesses of AGC. And you see that Glass is representing almost 50% lower total sales in 2021. Architectural glass is about 1/4 of the total sales. If we drill down in architectural glass, so we see that about 1/3 of the sales took place in Japan, Asia. And about 2/3 are taking place in Europe and in the Americas. So in 2021, so we have been posting sales of JPY 261 billion, about EUR 2 billion. What is the footprint of AGC Architectural Glass Europe and Americas? So on the left side of this chart, you can see Europe, showed the yellow dots are representing our upstream plans where we produce glass and melting raw materials, and building large quantities of glass. So the number that you see in every yellow spot is representing the number of float furnaces. Every float furnace is producing from 600 to 1,000 tonnes of glass per day, and so you can see the distribution of our capacity. On the chart in the bottom -- on the table at the bottom, you can see the numbers related to our downstream operations. So on top of the production of float glass in the yellow spot that you see. We have a very wide network of more than 100 plants in Europe that are covering glass processing to transforming the basic sheets of glass into double-glazing, triple-glazing for installation in windows and houses or distribution, which are distribution points that are allowing us to reach very deep in the market to consumers or small businesses. On the right side of this slide, you see our presence in North America. In North America, we have 1 plant located in Brazil, in South America, and it is including 2 furnaces. Let's look now at the sales distribution by region. So this is the evolution of sales. You see in the dark blue bar, the sales in Europe. And in the light blue bar, the sales in the Americas. What can we observe? We can observe a steady growth of sales expected in Europe after the crisis of 2020 due to the COVID. So as you can see, sales have been rebounding strongly in 2021, and we expect sales to continue with a good growth trend for the years to come. On the light blue part on the other end, you see shrinking sales. So this is due to some changes of perimeter. As some of you might remember, last year, AGC decided to sell the architectural glass operations in North America. And this sale has been executed in 2021. But some related businesses have been sold only in 2022. And for this reason, you see a change of sales scale between 2021 and 2023. So from 2023 on, basically, the sales in the Americas are mostly related to South America. So how are we contributing to AGC strategy? So our ambition is the ambition that you see on this slide. So we lead the way for a better world. I will come back on this later, and I will explain why. So we want to lead the way in our industry and build a better world. Our objective is to build -- and so -- a solid return for our shareholders. So generating economic value with a return of capital employed of at least 10%. As I referenced 2021, which was a very successful year in terms of financial performance. So a return of capital employed of 22.9%. And also for 2022, we have expectations of being above 10% in terms of return on capital employed. But we also certainly want to contribute to the society and to all the stakeholders by addressing the social values, as already explained by Miyaji-san, and by my colleagues before me. So Miyaji-san showed before me, so the strategy addressing the various businesses. So the strategy of AGC on the architectural glass and automotive glass has been pointing at structural reforms for to make sure that we can be playing a leading position in each of our markets. And I just mentioned, so the exit from the North American market, which is the practical application of these structural reforms that took place in the past couple of years. We also want to utilize very wisely our investment capabilities and the CapEx to make sure that we can increase our asset efficiency. And we want to focus all the efforts on improvement of our profitability and steady cash generation to make the financials of our company stronger, and to generate value for our shareholders. Our mission is very clear and is what is written in the bottom part of the slide. So we want to be a long-term stable source of earning for the company and for the shareholders, making sure that we increase our competitiveness in our core markets. Let's see the market environment that we are facing today. So let's start from Europe. So here, you see in the bottom left chart, the evolution of glass demand in Western and Central Europe in the past few years. So you saw a good trend of demand that was then interrupted obviously by big COVID crisis, but then a solid rebound. And we expect so demand of glass in Europe to continue with a positive trend for the years to come. Why do we say so? Because we see in Europe, an extremely strong trend of renovation. So the stock of buildings in Europe is relatively old. So many buildings are maybe 40 or 50 years' old, and we see that the major driver of glass consumption in Europe is related to the renovation of the existing buildings. So you see in the pie chart on the right that in the world, in 2021, we expect that only 1/3 of glass consumption was coming from renovation, while 2/3 was coming from new constructions. In Western Europe, it's the other way around. And so we see that 2/3 of demand are coming from renovation of existing buildings, while only 1/3 is coming from new constructions. And in the right bottom chart, so you see the expected evolutions of demand of renovation growing in the next years. We often talk about demand, but capacity is obviously very important in our business because profitability is very much driven by the balance between capacity and demand. So we expect in Europe, for the years to come, to have a quite balanced capacity demand situation. So there are no investments planned in Western or Central Europe for the years to come to increase capacity. And we expect also the regulations that are being put in place in Europe about carbon emissions, will create an additional barrier so probably making less likely that there will be investment in capacity in this region for the next years. Let's have a look at South America, which is another important market for our company. So in South America, we expect the demand to keep on growing in the long term. So it's a growing society, growing population and also growing quality-of-life and spending capacity of Brazilian and South American people. So we expect that demand will keep on growing. We are very well placed in Brazil to capture this demand because AGC is an important player. We have a very strong value proposition, and we are recognized by the customers for our quality and reliability. And so we have a positive forecast about our presence in South America. Let's move to our strategy. So I mentioned that our ambition is to lead the way for a better world. So AGC is a leading player in all the markets where we operate in our company. And we want to take the responsibility of our leadership position now that we are in a crucial historical transition towards new technologies and new regulations and that we will see deep changes in the glass industry, especially in Europe, so the legislation will push the glass industry to move towards different technologies, different ways of producing glass, and we are certainly well placed to be a leading player into this change. So we want to contribute to building, indeed a better society, thanks to our technologies. I will explain it in a few minutes. But we want also to take a leadership position recognized by our shareholders because our ambition is to be the most profitable player in each of our markets. So this strategy is based on 5 pillars that you saw below. So we will be focusing so our resources effort, and also spending capabilities on our core businesses, on the core businesses where we can really make a difference. In the past years, we have been learning a lot about the value chain of glass in Europe, and now we will focus our efforts where we can really make a difference and be the most profitable player in each of our markets. We will continue with the strategy of integrated value chain. So we have a specific slide in the next minutes. And so I already mentioned that we have a very wide network of downstream operations in many European countries. This is providing more profitability and more resilience because we can indeed have closer access to the markets, how we can better manage the pricing in the value chain and assuring captive demand for our upstream activities. We want to keep on focusing efforts and resources on innovation, which remains one of our reasons to be, and one of our key differentiators in this market. We want to improve the speed of innovation so that we can really bring to the market in a quicker way, the result of our innovation activity, once again, focusing efforts where we can be winners where we can leverage the capabilities of AGC and give unique value proposition to our customers. As I mentioned, we want to be a leader in the sustainability. AGC is extremely well placed to take this leading position. So we are the only player in the market which is active in several segments of our glass so we've activities in operation in architectural glass, automotive glass display and electronics. So by combining all these competencies, we can really be leaders in this industry transformation, building stronger barriers vis-a-vis our competitors. And then we will keep on leveraging the strong culture of AGC, also to build an ever stronger winning culture and business excellence for focusing on our people that, as always, make the difference in the success of companies. This slide is somehow linking our strategy to the strengths that we have vis-a-vis the competitors in our market. I will go one-by-one so to share with you some of the strong points and differentiation points that we have in our markets vis-a-vis the competitors. First of all, AGC is one of the players with widest geographic presence in our -- into scope -- geographic scope of our company. So even if we are a global company with global competencies that we exchange efficiently across our businesses and our regions. We have very deep roots so in our market. We are very close to our markets. We have local operations, always run by local people from the country, and from the region so that we can go deep in the market and make sure that we serve the customers well. You can see that geographically, we can identify 4 subregions in our market. So Western Europe, Central Europe, Eastern Europe and South America. In each of them, we are a leading player, #1 or #2. And the fact of being present in 4 subregions that have different economic cycles and also different stages in the evolution of society is allowing us to be more resilient because we can somehow counterbalanced cycles of the economy that are not necessarily the same in these subregions. AGC is basing our value proposition on a very strong product range. So we are actually the player in the market. We do widest product range. You can see in the bottom left of the chart. So the position of AGC in terms of number of products for exterior use, for interior use and for industrial applications. So certainly, AGC is recognized as being a reliable one-stop-shop to be able to supply our customers with any kind of need they might have. This is also, thanks also to the continuous innovation activities that we do, also leveraging our innovation center, which is the largest AGC R&D center dedicated to glass, which is located in Belgium, that has been working year after year to improve our market presence in the specialties and high-value end products. You can see on the top right, so in this chart, the evolution of the percentage of sales of high value-added products that has been steadily increasing year-after-year, and just in the past few years -- so increasing from 36% of our volume to 45% of our volume. So value-added products are addressing all the needs of the society that you see on the bottom from energy conservation and sustainability to quality of life and comfort for our customers. One of the examples of these advanced products in which AGC is leader, is the vacuum insulated glass -- insulating glass. So this is a very unique product. It's a very, very thin double-glazing unit that has a very thin layer, less than 1 millimeter of vacuum between 2 glasses. This is allowing us to produce a product which is as thin as a single glazing, but as top energetic insulation performance similar to a triple-glazing. AGC is the only player in the market with the quality and aesthetics of Fineo. So we are delivering the best product in the market for sure, and we are the only player with production capacity in Europe, which is allowing us to be much better than the competition in terms of service and speed and reliability. Typical excellent application of these products are, for example, the renovation works of historical buildings where the frames are maybe original and cannot be changed due to the legal restrictions of protection of the building, and Fineo is allowing to substitute single-glazing with highly performance vacuum-insulated glass. I mentioned before that AGC is the most integrated player in terms of value chain. So depending on the market, depending on the region and the level of evolution, let's say, of the market, so we have been deploying downstream operations that are generating captive demand for our float lines, and are also making sure that we are closer to the customers and closer to the market. So as you can see, Western and Central Europe, we are present in the upstream. In processing, so to transform glazing glass into double-glazing, triple-glazing units, and in distribution. In Eastern Europe, we are present in upstream and distribution. In South America for a specific strategy for the moment, we are staying in the upstream due to the level of maturity of the market. So as I mentioned, the fact of the downstream is providing much stronger processing, so to transform basic glass into double glazing triple basing units and in distribution. In Eastern Europe, we are present in upstream and distribution in South America for a specific strategy for the moment we are staying in the upstream due to the level of maturity of the market. So as I mentioned, the fact of the downstream is providing much stronger reliability and resilience of our financial performance because we can better balance and so the evolution of capacity in the upstream market. My colleague, Yoshiba-san has mentioned already of the big work of innovation that AGC is doing on the interaction between glass and 5G signal or in general, radio -- radio frequency transmission. So Yoshiba-san mentioned about one of the technologies, which is the active for 5G antennas that can be realized or endorsed. Another technology that we are deploying is already commercial. So we are selling henceforth services and products to the customers is what we call the wave through, which is the capability of treating existing windows in existing buildings wherever there might be interferences between the insulating glass and 5G connection or 4G connection, we are able to treat all places these installed glasses to make sure that they become fully transparent to 5G signal while keeping 100% of the energy performance. A major effort of innovation, which we are focusing many resources is the evolution of technology to respond to the evolution of legislation, especially in Europe. As you know, Europe has been setting very aggressive targets on the reduction of carbon, CO2 emission. And so we are leveraging now for all the competencies of AGC to take a leading position in this transition. If you see this time chart that you see on the slide, and if we consider 100% quantity of energy that is necessary to produce 1 ton of glass in 2020, you see that AGC has been already making huge progresses. And so with the reduction of this needed energy by more than 20% compared to 10 years ago. We have been stopping henceforth the use of fuel oil that we were still using for some furnaces. Now all our furnaces are running natural gas, and many, many actions that we put in place to optimize our energy consumption and reduced greatly in the past several years. And now we have more challenges ahead of us. So our objective is to comply fully with the regulations, and with the objective of carbon reduction of AGC. So we are now installing electrical melting technologies on several of our furnaces in a typical furnace with electrical melting, as you can see under the 2022 label. So part -- an important part of energy is provided with electricity while still a part of it is provided in natural gas. We have many actions ongoing also to further reduce the need for energy, putting in place the best technologies to optimize our process. But the final step that you see under 2030 is really to build a sort of hybrid furnace. And so relying on electricity, but also relying on hydrogen, which is an ideal, a very clean source of energy, and the European Union is making big investments that will be able to generate reliable and competitive sources of hydrogen in this region. When we talk about legislation and evolution of carbon emissions, glass is definitely a great solution for this kind of problem for the reduction of CO2. Because we calculate that our products during their lifetime are able to save 10x more carbon emissions than the carbon that we emit during the production, delivery and installation of our products. So we are extremely positive about the aggressive targets that the European Union is setting for carbon reduction. Because, of course, those targets will give us some challenges on the technology side or the production of our glass. But certainly, there will be a very strong stimulus to utilize advanced types of glass, in which AGC is leader. That will definitely so drive a good growth on the market demand, and also on the evolution of mix. And finally, as I mentioned, so people at the end, make a big difference from besides all the technology that we've put in place. So we are continuing also to focus on our organizations. So advancing our culture, making sure that we continue with the obsession for continuous improvement. That is one of the DNA elements of AGC, so that we can continue capturing all the opportunities in the market, but at the same time, improve the efficiency of our operations, and so to be always the most competitive player in our markets. Thanks to the application of this mindset, and thanks to the application of this continuous improvement approach, so we have been improving the resilience and the performance from -- financial performance of our business steadily and continuously in the past years. So in this chart, you can have a look at the breakeven point evolution. So thanks to many, many actions of technology evolution and cost reduction. So we see that our company is now much more resilient and competitive in the past. And this is our ambition to keep on being, as I mentioned, the most competitive player and the most profitable player in each of our markets. This concludes my presentation. and I will be very happy to answer to your questions.

[Interpreted] Thank you very much. Let's move to the Q&A session. If you wish to ask questions, please first Q&A button and type in your questions. We also accept questions verbally. If you wish to ask questions verbally, please click on reaction at the bottom of the screen and press the button that says raise hand, and I'll call up on you. [Operator Instructions] And we are only accepting English questions through Q&A button. Now we'd like to move to first the questions that we have received beforehand. The first question. In Europe, there is concern about economic slowdown. But have you seen any changes in demand for architectural glass? Davide-san, please answer the question.

Sure. So in Western and Central Europe, for the moment, we didn't see any slowdown. So the demand for glass remains very strong today. And we expect that it will remain strong for the months to come, and so for the months on which we have visibility. We are obviously monitoring very closely the construction activity, the start of new buildings, start of new projects of renovation to make sure that we can anticipate possible changes in the environment. But for the moment, we still don't see changes in the environment. Obviously, so we are living in a moment in which there might be a slowdown of the global economy due to specific conditions of hyperinflation that we are living. But we don't expect the demand in Europe to completely collapse because demand for glass will be sustained by some long-term elements that we're already seeing very strongly. The first one is related to the very strong and generous, I would say, stimulus packages that all the governments in Europe have been putting in place after the COVID, and so to keep the economy going. And so many of these tools are not short-term, but they will continue until 2020. So they will keep on supporting sort of renovation activities. We also expect the European Union and the European states to put in place additional measures as so to sustain the transition towards lower CO2 side. And this will require additional investments on the renovation of buildings. So the emissions of CO2 from the management of buildings is a very important part. It's higher than the emission of the industry. So there will be additional tools in the years to come if the European Union wants to reach the targets of CO2 reduction. And the third element that we consider that we will also sustain the demand in the future is the fact that now consumers are more conscious about energy consumption. So the recent spike of energy, cost has been really increasing and improving the payback of energy-related investments. And so we see today in Europe, a very high concern about energy costs, and these will be pushing many, many consumers to go for renovation works and to conserve energy. Thinking about the other regions. So in South America, we don't see a slowdown. So we know that this will be a year of election in Brazil. So there might be some volatility, but we don't expect a slowdown of the demand. The region -- the subregion, where we see certainly a reduction of demand is Russia. So as you saw on the charts, we are present in Russia. Even if Russia is a relatively small part of our business, there we see a reduction on demand by about 25%. So we have been adapting capacities or reducing pool of our furnaces as a consequence of the reduction of demand. And we are managing this. For the moment, we are still having posting positive financial results, but we will follow the evolution in that subregion specifically.

[Interpreted] Next question. You expect to boost demand in the renovation wave. What do you -- was the innovation demand high before? And how long do you think continue -- this demand will continue?

So as I mentioned, renovation in Europe for the, let's say, average age of the stock of buildings in this region has been already a strong contributor to glass demand even historically. But we see today, obviously, a very, very strong increase for the reason that I mentioned. So stimulus packages, the necessity to move towards higher insulation of buildings. Now all the regulations in Europe are, for example, forcing all the owners of every apartment or house to perform energy audit. So on their house or apartment every time they want to rent it or to sell it. So this is pushing the market to invest in renovation. So we expect that this will be continuing as a major trend in our market. We believe that AGC is very well placed, better placed than many of our competitors in capturing all these potential and all this value. First of all, because as I mentioned, we are very much vertically integrated. So we are going very deep in the markets. We are very close to the consumers where the renovation activity is taking place and so we can capture the full margin from this demand. And the second reason why we are well placed is that we have been developing a wide range of products that are specifically addressing the needs of renovation. So high energy efficient glasses, specific coatings that are suited for residential renovation and many other products that are specifically addressing these needs. One of them is the VIG, as I already mentioned. So VIG is perfect for renovation in historical buildings, for example, but not only, and it is really addressing a very specific strong need that we will have in the next years in Europe.

[Interpreted] Now I'd like to move to the next question. The energy prices are still fluctuating significantly. But what about energy security and hedging? What are the strategies? Can you answer the first question?

Sure. So in the past 8 months, so we have seen incredible spikes of energy costs, especially in natural gas, which is, as I mentioned, one of our main sources of energy. So this is obviously one of the very important challenges that we have. In the short term, as you know, we have been putting in place energy surcharge mechanisms to pass this down to market. So we have been explaining to the customers, as for the situation, we have been setting up very transparent formulas. And so linked to the market price of gas or the previous month. So the market and our customers have accepted this. And so we are able now to pass down to the market. We are also reinforcing our hedging policy. So we always had a hedging policy. Our -- today, we have a partial coverage of our needs, not as high as we would like. And so we are exposed for the majority of our needs to the market price, but we still have a base of hedged amounts, and we are certainly devising our hedging policy to be able to cover more our needs as soon as the market conditions will allow it. The security of supply is a very important element besides the cost because as I mentioned, the cost, we are able to pass it on to the market. But security of supply is crucial. So we have a very serious plan to anticipate and correct if necessary, possible disruptions on supply. On this, we have to say that all the European gas network is interconnected and in the past few months, alternative sources have been activated. And so now the European Union is receiving glass from North America, from Africa, from the Middle East. And so we see that the week after week, the dependency on the Russian supplies is decreasing. We are monitoring on a daily base stock level of gas in the European countries where we are present, and we see that the trend is positive, so the stock is increasing. Nevertheless, we are -- in every plant -- makeup plans in many of our plants, we have either already electrical feeding for our furnace or backup system based on oil. So we have pickup systems in most of our plans in case of short-term interruptions of gas. But I have to say that our industry is respected and known by the governments of all the countries as a non-interruptible energy industry. We are lobbying, we are in constant contact with the various European countries to remind that glass industry is very sensitive and to energy interruptions to make sure that there are in the plans of possible cap to buy glass industry like ours should be protected by every government.

[Interpreted] On my next question. Inflation and interest rate hike are continuing. How do they impact the renovation market in Europe? What are you thinking -- what is your thinking? And energy saving reform in order to promote that further in Europe, government subsidy, do you think you need more of that coming from the government?

Thank you very -- important question addressing indeed the drivers of demand. Certainly, so we -- the current hyperinflationary environment that we are leaving so might generate a slowdown of economy on a global scale. As I mentioned, on renovation in Europe, we are relatively not so pessimistic and relatively optimistic because there are many tools already in place. And so we believe that renovation will be maybe less prone sort to the economic cycle, possible economic cycle than the other markets and other segments because it is strongly sustained by incentives. On the question, will Europe need more incentives? Probably yes, and we are confident that they will be coming, as I mentioned. So on top of the stimulus packages to keep the post COVID economy up. Now there will be additional incentives coming in Europe to sustain the renovation and increase the renovation rate on the buildings to be able to comply with the CO2 reduction targets. And so we expect that in the next year, the government will put big resources, both on the CapEx side, let's say, to support CO2 reduction of related projects. So we are ready as AGC to capture all this value by utilizing fully the incentives in our technology road maps or to fuel and to finance our investments that we make or do on our facilities. But also this flow of resources, which certainly gives further strength to the renovation to be able to comply with a very aggressive CO2 reduction targets that Europe has been put in place also for the construction industry and for the management of buildings.

[Interpreted] Last question. In the European business for AGC, how much is commercial demand? And how much a household demand? Can you tell us a split? Can you answer this question?

Sure. So it's hard to make a general statement for Europe. This is varying, of course, country by country and region by region. But in general, we can say that about 1/3 is coming from commercial buildings and about 2/3 are coming from residential buildings. So we believe that renovation will be equally addressing residential needs and commercial needs. And so we believe that this mix should not be changing very much. Of course, there is one new element, which is the new way of working after COVID that is maybe generating some overcapacity in Europe, like in many other places or some office buildings. But this will be, let's say, maybe a lower level of investments in office buildings will probably be counterbalanced by investments in other commercial applications in other types of non-office-related commercial mix.

[Interpreted] Next question. What is your business strategy in Russia? Please tell us your business strategy in Russia.

Yes. So as I mentioned, Russia is an important part of our footprint, even if we have only 2 plants, but still. So it is contributing for about 15% to our sales. And most of all, we have many people for AGC has about 2,000 employees in Russia today if we consider also the automotive operations. So the first priority since the beginning of the crisis has been to protect as much as possible our people in Ukraine because we also have some operations in Ukraine, we only have 25 persons in the Ukraine, but also in Russia because many of our employees can be impacted negatively without any responsibility from the side from the current situation. So first priority was people. On the business, so as I mentioned, we have been observing a reduction of demand as a consequence of the stability in interest rate and sanctions in Russia. And so in the short term, we have been adapting capacity. We are now managing Russia as a totally independent company, I would say. So we are changing the organization, and we have been changing the organization to make sure that the Russian team can manage independently their business. We have been cutting all the flows of import and export of glass and other goods between Western Europe and Russia to comply with such. And for the moment, we would like to keep our operations in Russia. So we are following very closely on the situation, and we are continuously discussing a little bit with management, our position in Russia. But for the moment, we believe that we can still fulfill our mission as AGC in Russia in the long term. So we can still contribute to people. We are a peaceful company producing peaceful products for peaceful applications. And so we believe that we can still play a role also in the future Russia, even in case of longer-term assumptions by allowing our Russian colleagues that are very independent as for to serve the Russian market with our products.

[Interpreted] Thank you very much. Let us move to the next question. Who is AGC's direct client customers? Any market differences between B2B or B2C in different regions? And any brand premium for AGC in B2C market? Over to you.

Yes. So more than 99% of our business is B2C. Now B2C can be as busy or [indiscernible]. And so many of our customers in all the regions are very large industrial companies that are processing glass to produce windows, to produce facades. So usually, this is the type of customer that we have. In some areas, we are going deeper in the market. So we are serving through our distribution network, also some small companies. That's will be 2 small -- sorry, B2 small -- small businesses. We have very limited presence in the B2C market, so addressing directly the consumers. So most of our markets really B2B. And we believe that this is the best position where we can certainly leverage the competency that we have and providing to our customers the products that they need and we don't have intention to increase our presence in the B2C business to consumer market in the years to come.

[Interpreted] Next question. How much does South America contribute in terms of the sales and profit in architectural glass in your business? And how much increase do you expect? And what is the current competitive landscape? What is the market share? And what are the strengths of AGC in the South American market?

Yes. So in South America, so as you saw in Slide #7, the sales in South America are only a small fraction of the total sales of our company. But when you look at profitability, the sales in South America are very profitable. South America, in general, tends to be more profitable than other regions because traditionally, there is a favorable capacity demand balance. And so meaning that capacity installed in South America is structurally lower than demand. Demand is growing. So there are emerging markets. So demand is growing quicker than the capacity installed. So in general, the price level is good, and the margin can be certainly good. For the years to come, we expect that this will not be changing. So we expect the demand in South America to continue growing steadily. And in terms of additional capacities in this moment, there is one project announced for new capacity in Brazil, which is not [indiscernible] by one of our competitors. And -- but we believe that even this additional capacity will not change this situation of having an excess of demand versus capacity. In this demand situation, we believe that AGC is very well placed and to be able to be, as per our ambition, the most profitable player in our markets because we have a very efficient organization with low cost, low SG&A, one fully integrated plants in this combining architectural and automotive business in the same facility. And we also can provide an excellent service to our customers that are recognizing, in some cases, a price premium. So we really believe that we can continue counting on good profitability in our South American operations.

[Interpreted] Moving to the next question. Many of your European peers are shifting towards a one-stop shop strategy not just focusing on glass, but also other buildings and construction materials. Is there any value for AGC focusing only on glass? That was the question.

Yes. So indeed, there is mostly one competitor, and it is really proposing himself as one-shop stop shop for all the building materials. This is also coming from historical position that this other competitor has in other materials. So in the case of AGC, we don't intend to extend our presence on non-glass related products. So we believe that we can build a winning position. We can have a leading position on glass in the market. So we will not extend to other, let's say, non-glass related materials and more the players. So we see our future certainly in glass. And we know and we believe that glass will keep on playing a very crucial and important role in the construction segment in the years to come.

[Interpreted] It's time to close the Q&A session. We'd like to thank all the participants for taking time out of their very busy schedule to join us today. So this is the end of day 1 of AGC and day 2 is scheduled on the 16th of June. We'll be looking forward to seeing you then. After closing the Zoom screen, you'll be led to the questionary screen. It will only take about 5 minutes, and we really appreciate your response so that we can have better IR activities in the future. If you have any follow-up questions, please let us know by the contact point. In Japan, the number you can call is 03-3218-5096. Thank you very much, and goodbye.