Asahi Glass Group1

8/13/2019 Asahi Glass Group1

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PGP/16/002 I P Sudhir KumarPGP/16/009 Vaibhav SharmaPGP/16/169 Shivanand MohanPGP/16/304 Amit Kumar


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Introduction Asahi Class is a Japan-based multinational manufacturer of

flat glass (54%), chemicals (19%), and electronics anddisplays (24%), other (3%)

Annual sales of 1.3 trillion yen and the largest globalmarket share in most of its product categories.

It controls a network of over 200 subsidiaries and affiliatesin 25 countries.

The company was reorganized by Ishizu. The threedistinct changes: Creation of in-house companies on global basis

Corporate governance reform

Group Corporate and business operating functions

2/16/2014 Asahi Glass Group 2 SFM 2


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Reorganization and Value Creation Prior to 1990s performance of each subsidiary measured

separately. In 1990s Weak domestic performance(Japan)

Asian economic crisis Difficult to efficiently manage and optimize value of each

business

Consolidation of business as whole required

Markets and customers of most products global

Shrink to grow strategy: selective and focused allocation ofresources

A new group vision- Look Beyond clarifying shared values



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Asahi Glass: Financial Goals Operating profits and cash flows were used Introduction of EVA:

EVA=NOPAT-CE*WACC

EVA rate= NOPAT/(CE*WACC)

Internal Resource Constraint: Efficiency of Capital More sophisticated resource allocation

Management bonus on 7 grade system Shortcomings of EVA:

Focus on cash flow should be there to improve D/E No suitable performance targets (ROE) Dependent on proper WACC calculation



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Asahi Glass: Financial Policies Relationship with banks:

Loans from banks Cross shareholding decreasing (17.8% to 8.9%) owing to baddebt

Loss in write-down of securities (bank shares) Low yields

Capital Market Constraints: International expansion required capital markets

Commercial paper Medium-term notes

Debt Market: Credit ratings (A2 Moody, A- S&P) Reduction of debt to maintain favorable ratings High business risk in electronics and display products(high growth) to be offset

by more favorable financial profile



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Integration Issues Creation of in-house companies:

Conflict with minority shareholders: conflict of interest withglobal partners; difficulty in optimizing operations

Communication problems: more in-depth frequentcommunication required

Different accounting system

Corporate Governance Reforms: Departure from standard Japanese practices

No serious issues

Group Corporate and Business Operating Functions Common management platform to consolidate and

streamline task- financing, tax, insurance



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Embracing the Change The question is how to transform the culture of large successful

company and implement a mechanism that would allow AGC tocontinuously adapt to ever-changing global business environment

Applying EVA as a tool for resource allocation can be risky because therisks associated with operations are not properly represented by the

WACC.

Using EVA for management compensation purposes is unfair because

the manager s are rewarded depending upon associated WACC

It is recommended that Asahi take operation specific risk into account

when calculating WACC.



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Thank You


Documents

Asahi Glass Group1