AGC Inc. (SHJ.MU) Q2 FY2025 Earnings Call Transcript & Summary

We will now begin the earnings briefing of AGC for the second quarter of fiscal year 2025. Allow me to introduce myself. My name is Kazumi Tamaki from Corporate Communications and Investor Relations. Today's participants are as follows: Representative Director, President and CEO, Yoshinori Hirai; Representative Director, Senior Executive Vice President and CFO, Shinji Miyaji; and Executive Officer, General Manager of Finance and Control Division, Tomoyuki Shiokawa. We'll first have presentation on the earnings results of the second quarter from CFO, Miyaji; and then CEO, Hirai, will give presentation on the subject of addressing management issues. We will then have a Q&A session. We are to end at 4:00 p.m. Japan time. Your cooperation is appreciated. First, presentation by CFO, Miyaji.

Hello. This is Shinji Miyaji, CFO. Please turn to Page 3. These are the key points. Net sales decreased by JPY 19.7 billion to JPY 995.5 billion due to a decrease in shipments of architectural glass, lower selling price of PVC resin and the stronger yen, despite improved product mix for automotive glass, the effects of pricing policies and higher selling price of Performance Chemicals. Operating profit, while seeing the effects of profit improvement measures was down JPY 2.7 billion to JPY 54 billion due to the sales decreasing factors just mentioned as well as rising raw material and fuel prices. Net income attributable to owners of the parent increased by JPY 128.4 billion to JPY 13.9 billion, despite the profit decreasing factors just mentioned, owing to the nonrecurrence of items recorded as other expenses in the previous year, namely the loss of the sale of shares following the Russian business transfer and the large impairment loss on biopharmaceutical CDMO. Page 4. We have revised our full year forecast due to lower-than-expected performance in the Chemicals, Life Sciences and Electronics. Net sales down JPY 100 billion to JPY 2.05 trillion, operating profit, down JPY 30 billion to JPY 120 billion and net income attributable to owners of the parent, down JPY 23 billion to JPY 57 billion. The dividend forecast remains unchanged. Page 7. Sales and operating profit were as explained earlier. Profit before tax was affected positively by factors explained earlier in relation to the net income attributable to owners of the parent as well as negatively by such factors as impairment losses at the biopharmaceutical CDMO recorded in the first half of the year and foreign exchange losses. Page 8. Performance by segment. Architectural Glass, lower sales and profit; Automotive, higher sales and profit; Electronics, lower sales and higher profit; Chemicals, lower sales and profit; and Life Science, improved profit. Page 9. Various analysis of operating profit compared to the same period of the previous year. Sales volume, selling price and product mix, a positive JPY 7.3 billion. In addition to improved product mix for automotive glass and the effects of pricing policies, the selling price of Performance Chemicals increased. Raw material and fuel prices, a negative JPY 8.9 billion and cost and others, a negative JPY 1.1 billion. As a result, operating profit decreased JPY 2.7 billion to JPY 54 billion. Page 10. The financial position. Total assets were JPY 2,804.9 billion, down JPY 84.8 billion from the end of last year. Of this, the impact of foreign exchange rates was JPY 48 billion. The debt-to-equity ratio was 0.41. Page 11, the cash flow statement. Operating cash flow was JPY 117.1 billion. Investing cash flow was minus JPY 87.7 billion, resulting in free cash flow of JPY 29.4 billion. Page 12. CapEx, depreciation and R&D expenses. CapEx was JPY 96.9 billion; depreciation, JPY 88.2 billion; and R&D, JPY 28.5 billion. Major CapEx projects are as listed below. Next, some details by segment. Page 14. The Architectural Glass, net sales were JPY 210.8 billion, operating profit, JPY 3.2 billion. In Asia, sales decreased JPY 3.2 billion to JPY 70.7 billion due to lower shipments in addition to lower selling prices in Indonesia and elsewhere. In Europe and the Americas, sales decreased JPY 10.9 billion to JPY 138.7 billion due to lower shipments in Europe, the transfer of the Russian business in February of last year and the stronger yen despite the positive effects of our pricing policy. Operating profit decreased JPY 6.9 billion due to the lower sales factors mentioned above and rising raw material and fuel prices. Asia accounted for approximately 40% of operating profit; and Europe and the Americas, approximately 60%. Page 15, the Automotive segment. Net sales, JPY 255.7 billion; operating profit, JPY 15.1 billion. Shipments decreased in Europe and the Americas but increased in Japan. In addition, an improved product mix and the effects of pricing policies resulted in a JPY 3.8 billion increase in net sales. Operating profit accordingly increased by JPY 4.6 billion. Page 16. Electronics segment. Net sales was JPY 168.1 billion; operating profit, JPY 24.4 billion. In the Display segment, over shipment of glass substrate for LCDs increased. Due to decrease in shipments of specialty glass for displays, the sales was flat at JPY 90.1 billion. Electronic Materials net sales decreased by JPY 1.3 billion to JPY 77.2 billion due to lower shipments in semiconductor-related materials such as EUV mask blanks as well as a stronger yen. Operating profit increased by JPY 4.4 billion due to profitability improvements. Operating profit breakdown was approximately 60% for Electric Materials and 40% for Displays. Page 17. Chemicals segment. Net sales was JPY 285.9 billion; operating profit, JPY 22.5 billion. Essential Chemicals saw a decrease in net sales of JPY 12.1 billion to JPY 189.1 billion due to lower sales prices of PVC. Performance Chemicals saw an increase in net sales of JPY 7.2 billion to JPY 94.6 billion due to higher sales prices. Operating profit decreased by JPY 5.1 billion due to higher manufacturing costs resulting from large-scale regular maintenance at some facilities. Operating profit breakdown is approximately 30% for Essential Chemicals and 70% for Performance Chemicals. Page 18. Life Science segment, net sales was JPY 63.5 billion, operating loss, JPY 11.9 billion. Although shipment increased due to the start of operations at expanded facilities for biopharmaceutical CDMO, sales remained flat due to the absence of one-off revenues from contract projects recorded last year as well as production issues at both the site. Operating profit benefited from cost reduction measures for fixed expenses in the biopharmaceutical CDMO, but due to the revenue decline factors that I mentioned, the result was a loss of JPY 11.9 billion. Page 19. Performance of the strategic businesses. Overall, net sales increased by JPY 6.6 billion year-on-year to JPY 235.7 billion, driven by growth in Performance Chemicals and Mobility. Operating profit benefited from the effects of cost reduction in the Life Sciences segment, but due to temporary shipment slowdowns in Electronics and the impact of regular equipment maintenance in Performance Chemicals, it was only slightly higher year-on-year. Page 21. Full year outlook. As mentioned in the outset, we have revised downward the outlook announced on 7th of February. We expect net sales to decrease by JPY 17.6 billion year-on-year to JPY 2.05 trillion, operating profit to decrease by JPY 5.8 billion to JPY 120 billion, income before taxes to increase by JPY 147.1 billion to JPY 97 billion, and profit attributable to owners of parent to increase by JPY 151 billion to JPY 57 billion. We have revised our FX assumptions to JPY 147 to the dollar and JPY 163 to the euro. Please refer to Page 22. Key points of the revised outlook by segment. Sales outlook has been revised downward for Electronics, Chemicals and Life Sciences. Operating profit outlook will be explained in detail on the following pages. Page 23. Full year operating profit outlook has been revised downward by JPY 30 billion from JPY 150 billion to JPY 120 billion. This reflects a decline in the sales price of PVC as well as the expectation that sales volumes of semiconductor-related products in electronics and biopharmaceutical CDMO products in Life Sciences falling short. We will explain measures to improve profitability for each segment, including these products. For Essential Chemicals, we will implement pricing policies for chlor-alkali products by leveraging our high market share in Southeast Asia. Additionally, we will increase shipment volumes through operations at expanded facilities in Thailand and the volume shipment increase will also contribute for electronic materials, we will advance the development and launch next-generation products to enhance functionality and add value. We will intensify efforts to further expand our customer base. Regarding revenue improvement measures for Life Sciences, we will explain this in the detail in the next section by Mr. Hirai. Page 24. Outlook for each segment for second half as compared to the first half. In Japan, shipments of architectural glass are expected to increase due to growing demand for energy-saving glass innovations -- renovations. In Asia, shipments are expected to increase due to recovery in demand. South America is expected to stay solid. In Europe, the economic downturn will continue, but the profits are expected to improve based on our pricing policies. Automotive, our shipments are expected to decrease due to seasonal factors. In addition to the resolution of production and shipment problems in North America that occurred last year, we will accelerate initiatives, including pricing policies and business structural reform. Next is Electronics. Shipments of LCD glass substrates are expected to stay flat from the first half. Shipments of semiconductor-related products are expected to remain steady. Shipments of optoelectronics materials are expected to increase due to the demand season for smartphones. Page 25. Chemicals. Essential Chemicals shipments are expected to increase as the expanded facilities in Thailand are gradually brought online. Performance Chemicals shipments are expected to increase due to increased demand for fluorine-related products for semiconductors and transportation. Life Sciences. CDMO sales for agrochemicals are expected to increase. Negative margin from Bio Pharmaceutical CDMO is expected to shrink due to increased revenue at Denmark and transfer from Colorado. Page 26. Full year outlook for strategic business after the revision of performance outlook. Due to temporary shipment slowdowns in electronics and the production issues in Life Sciences, sales are expected to remain flat year-on-year, while operating profit is expected to decrease. Page 27. CapEx, depreciation and R&D expenses remain unchanged from the initial outlook. Page 28. Regarding shareholder returns, there are no changes to the stable dividend policy targeting approximately 3% DOE. So the dividend outlook remains unchanged. That concludes my presentation. Thank you for your attention.

Thank you. Now presentation by our CEO, Hirai.

This is Hirai, CEO. Following the results explanation by our CFO, Miyaji, I'd like to talk about the management issues and how we are to address that, what actions we have taken so far, as well as what we plan to do going forward. First. The biggest challenge on hand is the structural reforms of biopharmaceuticals CDMO. So let me take that up first. The biggest factor of the losses in the -- or the bio life science issue is the biopharmaceuticals CDMO business, especially our sites in Colorado in Boulder and Longmont. We have decided to make efforts to transfer the business sites so as to attain the profitability by 2026, as initially planned and pursue growth starting in 2027. Looking at the graph at the bottom, you can see the operating profit outlook. The purple portion accounts for the Colorado sites and green are for other sites. As you can see, since FY 2022, big loss was mostly attributable to the Colorado sites. This year we will terminate the production at Colorado sites so that we can attain profitability starting next fiscal year. And with this transfer, it means that we are going to withdraw from the SUS service offerings and refocus on SUB, the single-use bag, which is our strength. We have established global network in this area. The medium and small-sized drug markets where the SUB technology is targeting is expected to make high growth. Single-use bag accounts for 60% of our production capacity. So we are to focus on this area. The single-use bags are built for small to midsized drug markets as well as those that are in the pipeline. So this has always been our strength. So we are going to enhance further for the orphan drugs in other applications. As for the Life Science, this is positioned as the pillar of our growth going forward. So we will continue to grow this. We are going to leverage the strength we have established so far so as to return to the growth trajectory at the earliest. Our strength is we are a pioneer in the SUB technology, and we are the second largest globally in terms of the capacity. And in Europe and U.S. and Japan, we have the production sites in those 3 different areas. And this is being the tailwind despite growing geopolitical risk. And they are abundant track record of inspections in those 3 regions. Next, I'd like to look at broader areas, not just Life Science, overall performance. Since 2022, for the fourth consecutive year, operating profit has been below forecast and ROE remained below 5% during this period. And as management, we take this very seriously. Through our own efforts, we are seeing the recovery and still, we are struggling to resolve the issues related to biopharmaceutical CDMO for '26, over 10% ROE back in 2021, but automotive suffered this year, and we recorded impairment in Europe. And in '22, display demand plummeted, and we incurred large impairment in display. In '23 and '24, the biopharmaceuticals demand coming from the pandemic disappeared. And in the meantime, the interest increased in the U.S. market, resulting in a large impairment recorded. So for Automotive and Display, which have been issues in the recent years as well as Life Science, following that, all these combined resulted in lower profitability. But as far as Automotive and Display are concerned, through the earnings improvement measures we implemented, we were able to return to profitability within 2 to 3 years. In Life Science area, through the structural reform and cost reduction of biopharmaceutical CDMO, we would like to return to profitability in 2026. In Automotive and Display, we have an approach called volume to value in order to improve profitability. One common element is a structural reform. This is not simple cost reduction, but really focusing our production in high productivity lines in order to reduce cost. So cost reduction through different business structure. And another is pricing policy. Automotive display industry, in these industries the common sense was that the price would go down every year, 1 year after the other. But rather than that, appropriate pricing in line with the value of the services and products should be maintained. So we are trying to improve productivity through structural reform, and we have revisited the pricing policy. And these are the 2 key elements for profitability or earnings improvement. In addition to that, we want to strengthen technological competitiveness for additional product value and technological competitiveness. There are some other businesses with low ROCE, but we want to implement improvement according to each market environment and nature of business. We want to achieve profitability that exceeds cost of shareholders' equity. By 2026, we want to target ROE of minimum of 5%. So this is 5% or higher. This is a must for us. And in order to do this, we will be accelerating all the measures to improve profitability. So mainly this is structural reform and related cost reduction. For biopharmaceutical CDMO, Colorado transfer was already explained. But there is more, for the whole group, for the whole business on a continual basis we will be implementing structural reforms. With regard to pricing policy, appropriate price setting in a wide range of industry will be pursued. And for Essential Chemicals, we will enjoy the volume benefit through the expanded production. In 2025, we have basically completed the large-scale capacity expansion investments that we have been continuing and we will be carefully selecting the new investments. So from 2026 and beyond, we will be reaping the benefits of the investments that we have made in the past. So we'll be very selective in the new investments in order to increase profitability. We will further accelerate structural reforms in businesses with low ROCE and promote business portfolio transformation so that we can achieve ROE of 8% or more at the earliest in or after 2027. That's all for me. Thank you very much.

[Operator Instruction] We'll first go over the questions that we have received in advance. The first question is with regards to the actual results for the second quarter. And the question is, what is the difference compared to the projection forecast? Miyaji, will respond.

The difference with the forecast overall, both for sales and operating profit, we were short. And some upside were observed in Automotive and downside with Architectural Chemicals and Life Science. And Electronics were on par with our forecast. That is the overall situation. And by segment, for architectural glass downside. For Europe and the Americas, we did see the effects of the pricing policies, which resulted in upside. While in Asia, because of low shipments and the pricing decline in Indonesia, we saw a downside. For automotive, upside, we have been continuing with the product mix improvement and pricing policies, which bore fruit. For electronics, on par with our forecast. But for display, shipments declined, so slight downturn or downside. For electronics materials, on par with the forecast. We see a bit weak shipments of the semiconductor-related products, but optoelectronics saw an upside due to the improvement in product mix. Chemicals downside because of the price downturn of PCB in Southeast Asia for Life Science, downside because of the boulder production issues, but we did see the effect of the fixed cost reduction measures. _

Moving on to the next question. For Q3, July through September, what is the outlook? And how does it compare against Q2? Miyaji-san?

Q3 outlook for the whole group, we expect both sales and profit to go up. Architecture glass sales and profit is expected to go up, mostly the impact of the price policy in Europe. This has been continuing from Q2, and we expect this to contribute. And in Japan and Asia, we expect a slight increase in demand. Automotive. Automotive has a seasonality -- and in the third quarter, usually it's weaker than the second quarter. We believe that the trend will stay the same this year. North American production delay is now being resolved. Situations are getting better, so we can benefit from that. But overall, we expect both sales and profit to be lower. Electronics, we expect the sales and profit to go up. Display shipment is expected to be flat. Electronics Materials is also affected by seasonality. Shipment is expected to increase in the third quarter. So overall, we expect both sales and profit to go up. Chemicals. Chemicals, we believe will go up in both sales and profit. Performance Chemicals, sales price is going up. And also in the second half, we usually see a stronger trend, so we can benefit from that trend. For Essential Chemicals, we expect the shipments to increase. So volume impact will contribute to higher sales and profit. Life Science, we'll see increase in both sales and profit, but it's not going to be a big increase in either only slight increase in both net sales and profit. In other words, the deficit will shrink, but not by a large margin. For synthetic chemicals, because of the timing of shipment and the product mix, we expect both sales and profit to go down. For Bio, Copenhagen sales increase is expected to push up both sales and profit. But because of the negative impact from the synthetics, we only see a slight increase in sales and profit in Life Science as a whole.

Next question is about the full year forecast. Compared to the February announcement, you made the downward revision this time around. So what are the factors behind the revision? Miyaji will respond.

Okay. So full year forecast, we are showing Slide 22. And I'd like to explain looking at this slide. As you can see, on overall electronics, life chemicals for chemical architectural glass, the profit decline in relation to what I mentioned earlier in Asia, shipments in Japan are expected to remain steady and firm, but the rest of Asia because of the lower prices in Indonesia and shipments decline will be the factors. In Europe and the Americas, South America is strong, but in Europe, because of the economic downturn, we do see the impact continuing, shipments going down. And we do see the effect of our pricing policies. So sales flat, profit down. So the impact for the first half would be rather strong. For Automotive, sales flat, increased profit with improvement in product mix and pricing policy effects. Electronics, lower sales and profit. For the electronic materials, the shipments of the semiconductor-related products remain weak, which is pushing down the performance. As for the LCD glass substrates, shipments are on par with our expectation, but the special glass for display shipments will go down overall downturn. And Chemicals, lower sales and profit. For Essentials, the market prices remain sluggish; and for Performance Chemicals, on par with our expectation. Life Science for synthetic firm for Japanese domestic pharmaceuticals, but for biopharmaceuticals because of the production issue at Colorado plants, we are expecting lower sales and profit. _

Next question. Do you think you have a result of problems with the downward revision of the performance this time around? Miyaji will explain.

Negative news that we can expect is now reflected in the JPY 120 billion. So downward revision during the term was done in the past and then at the end of the -- sometimes at the end of the term, we have to do the downward revision. So we decided to include everything that we can think of.

Next question. Comparing the first half and the second half, what are the transition points? Are there any downside risks for the second half of the year? And maybe there was a last-minute demand in anticipation of the tariff issue impact. So do you think that first half will be stronger than second half compared to previous years?

The last-minute demand impact, no, we don't expect that to result in slower second half. Generally speaking, we have a stronger second half, JPY 54 billion operating profit first half, which would mean second half JPY 66 billion, so JPY 12 billion difference between first half and second half. On average years, the gap between the 2 periods would be larger. But for this year, with the electronic materials, not expecting much increase in the second half, not as much as average years, meaning softer -- weaker demand. And therefore, we expect the difference to be JPY 11 billion. _

Next question is about the Electronics segment. Display quantity, volume and pricing -- prices. What was the actual in the first -- in the second quarter or is the outlook for the third quarter? Miyaji will explain.

On a quarter-on-quarter basis, Q2 volume was down by low single digit, price was flat. Q3 volume is expected to be flat.

Next question. The outlook on the facility utilization ratio rate of the panel manufacturers. Some of your competitors expect situation to be firm in the second half, while others expect slowdown. very 2 different opinions. What is AGC's outlook? Miyaji will respond.

The shipments between first half and second half, we expect it to be flat. In other words, the same. Some of the customers are already adjusting their production, and we expect this to continue into the second half. So we don't expect much difference between the first half and the second half.

Moving on to the next question. Electronics materials from the first quarter to the second quarter. Optoelectronics grew in the models that have been adopted by the customers because of last-minute rush demand. Considering that, EUV mask blanks must have shrunk quite a lot from Q1 to Q2. Is this temporary? Or do you think this is the impact of the cost reduction by the customers? Miyaji will respond.

Optoelectronics, we do not feel that there was a big last-minute rush for demand. As for EUV blanks, masks blanks, the situation varies quite a lot from one customer to another the impact of cost reduction we believe is there. In 2024, we grew this business a lot. But this year, because of the situation that our customers are in it has stopped growing and the shipment is actually slightly lower than last year. But we expect to see growth from 2026 and beyond.

Next question, related question. For EUV photo mask blanks with the performance revision, what are the outlook on a full year basis? On a full year basis, you are expecting an increase. What is the current situation is the question.

For '24, as I mentioned earlier, we were impacted by the situation on the part of the customer. That is for 2025. So we expect shipments to go down in the remainder of the year for a regrowth starting next year.

Next question use. So let me ask the question, EUV mask blanks, customer mix change and also advanced product development and sales. Can you please update us on the situation?

There is no big update. But expansion of the customer base has to take place. So we are still focusing on that. And the development and sales of advanced products again, is absolutely essential for our future competition. So we are making efforts, great efforts. And we have nothing changed from the previous explanation.

Next question about Optoelectronics, the demand forecast and the competitive landscape. Miyaji will respond.

With regards to demand, firm situation is our expectation. Of course, the mobile phones high growth is no longer the case, but we expect steady growth to continue. As for the competitive landscape, of course, it's not that we don't have any competitors, and it's getting tougher. But we will continue with launching new products to maintain our lead. That strategy remains the same, and we are confident that, that still works and is effective. So we believe that we can still continue to grow this business.

Life Science segment-related question. 2025 sales and operating deficit, how big are they? And with the decision of transfer, this was announced, does this mean that the sales of the losses will all disappear with this transfer? Miyaji will respond.

You can see on the slide -- and we have 2 locations in Colorado. Longmont is already suspended, which means that the deficit is minimal. Now the purple part of FY '25, this is almost a boulder site. So this is a part that will disappear as a deficit in next fiscal year. As for the sales revenue, we have manufactured to some clients this year, but before reaching a mass manufacturing stage, this is happening, which means that the sales impact is very small. But the effect of resolving the deficit is going to be quite sizable.

Next question. You decided on the transfer of the boulder operations. Why now? And do you have a good sense of who your buyer is going to be? Hirai will take that question.

Regarding our boulder operations, this is SUS business and already customers are there and we have been facing production issues. Two reasons. I guess, one is we had a hard time achieving the stable production. And AGC has been working on SUB for a longer period of time, and there is a difference in technology involved. So we had an issue there. Another is SUS itself, do see very strong order inquiries and many customers are showing interest. So we thought that while there is a strong interest on the part of the customers, we should start considering having a better owner of that business. And we felt that, that will be a better option to improve our profit and loss in Life Science business. And that is the reason why we decided to withdraw from the SUS business and to transfer the business. So as for the buyers, there are several potential buyers.

Next question related to the previous one. Once you transfer, short-term loss will be improved, but you'll be also losing business opportunities? And how do you interpret that? Hirai will take this question.

Well, boulder production has always been in deficit so far. So we will not be losing a big profit. But with regard to opportunities, some customers wanted to see larger-scale production, not just a single-use bag. And in order to fulfill their request, we acquired Boulder. So going forward, the question is how do we do the large-scale manufacturing? Well, single-use bag, bag is 2,000 liters, but we can combine multiple bags for small, midsized manufacturing. So using single-use bag facility, we should be able to accommodate the larger-scale manufacturing opportunities to some extent. So we want to make sure that we don't lose those opportunities.

Next question. How far are you in terms of the impairment loss recognition in relation to the facilities and goodwill of Colorado operations? Shiokawa will respond.

Regarding the goodwill, the goodwill of biopharmaceuticals business in the U.S., we have completed the impairment loss recognition last year. For the facilities with the decision to transfer for the fixed assets, we made the fair value evaluation and JPY 7.7 billion reflects that fair value valuation. And at this point in time, we are assuming there will be any further impairment loss in relation to the Colorado operations. In other words, all the impairment has already been taken care of.

Next question. Boulder manufacturing problem, what was it caused by? And is the transfer going to be successful if that problem has not been resolved? Do you expect some problem in terms of reputation from the eyes of the customers? And outside of Colorado, CDMO is still in deficit in '25. How do you turn it profitable in 2026? Hirai will take this question.

What was the problem that was happening in Boulder, Colorado, it was manufacturing related. We are refraining from disclosing the details. It was not a big manufacturing problem, let me just say that. And based on that, as we do this transfer, as I have explained, SUS is already receiving a lot of inquiries, a lot of interest and the transfer is already being discussed. So we would like to continue to discuss this. There was a question about the reputation risk with our customers. There are customers that we have been working with already, and they have agreed on the way we are dealing with the situation. So it's all amicable. And also when we pursue possibilities with the new customers, we explain the current situation as well. So therefore, we do not think there is going to be a reputational risk.

Next question. You are going to refocus on single-use bag. What will be the customer portfolio? How would that change? And what is the situation of the bio venture funding issue, which I think is still being very sluggish. What is the impact of that? Hirai would respond.

I'm going to use a slide that I included in my presentation. On the lower left, you can see the zone that is suited for single-use bag technology, especially for the orphan drug. This is for a small-scale production or those that are on the market. But SUB, the single-use bag also is suited for the development phase drugs. So it has a wide coverage. That is the characteristics. As for the customer profile, I cannot generalize, but bio ventures would be the main part. But previously, we were talking about maybe 2/3 would be still in the pipeline phase drugs. And as for the small and medium-sized drug market, we are talking about pharmaceutical companies of different sizes from small to large. So it's not that the customers, the pharmaceutical companies themselves are small and medium size. It's just that the drugs are at scale. When we say large drugs and small and medium-sized, you might get the impression that we're talking about the size of the pharmaceutical companies, but that's not the case.

Next question. Is there a possibility that you will challenge -- you will try stainless tanks again as U.S. again? Hirai will take this question.

The question is if there is a possibility, the answer is not -- no. But when we entered the bio CDMO industry, we were focusing on single-use pack, so small and agile. So that will stay our focus. That's going to be a focus. I explained why we acquired Boulder in the first place. Some of our customers wanted us to do larger scale manufacturing. And we thought that in case if multiple single-use packs will not do, then we should consider SUS. So yes, there is a possibility that we will consider the possibility in the future once again.

Then moving on to the next question. In Chemicals, what is the projection of the PVC market in Asia? Miyaji will respond.

Well, the sluggish situation continues, especially PVC. The reason is the demand slowdown in China. And this that cannot be sold in China are going into Southeast Asia. And that situation continues. There are some regulatory movements in China, which is a factor. But for the time being, we have to expect this to continue. For caustic soda, from last year to first quarter of this year, we saw some recovery trend, some improvement, but the current situation is not improving further. So we're not seeing any signs of a major improvement. So all in all, for PVC and chlor-alkali demand in Asia, we expect the current demand situation to continue. And that is the basis of our full year forecast as well.

Next question. Capacity increase in Thailand, how is it ramping up? And what is the expectation? PCB market is stagnant. So how do you see the risks? Miyaji will take this question.

We are doing a large-scale capacity enhancement in Thailand, which is now coming online. This will increase the shipment. And operating profit-wise because of the slow ramp-up, the impact is neutral for this fiscal year for OP. Chlor-alkali in Southeast Asia is in a tight situation, meaning that about 10% is brought in from outside of the region in order to strike the balance. In other words, there is insufficient supply in this region. And our capacity increase is not going to change the situation dramatically. So we do not believe that this is going to have a big negative impact. Profitability is not extremely high. And the volume will go up. So this is the situation that will be happening for the time being.

Moving on to the question on architectural glass. What is the situation in Asia, Japan versus Europe for April, June and the projection for the second half? Miyaji would respond.

For architectural glass, Japan and Asia first, Japan shipments are relatively steadily increasing. As I mentioned earlier, Asia is the issue, Thailand and Indonesia specifically. In Thailand, demand is weak and competitive environment is not positive for us, and that remains. Indonesia, again, the competition situation is working against us. The selling prices are falling, which is a negative factor. So between Japan and Asia, Asia is seeing a larger decrease in profitability. In Europe, the economic condition remains sluggish. In terms of shipments, they remain weak, whereas in terms of the selling price, we are seeing steady increase. In the second quarter already, we have seen the benefit of that, and we expect this to continue. For the third quarter, there will be utilization rates factor. And for the fourth quarter 2, fourth quarter is -- there is a seasonal factor. So we expect upturn. And South America continues to be strong, as I mentioned earlier.

Next question, automotive related question. Are there going to be impacts from the tariffs -- and including non-auto business, what is the impact of the tariff in the second half? We're receiving questions from multiple people about the tariffs. Miyaji will explain.

Automotive glass is basically manufactured where it is used. So the impact is small but if the export volume goes down at the customers' level, we will be impacted by that. We have already accounted for that risk. We do not expect any additional risk. For non-auto products, other products, I don't think there will be many products that will be directly affected, but export to the U.S. is happening with some electronics business, and we may be impacted indirectly because of our customer situations. But whatever situation would be, the impact will not be very major.

It is now time to end. So we will end the Q&A session here. Thank you very much for sending us many questions. But I'm afraid we'll have to stop here. From the Investor Relations group, we will give you the response individually. And if you could call us for further inquiries, that would be appreciated as well. That is for the Japanese audience. And we appreciate your feedback. So please fill out the feedback sheet that you will get when you close the Zoom screen. With this, we conclude the second quarter earnings briefing. Thank you very much for your participation. [Statements in English on this transcript were spoken by an interpreter present on the live call.]