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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
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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
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