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Hi-tech glass innovator reveals its next targets for growth as profits up 20% yoy

Interview - January 19, 2016

Lauded as one of the Top 100 Global Innovators, AGC Asahi Glass (AGC) possesses a wide spectrum of technologies accumulated over its long and rich history. The group has consistently developed superior products ahead of their time in each of its main technical fields of glass, chemicals, and ceramics, including architectural glass, automotive glass, and display device glass, to name a few. President and Group CEO Takuya Shimamura explains what sparks innovation at AGC and where it sees the potential for future expansion.

 

TAKUYA SHIMAMURA, PRESIDENT AND GROUP CEO OF AGC ASAHI GLASS
TAKUYA SHIMAMURA | PRESIDENT AND GROUP CEO OF AGC ASAHI GLASS

AGC Asahi Glass is globally well regarded and synonymous with the production of quality products. What do you believe has been the key to creating such an outstanding reputation?

Glass is a product that you find everywhere, it surrounds us, it is everywhere. However the business of glassmaking requires a lot of money and large initial investment. There are also high risks in this sector, so overall there are high entry barriers, and not many players interested in entering this business sector. AGC is part of the Mitsubishi Group. Our founder, a member of the Iwasaki family (founder of Mitsubishi), believed in product effectiveness and usefulness, and wanted to produce technology that contributes to society. He had faced substantial challenges for many years, but AGC finally became the first company in Japan to produce sheet glass. Speaking of innovation, we produce highly qualified and highly reliable products that still today reflect the spirit of our founders, which is to embrace technology and to embrace challenge. If the purpose was only to make profit then certainly our founder would have chosen another business.

Another key element that we take into account in our operation is environmental protection, and the choice of raw materials that we select for glassmaking. We are carefully selecting materials that are safe and don’t have any detrimental effects on human health, and that at the same time bring a higher level of comfort for people. These kinds of considerations always have been with us since early on and influence the R&D process in this company.

 

Operating profit at the end of Q3 2015 was up to ¥51 billion, an increase of more than 20% yoy. What have been the drivers behind such growth and how do you hope to maintain these impressive numbers in the future?

Of course profits are fundamental for us to support our innovation development and R&D investments, and to enable us to fully contribute to society. But let me go back in history: back in our fiscal year 2010, we were able to produce operating profits of over ¥200 billion. Back then the key driver behind our growth was the development of LCD screens for TVs. Those were the booming days for LCD panels. However during the four consecutive years after that, we saw our profitability decline. This was caused essentially by the dramatic erosion of prices in the LCD market, as well as by the falling of the architectural glass business in Europe and the U.S. However in the beginning of fiscal year 2015, we decided to focus on our key business areas, and invested in the automotive glass and the chemical business as the core of our expansion plans. These strategic choices and investments expand our company profits. At the beginning of the year 2015 we generated ¥62 billion of operating profits, and I am confident that we will end this fiscal year with an excess of ¥70 billion profits. By 2017, we are hoping to achieve a better balance between our various businesses, electronics (including LCD glass), architectural and automotive glass, and our chemicals business.

 

What was achieved under the medium-term management plan, Grow Beyond 2015, and what is your outlook going forward?

By 2017, our goal is to generate net sales of ¥1.6 trillion, operating profits of over ¥100 billion, and ROE above 5%. The D/E ratio of 0.5% or less has been accomplished already. For the next five years there are interesting events, such as the 2020 Tokyo Olympic Games, that should drive domestic demand up, in my opinion. In our three business areas – glass, electronics and chemicals – I am sure that we will be able to roll out a series of new products into the market, and exploit new market opportunities, not only in Japan, but globally. In February 2016 we will announce our Vision 2025. We aim to be a global company, and I would add, a proud truly global entity.

In order to expand our sales and revenues going forward, and continue to create new value as a materials manufacturer, we are considering several avenues. First, we have a suite of advanced technologies and products in our current client offering. We would like to propose a new and unprecedented combination of these existing products and technologies to the market for new applications, which is what I call ‘application marketing’. Second, we have existing customers and target industries, such as automobile or construction. We would like to bring them new solutions to utilizing our products, which is what I call ‘product marketing’. Third, we would like to expand our long-term R&D efforts, to make sure we can manufacture new products that can be launched into new markets. Through these three schemes we should be able to enlarge the scale of our revenues.

In the future, we also want to boost the efficiency of assets that we have available, and adopt a more portfolio-oriented management style. We have identified seven growth areas where we can operate in the glass and automotive/glass field, the electronics/component/materials field, the chemicals field including pharmaceuticals and agricultural fields, and ceramics field. Those are areas of focus for us where we will invest more in the future, to develop more innovative products.

 

The flat and automotive glass segments make up the lion’s share of your business; what are some of the technologies utilized in the creation of these ‘superior’ products?

The automotive industry uses very sophisticated products, such as for example sensor technology that we can build into the glass of the car. There are also many technologies that we provide outside of the car, which are woven into our glass products, such as water repellent door glasses, glass antennas and UV cut glass, which cut sunrays by up to 99%, protecting passengers from sunburn and interior materials from deterioration. Our UV cut glasses are highly commercialized and used by a majority of new cars in Japan. We are also manufacturing products for the interior of the car, such as seat cushions that can be half of the weight of a conventional car seat cushion but have no impact whatsoever on the passenger’s comfort, if not to improve it. Lastly we also provide IOT (Internet of Things) products that can be embedded into the glass, enabling real-time communication.

 

What are some of the initiatives in place to accelerate the technological development of safety and environmentally friendly products?

We produce a wide variety of products, but let’s talk about our architectural glass, that isolates or blocks UV or heat. This type of glass can be used in residential homes or buildings. In Japan only one half of the buildings are equipped with these technologies, which leaves us with huge room to grow. There is an estimate that if all the buildings in Japan can be converted to this kind of insulating technologies, the equivalent energy of that produced by two nuclear power plants could be saved. This sheds a new light on the opportunity that we can bring to the market and on our contribution in the field of energy efficiency and environmental protection. The technology is there and we are in discussion with our customers to spread the use of this technology more widely, and come up with more applications.

 

In 2013 and 2014, AGC was named one of the Top 100 Global Innovators by Thomson Reuters. How do you implement a culture that embraces innovation across the group?

Innovative thinking is a high part of our operations. We always think about ways to benefit society, and what society needs. Based on that, we come up with new value propositions, and new functions that can be added on to new products and new technology. We make conscious efforts towards this all the time. We are a glass company as our name says, but our field of activities span as well through a much broader spectrum including the ceramics, electronics and chemicals businesses – that means that we can interact with a broad range of industries and customers. We exchange a lot with our clientele and gain from their industry outlook and key information for the future on what kind of technologies will be needed 10 years down the line and even further. This is what we call “technology outlook”. Then, we look at our technology and business strengths and decide where to invest our resources, seeing what kind of selection we develop and what we can offer in response to technology outlook. We call this “business outlook”. That is how innovation spurs at AGC.

Speaking of innovation, we have a wide array of different technologies and are always thinking of possible new applications for these technologies. For example if you take the glass panels on cars – originally they were developed and used for smart phone devices. However a new application was found which was cover glass for instrument panels inside cars. The choice of glass would have been unheard of previously for car interiors. Now our materials are highly appreciated by the car manufacturers – they are light, strong, and thin. The texture as well is very important and is the subject of tight selection by the car manufacturers. Knowing the expectations of the car industry in the future we know that we can produce the needed materials. We know our customers in the car industry and have a very smooth communication with them. We know what they need and we are able to cater for their needs and requirements. We can conduct safety assessment ourselves as well – that is the kind of understanding that we have of this industry, and what gives us a leading edge.

Another idea that we commercialized recently for the automotive glass application is the UV and IR cutting. This is a very good example of our marketing approach. We didn’t approach car companies but we approached the end users of the product (i.e. car drivers), telling them about the effectiveness and benefits of this material, and they would turn around to car companies asking for this material from us.

 

You mentioned your ambitions to make AGC a global company. What are your ambitions in regard to international development, which markets are you currently focusing on?

There is a strong history of globalization at AGC group. Back in the 50s we entered the global market. In the 70s and 80s we started to set up JVs and acquired other companies outside Japan. We went into additional M&A activities in the 90s and thereafter, utilizing talents and resources of those acquired companies. Today we are accelerating our globalization, which means two things. First we want to enhance our presence in the markets were we are already present; and second we want to enter in new growing markets.

 

How do you view the American market at AGC?

The United States is a very important market and partner for AGC. We have local operations in the U.S. in the glass and chemicals fields, as well as in the electronics industry of course. Because it is such a large market with huge transportation costs and large competition present, it is not an easy market for us. But our aim is to grow, to catch business opportunities and enhance our presence in the United States.

 

In this highly competitive U.S. market, what are your strategies to promote and position your brand and get more visibility?

I don’t think the AGC name is very well known in the U.S. so we need to work more on our branding. We need to have more frequent communication with our investors, as well as with the users of our products. We participate in industry events in this regard, where we have our booth with our products.

 

What is your vision for AGC going forward?

The market is never going to stabilize, however with the technology and the expertise that we have built, we will continue to focus on producing high value-added products for our customers, and we will continue to work with them closely to develop new applications and launch new products in the global market place. When working with customers, the sense of trust is very important, so going forward we will make sure we deserve their trust. 

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