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NSG Group announces Initiatives to Improve Profitability and Enhance Operational Efficiencies, and Revises Forecast for FY2009

Date
29 Jan 2009

1.  Initiatives to improve profitability and enhance operational efficiencies

The Board of the NSG Group (the Group) has today approved a series of measures designed to address the economic downturn and improve profitability going forward. These initiatives build on action already taken by management in response to the sudden and rapid changes in the global economic environment. The overall objective is to protect the business in the short term and also to re-establish profit growth from FY2011 onwards.

On 14 November 2008, the NSG Group published results for the first half of the current financial year, FY2009. The Group was able to report that sales and profits were in line with the forecast, with further progress achieved on reducing debt. Since then, the speed and depth of the slowdown in international trade have been unprecedented. All three of the Group's business lines have been adversely affected, with the impact on Automotive particularly marked.

The effect on the Group's sales and profitability is reflected in today's announcement of a revision of the Group's forecast for FY2009, details of which are given below.

Both at Group and business line level, quick and decisive action has already been taken to ensure that the Group's organization and business approach reflect the realities of the current trading environment. Measures already implemented include adjusting production, lowering operational expenses and reducing headcount.

It is clear, however, that more radical measures are now required. Consequently, the NSG Group is taking further action to realign its global manufacturing sites, to reduce capacity and to reduce headcount further.

Since the acquisition of Pilkington plc in June 2006, excellent progress has been made on integration. Successful action has been taken to increase operational efficiencies, to realize synergies, to reduce overheads and to standardize management and manufacturing procedures throughout the Group.

The integrated NSG Group now provides a robust platform for future development. The measures announced today are designed to help ensure that the Company emerges from the current slump in world trade strengthened and realigned to address future challenges and opportunities in the sectors in which the Group operates.

The total investment in the approved restructuring will be 22 billion yen. Details of the initiatives to be implemented within the Group are as follows:

a. Rationalization

The Group is taking action to reduce capacity and output to match the requirements of its customers. In Automotive, production capacity will be reduced in Europe and North America, and a number of other initiatives designed to align the Group's production capacity to demand will also be implemented in South America, Japan and Asia.

The Group will also reduce its float glass capacity. This will involve taking out capacity equivalent to two float lines in Europe and a 15 per cent reduction of float capacity elsewhere in the Group.

b. Headcount reduction

Immediate action has already been taken to reduce headcount in the Group's seasonal and temporary workforces from June 2008 levels. Through measures including the realignment of its manufacturing sites and the streamlining of its central functions, the NSG Group will now implement a Group-wide restructuring.

As a result of the above measures, the NSG Group will have reduced overall headcount in the Group by approximately 5,800 people by March 2010. This represents around 15 per cent of the total global headcount. Around 3,000 of these employees will have left the Group by the end of the current financial year.

c. Review of investment plans

The NSG Group has carefully reviewed its investment plans, with the aim of sharpening its focus consistent with the Group's growth strategy. The Group is reducing overall investment in the short term, but will be increasing the share of the reduced total for investment in the solar generation sector, which the Group continues to identify as a key area for expansion.

Through such measures, the NSG Group is planning to contain investment across its businesses to around 70 per cent of depreciation for the next two financial years.

The NSG Group plans to update the market further in its third quarter earnings announcement, scheduled for 13 February 2009.

In the meantime, the Group announces the following revision to its forecast for the financial year to 31 March 2009.

2. Revision of Forecast for FY 2009

The NSG Group announces a revision to its previous forecast for FY 2009 (April 2008 through March 2009) published on 14 November 2008, as set out below.

a. Revised forecast (consolidated) Full year forecast (1 April 2008 through 31 March 2009)

(Unit: JPY million, %)

 

Net Sales

Operating income

Ordinary income

Net Income

Net income per share

Previous forecast (A)
published on
14 November 2008

810,000

20,000

8,000

9,000

¥13.47

Revised forecast (B)

750,000

0

(13,000)

(22,000)

¥(32.92)

Change (B-A)

(60,000)

(20,000)

(21,000)

(31,000)

-

Change (%)

-7%

-100%

-

-

-

Previous year result (FY2008)

865,587

46,462

30,437

50,416

¥75.44



b. Reasons for the revision

The reduction in operating and also ordinary income arises mainly as a result of the unprecedented, challenging market conditions being experienced in the Group's major markets and also partly as a result of the continually strengthening yen generating a reduced level of income on consolidation. These challenging market conditions are anticipated to continue during the remainder of the financial year.

The additional reduction in net income (over and above the ordinary income shortfall) is mainly due to the said extraordinary restructuring costs anticipated to be charged to the income statement in the current financial year. The majority of these costs will be provided during the current financial year following announcement locally of the detailed restructuring plans. Almost all of the cash expenditure required to facilitate the restructuring will be realized during the year to 31 March 2010.