Nippon Sheet Glass: Chairman expected sharper bond downgrade

Nippon Sheet Glass Co. (NSG) expects the firm“s recently completed acquisition of UK-based Pilkington Plc to boost profits by at least JPY 10 billion or more a year, President Katsuji Fujimoto told t…

Nippon Sheet Glass Co. (NSG) expects the firm“s recently completed acquisition of UK-based Pilkington Plc to boost profits by at least JPY 10 billion or more a year, President Katsuji Fujimoto told the The Nihon Keizai Shimbun in a recent interview. The figure, larger than an earlier estimate, is expected to be enough for NSG to absorb goodwill expenses. In the interview, Mr. Fujimoto said NSG could not expect an expansion in its sheet glass operations in the Japanese market alone. Despite brisk business in automotive sheet glass and other areas, domestic demand was approaching a peak and was likely to enter a decline in the near term. The NSG chairman said the BRIC (Brazil, Russia, India and China) markets were primarily expected to show growth in sheet glass used for automotive and construction purposes, adding that “instead of merely ending with a competition within the domestic market, we determined that we should shoot for a gold medal at the Olympics”. On the question of post-merger earnings, Mr. Fujimoto said that sales for the current fiscal year would likely be something close to a simple sum of Nippon Sheet Glass“ and Pilkington“s figures, but this would not be the case for profits because of acquisition-related expenses. Asked what kind of synergies he anticipated, Mr. Fujimoto said that NSG expected much more than the JPY 4.4 billion it cited at the February 2006 news conference to announce the buyout agreement. He said the firm would strive for an integration impact of at least JPY 10 billion as a level that investors would accept. Specifically, NSG would bolster production of automotive sheet glass in China and construction sheet glass in Russia to boost sales. NSG would also improve the efficiency of expenses through joint procurement of materials and other measures. On the reaction of the corporate bond market to the rise in NSG“s debt, Mr. Fujimoto said the firm wanted to improve its finances by doing its utmost to reduce interest-bearing debt. Pilkington“s free cash flow was expected to total about JPY 30 billion a year, and NSG would use that to pay down debt. The NSG chairman said the firm had been prepared for a sharper downgrade than it actually received, which Mr. Fujimoto attributed to the ratings agencies taking into account future growth potential, although he said the firm would not be resting on its laurels and would work to win understanding from investors by mapping out a 10-year long-term business plan.