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5. Asahi Glass Company, Limited Business Report FY ended Dec. 2016

Asahi Glass Company, Limited Business Report FY ended Dec. 2016

Product Development

Automotive display cover glass
-The company will boost production capacity for larger in-vehicle displays in response to increasing demand for its product. This new curved cover glass is surface-treated using the company's proprietary technology, a process that includes chemical strengthening treatment, optical thin-film coating, and surface printing. The finished product brings vehicle interiors to a new level of sophistication. (From an article in the Nikkan Jidosha Shimbun on June 8, 2017)

-The Company has developed practical applications of high-function cover glass for use in car-mounted curved displays. Since automotive displays will become more complicated in shape and increase in area, the resistance of display covers to scratches and weather will increase in importance. Because of this, the Company will market high-function cover glass as a more reliable component than plastic covers to automakers and parts suppliers with the aim of making it for practical use in a few years. The Company anticipates that its high-function cover glass will be adopted particularly in Europe, where demand for cover glass is high. AGC Display Glass Yonezawa Co., Ltd., an AGC group company in Yonezawa City, Yamagata Prefecture, has successfully created technologies for processing and mass-producing three-dimensional cover glass for use in curved displays. The Company has already started shipping samples of curved cover glass to European OEMs to which it supplied cover glass for plain displays before. The Company is expected to produce prototypes and shift to actual evaluation. (From an article in the Nikkan Jidosha Shimbun on June 23, 2016)

-The Company will increase its supply capacity for cover glass used in car-mounted displays. Full-scale operation will begin at production facilities that are currently being augmented in April. The Company will increase its production capacity in response to growing demand for high-performance cover glass that improves the visibility and operability of display panels for car navigation and other driving information systems. AGC Display Glass Yonezawa Co., Ltd., an AGC group company in Yonezawa City, Yamagata Prefecture, will boost production of cover glass for car-mounted displays. Although a specific production volume has not been announced, AGC's cover glass production capacity is expected to double. The Company is making these moves because its cover glass will be used in more than 30 car models, including those the company already supplies, and sustainable growth in demand is expected. The Company is also preparing to mass-produce cover glass with a sophisticated three-dimensional curved surface design. (From an article in the Nikkan Jidosha Shimbun on March 30, 2016)

Ultraviolet (UV) and infrared (IR) ray blocking glass
-The Company announced that its high-function UV Verre Premium Privashield glass has been adopted by Toyota for the AERAS Premium-G and AERAS SMART, the top grades of the partially-redesigned Estima and Estima Hybrid. The Company's special glass cuts ultraviolet (UV) and infrared (IR) rays, and is used for all rear doors and windows. The Estima and Estima Hybrid have become the world's first minivans featuring glass that reduces UV by 99% on all windows (excluding wing windows). (From an article in the Nikkan Jidosha Shimbun on June 17, 2016)

-The Company has obtained a Seal of Recommendation from the U.S. Skin Cancer Foundation (SCF) for its "UV Verre Premium Privashield," glass for automotive rear doors and rear windows that blocks 99% of ultraviolet (UV) rays. With this glass in addition to its other UV-cut glass products for windshields and front doors that have already been approved by the SCF, the Company is the first in the world to offer SCF-approved automotive glass for all directions. (From an article in the Nikkan Jidosha Shimbun on December 22, 2015)

-The Company will start sales of "UV Verre Premium Privashield," its newly developed glass for automotive rear doors and rear windows that blocks 99% of ultraviolet (UV) rays in November 2015. The glass also reduces infrared (IR) rays significantly. With this new glass in addition to its UV-cut glass for windshields and front doors, the Company achieved 99% UV-cut glass for automotive windows in every direction for the first time in the world. (From an article in the Nikkan Jidosha Shimbun on November 25, 2015)

Awards

-Toyota Motor Corporation announced that it has honored the quality of the fabricated & encapsulated glass of AGC Automotive Americas Co. (San Antonio, U.S.) with the Excellence Award. (From a press release on March 16, 2016)

R&D Structure

-The Group is advancing a comprehensive technological strategy through its R&D Headquarters, which is in charge of the following R&D functions.

• Advanced technological R&D Dept.: In charge of creating innovative fundamental technology and establishing common, fundamental technologies such as cutting-edge advanced IT technology and analytical technology
• Product Development R&D Dept.: Create new products based on market perspectives and solve technological issue with products
• Production Technology Dept.: Carry out investments and maintenance in production facilities, develop production technology, and solve related issues.
• Intellectual Property Dept.: Conduct research, analysis, patent filings; acquire and make full use of patent rights; and establish and advance intellectual property strategies.

-In February 2017, the Company announced that it is reorganizing its R&D structure. The Company will build a new R&D building at its Keihin Plant in Tsurumi Ward, Yokohama, consolidating the fundamental technology R&D function, new-product-development function, and process-development function under one roof, since they were split among the Keihin Plant and Central R&D Dept. that is in Yokohama, Kanagawa Ward. The Company is doing this to form a seamless R&D structure. In addition, the Company plans to make space to conduct collaborative activities with other companies and research institutions, by making use of the space in the Keihin Plant. It plans to make it an urban base for creating value. The new R&D building’s floor space will be 47,000m sq. The Company has plans to launch the new R&D structure from June 2020. (From a February 3, 2017 press release)

-AGC Automotive has R&D centers in three regions: Japan (Central R&D Dept. and Product Development Center), USA: (Detroit R&D Center), and Belgium: (Gosselies Technovation Center), which conduct R&D activities on automotive glass-forming technology and engage in product development. The five core technologies of the AGC Group, namely design technology for glass materials, glass production and processing technology, fluoride/chemical technology, thin-film-forming technology (surface treatment), and fiber optics and electronics design technology, will become the basis for fusing elemental technologies such as digital design-technology, surface-treatment technology, and automotive glass production technology.

-The Company plans to spend JPY 42,500 million on R&D expenses for the fiscal year ending in December 2017.

-In the fiscal year that ended in December 2016, the glass business invested in new production facilities in Indonesia for manufacturing float glass for construction use and manufacturing raw-glass sheets for automotive use.

-In the fiscal year ending in December 2017, the Company plans to invest JPY 160,000 million on capital expenditures.

Recent Developments Outside Japan

-The Company’s Indian corporation, Asahi India Glass (AIS), has been continuing with refurbishing its Taloja Plant, which is scheduled to operate in the third quarter of the 2017-2018 fiscal year. The plant manufactures high-quality float glass such as automotive glass. AIS is investing INR 3.0 billion rupees in the plant to increase production capacity to 550 tons so as to deliver more glass to export markets. In addition, AIS is investing INR 5.0 billion to build a new plant in the outskirts of Mehsana, in the state of Gujarat. The new plant, which will manufacture glass, will be constructed in two phases and deliver glass to Maruti Suzuki’s new plant that was constructed in Gujarat. The production capacity for the first phase is forecast to be 1 million sets of laminated glass and 1.2 million sets of reinforced glass.　（From the 2016-2017 annual report）

-The Company’s Indonesian subsidiary, Asahimas Chemical (Jakarta), added more production facilities at its Anil Plant in the province of Pemijaran. A line-off ceremony was held to commemorate the end of installation work and the launch of commercial production by using the newly installed facilities. The new facilities are for manufacturing caustic soda and polyvinyl chloride (PVC). This latest project is in response to rising demand for such products in Southeast Asia where automobile production is rising. (From a February 17, 2016 news article in the Nikkan Jidosha Shimbun)


-The Company announced that its Vietnamese subsidiary has changed its name to AGC Chemicals Vietnam Co., Ltd. from Phu My Plastics & Chemicals (PMPC). In addition, the Company has integrated the brand name of its polyvinyl chloride (PVC) products for the Southeast Asian market to ASNYL, which is the brand name used by Asahimas Chemical, AGC's chemical subsidiary in Indonesia. Through such initiatives, AGC will reinforce the presence of the AGC brand in the region. (From a press release on June 30, 2016)


-In January 2017, the Company announced that it will establish a joint-venture company in Guangdong, China, AGC Flat Glass Protech（Shenzhen )Co., Ltd., which will build a new production plant to manufacture sheet glass for thin film transistor (TFT) liquid crystal displays (LCDs). The new plant is being built to respond to growing demand in China for the production of highly flexible glass for next-generation, large-size displays. It will establish the joint-venture company with Shenzhen China Star Optoelectronics Semiconductor Display Technology Co., Ltd., a local Chinese manufacturer, in the latter half of 2017. The plant is scheduled to start commercial operations in 2019. AGC Flat Glass Protech（Shenzhen )Co., Ltd. will be capitalized at JPY 10.8 billion yen and Asahi Glass will invest 70% and Shenzhen China Star Optoelectronics Semiconductor Display Technology Co., Ltd. will invest 30%. (From a January 19, 2017 news article in the Nikkan Jidosha Shimbun)

-The Company will change the name of its automotive glass production subsidiary in Suzhou, China. "AGC Flat Glass (Suzhou) Co., Ltd." will be renamed "AGC Automotive (Suzhou) Co., Ltd." The Company will incorporate the word "Automotive" to bolster the image that its subsidiary is an automotive glass production base. The new name is similar to those of the Company's two other automotive glass production subsidiaries in China, AGC Automotive China Co., Ltd. and AGC Automotive Foshan Co., Ltd. The occasion of the name change will be used as an opportunity to strengthen collaboration among these three subsidiaries. (From an article in the Nikkan Jidosha Shimbun on March 7, 2016)

-The Company announced on August 1 that it will establish a new plant in Morocco to produce automotive glass. This move marks the AGC Group's first operations in North Africa. The Company will set up a new company jointly with a local enterprise to supply automotive glass to European OEMs that branch out into Morocco. AGC Automotive Europe, a Belgian subsidiary of the AGC, has reached a basic agreement with Induver Holding, a glass manufacturer in Morocco, to set up a joint venture (JV) for manufacturing automotive glass. The new JV plans to build the new plant in Morocco by 2019. The new JV will combine AGC's production technologies for high quality products like automotive laminated glass and tempered glass with Induver's network there and supply highly-competitive products in an effort to expand its operations. (From an article in the Nikkan Jidosha Shimbun on August 3, 2016)

-The Michigan Economic Development Corporation (MEDC) announced that Asahi Glass will relocated its US subsidiary, AGC Automotive Americas, from Hebron, Kentucky to Farmington Hills, Michigan. MEDC offered an incentive package that surpassed the packages offered by Kentucky and by Ohio where the subsidiary was originally located. Asahi Glass is planning to invest a maximum of USD 849,000. (From an October 12, 2016 article in the Detroit Free Press)


-The Company's subsidiary in Mexico held an opening ceremony of its new automotive glass plant. AGC president Takuya Shimamura and relevant parties from local governments and the industrial complex, 110 in total, attended the ceremony to celebrate the completion of the plant. AGC subsidiary, AGC Automotive Mexico S.A. de C.V. in San Luis Potosi established in 2013, has built an automotive glass plant with an annual production capacity of approx. 0.75 million tons. AGC Automotive Mexico has started commercial operations in the second half of 2015. The full-scale operation of the Mexican plant will boost Asahi Glass Group's automotive glass production capacity in North America from 3.6 million tons to 4.35 million tons a year. (From an article in the Nikkan Jidosha Shimbun on April 23, 2016)


-The Company will invest approximately JPY 18 billion in its subsidiary, AGC Glass Brazil (Sao Paulo, Brazil) to build a second float glass production plant in the southeastern region of the country. The new plant is scheduled to be completed by the end of 2018 and will increase AGC's yearly glass production capacity in Brazil to 2.4 times the current level, from 220,000 tons to 530,000 tons. AGC Glass Brazil manufactures raw glass sheets, laminated/tempered glass for automotive use, and glass products for construction. While the company currently has its annual production capacity of 220,000 tons, Brazil is expected to experience economic growth in the medium to long-term due to expanded production of products like automobiles, and the demand for automotive glass is also projected to grow. (From an article in the Nikkan Jidosha Shimbun on March 14, 2016)

>>>Financial Forecast for the Next Fiscal Year (Sales, Operating Income etc.)
-Higher sales based on greater deliveries of chemical products
-Higher operating profit a result of greater deliveries of products and effective cost reductions

Mid-term Management Plan

-In February 2017, the Company gave a progress report on its AGC plus-2017 mid-term management plan. The Company set the following financial targets for FY 2017:

Sales: JPY 1.6 trillion
Operating income: JPY 100 billion or more
ROE: 5% or more
The actual results for FY 2016 are as follows:
Sales: JPY 1.3 billion
Operating income: JPY 96.3 billion
ROE: 4.3%

-The Company, in pursuing sound portfolio management, has achieved creating an organizational structure capable of achieving a well-balanced portfolio in terms of generating profits from its glass, electronics, and chemical products. By FY 2020, the Company aims to achieve an ROE of 8% or more. (From a February 7, 2017 press release)

-The Company announced its new mid-term business plan called "AGC plus" for 2015 to 2017. By the final year, the Company aims to achieve an operating profit of JPY 100 billion, which is 60 percent higher than its 2014 result. Sales target is set at JPY 1.6 trillion, which is 18.6 percent higher than the 2014 level. Takuya Shimamura, president and CEO, says the Company will further accelerate its efforts to develop new products and technologies and to enter new markets to boost its profitability. It will do so by taking advantage of its diversified product line. The automotive division will expand global sales of high value-added glass products. Such profit-making products include light control glass, which is enjoying growing demand especially in Europe. The division also intends to win new business in the booming markets including the Middle East and Southeast Asia by stepping up collaborations with local companies. (From an article in the Nikkan Jidosha Shimbun on February 10, 2015)

-The Company will double the distribution ratio of its strategic businesses' operating profit in the next ten years. The Company intends to increase from the current 20% to 40% in 2025, with a focus on businesses such as the mobility sector. Over the next five years, The Company will add a strategic investment framework of JPY 300 billion to the current annual JPY 200 billion investment for facilities and development, and promote mergers and acquisitions (M&A) in new fields. In order to maintain its growth as a global company, the Company will expand its high-value-added product businesses. (From an article in the Nikkan Jidosha Shimbun on February 9, 2016)

Financial objectives for FY2017

• Sales: JPY 1,600.0 billion
• Operating profit: JPY 100 billion or more
• ROE： 5% or more
• D/E： 0.5 or less