Asahi Glass Co. announced on 6 February 2008 record consolidated sales and operating profit for the fiscal year through December 2007 and its first double-digit profit ratio, at 11.7%, since 1980. How…
Asahi Glass Co. announced on 6 February 2008 record consolidated sales and operating profit for the fiscal year through December 2007 and its first double-digit profit ratio, at 11.7%, since 1980. However, to continue on that growth path, it must deal with a decline in its core flat glass operations in Japan and the US while securing a new profit center. Consolidated sales increased 3.7% to JPY 1.68 trillion for the term, with operating profit of JPY 197 billion, up 44.5%. Flat glass for construction and automobiles accounts for about half of Asahi“s total sales, but the market is deteriorating. Demand has been down about 10% year-on-year in Japan due to the revised Building Standard Acts and a subsequent slowdown in the housing market that Asahi“s president, Masahiro Kadomatsu, calls “more serious than imagined, likely lasting at least a year”. In North America, where the effects of the subprime lending crisis persist, Asahi losses increased from JPY 6.2 billion for fiscal 2006 to JPY 7.9 billion for fiscal 2007, even though it closed a flat glass plant in New Jersey and took other measures to return to profitability. Even in Europe, where it did well with flat glass, particularly in Eastern Europe, “things won“t be the same this year because (retail) prices are eroding”, said Mr. Kadomatsu. Considering these factors, Asahi is projecting a 6.5% drop in sales to JPY 810 billion in the current fiscal year and a 21.5% fall in operating profit to JPY 50 billion. Despite the strong performance of its electronics and display operations, including glass substrates for liquid crystal and plasma TV sets, which account for 60% of the firm“s consolidated operating profit, Asahi“s projected operating profit for fiscal 2008 is up only 1.3%. Its cash cow, substrates for LCD TV sets, has been enjoying high prices for some time, but is vulnerable to fluctuations in demand. While building up production facilities in rising economies like Russia and China for automotive and construction sheet glass as well as glass products for electronics and displays, Asahi will also actively invest in “electronics and energy operations” over the next three years, including materials for computer chips and fuel cells, in hopes of developing a third profit center after glass and chemicals. On 5 February 2008, the company announced plans to invest about JPY 13 billion in production facilities for solar cell glass, including at its Chinese subsidiary for cover glass in Jiangsu Province by the summer of 2009 and its Aichi plant for solar cell coatings in autumn 2008. It plans to expand sales of solar cell glass to JPY 60 billion by the end of 2010 from JPY 12 billion at present. Nevertheless, Asahi“s electronics and energy operations generate less than JPY 100 billion in sales, not enough to be a new profit center for a firm with JPY 1.7 trillion in consolidated sales. “(So) rebuilding existing operations will be essential as well”, said analyst Yuji Matsumoto of Nomura Securities Co. “Our immediate priority is to review all operations in terms of production technology and find the best ways to build our earnings power”, said senior executive officer Kazuhiko Ishimura, who will succeed Mr. Kadomatsu when the president is named chairman and CEO on 28 March 2008. The new management team will face the challenge of “rebuilding both new and old operations while maintaining the best profit ratio in the materials industry”.
