AGC Inc. (5201) Earnings Call Transcript & Summary

Ladies and gentlemen, it's time to start AGC IR Day 2022 Day 2. I'll be serving as moderator today. I am Ogawa from Public Relations and IR. Let me introduce you to the schedule today. From 16:00, for those of you who have participated the other day, Mr. Miyaji, CFO, will talk about company-wide strategy. And from 10 minutes past 16, Mr. Moriyama, President of Electronics Company, will talk about Electronics business strategy. And from 20 minutes past 17, Mr. Nemoto, President of Chemicals Company, will talk about strategy of Chemicals. And there will be Q&A after each presentation. [Operator Instructions] Now let me move to Mr. Miyaji, CFO, for company-wide strategy. Mr. Miyaji, over to you.

Miyaji speaking. Thank you very much for joining us today. I'll be spending 10 minutes to talk about the whole strategy. If you can move to Page 3. Are you ready? I don't see the change of the PowerPoint. So the page is not shown here, but this is the portfolio. There has been a transformation of portfolio in the company. So the business mix has changed significantly, and the change itself may not have been communicated well enough to investors in our view. So for the first time, we have held 2 day of IR days. And today, this is the Day 2, so we're talking about Electronics and Chemicals presented by the Presidents of each company. And if you have any clarifications or questions on a day-to-day basis, please just ask them directly. I don't see the PowerPoint shown on the screen. May I just proceed? So the slides are not shown on the screen, but Mr. Moriyama, the company of the Electronics company, will talk about EUV, which is of interest to you. And electronics materials are growing rapidly. And for chemicals, chlor-alkali and fluorochemicals & specialty and CDMO and life science that you are paying attention to will be presented. So I think these are of high interest to you. So I hope you can look forward to them. On the left-top corner, can we see the screen or the PowerPoint? I'm not sure if everyone can see this. Okay. I think that we can see it. So as I said, the operating profit by business segment. So previously, displays has earned a lot indicated by orange, but now chemicals are the great earner. And the presentation today will be on 2022 and 2021. The green and orange are earning the biggest amount of money. It will be the ones that will be presented today. Moving on, the 2030. Vision 2030, so this is what we are aiming for. We would like to grow through well-balanced creation of social and economic value. Especially, in our case, we would like to make sure a stable ROE of 10% or higher, but that has not been successful. And of course, social values are important. But in my perspective as CFO, we like to have a business mix that will bring about stable ROE of 10% or higher. And the portfolio transformation is shown here. With regard to directions, this slide is important. So as we change portfolio, we would like to have a business mix that will be resilient to market fluctuations with high asset efficiency. And also, we'd like to have high growth rate as well. And high carbon efficiency is what we are also aiming for in the business mix. So as we consider these, the strategic businesses have to have growth rate asset efficiency and resiliency and high carbon efficiency. All of these have to be satisfied, and we'd like to grow such businesses. And this is the ambidextrous management that has been tracking attention, the core businesses and strategic businesses. So in the core business, we earn cash, and that will be taken advantage of to grow strategic business. Electronics, life science and mobility are the ones that we have expectations on. And the Electronics and life science will be presented by the company presidents themselves. Next. By growing the strategic business, we want to produce about JPY 300 billion from these businesses. We believe that this is progressing quite steadily. We have confidence. The portfolio direction is translating to this graph. And along the horizontal axis, this is carbon efficiency. Vertical axis, ROCE. So we want to achieve a higher level of ROCE and capital efficiency as a whole company. And this is the general direction of the business portfolio. And this is just for your reference, including Scope 3, we have made some announcement about the milestone. And as I've just explained, this is just on page summary. So 2025 and 2030 numbers are here just for your reference. If we continue to execute on our plan, we believe that we can achieve these numbers. And for '23, we're actually in the second year of the mid-term plan. So I would like to explain the mid-term plan just very briefly. In the first year, which was last year, we set the objective of FY '23 JPY 160 billion of OP. But as you can see, we have actually overachieved the target and now we have a higher target of JPY 230 billion. And we believe that this number is fully achievable. We are very confident with this. On this slide, you can see the key issues of each business. And today, we will be focusing on Electronics of strategic business and also chlor-alkali and also specialty from the core businesses. And we'll be looking forward to your questions today. Next page, Page 16, shows overall ROCE. ROCE at 10% or higher. This is something that we would want to achieve, and there are some challenges to overcome. Automotive and display, we will talk about display. And asset efficiency is relatively low. We want to bring these businesses as much to the right as possible. And the ones that are already to the right, we want to bring it even further to the right or expand the scope of the business. And the last slide, this is our brand statement. And this is the value that is concentrated in the brand statement that is shared with investors and analysts. And that was a very quick look at the overall business, and it's going to be a long program today, but I hope that you will stay until the end. Thank you.

Thank you very much, Mr. Miyaji. I would like to move to Electronics business strategy, which will be presented by President of the company. Mr. Moriyama, over to you.

Yes. I am the President of Electronics company, Moriyama. I'll be talking about Electronics business overview and priority issues for the major products. Next page, please. First, the Electronics Business within the AGC Group, the positioning of the business. This is one slide that shows that. As you know, as shown in this chart, Electronics business in sales, JPY 312 billion last fiscal year. So it was first time in 7 years since 2014. For the first time, we have achieved JPY 300 billion. So back then, LCD glass was the mainstay, but we hit the bottom in 2018. And then electronic materials started to grow, and that has brought us back to the JPY 312 billion last year for Electronics. For the breakdown, Display, JPY 182.1 billion and JPY 121 billion for electronics, so 60-40 is the sales mix. These are our main products. There are 6 categories. On the left 2 are for Display Business. As you know, TFT liquid crystal and OLED glass substrates, so glass substrates for LCD. And then left bottom, specialty glass for display applications, chemically tempered ones, the cover glass for smartphone or Dragontrail in the brand name is well known. And left one -- 2 left ones are for displays. And then for electronic materials, there are 4 categories. The top 2 are the mainstays, semiconductor-related products and optoelectronic materials. So these are the 2 groups that are the main in the electronic materials. The next one, please. So what I'm responsible for is Electronics Company, and these are the main manufacturing sites. Let me explain about this. Globally, as you see, there are more than 25 locations. And there's a difference from other companies in AGC. First of all, East Asia: Korea, China and Taiwan. We have a list of manufacturing sites, especially for Display Business. In terms of customer relations, we are having locations in East Asia, especially China, Korea, Taiwan, that is the distinctive feature of our company. And in Japan, there are 8 locations. And in Japan, the development and production functions are in each of the sites. And we have 8 of them. And I'm responsible for Electronics Company, and this company is quite technology-oriented segment. So we have high a technological capability in our products. So in each of these Japanese sites, we develop products as well as production technologies. And then once we are ready with the finished products, that these will be transferred to overseas locations. So in that sense, we have 8 locations domestically. That is one of the distinctive features. Next page, please. So as Electronics Company, this is division policy. Actually, since 2019, I have been the President. And the Japanese and non-Japanese staff members in 2020, we had in-depth discussion to come up with this division policy, and that is stay in front with SDGs. And SDGs, as mentioned, was sustainability. So within Electronics Company, sustainability term is the one that we have -- where we have identified 10 issues that Electronics Company need to address. And we share them and run businesses. And we like to become a leading supplier of differentiated material solutions to contribute to sustainable society. So that is our policy. Next page, please. So this is one of the examples. Sustainable society to be realized, what we need to do. On the left, you see various key opportunities of demand. And then what we have as materials or solutions are listed here. And by providing these to society and enhance social values, we need -- would like to address these. So going forward, we'd like to address the needs of society and take advantage of the high technological capabilities and develop new products and meet the needs of society to enhance the values. Then this is the financial figures. These are net sales by segment since 2011 for our Electronics Company. Bar chart indicates sales. Line chart is operating profit. And as I said earlier, in 2018, we hit the bottom. For the past 3 years, we have been recovering. But in 2011, between 11 and '18, basically, we've seen decline in both sales and profits. And the light blue in the bar chart is the display and darker blue is the electronic materials. As you know, in the past, display has quite a -- has had a quite a portion. But with the price decline, which has continued until '18, sales have declined and so has profit. But for the past 3 years, first of all, the darker blue, which is electronic materials, is increasing in sales and strategic businesses are growing. And also, the display, which is light blue, the sales have become flat or slightly increasing. The prices have hit the bottom and stopped declining. And actually, last year, we raised prices. So sales are increasing and operating profit are on the upward trend effectively. Next. The priority issues of Electronics Business is what I'm going to talk about next. So CFO Miyaji showed this slide. Electronics Business, display and electronics materials are the 2 segments. And you can see the ROCE on the horizontal axis, and EBITDA is the size of the circle. And in terms of the size of the circle, in AGC, the chlor-alkali is the largest. And the second largest is electronics. And so cash-generating business, that is what we are going to contribute to. And at the same time, there's a challenge, ROCE, that needs to be enhanced to reach 10% for display. And that is what we're trying to do through several initiatives, and I'm going to explain about them later. And as for electronics materials, this is a strategic business within the Electronics Company. Within Electronics Company, we are running the portfolio well, and the cash generated by display will be invested into the growth of electronic materials so that EBITDA -- EBIT will -- itself will grow for electronics materials. So this is a quite good asset efficiency. So we'd like to increase the portion of electronic materials in our business. And this is also what was shown by CFO Miyaji. Electronics and display are the businesses. And Electronics strategic business has those key issues. EUV mask blanks, which is cutting-edge product starting with these, the products that need high technological capabilities and are high value-added. These are going to be expanded. But in electronics materials, the industry changes quite fast. In the past, we -- I was responsible for architectural glass and the sense of speed is quite different in this business. And so on a timely basis, you need to capture the needs of society and you have to constantly generate new businesses, which is quite important. In the marketing sales, we are globally organized. And that's for core business display. The cash generator is the positioning, and the demand is shifting to the China -- to the Chinese market. But in order to address this demand, we need to establish a long-term stable business foundation. And this, I would like to explain more on the next slides. Next one, please. Now I'd like to talk about strategies for major business divisions in more detail. First, the display business strategies. We need to respond to increasing demand in the Chinese market and need to build a long-term and stable revenue foundation. And I'd like to explain about this. Next page, please. First, the business environment for display business. On the left, in the graph, you can see the demand for LCD glass by region. And demand itself is growing. But if you look at this by region, China, back in 2015, represented only 26%. But last year, it accounted for 64%, the percentage has increased. And in the future, it will account for more than 3/4, and that is our estimate. And on the right, this is the liquid crystal glass by size. and the demand for the glass. And conventionally, G8 and G6 are the mainstream. But in 2018 and '19, around from these years, G10-11 has emerged. Per panel, 3 meters by 3 meters or 10 square meters, a large size thing glass substrate. And the demand for these is increasing. And our Chinese customers are saying G11 production line has been increasing in capacity, and we are addressing that need. But 2 or 3 years ago, when G11 emerged, many panel manufacturers got interested. However, the G11 panel line would require a huge amount of investment. So now only limited top manufacturers are investing and holding G11 production lines. So in that sense, for the past 2, 3 years, G11 has been growing substantially, but the growth rate may a bit slow down. But even in that context, in 2025, it is going to represent about 30%. So larger-sized panels represent 30%. Next. So in this context, how are we going to proceed? That's what I'm going to explain. As you can see on the right, the TV market itself is maturing. Actually, TV market is quite susceptible to economic situation. But on the average, 1% to 2% growth rate has been seen. But TV panels are getting larger in size, and that is for certain. And for that, glass demand has been growing 2% or 3% on an annual basis, and that is what we expect this to be. So this is going to be a stable growth. And as you can see on the left bottom, there are major investment cases. And G11 or generation 11 larger-sized panels is something that we need to address. And for the past few years, we have been relocating the furnaces from other places. And also, we enhanced the production capacity. And one more, which has been promoted since last fiscal year, we have been the existing production equipment -- converting existing production equipment to optimal production equipment for large panel production, and this is going to be continued until last year. The conversion work will continue, and this has been going on since the last fiscal year. And we hope that production efficiency will be improved so that we can reach ROCE 10% or higher. And the high carbon efficiency improvement is going to be pursued by technological development. And this is one example, large panel production equipment or conversion to the optimal production equipment for large panel production. And there's a floating panel. You put the raw materials in, and then the raw materials are melted. And then there is cutting and annealing processes. G11 has quite a width, 3 meters by 3 meters. Compared to G6 and G8 there's a wider width for G11. So in that sense, demand from customers has increased significantly. So we are just cutting one sheet of glass from one raw material. But with the conversion, we have made it possible to cut out 2 pieces of glass from 1. And this has been done since last year. Of course, we cannot do this overnight because of the supply. But gradually, we are going to go through this conversion work so that we can enhance productivity. So from last year until next year, this conversion work will be ongoing. But this is just one example. In addition to this, there are measures taken to enhance time efficiency as well for the lines. So through these measures, we are hoping to increase ROCE to 10%. Now, next is this growing businesses, electronics materials. So as a direction, as I said earlier, there are 2 businesses that are main mainstreams to grow this business. The first one is semiconductor-related products. And mainly to the semiconductor customers, the process materials that are used in the production processes. And we are going to develop these and sell them. Especially digitalization and 5G, high-tech semiconductors are now being required. And so we will focus on high-tech semiconductor where we can expect long-term, stable growth. And these are the products that we're going to sell. And based on the semiconductor development road map, EUV blanks and high-performance slurry will be the core products, and we'd like to grow this business further. The second one is optoelectronic materials. At present, infrared cut filters are the ones -- main ones. They are mainly for smartphones. The number of cameras installed in the smartphones is increasing, and there is more requirements for higher functions. And for the past few -- for the next few years, there is going to be a steady growth expected. But beyond that, there will be AR and VR or in-vehicle products for automated driving or 3D sensing for automated driving. There will be a variety of optical parts required, and we'd like to make this leading to the business growth. Some people ask about our strength in electronic materials. We have material technology and application technology, design and evaluation and Analsis technology for organic materials and inorganic materials, developed through glass, chemicals and ceramics. So our strength is broad range of the technologies. So from material, fabrication and also evaluation, we have integrated a uniform platform, all of this. I have told you that we have 8 different sites within Japan, and some of them were grown by AGC and others came in through mergers and acquisitions. And through M&A, we have obtained a wide of variety of different technologies. And by combining them, high performance and high functionality products can be produced. And it is really flourishing recently. Next, I would like to talk about the 2 areas, but starting with the key products in semiconductor-related products. And this is the overview of the market. As you may know and you can see on the left bottom, the semiconductor market is steadily growing. And in terms of communication and also data center for metaverse, demand will continue to increase and growth is expected beyond 2022. And as you can see to the right-hand side, semiconductor manufacturing equipment market, according to the market survey companies, beyond '22, still high level or we maintained, and they would require process materials. I would like to talk about 2 specific products here. First one, you may be familiar with this, EUV mask blanks. In the last several years, it has become one of the key products for us. So semiconductors' functionalities are increasing, and also the semiconductor chip circuit patterns are miniaturizing. And EUV exposure lithography became available around 2017, and the photomask substrate that is used for this lithography equipment is EUV mask blanks. And we have seen several thousands of percentage of growth over the last several years. So this is about 15 centimeters squared, and there is a very little strain. This is provided to the customer. And then the circuit is written and then transferred. So this is the original glass substrate that is used for the EUV lithography. As I said before, our strength in electronic materials, specifically in EUV mask blanks, is that we can manufacture everything from glass materials to polishing to deposition, and we're the only one in the world who can do this. And we started development in 2003. We have gone through a lot of things. In 2017, we commercialized this. And looking at the substrate, 40 years ago, we started the production for this synthesized quartz, and we increased the purification. And in terms of polishing, we have decades of experience in terms of polishing technology, so we take advantage of that. We have a very specialized polishing process for high flatness. And then deposition goes on top this of polished substrate. These 3 technologies are combined. And more recently, customers are looking for next-generation products. A broad range of generations and a broad range of customers are evaluating our products, and this is really proof of our strength of combining these 3 different types of technologies. I would like to provide some explanation about EUV mask blanks. I am talking about broader customer base. And EUV mask blanks are increasingly adopted in memory chips in addition to logic ICs. In order to deal with this increasing demand, in the beginning of this year, we made an announcement about doubling production capacity in 2022 and also double it again in 2024. And on the left, you can see revenue is going up by several thousands of percentages. And we want to achieve JPY 40 billion by '23. And capacity increase is, well, just doubled so far twice. It will be doubling twice, but we believe that further investment may be needed in the future. Another key product, CMP slurry. This is the next one that I would like to explain. Chemical, mechanical and polishing CMP slurry. So the chemical and the mechanical polishing maximum is the polishing functionality. This is used in the semiconductor process. We have developed this, and we are selling this product. And Ceria slurry, because of higher level of functionality and miniaturization, we are getting more inquiries about this product and JPY 30 billion market last year. And by '25, we believe the market will grow to about JPY 50 billion. And this is mostly used in the processing, manufacturing, front-end process of semiconductors. But if Ceria is adopted for the next generation 3D packaging process, which is a possibility, the market may expand even more. And again, our strength is that we are the solution manufacturer that is entire production capability from abrasive grain all the way to slurry. And depending on what kind of design the customer has, we can provide that in a very flexible manner. So we can design the slurry, grain and composition. Depending on the grain composition and also design and manufacturing combination, we can respond to various needs of different types of customers. We have positioned slurry as a growth business. Moving on to the second business optoelectronics materials. Key product in this area is infrared cut filter. This is mostly used in smartphones. And the smartphone growth rate, as you can see on the slide, because of COVID-19 pandemic in 2020, it was just under JPY 1.3 billion. It was slow. 1.4 billion units global sales is usual. But in 2020, it was around 1.3 billion. And from 2021, we have started to see some recovery. And we have 5G adoption in smartphones. And also smartphones are already part of their necessity, which means that it will replace steadily, supporting the demand in the future. Smartphone growth is stable, although it's a little bit slower. If you look at the number of cameras installed in smartphone, it is increasing. It's sometimes double, even triple. Number of cameras installed in a smartphone is increasing over time, and the image sensors are getting larger. And there are increasing needs for video shooting, which means that more infrared cut filters with higher level of functionality would be needed. And with larger size, it means that the square-meter shipped of our glass will increase. And the high functionality means that we can develop something of a higher value and sell them. And the strength and strategy, again, I may be sounding like I am repeating myself, but we can do everything all the way from melting, molding and fabrication and also polishing. We can do everything from the material to polishing, deposition and processing fabrication. We also have technology to design the opto electrics, controlling various types of wavelengths and different types of refraction characteristics. Infrared cut filter will be more advanced in terms of functionality, and that means that we can leverage our technologies even further. In the near future, AR/VR and also automotive, in-vehicle products and 3D sensing are expected to grow in the future. So I would like to talk about those now. Our activities for creation of new businesses, AR and MR, this is a reality through glass and digital information overlaid on top of each other. Because of COVID-19 pandemic, the start is a little bit slow. But recently, we have received many inquiries. And we expect high growth rate for this product in the future. And with regard to this demand, we will be focusing on advanced refractive and transmission glass and also high-precision glass that we can provide to the world. Another new business, new domain, is automotive, mobility, ADAS and also self-driving. Self-driving vehicles would require digitized -- digitization of the vision. You may know LiDAR, but various electronics products will have to be developed. There's already a need for that. And these sensors are composed of optical materials. We can develop them and launch them so that we can contribute to the dissemination of self-driving vehicles. And we have global marketing structure, and we are receiving inquiries at a global level. Lastly, this is a quick recap of our company or division policy, stay in front with SGDs. I have spoken about differentiation of various technologies. So we will continue to contribute to sustainable society as a leading supplier with differentiated material solutions according to a whole variety of different needs. That was my explanation. Thank you very much for your kind attention.

Thank you very much. Now we would like to move to Q&A time.

[Operator Instructions] Now we'd like to pick up the questions that have been sent beforehand. The first question, if you look at the business environment display, from '21 to '22, prices have not gone down, which is quite favorable. But the raw materials prices are going up, but unit price decline is concerned. And in your display business, profitability has been declining significantly. So the future of the market is going to be increasingly uncertain. And ahead of '25, you are going to aim for ROCE 10%, which is quite far stretched. So can you give us your thoughts?

Thank you very much for your question. With regard to business environment and displays, with regard to prices, as I said earlier, until around 2019, the prices had been declining, but that has mostly stopped. As you know, last year, we raised prices. And at present, the prices are stable. And that's the assumption, first and foremost. And profitability deteriorated, that's what was said. But there are 2 reasons for that. Firstly, it is related to foreign exchanges. As you know, the LCD glass is sold in yen. And in our operation, one of the features is that we would like to produce products closer to the customers. So compared to other companies, China and Taiwan, where we are closer to the customers, we have more manufacturing done. So for the past 1 year or 2, yen has been depreciating. So in terms of yen, the cost is increasing. That is one of the reasons. And secondly, especially from 2019, we have turned into positive growth in profits and that is because of the contribution from the electronic materials, but that is from the last year. In 2020, display has also contributed to increased profit. And firstly, the production system. In terms of production system, the G11-dedicated furnace was used to produce G11 panels. So the production system was optimal level for G11. But from last year to this year, G11 demand from customers has increased. As I showed you earlier, we were taking out 1 sheet of glass or 2 sheets of glass or 1 sheet of glass from 1 raw material sheet instead of 2. And so efficiency has been declining a bit. So we are going to convert this equipment from this year to next year so that we can optimize our production system to meet the needs of the customers. So the 2020 level where ROCE was higher, we would like to go back to that level. So in the last half of last year or maybe this year, we're going to hit the bottom. And with these investments, we'd like to optimize our production system. That's all. Thank you.

Thank you. We have a related question about G11, 2 sheets cuts that would improve productivity and profitability. But on Page 10, ROCE for display glass is only about 5%. So it doesn't really improve very much. Are there any other factors pushing the profitability down? Or are you being conservative? And when do you think it will reach ROCE of 10%?

May I answer? As I mentioned before, from last year until the end of next year, we will do some modifications. So end of '23 or '24 will be when we see the increase in ROCE. We have new investments as well. So in '25, we want to achieve ROCE of 10%. That's our plan.

Thank you very much. Next question. The NF glass filter is dependent on smartphones in my understanding. The filters are getting larger, but there is a limit to that. So until when do you think this growth for smartphones will continue?

[Foreign Language]

Next question. In image sensor, miniaturization and larger size are the technological trends for infrared cut filter. What is required to increase the functionality to make it more high functionality or advanced functionality?

May I answer? This is similar to my earlier question. So larger size and also visibility and also in the video shooting need, removing ghosting as much as possible. Those are some of the requirements that we're beginning to see, and we would like to respond to those requests or demands.

Thank you very much. Moving to the next question. As for infrared cut filter from smartphones, there will be AR/VR and automotive use. There'll be more use. But what is the biggest obstacle at present? For smartphones and automotive use, the -- is there any great gap in precision that is required as performance?

Well, as for smartphones, as I said, the development requirements from customers is quite visible. But honestly speaking, for automotive applications, for example, in sensing, there are various methods. So honestly speaking, for automotive use, what sort of technologies will be used for sensing is not clear. For example, you already raise to the target and then you recognize that through the time that is where the image is coming back, but there's others as well. So honestly speaking, it's very difficult to answer that question now.

Thank you. Next question. EUV mask blanks and CMP slurry, what is your market share for these 2 products?

One thing I can say about the CMP slurry is, well, JPY 30 billion is the market size. It will increase to JPY 50 billion in the future. And slurry manufacturers, Ceria slurry, this is increasing from JPY 30 billion to JPY 50 billion. And we are one of the top groups, one of the best companies. And for EUV mask blanks, it's difficult to say. But there are only 2 companies who can do this globally, which means that our market share is quite sizable.

Thank you very much. Let us move to the next question. Recently, the -- for EUV mask blanks, there is quite intention to buy EUV mask blanks from the semiconductor manufacturers, multiple of those that are being required. Is it favorable or not favorable? And we believe that you have a vertical integration in the production. So the profitability, is it better than competitors?

Well, I would like to take this as a tailwind, but there are specific customers. So it's very difficult to answer this question. But I would like to take this as a tailwind. As for the profitability, well, in my view, the integrated production actually brings us technological capability to address these. That's what I believe is better for us. There's substrate and processing and the deposition. The combination of all of these will determine the performance. So whether we can respond to the specific needs of the customers in terms of technologies, I think we are more excellent.

Thank you. Next question. EUV mask blanks, 40% per annum growth. Do you think we can expect the same level of growth beyond '25? And EUV mask blanks customer, do they put pressure on you to lower the price? If they do, how much percentage decrease do they demand every year?

I'll start with the second half of the question, pressure to lower the price. Mask blanks means that we are developing new ones or the customers are developing new ones all the time. So the product continues to change. We are not selling the same thing all the time. This is B2B business. So if it's the same product all the time, the price would go down by several percentage. But every year, the main product, the premium product, that keeps changing. So in terms of average selling price, it is actually increasing over time. So that is my answer to the second half of the question. And the first half of the question, this is very difficult to answer. Yes, 40% increase would be very nice. But looking at what happened in the industry in the past, maybe sustaining 40% may be challenging, but the growth rate will be high because this is not just logic I see, but also memory. So several dozens of percentage of growth rate can be expected is my answer.

Next question. EUV mask blanks, the new entry risk. What is your view on the risk for new entries?

Well, as for EUV mask blanks, as I said, maybe earlier from 2003, for the past 20 years, there has been progress in the industry, and this product has been developed. So we have higher technological capability. So there are only a few that can provide this in the world. So there is entry barrier, which is quite high for this industry or this product. So technologically speaking, it's very difficult for other companies to catch up from now. I think that will be extremely difficult.

Thank you. Moving on to the next question. EUV mask blanks, business expansion with companies other than the North American logic players would be important. What is the progress of business with manufacturers in Korea and Taiwan? And what is the outlook?

I'm sorry, I cannot really talk about what we're discussing with our customers. But in terms of broadness of types of customers and the generations, things are constantly expanding. We're getting more inquiries. And they're really appreciating the diversity of technologies. And that's all I can say to you, I'm sorry.

Thank you. Next question. This week, the LSI Forum that is underway in Honolulu, a North American company has said that it has updated the process using cutting-edge EUV, and the mass production is going to start from the first -- last half of this year. Is it going to be positive for your company?

Well, obviously, from a longer-term perspective, the industry itself is going to have more miniaturization with more of these products, then EUV blanks and higher function in CMP slurry will be the ones that benefit. So we would like to capture demands like this.

Thank you. Next question. CMP slurry, what is your differentiation against your competitors?

Silica and Ceria, these are 2 types of CMP slurries and we do Ceria mostly. And within the Ceria type, end-to-end processing from grain, well, we're not the only one, but we also have chemical-related technology which we can take advantage of. And in that sense, we can differentiate ourselves from the competition. CMP slurry, you have to understand the chemical characteristics of the material. And also mechanical polishing technology will determine the quality. So we have a chemical department. We have a synergy, which means that we are at an advantage compared to the competition.

Thank you very much. Next question. The semiconductor-related materials, like EUV mask blanks and CMP slurry, with the increase in input costs, were you able to raise your prices to customers? And has there been any opposition from the customers for raising prices?

Well, rather than talking about raising prices, we have higher value-added high-function products addressing that part of this market. So there will be more performance required from the customers, and that is what is requested quite often. So rather than talking about price increase, we are going to increase our performance and then we can ask for more prices. Of course, in the negotiations with customers, these are determined. So once they are convinced with the performance we provide, then we don't have any problem in terms of price negotiation.

Next question. What are the current development challenges for EUV mask blanks? And at what point can you differentiate yourself against other companies?

I would like to refrain from talking about the specifics of the development, but the development request is very advanced. And whether we can address those is one of the focuses, but I need to refrain from talking about the specifics of the development because it involves our customers.

Next question. EUV mask blanks and CMP slurry, what is the utilization -- capacity utilization ratio for these products? So for the next 12 months or longer, have you been able to secure use -- to use the production capacity?

I think production capacity utilization is close to full. So for EUV mask blanks and CMP slurry, we have already announced the production capacity increase. And for slurry, we are now preparing for production capacity increase. And the road map and production plans are provided by customers. So based on that, we are securing production capacity.

Next question. What will be the impact of introduction of [ Perico ]? Will it push down the demand for EUV mask blanks?

[ Perico ] has been talked about from last year. And some of the customers have already introduced this in some of their lines. And looking at those lines, we believe that there is hardly any impact. Mask blanks is consumable, and some people said that the consumption of EUV mask blanks would reduce, but that is not the case. By introducing [ Perico ] throughput, it becomes lower, which means that maybe more mask blanks will be needed. That is being suggested. And it is used for various purposes, so we will continuously monitor the demand trend. But so far, we have not seen any impact.

Next question. EUV mask blanks production capacity increase. Do you already have the orders that you can receive for production capacity increase?

So for all the estimate, well, there is a forecast from customers that has been provided to us. And without forecast, we cannot do anything. So we do have forecasts provided from the customers. And based on that, we are proceeding with the production capacity increase.

Next question, EUV mask blanks. It's basically one company for one node. Do you think it's possible for 2 companies to go into one node? And does it mean potential share -- market share increase for you?

Well, for one single node, I believe that only one company that would be the trend, at least for the time being. But next generation is coming, node itself may change in the future. And depend -- based on that, there may be some switches.

Last question. As for the LCD panel price decline and demand decline that is being heard, is there any impact on the demand for glass?

Well, more recently, of course, we need to examine this more closely, but the LCD panel demand decline is now being heard more recently. But there's no such demand decline that is seen in glass yet, but we cannot rule out the possibility. So in that sense, the panel demand trend is something that we need to keep an eye on. And so there is a possibility that there could be an impact. So we have to be closely watching that.

Next question. There is a person raising hand in the venue, [ Ikeda-san ] from Goldman Sachs.

This is [ Ikeda ] speaking from Goldman Sachs. I have a question about slurry. Like you said, you have end-to-end production with a slurry, which is very strong. For logic STI, I understand you have special strength. Is my understanding correct? And going forward surface area per wafer will expand. So accordingly, what kind of growth do you expect? And ILDA, so other STI areas, what kind of business potential do you expect in those areas? That's my question.

It's true that we're strong with STI. Yes, we have a very -- we are very strong in that area. And your question is about the future growth?

Yes, with the size growth, so maybe the usage of wafer will increase. So how do we expect that? And also outside of logic, in memory, what kind of opportunities do you see?

Logic still is a big portion. And in terms of productivity for wafer, I will not go into details. but there may be possibility for growth depending on the wafer situation, but I cannot really talk about the details.

Thank you very much, [ Mr. Ikeda ]. From Jefferies Securities, Mr. Azuma, would you please ask questions by turning on your microphone?

Azuma from Jefferies. Thank you very much for your presentation. I have a question on CMP slurry as well. In your presentation, you said that 3D packaging process, if there is adoption in this process for Ceria, that will be favorable. So when you say 3D, I think there are so many different definitions, depending on the person that is talking about. So are you talking about [ EMIV ] or some sort of development form of [ EMIV ] or something else?

May I? Okay, the production processes themselves, this is going -- it is possible that it's going to be used in the back end of the semiconductor process -- manufacturing process. Well, one of the back-end processes may adopt this area.

Well, it's not clear what you said. So the production process themselves, meaning before you go to back end, on the wafer level, the 3D packaging is done. Is that what you're talking about?

On a wafer level, 3D packaging is being done?

Well, so maybe this is not called 3D packaging, but TSV and something that is done on the wafer level like stacking vertically. Is that the process that you're talking about?

Yes, the vertically stacking. The process to vertically stack them, yes.

Yes. So this -- whether Ceria area is going to be used for that, when are you going to find it out?

Well, we don't know. There is just a possibility, that's what I'm saying. So it's just still -- that early stage of the development.

So maybe we should look at 2025 as a time frame?

That is correct. It is just possible. We're not talking about near future.

So it is going to be logic, right?

Well, for details, Mr. Azuma, there's only one question that one person can ask. So I'd like to move to the next person. Thank you.

From Macquarie Capital, Nakada-san, please.

Yes. This is Nakada, Macquarie Capital. My question is about EUV mask blanks. Is it there is not much debt of a new entrants? And there is a big chemical company that has been developing this for several years, and this [indiscernible] are very close to entering the market. And is that a direct competition? Is that why you think there is not threat -- not much threat? Or are they targeting different customers? Or are they targeting different process node? You're doing leading-edge and the other companies doing something else.

Well, I cannot really comment on other companies' opinions or statement. I'm sorry, please understand.

Right. But you still don't see them as a big threat. Is that correct?

That is the correct understanding.

You very much for your questions. It's now time to conclude Q&A time. We'd like to take a 10-minute break. We will resume the session at 20 minutes past 5, and there will be Chemicals Company business strategy presented by the president. So please wait until then. Thank you. [Break]

It's time to start the presentation on the strategy of Chemicals Company by the President, Masao Nemoto.

Yes, this is Nemoto. Thank you. We have 1.5 hours. It's a long session. But I would like to show you the product flow for the chemicals to introduce the Chemicals Business to you. Soda ash is the main raw material for glass and former Asahi Glass, what AGC used to be, started operating 1907. And 10 years later, soda ash production was started. So we started our own production of soda ash. And in 2017, the Chemical business started. So we have a history of 105 years. And in this product flow, the chemical chain, you can see to the left, the raw salt, and this is basically NaCl, this is the starting material. And soda ash starts with raw salt. And NaCl alkali side is made in to soda ash, and we have been working on this for many years. From 1930s, petrochemical technology and chemical technology increased or improved. And many chloride derivatives were developed and commercialized in different parts of the world. So we started the electrolysis business. So the alkaline business was shifted to electrolysis business. And the soda ash business was basically discontinued in the beginning of 2000 by AGC. So this is the chemical chain in the AGC Group. And the blue highlights for alkali and the green highlights for chemicals. And the bottom right is life science. So these are the 3 different segments that I would like to touch upon today. But please understand that we are all starting from raw salt. And 105 years ago, we started this whole business from soda ash. And this is the origin of our business. Looking at this chemical chain, you can explain AGC's Chemicals business. And we have a lot of different types of chlorine-related products, the chlor-alkali manufacturer, we believe that maybe AGC is only one that has such a diverse portfolio based on chlorine. There were some other players in the past in Europe and the United States, but the companies were split into smaller companies. So we believe that our product flow and portfolio is very unique because we are doing things very comprehensively. So I just wanted to explain the historical background of this product to you. Next, I'd like to talk about the sales trend. Starting from 2011, in the 3 segments that I have mentioned, sales trend and also the OP total trend is shown on this slide. Historically speaking, up until 2012, the Chemicals products were implementing structural reform. In terms of the sales size through restructuring, we were basically increasing and decreasing in different parts. But anyway, the sales level was trending around JPY 250 billion for many years. And in 2012, we did a major structural reform for chlor-alkali, and it was completed that year. And all the shrinking measures were basically completed and finished. And since then, we have been able to focus on investment into growth. AGC Group, being a part of this group, made it possible for us to continue to invest into structural reform up until 2012. And then we became a lean organization. And since then, we have been proactively making investments into growth areas. So I've been serving as the President of Chemicals business from 2013. And before that, I was working on the structural reform with my boss. And in the last 10 years or so, we have been really been able to actively invest into growth. I'm a little bit old, but I'm basically working out my frustration from the past, so to speak. Now with regard to the 3 growth investments, I would like to provide some more explanation, starting with chlor-alkali business. You can see the explanation on the slide. But basically, the keyword is region, geographical region. So NaCl is electrolized into NaOH. And this is within the water. So in NaOH, Na and CO2. So this is an electrolysis process. And ion exchange membrane is used to separate these components. That is the electrolysis. For the chlor-alkali business, in terms of business strategy, we have a regional strategy. We believe that the regional focus is the most appropriate strategy for this type of business because NHOH (sic) [ NaOH ], caustic soda, has to be mixed with water. Otherwise, it would be just thick and it would harden and would not be able to be transported. So it has been mixed with water, half and half. We can already charge our customers for water, but transportation cost is very key. And it's not that expensive. So that means that transportation cost is quite high, which means that we should produce, manufacture close to where it's consumed, and that can be an advantage. NaOH, caustic soda, is not a main ingredient, but it is actually used for most industries and social infrastructure. And this material is absolutely essential. Main use is neutralization of alkali and acid. For example, water supply or sewage system and also power generation. Caustic soda is absolutely necessary in these different types of industries, although it's not the main material. Without this material, various types of manufacturing, production and social activities would cease and stop. So price is important motive, but also stable supply is the biggest motive for deciding who to purchase from, from the consumer's perspective. In other words, local production and local consumption would have the highest level operative advantage. And that is why we believe that regional or local strategy is the most appropriate for this business. Based on this thinking, in the past, we were selling, supplying all over Japan, but now we are only focusing on East Japan. In Chiba and Ibaraki, we have our plants, that is the reason. And we have more than 50% of the market share already in these regions. Demand is not growing very much in Japan, but as a region, we are targeting in -- on Southeast Asia. And we are expanding our business in Southeast Asian market. And as you can see on this slide, we want to capture the demand of growing Southeast Asia to build an overwhelming position. This is the basic policy of our chlor-alkali business. Moving on to the market situation of chlor-alkali. We have seen the market trending at a very high level for a while and we have received many questions about how long this level would continue or to be sustained, so I would like to address this question first. On the left, you can see the market condition of caustic soda. And on the right, market condition of PVC and also ethylene. And the bar graph shows the difference between PVC price minus ethylene, in other words, the PVC spread. Starting with PVC. From 2015, the chlorine has been appreciating over time. In terms of caustic soda, in 2017, there was a peak and then it went down and it went back up again. So the international market has been fluctuating quite a lot. But basically, chloride and also caustic soda, if you add these 2 valuations, since 2015, we can see the price level being very stable. This is our assessment. And the reason for this is there was a period of imbalance between supply and demand in the past because in [ 2000, 2010 ] there was a massive increase in capacity in China as a carbide process which was very unique. It's a little bit obsolete and also of lower productivity level. It's an old technology in Japan, but China opened up its market to the rest of the world. And because of its economic policy, the capacity was increased and it basically mushroomed everywhere. But in the last few years, environmental issues were highlighted in China and the acetylene carbide process, environmental regulation has been strengthened. And for new installation, the regulation is very tight as well. This is not limited to chlor-alkali or/and electrolytes. But the capacity increase in China had a massive negative impact on the market. And the situation improved, leading to more stable market. And in terms of demand for caustic soda, this is basically industry and economic development. In other words, in Southeast Asia, we are seeing similar growth as GDP, and that's what we expect into the future as well. With regard to PVC, the U.S. is the biggest consumer and the infrastructure is aging. So there is a strong demand. In Southeast Asia for water supply and wastewater as well as electric wires, social infrastructure investments are being made very actively, which means that the demand is strong. But excess capacity was resolved in terms of supply, they basically disappeared. So demand/supply balance. Assuming that China would not come back with ethylene production very quickly, we believe that there will be a stable demand. But caustic soda is above JPY 800. And for chloride as well, the level is quite high at this point in time. But we believe that it will go down or go back gradually slowly. Last year, in North America, around the Gulf area, the production was damaged due to cold wave, cold front. And in summer, there was a massive hurricane that [ cause of ] damage. So demand and supply balance was unusually tight, pushing up the prices. Since then, you may remember that from autumn last year, [indiscernible] was regulated and controlled in China. And we are still seeing some residual impact. We believe that the market will stabilize to some extent. But the fundamental demand and supply structure is as I have just explained. In other words, we would not expect a big dip in these price levels. So the market structure, market status has changed somewhat. And on this slide, you can see the growth in the world for the caustic soda and PVC. We believe that the growth will follow the growth level of GDP because it's a very essential basic material. In Southeast Asia, we would definitely see growth according to our forecast. And looking at the Southeast Asia alone, this is the supply and demand balance. So from 2015, the bar graph shows demand within ASEAN region. And the yellow dotted line, the curve, shows the production level within ASEAN region. And the blue dotted line shows production capacity of AGC Group, Indonesia, Thailand and Vietnam, 3 countries included. So this is the production capacity of AGC Group as a whole. And as you can see, demand is showing approximately 4% growth, which is quite solid. And my point here is that Southeast Asia and ASEAN is dependent on import from outside ASEAN region. And the AGC Group at this point in time has a 50% share based on the production capacity. As I have mentioned before, judging by the characteristic of caustic soda, local production, local consumption is an advantage. And we have this much share and also advantage, which means that we already have built ourselves an overwhelmingly strong position. And in 2017, Vinythai from Thailand was acquired by us from Solvay and that pushed up our regional market share by a large extent. And as you have seen in the newspaper articles, we have decided to double the capacity in Thailand which will come online in 2025. Demand within the region will continue to increase. And our business will also continue to increase. We will be focusing on protecting our overwhelmingly strong position in order to further promote the growth within this region. This is not just limited to the volume. As a supplier that is close to the customer in terms of technology, logistics, we will be increasing our competitiveness. Next, looking at PVC, the situation is very similar. For PVC, transportation cost rate is not as high as caustic soda, but caustic soda advantage can be leveraged for PVC and we can provide PVC to users who are close to our manufacturing sites. And this is where we can have an advantage in this region. Again, this region is relying on imports. So we will continue to capture the opportunities and we believe that there is much more room to increase capacity in the future. And for chlor-alkali, this is the last slide, key success factors for this business and what we are thinking in this business is explained on this slide. So we want to maintain our leading strong position within the region. And we took some time to bring ourselves to this position. We want to maintain this position based on the economic and demand situation and we will continue to increase the capacity according to the situation. We will continue to improve technological competence and enhance our competitiveness on many fronts. Although this is not mentioned on the slide, I would like to mention another strength of ours. So when salt is electrolyzed, 0.9 tons of chloride is produced from 1 ton of salt. And alkali and chlorine demand/supply balance differs from one country to another. So multiple manufacturing sites and multiple markets, if we have access to multiple of both, we can actually strike the right balance. It is easier for us to strike the right balance. So for the ASEAN region, as a whole, we want to have multiple manufacturing sites so that the chloride and alkali balance can be sustained and that would help us achieve the right balance for the whole business. So although we are focused on Southeast Asia, we have multiple locations. That's why we have a strength in this business. Next, I would like to move on to the fluorochemicals. For fluorochemicals, within our Chemicals business, this product has a very long history. Selling volume products or generic products has not been our strategy. DuPont was really great. They were the top manufacturer, although they withdrew from various segments by now. But anyway, there were some giant companies in the West doing business globally. And they were employing their technologies. But we wanted to go into niche market and also hone our own technologies, that has been a focus. So this business has very high asset efficiency. Development capability is enhanced constantly. And the reason I'm explaining this to you today is because if you look at the western manufacturers, they are getting weaker in the synthetic chemicals these days. And DuPont, for example, has decided to exclude fluorochemicals from their core business. Now as you see, we want to become a global niche strategy -- we want to become a global niche player in specific markets in the world. So we have changed the strategy recently. We don't go after volume or mass-produced products necessarily. We have a technology, as you see. We have manufacturing expertise know-how. And we can really provide really special products. Now we're able to do that because the environment has really changed. The competitive conditions and the market structure has changed dramatically, which enables us to become global top niche player. And I would like to show you some typical examples of what we are doing in this area. Now this is 1 of the fluoro polymers, ETFE, [indiscernible] characteristics are taken advantage of and AGC has been building various applications over many years which are now applicable. So this is a polymer with a specific characteristics. And price is quite high as well. Used in semiconductors and aircraft, aircrafts, and also structures, membrane structures. In terms of durability and also [indiscernible], we are supplying products where it's needed. So this is not multipurpose, general purpose polymer at all. Moving on to the next slide. So 70% or higher global sales share has been achieved and the manufacturing capacity is higher than 90%, I believe. We have been working on this for many years, adding more functionalities over time. And there is something called Fluon+. You may think this as a water repellent. The material's water repellent. It's very difficult to give it adhesivity, adhesiveness. But we have ETFE with adhesiveness. So we're actively promoting this product globally. In 2021, last year, the manufacturing capacity was increased by 1.5x in order to respond to growing demand. Moving on to the next product. This is a specialty business. For fuel cell and hydrogen cells, we have monomer and polymer products. I cannot really cite the name of the customer because of the contract, I hope that you understand my situation, but if you think about hydrogen fuel cell vehicles running around the world, all of them, each one of them, every one of them, is using our polymer. By saying that, I'm almost saying the customer's name. And based on this, we want to contribute to hydrogen society. So hydrogen generation process, hydrolysis, our electrolyte polymer can be provided for this purpose. The project has been formed and we are actively working on this. The membrane using fluoro polymer in this segment, we already have established an overwhelming #1 position. But there are only very few hydrogen cell vehicles, but they have a huge potential. Outside of Japan, in countries where they are really heavily promoting hydrogen society, we can expect rapid growth. Moving on to the third item, third example, this is gas refrigerant used in air conditioning and refrigerators. In 1995, because of ozone layer distraction and problem, [ GHGs ] were removed. And the gases used right now have high GWP, global warming potential. And our imminent task is reduce this. 1123, 1234yf, this is a chemist perspective, Chemist's name based on the chemical formula. But if you look at the refrigerant gas global market, it's approximately JPY 780 billion. And this turbo refrigerator is being switched to 1234yf very quickly. Because of many restrictions I cannot say many things about this, but what I can say is that 1234yf, AGC is the first company who successfully commercialized this and we're still supplying this. And 1234yf will be the mainstay in automotive air conditioning system. And for the rest of the segments, there is a competition for alternatives. And on the right-hand side, you can see another graph which shows you the HFC reduction schedule. Developed countries need to reduce first, followed by developing nations. But once the alternative is developed and becomes available, GHG reduction and GWP reduction is a big requirement. So if there is a good alternative, this replacement, the switch may be front-loaded. 1123-based gas development. Well, 1123 itself has been developed, but also it's mixed with another type of gas. And this is something that we have been working on at AGC. And finally, we have seen good results in terms of safety and registration will complete in 2023. ASHRAE is the American Society of Heating, Refrigerating and Air-conditioning Engineers, and once this is registered there, it will be accepted as a refrigerant by the whole society. So air conditioning development manufacturers, part of the co-development team. We are also working with [ NATO ]. 1123 targets the blue section, the whole blue section of the pie chart on the left-hand side, which means that AGC will be able to access a huge market using 1123. And once 1123 becomes available, we know That performance-wise, it's much better than others. So we believe that there's a very high probability that 1123 will be used once it's out there in the market. Lastly, I would like to move on to Life Science. I'm talking about 3 different businesses, and this is the last one. I will start with the market situation, but I think this is already common knowledge. Small molecule, biologics and gene and cell therapy, different types of technologies. And also, you can see the trend of demand in the past. Gene and cell therapy have been growing recently, quite tremendously. And small molecule pharmaceuticals are still growing in green, but bio is also growing very strongly. It's not just about the technology. Large pharmaceutical companies tend to outsource their manufacturing these days. Development and obtaining new IP is a focus of the management resource allocation by large pharmas. And the manufacturing production itself is getting outsourced. And in line with the trend, there is a big growth in the CDMO market. And I'm sure that you're already fully aware of this. So AGC Life Science business, I would like to talk about its strength first. First, production network catering to customers' needs. As you can see here, since 2016, we've been doing business overseas and it's been more than 5 years and we have this many overseas locations now, in U.S., Europe and Japan. In those 3 regions we have established our locations and we are continuing with that effort. And in those 3 regions, standardized production, our product quality and service quality is being provided. Everywhere, you can get the same quality. That's what we are aiming for. Of course, a high level of cGMP production is what we are providing in supplying our products and starting from the clinical trials over to commercialization. This refers to the flexibility of our production system. So from the smaller scale for clinical trials, over to the large scale of commercialization, we can respond to these requirements. And also, you can see the synthetic microbial and others, but all the technologies that have been demonstrated have been already gained by us and we have been demonstrating that and we are providing those technologies to customers. So we can provide a very wide range of services. And that is one of our strengths that I would like to highlight. The second is the track record in commercial phase manufacturing. So for commercial phase pharmaceutical products, obviously, to pharmaceutical manufacturing, if they fail, that will be a big trouble for them. So you have to have a track record -- CDMO with a track record. And you have to have a trust relationship with the CDMO. Otherwise, they wouldn't trust their production to CDMO. So there is a higher level of control that is required. But once you get this commercialized product deal, basically until the product is discontinued, we will be able to have business. At the time of the development stage, depending on the -- which of the stage of development you talked about, that could fail along the way. But once you are in the commercialization phase, it's -- the business is more stable. So in commercialized phase, at the time of 2019, the portion of our mix is smaller, but this has been now increasing. So a certain level of portion has to be provided by the commercialized products and that is what we're aiming for. So in that context, initially, what I said is about -- what I said about the production system is relevant. We can address the various sizes, from smaller to larger sizes. In that sense, what characterizes our business is that we can provide single-use pack or disposable pack. 2000 liter can be provided in 6 packs, up to 2,000 liter to 12,000 liters. There is flexibility in this whole range of spectrum. And we can receive orders for any size of this spectrum and that is the flexibility. But once you get into commercialized phase, of course, this depends on the negotiation with the customer, but if you're talking about a much larger and more stable commercialized product, then you need to have larger [ plan ] that could more appropriate and suit the needs of the customers. In some cases, in North America, we have 20,000-liter production equipment has been gained -- acquired. So we are trying to increase the share of commercialized products for our services. But in terms of our business model, the early stage and late stage in commercial of the development and commercialized phase, we are providing services throughout this whole process. And we -- our production system is quite flexible to address any of those stages' needs. As for the track record of manufacturing, well, on the left. You can see our locations, FDA and EMA, they are quite strict in their inspections and audits. Of course, we have a rich records of audits. In other words, we have been certified by those agencies and that is the most important point. And then the technological competence. As I said at the outset, all the demonstrated technologies are acquired by AGC Group and we can actually respond to the needs for these technologies. So in terms of technology, single-use technology has been acquired as one of the first players to do so for biopharmaceuticals. And in the Heidelberg, for coronavirus vaccine, messenger RNA can be also addressed and taken care of. And also last year, we acquired gene cell production facility acquired for Milan. And we were convinced that we can go for DNA. And then there is Longmont in the U.S. and we have acquired this business from the U.S. manufacturer. And this is now being ramped up as a North American manufacturing site. We're in the process of that. So in this gene and cell therapy, last year we made acquisition. And we did demonstration in Italy. And already that is being deployed in North America already. So that's the current plan. In Japan, there could be the deployment of this technology and that is what we are considering. Excuse me. So as for the technological broadening, if you can take a look at the schematic. On the top, you see the technology access. You see pharmaceutical and agrochemicals, microbial and mammal cell-derived proteins. And then vertical axis shows the regions, Japan and U.S. and Europe. Up until 2016, the synthetic agrochemicals in Japan and microbial derived proteins in Japan, those are the only 2 that we were doing. And then in U.S. and Europe, we deployed microbial-derived proteins. And then CMC was acquired. And mammalian cell-derived proteins is something that we entered as a newcomer. And then in U.S. and Europe, we secured a location. And already technological transfer has been done in Japan and commercialization is now being done in Japan. And then as for cells and gene therapies, in Italy, in U.S. and Europe, we made acquisition in last year and this has already been transferred to North America. And also technological transfer is now under plan for Japan as well. So we are quite greedy, the new technologies that can be demonstrated. And we are deploying those technologies in each of those 3 regions so that we can provide standardized quality and provide them in the same manner. That is a system that we are now establishing. And this is the last slide for Life Science. So on the left, the initial stage, late stage of development and commercial stage. The development stage is shown on the vertical axis. So we can provide services in an integrated manner. And also in terms of size, single-use pack can be provided. So we have a very flexible production system and that is used as a basis. And then there is a stainless steel, large-scale tank can be also used. So there is a wide variety and spectrum of flexibility in terms of our production system that we can take advantage of. And this is the last slide for Life Science business. Starting from the left, in 2016 and '17, 6 or 7 years ago, maybe use -- we think that we started around there. But actually, for the past 40 years, AGC has been making investments in development for bio products. But doing business overseas and also focusing resources in CDMO was started in 2016. And for these growth markets, we are focusing our investments and that is being continued. Next page. This is the plan. Already in 2021, as Life Science, we have achieved a target 4 years earlier. And we have achieved JPY 115 billion and we have already made investment that can provide JPY 200 billion in sales. And maybe in 2024, we can achieve the plan of JPY 200 billion in sales 1 year earlier. That is expected originally for 2025. So we would continue to do optimal investments in a rapid manner, that is what we're planning. And so this is the modality of the technologies -- so next -- in the next phase for regenerative medicine, we are now studying the possibility. So this is the flow that we're going to follow. So technological, stable growth era and large-scale growth period for all products. And antibody drugs are in the rapid growth stage. And also in gene and cell at the initial stage. And we are going to work on each of these. Now the last one is sustainability issues. With regard to sustainability, as AGC Group, it's extremely important management issues. And as chemicals products company for more than a decade, company vision of Chemistry for a Blue Planet has been determined. And in terms of era, I think we are ahead of others, in my view, when we established this and various initiatives have been pursued. Especially, with regard to GHG, what are the initiatives that you we working on? This is the last item for my presentation. Obviously, this is the group target against 2019. In terms of absolute amount, we are going to reduce the emission by 30% as AGC Group. So compared to 2019, for chemicals company, the scale would be several times larger, but the absolute amount should be reduced by 30%. However, for this, course, on our part, this is one of the conditions for continuing the business and we have to achieve this target and we have to make promise that we are going to achieve this. And there are various initiatives are being studied and some are already being implemented. So we're going to achieve this. However, as I said, the caustic soda and PVC, those are quite essential for social society and people's life, but electrolysis is used to produce them. So for us, we should not stop supplying these products because that is also another form of contributing to society, in our view. So the 30% reduction by 2030 in absolute amount, we are going to achieve this. And for the chemicals company as a whole, the CO2 intensity or the CO2 amount per unit of sales is going to be also a very important index for us. For chemicals company this is just an internal matter, but at the moment, as of 2019, CO2 intensity in 2030 should be reduced to less than 30%. So that is what we're going to aim for. But in terms of business structure, the fluorochemicals and life science, they should be aiming for the carbon neutral. And the carbon or GHG is quite low and favorable for carbon neutral. But chlor-alkali should be increased in order to contribute to society and we will achieve the 30% reduction. And the CO2 intensity will be reduced. And 30% against 2019 is something that we would like to achieve internally, even though this is not official yet. So that's all for myself. Thank you very much.

Next, we'd like to move to the Q&A. [Operator Instructions] The first question. The chlor-alkali business is going to have a favorable business environment because of business -- market structure changes, but the market has increased sharply. So the other around could be true. You said that demand is going to grow stably. But isn't there any possibility that demand could go down temporarily? Any thoughts?

Thank you for your question. Well, the sharp increase in prices you said, and you're quite knowledgeable obviously, but as I said, to some extent, in terms of market prices, there could be some softening. So in North America, there was cold wave and typhoon and there was a power restriction in China. So there was quite a trouble and disruption one after another. However, as I said earlier, as another point, the business viability or profitability, we don't see too much possibility of a sharp deterioration in profitability. Why? As I said, so there is excessive production capacity that was held by Chinese players, but they have been changed and disappeared. And also, demand is growing steadily. And if you look at the supply side, earlier, I said that GHG will be prioritized or the reduction of GHG should be continued. But at the same time, we have to continue to provide. Chlor-alkali products are essential to society, that responsibility has to be fulfilled. And so there is a high hurdle or high bar to overcome. There is even stricter regulation in U.S. and Europe and there could be carbon tax to be imposed. So you cannot casually increase the production capacity and there's issue in China. And the environmental regulation is something the Chinese government is working on. And their way, their approach is quite significantly changed. So in terms of supply, there could be quite a tight situation that will be continued. So in that sense, so the prices may go down slightly from the present level. But if you say there's no possibility, then that may not be the case. But there could be a possibility, but in terms of profitability, I think the favorable situation is expected to continue. That is our view.

Thank you. Next question. Caustic soda market and PVC spread. Second half of 2022 and 2023, what kind of price level do you expect? In 2020 because of the lower price, chlor-alkali business OP also declined. Do you think you would expect a similar situation? And capacity in Thailand is increasing. If the market share increases because of that, we will be less likely to be impacted by the market changes. In that case, do you think you can sustain OP of 15% or higher for chlor-alkali business?

This is close to the first question, so my answer will be quite similar. The level may be lower than the current level. But still, for several years, we don't expect a major decline of this level. 15% of operating profit, well, it's difficult for me to cite a specific number. But my personal feeling is that for the next several years, it may be possible. It would be possible. Capacity increase in Thailand, well, the increased production will be consumed immediately because of the local demand. So that's the level of capacity enhancement that we're talking about. And I cannot see how the market structure would change very soon.

So in order to understand the advantage of local production and local consumption of caustic soda, you have locations in Japan, Indonesia and Thailand. So producing and selling this year and bringing in the products from Japan, what is the cost difference?

Well, to answer that freight difference, and also, there are various charges imposed, $50 to $70 or more than that is the difference that you are talking about.

Thank you. Next question. For fluorochemicals chemicals, to what extent do you have a fixed price contract? And if you have a fixed price contract, input cost increase, does it have to be absorbed by AGC? Or based on the input price increase, can AGC increase the price accordingly?

We don't have many fixed price contracts. Mostly it's basically one-off contracts, so price is determined each time accordingly. If the input cost increases, do we have to absorb it as AGC? That's the next part of the question. Well, for fluorochemicals, we don't do a lot of multipurpose or mass use product business. And customers need to pay a lot of cost to switch from one to the other. So in terms of cost increase, well, there's less competition compared to the general-purpose product, so it's relatively easy for us to increase the price. For fluorochemicals, as a whole, market, supply and demand is now entering a tight phase. There is a tight -- tightening trend. So more than the cost increase, we are in a situation to get the price higher than the cost increase.

Thank you. Next question. A refrigerator -- a refrigerant 1123, once it is registered, what is the slope of sales growth that you can expect?

Well, once it is registered, initially, it is going to be used as a sample. For example, the chiller manufacturers and machine manufacturers will just start using this on an experimental basis. So this is how we are going to start initially. The point is the regulation. And in the developed countries, around 2030, that emission has to be reduced significantly. And once 1123 gets registered, and then the regulation could be moved up as well. So honestly speaking, the very end users, like those who are using coolers and chillers, what sort of gas is inside is of no interest. However, if it is not -- if -- once it is prohibited to be used, then it will change. And that change comes in accordance with the regulation. So the developed countries, regulations and regulations in developing countries as well, in accordance with those regulations, the sales could start to grow rapidly. So that is what we have seen in the past as well. Otherwise, there's no motivation to switch to other refrigerants. Therefore, so if you are asking me what would be the slope of the growth rate after 2025, there will be a rapid increase probably. Because 1123, there's no sales whatsoever, 0. So the production, in accordance with that estimate, should be also prepared and that should be done before 2025. Of course, we are not going to do this alone probably. There will be patents used by us as a weapon to do production around the world. And then we are going to also tackle on selling the products. So that is what is going to happen.

Thank you. Next question. For fluorochemicals, ETFE business and the electrolyzed polymer as well as new refrigerant are friendly to the environment, what would be the size of the revenue or sales for each?

ETFE, fluorochemicals chemical specialty number right now is -- I think we have that, right? Page 5. Yes, this is the one. Fluorochemicals and chemical and specialty sales last year was JPY 123.9 billion and approximately just under 30% of that is ETFE. Excuse me. And for electrolyzed polymer, we are actively expanding sales and we want to bring it to the JPY 20 billion level in the near future. And for the new refrigerant, it's more friendly to the environment, it really depends on which time point you're looking at. For example, according to this pie chart that is shown on the slide right now, the light blue part will all be covered and unit price will be higher than the conventional refrigerant. So this is an optimistic estimate but the target market is about JPY 400 billion. JPY 400 billion, and we have to look at the yield. And I think you can more or less figure out the number. It's that big.

Thank you very much. Next question. The business scale of [indiscernible], for example, 1123, if it is approved in the U.S. around 2027, what will be the sales that you're expecting?

Well, in 2027, there is not going to be that much because if it is approved next year, of course, how much I'm not sure. Well, target market, as I said, would be JPY 400 billion. And we are going to use patents and also form alliances. And if the yield is 50%, then JPY 200 billion. So that is going to be the market that we're talking about. So initial -- in the middle of the initial year is 2027. So it's very difficult to answer that question.

Thank you. Next question about fluorochemical. Raw material cost increase and the price for the customer, if the price increases, is there a time lag between the 2?

It really depends on the supply-demand situation. Fluorochemical business, we're not building a price competition with other companies in general purpose use. So if we want to increase the cost, if there is a cost increase, we ask the customer to increase the price. And if it can be justified, we always try to increase the price to our customers. We ask the customers to accept that. And it's relatively easy to do that because of product structure or product mix. Cost increase versus price increase to the customer of -- of course, logically, there is a time line between the 2. But relatively speaking, this time lag is short for us and raw material cost hike. Well, regardless of that, we can determine the price for the customer for the chemical products.

Next question is for Life Science business, the commercialized products deal shares increasing? And is it also bring up the profitability, JPY 155 billion 2023 and JPY 200 billion for 2025. Those are the sales targets, what will be the operating margin in each of these years.

In terms of operating margin, as you know, we are now in the process of upfront investments proactively, one after another rapidly. So in terms of operating margin or profit, for example, at this moment, in the U.S., what we acquired in Milan, the gene cell therapy facilities transferred from there to the site in Colorado and 200 and 300 people are now ramping this up, but there is no sales. And Longmont is now in the process of ramping up. No, not Longmont, but the Boulder. So we are doing upfront investments to increase production capacity. That's what we are now -- where we are now. So in terms of operating profit, that is the burden actually. So we are at that stage, I would like you to understand that first.

So there will be a larger fixed cost upfront incurred. But we are making that much upfront investments, but we are still generating a certain level of profit. So in 2023 and 2024, for example, JPY 200 billion for 2025. ROS at least 20% to 30% is something that we can aim for. 20% is essential or rather achievable.

So once again, in terms of operating margin, that's about, so that's how we answer. But if you look at the EBITDA, maybe we can put it differently, but perhaps 20% to answer your question. But once the commercialization products share increases the profitability increases, yes, that's the currently in the [ study ] because capacity utilization will be -- become more stable, basically. So what you said is right.

Next question, in Bio-CDMO business, are you in direct competition at the competition against the Lonza, Samsung, WuXi and Fujifilm? Or are you aiming at something else or targeting something else? And compared to those companies, what is the unique and strong about AGC?

I would be lying if there is no large competition, but there are very few and the differentiation strength is -- as I have explained earlier, Japan, U.S. and Europe, we have 3 different regions, and we have flexibility in our production, manufacturing. And also we have modality and technology that is commercial [indiscernible] can provide everything in all these 3 regions in many sites. So in any of these 3 visions, we can provide services according to standard GMP in terms of quality. We can provide that. So only the players that -- well, none of the players that you have mentioned are able to provide this globally like we do in all the 3 regions. So within the pharma industry, of course, there are other CDMOs. And of course, there are always competition or competitive relationships. But -- our aim is a little bit different. Well, Samsung, WuXi, they go for large scale but our overall tactics is in the beginning and late phase of development and we get involved and sometimes it reaches the commercial phase as well and from development phase. Always, we try to incorporate them into the pipeline so that we can do this on a continuous basis. And -- we're not really going after so-called blockbusters. We try to get deals, projects, even if it's a smaller size so that we can build a strong trust relationship with our customers. So from that perspective, maybe we are different from Lonza Samsung use. Also maybe a little bit closer to what we're doing. But still, I see the difference. And single pack use, we're working with machine manufacturers and we are using this [ like a pioneer ], and we have been developing this with the customers. And that is the foundation of our platform. So that is again a different perspective from another manufacturer that would use stainless. Thanks a lot. And we believe that we can turn our customers into our fans and sugars. So we're not really selling products or things, it's different from a chlor-alkali or fluorochemicals. We're not really selling physical stuff -- so it's important to get repeat orders. So yes, there is competition. I realize, but we want to be a manufacturer that is strongly trusted by our customers, but we can go in higher and our customers would want to follow us when we aim for a higher level. So this is different from the competition based on physical things that are being sold. The competitive relationship is different in that sense.

Let's move to the next question. With regard to CDMO business, sale of gene therapy the ones that you have accumulated for the past few years, are they going to drive the growth? Or new deals? Is it the new deals that will drive the growth.

Well, what we have accumulated and established. It's not clear what the intention of the question is.

So in the current business, the chain cell therapy business is going to grow based on what you have already acquired? Or is it going to be driven by the ones that you're going to acquire from now? Well, the latter?

Well, the gene cell therapy is at its infancy. In other words, honestly speaking, it has yet to happen. So for these at least as CDMO -- if you look at various CDMOs, AGC Biologics is the only one, and there are a very few others. There are some pharmaceutical manufacturers are doing this, but there's no demonstrated CDMOs for gene and cell therapy. So including business model, there is a lot to be figured out going forward -- so everything is going to start from now. But for rare diseases, there are effectiveness compared to other types of therapies for gene and cell therapies, and there have been many cases where that has been recognized. So there is going to be a big demand that is going to happen. But it's not the case that there's a lot of pipeline that we have to capitalize on. I think that's the answer.

Thank you. Next question about CDMO. Looking at the slide, this year compared to last year, you have fewer early phase development projects. And that might decrease the expectation for a profitability increase over long term. What is the right balance between commercial phase development, a late phase and early phase balance. I can see that it looks like it's decreasing, but that is not the case. It just looks like this.

I understand what you're saying, but we have no intention of decreasing this. If anything, from '19 to '22, we have been increasing the production capacity, quite aggressively. So early or late phase of development. I see early phase is may be decreasing, but this is just by chance, by coincidence. That's not our intention. And what is the optimal balance is your question of AGC Biologics, based on its structure and size, not generally speaking, but considering the current status of AGC Biologics, 70% of commercial phase is probably appropriate in terms of our sales size. That is our current thinking. I hope that was the question.

So then as the next question. As for CDMO business, JPY 10 billion capital investment, how much sales are you going to achieve in sales in the future? Is there any rule of thumb? And how should I look at the investment being translated into revenue?

Well, for CDMO, we have synthetic pharmaceuticals or small molecules or microbial cells and mammalian cells. And then we're talking about microbial and gene and cell therapies. So as you saw in the graph, the stable growth and other growth period and each of the markets being at different stages. -- depending on where they are, I think that is quite different. So the revenue on the capital investments in terms of rule of thumb, well, for small molecule or synthetic pharmaceuticals, maybe we could save some figures, but for biopharmaceuticals, like mammalian cells and others. It's very difficult how to put this, but I'm not sure if this is a rule of thumb, but if you look at our track record that we have established together with the customers. We have been given quite high rating, and that is one of the reasons. But once we increase the production capacity, then it will be immediately ramped up to full capacity operation. And the production capacity increase has been continuing, continuously down. And in terms of capital investment, as much as possible we are going to pursue M&As and by the whole plant together with the people working there or we will increase the production capacity in the existing facilities. So we are taking this two-pronged approach. And in the pharmaceutical manufacturers, they are sometimes divesting their production facility. And if this is a good -- if that is a good deal, then it is going to be a huge acquisition for us. So because we do have the expectation for viability of the business, we are making this much investment. That is as far as I can go in terms of answering your question.

Next question will be the last one. So about the capacity increase in Southeast Asia for chlor-alkali, GHG intensity emission, will it increase or decrease clearly. And investment intensity is not going to increase for this kind of facility. We're not talking about headcount costs, salary, but this is a manufacturing facility for end-to-end production. And this AGC has no helpful process and manufacturing facility chlor-alkali to reduce GHG or is that owned by plant manufacturer.

By 2050, we want to achieve carbon neutral 0 GHG emission. We have this mission and vision. And by 2030, which is less than 10 years from now, we want to reduce by 30%. And this is something that we need to achieve. Chlor-alkali, well, achieving beyond 2030 is another story. But the biggest challenge right now is electricity. Electricity has to be purchased or generated and the quality of electricity has to be changed, a source of electricity has to be transformed. That is going to be the biggest focus. For example, if we want to electrolyze sold, of course, we will try to increase the efficiency and reduce the intensity. But low GHG electricity procurement may matter or maybe switching our own power deletion to low GHG that would be much more effective. So this is what we want to focus on up until 2030. Of course, we will be doing other things, too. Like I said, we will improve productivity and then do everything else we can, too. But we believe that the electricity is going to have the biggest impact. So chlor-alkali manufacturing facility. It's not about what we manufacture, it's manufacturer has the expertise. It's more about what we decide to do as AGC. What kind of paths do we select? And what kind of heat source do we select for our own power generation. And this is a question that we have to ask ourselves and address. And we are intending to address and CO2 emission rights purchase is another measure that we will include so that we can achieve the 2030 target first. And this is absolutely necessary for us to continue our business into the future. Now facility investment intensity is not going to increase in line with that. Well, this is a little bit different from what we're trying to do up until 2030. It's a different perspective, I would like to say.

It's time to close the Q&A session. We would like to thank all the participants for taking time from their very busy schedule to join us today. As you see IR Day 2022, day 2 is now completed. After closing the Zoom screen, you will be directed to a questionnaire screen, which will only take 5 minutes. And please respond to the questionnaire so that we can improve our activities into the future. If you have further questions, please contact us at 03-3218-5096. Thank you very much for your participation once again. And goodbye.