April 10, 2000Management

Asahi Glass' "Shrink to Grow" Mid-Term Management Plan Progress: Steps steadily undertaken for rationalization to get ready for further growth

TOKYO - Asahi Glass Co., Ltd. ("AGC") is undertaking measures for renovation through concentrating resources in selected businesses under the corporate strategy of "Shrink to Grow". Our mid-term management plan "StoG2001" for fiscal 2000 - 2002, ending March 31, 2002, was developed in this direction and was announced in June last year, and these are the current status of measures integrated in StoG2001 as well as further steps foreseen under the same policy.

I. Current Status of Measures

  1. Immediate structural measures for AGC Japanese operations

(1) Fixed cost reduction
Shutdown of one float line in Keihin factory, concentration of VCM production after exit from Kashima Vinyl Chloride Monomer Co., Ltd. and reorganization of sales network are expected to be completed within this fiscal year, resulting in reduction of fixed costs by ¥ 16.0 billion at non-consolidated AGC level for fiscal 2000. The reduction of fixed costs for fiscal 2001 is expected to be ¥ 25.5 billion, because one CRT funnel production furnace at the Funabashi Factory, which was ready to stop operation in fiscal 2001, is decided to continue operating until about summer 2001. But in fiscal 2002, the full-year effect of ¥ 28.1 billion will be achieved.

(2) Workforce reduction (minus 900 people)
Workforce at non-consolidated level has been reduced to 7,400 at the end of March 2000 compared to 8,300 at the end of September 1998 thanks to the extended early retirement program. Namely, it stands for a net reduction by 900 or approx. 10% without any reallocation within the group.

  2. Mid-Term Management Plan "StoG2001"



(1) Consolidated management system development
Management system is progressively being renovated to focus on maximized consolidated corporate value. Cost of capital at market is applied as the underlying tool for our business unit (SBU) management, whereby each SBU is regarded as a company under the corporate umbrella. More specifically, EVATM-based criteria is applied to measure SBU performance, which in term is reflected to bonus for managers at AGC (mother company). Its scope covers general manager level for 1999 winter bonus and will extend to manager level for 2000.

(2) Further global development
In CRT Glass bulbs, a controlling stake in Hankuk Electric Glass was acquired in November 1999 for ¥ 18.3 billion.

Our specialty chemicals division acquired fluoro-polymer division of ICI for ¥ 15 billion. It also acquired with Mitsubishi Corp. F2 Chemicals in U.K. with its unique fluorination technology, aiming at a global development of our pharmaceutical and agrochemical intermediates business.

Glaverbel, S.A., our flat glass operation arm in Europe started up a new float plant in Spain in March 2000. It is a project in cooperation with Pilkington plc in U.K. with a capacity of 150,000 ton/year, whereby Glaverbel takes 60% of products and Pilkington takes 40% for which, however, Glaverbel takes in return the equivalent quantity from Pilkington in North Europe where Glaverbel has no float production.

  3. Specialty Materials Business

(1) Life science
Business promotion unit was organized to develop in earnest application of our original protein production technology named "ASPEX". Commercialization is envisaged for pharmaceutical /agrochemical intermediates and bulks.

(2) Energy & environment
Development in process for SAR (Sub-Atmospheric Refiner) with its application is planned to a 200-150 ton/day float glass in the Kansai Factory starting July in 2000.

(3) IT & Electronics
Commercialization will be launched for Plastic Optical Fiber (incorporating "CYTOP" transparent perfluorinated polymer) under our brand "Lucina", which is compatible with high-speed communication exceeding the performance of multi-mode glass optical fiber. Product will be launched for sale in June 2000. Together with ASPEX, this business will be developed under high corporate focus and independently from our existing businesses.

II. Further Steps Anticipated

  1. Expansion of display business

In order to respond quickly to the needs and development for display market, we have combined our CRT Glass bulbs business and LCD substrate business into one SBU or Display Business Div., effective April 1, 2000. Investment amounting to ¥ 25 billion will be injected into this business for the coming period for new capacity in CRT glass bulbs and TFT glass substrates.

(1) CRT Glass bulbs
We estimate the world demand for CRT glass bulbs in 1999 at 250 million pieces, and demand will increase in pieces by 5% for the subsequent 5 years. This represents for us a demand increase of 30% in weight thanks to generalization of larger or wider displays and flat displays. In spite of compensation of demand between CRT and LCD, we anticipate for continued growth in this business.

Steady growth is maintained especially in China and ASEAN countries with production experiencing a progressive increase from 64 million pieces in 1996 to 94 million pieces in 1999, and 120 million pieces in 2001 respectively. To respond to this growing demand and expected capacity shortage, new capacity will be built at the following three locations.

Shanghai: construction start in January 2001 for CRT panel, investment: ¥ 4 billion.
Thailand: construction start in January 2001 for cold repair and 60% capacity expansion of the existing melting furnace plus large-dimension panel forming line. Investment: ¥ 7 billion.
Indonesia: construction start in April 2001. 40% capacity increase for funnel forming for large dimension. Investment: ¥ 4 billion.

(2) TFT-LCD glass substrates
The market is experiencing a rapid growth of over 30%/year, triggered by expanded volume for notebook (lap-top) PC and diversified application into digital camera, mobile phone, desk-top monitor and TV. This is translated into vigorous demand for non-alkali glass substrates needed for TFT, and we will respond to this increasing need by installing a new float furnace at the Keihin Factory as well as reinforcing our polishing capacity at our 100% owned Asahi Glass Fine Techno Co., Ltd. in Yonezawa (Yamagata Pref) in Japan. Total investment amounts to ¥ 10 billion.

Keihin Factory: production start in summer 2000. Installation of one new furnace, bringing up the total plant capacity to 5 million m2/year
Asahi Glass Fine Techno: production start in autumn 2000. Polishing line for over 680mm x 880mm dimension

Our competitive edge in TFT substrate lies in the application of float process, which is best suited for large dimension substrate production with maximum width at over 2.5m, which is more than double the size produced by the method adopted by our competitors. Our strength is proven by the fact that we are the only supplier for 830mm x 650mm which is currently the largest size in the industry. New investment for TFT-LCD industry aims mostly for sizes over 680mm x 880mm, and we believe that we are best positioned to profit from this industry trend looking for larger dimension.

  2. Pharmaceutical and agrochemical intermediates and bulk

Triggered by increased outsourcing by pharmaceutical and agrochemical manufacturers, rapid global expansion is foreseen in the OEM production in this field with an estimated market of ¥ 900 billion for 2000 and ¥ 1,800 billion in 2005. On the other hand, competition is being intensified by chemical producers, large or small, desiring new entry or business expansion by leveraging their technology. To win the competition, we focus on "one-stop shop" concept to satisfy variety of needs from customers.

In such effort, we will consolidate the resources in AGC and in its subsidiaries Seimi-Chemical, Wakasa AGC Fine Chemical, etc. under the same unit by autumn 2000 and streamline the management of R&D, production, marketing and sales. Such consolidation will also contribute to upgrade the total capability for GMP (Good medicine practice) compatibility and small lot production as well as to saving in various expenses.

III. Shrink Measures

  1. Shutdown of soda ash production facility at the Kitakyushu Factory

We have decided to discontinue our production of synthetic soda ash (350,000 ton/year) and calcium chloride (30,000 ton/year) by the end of March, 2001. This difficult decision was made due to the constant decline in demand from 1.4 million ton in 1990 to less than 1 million ton in 2000, as well as to the huge investment need anticipated for already highly aged present facility. This action has become necessary after the shutdown of Chiba soda ash plant in 1997.

By this decision, we will concentrate our production on our joint venture with Solvay, Solvay Soda Ash Joint Venture ("SSAJV") in Wyoming, U.S.A. which exploits natural soda ash deposit. We will maintain our supply to our Japanese customers mainly from U.S.A., supplemented by the agreement with Tokuyama Corp. to satisfy needs for synthetic soda ash.

SSAJV, in which we have 20% stake and right for product, is currently under expansion. From October 2000, we have at our disposal 500,000 ton/year of product from SSAJV, of which the sale is undertaken by our 100% subsidiary AG Soda which also holds our stake in SSAJV.

For calcium chloride, used as snow melting and refrigerating agent, we will discontinue our sale of solid product and concentrate on liquid product produced at the Chiba Factory.

Thus our Kitakushu Factory will specialize in the production of sodium bicarbonate, for which, besides its current pharmaceutical or toiletry application, expanded application is expected for its environmental friendliness.

  2. Japanese flat glass operation restructure

(1) Streamlining of order-entry and sales management
Our order-entry and sales management system will be restructured to achieve higher efficiency. We will concentrate our order-entry function, which is currently in place in sales branches, AGC Ax, a glass processing subsidiary, and production factories. Sales management will be concentrated in the head office to assure execution of coherent, efficient sales activity.

(2) Reorganization of sales subsidiaries
Our sales subsidiaries in Japan will be reduced to cover the whole territory without duplication. First step was the concentration of 3 subsidiaries in Kinki area into one unit taken place in this April, 2000. After this reorganization, sales subsidiaries will work for increased sale of flat glass and double glazing glass as well as to lead or prospect the market trend in support of our flat glass strategic development.

(3) Cost reduction of architectural glass processing
Double glazing and tempering processes will be transferred from Kashima Factory to subsidiaries to realize cost reduction of ¥ 500 million/year. Coating and silvering processes will be maintained at Kashima Factory.

  3. Shutdown of CRT funnel production in the Funabashi Factory

While expanding our capacity in Asia as explained before, we are ready to discontinue operation without comparative cost advantage in order to strengthen our total competitiveness. In such view, CRT funnel production furnace in Funabashi, due for cold repair in summer 2001, will be closed after the current production campaign.

Asahi Glass Co., Ltd.
Kenichi Imoto
Corporate Communications Div.
TEL: +81-3-3218-5519
FAX: +81-3-3201-5390