February 9, 1999Management

Asahi Glass Announces Bold Restructuring

TOKYO-Asahi Glass Co., Ltd., today announced plans to implement a bold restructuring. The Company, which recorded a nonconsolidated operating loss in the first half of fiscal 1999, ending March 31, 1999-its first operating loss since listing its shares publicly-sees this move as essential to ensuring growth in a challenging market.

As implied in our current management philosophy, " Shrink to Grow " , we have carefully formulated various strategies aimed at strengthening our operating foundation and ensuring a sound and profitable business structure through the focused cultivation of selected businesses. In October 1998, we announced our intent to lower nonconsolidated fixed costs by ¥30.0 billion by fiscal 2000, ending March 31, 2000. The restructuring announced today encompasses key strategies for achieving this goal.

1. Reduce fixed costs related to operations
The strategies outlined below will be implemented by March 2000 and are expected to enable a ¥28.1 billion reduction in fixed costs by March 2001. We will develop and implement additional strategies to achieve our stated goal of ¥30.0 billion.

Our withdrawal from several businesses will result in a decline in nonconsolidated net sales of approximately ¥6.0 billion in fiscal 2000. We also expect to record an extraordinary loss of about ¥10.0 billion, as a result of expenses necessary to dismantle production facilities and increase additions to the reserve for retirement incentives (about ¥7.0 billion), but we anticipate that this will be countered by profits on the sale of idle real estate and stock.

(1) Consolidate/relocate production facilities (estimated reduction: ¥9.0 billion)

Flat Glass and Construction Materials Consolidate production of float glass by terminating operation of one furnace at the Keihin Plant
Consolidate/eliminate cutting and double-glazing glass unit production facilities of subsidiary AGC AX Co., Ltd.
Fabricated Glass Terminate production of industrial-use fabricated glass at the Keihin Plant by relocating/consolidating facilities
Basic Chemicals Curtail domestic vinyl chloride monomer and polymer operations

(2) Terminate production and sales/withdraw from business
(estimated reduction: ¥3.2 billion)

Flat Glass and Construction Materials Transfer fluorescent light tube operations to Asahi Techno Glass Corporation
Fabricated Glass Terminate in-house production of industrial-use tempered glass
Ceramics Terminate production/sales of bonded refractories for steelmaking
Basic Chemicals Scale back production/sales of magnesium hydroxide
Electronics Operations Withdraw from multi-component optical fibers business and certain electronic materials businesses

(3) Reduce fixed costs at plants (estimated reduction: ¥3.1 billion)

  • Reduce fixed costs for production of flat glass

  • Restore profitability of soda ash operations at Kita-Kyushu Plant

(4) Minimize staffing requirements (estimated reduction: ¥6.5 billion)

  • Invest in facilities to reduce staffing requirements

  • Reduce the number of non-production employees in fabricated glass and chemicals sectors

  • Minimize support staff; consolidate functions/positions

(5) Revamp sales/distribution facilities (estimated reduction: ¥2.3 billion)

  • Reorganize sales office network; centralize/minimize operations of affiliated divisions

(6) Cut administrative and R&D costs (estimated reduction: ¥4.0 billion)

  • Reduce/integrate R&D teams

2. Program for Streamlining Payroll
In line with our plans to reduce fixed costs, we will reduce our payroll by 900 by March 31, 2000, to 7,400 people, from 8,300 as of September 30, 1998. To this end, we will introduce an expanded retirement package on March 1, 1999, that will be made available to executives at assistant manager or higher rank and regular employees over the age of 45. The expanded package will include an incentive on top of a bonus that is currently paid in addition to the employee's regular retirement payment. Employees taking advantage of this package will thus be entitled to receive the equivalent of two years' salary in addition to their regular retirement payment.

Achieving our targeted fixed-cost reduction will be a painful process. The success of our efforts depends on the willingness of each employee bearing a portion of this pain. Accordingly, we have decided to implement salary cuts for all executives at and above the rank of manager. Directors will receive cuts of between 7% and 10% for six months, from January through June, 1999. Managerial staff will receive cuts of between 3% and 5% for four months, from March through June.

3. Short-Term Growth Plan
In tandem with the drastic restructuring outlined in section 1, we will implement short-term growth strategies aimed at improving the profitability of current operations and achieving a consolidated return on equity (ROE) to 10% by fiscal 2004, ending March 31, 2004. We are currently formulating these strategies into a concrete growth-oriented plan that will emphasize expanding the weight of profit-generating products, bringing new products to market, developing new business and systems. Upon completion, the plan will be submitted for our consideration in our fiscal 2000 budget and incorporated into our overall medium-term management plan.

4. Comprehensive Reorganization of Business Portfolio
In addition to our short-term growth strategies, we are preparing a more radical medium- to long-term "Shrink to Grow " plan aimed at a comprehensive reorganization of our business portfolio that emphasizes our long-standing committment to consolidated management in a growing global market. We have laid the groundwork for this plan and will refine the following basic strategies into a master plan within a year.

(1) Restructure core businesses
Efforts to restructure core businesses will center on:
Restructure basic chemicals operations
We will give careful consideration to all factors affecting our chlor-alkali business and, based on our findings, restructure the business as appropriate to improve profitability both in Japan and overseas.
Restructure downstream flat glass operations
To restore our flat glass business to profitability, we will review strategies aimed at facilitating appropriate product- and customer-specific pricing and distribution. The results will be used to as the basis of a program for total cost reduction, i.e., from production of raw glass to fabrication of finished products.

(2) Develop Future Growth Businesses

  • New business development will focus on businesses in which we can secure top or second spot in terms of global market share, maintain an edge in terms of technological innovation and ensure an ongoing and high level of profitability in the 21st century.

  • Our approach to new business development is thus to seek out businesses that require specialized capabilities. Our fundamental goals are to provide value to customers by offering better and more timely materials solutions than our competitors, and to cultivate these businesses into profit centers.

  • We will concentrate efforts in the information and electronics, life sciences and energy segments, and will seek to maximize new styles and methods of operating to grow new ideas into viable businesses.

Mr. Kenichi Imoto
Director, Corporate Communications
Asahi Glass Co., Ltd.

1-2, Marunouchi 2-chome
Chiyoda-ku, Tokyo 100-8305, Japan
TEL: 81-3-3218-5519
FAX: 81-3-3201-5390