PGP/16/002 PGP/16/009 PGP/16/169 PGP/16/304

I P Sudhir Kumar Vaibhav Sharma Shivanand Mohan Amit Kumar

Introduction
Asahi Class is a Japan-based multinational manufacturer of

flat glass (54%), chemicals (19%), and electronics and displays (24%), other (3%) Annual sales of 1.3 trillion yen and the largest global market share in most of its product categories. It controls a network of over 200 subsidiaries and affiliates in 25 countries. The company was reorganized by Ishizu. The three distinct changes:
Creation of in-house companies on global basis Corporate governance reform Group Corporate and business operating functions
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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 of

resources 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 bad debt 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 with global partners; difficulty in optimizing operations Communication problems: more in-depth frequent communication 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 to continuously adapt to ever-changing global business environment
Applying EVA as a tool for resource allocation can be risky because the

risks 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

2/16/2014

Asahi Glass

Group 2

SFM