Bridgestone Corporation (5108) Earnings Call Transcript & Summary

Hello, this is Hishinuma, speaking as global CFO. Thank you very much indeed for participating in our presentations of the business and financial performance for FY 2020 as well as in the midterm business plan. I am going to introduce to you the consolidated performance for FY 2020 as well as consolidated projections for FY 2021. This is my agenda today. So I'm going to start with business and financial performance for fiscal 2020. Looking here, market conditions and key initiatives in Q4 of fiscal 2020, market conditions. It was back in November last year on the occasion of Q3 announcement that we expected that demand would decline due to the resurgence of COVID-19, which would affect our performance. As it turns out, however, whose effect was rather limited. [ PSR ] tires, in particular demand recovery trend for new vehicle tires continued in the final quarter and the recovery became clearer. For the [TBR] truck and bus tires, trend for new and replacement tires continued and demand recovery for replacement tires, who was particularly from having recovered above the previous year's level. All our tires demand weaknesses seen for large tires, while for large and small medium tires, mainly for construction demand recovered significantly from the drop in demand in the first half. Under such circumstances, initiatives we promoted transformation and preparation for demand recovery after 2021 while continuing crisis management in an environment where COVID-19 impacts continued. Cost and expense control continued from the previous year and previous quarters, and announced the sale of the building materials business in the U.S. at such business, portfolio and manufacturing footprint and the restructuring is part of expenses and cost restructure reform. We enforced HRX and foundation for financial strategy as enablers for execution. We formulated sustainability business framework as an initiative towards 2030 and beyond in the medium long-term business strategy. On to performance, business environment. Currency exchange U.S. dollar appreciated against the yen, while euro remained at the same level as in the previous year. Raw material prices, both natural rubber and crude oil prices rose in the final quarter, continuing from the third quarter. Natural rubber price was much higher than the level before the COVID-19. Higher demand. As I explained, the impact of the second wave of the COVID-19 on demand was limited, and demand of TBR replacement tires was remarkably strong. Tire sales and growth for fiscal 2020 versus the prior year. On a full year basis, cumulative tire sales on the PSR Global was 84% over the prior year. TBR 87%. Q4 alone, PSR was more or less comparable to the previous year in the final quarter, and TBR has exceeded the prior year level. Particularly the TBR replacement tire sales was quite strong, in Q4, 108% over the prior year -- of the same quarter. High rim diameter tire sales above 18 inches, the relative strengths persisted. Overall tires, operating conditions varied by mineral. Overall large size sales weakened a little bit. At the same time, for large and small, medium in sizes, show the turn of sales recovery backed by the recovering demand coming from the construction sector. Financial results for fiscal 2020, the full year, revenue was JPY 2,994.5 billion, down by 15%. Adjusted operating profit JPY 222.9 billion, down year-on-year. And we also would like to take note of the fact that in Q4, the demand recovery posted. The further recovery in revenue to the prior year level and adjusted operating profit exceeded the prior year level. [ Maturity OP ] ratio at 12.4%, details to follow-up on the subsequent page. Profit attribute to owners of parent, owing to nonrecurring losses, such as impairment losses and others caused this line to report a negative number at JPY 23.3 billion. Now nonrecurring losses and further details will follow later. For dividend, because the performance in this year trends out to be much better than the previous projection, we increased the per share dividend by JPY 5 to the November projection to make it JPY 60 at the end of the fiscal year, JPY 110 per share for the entire year and such to be the expected proposal to the AGM in March. Next is the analysis of adjusted operating profit for fiscal 2020. And the severe business environment caused by COVID-19 based on mid- to long-term business strategy, expense and cost structure reformation and premium business strategy have been attended to. Therefore, the expense and cost structural reformation, fundamental cost review was conducted. So not only one-off items but cost structure has been aimed to recover, meaning that we were able to reduce operating expenses by JPY 95 billion. Premium business enhancement. Even in the environment where raw material costs continue to decline and the proper saving -- the price level was reserved. And also with the added sales of high rim diameter sales and strategic deemphasis on associated brands, mix improvement was promoted. The price/mix as a factor boosted profit by JPY 28 billion. So in 2020, we were able to see the benefits from the structural improvement. However, consolidated total [ FGO ] was affected by a drop in sales volume and worsening of conversion costs and the JPY 120.2 billion of the decline year-on-year. By segment, as you can see in full year 2020, all regions suffered from drop in sales and volume coming from the COVID-19, down in the top line and profit. Q4, the turn of recovery persisted. So that over the 3 months basis, Japan, Americas and China, Asia and Pacific, 3 segments, they posted year-on-year increase in profits. Europe, Russia, Middle East, India and Africa, even in the Q4 3-month period, the effective of European lookdown was severe. So full year over 3 months basis had to be recorded. Now consolidated financial results for fiscal 2020 by product for the tire business. PS/LT tire, and the revenue was JPY 1,455.8 billion, with the ratio of 8.4% for the operating profit. Truck, bus tire revenue was JPY 660.6 billion with the ratio of 8.6%. In Q4 period, in North America and Europe, the sales recovered. And also the added sales of high rim diameter having enabled the double-digit operating rates in both categories. Specialty tires, which comprise all our aircraft, ag and motorcycle tires, the revenue was JPY 310.9 billion with the profit rate of 13.1%. And during this term, all our tires -- the tire size -- tire sales varies, but on a full year basis, relatively high profitability was maintained. Diversified for the businesses next. Diversified in the product business on the total revenue and the JPY 510.1 billion with the adjusted OP of JPY 9.7 billion. Diversified Products Business in Americas was good on one hand. On the other, however, Chemical and Industrial Products business in Japan with the business portfolio issues at hand, that was further impacted by the COVID-19. These severe conditions persisted to record [indiscernible]. Now please be aware that of the Diversified Product Business in Americas, JPY 190 billion revenue and about JPY 24 billion adjusted operating profit is attributable on the Firestone Building Products which divestiture we announced in just the other day. Balance sheet and cash flow highlights for fiscal 2020. Total assets was JPY 4,189.3 billion. From the perspective of securing liquidity, we executed a funding operations, which increased cash at hand by more than JPY 200 billion. On the other hand, the account receivables, inventory is declined. Of the tangible PP&E and investment securities decreased, among others. We saw year-on-year declined by JPY 87.7 billion from the end of the previous fiscal year. Equity ratio came down by 3.6 percentage points from the end of the previous year, 51.3%, still quite healthy indeed. Free cash flow. With the review of expenses and cost and further scrutiny in the selection of CapEx projects on top of the sharp recovery of demand in Q4, pressed down, compressed the inventory level more than anticipated. So cash in at JPY 371.6 billion. Now on to the nonrecurring items for fiscal 2020. In Q3, the China TBR and ratio PSR is subject to impairment losses. Into Q4, we continue to even more rigorously to identify Vietnam, PSR, India, Thailand or for small and medium sizes and other businesses became subject to impairment loss accounting. Weaker expenses from based on cycle corporation, including both [free-of-charge ] inspection and recall of certain models. Among others, added adjusted items totaled at JPY 158.8 billion profit for 2020. Let me move on to consolidated projections for fiscal 2021. Business environment assumptions for 2021. Compared with FY '20, the yen's appreciation against the U.S. dollar and depreciation against the euro is expected. So raw materials compared with Q4 2020, slightly lower natural rubber price and slightly higher crude oil price is expected. Compared with FY '20, full year similar natural rubber price and slightly higher crude oil price is expected. Tire demand is expected to increase, along with recovery from COVID-19 to a level close to 2019, though it varies among regions and products. Next, tire sales growth projection for fiscal 2021. In line with the recovering demand from COVID-19, sales for passenger car and small truck and truck and bus and mining tires are expected to increase year-on-year. In particular, sales for new vehicles which was affected by COVID-19 in 2020 are expected to grow dramatically. Sales of 18-inch and larger tires are expected to grow continuously. In ORR tires, recovery in demand from iron and copper mines as well as in construction is expected. Here is our consolidated projections for 2021. Revenue growth is 1% to JPY 3.01 trillion and adjusted operating profit growth is 17% to JPY 260 billion. Profit attributable to owners of parent is expected to be JPY 261 billion, including the gain on sale of Firestone Building Products, a North American building materials business announced recently. Since Firestone Building Products will become a discontinued operation from 2021 onwards, their revenue and adjusted operating profit are no longer included. If we exclude their revenue and OP from our 2020 actual, for an apple-to-apple comparison, our 2021 forecast indicates a 7% increase in revenue and a 31% increase year-on-year in adjusted operating income. In addition, of JPY 261 billion in profit attributable to owners of parent, JPY 150 billion is income from continuing operations, which excludes income from discontinued operations. The interim and year-end dividends are JPY 60 and JPY 70 per share, respectively, and the annual dividend is JPY 130 per share. We have partially revised our dividend policy, which I will explain on the next page. ROIC is expected to be 6.3%, which is higher than the cost of capital and ROE, 6.8%. Next is a variance analysis of adjusted operating profit for 2021. In 2021, we will continue to implement premium business enhancement and cost and expense structure reform based on the midterm business strategy. In the premium business enhancement, we will further strengthen pricing and sales mix by bringing pricing discipline and increasing HRD sales. In the cost and expense structure reform, we will reduce recurring resources by improving fixed and variable cost structures and allocate the savings to strategic resources to keep operating expenses under control. In 2021, adjusted operating profit from the North American Building Materials business is no longer available, but by increasing tire sales volume and implementing the premium business enhancement and cost and expense structure reform, we expect to increase operating profit by JPY 37.1 billion year-on-year. Next slide shows projection by segment. Fiscal 2021 is expected to see an increase in both revenue and the profit of all segments, except for Americas. Where revenue is expected to decrease due to the divestiture of the Building Materials business, as explained earlier. But excluding this impact, revenue and profit are growing year-on-year. In addition, we will introduce ROIC as a new KPI from 2021 for portfolio management in order to evaluate the performance of each segment based on ROIC, we have modified the calculation method for segment results from 2021. The figure as shown to the right, are comparisons with the results of 2020 based on the new calculation method. Lastly, I would like to explain our capital allocation and dividend policy. Later, our global CEO will explain the medium-term business plan through 2023. Our capital allocation policy is to focus on rebuilding earning power in core businesses and making strategic growth investment to expand solutions business and develop exploratory businesses, which is newly added to the business portfolio going forward. We will maintain an appropriate financial structure and the return profits to shareholders while securing the internal reserves necessary for these purposes. We have also modified our dividend policy in our 2023 medium-term business plan in order to improve our business performance and increased dividends through rebuilding earning power and making strategic growth investments. The company has clarified the target consolidated dividend payout ratio as 40% instead of 20% to 40%. And will strive to increase dividends in a stable and continuous manner through sustainable enhancement of corporate value. That's all from myself. Thank you.

That was financial results presentation by CFO, Naoki Hishinuma. Next, Global CEO, Shu Ishibashi, will present the midterm business plan.

Good afternoon, everyone. I am Shu Ishibashi, Global CEO of Bridgestone Corporation. Following the financial results, I will explain the midterm business plan. Last year, since the announcement of the mid- long-term business strategy in July, I have been giving monthly updates. Today, I will present the midterm business plan for the years 2021 to 2023 as the plan to execute that strategy. I will also talk about the group's direction towards 2030 and beyond. Serving society with superior quality, that has been and remains the group's mission since our founding. Guided by this mission, we positioned 2020 as the first year of our third foundation, Bridgestone 3.0 and set a new vision towards 2050 of continuing to provide social and customer value as a sustainable solutions company under the mid long-term business strategy. The basis of this is building our unique business model to strengthen our core tire business and to leverage its advantages to expand our solutions business so that the value of each amplifies and continues to spiral up. That's our growth strategy. To ensure our evolution toward a sustainable solutions company, we have defined a new business portfolio. To contribute to the achievement of the UN SDGs and the realization of a sustainable society, exploratory business has been added to our existing core business and growth business. To continue growing towards the future, we have started exploring new business areas. Through the support of the mobility and movement of people and goods, we aim to realize our sustainability business framework that brings about a win-win-win to society, our customer and Bridgestone. When formulating the midterm business plan, we laid out milestones starting from 2021 toward 2030. In 2021, we will link our entire business that produce and sell tires and our solutions business that provide value at the time of tire use to expand the business while amplifying their value. We've also started to explore the recycle business, which renews our customers used tires to raw materials. Our aim is by 2030, complete the wheel of the sustainability business model across all the business areas of produce and sell, provide value at use and renew. This will facilitate a circular economy where business value such as revenue and profits is sustainably generated, linked with efforts towards resource circulation and achieving carbon neutrality. We consider this journey the Bridgestone 3.0 journey and both stride forward step by step. I will explain the new portfolio in this Bridgestone 3.0 journey. In the tire business, which is our core business, we will execute rebuilding earning power and premium business strategy to reinforce the business. In our growth business, we will expand the Solutions business and accelerate its evolution into a core business by 2030. As for the exploratory business, we will explore potential business areas where Bridgestone can leverage its core competencies and work to commercialize them. These include the recycle business necessary for the realization of the sustainable business framework or the soft robotics business. Details will be provided later. The components of core growth and exploratory are not fixed. We will continue evolving so that the solutions business becomes our core business. And that current exploratory business becomes our growth business in the future. New exploratory businesses will be created to adapt to the changing needs of society through the efforts for resource circulation and carbon neutrality, continued creation of business value and evolution of components in our business portfolio, we will become a strong and sustainable solutions company capable of adapting to change. Shown here are the targets in our journey towards becoming a sustainable solutions company. First, we will drive efforts to promote circular economy and achieve carbon neutrality to contribute to a sustainable society. In keeping with our midterm environmental goal, milestone 2030, we aim at increasing our use of recycled and renewable materials to 40% of our resources and reducing our own CO2 emissions by 50% and contributing to reducing more than 5x our emissions compared to 2011. Regarding business value, we aim to grow to achieve revenue of approximately JPY 3.3 trillion, adjusted operating profit ratio at a 13 level, ROIC at a 10% level in 2023. We will continue growing, adapting to changes in the operating environment and build an even more resilient and highly profitable structure. Details of the financial plan for 2021 to 2023 will be explained later. These are ambitious goals, but we will drive towards 2023 and further to 2030, through an aggressive approach and challenging spirit. The detailed strategy and execution plan of the midterm business plan is as shown here. So far, we've been in a reactive and defensive stage centered around crisis management. But this year, we will enter an aggressive challenge stage, where we will push forward with strategic growth investment with rebuilding earning power. Aggressive and challenge are the themes of this midterm business plan. I would like to explain the highlights. First, regarding the financial plan, revenues and profit -- gross profit, we will evolve into a strong Bridgestone by rebuilding earning power. In 2023, we aim to achieve a 40% level in gross margin, a level exceeding 2015. For revenue, we aim to achieve a JPY 3.3 trillion level. We will not just increase sales, but work to improve the quality of revenue by increasing ratio of premium products in the tire business, increasing revenue from the Solutions Business to 20% of the total and sharply focusing on diversified products where we can leverage our competencies. We aim to establish a resilient and highly profitable structure. Next, regarding operating profits and management indices. As a result of rebuilding earning power, in 2023, we are to achieve adjusted operating margin at a 13% level, the same level as in 2015, which translates into JPY 450 billion level in adjusted operating profit. Through consistent expense structure reform, our operating expense ratio is to get below the 2019 level. We will squeeze ordinary resources, but we'll continue investing in strategic resources necessary for growth. We project profits from continuing operations to reach JPY 290 billion in 2023, surpassing 2015. For ROIC, a new management index, we aim to achieve a 10% level. We also aim to keep ROE at a 12% level. These are our financial highlights. Next, about our core business. So as to rebuild earning power, we have been working on cost and expense structure reform as well as in reinforcing our premium business strategy since last year. We will step up efficiency improvement and optimization for all regions and all business areas. For our premium business strategy, which reinforces end-to-end structure to produce and sell premium products. We will make Dan-Totsu clear and absolute leading products that match society and customer needs at a competitive cost by improving manufacturing [Genba]. We will then sell them through premium channels, capable of providing customers with high value-added services. As an effective cost and expense structure reform, we expect a reduction in fixed costs of approximately JPY 53 billion between 2019 and 2023. Through a reinforced cost structure under crisis management in response to COVID-19 impacts, JPY 25 billion was reduced in 2020 compared to 2019. We will maintain the improved fixed cost and drive further restructuring and improvement. For variable costs, we anticipate a total reduction of JPY 9 billion between 2019 and 2021. Regarding manufacturing footprint restructuring, we have already made announcements about 2 sites. Through global optimization and Genba improvement, we will make maximum use of existing production capacities. We will continue to review tire manufacturing footprint over a 10-year span. In this midterm business plan to year 2023, we plan to implement a 40% reduction in the group's current footprint of approximately 160 sites, including diversified products and material manufacturing sites. Next, regarding our premium business strategy and the reinforcement of sales in premium, we will reinforce sales of passenger car high rim diameter tires, a high value-added product through the close coordination between OE tires and replacement tires. In the developed markets, especially in the U.S. and Europe, which lead the shift to higher inches, we will reinforce tires 18-inch and above as premium products. And in emerging markets, we anticipate the shift to higher inches and will increase sales of tires 17-inch and above as premium products. Especially in China, where we are focusing on premium area, HRD tires for OE already account for more than 70% of the total. We'll also drive sales of HRD tires for replacement tires to more than 70% of the total from approximately 50% in 2019. We will reinforce China as it is an essential area for our premium strategy. I would like to explain our new premium Dan-Totsu products that take into account sustainability and the evolution of mobility. In the automobile industry, the shift towards [case ] is accelerating, especially the shift toward EVs is picking up speed and the global effort toward achieving carbon neutrality. In addition to conventional major manufacturers, emerging manufacturers from China and elsewhere are entering the market and the industry itself is changing drastically. Furthermore, as car sharing services expand, the utilization rate per vehicle increases and performance requirements for tires are changing significantly. To respond to both the evolution of mobility and the need for sustainability, we will expand new premium products such as our next-generation eco-friendly product in lighting. As for passenger car tires, we rolled out ECOPIA brand in 2010. After 10 years, eco-friendly products now cover approximately 80% of all our passenger car tires. Moreover, we will reinforce the innovative Dan-Totsu product, ENLITEN, as the next-generation ecofriendly product. ENLITEN achieves both innovative lightweight and driving performance to meet new mobility needs. As it contributes to longer driving range of EVs, it is adopted on several new vehicle models, including EVs. It also contributes to next level CO2 emission reduction and improved resource productivity. We will also strongly drive commonality and modularity on a global scale, as they contribute to CO2 emission reduction throughout the value chain and appropriate cost while enabling simplification and differentiation. By 2023, we will expand application to around 20% of replacement tires. For light truck, truck and bus tires that have a high utilization rate, we will enhance technology for the safe and long-lasting use of tires, including retreading on top of meeting environmental needs. We are working through business portfolio restructuring of our diversified products. The divestment of Building Products business in Americas announced this year is 1 such example. We will leverage Bridgestone's core competencies for maximum synergy and work to profitize each business step by step. This graph shows the revenue and operating profit for 2019, '21 and 2023. We project 2023 revenue to be 40% of that in 2019. But ensure that it will steadily generate profit. We will sharply focus on business areas where our core competencies can be leveraged. Next, the expansion of the Solutions businesses. We will expand the Solution business as it is a resilient business adaptable to change. By 2023, we will increase our Solution business revenue to more than 20% of the group revenue. First is the Mobility Solutions business. It will be scaled up around our European fleet solutions as well as potential strategic partnership and M&A in North America. We will increase revenue by approximately 3x from JPY 20 billion level. We will continue to reinforce tire-centric solutions, the center of our current Solutions business by expanding subscription retread, et cetera. Also, services and equity stores we will be strengthening North American's retail financial service as well as global Dan-Totsu network. In total, we are planning to grow the Solutions business from JPY 530 billion level in revenue to JPY 650 billion level. To expand the subscription model, which is a center of our tire-centric solutions, we will roll out European model to Japan and United States for passenger cars. We will increase the number of subscriptions by about 20x in 2023 compared to 2019. For trucks and bus subscriptions, they are already familiar to customers in Japan, Europe and United States. The plan is to double the number of contracts in 2023 versus 2019. In Mobility Solutions, we will use European Webfleet solutions as a center of excellence and apply its system and expertise globally for expansion. In Europe, Webfleet solutions is already at #1 position. We will further consolidate this position and aim to increase connected vehicle to more than 1 million by 2023. Furthermore, we will really start global expansion from this year. We aim to increase the number of contracted vehicles to about 2 to 3x and establish a global leading position. In North America, business will be expanded through potential strategic partnerships and M&A. We will scale up fleet solutions in the world's largest market. To execute the core businesses and solutions and growth business strategies, we have defined 4 categories according to business characteristics, Bridgestone's position and maturity of mobility in each region. Targets and criteria for resources investment were set as well. This business and regional portfolio will serve as a foundation for the execution of midterm business plan. These are the 4 categories. Category one, Main. This consists of 3 businesses that account for approximately half of the group's revenue: Tire Solutions business in North America, mining in Japan. We will expand solutions. This is based on a strong core business. We will proactively invest resources and further amplify, reinforce and expand business value. Category two, next. This includes tire business in 5 regions: China passenger car, Latin America, India passenger car, Asia Pacific and the Middle East. They will aim to become a main category and start by contributing to the global group. Although only about 20% of our sales, yet we expect growth in the future, especially for China, but also lay foundation for solutions business respond to the accelerating transformation towards [Mars ] and CASE. We believe it is necessary to develop our next main in order to be sustainable solutions company. Categories three, strategic. This consists of business that are limited in profit contributions, but that are essential as center of global strategies. Europe Tire Solutions business and Aviation Tire and Solutions business. We will carefully select items that will make strategic contributions and make limited investment. Europe is the basis when considering global strategy for sustainability, regulation, [ mars, ] OE manufacturers for passenger cars and trucks and buses perspective. Category four, developing. This includes the China truck and bus tire business, India truck and bus tire business and Russia and Africa tire business. We need to rebuild business and construct the foundation for profit. We will continue efforts to first break away from deficit by 2023. We are market with promising futures. Based on these categories, we will execute the midterm business plan and business portfolio management. This is our business portfolio for 2019. Through the execution of the midterm business plan, we will reinforce our main category through the combination of our tire business and tire-centric solutions. Furthermore, for the North America and mining businesses, we will advance into mobility solutions and expand through potential M&A and strategic partnerships. In the next category, we will enforce our tire business to aim to make them into the next main category. For strategic category, we will feed back and insert expertise and systems acquired in European and subscription model, et cetera, primarily to the main category. We will especially utilize such expertise and system in North America for scale up there. In the developing category, we will rebuild the tire business and aim to evolve the business into the next category. From '21 to '23, we will execute new portfolio management based on these 4 categories. By 2023, portfolio will evolve into what you see here to come out as a strong Bridgestone capable of adapting to change. Mobility Solutions will be rolled out in North America and in mining by 2023. China passenger car tires in Asia Pacific will move to the main category. All markets in developing will generate profit and will step up into the next category. As for the Diversified Product Business following restructuring, which I had mentioned earlier, we will focus on business which we can leverage our core competencies and become profitable. As I mentioned in the beginning, while evolving our business through an aggressive approach and challenges, sustainability will always be at the core. We will reinforce our sustainability efforts in this midterm business plan and aim to enhance and realize sustainability business across the business, including our core and growth business where we produce and sell and provide value during the use of tires the recycled business where tires will be renewed to raw material, we will tie in efforts resource circulations, CO2 emission reduction and achieving carbon neutrality with our business model. The access of sustainability business framework our efforts to achieve carbon neutrality and to realize circular economy. Until now, we have carried out activities based on midterm environmental targets, Milestone 2020. As a result of global activities reached milestone 2020 target in 2019, ahead of schedule. For now, we will carry out efforts across the entire value chain to achieve a new midterm environment target Milestone 2030. Regarding reduction of CO2 emission, we will achieve 50% plus emission in 2030 compared to 2011 and contribute to reduction efforts of more than 5x emission. We will accelerate our efforts towards carbon neutrality by 2050. As for realizing a circular economy, we will aim to increase the ratio of recycled and renewable material used to 40% by 2030 and to use 100% sustainable material by 2050. Next, I will explain our group's effort in each of the produce and sell, use and renew phases to achieve these environmental targets. First, in the produce phase, the global sustainable procurement policy regarding the procurement of raw materials, et cetera, were set in 2018. As a new source of natural rubber, we are continuing research and aim to realize its practical use. Renewable energy usage for electricity is 100% in 7 European plants and reaches 83% of all Europe. We will expand such efforts globally. In the [ source ] phase, we will expand products such as a revolutionary ecofriendly product, ENLITEN, et cetera, explained in the core business portion. In the use phase, we will predict ware and durability and optimize freed operations through web freed, et cetera. Retreading also contributes greatly to the environment as both the amount of raw material used in the CO2 emission during production can be reduced by half compared to new tires. We will further evolve retreading by combining mobility and tire data to enable offering premium retreading, customized to each customer's use conditions and needs. These efforts are still in development, but will be accelerated towards 2023. Lastly, for renew, we will -- we have started recycling as an exploratory business. I will explain this in detail later. As such, we will accelerate E2E activities to realize our sustainability business framework. Next, on exploratory business, including the recycle business, in order to enable sustainable growth and be a sustainable solutions company in the Bridgestone 3.0 journey, we have added exploratory business to our business portfolio. Based on our mission, serving society with superior quality, we have started exploring 2 businesses area where we can leverage Bridgestone's core competencies, create potential synergy with our existing businesses, contribute to the achievement of SDGs, ensure synergy with our sustainability business framework. Currently, we are accelerating studies to commercialize recycling and soft robotics business and have arranged our organization to do so. As Global CEO's project, we have opened recycled business preparation office in February and plan to establish soft robotics business preparation office in July. Also, strategic resources for explanation, we will consider M&As to speed up and plan to introduce a corporate venture capital fund to secure our touch points with potential partners, including start-ups. We will call this the Bridgestone Sustainability Fund and continue our journey again with sustainability at the core. It is not too much to say that co-creation will be the basis for all our exploratory business. For that reason, we will continue to establish Bridgestone Innovation product be completed at the end of this year, including Bridgestone Innovation Gallery, which was opened last year as a hub for co-creation. We are very excited to use this facility to connect with various partners, explore new business and drive co-creation and new innovation. I will now explain about the 2 exploratory business expected to come out as a result of such co-creation. First, for our recycled business, we have started to explore technology seats. In our efforts for sustainability, we continued our research for possible use of [ wheel ] a new source of natural rubber. We also continued our research on fuel-efficient, long-life, high-performance rubber in order to reduce raw materials usage in the first place. In addition, we will research and explore technology to recycle tire and renew them as rubber or raw material. Renewing tires to rubber or raw material is extremely difficult, which is in part due to the characteristics of rubber. We will leverage our mastering rubber technology and try to co-create with various partners to achieve this. For example, in tire to rubber where we renew tires to rubber, we will explore new materials fit for recycling, rubber technology to enable reprocessing by adding heat. Furthermore, in tire to raw material where we renew tires to raw material, we will explore recycling technology, in which we can renew tires to produce chemical raw material or carbon. In addition to exploring technical [ seats, ] we will continue preparing for commercialization, keeping in mind various possibilities and potential co-creation. About our other exploratory business, the soft robotics business. In exploratory business area, we can leverage Bridgestone's core competencies to create social and customer value, while also gaining competitive advantage. Among such area, we will next start exploration in soft robotics using soft robots that can work harmoniously with people. In view of the declining birth rate and aging population, needs for contactlessness due to COVID-19 and the increasing need for work automation, we will leverage our core competencies such as mastering rubber technologies to support the mobility and movement of people and objects. This area has strong synergy with our current business. For manufacturing, we can utilize existing assets and for the business model, we can leverage expertise from our core and growth businesses. We will work as a global team and aim for an efficient and speedy commercialization. Lastly, I will talk about the enablers for the execution of our strategy. To execute our strategy, we plan to invest JPY 700 billion based on our aggressive approach and the challenge spirit. By cutting operational expenses, we have allocated JPY 350 billion for strategic investments and the strategic expenses, respectively. Strategic resources account for 30% of all investments and 5% of all expenses. In addition to restructuring and structural reform, we will invest the resources in our premium business strategy, tire-centric solutions and mobility solutions. Furthermore, in the current midterm, we plan to expand and commercialize domains where co-creation with partners is essential, such as Solutions Business and exploratory businesses. To accelerate and execute them, we have secured JPY 350 billion as M&A, corporate VC and strategic partnership resources. These are important resources to accelerate the Bridgestone 3.0 journey, and that we will correctly determine business opportunities and execute investments. In order to manage our strategic resources well and the realized portfolio management, we have laid out the financial strategy and its foundation. For aggressive approach and a challenge, a solid mechanism financial evaluation of each business portfolio and a system to support strategic decision-making is essential. We will also drive profit improvement efforts using a ROIC tree and support the rebuilding of earning power. For individual investments, we will reinforce corporate finance functions. Since this January, we have newly installed a global controller function. We have also put in place steering committees for capital investments and M&As. We will evaluate and decide each investment with unprecedented scrutiny from strategic and financial perspectives. Additionally, when making decisions on investments, we have also incorporated processes for sustainability, such as evaluating CO2 emission costs and reduction impacts. Last but not least, I will explain our human resource transformation, which is the foundation of our businesses. We will build an HR strategy and organizational structure for each of our core growth and exploratory businesses according to the business characteristics. First, for the core business, we will leverage our unique strength in transforming each business. For the growth business, we will create a new culture. We are adjusting our global organization structure for solutions business and currently developing and reinforcing approximately 1,600 digital talents. And we will promote exchange of talent globally. And with web solutions and iTrack Solutions businesses to build a foundation for Solution business expansion from broader perspectives. Regarding the exploratory business, challenge will be the basis, diversity and inclusion and the global utilization of talent go without saying. We will also encourage internal and external networking talent exchange to facilitate co-creation. As the business will require building from scratch, we will prepare the organizational structure valuing people with entrepreneurial spirits. We will post a culture where young talent are motivated to try and grow and reenergize the entire organization. In this way, our core growth and exploratory businesses as well as the enablers for execution will fit together like a wheel. By executing the midterm business plan, we will evolve into a sustainable solutions company. The goals for the Bridgestone 3.0 journey are: One, dramatically expand the Solutions business, while maintaining a strong tire business; and two, through the evolved business portfolio, ensure a positive cycle of business value creation and resource investment of each business in a sustainable manner. We will continue our journey with an aggressive approach and a challenge towards these goals. The journey starts in 2021. This year, we celebrate the 90th anniversary since the company's inception in 1931, looking towards the 90th anniversary and beyond. It's also a year to produce results as the second year of our third foundation, Bridgestone 3.0. We plan to give updates on our progress to our stakeholders at every opportunity. Thank you very much for your kind attention. That's all I have.

Now we are ready to have questions and answers session.

We will take questions in our selected sequence, so please be ready as we call you. Let me first turn the call upon Mr. Okada from Nikkei newspaper.

Okada from newspaper. 2 questions from myself. Question #1 has to do with the financial ambition performance. The projection have for FY '21. So I basically get the nuance that in a manner of speaking, the impact from coronavirus pandemic will have been passed. But I would like to get your view on that. And also all the benefits that you would expect from business portfolio and manufacturing in the footprint restructuring. Speaking of manufacturing car footprint, how you aim to reduce it by 40% by 2023? Now, I understand that you have roughly -- I think I am correct, the 80 manufacturing plants for tires, 10 for diversified product and 70 for material or manufacturing kind of operations. And are there any additional information that I can get from you, be it the headcount adjustments, the possible divestiture or the resulting tire manufacturing capacity?

The first part of your first question, having to do with the lingering effect of coronavirus. In Q1 of FY '21, we do expect that we have some impacts would remain. And going beyond Q2 and subsequent, the situation will recover. Said by myself, I would like to lead as Mr. Hishinuma as CFO, to go into further details.

Thank you. FY '21, in comparison with the prior year due to the coronavirus, meaning 2019, how that would compare, even if we adjust out extraordinary items such as the expected a divestiture of the Firestone Building Materials business in the U.S., still the expected level will be 91% in FY '21 -- of 2019. So the coronavirus effect will remain affecting our plant performance in FY '21.

And then Ishibashi speaking again. In response to your second question, manufacturing footprint restructuring. Last year, we announced we have a decision [ to close down Bethune ] plant was last year. Inclusive of that, we recognize after that there are various different results of impacts that we have to be aware of with those decisions, such as there was the big impact on the local economy and so on. So we have to make sure that we do take the good care to prepare and be ready and then to disclose at an opportune timing, which means that, sorry, 40% reduction is all I can say for now. I am not being able to go into any further details. After all, let me repeat for now that going through the proper and good carry income, therefore, the planning, then we will come to you to disclose some of our plans at an opportune timing.

How about manufacturing capacity, in particular, the tire manufacturing capacity and headcount?

Well, again, for the tire producing plants, we have made announcements regarding only 2 of them. Again, the same answer that I have to repeat here, which means that I cannot go into any further details for now. As to the headcount adjustments, that is the most sensitive area of the overall planning. This will be Bethune or the South African company plant. Therefore each, we have to go through the thorough and detailed considerations that meant from -- [ how COVID would ] affect each worker, being ready to retire or moving on to their next career. And so that we have to wait a little bit further.

Let me call upon Mr. Yonezawa next.

Yonezawa from Yomiuri Newspaper. So I do have 2 questions. The first question has to do with the shortage of semiconductors in the market. So we recognize that auto manufacturers are starting to reduce the production volume -- assembly volume. Is there any impact on your business? If so, how long do you expect that it will persist? And the second question having to do with the Olympic and Paralympic Games. I know that you're a top sponsor. Is there any reference on the resignation announced by Mr. Mori and then the expected selection of the successor or some voice in the community is saying that isn't -- not feasible to have Olympic and Paralympic Games [ mindful of the ] coronavirus. What's your view?

Okay. The first question in reference to the semiconductor shortage. In the Q1 3 months period in this current fiscal year, I'd say there's some several hundreds of thousands would be the magnitude of the effect or the shortage affecting the tire business. However, on a 12-month basis, we recognize that it's not going to have any lingering effect. So OE tire business plan is not going to be affected on the full year basis. So basically, it isn't going to be concentrated impact in the first quarter. In response to your second question about Mr. Mori. Yes, as Mr. Mori made in those statements, in the name of Bridgestone, we have made statements. For one [mindful of ] the principle of saying no gender or racial discrimination naturally permitted, absolutely. So that is really in reference to the human rights policy, the basics of the Bridgestone. That was stated and quoted immediately after Mr. Mori's statement and our stance would never change. And as for selection process successor of Mr. Mori. After all, it's a matter in the hands of the Organizing Committee for the Tokyo Olympics and Paralympic Games. [indiscernible] acceptance or the resignation of Mr. Mori going through the proper governance and the procedure sharing for the transparency [ of the process.] Then to select the succeeding president, [all the more ] we look to the adherence to the Olympic charter more than ever before. And in [ newspapers], this having as a sponsor with the assurance for the safety and security for everyone to make sure that we do the best that we can do. So we are continuously committed to support those athletes, the Olympians to make sure that we can conduct our activities as a top sponsor not to mention to have very many volunteers there are within the company. So we continue to support the games and no change to that. By the way, I also like to have to share the following with you. It was back in 2014 that I had the opportunity to meet with the President Bach of IOC on my occasion to visit Lausanne, Switzerland. Among others, the President Bach said "unity in diversity." Having heard that, we do have really deep respect for that. And for the order to 140,000 employees and associates that we have in the global group. This diversity and inclusion, unity in diversity. There is meeting of the minds. There was moment that I felt empathy with President Bach that was aspiring back in 2014. So that is where it all started, please be aware. So all the more, it is not just an easy decision for Bridgestone to make ever has it been. [It is something] we uphold our principles, and it's not going to be [ hard.]

So let us move on to Mr. [indiscernible] from Bloomberg.

[indiscernible] from Bloomberg speaking. I hope you can hear me?

Yes we can.

Two questions. Question number one. Retread operation. Your expectation to be able to basically have the CO2 emission. Now I would like to link that to the situations in the U.S. before and after the presidential election. It's more likely that U.S. is going to be back to be more supportive of the climate change response. Retread operations, don't you think there is going to be the addition of [ forward wind ] which is supporting that business or [is there] any possible hindrance to block that? So that's my question number one.

Thank you. Retread operation. It was back in 2007 that we acquired U.S.-based Bandag. And even prior to that, we had a history of working together with Bandag to proceed with the tire retreading operation. So through Bandag, the 2 have been enhancing the retread operation. That has been Bridgestone's history in the area of tire retread. Now in that the customer value, the total cost of ownership getting reduced. At the same time, the safety shortfall on a higher level, the resource, the productivity will improve. Not to mention the CO2 cut. It is going to be the win-win situation all in all. That's something that we have to make sure to prepare more and more. Inclusive of regulators, we currently reach out and appeal to various stakeholders, this [ being ] with the governments and regulators. This industry and also this company Bridgestone, they shouldn't be willing to encourage the movement towards that. That is our stance.

My question number two. You made reference to the digital talents. And I believe you said at present some 1,600 persons. So in 2023 FY, fiscal year 2023, do you have any expectation as to how many headcounts to be counted as the digital talents? Are they going to be found and nurtured within the organization? Or is that going to be all in Japan or outside of Japan?

Thank you. As you ask that question, please remember the acquisition of Webfleet and also the iTrack acquisition. Altogether, 700-plus so-called digital talents became our associates, so they are members of the group. And of course, there are people who have been nurtured and trained, developed to be progressed in the area of digital technologies, some 800 or so. And taking 800-some persons that we have within Bridgestone, they come in varying levels and grades. At the very top, we have the true expert level digital persons who are able to go through the [ error ] processes and the [ error work] as well. And our expectation is to broaden that foothold altogether. But we do not have any particular numeric target. Basically, we look to the future M&As to invite in digital talents from currently outside of Bridgestone. But again, we do not have any particular talent target.

What about in Japan? Would your approach be basically to develop those expertise within the organization?

My answer. Well, there is somewhere in the excess of 500 persons within Japan, some from within and others in Japan, but outside of Bridgestone. So I'm speaking of the recruitment approach. We are adhering to the job-based recruitment approach. And mid career, the recruitment is continuing. And we continue at all of those fronts, while adhering to the development of talents from within.

Next, Mr. Hiraoka from NewsPicks.

Hiraoka from NewsPicks. I have a question on HRX. What issues do you see in Bridgestone that are driving you to promote HRX? And what would the ultimate ideal talent portfolio look like?

As briefly mentioned earlier, in our core business of the tire business, we have a typical conventional Japanese manufacturers structure, very rigid hierarchy for producing and selling. And there is a need to change and transform this very rigid structure. Last year, we announced the need to change and reduce the number of organizational layers. Because obviously, there were too many. So there was a need to simplify that and also to reduce the number of executives and division managers to an optimal level, so as to make the organization more open and transparent. Also, we want to establish a matching system of available positions and the right talent. And that encourages people to voluntarily step forward to fill the positions. But this has just started. We are trying to change the typical rigid structure of a Japanese manufacturer. That's the very basis. In the Solutions business, the focus is the use of tires after production and sales. And we'll promote this together with the people originally from outside Bridgestone proper, namely Webfleet and iTrack and others. In conventional -- conventionally, in the case of tire business, the issues and challenges are already defined, and it is just a matter of executing actions. Whereas in the Solutions business, we need to first define the issues and challenges. We have to share what's troubling the customers and have empathy for them, which means the type of people required would be quite different from people who excel in the traditional tire business. Which means we need people from outside, we need younger people. And in fact, maybe in April, we are going to start new programs. We are to gradually separate the organizations, conventional versus new. That's what we are thinking right now. That's the second area. And the third area is the exploratory business. It's exactly about diversity and inclusion. The people with entrepreneurship. We actually do have such people within the Bridgestone. For example, in the area of soft robotics, starting from last year, we have asked the younger people to initiate projects. And the older guys, including myself, are keeping our mouth shut, getting the younger people try out new ideas and new proposals to be presented in 3 months' time. They are putting lots of energy and making proposals. So here, we're talking about entirely different structure, entirely different mode of running a business. So how best to combine these 3? This is the question that we are currently looking into. I believe, eventually, we're going to have to separate organizations. First, is to foster the appropriate talent in a step-by-step manner by assigning the right people to the right positions, also inviting people from outside of the company so as to change Bridgestone. And the people in the very rigid tire organization when exposed to soft robotics and solutions business will be stimulated and inspired and will see the need to change. And that is how I plan to change the entire company. But this is a journey, need to work on this over a 10-year time frame. You cannot expect immediate results under a 3-year midterm plan, for example. But through this journey, I hope to see a concrete change.

I see. My next question is on your new management index, ROIC, which is going to be very important for your medium-term reform and transformation. First, what is the background to your decision to introduce ROIC? And how do you plan to strike a balance among diversified interest to be presented to your various stakeholders and in your investor relations activities. For example, SDGs, exploratory business and the sustainable fund that you are going to establish. How do you plan to strike a balance among diversified management financial indices?

I'd like to refer the question on ROIC to the CFO.

This is Hishinuma speaking. I will explain the background to introducing ROIC. Too many companies that have diversified businesses use ROIC in running their companies. In the case of Bridgestone, there are businesses that are very profitable and others that are not achieving the desired level of profitability. And we have to squarely assess whether they are generating sufficient return on invested capital. We see the need to make that assessment and enhance the portfolio management further. And it is with that in mind that we have decided to introduce ROIC as management index. So we will be using ROIC to check whether the return is justifiable in relation to the capital cost, which is currently around 5.5% to 6% and review the business portfolio.

This is Ishibashi speaking. Last year, when we were putting together the mid- to long-term business strategy, we reviewed our operating results of the past 5 years and decided to run a PDCA cycle to make improvements. That was the starting point. Operating income was declining over the 5-year period. And we found there were issues with the business portfolio that we had. And so we need to address those deficiencies head-on or squarely address the past challenges and issues to think about the future. We recorded sizable impairment loss last year, and we decided to address the past issues head-on. Now in thinking about the future, obviously, we need a discipline and that's ROIC. I mentioned that the nature of tire business is different from region to region. So each regional head is to use ROIC to look at the top line and the bottom line under his or her responsibility. So in that sense, this is an index that is very helpful to the management in terms of portfolio management. And this is true for diversified business. We need to look at respective characteristics of each business and set appropriate ROIC target. But as mentioned earlier, exploratory business would not bring about immediate results. That's the very nature of exploratory business. But within the overall business, we need to generate cash from core business which are to be allocated to Solutions business and exploratory business that will require more time. So for certain businesses, we will take a longer-range view. While for very core business, which are truly profitable, ROIC target could and should be set higher. 10% is just an average. So we need to set such clearly differentiated targets. I hope that helps.

Yes. So how do you intend to strike a balance between indicators for enhanced earning power and ESG, SDGs and the like.

At the basis of our mid- to long-term business strategy is to position sustainability as the core and to fulfill both social value and customer value. That's very important. You can't just pursue social value, just pursue social contribution. Bridgestone is an enterprise, running business, using money from shareholders and others. And therefore, we need to generate a return. And of course, we need to contribute to various different stakeholders. That is our duty as an enterprise. But without social contribution, we can't run a business. We can't run a business without supporting sustainability. So while that is difficult, we need to fulfill both social and customer value. That is the challenge for the business model. As mentioned earlier, in Solutions business, for example, retreading contributes to better safety, reduced total cost, reduced CO2 emissions and improved resource productivity. So it's a very simple example of a win-win. In a more refined, high-level business model, in order to fulfill both social and customer value, we'll muster all our wisdom, innovate technology, develop technology, incorporate technology to realize this. I believe that is our mission.

Next, [ Ms. Morata ] from Daily Automotive News.

[ Morata ] from Daily Automotive News. I have several questions. First, you mentioned 40% reduction in your manufacturing footprint. Can you elaborate on the background? And what the average facility utilization rate is going to be as a result of such restructuring. And also, are you not worried that you are going to lose to Michelin in terms of size as a result? That's my first question.

The manufacturing footprint restructuring is not only about tire manufacturing plants. Under the vertical integration, we have our own material manufacturing capability. And we have many plants in our diversified business as well. We're talking about 40% reduction inclusive of all those plants and facilities. And of course, that would include tire manufacturing plants. We are to reinforce and promote strategically premium products through this. And so we do not believe that this will lead us to lose to Michelin. We will concentrate on and consolidate to the existing plants with production capability, capable of producing high-quality products, so as to maximize their production capacity. That will be our focus. Of course, at a certain stage, as the next step, we will expand our capacity and make necessary investments. But that would, of course, be investment focused on premium. Currently, there are many things that need to be implemented, including improving manufacturing Genba. In terms of competition with Michelin, we're not going to compete over volume. But rather, we are to become #1 in terms of quality. In the commodity tire segment, there are many manufacturers in China, Korea, India and elsewhere. We are not going to compete with those players head-to-head. So it's not just about volume. We are to improve quality through premium business.

Ms. Morata, did we answer the question?

Could I ask another question? EVs are being propounded, especially around China. You earlier talked about your business for the EVs. How are you promoting your business in China locally with the emerging companies?

Is this a question about the Chinese emerging EV manufacturers?

Yes.

In China, as you are aware, there are many COEs, Chinese OE manufacturers. Bridgestone does not necessarily have a very high share in such a market, but rather, our business in China is more focused on the premium business. At present, we do much business with German as well as Japanese auto manufacturers focusing on premium business. There are, however, newly emerging Chinese OEs, especially for EVs, aiming at the premium market to which we are making approaches. Although I will not be able to discuss this matter yet, there are not only Chinese, but other emerging OE manufacturers -- EV manufacturers, looking into entering the premium market to compete globally and we are making approaches to those OEs for possible opportunities to work together.