Bridgestone Corporation (5108) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome. I am Masuo Yoshimatsu, Global CFO of Bridgestone Corporation. Today, I will give you Mid Term Business Plan progress update on behalf of Ishibashi, Global CEO. Bridgestone Group announced Mid Term Business Plan for 3 years from 2021 to 2023 in last February and proceeded with aggressive approach and challenged split. Today, I would like to explain the execution and the result in 2021 and the plans for 2022. What we are aiming for a Mid Term Business Plan for 2023 is to transform into strong Bridgestone, which can respond to changes in the business environment with agility. In order to explain 2021 and 2022 initiatives, I organized our initiatives into 3 time lines, past, present and future. First of all, we tackle the past negative legacies without delay. It is mainly about rebuilding earning power. In 2021, we have executed manufacturing footprint and business portfolio restructuring and expense and cost structure reformation. In addition, we have set ROIC as a critical management index and introduced the process to evaluate earning power by region and business. We have also thoroughly strengthened investment tracking and evaluation of returns. The second is to focus on execution and delivering results. In the first half of 2021, when global demand was recovering, we thoroughly executed sales with aggressive approach. And since the third quarter, we have been promptly responding to deterioration of the business environment, such as OE tire demand reduction resulting from semiconductor shortage, inflation in raw materials, ocean freight and energy and labor shortage in North America. In 2022, we'll continuously work to transform changes into opportunities with aggressive approach and challenge spirit, centering supply chain management that responds to changes in an agile and flexible manner. The third is to lay foundation for the future growth. We'll accelerate actions for further growth based on strong Bridgestone, we have built so far. The main initiatives is ENLITEN business strategy, which is our new premium for EV era. For ENLITEN, as the innovative tire technology suitable for EV fitment, we have promoted passenger car OE fitment starting from Europe. From 2022, we will evolve it into a business model. I will explain in more detail afterwards. We will also continue strategic growth investment. In the core business, we started studying global manufacturing footprint from a mid- to long-term perspective. We will promote our investment to expand manufacturing capacities responding to sales with aggressive approach and replacement of production equipment from passenger low rim diameter to high rim diameter. Furthermore, while keeping local production for local sales in the U.S. and Europe, we'll expand manufacturing capacity in Japan and Asia. We will position and invest in Japanese manufacturing, which supported global sales coping with drastic changes in the business environment last year as a core of Bridgestone Group manufacturing. As for expansion of Solutions Business, since last year, we have promoted enhancement by M&As and building strategic partnerships in retail services and mobility solutions. We will determine growth potential and profitability of each business and build solid foundation of Solutions Business to reinforce the business to become our growth engine. In exploratory business, we will continue to explore guayule, recycle and soft robotics for commercialization. In sustainability, which is a core of our management, we have promoted execution of sustainability business from last year. Through carbon neutrality, our group company, BSEMIA switched to 100% renewable energy in all of its European locations, we will reinforce the initiatives for carbon neutrality globally, including Scope 3. Also, in circular economy, we will accelerate our approaches such as promotion of recycled business based on co-creation and linkage with ENLITEN business strategy. This is all a summary of 2021 and 2022 initiatives. Now I'll talk about the results. In 2021, we achieved our 2022 targets and Mid Term Business Plan ahead of schedule with a revenue of JPY 3.2 trillion and gross profit ratio of 40.6%. For this year, we aim to reach JPY 3.6 trillion of revenue, continuing sales with aggressive approach. Responding to inflation and raw material prices, et cetera, we will continue strategic price management and drive rebuilding earning power, thus minimizing the impact of inflation on gross profit ratio. Now let me talk about the results on operating profits and management indexes. In 2021, we achieved 2022 target of adjusted operating profits and ratio ahead of schedule. As for this year, although it will fall slightly short of 2021 level, due to the impact of raw material price increases, we are planning to respond quickly to changes through reinforcement of price management, including price increases and through control of OpEx. ROIC, the critical management index will be above 2021 level, accomplishing the rebuilding earning power. We will transform into strong Bridgestone in an agile manner and continue to drive towards further growth with aggressive approach and challenged split. For growth, we have defined a new business portfolio. Of course, the core business will remain tire business in the future. Regarding Solutions Business, as our growth business, we divide it into 3 businesses: Tire Centric Solutions, retail and service and Mobility Solutions in accordance with its business characteristics. We will pursue the synergy between the core business and growth business, which amplifies the values in each business. Adding Diversified Products Business to those 4 businesses, we are moving toward 5 business portfolio. Moreover, we will aim for the early commercialization of exploratory business. We will build a new management structure aligned with new business portfolio. Since 2020, we have driven local management that executes a local strategy suitable for each business region based on the global strategy, securing group global optimization. Over the past 2 years, we believe we have been able to build such strong management structure. Henceforth, based on global management, we will challenge to realize new global portfolio management, combining the 5 businesses that was explained earlier. We will build the management structure that responds to changes in a flexible and agile way according to each business characteristics. It will not be easy. However, we will leverage our global management team strengths that we have cultivated and move forward. Now let me explain about the details of each initiative. For rebuilding earning power, we executed restructuring of tire plants, internal manufacturing footprint and diversified the products business in 2021. In terms of manufacturing footprint, we announced restructuring of 50 locations. Regarding Diversified Products Business, our COO, Higashi will explain the details later. We will continue our review over the mid- to long term across all of our business areas. Regarding expense and cost structural information, we are working on the improvement of OpEx. For 2 years, 2020 and 2021, we reduced approximately JPY 37 billion of fixed costs and approximately JPY 9.7 billion of variable cost, an accomplished reduction more than planned. We will continue this improvement in 2022. Regarding premium business strategy, we thoroughly conduct supply chain management that responds to the changes in the business environment in the flexible and agile way. In 2021, as explained earlier, we executed sales with aggressive approach, optimizing global supply sourcing and delivered results. In response to inflation in raw materials, et cetera, we carried out strategic price management in an agile way. We implemented multiple price increases in global major regions, including quarterly price increases of passenger car replacement tires in the U.S. We'll continue to take action promptly coping with ongoing inflation in 2022. Regarding passenger car tires, we will focus on HRD tire, high value-added products, while taking the replacement demand from OE to REP and drive sales expansion. In U.S. and Europe, over 60% of OE and 30% of REP have been turned into HRD tires of 18 inches and above. We enlarged our market share, especially in the fourth quarter of 2021. In the emerging markets, we will expand our sales offering 17 inches and above as premium. In respect of ENLITEN, the new premium for EV era explained earlier, as our initiatives to lay foundation for the future growth, we have expanded it as innovative tire technology optimized to EV fitting. We will launch approximately 90 of ENLITEN products from 2022 to 2030. And almost 100% of passenger and light truck tires will be with ENLITEN in 2030. This year, we will expand this technology to truck and bus tires in Japan first. Furthermore, we will expand its value to technology product business model and work on building ENLITEN business strategy. We will aim to simultaneously create values that can sometimes be contradictory such as business growth and sustainability, customization of tire performance and productivity improvement or cost optimization through the efficiency of entire value chain. Now regarding global expansion of Solutions Business. We are taking various actions globally in 3 businesses. Tire Centric Solutions, retail and service and Mobility Solutions. The revenue of solutions businesses in 2021 was approximately JPY 600 billion and will be approximately JPY 670 billion in 2022. We will continue to establish solid foundation and enhance the business as our growth engine. The foundation of Solutions Business is on total solutions network, which is approximately 18,000 locations of passenger car network and approximately 6,000 locations of commercial fleet network. This is strong wheel based on our DNA, which is being close to Genba and customers and understanding their pain points more than themselves. Combining this real with digital tools, we will provide various solutions. Regarding truck and bus, we will offer the combination of Tire Centric Solutions and Mobility Solutions. For Mining Solutions, we will provide unique solutions that combines Dan-Totsu product, Genba-based service and digital tools. For passenger cars, we will promote enhancement of retail service. Regarding retail and service, we will enhance the service customized to each customer, such as subscription and mobile van through our Dan-Totsu solutions network, valuing the improvement of user experience or UX. We will promote the enhancement mainly in Europe, U.S., Japan and Thailand, where we have our strong retail network. As for MOBOX a subscription service, which offers tire-end maintenance as a package with fixed fee, we will increase the number of subscriptions to approximately 100,000 in 2022, 2.5x of last year. The approach to sustainability is also important. We will enhance EV charging service in the U.S. and Europe. We will continue to support the realization of carbon-neutral mobility society. Regarding Mobility Solutions, we acquired Azuga in the U.S. last year in addition to Webfleet Solutions in Europe. Also, we integrated Webfleet Solutions and other solutions businesses and established Bridgestone Mobility Solutions as a legal entity. In 2022, we will drive the expansion and reinforcement of services, including areas outside Europe. In addition, Brisa, one of Bridgestone's affiliated companies in Turkey reached agreement on acquisition of Arvento, a digital fleet solutions provider. In each region, we will work to expand our mobility solutions and create synergy. For mining solutions, based on mining, OR tire, MasterCore, we will develop this tire business and enhance solutions with combination of Real x Digital. We expanded on-site service sites through Otraco, which is an a tire service and management provider acquired last year. Utilizing digital tool, we will provide solutions such as optimization of tire inventory and operation costs for mining companies. We have signed contracts that combine tires and solutions with global major mining companies and expanded our service to 41 mines. We will continue to expand and support mining operation from the ground up. Now I would like to update the progress of 4 categories that we set last year as a result of our efforts in each business. In 2021, we achieved profitability in Russia and Africa business. The remaining deficit business truck and bus tire business in China and India will also turn profitable in 2022. In addition, regarding Diversified Products Business, all businesses will turn into profit-making through restructuring of business portfolio, we will drive the transformation into strong Bridgestone ahead of schedule. Next, I would like to give an update on the progress of an exploratory business. We added guayule business in our exploratory business and now exploring in 3 businesses, guayule business on the upstream of supply chain, recycle business on the downstream, these are to realize the circular economy. We drive exploring technologies for industrial use and commercialization and guayule business. Regarding recycled business, we continue to explore technologies through co-creation with various global partners. In Japan, we will conduct a large-scale experiment by 2030, aiming for early commercialization. For soft robotics business, we will continue to explore business model for small scale commercialization. We will continue to drive digital transformation as digital is essential for our initiatives, which I have explained thus far. We will continue to develop high level of digital talent such as advanced AI algorithm experts, which we have worked on from last year. In order to develop and recruit advanced AI algorithm expert, we will reinforce our cooperation within universities. We will recruit and develop 200 digital talents in 2022 and accelerate DX with 1,400 digital talents. Since 2020, we have been driving DX in each area such as R&D, manufacturing and solutions with the combination of Real x Digital as Bridgestone's DX. We will accelerate our actions in order to realize DX, which connects throughout the entire value chain, global and operation. Lastly, regarding strategic resources for our growth. Here is the summary of our strategic growth investments. For tire business, we executed investments to expand premium products in Asia, Japan and South America. We also started our investments to expand production capacity of truck and bus tires in South America and Asia. In the Americas, where we have strong presence. We support sales in North America with the supply from South America. For global, we support with supply from Asia and Japan. And in this way, we will promote global optimization while keeping local production for local sales to some extent, as a basic principle and continue to structure supply chain, which responds to changes in a flexible and agile way. In addition, as for Diversified Products Business in the U.S., we will expand production capacity at the plant manufacturing air springs for the EVs responding to the accelerated shift towards EV. Regarding Solutions Business, we strengthened our business by strategic investments and M&A in each businesses, Tire Centric Solutions, retail and service and Mobility Solutions in the U.S. and Europe. We will continue our strategic growth investments to enable growth of business and realized carbon-neutral mobility society. The strategic resources with the strategic growth investments that I have explained are as what you see right here.The strategic investments and expenses was JPY 100 billion in 2021 and will be JPY 150 billion in 2022, and therefore, even further growth. Investment plans for M&A and strategic partnership will be JPY 150 billion in 2022. And if we will continue considerations with 5 priority investment areas such as enhancement of Mobility Solutions, enhancement of retail and service, tire manufacturing technology, new and emerging players in mobility industry and sustainability. So that is all regarding 2021 summary and 2022 plan. From this year, we will continue to focus on execution result with aggressive approach and have a challenged rate and accelerate our transformation towards growth. We will update the progress at each quarter's financial results announcement. Thank you for your attention.

So there was a Mid Term Business Plan progress update 2021 summary and 2022 plan read here by Global CFO Mr. Yoshimatsu. To continue, our global CFO, Mr. Yoshimatsu will give financial results presentation.

Thank you. So the financial results for fiscal 2021 and consolidated projections for the full fiscal '22. Here's my agenda in this presentation. And to start with, I would like to give you the highlights of the performance for fiscal 2021. Fiscal '21 performance year-on-year revenue increase of 20% adjusted operating profit increase of 90%. And profit attributable to owners of parent from continuing operations made a turnaround from a loss for the first time in 69 years, mature renewed the record-high profit after 7 years. In the tire operation, global tire sales grew substantially, especially in the premium segment and the company achieved significant year-on-year growth in both revenue and profit. And for profits, the impact of cost inflation was offset by selling price and mix improvements. And further, sales and volume recovery conversion cost improvement owing to the recovery of capacity utilization accompanying the production volume increase and the expense and cost structure reformation enabled significant improvement to profitability. So adjusted operating profit margin, ROE and ROIC exceeded the 2022 plan in the 21MBP. Further, business portfolio and manufacturing footprint have restructured. Decision to transfer the anti-vibration rubber business and the chemical products solutions business, meant that rebuilding earning power was largely completed. And the Diversified Products Business returned to a profit on the continuing operations basis. Performance by product. Passenger car and light truck tires as well as trucking bus tires, impact of the shortage of semiconductors was dire. So that decelerated the OE demand recovery. However, our group's strength, which is the global manufacturing footprint enabled flexible supply management, capturing the increment had the growth for tires in the replacement tire segment, that's the recording of the sales expansion. For the mining and construction tires. In both regards, particularly in the second half of the fiscal year, the recovery became more prominent. To continue I'd like to talk about business environment surrounding Bridgestone Group. Effect, both for U.S. dollar and euro appreciation against the Japanese year compared with the prior year. Net raw material prices, both for natural rubber and crude oil remained high. Tire demand, OE demand recovery slowed significantly in the third quarter due to the rising semiconductor shortages. On the other hand, in the replacement tire business, North America and Europe were strong with economic activity recovery and booming used-car market, whereas in Japan and Asia demand recovery has been relatively weak. On to the unit sales of tires, versus prior year, the global sales of the PSR and LTR tires was 108%. And that of TBR tires was 114%, significant recoveries indeed. In particular, the sales of PSR high rim diameter tires above 18 inches. TBR sales in the replacement market segment in North America were particularly strong. So that even in comparison with 29 -- is significant, the overachievements, over the 2019 level. Mining and construction tires, backed by robust construction demand have made substantial sales recovery overall, such as significant increases in the OE sales of large and small and medium-sized new tires. Consolidated financial results for fiscal 2021 year-on-year substantial revenue increase and adjusted operating profit increased, and the profit attributable to the owners of the parent from continuing operations renewed the historical high. Into the final quarter, the surge in raw material charges, wages and energy unit charges went up, which are collectively had served as a headwind against us lowering profitability. However, operating profit from continuing operations exceeded the previous projection with the full year adjusted operating margin of 12.1%. Analysis of adjusted operating profit for fiscal 2021. volume recovery and effective improvement in capacity utilization plans and propelling conversion cost improvement contributed to an increase of JPY 186.9 billion year-on-year. As to other factors, raw material charges and ocean freight rate increases reserved as negative factors, which are more as offset by selling price mix and the effect of improvements in Genba operations. Next is the consolidated financial results by segment. in all regions from the prior year, a substantial increase in revenue and profit were recorded. In particular, in the Americas and Europe, Russia, Middle East, India and Africa as a region drove the overall performance. Replacement segment tire sales expanded owing to maybe economic activities and used car on the market booming, creating incremental demand and that was captured for sales expansion. And for profits, the deployment strategy execution and the concentration of major brands in U.S. and Europe resulted with the Americas reporting adjusted operating income margin, which went up to 13% from the prior year, 9%. And as the Europe, Russia, Middle East, India and Africa had a turnaround from the red ink in the prior year to more than 6% profit. Consolidated financial results by product for fiscal 2021 for tire business. PS and LT tires adjusted operating margin was 14.2%. That for TBR net tires was 10.8% in ideal regard confirming significant improvement from the prior year. Specialties segment comprising mining aircraft, agriculture and motorcycle this, the profit margin was 19.8%, preserving a very high standing indeed. Next, Diversified Products Business. As a consequence of business portfolio restructuring, all continuing businesses became profitable. Balance sheet and cash flow high rates for fiscal 2021 in total assets. So an increase by JPY 385.6 billion to reach JPY 4,574.9 trillion, sales recovery resulted in working capital increase. Equity ratio went up by 6.2 percentage points from the prior year fiscal year-end to reach 57.5%. The level of the financial house has been enhanced. Free cash flow, increasing cash flows from investing activities exceeded JPY 400 billion. Profit from discontinued operations. Three businesses of U.S. building materials, anti-vibration, rubber chemical product solution business. All 3 businesses is classified as discontinued operations resulted with JPY 86.2 billion profit coming from the 3. With the Bridgestone [indiscernible], aiming for sustainable corporate value and financial value enhancements. Last year, we saw the establishment of the extended global CFO role with whom, the weekly global CFO roundtable discussions have been held further strengthening the global linkage. And starting this year, SCM function is consolidated into this arena to reinforce foundation for financial strategy. ROIC has been earmarked as the key management index, and the management with awareness of capital cost and portfolio optimization kicked in. Inclusive of the financial controller, financial strategy functions aiming to the actual operations on the front,; which resulted in the ROIC improvements by 3.9 percentage points at 9.0%. On a continued basis, global total optimization will continue with the deployment of strategic resources. Next, I would like to go over the consolidated projections for fiscal 2022. We are projecting revenue to increase by 12% year-on-year, adjusted operating profit to increase by 8% and profit attributable to owners of parent from continuing operations to total about JPY 290 billion, which is equivalent to the amount envisioned for fiscal 2023 in the Mid Term Business Plan. Regarding the business environment assumptions, the exchange rate assumptions are as you see here. And as for raw material prices, we assume that the unprecedented inflation for natural rubber and crude oil will continue creating a strong headwind. As stated, tire demand is expected to increase overall, although there are differences by region and product. This is the tire sales growth projections for fiscal 2022. We expect that demand for passenger car and small truck tires, truck and bus tires and off-the-road tires will all continue to recover and increase year-on-year. We are also expecting strong sales continuing for 18-inch and above, higher-rim diameter passenger car tires. Based on these, the consolidated earnings forecast for fiscal 2022 is revenue, JPY 3.65 trillion, up 12%. Adjusted operating profit, JPY 425 billion, up 8%. Profit attributable to owners of parent from continuing operations, JPY 290 billion. ROIC, 9.2%; and ROE, 11.3%. As for dividends, we are currently forecasting an interim and year-end dividend of JPY 85 each for an annual dividend of JPY 170 per share, the same amount as in fiscal 2021. Next, variance analysis of the adjusted operating profit forecast. Through the strengthening of the premium business strategy and strategic price management in response to such negative factors as the unprecedented rise in raw material prices marine freight, labor costs and energy costs. We expect the adjusted operating profit to increase by JPY 30.7 billion year-on-year. Consolidated projections by segment are as shown here. Lastly, but not the least, our shareholder returns. The annual dividend is forecasted to be JPY 170 per share for both fiscal 2021 and 2022. The total payout ratio for fiscal 2021 will be over 50%, including the acquisition of Treasury Stock of JPY 100 billion as announced today. In fiscal 2021 through the execution of rebuilding earning power and premium business strategy we achieved the 2020 plan envisioned in the midterm plan ahead of schedule. Accordingly, we decided to acquire Treasury Stock of up to JPY 100 billion as an agile capital management for improving capital efficiency, while comprehensively considering such factors as future growth investment plans, cash reserves, dividends level and market situations, including the stock price. The details of the treasury stock acquisition are shown here. That concludes my presentation. Thank you for your kind attention.

That was CFO, Yoshimatsu, on financial results for fiscal 2021. Next, Global COO and Representative Executive Officer, Masahiro Higashi will give the progress update on midterm business plan focusing on Diversified Product Business.

I am Masahiro Higashi, global COO. I will give the progress update on the chemical and industrial Diversified Product Business, Mid Term Business Plan announced last February as well as our future direction. The Diversified Product Business is the general term, which covers our non-tire business, namely the mainly domestic-based chemical and industrial products business sports and cycle business managed as a group company and the U.S.-based air spring business. It also included the Building Products business, whose transfer was announced at the beginning of last year. The Diversified Products Business has set its target towards 2026 after making several decisions and actions. So I will cover that topic as part of my presentation today. Under the Mid Term Business Plan up to 2023, the Diversified Products business has been pursuing initiatives towards the goals of Bridgestone based on truly focusing on areas where we can leverage our core competencies as part of the transformation to a strong Bridgestone using our targeted aggressive approach and challenge. First, I will review the Mid Term Business Plan announced last February. The chemical and industrial products business has seen profitability decline mainly in the automotive components business in the past few years due to long-term price decline and cost increase. In the Mid Term Business Plan announced last February, we talked about the following points regarding our goal to have business areas that can secure appropriate position in Bridgestone's portfolio. We said that we would use restructuring business portfolio as the base and conduct business and manufacturing location restructuring, clarifying what we do and what we don't as a pillar to accomplish rebuilding earning power. We set concrete financial targets of JPY 230 billion in revenue and JPY 15 billion in adjusted operating profit, accomplishing profitability recovery by 2023 and maximizing synergy with Bridgestone's core competencies. We also mentioned that we will reduce about 40% of the total 160 global manufacturing locations, including the tire business. Let me talk about the results in 2021 and plans for 2022. We have downsized 46 manufacturing locations, having decided business withdrawal and large-scale business restructuring, such as the transfer of the U.S. building products business and the anti-vibration rubber and chemical product solutions business of the chemical and industrial products business. In terms of the 2021 financial results of the continued business, the diversified products as a whole and also by each business, we covered profitability through the combined effect of rebuilding earning power measures such as expense and cost structure reformation and premium business strategy. The adjusted operating profit in 2022 is forecasted to get close to JPY 15 billion, the level planned for 2023 in the midterm plan. We are working to further enhancing their earning power. The R&D organization function of the tire and the chemical and industrial products business was integrated in January to sharply focus on areas where we can leverage our core competencies and to accelerate its growth. We are reinforcing the R&D of the diversified products using forming hybrid polymer-related technology, one of our core competencies as a common base. In the next few slides, I would like to talk about the business and manufacturing footprint restructuring of the Diversified Products Business. This slide shows the history of our non-tire business. We have been engaged in a variety of business domains and repeated selection and focus as time, economic and competition environment has changed. We will continue to support people's everyday lives and the movement of people and goods, responding to the needs of time, society and people, inheriting the transformation and creativity spirit of [indiscernible], the chemical and industrial products business. The executed business and manufacturing footprint restructuring is not misaligned from this DNA. This slide shows the details of the previously announced footprint and business portfolio restructuring. The transfer of the U.S. building products business was announced in January of last year. We announced the withdrawal from the conveyor belt business in November and the transfer of the anti-vibration rubber and chemical product solutions business in December. We decided to consolidate the manufacturing footprint of Bridgestone Cycle to 2 locations. And yesterday, we announced the transfer of Bridgestone Sports Arena. The total number of footprint restructuring of the diversified products business covers 46 locations. I will explain the steps of our study, decision and basic approach regarding business transfer. The study starts with the internal assessment of business viability, whether we can manifest our strength of using synergy with Bridgestone's core competencies as a competitive advantage in the market, whether the business has a clear midterm strategy direction and finally, whether it can accomplish our financial discipline, specifically ROIC of 10% in a certain time period. We have conducted comprehensive study and assessment of each business and decided on whether to continue or discontinue the business. We decided to transfer the anti-vibration rubber, the chemical product solutions business and Bridgestone Sports Arena after studying restructuring options, including business withdrawal, to minimize the impact on customers to maintain the employment, pay and benefits of affected employees and determined that a new owner can realize constant growth of employees by continuing and reinforcing the business. This slide shows some details of the successors of the 2 chemical and industrial products businesses announced recently. The anti-vibration rubber business will be transferred to Anhui Zhongding Holding, which is expanding globally, committed to automotive NVH business, including anti-vibration rubber and has acquired several European and U.S. companies. The chemical products solutions business will be transferred to Endeavour United, which has extensive experience in investment and corporate restructuring, mainly in the manufacturing industry and emphasizes hands-on support. Both companies have agreed on the terms we placed importance regarding the business transfer. Our decision was based on the conclusion that the employees can leverage their experience and skills for their growth. and that the business continuance will provide suitable social and customer value creation as both companies are targeting growth in their respective business domain. The same goes for the transfer of Bridgestone Sports Arena to Nagase Brothers, Inc. announced yesterday. Until the completion of the transfer, we will continue to take respectful and appropriate actions to the employees so that they can work with positiveness and security under the new environment. and to minimize the impact on our customers, suppliers and local communities. Next, our initiatives and concept towards 2026. The business and location restructuring is planned to be concluded this year. Now that achievement of significant restructuring target is in sight, we will sharply focus on areas where we can leverage our core competencies and enter the growth phase. Towards 2026, we will execute resource allocation shift to continued business areas, reinforce the profit structure using our strong core competencies as the base and accelerate our initiatives to create social value, customer value and mid- long-term growth. So as to achieve JPY 280 billion in revenue, JPY 26 billion in adjusted operating profit and over 10% ROIC in 2026. Regarding focus continued business, we have clarified core competencies as the sources of competitiveness through business viability assessment. We will maximize their strength and will reinforce sustainable earning power based on solution building and premium strategy. For example, the hydraulic and high-performance hose business has such strength as mastering forming hybrid polymer technology to handle rubber and reinforcing materials. The sales channel network, including hose coupling crimping, the solution business model, proven in North America and global manufacturing footprint. We have already decided to invest in production increase in Thailand to respond to the premium product market expansion of high-pressure and high-diameter hoses as the driving force for growth beyond 2026. We will clearly define the strategic direction of each continued business and the social value and customer value they create and execute them steadily through tight resource control. The Diversified Product Business will take up challenges not only in its original domains, but also in further expansion so as to create new social value and customer value. Each continued business has its own segment to challenge. The Diversified Products Business has continuously supported people's everyday lives, the movement of people and goods through different business areas. Towards 2026, we will maximize Bridgestone's core competencies; contribute to carbon-neutral society, respond to diversifying living environment, provide value for next-generation mobility, realized products services, presenting excitement for people's everyday lives, respond to the largely changing social needs to create new social value and customer value and realize mid-long-term growth. This slide summarizes my talk in numeric terms. The financial results for fiscal 2019 of all business, including discontinued business areas, was JPY 570 billion in revenue and JPY 1.4 billion in adjusted operating profit. After business portfolio and location restructuring, we recovered profitability in fiscal 2021 on continued business basis. We will further enhance profitability steadily so as to achieve adjusted operating profit of JPY 26 billion and ROIC of over 10% in 2026. This concludes my presentation. Thank you for your kind attention.

Now we'd like to start entertaining questions. The first question is from Mr. Sakamaki from Daiwa Securities.

Can you hear me? I am Sakamaki from Daiwa Securities.

Yes, we can hear you.

I have 1 question on your take on inflation and another question on your approach towards allocation of resources, including cash. More specifically on the first question, in the analysis of adjusted operating profit forecast for this fiscal year, I would assume the impacts of the rise in ocean freight rates and labor costs probably have been included in the conversion costs or operating expenses. But how much have you incorporated in your forecast with what assumptions. Some competitors have exhausted the amount of annual contracts available to them for ocean freight for annual contracts and the purchase vessel space on the spot market, resulting in a squeeze in the profit margin as in the case of Michelin specialty products, but your company seems to have been managing it relatively well so far. And so do we not have to worry about the deterioration of your position in this fiscal year? And price effects may include the price hikes that have not been announced yet. So do you have confidence that even if the labor costs or ocean freight go up more than assumed, you'll be able to offset them with price increases? This is also part of my first question on inflation.

The CFO will answer the question.

Thank you for your question. If you can take a look at my second presentation, which is on the financial results and compare Page 7 and Page 18. It may be easier for you to follow. On Page 7, you can see the operating expenses increased by JPY 79 billion year-on-year. And Page 18 shows, the operating expenses are expected to go up by JPY 80 billion this fiscal year, representing almost the same amount of rise as in the previous fiscal year. The increase in the ocean freight was indicated in the breakdown of JPY 20 billion in fiscal 2021 and an increase in the ocean freight close to that month, if not the same, has been incorporated in the forecast for fiscal 2022. As for the labor cost, in our company, we have evolved our concept on our employees to treat them as our human capital, as was mentioned in HRX. And we are working to reinforce our recruitment and human resources development, including education and reskilling. And the increase incorporated in the total labor cost to cover all these activities is the same level as in the previous fiscal year. In terms of inflation, the raw materials cost increased by JPY 100 billion in the previous fiscal year. While in this fiscal year, the rise is expected to be JPY 145 billion, as shown on Page 18. As we put together the forecast, we usually come up with best case and worst-case scenarios as well as the base case or most likely case, which is disclosed externally. We came forward with best, worst and base cases for the forecast for this fiscal year as well. And the best base case that we chose this time to be incorporated in the forecast was actually closer to the worst case. As I'm sure you can see from the year-on-year increases in the forecast. Does that answer your question? The second question is about allocation of resources, isn't it?

Yes. But can I ask a clarification about annual contracts of the ocean freight I would assume you're about to go into negotiations ahead of May. And do you not expect the annual contract prices to go up to levels close to spot prices yet? Or are spot prices simply driving up and keeping the annual contract prices at higher levels?

We are still in the process of negotiations and so we cannot say anything for sudden, but we have incorporated the impact to some extent.

But even with the sudden level of rise in the ocean freight, do you think you can offset it with price increases and more or less achieve the full year forecast for the operating profit?

On that point, again, if you turn to Page 18, the raw materials costs are expected to increase by JPY 145 billion, while the price impact is assumed to be JPY 195 billion, an improvement in sales mix, JPY 15 billion, which together amount to JPY 210 billion. In the U.S. and Europe, Strategic price management and improved sales mix brought about a very positive effect last fiscal year. And so likewise, in this fiscal year, while closely watching the trends in the market, we plan to execute strategic price management multiple times, so we can achieve a total impact of JPY 195 billion globally. I think your question was also referring to the domestic price management as well. So our COO, will respond to that question.

As you're probably aware, in January, we announced price hikes to come into force on April 1 in the Japanese market. The price hikes will be between 7% and 10%, and which is extremely high rates of increases compared to examples in the past. We will do our best to focus on making these price hikes a success in the domestic markets for the moment so that we can assure to achieve the numbers globally shown earlier.

And related to the resources, could you also tell us how you have decided to acquire the Treasury Stock? You have been saying you'd finish the business restructuring by 2021. And so is it the case that now that you are finished, you have decided on the Treasury Stock acquisition -- in that sense, though the amount may vary. Can we expect these factors to be continued? Or given the loss of JPY 10 billion from discontinued operations assumed in the forecast for this fiscal year and the strategic investment amount disclosed? Is it your policy that, although you did decide to acquire Treasury Stock this time, you still have a lot to go in business restructuring going forward, which requires allocation of funds?

Thank you for asking questions from various perspectives. This is going to be a repetition of what I said in my presentation. But first of all, as an agile capital policy, we have decided to acquire the Treasury Stock. And this is a result of comprehensive review of future growth investment strategies or strategic resources plans, cash on hand, dividend levels and the market environment, including the stock price levels, which includes all the items that you mentioned. As for the forecast of this fiscal year, despite uncertain factors such as unprecedentedly high levels of raw material prices, we have taken into account all of those factors, and made the decision, which we found was the most efficient at this moment from the perspective of agile capital policy.

I spent some time today to talk about restructuring of Diversified Product Business. This basically means that we now have the end to the series of major restructuring in side. And as we said, we were determined to move into the growth phase with the businesses left in our company. Having said that, however, we view our business viability, as was explained earlier, is something that needs to be done somewhat regularly. So if you ask me whether we will never do it again permanently, I would say that may not be the case. But at least for now, we have reached a certain milestone, which allows us to focus more on the future growth. That is why we spent some time to discuss this topic today.

Let me make some additional comments on the dividend. Our dividend policy is to aim for stable and continuous improvement of the amount of the dividend with the payout ratio of 40% as a yardstick. In this context, JPY 170 per share that we presented in the forecast is the same as in the previous year. And if the actual result turns out to be ahead of the forecast, amongst various items to allocate resources to, the dividend would be given first priority to consider.

Let us move on to the next person, who is Mr. Yoshida from Citigroup Global Markets Japan.

So my first question to you having to do with the OP margin in Americas operation, which worsened rather noticeably in the final quarter at 10.6%. So please explain the background. And in FY '22, the [ projection ] plan is 14.3% that would exceed the historical level. So would you once again explain the thinking behind that?

Okay. Americas operations in the final quarter, approaching the fiscal year and book settlement, there were certain one-off charges, which were recorded or which are recorded. And also the seasonality was at play, which meant that though temporarily, the situation worsened, appeared to have worsened, tended to have worsened a little bit in Q4. However, into the new fiscal year, we certainly do expect to hit a recovery from that lower condition in Q4 in the Americas.

Okay. So my follow-on question is that the cost items, be it the wages, the ocean freight costs and so on, the hit, the Q4 situations. But into the current or the new fiscal year, there may be, it isn't going to be the easier situation to have...

Maybe it's not. Well, let me try to explain to you in further details. The price -- selling price increases, we have been, and we would once again expect in the new fiscal year. However, there's going to be a certain time lag before the benefits of the higher selling prices would be recognized. So that's something that I tried to explain a little bit further earlier. How we had the strategic price management rounds in the previous fiscal year and how it is our intention to continue with that.

Okay. I take your point. And then on to my second question to you. Speaking of raw material costs, I understand about the best case and the best case, base case and risk case scenarios that was more speaking the worst cast the scenario estimation, which have been reflected. And applying that to the operating profit therefore the new fiscal year. How was that processed? And as my overall impression that ever since Mr. Ishibashi became the Global CEO, it's been as a tendency, the adoption of the worse case at first but he was mindful of the progression by quarter, to have phase-by-phase or step-by-step upward adjustments. So would you explain that?

Thank you for those detailed questions. In this period, the unprecedented increases in raw material cost conversion cost situations, getting the challenging and the ocean freight rates. It is true that if you take a look at the table by segment, all regions varied from one another. This is rate has been [ plain ] but magnitude there of the nuances have been different by segment. meaning that each region, each of the event leader to take on challenges head on, not turning away or down has been very important. And it's nothing new on the back in the Lehman Brothers figure period was that sort of stance taken by the leaders, which means that if you take a look at the breakdown by SBU on Page 19, that is the submission made by SBU leaders with that sort of aggressive taking on challenge spirit. So please understand that. However, we have, on the other hand, consolidated projection on the Bridgestone Corporation, which is subject to external disclosure. In order to get to that, we would factor in the certain implied net risks. So that is exactly what I did.

Okay. I understand this nearly JPY 50 billion worth of adjustments, is that the adjustment and considerations on your part. I understand that.

Let's move on to the next speaker, who is Mr. Kakiuchi from Morgan Stanley Securities.

Kakiuchi from MS Securities. My first question again, going back to the ocean freight increase situation. In the Q4 near the closing, whereas usage back the occasional Q3 announcement. Maybe in the final quarter as much as JPY 11 billion to be prepared for. But as you close the period, it was no more than JPY 9 billion. And for the new fiscal year, the JPY 20 billion or maybe lower. So all in all, good control on your part is my impression. I understand that in the case of Bridgestone, the local production has been ramping up, meaning that the exports from Japan or elsewhere, they have been relied on less than before. So is that the effect of that? And all, simply speaking, the negotiation the Bridgestone has in these areas where the business discussions are quoted for.

Thank you for that question. Let me respond to that. I believe that you have 2 points in both of your questions. First of all, with the concept of local production, local sales at the base in the U.S. market, where the labor market liquidity has been heightened and then the market as a whole, the attrition and the people are leaving jobs and they have increased. It's been difficult and more challenging to hire new records and wage levels going higher and higher, would mean that for our purpose, we should adapt and we should utilize that sister plant system, which we explained to you previously for the purpose of stable on the production order large. Meaning that on this occasion, to leverage the power of Genba [indiscernible] in the domestic plants, they would deploy it 2 years plans, meaning that their highly skilled workers, managers were sent into the U.S. to pick up the productivity level in the U.S. and also as to the export reliance. The demand in the U.S. market has been noticeably strong during the period, we stepped up on the exports from Japan, Asia and that was part of the CEO narratives that I read. So from both the aspects we have been coping with the situation, and that's exactly what we continue to do.

So my second overall question, that relates to the previous speaker's question. About JPY 50 billion adjustment from the sum up of the SBU submissions. So you have the multiple SBUs. Is there any sense that you can share with us that a particular SBUs tend to be too aggressive pitching forward excessively or any other nuances that you can detail with us? I know that regions are difficult for instance, in this year, it is expected to have that mining income, the operation and demand would increase, which should point to the expected increase in exports from Japan of those tires. I wonder what happened. If not for that JPY 50 billion adjustments, then is that the case that you can aim even aim for the higher level such as JPY 470 billion or I'm sort of not understanding from what you're telling us?

Thank you for your question. I do understand what you're alluding to. But please remember, I said that SBU leaders have been taking all their respective challenges head on, not turning away or down. So that's exactly what they have been doing. And I am not going to dare to answer this particular question, please understand it. Rather all leaders have been exercising very strong power of leadership, and we are very much hopeful and expect that the submissions will turn in to the reporting of the actuals to the tune into the extent global headquarters will be prepared to support.

Next is Mr. Sakaguchi from Mizuho Securities. .

My question is on specialty products. Looking at the results for Q4, adjusted operating margin, I think, was over 20%. And this was achieved despite increases in material prices and ocean freight rates. So what was the factor for the profit increase quarter-on-quarter? Was it solely due to the recovery in unit sales? Also, for this fiscal year, you're expecting unit sales of the road tires to grow by double-digit percent or close to that. So can we expect the operating margin to improve further as a result? Can you comment on that in reference to the cost aspect?

Specialty products, especially off the road tires are driving the profitability. Within ORR, there are 3 categories: ultra large, large and small and medium-sized. And that is the categories we use in describing the unit sales breakdown. Among them, the unit sales recovery of ultra large size is very positive for profitability. Looking at the sales of ultra large in fiscal 2021, the unit sales did not recover to the fiscal 2019 level. But from the beginning of last year, towards the second half, they did improve gradually. And so the profit improvement we saw in Q4 on one part was thanks to increased portion of ultra-large tires. Another is the launch of new, small and medium ORR manufacturing plant in Thailand. The utilization rate of that plant is increasing together with overall volume increase, although there is still depreciation cost as volume increases, COGS rate is improving as well. These are the 2 main factors.

Then for fiscal 2022, I believe you are projecting the volume of ultra large to exceed the fiscal 2019 level. And also for small and medium sized. If you are projecting shipment volume from the tire factory to increase, can we expect the profit and margin to improve further despite higher cost?

Yes, in terms of absolute profit amount, we are expecting a significant growth. But on the other hand, there are cost increases, as you indicated, including the higher ocean freight. But as has been mentioned, we would be absorbing some of these cost increases by raising selling prices. So we expect ORR to be one growth driver for Bridgestone this fiscal year. We do have a rather aggressive plan.

Next, from SMBC Nikko Securities, Mr. Maki, please.

I have one question regarding the future growth potential. As mentioned earlier, major restructuring phase has been completed, and you are going to strengthen your business under the new structure basically. Earlier, you talked about JPY 450 billion as the adjusted operating profit target for fiscal 2023, you haven't revised that. So am I correct to assume that you expect gradual growth going forward rather than dramatic growth resulting from drastic restructuring measures implemented? I know you have yet to work out the details of the outlook for fiscal 2023, but can you share with us your general view for fiscal 2023, the profit level as well as the speed of growth beyond fiscal 2023?

Today, we just shared with the forecast for this fiscal year, fiscal 2022. And of course, under Bridgestone 3.0, we do have some ideas that we've looked into about the long-term outlook internally. But they're not solid enough to be shared with you here. So I will refrain from sharing them with you today. Having said that, the overall direction is as follows: we are to grow at a higher rate than market growth. and we are to accelerate the execution of the premium sales strategy to improve the product mix, as was covered in today's CEO presentation made at the outset. And that should give you a general idea.

Just one question for clarification. The guidance for this fiscal year, I don't see much improvement in the conversion cost. In the previous year in fiscal 2021, Q4, the effect of improvements in Genba operations among conversion cost was negative. Now am I correct to understand that what you expect -- that you expect an increase in labor costs and other cost increases to be offset there going forward?

Yes, that is correct. What happened in fiscal 2021 was a recovery from the very slumped fiscal 2020 under the impact of COVID-19. Therefore, you see a noted improvement in conversion costs. But of course, we are going to improve the overall productivity through the sister plant system, as mentioned earlier. So we will improve overall productivity.

We'll now take questions from the news media. Mr. Watanabe from Asahi Shimbun Newspaper.

Just one question on your restructuring efforts. The progress since December. I think you need to seek the consent of the employees at the locations that will be affected. I'd like to know the progress of that process as well as the reaction of the workforce that is affected. You said in your presentation that the successor companies have agreed to the basic terms that you place importance regarding the business transfer. So what kind of communication are you having with the employees that will be affected, for example, on employee pay and benefits?

Regarding the transfer of anti-vibration rubber business and chemical products solutions business that you referred to, basically, the method used will be diverse divestiture. So we are proceeding with the due process in accordance with the laws and regulations related to divestiture. Gaining consents of individual employees is not legally required. It's not mandatory, legally speaking. But of course, we want the employees at this site to leverage their future career opportunities on this occasion of business reorganization. So we are explaining in detail what led to this decision as well as basic terms related to the treatment of the workers. As I said, the success for companies have basically agreed to maintain the current terms. But outside of these, they are, for example, details of fringe benefit programs that need to be communicated. So that the employees that will be affected will find the decision to be reasonable and acceptable. So we are communicating what opportunities there are after the transfer as well. And these communication sessions are being held repeatedly. [Statements in English on this transcript were spoken by an interpreter present on the live call.]