Once again, we will now start AGC's financial results briefing for the first quarter of the fiscal year ending December 31, 2023. I am Chikako Ogawa, General Manager of Corporate Communications and Investor Relations. I'll be serving as the moderator. Today's attendees are Shinji Miyaji, Senior Executive Vice President and CFO. Toshiro Kasuya, Executive Officer, General Manager of Finance and Control Division. First, CFO Miyaji will explain the financial results for the first quarter of 2023, followed by a question and answer session. We are planning to finish at 5:00 P.M. Your cooperation is appreciated. Now, I ask Mr. Miyaji to start the presentation.
Thank you. I'm Shinji Miyaji, CFO. Please turn to page three. These are the main points. In the first quarter, despite the impact of fading, falling vinyl chloride prices, net sales increased by JPY 16.5 billion year-on-year, at JPY 489.2 billion, thanks to higher sales prices for architectural and automotive glass, and favorable exchange rates. Operating income decreased by JPY 23.5 billion to JPY 34.2 billion, due to the deterioration of manufacturing cost and the impact of higher raw material and fuel costs. Net income attributable to the owners of the parent decreased by JPY 8.5 billion to JPY 22.1 billion. The full year outlook remains unchanged from the announcement in February. Page five, net sales and operating income were as just mentioned. Income before taxes decreased by JPY 17.8 billion to JPY 36.6 billion.
Net income attributable to owners of the parent was JPY 22.1 billion. Next, results by segment. Please turn to page six. Architectural glass and Automotive increased sales and profits. Electronics and Chemicals decreased both sales and profits. Life Science recorded flat sales and decreased profits. Page seven. Various analysis of operating income, year-on-year comparison. Sales volume, selling price and product mix, +JPY 7.7 billion, with an increase in sales prices of architectural and automotive glass. Raw material and fuel purchase prices, -JPY 14.3 billion, with higher prices of raw materials and fuels, mainly in Japan and Asia. Cost reduction and others, -JPY 17 billion, as manufacturing costs worsened due to lower capacity utilization. As a result of the above, operating income decreased by JPY 23.5 billion, from JPY 57.8 billion to JPY 34.2 billion. Page 8. Next, financial position.
Comparing with the end of December, 2022, total assets were JPY 2,851.2 billion, an increase of JPY 37.1 billion. The debt-to-equity ratio was 0.44. Please turn to page nine. Cash flow statements. Operating cash flow was JPY 30.1 billion. Cash used for investing activities was JPY 47.1 billion, resulting in free cash flow of negative JPY 17 billion. Please turn to page 10. CapEx depreciation and R&D expenses. CapEx was JPY 48.7 billion, depreciation was JPY 42.4 billion, and R&D expenses were JPY 13.6 billion. Next, details by segment. Please turn to page 12. Starting with the architectural glass segment. Net sales for the first quarter were JPY 120.5 billion, and operating profit was JPY 9.3 billion.
In Europe and the Americas, sales increased by JPY 5.4 billion to JPY 37.3 billion, owing to higher prices and favorable exchange rates, despite a decrease in shipments in Europe due to economic slowdown. In Asia, sales increased by JPY 11.2 billion to JPY 83.1 billion, thanks to higher prices despite decreased shipments in regions other than Japan. Profit breakdown was 40% Asia and 60% Europe and the Americas. Please turn to page 13.
Next is automotive segment. Net sales were JPY 118.4 billion, operating profit, JPY 4.8 billion. As global auto production increased, our group's shipment grew. Net sales increased thanks to the higher sales prices, improvement of the product mix, and foreign exchange effects. Page 14, please. This is the electronics segment. Net sales were JPY 70.2 billion, operating profit, JPY 1.9 billion. In display shipments of LCD glass substrates and specialty glass for display applications decreased. Net sales were JPY 35.8 billion, down JPY 9.2 billion year-on-year. Shipment volume of LCD glass substrates grew by low single digits quarter-on-quarter. Sales prices were flat. In electronic materials, with robust shipments of semiconductor-related products and Forex impact, sales were JPY 34.1 billion, up JPY 3.6 billion year-on-year.
Although electronic materials profit was strong, with major negative impact of higher raw materials and fuel costs and production costs for LCD glass substrates, operating profit decreased year-on-year. Ratio of sub-segment-Electronics materials was 180%. Display was -80%. Please go to page 15. We believe display business earnings improvement is an urgent management challenge for AGC Group. In February earnings call, we explained that we will take drastic measures to realize the improvement of the display business earnings. As part of it, we decided to reduce production of glass substrate products for LCDs in Japan significantly. More specifically, we will terminate production in Takasago site in Kansai plant by the end of 2023.
In addition to the withdrawal from the glass substrate with low profitability size and significant reduction of production in Japan, we would implement further measures to improve profitability and quickly pave the way toward 10% ROCE. Page 16. This is the chemical segment. Net sales in Q1 FY23 was JPY 141 billion. Operating profit, JPY 17.2 billion. In essential chemicals, sales prices of PVC and others decreased. Sales were JPY 100.9 billion, down JPY 20.8 billion year-on-year. In performance chemicals, although shipments of the fluorochemical related products decreased with higher sales prices and Forex impact, sales grew JPY 0.6 billion year-on-year to JPY 39.1 billion. As for the ratio of the sub-segments to OP, in chemicals, essential chemicals were 60%, performance chemicals about 40%. Page 17, please.
Let me explain the chlor-alkali market in Southeast Asia. Caustic soda market prices declined due to the slow economic recovery, mainly in United States and China. PVC market bottomed out at the end of last year and is on a gradual recovery trend. Spread between PVC and ethylene is recovering moderately. Page 18.
Lastly, the life science segment. Net sales were JPY 33.2 billion, little change year-on-year, and operating income was JPY 600 million, a significant decline. Despite a decrease in biopharmaceutical contract orders due to the absence of COVID-related special demand, sales remained almost the same, thanks to the favorable exchange rates. A decline in operating income was due to upfront cost for capacity expansion in the biopharmaceutical area and some operational instability experienced in starting new production lines. The next page describes changes in the environment surrounding the biopharmaceutical CDMO business. Please turn to page 19. As explained previously, we expect our biopharmaceutical CDMO business to grow over the medium to long term, along with the expansion of the pharmaceutical and CDMO markets. This prospect remains unchanged.
In a short term, however, there are concerns given the disappearance of the special demand for COVID-related applications after peaking in 2022, and the impact of reduced inflows of funds into the biotech ventures due to financial uncertainty and instability triggered by a sharp interest rate hike in the U.S. There are concerns now and into the future. Since our company has many transactions with small and medium-sized biotech ventures, there could be some impact, such as a slowdown in the early-stage development projects. Given such uncertainties over the future, while keeping our full-year outlook unchanged, we will keep a close eye on the situation. Page 20. Next, results of the strategic business. Net sales for the entire strategic business were JPY 75.1 billion, up JPY 3.7 billion year-on-year. Operating income was JPY 11 billion, down JPY 3.1 billion year-on-year.
We were affected by the decrease in profits in the life sciences business, which I explained earlier. Page 21. This slide shows the results by geographic segments. Page 23. The full-year outlook. We have not changed the earnings forecast and dividend forecast announced in February. Page 24. Our outlook by segments also remain unchanged. Please turn to page 25.
Let me explain the highlights of full-year outlook for FY 2023 by segment, starting with architectural glass. No changes to the initial outlook in Europe, Americas and China. As for automotive, as we expected initially, recovery of the auto production will push up our shipments. Pricing policy review are expected to bring further effect. In addition, effects of the structure improvements in Europe and other regions are expected to emerge. In electronics, both display and electronic materials outlook remain unchanged. Please go to page 26. This shows chemicals. Essential chemicals outlook remains unchanged. Market conditions for the year will remain below the previous year's level. After bottoming out at the end of last year, PVC market conditions will recover moderately. In caustic soda market, prices that rose last year will gradually decline.
Due to recent delay of economic recovery in U.S. and China, both PVC and caustic soda have been weak. As economy starts to recover, they are expected to improve. Performance chemicals outlook also remains unchanged. Although demand of fluorine products for semiconductor process application has weakened, it is expected to improve in the second half. Demanding transportation machinery for cars and airplanes is robust, and our shipment is expected to rise. Life science outlook remains unchanged as of now. As I said, special demand for COVID-19 related products is over. The key is how to win other orders. Recently, there are concerns about the reduced fund inflows into the biotech ventures. Depending on how the situation changes, outlook could be impacted. Please go to page 27. Outlook for strategic businesses remains unchanged.
In the medium term, strategic businesses are expected to grow steadily, but the growth will be somewhat slow in FY 2023. Please go to page 28. Outlook of CapEx depreciation and R&D are not changed. With that, I'd like to end my presentation. Thank you very much.
Thank you, Miyaji-san. We will now move to the Q&A session. If you have a question, please click the Q&A button and enter your question. We will start with the questions that we have received in advance. The first question, the results of Q1. How did they compare to the plan by segment? What are the projections for Q2 by segment? That's the first question, and Miyaji-san will respond.
Thank you. The first quarter results, as you can see, these were the results. Automotive, better than our expectation. Architectural glass, again, the year started better than our anticipation. On the other hand, the operational adjustments for display, we were not expecting high rate of utilization, but we are under the impression that the adjustment is continuing. Essentials chemicals, especially chlor-alkali demand, was weaker than our anticipation expectation. In that sense, architectural glass, automotive better than expectation. Display weaker than our expectation. As for the second quarter, compared to the first quarter, high likelihood of improving in display and some others. We expect quarter-on-quarter improvement. For chlor-alkali market, it's very difficult to predict, it's not likely that it will get worse than what it is today. A dramatic improvement is not likely either.
In that sense, for the second quarter?
Usually second quarter for AGC is about the same or slightly better than Q1. For this fiscal year, we expect a similar trend. That's the current projection.
Let's move on to the next question about the operative profit of the automotive vis-à-vis the full year forecast. There was a good progress in Q1. Do you expect a similar level of profit in the second quarter and onwards? I will once again ask Mr. Miyaji to respond to this question.
Yes. About the automotive, as I said, in the first quarter, we did see a big recovery. As for the second quarter and onwards, well, to start with, the first half is actually better than the second half for automotive for this fiscal year in terms of the volume. Production of the car is increasing, so probably the trend will be a little bit different from usual. At the same time, still China and Europe and Americas, there are some uncertainties. The situation of the first quarter, whether it would continue in Q2 and onwards, it's still uncertain. We started off well, better than our expectations. Whether this will continue in the second half or not, we are not that optimistic. Thank you very much.
Thank you. Next question. The price increase for automotive glass. Do I understand correctly that your price structure is twofold, the fixed price and variable price? For fixed price, what has been the level of price increase, is the question. Yaji-san will respond.
For architectural glass, the energy cost increase can be absorbed through energy surcharge. For automotive glass, we don't have that kind of formula. It is left to individual price negotiations. Of course, last year with increasing energy cost, we did revise some of our selling prices considering various elements and factors. We don't have this concept of fixed price versus variable price. It's very difficult to give you the details of our price structure and system. The energy cost increase portion have been transferred into the higher prices to a certain extent.
Next question is about automotive glass price increase. On page 13 of the presentation, the positive impact of the sales volume, sales price and the product mix was JPY 13.8 billion. In comparison, the negative impact from the raw materials and fuel was JPY 3.7 billion. It's the major positive impact. To what extent this positive impact continue? How long will it continue? Mr. Miyaji, could you respond to this question?
Yes. This is, overlapping a little bit with the previous, question. We have revised the prices and the gas prices after that, in Europe have come down, so it's becoming even. We do not think it is easy to imagine that this will continue. As I mentioned earlier a little bit, the shipment volume, needs to be considered. As for the second half, we have to be prudent. This, sales volume, sales prices and the product mix, most of those positive impact comes from the price revisions. We increased at the base part, and the remaining part will probably stay.
Moving on to the next question. On our display business, what is the backdrop to the decision to end the production of LCD glass substrates at Takasago plant? What will be the impact on P&L for next fiscal year? More specifically, the effect of reducing the fixed costs, as well as the impact on sales due to the reduction in the sales volume.
The production in Japan, we have Nagasaki and Takasago plant and Yonezawa plant within our Kansai area. Our customers' demand are seeing a drastic decline in Japan. Most of the production sites capacity have moved overseas, including China. Major customers have left Japan. That's one big factor. In addition to that, higher prices, higher cost of fuels and materials are affecting the production in Japan. That's another factor.
Impact on P&L next fiscal year onward was the question. In February, as part of the profit improvement efforts, termination of glass substrates decided, and various other initiatives are currently underway. We are not going to disclose specifically what the impact is going to be specifically related to this end of production, because there are other factors involved as well. We might be able to comment on that sometime later. As of today, we will refrain from disclosing that information.
Next question. In Q2, could you tell us the outlook of the shipment of the glass substrate for LCDs? Once again, I would ask Mr. Miyaji to respond.
Well, the shipment volume is gradually improving. In Q2, QOQ, probably 10% increase is what we expect. The shipment increase of AGC probably will exceed the overall level.
Moving on to the next question. Regarding the EUV mask blank, blanks, the competitors are talking about reduction in sales. How about for AGC? Year-on-year and quarter-on-quarter, what has been the rate of growth? On a full year basis, you are targeting over a 40% increase. Any changes to that forecast? When do you expect the semiconductor materials to hit the bottom?
EUV mask blanks for AGC, compared to Q4 of last fiscal year, we saw an increase in volume. Partly due to seasonality. Year-on-year sales have declined. Our quarter-on-quarter sales have declined somewhat, but year-on-year, over a 20% increase. In that sense, with the growth in the market itself, and with expansion in our customer base, approximately 40% or higher than 40% increase year-on-year in sales, as we projected. We are still expecting that. It's very difficult to say when we can expect the semiconductor materials to hit the bottom. I think generally it is believed that it will gradually improve, and we subscribe to that as well. When exactly that will happen is really hard to say. There are so many uncertainties.
Next question is about the outlook of PVC and caustic soda market in Southeast Asia. Mr. Miyaji, would you like to respond to this question?
Yes. I touched upon this earlier. PVC, first of all, as you can see in this graph, there's some improvements are being made or recovery is being made, but it's not a strong recovery because of the economic recovery in China, which is being delayed. Price of the PVC is kind of pushed down because of this slow recovery and also, North America, so it's not a strong recovery. The current price for Chinese PVC manufacturer is actually quite tough price level, so probably gradual recovery from this level will be expected. The caustic soda, in the second half of last year, European electricity price increased, and the production in Europe was not possible, so they became very tight and the caustic soda went up. Now it's in the adjustment period.
In that sense, it's not going to grow that much from now on. Maybe we are close to the bottom now, and towards the second half, gradual recovery will happen. That's what we are thinking right now.
Moving on to the next question. About the chlor-alkali business in Southeast Asia, what do you think is the impact of the capacity expansion by Reliance Group in India?
Reliance Group in India? Well, India has a big demand and great growth potential. Consumption is growing. caustic soda and PVC are seeing a dramatic increase in demand. This expansion in capacity I think will be absorbed by this domestic demand growth. We believe that the impact to rest of the world, Southeast Asia in particular, it will be limited.
Next question. The caustic soda outlook is lower than what you showed in the graph. The business environments around the semiconductor is expected to be tougher than your expectations. In the second half, is it possible to make a significant earnings recovery under those circumstances? Mr. Miyaji, please.
I think the question is about the overall group profit level. In Q1, JPY 34.2 billion and JPY 75 billion is the first half, and JPY 115 billion for the second half. As I start, if you look at only the first half, it looks quite good. The issue is whether we can realize JPY 40 billion increase in the second half. Concerning that, initially the profit is higher for us in second half. Usually JPY 150 billion-JPY 15 billion or JPY 120 billion is what we can expect in the second half. Also the economic recovery is also included, and we saw that may be plus JPY 10 billion. When if we can achieve that economic recovery portion, it's really up to the chlor-alkali market.
As I mentioned earlier, the prediction is very difficult to make. When you consider the cost of inflow, it would gradually reverse the trend. As of now, today, we haven't changed the outlook, and I think it is possible to achieve this target.
Thank you. Next question, life science. The results for Q1 worsened. To what extent was this in relation to the upfront cost? How long should we expect this upfront cost effect to continue, is the question.
As you can see in this graph, in the first quarter of last year, a rather high level of profit was generated. Compared to that, yes, a big drop year-on-year. This is a business with a second half being larger than first half by nature. Last year was kind of exceptional. As for the upfront cost, we don't disclose the details. But in addition to upfront costs and expenses, as I briefly mentioned in my presentation, the new facilities. In starting the new facilities, the operation was not very stable, and that had a negative impact during the first quarter. Going forward, that will be resolved, and therefore we believe first quarter to be the bottom and the profit to improve for the remainder of the year.
How can we get, the order is something that we have to work on. That was the CDMO.
Next question. There was a comment regarding the reduction in the capital inflow into bio ventures. What do you think would be the possible risk, and do you have any ideas regarding the capacity utilization? That's hard to say, but in addition to biotech ventures, they are, of course, producing products for other applications as well. What will be the size of the risk?
Well, that will be up to how the financial market would unfold in the U.S. It's very hard to say. In any event, the newly acquired facilities, they are operating at low utilization rate, but not only in the U.S., but also in Europe, those utilization rate are going to go up towards next year. This capital inflow fund issue regarding the biotech ventures, there's too many uncertainties.
Next question about the EUVL mask blanks. The announcement was made to expand the capacity. The shipment growth is being delayed from the outlook, but are you seeing some changes in the growth occur? You are expanding the capacity by 30%. In fiscal 2024, do you think that your capacity will be exceeding the current production? Could you give us some additional explanation, including the new entrants? Miyaji-san, would you like to respond to this question?
Well, 2025, more than JPY 40 billion is the target that we are trying to realize. Up to 2021, we were growing on track. In 2022, because of the situation of the customers, there was a kind of a plateau. Once again, exceeding JPY 40 billion is the track that we are currently on. That's the image that we have. It's been delayed somewhat, but right now we have come back to the original track. That's what I can say. As for the new entrants, the players that plan to enter, we are not seeing major changes in that sense. The capacity is something that we should expand in our case.
Thank you. The next question will be the last question in the interest of time. PBR is now below 1. How do you plan to improve the PBR?
0.8 or thereabout is our PBR. The big issue, the biggest issue is that ROE is not stable. Over 10% in good times, but five-year average would be 0.5, 0.6. We believe that is the biggest issue. improve ROE so that it will be 0.8 even in the worst case, and try to improve that to one as much as possible. When that is achieved, we believe PBR will exceed one. For that, we need to reform our portfolio, business portfolio. Not just the strategic business, but in core business as well, we need to achieve stability.
That's another important theme. Architectural glass is more stable compared to the past. The core business, which would have a major impact on ROE, we need to focus our efforts to stabilize that and at the same time grow the strategic business to improve the ROE. Should that happen, PBR is certain to improve.
Thank you. We don't have any questions left, so in the interest of time, we will end here. Thank you very much for taking time out of your busy schedule to join us today. With this, we end the earnings briefing for Q1. When you close the Zoom screen, the feedback screen will appear. Your input is appreciated. It will only take about two minutes. If you have any further questions, please contact us. The phone number is 03321850960.