We will now start AGC Inc.'s Chemicals Company Performance Chemicals Business Briefing. I am Ogawa from Corporate Communications, serving as the moderator today. Today's speaker is Tatsuo Momii, Executive Officer, General Manager of Performance Chemicals General Division, Chemicals Company. We'll first have presentation by Momii about the strategy of Performance Chemicals Business, and then we'll take questions. We are to end the session at 6 P.M. Japan time. If you have any questions, please press the QA button and type in your questions. Momii-san, the floor is yours.
Thank you. My name is Momii. I'm the General Manager of Performance Chemicals General Division. Thank you very much for your participation today. So let me get started on the Chemicals Company Performance Chemicals Business briefing.
This is what I'll be covering today: positioning of Performance Chemicals Business, an overview, for our business, and the strength of AGC groups and future growth strategy. I'll also talk about the PFAS regulatory trends before I close. First, the positioning of the Performance Chemicals Business in the AGC Group. The AGC Group, as you're aware, has core businesses and strategic businesses for our company-wide strategy of ambidexterity. Performance Chemicals belong to the core businesses area, but as will be explained later, Performance Chemicals Business entail lots of products and markets. Therefore, in terms of strategy, we are also engaged in electronics and mobility areas as well, which are part of the strategic businesses. This is the positioning of the Performance Chemicals Business. On the right-hand side, we have many businesses within our group.
ROC-wise, we are positioned in a very high position, and the carbon efficiency is high as well. So in terms of the business portfolio, it is positioned as one of the businesses where the growth is to be maintained. We belong to the chemicals of JPY 660 billion in sales. Performance Chemicals account for about JPY 160 billion, and we have 2,000 people within our business. Next, the outline overview of our business. Here you can see the history of Performance Chemicals Business, different ages, broadly. In the 1960s, the fluorine related materials research and development started, especially in the area of CFC. And then in the 1970s to early part of the 2000s, water, oil repellent and resin, as well as the polymers and the elastomers.
In those areas, we have expanded our product areas. Since the beginning of the 2000s, as you can see in this history, environment-friendly products as well as next generation, those innovative products for new markets, especially focusing on environmental technologies, and we have established our own position within the global market. That summarizes the history of our business. Here you can see the product flow. Chemicals, from raw salts, electricity, electrolysis, that's where we started, but everything is connected, as you can see, especially the Performance Chemicals Business, in the green area. Starting from the effective utilization of fluorine, we are adding value for various applications.
As I said, we have many application areas, and by region, as you can see on the pie charts on the right-hand side, until around 2019, although we were talking about global business, the sales in Japan accounted for close to 50%, and the remaining 50% in the rest of the world, especially the Americas and Europe and China. Whereas more recently, as will be explained later, we are seeing more applications, especially in semiconductors, and that has resulted in the growth in Asia and China. So currently, the overseas sales account for close to 60%. And to support that, we have manufacturing sites, and sales sites and technical services around the world. The manufacturing sites are in Europe and North America as well, in addition to Japan.
Main demand sectors, very broad, but, broadly speaking, electronics, transformation equipment, and architecture account for 60% altogether. For electronics, it's semiconductor, especially the semiconductor manufacturing device components, and the wiring and cables, around 30% uses our performance chemicals products in the area of transport equipment, especially, the cable covers, the high reliability, high heat resistance. These are the requirements, and for those applications, we are providing products for aircraft and automobiles. And for architecture, durability, long life is the required performance, so that frequent replacement would not be necessary. And so these are the main applications accounting for 60% altogether.
This is a bit more detailed, but for various applications, what are the characteristics that are being used? And how specifically, the fluorine products are used in applications. I'm not gonna go into details, but what characterizes this is that, for example, in electronics and in t elecommunications, chemical resistance and durability, there are multiple characteristics required.
There are edgy, more characteristic features are what characterize our products, and with those eccentricities, we are controlling those characteristics and provide our products to our customers, and that is the source of our business. Here you can see the positioning of the business in the supply chain. Depending on the market, it differs, but what's common is that we are more focused on the raw materials in the upstream. In the supply chain, we are at the upper stream. As a result, the trends in the market, for example, sales volume of vehicles and production volume of semiconductors, to those changes in the end-use markets, our raw materials market is affecting those with a timeline, and that is the characteristics of the positioning of the supply chain.
Next is about the strengths of our Performance Chemicals business in AGC. There are three strengths that we take advantage of to build a foundation of the current business. As for global niche strategy, since last year, we call ourselves Global Niche Top Company fluoro business. In the fluoro business, there are some materials that have become commoditized, but what we are working on at Performance Chemicals business is to differentiate ourselves from competitors and develop the high-performance products and aim for number one in the global market. That is what we call global niche strategies.
In order to do that, technical service, production, sales, and product development is being conducted globally, and using those functions that are rolled out globally, to anticipate the needs in various fields to provide products to customers, to respond to the customer needs first, so that we can establish high profitability business foundation. That is the strengths of our Performance Chemicals business. So for each of those three strengths, I'd like to explain more. Amongst the global niche strategies, what are the specific products that command number one global market shares? And you can see this in photos. ETFE resin, fluoropolymer, is represented by PTFE or Teflon. That is what would come to your mind, but, what we excel is ETFE resin. And also, the fluoropolymers for on-site coating is where we also have strengths.
More recently, the fuel cell technologies are spreading gradually. In fuel cells, what is essential is the electrolyte polymers, and we have an overwhelming share in this field as well. In these products, we are commanding number one global market share, and one of the reasons for that is because in producing those products, the intermediates and raw materials are also internally produced. But manufacturing is quite difficult or handling is quite difficult, as raw materials or intermediates. So that assets are the entry barrier is quite high, and that's why with the top technologies, we have been able to stay at the top level. As for global niche strategy, the fluoropolymers among general polymers, it is a niche product.
Engineering plastic has several billion tons in market, but fluoropolymers is only 200,000-300,000 tons in volume only. But what is required in fluoride is what is not possible in other materials, and you have to have multiple characteristics, and it is quite rare raw material. So as a market, it may be a niche, but in terms of specialty chemicals, it is highly evaluated. And as you can see on the left, as in usual ordinary engineering plastic, we can expect higher demand going forward for fluoropolymers. So we are going to ensure our share for niche product in the niche market. For your reference, let me explain about ETFE resin that I mentioned earlier.
About 50 years ago, AGC succeeded in mass production for the first time in the world. So we have a 50-year history, so we have consistent efforts and have the overwhelming manufacturing capabilities. So we have an overwhelming share. The processability is very good, and durability and also weather resistance is the characteristics, and so wire coating material and also coating for various materials and outdoor construction materials coating is where our products is used.
Now n ext is the global expansion. The applications and markets vary. We do have the R&D and manufacturing sites in Japan, but in terms of manufacturing sites, we also have sites in the U.K. and the U.S. as well. And as for the marketing sites, in addition to Americas and Europe, in Asia, Singapore, China, and India, in those places, we do have the marketing sites and to be closer to our customers, so that our products will be used at, in the adequate and right way. We do have the technical service sites in different parts of the world as well. So a global manufacturing, sales, and R&D facilities are there. So as to support the fast-growing semiconductor industry, as well as new market to emerge, the hydrogen society.
For those applications, we want to capture the technologies that the customers want as quickly as possible, and to provide them after R&D in materials in R&D facilities in different parts of the world. So developing new materials to supply into the world is what we are promoting as the third pillar of our strength. Next, about our growth strategy. Performance Chemicals history that I showed you earlier overlaps with this in retrospect. Basically, environmental issues, social issues, we have been addressing them by launching and supplying new products. That is the history of our business, and that is leading to our growth strategy as well.
In 1975, more environmentally friendly ion exchange membrane for salt electrolysis, FORBLUE™ FLEMION™, was launched, and we also developed CFC substitute with a small ODP, and also for future hydrogen society, membranes for electrolysis. These are the examples of the new solutions and products to meet the needs of society. In the growth areas of the 17 SDGs, especially safe and secure society, comfortable society, and environmentally friendly society, are where we are focusing on. To bring about this society, we are providing new materials based on our fundamental technologies. Contributing to society through various products are shown here, from fluoropolymers to fluoropolymer films to fine silica. These could also be the contributing business for the sustainable society.
In terms of the products expected to grow in the future, I'd like to give you three examples. One is, as has been mentioned already, the fluorinated electrolyte polymers for fuel cells. You can see the picture on the upper right. We call this I-monomer. This is a liquid polymer. Fuel cells are used not only for vehicles, but we expect the demand to grow in the future in hydrogen society. Our strength is that it has a very high resistance to heat. We successfully developed such as this. And also, the durability is high, where the degradation would not take place in the power generation. And also, the platinum, which is the major part of the cost, can be reduced in amount necessary. And therefore, what is currently available in w ell, today, we do have the overwhelming number one position based on our differentiated technologies.
So this is one area we expect a big growth going forward. Next is about, again, electrolyte, but, it's about, membranes. This is also related to fuel cells, but going forward, renewable energy-derived power will be demanded, and water electrolysis to produce hydrogen is going to be subsidized by various governments in the world. And with that, tailwind, we're expecting this demand to grow significantly. And, the fluorinated sulfonated ion-exchange membranes that we have, so, salt electrolysis technologies or molecular design technologies are used, and membrane-forming technology is also used, and, hydrogen leak is low and safe, driving is possible. So in the water electrolysis, device, we believe that this will become one of the mainstays.
Next, you can see Fluon+ EA-2000 and silica for inorganic filters. In the semiconductor and electronics fields, we're expecting this to grow going forward. So in the telecommunication, more capacity and high speed is required, and the high transmission, low transmission loss and low dielectric is required. But non-adhesiveness is another characteristic of fluoropolymers. It might be difficult to bond this with other materials, but with the fluoropolymers, there's adhesiveness as well, so this makes it quite unique. So, combining the conventional substrate material, we can respond to higher capacity demand, as for raw materials.
Silica for inorganic filters is a unique silica that AGC Tech has, and this has been highly appreciated by the customers. In the high-speed telecommunication era, we believe that this will become more present. So with those products that have high potential and the strengths of high-performance chemicals, the three of them, based on those as well as the anticipated provision of solutions, and also we have to have a supply capability to ensure trust. In March, JPY 350 billion or JPY 35 billion investment has been decided. In the second quarter of 2025, we're expecting these facilities to start operation.
And with the new products introduced and market growth and, customers' demand will be forecasted, and by increasing capacity ahead of that, we are expecting JPY 200 billion in revenue by 2025, and JPY 300 billion by 2030. Last but not least, more recently, we are hearing more about PFAS regulatory trends, so I'd like to share this with you. So PFAS, the word PFAS, has been a buzzword in the media, so PFAS pollution may become more familiar to you. But, what I would like you to recognize is that among PFAS items, what is regulated is PFOS, PFOA, or PFOS, PFOA. The substances that are categorized under these two are the ones that are regulated.
As for PFOS, we don't have any history of producing or selling the products, and also PFOA, we used to produce and sell the products, but by 2015, ahead of the regulation, we stopped, discontinued the production, sales. As for PFAS, material-related materials, the wastewater that is generated during the course of production has been minimized for environmental impact. So environmental impact reduction is one of the big priorities for us. So currently, what is the status of regulatory trends in Europe for PFAS? Let me just share with you the current status. Currently, the ECHA or European Chemicals Agency is considering this, and initially, in 2025, there will be a legislation, and without grace period, the regulation will take effect in 2027.
That was what was expected, but there are so many objections that were submitted through public consultation, so we don't know if the things will go as scheduled. So as performance chemicals at AGC, we have established an industry organization and submitted public comments. And in Europe and other countries, we are engaged in advocacy and lobbying activities so that we can protect our business against the regulatory trends. I have talked a bit long, but that's all. Thank you for your attention.
. Thank you, Momii-san. We will now move to Q&A session. If you wish to ask questions, please press the QA button and type in your questions. We'll first look at the questions that we received in advance. Question number one is on the mid- to long-term goals. Net sales of JPY 200 billion in 2025, and JPY 300 billion in 2030. What would be the operating margin?
We do not disclose numerical figures such as operating margin, but what we can say about profit is that we are assuming that the current level will be maintained. As has been explained in my presentation, we will be launching new products, and with this, we would like to aim for even greater margin. Thank you.
Next question. There are four products that are listed as global share number one. So if you can give us the current sales volume and the share amongst the performance chemical as a whole for all four products in total.
Well, as for the sales volume, we cannot disclose the numbers, but in terms of the share or weight, the four products with global share number one would represent about one third of the performance chemical as a total.
Next question. As for products expected to grow in the future, three were identified. With those three put together, how much increment in net sales are you assuming towards 2030? Increment?
Well, those three products put together, some have been launched already, but they are to grow in full-fledged going forward. So in 2030, we are expecting them to account for 20% of the performance chemicals overall.
Next question. On page 8, you have shown us the sales amount breakdown by region or geography, and the growth for China seems to be bigger. And would it be correct to understand that this is mainly for semiconductors? And the pie chart on page 8 shows the status in 2022. So in 2023, is the demand for China still growing, Momii-san?
Well, in this year, the sales for China are growing, but it is not just for semiconductors, but the transport, including automotive, a regime for those, and also salt electrolysis membrane or non. So non-semiconductor application is also bigger in contribution.
Next question. On slide nine, you are showing the sales ratio by application. In terms of profit, electronics accounts for how much? Can you comment on that to the extent possible?
Again, we can't give you the quantitative response, but, electronics applications in terms of profit, it will be larger than sales ratio. Here, as you can see, in terms of sales ratio, it's 28%, but for profit, it's going to be greater.
Thank you. Next question. Between page 23 and 25, you have listed the products that are expected to grow going forward. So at this moment, what would be the sales volume at present for each, and what would be the growth rate that we can expect? As far as you can share with us, please give us the numbers.
Well, we cannot comment on sales, but in 2030, the products that have the growth potential going forward would represent about 20% of the performance chemicals as a whole, and the growth rate is annual 2-digit, 2-digit %.
Next question. Price revisions have been implemented recently. Do you think the current price level to be appropriate? Is there room for further price increase?
Well, currently, we believe that the current level is appropriate. We are selling at the appropriate level. So, rather than talking about the room for further price increase, I would say the current level is adequate.
Next question. On page 26, as you showed, you have the plan to continue aggressive investments, but what about the directions for profitability going forward? Do you think you can maintain the high profitability level that you enjoy today, or is there any room for more improvements, Momii-san?
Well, in terms of profitability or margin, we believe the current level to be continued, but as I explained... We have products that are differentiating ourselves, are unique to us, that will be launched, so we can expect a further profitability increase, and we would aim for that.
Thank you. Next question. Also on slide 26, as indicated on the right, over the next 5 years, performance chemicals business sales are to grow by approximately JPY 100 billion. What will be the breakdown of that JPY 100 billion? Could you give us further details?
Here again, I'm afraid I could only give you a conceptual response. Existing products to account for about half of that JPY 100 billion, and the rest to come from the new product areas, so 50/50.
Thank you. Next question. On page 27 of the PowerPoint, so investment plan and forecast for sales. I'm talking about page 26, right? Rather than 27. So investment plan, revenue forecast, is it assumed that there will be no impact from PFAS regulation, and would it be really the case that you are not going to be affected at all? And if you are subject to any impact, then which area would be more susceptible? For example, the applications for semiconductors are less susceptible because there's no substitutes or for automobiles. Lobby activities are very strong, so there's less susceptibility. Is there any differences in terms of susceptibility in different fields?
Well, there's still a discussion ongoing for regulations, so we don't know exactly where these would go exactly, but we don't believe that there is no effect at all. There will be some impact to some extent, and the applications and products that could be regulated with more probability. We have put together some scenarios, possible scenarios, and the risk assessment has been done, and that has been reflected in the business plan that we have shown. To add more comments, there's a discussion on regulation on consumer applications that are going ahead, so these could be affected to some extent, but most of the products that we are going to focus on, industrial use, including semiconductors, are not substituted, so we believe that we can protect those products.
Next question. Related to PFAS regulation. Regardless of whether there will be regulation or not, the fluorine substituting products seem to be used as a marketing tools of companies engaged in the development. So of the products shown on slides 10 and 22, in terms of the product functionality, which are likely to be substituted, while other which are ones to that are not likely to be substituted?
As shown on slide 10, in applications where various performance needs to be met, I believe it will be very difficult to develop something that can substitute fluorine. In many of the industry areas, industrial areas, I'm afraid it will be very difficult to develop over short term, so I think it's very unlikely that they will be substituted.
Thank you. Next question is about CCL, copper clad laminates. It's not about performance of glass cost, but the resins performance is important as well. Conventionally, polyolefin related or derived resin was the main products, but there is a possibility to use a fluorine-derived resin. So to some, to what extent do you think polyolefin resin could be replaced by fluorine derived ones, and what sort of business opportunities do you see in this field, Momii-san?
Well, as I explained, the Fluon+ EA-2000 is the one that we would offer to meet the opportunities to replace the polyolefin. So in the polyolefin derived ones may not be able to meet the specification needs anymore, so there is a greater chance for us to replace them. Polyimide and rare polymers are used in high performance area, and that is where we can have opportunities. One of the characteristics of polyolefin is that chemical resistance, but not all common products will be replaced with fluorine products.
In terms of price and performance, which is the toughest competitor? in terms of engineering plastics?
Well, CCL, well, polyimide, polyamides and silicone resin, we believe would be the competitors. Thank you. We are still receiving questions, so if you have any questions, please use the Q&A function to type in your question.
The next question: in the previous question about PFAS regulation, you said that there is products that could be regulated for consumer applications, but what would be the share in terms of revenue for those products?
Well, we cannot explain in terms of sales numbers, but the probability of the products being regulated for consumer use, we assume that there will be products that will be subject to the regulation. And in terms of a share in the revenue, it is minimal. That's what we believe, so I'd like you to understand that way.
S o those are all the questions that we have received so far, but if you have any additional question, please push the Q&A button and type in your questions. Any further questions, anyone? If you have any questions, please press the Q&A button and type in your questions, please. We received a question in the chat box. When can we expect the fluoropolymers to be used in CCL?
EA-2000 that we have is to be leveraged and to be accepted in the market, and so we think it's going to take a bit of more time before that happens. The next generation, high-speed boards, the customers are currently doing the qualification, but it's not likely to be used next year. Could be two or three years down the road.
Thank you. Are there any further questions? So next question: The overseas major chemical manufacturers that are engaged in fluoropolymer products have signs to withdraw from the market. So is there any chance for AGC to have more business opportunity?
Well, that is true that one of the peers handling fluoropolymers have announced that they are going to withdraw, as you know. But the chemical manufacturers that have the same products as we have, of course, can have the business opportunity, not just us, but they all have the business opportunity. So in that sense, we have more business opportunities.
Next question. In assessing the business growth, what are the indicators that we should be looking at? GDP, PMI, or any other indicators?
For performance chemicals business, as explained today, many application areas and many markets, not single one that dominates, and therefore, it's very difficult to see what indicators would be a good leading. Of course, GDP is one good reference, but in our business planning, there are no particular economic indicators that we are focusing on. Next question. We do understand that AGC is quite strong in ETFE, but can you tell me what is the positioning of PFA in AGC? Well, as for PFA, compared to the peer or competitors in terms of production capacity and entry timing, was a bit late and lagging behind. But the PFA quality and production capacity that we have is commanding high expectation from the market, and every year, the expectation for the market is enhanced.
So EA-2000 is one of the PFAs, and that is also one of the mainstays and fluoropolymers. In 2025, second quarter, the additional capacity is going to be operational, and PFA is one of those products that are produced. And with the capacity increase for PFA, we would like to respond to the expectations for the market for AGC products.
Thank you. Next question. With the overseas fluorochemical companies withdrawing from the business, are you actually receiving any order inquiries?
I can't say which particular product area, but we are seeing the inquiries as substitute on a global scale. Thank you. Next question. With regard to PFAS, how do you look at the potential risk to be sued going forward in Japan and outside of Japan? Well, with regard to litigation risks, we are not in a position to talk in detail, but already in the U.S., PFOA, there are many litigations in relation to that filed. But a health damage concern is being reported, not just in Japan, but in other countries. So there are risks, not just in Japan, but in overseas as well. But whether we are faced with litigation or not, I'm not in a position to disclose that today.
Next question. There were reports about development of all-solid batteries, but the use of sulfur might be unstable, so it could be difficult for the automotive use. But there are possibilities for factories and others. So the question is: Is there possibility of using the all-solid cell for non-automotive applications?
Regarding the all-solid battery, it's not performance chemicals, but it's a corporate development theme. So I'm not in a position to comment on the possible applications of that development.
Thank you very much, Momii-san. With regard to this question, on a separate date, IR department will answer that question later. So we have covered all the questions that we have received so far. If you don't have any further questions, we're a bit early, but we'd like to close this session. But if you have any questions at this moment, please type in your question now, then we can pick up those questions. Any questions? Anybody with any further questions? No questions. Hearing none, we believe that there is no more questions, so we'd like to conclude this session. Thank you very much for attending this session, despite your busy schedule.
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