Asahi Glass Company, Limited Business Report FY2007

Business Highlights

Financial Overview
(in million JPY) FY2007 FY2006 Rate of change (%)
Sales 1,681,238 1,620,540 3.7
Operating Profit 197,452 136,611 44.5
Glass segment
Sales 866,031 815,335 6.2
Operating Profit 63,663 46,485 37.0
Percentage of sales and operating profit at the Glass segment
Sales 51.5% 50.3% -
Operating Profit 32.2% 34.0% -

Major Factors of the Business Performance
  Positive Factors Negative Factors
Overall -Demand for glass substrates used in flat panel displays (FPDs) was strong, especially for those used in thin-film transistor (TFT) liquid crystal displays.
-Rebound in demand for chemical products.
Glass segment
Sheet Glass - Booming European market
- Greater exports to Russia and other emerging markets
- Stagnant business due to fewer house construction projects in Japan and North America.
Automotive Glass - Greater volume of vehicle production worldwide, especially by Japanese automakers. -Slumping business in European countries, except for Russia.
Other Glass Products - - A decline in sales resulted from the Company's withdrawing from the glass fiber business at the end of October, 2007.

Medium-term management plan JIKKO-2007
-Period: For three years starting from 2005

-Objective: To achieve and maintain an operating profit margin of over 10%.

1. Investing heavily in the glass substrate business, targeting sales of thin-film transistor (TFT) displays and other flat panel (FPD) displays
2. Improving profitability at the cathode-ray tube (CRT) business
3. Increasing production capacity in emerging markets
4. Enhancing the profitability of its North American operations
5. Launching into the Electronics & Energy business

-Results of JIKKO-2007:
Although the Company failed to improve its profitability in North America, it successfully expanded its FPD business as well as its sheet glass business in Europe. It also was able to continue developing its Electronics & Energy business further. As a result, the Group's operating profit surpassed the targeted 10 percent.

New Medium-term management plan JIKKO-2010
-Period: For three years from 2008

-Objective: To raise its ROE ratio to 12% and maintain the same level of operating profit margin that the Group achieved in 2007

1. Display business:
-Maintaining and improving profitability at its TFT glass substrate business; and 
-establishing a flexible production structure to meet demand in the changing plasma display panel (PDP) glass substrate market, as well as to remain profitable.
2. Electronics & energy business:
-Carrying out a strategy to achieve differentiation based on its seamless production structure, which consists of materials production up to processing; and 
-reducing the time needed to prepare for mass production; and 
-speeding up business operations and focusing its investments in growing areas. 
3. Solar cell business:
-Establishing a global development, production, and sales structure covering Europe, North America, Japan, and Asia in order to support the development of the solar cell market, which  is projected to grow by 40 percent per year;
-increasing production capacity by investing in plants and equipment, and by also developing new technology in a timely manner; and  
-differentiating its technology by launching high value-added products.
4. Sheet glass business in North America:
-Expanding sales of glass used in solar cells, automotive glass substrates, and Low-E glass;
-improving its logistics systems; and 
-upgrading production operations and enhancing profitability by introducing an automated production system.
5. Glass business:

Sheet glass
-Launching mass production in the Czech Republic at the beginning of 2008 and also in Russia at the beginning of 2009. Establishing an optimized production structure in Japan and Asia. 

Automotive glass
-Launching mass production at its second plant in China in the first quarter of 2008;
-improving profitability in Europe by fully implementing build-and-scrap practices; and 
-maintaining cost-cutting initiatives on a global basis.  

-The Company decided to dissolve AGC Automotive Mexico S.A. de C.V., its subsidiary in Mexico and will stop the operations in Mexico in order to optimize the automotive glass business in North America. The Company is scheduled to liquidated the subsidiary in the second half of 2007. (From a press release by the company on Feb. 2, 2007)

-The Company will shut down Cinnaminson plant (New Jersey, U.S.A.) which is unprofitable plant, manufacturing float glass whose supply is currently rather excessive in the market, in an attempt to improve supply-demand balance and upgrade utilization rate of its production facilities in North America. By this closure, AGC's flat glass production capacity will be lowered by approximately 10%. (From a press release by the company on Feb. 5, 2007)

-The Company announced its wholly-owned subsidiary, Asahi Techno Glass Corporation (Funabashi City, Chiba Pref.), will close its operations at its Nakayama plant by the end of December 2008. Asahi Techno Nakayama plant launched its production of automotive headlights in 1966 and since then, it has successfully expanded its scope of business into the production of various glass products, including glasses for physics/chemistry studies, heat-resistant glassware, and industrial glass tubes. The Company will restructure three production facilities in the group, Nakayama plant, Shizuoka plant, Thai plant (Thai Iwaki Glass) to fortify its competitiveness both in cost and quality. (From a press release on Mar. 16, 2007)


R&D Expenditure
(in million JPY) FY2007 FY2006 FY2005
Overall 33,943 30,781 31,706
Glass business 9,728 7,419 7,039
R&D expenditures at the Glass Division as a % of overall R&D expenses 28.7 24.1 22.2

R&D Structure
-Based on its strategy of "Look Beyond" initiatives, the Group focuses its business in the areas of opening parts, displays, and electronics & energy products. In the segment of electronics & energy technology, the company is conducting development activities leveraging its glass and fluorine technologies, its core lines of business, aiming to offer environmentally friendly products.
Division Overview
Technical Planning Section The section oversees the group-wide R&D activities
Central Research Center The research center covers the following areas:
1. Medium- to long-term projects; projects based on basic technology; and research on enhancing technical platforms
2. Projects for developing and cultivating new business
R&D and engineering centers at respective divisions Engineers at each division handle the following areas:
1.New product development related to existing business
2.Development of mass-production technology and equipment

Glass business
-The Glass Division is working on developing new products and technology in the area of sheet glass and automotive glass. It is also conducting research to radically improve operations efficiencies of sheet glass production lines, and it is designing various types of glass through computer simulation.

-The Company announced that it has succeeded in enhancing the efficiency of the Membrane Electrode Assembly (MEA), a core component of power generators for Fuel Cell Vehicles, by 20% at a theoretical voltage of 1.3 V. The company validated extremely low deterioration rate of the MEA in a durability test running continuously nearly 6,000 hours at a high temperature of 120 degrees Celsius and low humidity of 50%. This will largely improve the stack efficiency of automotive fuel cells, which calls for severe development conditions. The company's MEA is made up with a fluorine-containing membrane, platinum catalytic electrodes, which are attached to both sides of the membrane, and carbon clothes called gas diffusion layers (GDLs), which are again attached to outside of the catalyst layers, in a five-layer structure. There are two types of the MEA, the one for stationary fuel cells and the other for automotive fuel cells, depending on which materials are used to form the membrane. The company has been conducting the durability test of continuously running nearly 6,000 hours under severe conditions at high temperature of 120 degrees and low humidity of 50% since 2004. Before, It had conducted the test at a temperature of 70 to 80 degrees and humidity of 100%. In addition, Asahi Glass has successfully made the membrane thinner from 40mm to 25mm. (From an article in the Nikkan Jidosha Shimbun on Jul.2, 2007)

Investment Activities

Capital Expenditure
(in million JPY) FY2007 FY2006 FY2005
Overall 231,131 252,700 204,000
Glass business 98,266 79,600 73,000
Capital investment at the Glass Division as a % of overall capital expenditures 42.5% 31.5% 35.8%

Glass business
-Investment projects included revamping production equipment to manufacture sheet glass in the Czech Republic.

Capital Investment Plans for FY2008 (as of Dec. 31, 2007)
(in million JPY) Expenditure
Overall 240,000
Glass business 98,000
Capital investment at the Glass Division as a % to overall capital expenditure 40.8%

-Shizuoka and Thai sites will be newly equipped with a state-of-art furnace together with a production/processing line. Total investment will be around 4 billion yen. (From a press release on Mar. 16, 2007)

-The Company announced that it will build an additional float glass furnace in Russia. Asahi Glass will invest approx. 135 million euros (about 21 billion yen) in the construction of the furnace. This new furnace, the world's largest with the production capability of 1,000 tons/day, will be the fourth furnace for the group in Russia. The Company intends to start a mass production at the new furnace early in 2009, to meet an increasing demand for high value-added products including mirrors and highly insulated Low-E (Low-Emissivity) glasses. (From a press release on Mar. 22, 2007)

-The Company set out to develop a new method to produce automotive fabricated glass. It aims to establish a highly efficient production line for the next generation by largely downsizing each process of the current lines and connecting major processes directly for zero intermediate stock. The Company plans to decrease its break-even point to 100,000 units per year from the current 800,000 units. The new-generation production line seems to be targeted at local competitions in small to medium scale countries and regions, following emerging markets of BRICs, the next targets for new market development and production capacity enhancement. While the general break-even point of an automotive fabricated glass plant is 800,000 to 900,000 units per year, The Company begun to develop facilities which will greatly reduce the plant area, initial investment and maintenance cost, by downsizing each process through improving tools and robots and by directly connecting major processes. The company wishes to produce tangible results in the development as early as FY 2009 or FY 2010. (From an article in the Nikkan Jidosha Shimbun on Jun.28, 2007)