Flat glass player only. We make glass for windows in buildings and vehicles, and our business is pretty well evenly split between the two. We describe ourselves as the world's leading glass company. We are a shade behind Asahi in turnover, but we have always been the industry technological innovator - virtually all the major innovations in flat glass in the last 50 years have come from Pilkington. The float glass process, used by every major glass producer, was invented by Pilkington in the 1950s. And, to bring the technology story right up to date, we recently introduced the worlds first dual action self-cleaning glass, called Activ, about 18 months ago, which has great potential for the future. In terms of market position, we are one of only four global players in the glass industry 3 listed companies - Asahi, Pilkington and Saint Gobain, plus Guardian, an American private company. However, we are the only pure play in flat glass. For Asahi and Saint Gobain glass is only part of their portfolio, and Guardian also make fibreglass. We also have the widest geographic spread of any glassmaker. Our heartland markets are Europe, North and South America, and Australasia. We manufacture in 24 countries and sell in 130.
TWST: What are the average rates of growth for the glass industry?
Mr. Lough: Historically, it is about 1.2 times GDP. People love to have more light in their buildings and their cars. The area of glass in a car, for example, has been growing steadily at 2% to 3% a year almost forever. Take, for example, a standard model like the Volkswagen Golf, then todays model has around 25% more glass in it than 20 years ago. Of course glass demand doesn't grow at 1.2 times GDP every year, but if you take any 5-year period, on average that is the level of growth to expect. Last year, which was pretty much a recession year in most of our markets, growth slowed to a halt. This year, we are seeing modest growth overall and we expect this to rise next year and the year after.
TWST: Can you expand on your R&D efforts at this point? You mentioned self cleaning glass was the most recent launch.
Mr. Lough: Yes, that is a development based on our own online coating capability, which gave us energy efficient glass, or what we call K-Glass. K-Glass is made with a microscopic coating applied in the float glass manufacturing process that in energy efficiency terms gives the effect of triple glazing on double glazing units, for instance. Governments don't mandate use of that technology, but in cold climates they are increasingly mandating heat loss regulations for buildings. The Regulations that have been in place in Scandinavia and German for a decade, for example, are becoming more widespread. Last year the British government passed a requirement in the building regulations that effectively made coated glass, again what we call K-glass, mandatory not just for new build, but for refurbishment as well. And that caused a huge surge in demand for K-Glass. Interestingly, K-Glass was developed 12 or 15 years ago by Pilkington. So the ability to innovate is key, but it may not be an overnight commercial success for 10 or 15 years. Activ technology is similar, applying slightly different molecules also in a microscopic layer. The Activ coating does two things: it prevents the droplets of water forming that allow the dirt to collect on the window in the first place basically the rain just sheets off the glass - and then secondly, the sun reacts with the surface and oxidizes any organic deposits that remain. A bit of rain also helps to wash off any inorganic material. We announced Activ about 2 years ago and the product is now available throughout Europe and the United States. It's the kind of opportunity that starts off small, but we're looking to double sales every year. It will be a few years yet before it pays back the research costs and earns its keep, but it is clearly an exciting development. The best endorsement is when your competitors produce something similar, and that is happening. To us, it is more profitable to have a slice of a large market than ownership of a niche product. We want something the whole industry endorses, on the basis that the next time you come to replace your windows, why wouldnt you want to have self-cleaning? There is also security glazing. In a high-rise building, the more glazing you've got to keep you safe in the event of a fire, the better. We have a big business based in Germany, where there are very strict fire regulations, but its growing fast elsewhere. There is also security for automobiles. Everybody has laminated glass on windscreens and toughened glass on sidelights, but now the top of the range vehicles in Europe, the Mercedes S Class and the BMW 700 Series, are being sold with laminated sidelights. They stop criminals breaking into the side glazings to steal your possessions, but they can keep you alive as well. If the car turns over, people are often killed or seriously injured as a result of being ejected from the side window. So laminated glazing can literally save your life. If you went back 5 or 6 years, two-thirds of the glass consumed was plain vanilla. Now, it is just over 50%. And in 5 year's time, it will be a lot less than that. Thats a big plus for us because it plays to our technological strengths.