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Welcome to the online earnings briefing of AGC Inc. for fiscal 2026 second quarter.

My name is Kazumi Tamaki, General Manager, Corporate Communications and Investor Relations, serving as moderator. Today's attendees are: Yoshinori Hirai, President and CEO; Shinjiro Yoshio Takegawa Vice President and CFO; and Tomoyuki Shiokawa, Executive Officer, General Manager of Finance and Control Division.

First, CFO Takegawa will provide an overview of the financial results for the second quarter. Then, CEO Hirai will explain the progress of the growth strategy, followed by a Q&A session.

We are planning to finish at 4:10 p.m. Your cooperation is appreciated.

I now ask CFO Takegawa.

Thank you. This is Takegawa, the CFO.

First, please turn to page 3. Key points of the second quarter results cumulative and full-year outlook.

Year-on-year, net sales increased by ¥105.1 billion, and operating profit rose by ¥10.6 billion. Net sales increased owing to foreign exchange, increased shipments in essential chemicals in Southeast Asia, integrated chemicals, and electronic materials, and pricing policies in integrated chemicals and architectural glass in Europe.

Operating profit benefited from the above-mentioned net sales growth factors, as well as improved profitability in Life Science. Full-year outlook remains unchanged.

Impact from the Middle East situation is expected to remain limited. Page 6.

Highlights of the financial results for the second quarter. Net sales were ¥1,100.6 billion, up ¥105.1 billion, as lower shipments in architectural glass in Europe and the Americas were more than offset by impact of the yen depreciation, higher shipments in essential chemicals in Southeast Asia, integrated chemicals, and electronic materials, and pricing policies effect in integrated chemicals and architectural glass in Europe.

Operating profit was ¥64.7 billion, up ¥10.6 billion, despite higher manufacturing costs, owing to the above-mentioned factors, as well as profitability improvement in Life Science. Profit before tax was ¥60.3 billion, up ¥26.6 billion, owing to improved operating profit, as well as foreign exchange gains and non-recurrence of impairment losses in biopharmaceuticals CDMO.

Profit attributable to owners of the parent increased by ¥21.6 billion to ¥35.5 billion. Page 7.

Year-on-year comparison by business segment. Architectural Glass, Chemicals, and Life Science posted higher sales and profit, while Automotive and Electronics posted higher sales and lower profit.

Page 8. Variance analysis on operating profit year-over-year.

Sales volume, price, and product mix contributed ¥26.5 billion, driven by stronger shipments of essential chemicals Southeast Asia, integrated chemicals, and electronic components, as well as pricing policies in integrated chemicals and in European architectural glass business. Negative impacts include purchase price of fuels, materials, ¥4.4 billion, and cost and others, ¥11.4 billion, resulting in ¥64.7 billion operating profit, up ¥10.6 billion.

Please turn to page 9. Balance sheet.

Total assets stood at ¥3.0063 trillion, an increase of ¥56.2 billion from end of last year. This includes positive FX impact of ¥32.9 billion.

D/E ratio was 0.38. Page 10.

Cash flow statement. Cash flow from operations was ¥104.9 billion, cash flow from investing was at minus ¥94.8 billion, and the resulting free cash flow was positive ¥10.1 billion.

Page 11. CapEx, depreciation, and R&D expenditure.

CapEx for the first half was ¥90.1 billion, down by ¥6.8 billion year-over-year. Depreciation and amortization was ¥97.8 billion, and R&D expenditure was ¥28.8 billion.

The main CapEx projects are as listed. Moving on to status of segments.

Please turn to page 13. Architectural Glass segment.

Net sales up by ¥18.5 billion to ¥229.3 billion. Operating profit rose by ¥5.5 billion to ¥8.8 billion.

Asia, Europe, and Americas saw an increase in net sales due to weaker yen. In Asia, shipments declined in Japan, but increased in Southeast Asia.

However, sales price in Southeast Asia fell, and net sales in Asia rose by only ¥500 million. The net profit structure is approximately 10% Asia and 90% Europe and Americas.

Moving on to Automotive segment. Revenue rose by ¥24.6 billion to ¥280.3 billion.

Operating profit fell by ¥1.8 billion to ¥13.3 billion. Net sales benefited from weaker yen, and weaker quick exports Middle East was minimal, and sales volume increased in Japan, Europe, and North America.

Although some factors contributed to net sales, manufacturing costs rose in Europe and Americas. Please turn to page 15.

Moving on to Electronics segment. Net sales increased by ¥6.2 billion to ¥174.4 billion, while operating profit decreased by ¥5.7 billion to ¥18.7 billion.

In display, sales prices for LCD glass substrates increased, while shipments of specialty glass for displays declined due to the planned business exit, resulting in flat growth in net sales. Net sales for electronic materials increased by ¥5.9 billion as, while shipments of EUV mask blanks are in recovery trend, other semiconductor-related materials and optoelectronic materials increased.

The yen depreciation also contributed. Segment operating profit decreased, despite the above-mentioned positive factors, due to an increase in manufacturing costs, as well as the negative impact of the yen depreciation on display.

The breakdown of operating profit was display 30%, electronic materials 70%. Page 16.

Chemicals segment. Net sales increased by ¥46.2 billion to ¥322.0 billion, and operating profit rose by ¥5.6 billion to ¥28.2 billion.

The yen depreciation has a positive impact on net sales at both integrated chemicals and essential chemicals Southeast Asia. Net sales of integrated chemicals increased by ¥19.8 billion owing to higher sales prices and increased shipments of products for semiconductor and other electronics applications.

Net sales of essential chemicals Southeast Asia were up ¥27.7 billion on increased shipments following capacity expansion in Thailand. Operating profit increased, despite higher raw material and fuel prices, owing to the above-mentioned positive factors.

Operating profit breakdown was integrated chemicals 80%, essential chemicals Southeast Asia 20%. Page 17.

Life Science segment. Net sales increased by ¥8.8 billion to ¥72.3 billion, and operating loss improved by ¥5.9 billion at ¥6.1 billion.

Net sales increased, despite a decrease in contract orders for small molecule pharmaceuticals and agrochemicals CDMO, thanks to the yen depreciation and the growth in contract orders for biopharmaceuticals CDMO. Operating profit and loss improved on fixed cost reduction from the closure of the biopharmaceuticals CDMO Colorado sites and improved contract orders and productivity at the Copenhagen site.

Page 18. Strategic businesses.

Overall net sales rose by ¥28.7 billion year-on-year to ¥264.4 billion, while operating profit increased by ¥12.0 billion to ¥35.0 billion. Overall net sales improved year-on-year with increased sales in all strategic businesses, while improvement in operating profit was driven by performance chemicals growth and Life Science improvement.

Operating profit of strategic businesses accounted for 54% of the group total. Page 20.

Before discussing the full-year outlook, I would like to comment on the impact of the situation in the Middle East. During Q2, we maintained stable supply by securing the necessary fuels and raw materials from diversified procurement sources.

To offset rising cost of crude oil, natural gas, and others, we implemented price adjustments and managed to limit the overall impact. While foreseeing the situation from Q3 onward is difficult, we expect the impact on full-year earnings to remain limited.

To counter impact on fuels, raw materials procurement, manufacturing, and sales, appropriate measures will be implemented to ensure stable supply. Current situation and prospect for the second half are as follows: fuels and raw materials prices remain at elevated levels, but sufficient supplies of ethylene, propylene, and other materials are secured for the time being.

Procurement efforts will continue. Production is adjusted in some chemical products, but the impact on sales volume is limited.

Sales price adjustments in accordance with cost increases are ongoing, mainly in architectural glass and chemicals. In the second half, we will continue such measures as diversifying procurement sources, cost reductions, appropriate production level adjustments, and price optimization.

Page 21. Update on essential chemicals Southeast Asia, which feels larger impact of the Middle East situation.

Facilities in Thailand expanded to meet steady growth in demand in Southeast Asia began full-scale operation this year. Raw material supplies are secured, as explained earlier, and operations remain largely stable.

Impact on the caustic soda market has been minimal. PVC ethylene price spread improved in the second quarter.

We aim to continue improving profitability through sales strategy that leverages the advantages of regional production. Page 22.

The full-year outlook announced in February remains unchanged. Please note that the crude oil price assumption was revised from $70 to $100 per barrel at the time of first quarter results announcement in May.

Page 23. We are also maintaining our full-year outlook for segment.

Further details are provided in the following pages. Page 24.

Architectural Glass, Asia. Increase in shipments are expected due to seasonal factors.

In Japan, demand is expected for retrofitting to energy-saving glass. Rising fuel prices are cause of concern, but we will continue our efforts to adjust prices and improve productivity.

In Europe and the Americas, South America is expected to remain strong, but the economic downturn in Europe is set to continue, and the recovery in shipments is expected to be limited. We will implement price adjustments and cost cutting.

Next is Automotive segment. Shipments expected to decline due to seasonal factors.

We will continue to improve product mix and enhance productivity. Page 25.

Electronics segment. Display business shipments of LCD glass substrates are expected to decline slightly.

We will continue to improve profitability. In electronic materials, shipments of semiconductor-related materials such as EUV mask blanks are expected to increase.

Shipments of optoelectronics materials expected to increase due to the seasonal demand for smartphones. Next, Chemicals.

Integrated chemicals shipments of products for the electronics sector are expected to increase. In essential chemicals Southeast Asia, demand is expected to remain firm, and shipments are expected to increase as expanded facility ramps up operations in Thailand.

Page 26. Life Sciences.

Net sales in small molecule pharmaceuticals and agrochemicals CDMO are expected to increase, driven by launch of an expanded facility. Biopharmaceuticals CDMO, we expect net sales to increase and also productivity to improve.

Page 27. We are also maintaining our full-year outlook for strategic businesses with net sales of ¥560.0 billion, up ¥58.5 billion year-over-year, and operating profit of ¥80.0 billion, up by ¥21.3 billion year-over-year.

Page 28. Our outlook for CapEx, depreciation, R&D expenditure remain unchanged.

We plan to reduce CapEx by ¥61.3 billion year-over-year. Please turn to page 29.

With regard to shareholder returns, there is no change to our policy of stable dividends, targeting a DOE of around 3%. That concludes my presentation.

Thank you, Takigawa-san. Next, CEO Hirai-san.

Thank you. This is Hirai, CEO.

I'd like to give you the presentation on the progress of our growth strategy. At AGC, 10 years ago, in 2016, we started transforming our business portfolio by separating the core businesses and strategic businesses.

Strategic businesses started small, but currently, they account for a quarter of sales. As for operating profit, Life Science is in a loss, but overall, it accounts for over 50% of the group total operating profit.

Through the production stability and the demand expansion, Life Science is to be promoted so as to drive the future growth. We are surely strengthening our management foundation to support the future growth and transformation.

Now, this is the status of ROC by business. ROC is shown on the vertical axis, and operating asset scale on the horizontal axis.

ROC 10% accounts for ROE 8%. That's where you see that horizontal line.

From the left-hand side, we are showing electronics and chemicals, integrated chemicals. These two strategic businesses are presenting very high ROCE currently, and they are to be grown continuously going forward.

Next, in the center, automotive glass, architectural glass, and display. For these three, over the 10-year period, they did suffer from time to time, but we worked on improving on the profitability, and we are seeing the effect.

As for automotive, last year, it did exceed the ROC 10% line. For these three businesses, we have been implementing recovery methods, but we will now shift to enhancing the resilience.

Next, on the right-hand side, these are the two businesses that need the recovery efforts, essential chemicals Southeast Asia and Life Science, namely. I'd like to start with the strategic businesses.

In electronics and performance chemicals, both areas, we are focusing on the products for the semiconductor manufacturing processes. Red represent the electronics field, and blue, performance chemicals fields.

You can see we do have diverse products for the advanced applications. As for the wafer process in front-end process, in addition to this, we are developing and providing products in the back-end process, the packaging, as well.

For AI, artificial intelligence, and data center, demand is expected to continue to grow, and on a timely manner, we need to enhance and expand our capacity. EUV mask blanks, CMP slurry, and lens materials for lithography equipment, by 2028, we are expecting the expansion of capacity by 20% to 50%.

We have already made the capacity expansion investment decisions. The EUV mask blanks are attracting a lot of attention as an advanced area, but in addition, we are seeing the KrF, ArF, these conventional applications as well, for diversified semiconductor demand.

As for the semiconductor-related business sales trend, about ¥100.0 billion in 2025 in two segments, Electronics and Performance Chemicals. We are to double the sales by 2030 to ¥200.0 billion scale.

At the same time, by 2030, packaging materials and other new products will be developed and launched. These are the businesses that we put in the center, transition from recovery to resilience.

Automotive turned into deficit in 2020, and we have struggled for several years, and we had a huge loss for display business in 2022. Since then, we have been implementing major reforms.

We have been struggling with weaker yen, but ROC has improved, and we are now aiming for 10%. For automotive, ROCE 10% was achieved, it was actually exceeded last year.

For these two businesses, we are looking at business structural reform, specifically productivity improvement, by dismantling older facilities with lower productivity in order to improve productivity. Also at the same time, we'd have pricing policy that really is in line with the value that we provide.

We are also trying to increase more added value and higher functional technologies. This is how we want to strengthen our automotive business.

Now, essential chemicals Southeast Asia is one of the ones that are to be improved. Southeast Asian market is enjoying a strong demand.

We expect this market to generate continuous profit, and we will leverage our strength of a stable supply and strong logistics network. Because of Middle Eastern situations, there was supply chain confusion, and within this market, our customers are now aware of the importance of a stable supply.

We have the advantage of manufacturing within the region, and we can take this advantage to further strengthen our relationship with our customers, so that this can serve as a strong source of revenue. Moving on to Life Science.

By modality, you can see the breakdown of sales in the pie chart. About half is bio, and the rest is small molecule pharmaceuticals and agrochemical CDMO, and then gene and cell therapy and microbes.

Now, the left half is very stable, generating profit. Biopharmaceuticals, mammalian cells, is the big challenge in Life Science.

Colorado site was generating a huge loss. We decided to close that.

We have already reduced headcounts, and that translated into a major reduction in fixed cost. With regard to stable supply, this is something that is required in order to expand the orders going forward.

We will leverage our own production engineering capabilities, and also implement digital and AI to stabilize the production. We want to be profitable by 2027, and we are trying to increase the orders, and hopefully, next year, we can turn into operating profit.

AGC Biologics Yokohama site is progressing according to plan, and by 2027, GMP-based commercial production is expected to start. As we made announcement the other day, we now have concluded long-term manufacturing agreement with leading global biopharmaceutical company, we believe ramp-up will be stable.

We have been chosen as a strategic partner as well, because of strong equipment and technical capability. Last but not least, this is the ROCE improvement plan overall.

We will continue to implement ROCE over all businesses, so that we can increase operating profit as well as operating assets. Cost reduction, pricing policy, and also disciplined CapEx investment, inventory reduction, business divestitures, withdrawals, to optimize our operating assets.

We will do both aspects, but we will be making timely investments as well for advanced semiconductor business, for example. That's all from me.

Thank you.

Thank you, Hirai-san. We will now move to the Q&A session.

If you have any questions, please click the Q&A button and type in your question. We are also accepting questions via audio in Japanese.

If you wish to ask a question this way, please click the raise hand button at the bottom of the screen. The moderator will call on you.

When speaking, please unmute your microphone, and please state your name and affiliation, and please be brief and clear. The first question from SMBC Nikko, Maeda-san, please.

Thank you. Maeda from SMBC Nikko.

Thank you for this opportunity. I have two questions.

First, about the first half results. Overall, operating profit exceeded your plan, but by segments, I wonder what internal take is for the segments results.

For the first quarter, there were some one-time profit-increasing factors, and I'm wondering if there was a rebound from that in the Q2. That's my first question.

Thank you. We'd like to divide answers in two parts.

Regarding the operating profit for the second quarter, the first half, by segment, Takegawa, CFO, would answer, and Shiokawa would answer the one-time factors that were seen during the first quarter.

Thank you. During the first half, overall, net sales were positive, operating profit were also positive increase.

By segment, yes, some did better than others. By segment, for sales, Automotive and Chemicals upside.

The yen depreciation and the product mix were the two factors for Automotive for increased sales. For Chemicals, integrated chemicals felt the impact of the yen depreciation, as well as price revisions and the market improvement in Southeast Asia.

As for operating profit, Chemicals upside, but Automotive and Electronics somewhat lower. For Automotive, the production cost in Europe and the Americas increased, had a negative impact.

For Electronics, display felt the negative impact of the yen depreciation. That would be my answer.

As for the one-time factors, Shiokawa would answer.

First quarter versus second quarter. During the first quarter, there was expansion in the consolidation, which pushed up the sales.

We are not giving out the figures, but it had an impact. Second factor, did not see the recurrence of that impact.

In addition, one-time costs did incur during the second quarter. I'm not going to go into the details, but these were the factors that accounted for better results in first quarter than the second quarter.

That is my answer.

Thank you. Second question is about Life Science business.

From the initial year plan, the OP should improve to positive ¥1.1 billion toward the end of the year. What is the probability of achieving ¥1.1 billion operating profit?

On page 38, you are showing some information, disclosure, about the next fiscal year net sales as well. How much of this order are you getting, what is the visibility into this, and how do we see this?

This is a question about Life Science. We will have Takegawa respond to your question.

Yes. As for Life Science, outlook for the second half, small molecule pharmaceuticals and agrochemical CDMO, as usual, we'll see increase in shipment in the second half of the year.

This is where we will expect increased sales and profit. Biopharmaceutical CDMO, in the second half, well, in Copenhagen and also Heidelberg, we expect orders to increase in the second half, and we will also see productivity improve.

In the second half, especially in the fourth quarter, we expect the profit to improve. The next year, based on this trend, by capturing orders, we want to maintain a solid business in Europe, and also improvement in Seattle.

Including all of that, we want to turn the whole bio business into profitability. That's all from me.

Thank you. I have some follow-up questions.

Profitability improvement in fourth quarter, which means that you'll be running losses until the third quarter, but the Q4 will turn back to profitability. Is that the correct understanding?

Also, net sales bar chart that you showed, how much of this is already captured as a real order?

Again, we will have Takegawa respond to your question.

Yes. What was the first follow-up once again?

Profitability,

turning to profitability in the fourth quarter of the year. Is that the correct understanding?

As you have pointed out, up to Q3, it would be difficult for us to be profitable, but in Q4, we expect to be profitable. The reason because of this is that in the second half, we will see increase in orders from in Copenhagen, and then production will start and delivery will also start.

That is the reason.

Yes. Another question was for next year, toward profitability, what is the current status of order taking?

Including the second half of this year, we have already fixed demand or orders, but for next year, not everything is fixed yet. I would say about half has been captured as orders so far.

Very clear. Thank you very much.

Next is Nishiyama-san from Citigroup Global Markets Japan.

Thank you. I have two questions.

My first question is on the overall profit increase and loss. I'm looking at page 43, Q-on-Q, ¥12.3 billion difference.

Most is in relation to cost, I think. Of course, as was explained earlier, the non-recurrence of the one-time factors in Q1, I know is a big factor as well, but could you elaborate further?

Year-on-year, especially Automotive, Electronics, and Chemicals, cost and others had big negative figures, especially for Automotive and Electronics. The negative figure was rather significant in Q2.

Can you talk about that, please?

Thank you. Shiokawa would answer these questions.

Thank you. Year-on-year comparison, especially in relation to costs, I understand is your question.

First, one-time factors, as I mentioned earlier, during the first quarter, there was plus and minuses. For others, in terms of quarter-on-quarter, seasonality is one factor, especially for electronics products.

From Q3 to Q4, each year, we see a peak. Usually in Q1, Q2, especially Q2 tends to be the bottom, and that was true this year as well for electronics.

Year-on-year, especially cumulative six months, last year versus this year, yes, cost accounted for negative growth. For Automotive in particular, from region to region, the situation differs, but especially in Europe and North America, cost improvements did not progress as much as we had hoped for, and we are making efforts to address that.

That would be my answer. Thank you.

I'm looking at your materials, and I find that in Automotive, manufacturing cost in Europe and the Americas, and the same for Electronics as well, that is being mentioned. I'm wondering if there are any production issues that you are faced with.

If it's not your internal reasons, can you not pass on the cost increase?

Thank you. Takegawa would answer that question.

For Automotive, in Europe and the Americas, both, it's not really the customers' issue, but more internal production facilities issues that resulted in higher costs. Regarding electronic materials, cost is increasing, but it's not just that.

In display, the yen depreciation had a negative impact on the profit, it's not just cost. That is all.

For Automotive production issues, any prospect for improvement? Again,

Takegawa would answer that.

Efforts are continuing.

My second question, in Electronics, especially semiconductor-related materials, EUV blanks, CCL, and CMP, these three major products, from Q1 to Q2, what were the developments? Is it showing upside to your targets, especially for EUV blanks?

Is it more likely that you will exceed the sales recorded in 2024? How about the new products?

Electronic materials business was your question. CEO Hirai will answer that question.

First, EUV mask blanks. Last year was the year in which the supply dropped vis-a-vis our major customers.

We see improvement there, and at the same time, we see an increase in shipments volume to other customers as well. We are seeing steady improvement year-on-year.

Are we going to reach the 2024 level quickly? No, we are still on the way to achieve that.

Regarding CCL, new product adoptions, the evaluation and adoption by our customers are proceeding steadily, is all I can say. For other materials, for example, CMP slurry, these are the consumables, with increase in semiconductors, sales volume increase as well, as I mentioned in my presentation.

For each of these products, we have already decided on the capacity increase to meet the growing demand.

I see. Thank you.

Next, Kono-san, Nomura Securities, please ask your question.

Hello, this is Kono, Nomura Securities. Thank you.

On page 21, essential chemicals Southeast Asia, I would like to ask you a question about the business, and I was worried about the PVC spread, but the arrows pointing upwards, this was quite a surprise. From Q1 to Q2, the margin for PVC has improved.

What is the background to this, and how sustainable is it? I understand the price was increased higher than the price of the ethylene, but can you please explain how to read this?

Thank you. We will have Takegawa respond to your question.

From Q1 to Q2, especially PVC and ethylene spread improvement on page 21, this is your question. This is a sudden increase, but it's quite subtle whether it's this steep, but yes, we have seen improvement.

There is not just one reason; there are multiple factors behind this, we believe. One of which is, yes, the ethylene prices went up, but PVC price also was increased, so that's one factor.

The second factor was, although the ratio cannot be disclosed or cannot be clearly explained, the return of the tax for the Chinese products basically disappeared. In other words, the Chinese players' prices started to increase, and that really pushed up the market prices.

Generally, in the first quarter, especially in January and February, we saw big improvements. However, is this going to be sustainable increase, we don't know, because it's actually going up and down several times.

We do believe that the general trend will be toward recovery. That's all from me.

Thank you. I have one more question, if that's okay.

About integrated chemicals. Business performance and also sales are quite strong for this business, but what is the status of inquiry by business, and you said prices are going up, which prices and for what reason?

Integrated chemicals-related questions were asked, and Takegawa will respond to those questions.

Integrated chemicals prices going up, again, there are multiple factors behind this increase. Ethylene shortage triggered increase in general selling prices.

That's one factor. Another factor is related to semiconductor, especially smartphone, PC, and also data center, semiconductor manufacturing equipment, demand are really driving sales, as well as profit.

These are the two factors that have helped integrated chemicals profit improve. That's all from me.

Thank you.

I understand. That's all from me.

Thank you.

Next, BofA Securities, Chiba-san, please.

Thank you. Chiba from BofA Securities.

I also have two questions. First, on Life Science, Yokohama site and the long-term contract that you've been awarded.

With this contracts, how much capacity utilization rate improvement can you expect? What about other contracts?

Are you seeing signs of new contracts being awarded as well?

Thank you. Questions on Life Science, the new facility in Yokohama, which is currently under construction, and you asked about the status of the contracts being awarded.

Takegawa would answer.

Already, for this Yokohama site, for new contracts, we have already made some press release. As far as modality is concerned, we're talking about mammalian cells.

The contract term is more of a long-term than short-term. As for sales impact, of course, this contract alone would not fill the capacity utilization of this new site in Yokohama, but at least close to 50% could be secured.

For other contracts, we are continuing to receive inquiries from multiple potential customers, and we are making various offers, proposals, in response, so that we can secure those contracts, so that we can improve the capacity improvement rates as quickly as possible.

Thank you. My second question is on EUV mask blanks.

Looks like you are expecting growth in demand compared to the beginning of the year. You said earlier that the sales may not go back to the 2024 level, but are you seeing better prospect, is my question, compared to the beginning of the year?

Thank you for your question about the EUV mask blanks orders. CEO Hirai would take that question.

Frankly speaking, from our customers, we are getting very strong order inquiries and request for more supplies. I don't know about other competitors, but the way we see it, the supply is getting tighter.

The net sales record in 2024, we don't expect to go back to that level immediately, but that's on the net sales terms. In terms of volume, we are seeing an increase.

Already, this year's volume is exceeding last year's volume, and we expect further increase next year. As mentioned earlier, for EUV mask blanks production line, we are already expanding the capacity, and in addition, we made decisions for further investment.

For the time being, we expect this demand to continue to grow.

I see. Thank you.

One follow-up question. You said that there's a strong inquiry from your customers and supply is tight.

As for price, with this strong demand, is there possibility of increasing the price or is it already fixed based on the existing contracts? My question is on the pricing prospect.

Again, CEO Hirai will take that question.

There are various grades. When the grade changes, in other words, more challenging products mean higher prices.

If we are to continue to supply the same grade products, the prices will go down. Now, we are seeing momentum towards higher-grade products, difficulty is improving and production requirement is getting more challenge.

We are seeing both happening. For the time being, we expect a shift to a more challenging products, meaning higher unit price, but that would mean higher cost as well.

For improved profitability, we have to make sure that the production system capacity is there to meet the increase in production volume. Because changes are taking place very rapidly, we need comparable speed in what we do as well.

I see. Thank you.

Any other questions? JPMorgan Securities, Shikanai-san, please ask your questions.

Thank you. This is Shikanai, JPMorgan.

I have two questions. First question is related to the question just asked.

Just for point of clarification. Sales will not go back to the 2024 level, but the volume is expected to grow.

This year, is the volume going to be higher than 2024? Also, the mask, I understand that you were in DRAM, but what about the progress in logic?

If possible, can you talk about the ratio of R&D cost, as well as ratio for mass production as well?

EUV mask blanks volume and adoption for logic business and R&D status. Hirai will respond to those questions.

With regard to quantity, we cannot give you any specific number. I do apologize.

Realistically, EUV inquiry versus the actual production and shipment, well, majority, absolute majority of that is logic, not memory. Logic is moving faster than memory.

With regard to R&D ratio, I would like to refrain from answering your question.

Phase shift mask is already used for DRAM. I think you told us about that two or three years ago, but phase shift mask is, for logic, is also used from AGC?

Is that the correct understanding?

Hirai will respond to your question.

I have to apologize that I cannot respond to your question. Sorry about that.

Thank you. Another question about display.

Sales denominated in yen, FX situation is quite tough, but over the mid- to long-term, will you change the pricing based on the FX, accounting for FX? What are your thoughts on this?

Your question is about display, and, yes, Hirai will respond to your question.

Display price, why is this denominated in yen? This is based on a very long history.

We have to go back more than 20 years in history. This is now a rule within this industry, and therefore, it is unthinkable for us to remove this yen-denominated scheme.

When the yen gets weak very quickly, how much of that can be passed through to the price? I think that is a question.

Recently, well, in the display, it was a conventional to reduce the price every year, but now we have actually increased the price, and our customers are also increasing their panel prices as well. The industry structure has really changed with regard to pricing.

Based on good consultation with our customers, we want to make sure that the whole industry can benefit from bigger profit, but we do not think it's actually possible to change this yen-denominated system.

I see. That's all.

Thank you.

Thank you. Next from Daiwa Securities, Hirakawa-san, please.

Thank you. Hirakawa from Daiwa.

I have two questions. First, the forecast for this year.

During the first half, ¥60.0 billion, or you expect to be a little bit higher than 60, but you haven't changed the forecast. Is it because the positives that you are seeing now are not as strong as to warrant the upward revision?

Wondering if there are any risks that we need to be aware of in any of your businesses.

Full-year forecast is your question. Takegawa would answer that question.

For this year, first half, slightly better than our projections, but there are many uncertainties remaining, we don't have clear visibility into the second half yet, and that is the reason why we did not change our full-year forecast.

Having said that, that's for the big picture. Are there any specific concerns or risks?

No, at this current moment, we don't see that. Of course, there are differences from business to business, but it's not that there are any particular reasons that we consider as a concern.

Additional question, if I may. In your case, second half is better than first half.

We can rest assured that that pattern can be retained, am I correct?

Yes, as usual, our business is more second half-oriented. For the second half towards the ¥150.0 billion operating profit for on a full-year basis, yes, we are assuming that the second half would be better than first half, as usual.

It's not that there are any particular concerns that we have or any factors.

I see. Thank you.

My second question is on display. Panel manufacturers are talking about the risk of lowering their capacity utilization rate, and their concerns about costs as well.

For the second half, what's your projection in terms of volume? Earlier, you said that you really cannot talk about prices and pricing, but with cost increasing, what is your basic stance regarding your pricing policy in response to increasing costs?

Thank you. Your question is on display, the shipments volume for the second half, as well as pricing policy.

CEO Hirai will take that question.

Regarding volume, slight decrease is our projection. The World Cup soccer was a special demand for this year, and that's already behind us, and therefore, we expect volume to slightly go down.

Our production plan reflects that. The key point is the exchange rates.

The yen appreciated more recently, it's hard to predict, but if the exchange rate hovers around ¥160 to the U.S. dollar, then we will have to ask our customers to accept price revisions.

As mentioned earlier, situation is changing. Customers now have the mindset that, as an industry, how profit can be attained.

The panel manufacturers are thinking about price increase as well. I think we can expect a industry-wide efforts.

I see. Thank you.

Asfalis Advisory, Asama-san, please ask your question.

Yes, this is Asama. Thank you for this opportunity.

I have one question. EUV mask blanks.

Listening to your explanation earlier, I understand that the volume will exceed the level of 2024, that's what will happen this year, but in terms of net sales, it's not going to be higher than 2024. That sounds like the prices are actually going down.

You also mentioned that you have more business related to higher grades. Considering all of that, on an apple-to-apple basis, maybe the prices are going down dramatically.

That's what it sounds like. Is my understanding correct?

Hirai will respond to your question.

That is not what I meant. If you understood it that way, maybe my explanation was not sufficient.

I do apologize about that. For certain, there are many different grades increasing, and we are seeing more customers.

Depending on grades and customer, the unit price varies. That would be the correct understanding.

In 2024, volume was growing rapidly, unit price was trending quite high. Compared to that, what's happening now is the situation is more mature, and in terms of average price, yes, your understanding is correct that it's lower now.

I see. When it comes to mix, I think you're talking about the mix.

From mix perspective, this year compared to 2024, the situation is worse, but how does it look for next year?

I have not really said that it's gotten worse. 2024 was a special year, extraordinary year, with fast growth of the net sales.

In comparison, this year will not look as great, but next year, we will definitely exceed 2024 and return to growth trajectory.

I understand. Thank you.

Thank you very much.

Next, from CLSA Securities, Cho-san.

Thank you. Cho from CLSA.

If I can go back to Electronics, first quarter to second quarter, operating profit decrease, which was rather sizable. I might be repeating what was asked earlier, but for display, although you talked about the yen depreciation, compared to March and April, we don't see a 5% difference, and basically large-size TV was rather strong.

I think basic situations remain favorable. From Q1 to Q2, why did sales in Electronics go down?

Is it simply because of the yen depreciation? That's my question.

Thank you. Electronics segment, first quarter, second quarter, net sales, operating profit changes, what are the factors, was your question.

Takegawa would answer.

Electronics segment, especially electronic materials, I think, is what you're interested in. This is true for display as well, but overall, display volume was slightly lower.

In addition, there was yen depreciation, weaker yen. As a result, profit declined slightly.

For Electronics segment overall, there are multiple factors, but the production cost worsened. That's one.

For EUV, it's in the recovery trajectory, but for optoelectronics, for the future, we are in the transition period, the volume did not grow much, and with cost increase in materials, the profit suffered.

I see. Thank you.

Follow-up question, rather detailed question. Q3 projection.

Can we expect to go back to last year's Q3 level or are you looking at the Q1 level of this year? Can you talk about the recovery from Q2 to Q3, either qualitatively or quantitatively?

Thank you. Your question was Q3 as well as second half projections.

Takegawa will answer.

Q3, overall net sales about the same level as in Q2. Electronics and Chemicals, increased sales are expected, but they are seasonality.

For Automotive, Life Science, lower sales. Operating profit, we do expect growth both Automotive and Electronics.

Especially for Electronics, overall recovery trend is observed. In Automotive, productivity improvement should be a plus, in addition to recovery from the decrease in production.

For Chemicals, in Q2, there were some cost issues because of the flat depreciation method in Q2, so that should be a plus for Q3.

I see. Thank you.

Next, SBI Securities, Shibata-san, please.

Thank you. This is Shibata, SBI.

Thank you for this great opportunity. Just one question.

I may have missed it, in which case I would apologize, but Life Science, page 38. Colorado divesture process still ongoing.

From your internal perspective, is this behind the schedule or can you counter this concern in the stock market? Is it really progressing, because from outside, we cannot really understand what's going on.

Do you have any follow-up information about the future of the site in Colorado?

Thank you. Life Science, Colorado site, progress of divestiture.

Takegawa will respond to your question.

I cannot go into details because there are other companies involved, but for now, we are aiming to conclude this divestiture before the end of this fiscal year, and negotiation is ongoing. That's all from me.

Thank you.

If this is postponed to next fiscal year or beyond, the right-hand side graph on page 38 may be very different. Should we consider that risk or not?

Again, Takegawa will respond to your question.

Even if the divestiture is delayed, net sales on the right-hand side on the graph should not be affected. Operating profit at the top may be affected to some extent, but I don't think it's big enough to change the shape of this curve.

That's very clear. Thank you.

Thank you very much.

Thank you. One last question.

If you could be brief, we'd appreciate it. Nishiyama-san from Citigroup Global Markets.

Thank you for allowing me to ask another question. Semiconductor-related, you have made decisions to expand capacity, three lines.

What is the size of expansion, and what will be the total cost?

Hirai-san would answer.

The production expansion, 20% to 50% expansion for 2028 timeframe. The investment amount, I can't give you the details, but double-digits billion yen.

When you announced the EUV blanks increase in 2023, you were talking about 30% increase and ¥40.0 billion sales mentioned about this time?

Yes, 30% increase in volume is in our mind, yes, it's rather comparable.

I see. Thank you.

Thank you very much, and that concludes the Q&A session. If you have any additional questions, please contact this information.

Number is 03-3218-5096. When you close Zoom screen, you will go to the survey.

Please respond to the survey so we can improve the IR activities going forward. That concludes Q2 earnings announcement for FY2026.

Thank you very much for your participation, despite your very busy schedule.