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

It's time to begin the ESG briefing by AGC. My name is Tamaki, via IR, master of the ceremony today. Thank you for this opportunity. Let me introduce today's presenters. Representative Director, Executive Vice President, CTO, Hideyuki Kurata; General Manager of Sustainability Division, Corporate Planning and General Division, Yuki Ihara. They will give a presentation with regard to value creation model and the management capital, and it will be followed by a Q&A session. We scheduled to finish at 5:00 p.m. Thanks for your cooperation in advance. Kurata-san, the floor is yours.

Yes. This is Kurata, CTO. Thank you for this opportunity. Value creation model and management capital is a title of briefing today. And this is the agenda. I'll be following the items shown on this agenda slide. I will begin with the overview of our business segments. As you can see in the pie chart, includes architectural glass, automotive, and this is about 45% of the sales, glass-related business. And then 20% is electronics approximately. Chemicals accounts for 25%, Life Science and Ceramics about 10% each. So glass business is about half. And including high value-added, we have Electronics, Performance Essentials and also Life Science segments. Our portfolio is very broad. On this slide, you can see our regional segments. We -- our business spans over 30 countries and regions. Our business is global, and we conduct business in those areas and also manufacturing in some of these regions as well. Europe, Japan, Asia and Americas. As you can see in the boxes below, we conduct a whole variety of different businesses in these regions. We have just under 54,000 group employees conducting global business. This slide shows the evolution of products and services, a quick history of AGC. In 1907, the founder, Toshiya Iwasaki, founded Asahi Glass. So the business actually started with architectural glass. Glass manufacturing was very difficult at the time, and he struggled. And during this time, the first World War broke out. And soda ash as well -- which is an ingredient and also bricks for the furnace and also ceramics could not be imported anymore. But instead of giving up on manufacturing glass, he decided to start manufacturing glass by themselves. So soda ash was involved, and this is why we entered into the chemical business. And also, we started making our own bricks, which translated into ceramics business. We are still working on the same technologies. And after that, we had motorization, digital communication expanded, TV models changed over time and the camera became digitalized, semiconductor saw huge advancement. And more recently, we are seeing GenAI. Each era had different requirements, and we continue to provide materials and solutions to meet the needs of each era, as indicated in the history of our products and the company. And we have been operating for close to 150 years so far. Now I would like to take some time to explain our group philosophy. As I have explained, Toshiya Iwasaki struggled a lot during the foundation of this company, but his aspiration was that he wanted to contribute to the development of society through domestic production of flat glass because it was mostly manufactured outside of Japan at that time. He went through a lot of challenges. For example, in order to manufacture bricks and also deal with chemicals, he faced a multitude of challenges and his aspiration is still carrying on in this organization. As you can see on the right-hand side, we have a spirit, "Never take this way out, but confront difficulties." Each employee at AGC has this spirit -- challenging spirit. At the time of foundation, we were trying to domesticate the flat glass for architectural purposes. Now we do global business and our purpose now is AGC and everyday essential part of our world. Our shared values is shared across the whole organization, innovation and operational excellence, sustainability for blue planet, one team with diversity and integrity and trust. These are our shared values. Look beyond, AGC is always looking beyond what we see now. And this is our corporate philosophy. Next, I would like to talk about the value creation model of AGC. This is how it's depicted. On the far left, we have changing external environment. As I have just explained, each era has a different need for materials, products and the external environment continuously changes. On the far right-hand side, you can see our purpose, AGC, an everyday essential part of our world. And this is the meaning of existence. And connecting these 2, we have the long-term business strategy in order to achieve look beyond. We have the management that we implement and execute. And we call this value creation model of AGC Group. And today, I would like to take time to explain each step of this value creation model to you. So we shift from left to right. We start from the left. First of all, we have long-term social issues or material issues. This is the first thing that we need to define. AGC Group's long-term social issues, materiality and our view is explained on this slide. As you can see at the bottom half of the slide, it's separated into 2. One is major risks -- key risks. Social issues to be solved through sound corporate activities. But in addition to risks, there are also major opportunities, social issues to be solved through products and technologies. And we have identified 10 risks and opportunities for this purpose. Some of them are risks and opportunities. Addressing climate change using resource effectively, of course, we have to lower the risks, but also our products could offer solutions to address these issues as well. And at the top, we have 3 key risks -- major risks. We will do our best to minimize these risks and also to maximize the 5 opportunities shown at the bottom of the slide. This is an opportunity to address these issues. And these are our sustainability objectives, and this is actually reflected in our management strategy. Next model is about the business activities mainly. So about the business activities, let me explain the following. So this is the extraction of the previous slide. So this shows our technological platform or technology platforms. I will explain the details later, and we will combine the management foundation with the technology platform, and we have a spiral on top. One of the part of the spiral is in purple, the research needs and social issues focusing on the future. And the light blue is to develop the unique materials and solutions that utilize group technologies to solve social issues together with our customers. And with our management resources, we will try to solve those challenges. And by going through this loop or cycle, we will commercialize products to offer. So that is the business activities. And there are 3 social values. And of course that we have to fulfill those values. So those 3 social values -- those are focused on the major opportunities to realize the sustainable global environment that is blue planet, to lower the environmental burden is one of this. And the second is innovation, creation of an innovative future society. We want to create values. And then well-being contribution and try to provide the products necessary for the daily life in a stable manner. So those are the business and the products that we would like to offer. And we will bring this into improving the value. So as we satisfy the 3 social values, we will try to pursue economic value. And this is the value creation spiral. And generating social value and economic value and by doing so, we'd like to improve the corporate value, and that would enhance our management capital. And then it will be utilized for our business activities. So this is the spiral cycle that we try to realize. So those are the 6 management capital, financial capital, manufacturers capital, intellectual capital, human capital, social and relationship capital and natural capital. And to maximize our corporate value, we will be enhancing those. Today, especially, I'd like to talk about intellectual capital and human capital, sharing you with some details. So first -- intellectual capital first. Our strength -- so what are our strengths? As the time changes, we have been evolving our technology, especially inorganics, glass and ceramics have evolved, and we developed this. So that is on the right-hand side. Those are the representative products that we have. And organic materials, we have extended the chemical chain. And now we have gone to the pharmaceutical and agrochemical intermediates. And also recently, we have combined this with the biotechnology. And very important is that even if we have other materials, we have to be able to manufacture. So manufacturing technology, process technology, engineering and also analysis and simulation technology and DX that we have been emphasizing. So those are the technical background of our materials and solutions. And our business technology platform, let me go further into the details. We have been building this for the past 115 years. And core technology include the glass materials and others and by adding those to the materials, we want to manufacture products. And the basic technologies are shown at the bottom, and we have to have all of them and then we would like to evolve and develop those as time changes. So there are 3 arrows and there is -- first of all, we have a methodology called business and technology outlook. We analyze macro trend and select 7 key technology fields and focus areas. And then we look into marketability, social issues and sustainability and identify the technologies to develop or sometimes we identify collaboration partners. We do this every year trying to visualize what may happen in the future. Key technology fields and focus areas have been identified like this: there are 7 key technology fields. The top half of the slide is the next growth drivers. So there are 4 items here. And below that, we have technology that support or enable those things. There are 3 items here. And this is where we are allocating our management and development resources. I will not go into too much details, but on the horizontal axis, we can see the time line up to 2040. And the vertical line is different items in focus areas. This moves very fast. So the target is about 10 years. And also the foundation technologies, this has a longer time span, about 20 years. And this is how we identify the different items where we want to deepen our development. With regard to R&D, I would like to show you the concept initiatives to support this activity. These are the 3 key axes. One sustainability management. CO2 reduction and supply chain burden reduction will be pursued as part of sustainability management. And we want to accelerate DX, which has become essential for companies in order to bring higher value-added tasks, and we are also focused on open innovation. With regard to promotion of sustainable management and GHG reduction, I would like to explain about the furnace. For float glass, you need to apply a lot of heat to melt down sand. And up until 2019, a lot of heavy oil was used. It was changed to different types of fuel and also electric booster is a methodology that can be applied to apply heat to melt. And instead of using natural gas, you could use ammonia or other types of fuels. We can also recycle, collect used glass from our customers and remelt. We will be combining all of these different technologies in order to achieve carbon neutrality by 2050. And based on this understanding, we are developing various technologies, not just reducing our own CO2 but also in order to reduce the CO2 for the whole planet, we are contributing through our products. For example, through heat insulating glass, there is a vacuum, dual glass and other types. And this can help lower the burden of heating and cooling at home. In Japan, solar panels don't have a lot of space or place to be installed. So BIPV, building integrated photovoltaic glass is another type of product that we can provide, I'm sure that use air con. And air conditioning, refrigerants should be more environmentally friendly. We are also contributing through polymer electrolyte for fuel cells as well. More efficient semiconductor and smaller but higher memory density semiconductor. Again, this is another area we're making contributions. This is -- these are 3 examples for the cutting-edge semiconductor manufacturing. Ceria slurry for the finest pitch, this material is used for flattening the surface, and this is a strategic product of ours. And we are talking about several single-digit nanometers. And for that, we provide EUV photomask blanks. On the right-hand side, you can see, with higher density, we achieve the limit and the package is now attracting lot of attention. Multilayered package would require glass co and also silica and fluoropolymer will be used. And not only electrical, but also optical communication will be important, and we provide optical waveguide to the market. We are developing new products. Moving on to DX. This can be used in various ways. On the left-hand side, you can see one use case, utilization of digital twin environments in glass melting furnaces. Glass is melted at about 1,500 degrees in the furnace. You cannot open up the furnace and see what's going on, but you can use an online simulator to operate the plant. So this is a digital twin that can also help optimize the plant. On the right-hand side, reducing front windshield quality inspection process time. If there is a defect in the windshield, the windshield will break, leading to major traffic accident. We used to spend 30,000 hours to inspect the finish of the glass, but now we have machine learning, measurement equipment and AI. And combining all of these technologies, we can reduce this number of hours of inspection to close to 0. So safer operation, higher productivity and higher profitability at the same time. On the left-hand side, you can see how we can help sales activities. AR/VR technology can be utilized to show the customer the glass as if it's in front of them, and we can just provide a sample and bring it to them. On the right-hand side, you can see a group of the buildings among Hudson River. We got this business because the customer could identify the right material very quickly and order the material very quickly. So the customer could open the building because of this speed. So that's added value for the customers, and this can be enabled by DX. On the right-hand side, we see material informatics. Instead of doing multiple physical experiments, you can use AI to identify the right material for evaluation assessment in order to minimize that lead time. Another key point is open innovation. The solutions that will require some partnership, not just on our own. So AGC Yokohama Technical Center was opened. And in 2021 and materials process and facility equipment design, everything can be done, and this was integrated and open innovation organization was created. And with this, with the external partners and academia, customers can get together so that we can quickly provide solutions. So this is the opening of the Yokohama Technical Center. And we have 5 sites, Japan, Shanghai, Singapore, Europe and Silicon Valley. We have a new business and technology exploration hub. Now this shows the 3 directions of the R&D. So there are 3 points that we focus upon. One is to utilize the existing capabilities to enter into new markets. So those are the new businesses. And second is the new generation and new product development within the existing businesses. And then production and basic technology innovation. Those are the 3, and it's [ 1 to 2 to 1 ] in terms of percentage. So we would like to have a well-balanced ratio among those 3. Especially, we are focused on the core technologies. So we are not going to develop the entirely new ones in the other territory, but try to focus and leverage on our existing IP. So I talked about the R&D and this shows patents and the patents are extremely important. Now usually, we have applied for the patents to protect technologies. But in our case, in addition to protection, we also need to be more aggressive, and we have to be strategic. So the wide-ranging patents are the ones that we want to apply. We are talking about the materials. So it's not only for one purpose, but for the multiple applications. So when we provide the technology, we can expect a rising licensing revenue. So we want to be defensive as well as offensive and fully utilize our intellectual property. So we are very much focused on the IP. On the left, we are showing the number of the patent application. So it shows 2001 as 1.0. So with the changes of the products and technologies, we increased the number of the patent application and so forth. So there is a fluctuation. But right now, we are accumulating the new patents for the future, and that would lead to strategic businesses. As for the licensing revenue, every year, it's on the rise, as you can see in the graph on the right. So that concludes the explanation about the intellectual capital. Now I like to -- we would like to focus on the management capital, and I would invite Ms. Ihara to present.

Yes. This is Ihara speaking. I'd like to talk about the human capital as well as the technical and the DX personnel and how we are trying to develop them. So here is the AGC people driving our growth. At the bottom, AGC Group culture is shown. So the good corporate culture is shown here. So good open communication, taking on challenges and encouraging initiative. This is the good corporate culture. And continuously, we have been enhancing and improving this, and we will continue these efforts. So based on this culture, diverse talent, we try to utilize them and try to make sure that the individuals will be able to leverage their capabilities and the individuals can grow on their own. We want to have an environment to enable that so that would lead to the higher engagement, and there will be a chemical reaction of knowledge and stronger on-site capabilities. So as it was mentioned, the purpose to -- with our materials and technology, we want to support the people's lives in the world. And that is our purpose. And we want to utilize that. And that will lead to the higher corporate value that would attract more capable talent, and they can again grow as individuals and then increase engagement. So we can go through this loop. So this is our way of thinking in the human capital development. So that is AGC people driving our growth. So this is the human capital initiatives. There are many of them. And I'd like to give you some examples. And based upon the framework, we are taking initiatives. On the right-hand side, as you see the 4 pillars of the medium-term management plan, evolution of ambidextrous strategy, deepening of sustainability management, promotion of value creation DX and strengthening of the management foundation. So those are the major pillars. In order to realize them, the important human capital strategies, there are 3 of them. First, strengthen the next generation of the management candidates and second, the improvement of employee engagement and to secure talent to support business portfolio transformation. Next slide, please. So here is to identify the next-generation management talent. This shows the decision-making body. Now to identify next-generation management for different grades or for different year of service, we create a talent pool. And every year, we discuss this coming from the different divisions, and we try to certify them. And in the HR committee, we discuss this, the evaluation and then make decisions every year. So we repeat this every year. As you can see on the left-hand side, there is a young potential talent and the group management talent candidates and the higher grade talent pool is created. And on top of that, we have key management positions. There are 2 bottom ones that will be discussed in the HR committee and when they are approved to have a wide range of experiences and to become the key management position personnel. So today, I would focus on the technical human capital. And concerning that, the corporate R&D experience and also the development experience at the divisions, both of those experiences are important. So we come up with a different career path and the development plan and create a job rotation for each individuals. In some cases, maybe some people is better off experiencing working as a manager. So business side experience is also included in some of the people. So those people going through the wide-ranging experiences will develop themselves into the potential top management and key management. And so for example, the successor development of the executive officers and successors, the first generation, second generation, we will have a list of those names. So when you are in such a talent pool, nominating committee will talk about the progress of the development. And here again, whether the candidates have had a wide-ranging experiences suitable for becoming the key management positions, how to create such opportunities or we think it's important, for example, to have an experience of the western type of management and at which timing should we provide opportunity to learn about that. So this nominating committee will review that. So about the technical talent, multiple business units, whether they have had the experiences in the multiple units or experience in the Western type of management become very important. So this is the optimization of the talent portfolio. This is also the technical talent. So we create the technical talent database internally and the basic attributes, career information and skill, how many skills that they have and the themes of the researches, what kind of research is that they have experiences on. So we create a database and as Kurata-san explained, business and technology outlook. This is reviewed every year. So what is necessary for the future technological development, where are the skill gaps, we try to pinpoint that. And if it's -- there is a gap, we try to find someone externally. And we also have a reskilling opportunities so they can have a wider range of skill experiences. And by using this database, the company's divisions and corporate research labs, when there is a shortage of the talent or when there is excessive talent, we try to complement the talent. And so development and securing the talent and also to make the allocation of the talent in an appropriate manner is done in this effort. So here is for the technical talent and PhD holders, we are trying to increase the percentage of them. Right now, technical development, about 30% have the PhD. And sometimes we employ them as new graduates or a midterm career. So after joining AGC using the internal system, they can -- some of them will be able to acquire PhD. It's a mixture of this. And we are trying to expand the number of the PhD holders. So those people are working with academia globally, getting the new knowledge or getting involved in the new development using their networks. So creating the next-generation businesses and to secure the competitive edge. Next page, please. So here is the DX personnel talent. Since 2020, we have been working on this. So DX talent development, we have a program. So every year, we have our targets, and we have been making a very steady progress. 2025 targets, we have already mostly completed those targets to achieving those targets. So right now, toward 2030, next targets are being set. The unique to AGC is it's not just DX technical skills. Of course, we need them, but it's not only that. In addition, the business process knowledge, for example, development, manufacturing, sales, logistics so regular business process knowledge and having the technology skill. So understanding the business side as well as the data management, I think, the dual skill is important. So understanding the front line and to try to promote the DX, which is really help at the front line. So we are enhancing this talent, and we will continue to do so. So increase the dual skill talent. So that's all the slides that I prepared. And there are other technical skill enhancement initiatives that we have. So for example, registering your skill, you can use the skill map. And you can have a cross-functional activities based on the certain skill, you can come up with a team of people and improve your skills. So there is such group. So that is being done very actively. And to deepen your skill is one thing, but also the skills that you don't have. If you're interested in one particular skill, you can widen your skill. So you can do the reskilling. So that's a way of registration. So deepening or widening the reskilling, that is also something that we have in our platform. Middle management movement is actually very important. In order to cause change in the intellectual capacity, we need to understand what kind of skills people want to deepen and what kind of skills they have now. There has to be a broad understanding. So people can be developed or teams can be formulated to promote development. In other words, middle management has to be very functional before we see a good chemical reaction of intellectual aspects. So for the middle management, we are really conducting dialogue meetings about the talent development and also facilitation training for middle management is being conducted. How to draw out the actual views and voices of people? So we are strengthening training for middle management as well. Cross-functional effort to enhance skills. Once this mechanism is in place, employees feel that they can actually grow working at AGC. And this is important because when you feel that you are growing, that actually has the strongest correlation with the engagement score. In order to heighten the employees' engagement, we want to continue to implement activities in order for them to feel that they can grow with AGC. It will take a long time. Just because you feel like you're growing, engagement score doesn't go up immediately. You need to experience the growth over long term, and then we will begin to see the impact. So it will be a slow change, but we believe that this initiative is extremely important. So I hope that we will also take a long-term view on this. That's all from me. Thank you very much.

We would like to move on to Q&A. [Operator Instructions] We will start with a question that we received in advance. The first question is what is the synergy between glass and chemicals? Can we take this opportunity to understand that once again. So Kurata will respond to this question.

Glass and chemicals. Chemicals actually can be functional as material or glass, but it can be compounded as well. For example, glass has transparency and also rigidity. It's different from film, it's rigid. And in that aspect, it can be very functional. But when you add the chemical aspect, both organic and inorganic, on this slide, we're talking about organic, but you can use the chemicals to process the surface of the glass to add additional functionalities. And then we can provide this kind of product that has compounded features. If it's just a simple material, usually, it's 1 plus 1 equals 2, but sometimes it can be 10 or 100. We can find combinations that will exponentially increase the functionality. So high functionality can be achieved through this type of technology. So we have a glass technology and organic chemicals technology that we have built over a very long time, and now we can exert new strength because there is synergy between the 2.

Next question. There are many focused areas. Among them, which do you think is most promising or the area that you invest more resources in? Kurata-san will answer to this question.

Yes. Development itself, of course, we have to work on the existing products. We cannot take easy on that, but if you ask me the ones that we are focused upon close to the strategic areas. So 4 areas that is shown here. And if you look at the breakdown, those are the areas we want to grow or in the future, there could be some changes. Of course, existing businesses could change the automotive glass. The next mobility will have a different perspective. In energy, what we have, alkaline electrolyte is one thing, but there could be new electrolyte. So the technological changes in the growing areas, we want to identify them and then select them as a focus area. So that is shown here. And we are investing our resources for those. Sorry, I'm talking about the wide-ranging ones, but the 7 -- the key technology views are the areas that we are trying to improve or emphasize.

Moving on to the next question. When you explained about intellectual capital patent, I saw that the patent count increased from 2019 and the licensing revenue also increased. This was an interesting information. What was the trigger? And where do you see this growth in which specific field or segment? We have also received a similar question about patent. Which business is currently the highest number of patent applications? And both of these questions will be answered by Kurata.

Both defense and offense are important, as I said. When changes happen frequently and quickly, then the number of patents will increase in that field and also growth area where new products appear one after the other. More than half of our revenue should come from the strategic business, electronics, mobility, performance chemicals, life science. So these are the areas that we are really focusing on in terms of creating patents for both defense and offense. Strategic patents can be issued. And we changed the reward system for the patent in 2011. And also some of the patents or technologies could be used by other companies, and that is the basis of giving the reward for that as well. So we changed the system. Internal system has been updated and strategic segments as well as future products are the areas where we see a large number of patents being filed.

Next question about the glass core substrate. NEG, for example, is working on the development. So what are the strength of AGC? Could you talk about the strength of AGC? So here again, Kurata-san will answer to this question.

Well, about the glass core, if you can look at this slide, it's not just the glass substrate. But on top, we have to do the -- make the groups or the holes and so forth on top of the motherboard. So our strength, there are 3 strengths. One is the glass material itself can be worked on. So something that is suitable for the chips or for the wiring, we can create the glass that is suitable for each layer. In doing the processing -- and I talked about organic and inorganic. So processing technology, we have 2 of those. So in that sense, the best suitable materials can be chosen and do the processing and then completed. And then it can be paid back to the materials and processing. So that is the first and second strength. The third strength is that we try to make this forecast 15 years ago. We have been developing this technology. And the evaluation technology has been enhanced, and that will lead to the better quality and also productivity and mass production. That is also something that we have been working on. So we have a long history of development. That is another strength that we have. So in that sense, I don't know about other companies, but we have those 3 strengths to try to succeed in this business.

Next question. Our efforts to success is progressing, what is the update of the current situation? And what kind of initiatives have been undertaken for this purpose. Ihara will respond to this question.

Thank you for the question. Succession program is being implemented steadily, but there is no end to human resource development, talent development. And therefore, we want to strengthen this further. As I've explained in my earlier slide, we want employees to experience multiple different businesses and broaden the scope of the experience or experience managing overseas Western companies. We are steadily increasing the pool of these successes, but we still have a long way to go to where we want to be. So we are discussing this every year and also considering the cost constraint, we have to think about the sequence who should have this experience this year. That means that we cannot increase the number of successes quickly, dramatically, but we are implementing the assignments and tasks in order to make this happen steadily over time.

A related question, in the presentation or your answer to the question, you talked about the Western type of management experiences. So that -- the importance of that was talked about. So are the female employees included? Could you tell us how many of them? And what is the percentage of the female workers?

Well, successor development to enhance the talent pool, the female talent pool is important and also non-Japanese talent pool to improve it is extremely important, too. So we are working on that. So as you asked about the female employee, of course, there are female work employees who are having such experiences, but we still have not sufficient female employees. I cannot really mention the percentage or the number right now, but the information that is made public, it's only 6% in terms of the manager that is the female manager. So even if we have a 6% in the talent pool, it's still single digit. So the number of female, the percentage is still low, but it's not 0. So gradually, we are increasing and for the women as well as the minority or non-Japanese so that we can increase the talent pool for the future management.

Next question. Fluoropolymer, are you developing an alternative successor of this? In that case, which type of product? Can you please explain? This is going to be answered by Kurata.

Strategic business includes performance chemicals, and we are providing features, functionalities. And fluoropolymers have high durability and also resistance against chemicals. There are various functionalities. And we know how our customers use these products and what their needs are. So wherever we have strength and where fluoropolymers can -- fluorochemicals can replace something, we try to focus on that. Fluorochemicals has high functionality. Sometimes it's difficult to replace. If the customer needs is over a long term, then we are considering replacing fluorochemicals. I think that's it.

Next question about the human capital. I think to have -- the middle management is important to have an exchange of the chemical reaction -- the intellectual chemical reaction. Were there any trigger? Are there any stories that you can share with us about the chemical reaction of knowledge? So Ihara-san and Kurata-san will both respond to this question. So first, Ihara-san, could you start?

Well, specific questions, I'm sure Kurata-san should have them rather than myself, but the trigger or how we started to do this? Well, let me see. The development -- technological development is not something that you can do alone. It's not something that you can do with only your team. So we need a kind of a catalyst. There's a middle management and the researcher, for example, might have some challenges or difficulties. How can we stimulate them to have better research or in the research lab, there is one topic and another topic. And if you combine them, what can you do? So I think that the middle management needs to do a good job so that we can create 3 or 5 from 1. So if it's closed or siloed, it's -- 1 becomes 0.8 or 0.5. So how can we have created a chemical reaction? We need a catalyst and we need a good work of the middle management so that the efforts of the researchers can bear fruit. So engagement survey in the comments, we did receive such comments. So qualitative comments, we try to pick them up so that we thought that it's important to take the approach to the middle management. So that is something that we noticed from the free comment of the engagement survey.

So Ihara-san talked about as HR. So until last year, she was in charge of HR. So engagement improvement is something that she was engaged with. So that's why she answered in such a way. So about the middle management and importance in the R&D or as a business as a whole, maybe he can make some additional comments.

For middle management, as a basic technology and also at the forefront of the business in many cases. So at the forefront, the middle management, unless the middle management moves, the company doesn't move. So the PhD holders, we are trying to increase. And then they are capable of setting up their own issues and challenges. They have wider perspective. So we have a very high expectation from the middle management. They understand the technological potential, and they can find out about the front line, and we want to make it possible for the middle management to be freely take advantage of their capabilities.

Thank you very much. Well, it's time, so we would like to close the Q&A session. There were some more questions that we were unable to respond, which will be answered by our IR team later on. The phone number is 03-3218-5096, if you have any additional questions. When you close the Zoom screen, there's going to be a questionnaire, please respond to the questionnaire to help us improve our future IR activities. And that concludes our ESG briefing. Thank you very much for joining us despite your very busy schedule. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]