Nippon Sheet Glass, which acquired the UK“s Pilkington for GBP 2.2 billion in 2006, said on 21 November 2007 that its aggressive global expansion was paying off as it reported a higher-than-expected …
Nippon Sheet Glass, which acquired the UK“s Pilkington for GBP 2.2 billion in 2006, said on 21 November 2007 that its aggressive global expansion was paying off as it reported a higher-than-expected increase in first-half earnings. The Japanese glassmaker said operating profit nearly doubled to JPY 27 billion in the six months to September 2007 compared to the combined results of NSG and Pilkington a year earlier. Its shares rose 4.2% as the increase appeared to justify its decision to spend heavily to break out of slow-growth Japan. Price increases in Europe and strong sales in South America and other emerging markets pushed up the profits, which were higher than the company and analysts had forecast. Shinya Yamada, analyst at Credit Suisse, said NSG“s full-year net profit forecast of JPY 53 billion, which the company left unchanged, now looked “conservative” in spite of growing problems in the US and Japanese construction sectors. “Growth in emerging markets should offset slowdowns elsewhere”, he said. The Japanese glassmaker“s highly leveraged acquisition of much larger Pilkington turned what had been a mainly domestic producer into a global giant with 34,000 employees and sales in 130 countries. NSG promoted Stuart Chambers, Pilkington“s former chief executive, to the role of group chief operating officer in September 2007, an unusual move for an acquiring Japanese company that reflected Pilkington“s size and its experience in managing a global production network. Mr Chambers said he believed NSG was well positioned to ride out turmoil in the US residential construction market, which he predicted would remain depressed until the middle of 2008. NSG makes just 4% of sales from its North American building materials business, and about 80% of that total comes from commercial projects. Of greater concern is Japan“s building industry, on which NSG depends for 12% of revenues. It has also hit problems, after new safety regulations introduced in June created a huge backlog of permit applications that cut housing starts by more than 40%. “It“s looking worryingly like it“s going to be a permanent sort of loss and we“re never going to get those orders back”, Mr Chambers said. Profits from NSG“s Japanese building materials business were flat in the 1H 2007 but could slip in the second. By contrast, Western Europe and the former Soviet bloc are booming, thanks largely to a shortage of glassmaking capacity that has pushed up prices. The Pilkington acquisition has turned Europe into NSG“s biggest building materials market, accounting for 28% of total group sales. Mr Chambers said he believed the lack of capacity relative to booming demand would keep prices in the region stable “for one or two more years”.