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Welcome to the earnings briefing of AGC for the third quarter of fiscal year 2025. I'm Kazumi Tamaki, General Manager, Corporate Communications and Industrial Relations, serving as moderator. Today's attendees are Shinji Miyaji, Executive Vice President, Executive Officer, and CFO, and Tomoyuki Shiokawa, Executive Officer, General Manager of Finance and Control Division. We will first have CFO Miyaji provide an overview of the financial results for the third quarter, followed by a Q&A session. We are planning to finish at 3:45 P.M. Your cooperation is appreciated. Without further ado, I ask CFO Miyaji to start his presentation.
Thank you. This is Shinji Miyaji, the CFO. Please turn to page three. The highlights: net sales for the first nine months totaled JPY 1,512.1 billion, down JPY 22.1 billion year-on-year. Positives included an improved product mix and pricing policies for automotive glass, increased shipments and pricing policies for performance chemicals, and pricing policies for architectural glass in Europe and the Americas. Negatives included a PVC price decline, decreased shipments of EUV photomask blanks and European architectural glass, and the impact of last year's Russian business transfer.
Operating profit was JPY 94.8 billion, up JPY 0.8 billion on effects of profit improvement measures in displacement and others, despite the adverse impact of the aforementioned factors, as well as higher raw materials and fuel costs i ncome attributable to owners of the parent was up JPY 145.9 billion at JPY 39.5 billion, due to the aforementioned positive factors and the non-recurrence of last year's loss and sale of shares related to the Russian business transfer and large impairment losses in biopharmaceutical CDMO. Operating profit for the third quarter exceeded JPY 40 billion for the first time in three years since Q2 of 2022, following profit improvement measures such as pricing policies for European architectural glass and automotive glass. As for the outlook.
Full year outlook remains unchanged from that announced in August. Page six. Net sales and operating profit were as explained earlier. Profit before tax included profit increasing factors mentioned earlier in relation to the net income attributable to the owners of the parent, as well as impairment losses and foreign exchange losses in biopharmaceutical CDMO during Q2. Page seven. By segment, architectural glass, electronics, and chemicals saw a decrease in the sales and profit. Automotive posted higher sales and profit. Life science posted lower sales but improved profit. Page eight. I will explain the factors behind year-on-year variance in operating profit, sales volume, prices, product mix resulted in the positive impact of JPY 10.9 billion.
While there was a decline in the selling price of PVC and in shipments of semiconductor-related materials and architectural glass in Europe, there were positive effects from improvements in the product mix and pricing policies for automotive glass and for architectural glass in Europe and the U.S. and performance chemicals. Raw material prices differences resulted in a JPY 8.1 billion decrease and cost and other differences a JPY 2 billion decrease. As a result, operating profit increased by JPY 0.8 billion to JPY 94.8 billion. Page nine, please. Next, the balance sheet. The total assets amounted to JPY 2,874.2 billion, down JPY 15.5 billion from the end of last year. The DE ratio was 0.42x . Please turn to page ten. This is the cash flow statement. Operating cash flow was JPY 164.7 billion. Investment cash flow negative JPY 126.4 billion. Consequently, free cash flow was JPY 38.4 billion.
Page 11, please. I will now explain CapEx, depreciation, and R&D expenses. CapEx totaled JPY 174.1 billion. Depreciation amounted to JPY 132.6 billion, and R&D expenses JPY 44.1 billion. Major capital investment projects are listed as shown. Next, I will move to the segment-by-segment presentation. Please turn to page 13. First, architectural glass segment. Sales were JPY 320.8 billion. Operating profit JPY 10 billion. In Asia, sales decreased by JPY 3.8 billion to JPY 109.7 billion due to lower prices in Indonesia and other regions, coupled with reduced shipments. In Europe and the Americas, sales decreased by JPY 5.2 billion to JPY 209.2 billion due to lower shipments in Europe and transfer of Russian business in February of the previous year. The effects of our pricing policy began contributing from the second quarter onward.
Operating profit decreased by JPY 4 billion due to the revenue decline factors that I mentioned earlier and rising raw material and fuel costs. Asia accounted for about 30% of operating profit, while Europe and the Americas about 70%. Please turn to page 14. Automotive segment. Sales increased by JPY 10.6 billion to JPY 385.6 billion, and operating profit increased by JPY 12 billion- JPY 23.4 billion. Shipments decreased in Europe but increased in Japan. To counter rising raw material and fuel prices and manufacturing costs, we implemented structural reforms and productivity and product mix improvements and pricing strategies. Please turn to page 15. The electronics segment. Sales reached JPY 259.7 billion. Operating profit JPY 36 billion. The display segment saw sales increase by JPY 4 billion to JPY 136.2 billion, driven by higher shipments of LCD glass substrate.
The electronics materials segment experienced a JPY 11.1 billion decrease in sales to JPY 122.2 billion due to lower shipments of EUV mask blanks compounded by the impact of yen's appreciation. As a result, operating profit decreased by JPY 400 million. In operating profit, 70% was represented by electronic materials and 30% by displays. Please turn to page 16. Next, chemicals. Net sales JPY 431.3 billion and operating profit JPY 39.7 billion. Essential chemical sales were down JPY 20 billion at JPY 284.6 billion on declining prices of PVC. Sales in performance chemicals up JPY 11.4 billion at JPY 143.6 billion on increased shipments and higher prices of fluorine-related products for semiconductors and transport applications. Profit breakdown was essential chemicals about 30%, performance chemicals around 70%. Page 17. Life science. Net sales JPY 96.1 billion and operating loss JPY 16.2 billion.
Sales were down despite increased shipments on expanded biopharmaceutical CDMO capacity due to the non-recurrence of last year's one-time revenue from the contract project settlements and production issues at the Boulder site. Despite effective fixed cost reductions in biopharmaceutical CDMO, profit improvement was only JPY 500 million, seriously affected by aforementioned revenue-reducing factors. Page 18. Strategic businesses. Net sales were down JPY 2.2 billion at JPY 363.3 billion year-on-year, despite growth in performance chemicals and mobility affected by a temporary slowdown in electronics shipments and the non-recurrence of one-time revenue from contract project settlements in life science. Operating profit was down JPY 7.2 billion at JPY 40.7 billion, strongly affected by declining electronics shipments. Page 20. The full year forecast remains unchanged from August. Page 21. No changes to the full year forecast by segment either. Page 22. Comparing the fourth quarter forecast to the third quarter by segment.
Architectural glass expects increased shipments in Japan, with demand increasing for renovation to energy-saving glass. Asia also expects increased shipments on a recovering demand. South America expects shipments to remain strong. Europe expects flat shipments quarter on quarter, affected by the continued weak economy. In automotive, shipments to increase in Japan but decrease in Europe. The Americas will continue working on pricing policies and structural reforms. In electronics, display expects slight decrease in shipments of LCD glass substrates. Electronic materials expect shipments of semiconductor-related materials to be flat quarter on quarter. Op to electronics expects decreased shipments due to the entry into the adjustment period. Page 23. Next, chemicals. Essential chemicals. Although regular facility maintenance is planned in Southeast Asia, shipments are expected to increase, driven by a gradual startup of the expanded facility in Thailand. Performance chemicals.
Shipments of fluorine-related products for semiconductors and transportation application are expected to remain firm. Next, life sciences. Contract sales for small molecule pharmaceuticals and agrochemical CDMO are expected to increase. For biopharmaceutical CDMO, the loss is expected to narrow due to sales increase at a site in Denmark and the structural reform of the Colorado site. Turn to page 24, please. There are no changes to the full year outlook for strategic businesses. Page 25. There are also no changes to the full year outlook for CapEx, depreciation, and R&D expenses. Please turn to page 26. With regard to shareholder returns, the dividend forecast remains unchanged as a stable dividend policy targeting at a DOE of about 3% remained unchanged. Please turn to page 28. I will now explain the two organizational changes announced today together with the earnings results. Let me go over the details.
The first is one aimed at improving the profitability of the chemicals segment. As shown on the left of the slide, the chlor-alkali business was previously categorized as essential chemicals, while the business centered on fluorine-related products was categorized as performance chemicals. Starting from January 2026 next year, the entire chemical chain in Japan, from upstream electrolysis to downstream performance chemicals products, will be integrated into a single SBU strategic business unit in order to optimize the overall business and improve profitability. That is shown on the right of the slide. At the bottom, the essential chemicals business in South Asia, on the other hand, will become an independent SBU strategic business unit to accelerate its profitability improvement. Going forward from next year onward, the sub-segment structure for the chemicals segment in our earnings announcements will also align with this organizational change. Now, please turn to page 29.
The second organizational change is to accelerate productivity innovation. As you can see in this diagram, up until now, the information systems division handled IT infrastructure development, while the digital and innovation promotion division focused on business process innovation using digital technologies, and these functioned as separate entities collaborating on digital initiatives. Now, as you can see in this diagram, as a superstructure, we are establishing a new digital and innovation management division to oversee these functions. As you can see on the right bottom corner, our company has been selected as a DX stock fifth time, four years in a row, and our DX initiatives have been rated highly externally as one of the most advanced companies in this regard. Through its organizational reform, we will pursue synergies in strategies and technologies and human resources.
Furthermore, we will advance digital solutions as business innovation under a unified digital strategy to enhance corporate value and strengthen competitiveness further. That concludes my presentation. Thank you for your attention.
Thank you for your attention. We will now take questions. If you wish to ask questions, please push the Q&A button and type in your questions. We will first go over the questions we received in advance. The first question. The actual results for the third quarter, how it compared to the projected results. Miyaji would respond.
For the third quarter. Sales are on par with our projection for operating profits. A bit stronger than our expectation. That is overall for the company. By segment, the situation was as follows. First, architectural glass. Sales were slightly lower, but operating profit was slightly higher than projection.
Especially since the second quarter, in Europe and the Americas, pricing policies and cost reduction measures have proven to be effective. As a result, operating profit was better than our projection. For automotive, sales and operating profit were both better than our projection. For sales, improvement in product mix based on the strategy of volume to value, we saw effect, and we also implemented prices reflecting that. This strategy proved to be effective, and as a result, both sales and operating profit were better than our projection. Electronics, overall, sales were slightly better than projection, whereas for operating profit, slightly lower than our projection. For sales, some did better than others, but for operating profit in particular, in display, we saw a temporary cost increase. We had some impacts in foreign currency with higher Asian currencies. As a result, operating profit was slightly lower than our projection.
For chemicals, sales were slightly lower than our projection, operating profit slightly better. Especially in operating profit, essential chemicals and performance chemicals both saw the effect of cost improvements resulting in slightly better results than expectation. Life science, sales slightly lower, operating profit on par with our projection. For sales in small molecule pharmaceuticals, sales were not that exciting, but for operating profit, both biopharmaceuticals and small molecule pharmaceuticals were on line with our projection.
Next question. Earlier, you talked about the outlook for the fourth quarter qualitatively. Once again, if you compare this to the third quarter, how do you expect the fourth quarter to play out? Can you give us more details? That was the question.
For the fourth quarter outlook, in terms of sales revenue, those will be on par with the third quarter, probably. In terms of operating profit, compared to third quarter, we are going to see a decline, probably. That is the overall outlook. By segment, as I said earlier, for architectural glass, both sales and operating profit will be in line with the third quarter. In our view, for Japan and Asia, demand is expected to increase, but in Europe and others, because of seasonality, partially, there will be a decline. Overall, both sales and profit will be in line with the third quarter. As for automotive business, in the U.S. and Europe, in the fourth quarter, because of seasonality, we are expecting a decline. There is going to be an increase in shipment in Japan, but because of the shipment decline in Europe and America, we are going to see a decline in both revenue and profit.
As for electronics, sales are expected to be the same as the third quarter, but we are going to see a decline in profit. As for electronic materials, in terms of sales. Especially. After electronics, materials are going to have already passed a peak in shipments. In the fourth quarter, we are expected to see some decline. As for LCD glass substrate, demand is a bit weaker compared to the third quarter, so operating profit will be affected by that and decline. Operating profit is going well in electronics, but the display, but for this cannot cover the electronic material decline in profit. As for chemicals, we are going to see an increase in revenue, but a decline in profit. Especially in Thailand, there will be a production facility that will come online, and so there will be a shipment increase.
As for fluorine products, in the fourth quarter, demand is a bit stronger, so we're expecting the sales to increase. As for operating profit in essential chemicals, there will be scheduled maintenance, turnaround maintenance, and there is going to be a slight dip. There is going to be a decrease in profit. In life science, we're expecting an increase in both revenue and profit. In terms of sales, sales are expected to increase in the sites in Copenhagen, and operating profit will also increase accordingly. Fixed costs in sites in Colorado will improve, and so costs will be declined. The full-scale effect will be from the next fiscal year, but there will be a slight effect that will be already materialized in the fourth quarter.
Next question. For EUV mask blanks. On quarter-on-quarter or year-on-year basis? What is the situation? Is the question. Compared to the plan, how were the situation in the third quarter?
Oh, here again. Not much change in our stories. In 2020, we saw a big growth in this business. But this year, Rather, in 2024, we saw a big growth in this business, but for this year, due to the demand situation for our main clients, we expect the shipments to decrease. For 2026 onward, we expect sales to increase, start to increase again. As far as this year's concerns, not very exciting. We don't disclose the season-by-season changes, but the overall story remains unchanged. In Taiwan and others, our clients there, We are continuing to expand our customer base, and we are seeing the effects of that.
EUV mask blanks. This is once again an EUV mask blanks question. In major customers, there are various news headlines that are being heard. Compared to three months before, is there any change in your outlook for demand? That was the question.
EUV manufacturers, as you know, are all those that you already know. In each of those manufacturers, there are various capital policies that are announced, and there's subsidy provided by the government. Basically, this has been favorable for us. There is also a lot of news. In-house production. Is going to start up in foundries first. The demand that we initially assumed is now coming to materialize. There are slightly less concern, with a little bit of visual thinking.
Next question. Also on EUV mask blanks. Other than your main customer, how is your market share increasing? And what about the situation of certification in state-of-the-art areas, including 2 nanometer?
It's very difficult to give you the details. But regarding our market share, other than our main customers, we have yet to see a rapid increase in our market share. 2 nanometer, 1.4 nanometer, we are developing those to be certified. We will continue our efforts in these areas, and we are seeing the effect to a certain degree. For this year, with this factor in mind, sales are not growing that rapidly either. Starting next year, we would like to supply to new customers as well as increase supplies to existing customers.
Next question. With regard to image sensor glass filters, was there any entry by competitors? From the next fiscal year onward, what will be your outlook for shipments, inclusive of the competitive landscape? That was the question.
For a glass filter for image sensors, there are a lot of different manufacturers that have been around, and we are targeting at super high-end products or customers that are producing those products. Those are the main customers. In that sense, whether there are competitors or not, there are many competitors in image sensors, but for a super high-end segment, there is very limited competition. That has not changed. I'm not saying that there's no competitor whatsoever. We keep providing cutting-edge products to lead and get ahead of the pack and to secure the dominant position. That exclusive strong position has not changed.
Moving on to life science. What is the effect of the sale of the Colorado sites? Where are you on that? Once the sales materialize, what impact would it have on your results? The Colorado sites sale?
We are working towards that, but so far, there is nothing that we can make any announcement on. Quite a number of companies are showing interest in this site itself. We will continue to pursue early sale. This is November already, so it seems not very likely that we will have the sale complete by the end of this year, meaning it's going to be next year. That is a more likely scenario.
Next question. As for biopharmaceutical business, can you explain the status by site?
By site. What is easiest to understand is Colorado. It is going to be closed, and the redundancies have been announced. It comes decline, and the cost is expected to decline further to the end of this year. This is going to be a contributor for the next fiscal year. That would be easiest to understand.
As for Seattle, in the past, there were some production disruptions, but many of those have been resolved. In terms of production, there is much less concern now. We are now striving to obtain demand or orders, and we are seeing some results. There is an obvious increase in inquiries. As I have been saying all along, it takes time to move to full-scale production. The full-scale recovery is not expected until 2027. Overall, what we can say is that in Europe, in Copenhagen, we have increased the production capacity, and there were some problems that we faced, but those have now been resolved. In terms of manufacturing products, there is no concern. We have to get orders, win orders, and produce products. We are totally focused on that now. As for animal cells, that is how we are.
In Heidelberg, microbes and the melan genetic cells, they are all performing quite well. There is no concern and apprehension, and things are going well. Animal cells have to be restructured, and we have to increase the capacity utilization, and we are striving for that. The order taking is increasing steadily. When it comes to really solid performance, we have to wait until 2027.
Next question. Is for life science business overall. Sale is behind, and operating profit is on track, it appears, compared to the full-year forecast. Is the demand tracking behind your projection? If that's the case, why is it that profit is doing well?
We can't really say that profit is doing well, but so far, we've been able to do what we have been planning to do, assuming to do, up to third quarter, the first nine months. For small molecule pharmaceuticals, slightly below our projection. This is a real seasonal business. Lots of sales in the fourth quarter, so we are not concerned. Overall, we are seeing steady progress both for small molecule and biopharmaceuticals. Next year is going to be very important.
As for life science business as a whole, if you look at the third quarter actual results, cost and other contributors turn out to be negative on a year-on-year basis. Was there any particular one-time factor like withdrawal costs? What is the breakdown of this item? In comparison to the third quarter last year, in 2024 third quarter, there was a one-time revenue. I think this was a cancellation fee. There was a one-time revenue in quite some amount. There is no such thing that was a big factor.
Next question is about the Boulder site. The production issues continued. How about the third quarter? Did you continue to see the production issues in the third quarter?
For our Boulder site's operation. Since we decided to discontinue our operation there, the third quarter is already preparing for that. It is not really production issues. It's just that preparation for the business withdrawal took place during this period.
The next question is about the chemical segment. Essential chemicals and performance chemicals both seem to have improved in profitability. What was the factor behind this?
Yes, this is about a comparison to the last fiscal year, right? In comparison to the previous year, is it the question? Because the question is about the comparison. Improvement, is it from the second quarter in what comparison to what? I'm not sure. This was a question that was previously received, so there's no specification about the time period. As compared to the second quarter, I would guess. On an annual basis, there's a decline in profits. Probably profitability has increased from the second quarter. In comparison to the second quarter, what has improved? More or less, essential chemicals improved more, especially outside of Japan. Shipments have increased, and cost has declined. Cost was reduced in essential chemicals, both in Japan and overseas. As for performance chemicals, cost has decreased in Japan. Essentials and performance chemicals, utility charges have declined. As compared to the second quarter, profits have increased.
Next question is on essential chemicals. The capacity increase in Thailand, what is the current status? By the end of the year, you expect full capacity operation. Does that remain unchanged?
Yes, we have started the operation, and we expect full capacity operation at the year-end. Things are proceeding as planned. The impact is, as explained earlier, for this year, profit-wise, no contribution, but steady ramp-up. Next question is about the chemical segment. From next year, there's going to be organizational change. What is the purpose behind this? Once again, the same slide is now shown here. Previously, our sub-segments were divided as shown on the left, but this will be changed to what is shown on the right. We start with electrolysis, and with electrolysis, chlorine and caustic soda are generated. Using chlorine as a rule feedstock, chlorine and other performance chemicals products are produced. The whole thing is called chemical chain. In Japan, in the upstream, the chlor-alkali business, and in the downstream is performance chemicals products. They belong to different business headquarters, business units. It's not about optimization of the chains, but it's about optimization of the business units. There are byproducts to each other.
If you look at the Japanese chemical chain as a whole, there's further room for more optimization. We have changed our gear to have optimization of the total chain. Rather than upstream and downstream looked at separately, we look at the volume of caustic soda and chlorine and optimize them in the whole chemical chain. Essential chemicals, Southeast Asia will be separated out because they had been totally independent business, separate from Japanese essential chemicals from the beginning. But. They were in the same SBU with the Japanese essential chemicals. But Southeast Asia business is self-complete. So as a strategic business unit, it became independent. And profitability improvement initiative that is underway has to be accelerated in this regard.
Next question. For automotive. The situation in the third quarter. Three months ago, you were expecting a decline in revenue and profit from Q2 to Q3. The actual was a double-digit growth in profit. What were the differences?
Q2 So we're talking about quarter and quarter. It's not double-digit increase. The profit increase from Q2 was JPY 0.8 billion, I think. For automotive, in the second quarter, JPY 7.4 billion. Up to JPY 8.3 billion in the third quarter. So JPY 900 million, or JPY 0.9 billion. So it's not really double-digit. Especially in Japan and Asia. We continue to see strong business. That's one big factor. And North America is recovering somewhat. Those two factors combined was better than our projection. Therefore, Q3 was better than Q2, but not a big jump.
Running out of time, so this will be the last question. For architectural glass. In Europe, demand has been sluggish, but prices seem to have increased significantly. What was the factor for this? Was there any supply capacity decline? Also, you haven't seen signs for bottoming out in the Asian market. Can you tell us your outlook for demand in Asia? So there's a question about Europe and Asia.
As for Europe. Last year. We have to go back to the end of last year. There was a severe winter. Weather, and gas prices surged. We have not been able to recover on that immediately from the gas prices. The spread has worsened significantly because of that late catch-up. The gas increase or cost increase passed on to the product price has been implemented, and that result has been reflected in the second quarter onward. On the other hand, in order to increase price, you have to look at the capacity. The whole industry, including our company, has taken some supply reduction. From the second quarter onward, there were some effects from maintenance of prices.
As you know, the European economy has been quite weak, so we cannot expect too much from the demand increase, but prices are expected to be maintained at a relatively higher level. On the other hand, for Asia. Demand is not strong. Especially in Thailand. Industrial structure is not that favorable. So it's a bit difficult. In Indonesia, there is going to be a gradual recovery. But compared to the past, there is an industrial structural issue that still remains. In terms of architectural glass, the profit improvement in Southeast Asia is a challenge for us.
It is now time, so we're going to end the Q&A session here. For the answers, we couldn't respond. The IR personnel will come back to you later. If you have any further questions, please call us in Japanese at 03-3218-5096. That is for questions in Japanese. If you wish to communicate in English, please send to us at this address. Please fill out the survey sheets that you will see after you leave. Thank you very much. Have a good day.