Bridgestone Corporation (5108) Earnings Call Transcript & Summary

Hello, everyone. I am Shu Ishibashi, Global CEO of Bridgestone Corporation. Today, I will explain our long-term strategic aspiration, our group's road map towards 2030. Bridgestone's mission is "Serving society with superior quality." This was established by our Founder, Shojiro Ishibashi, and remains unchanged to this date. Guided by this mission, we set our vision "towards 2050, Bridgestone continues to provide social value and customer value as a sustainable-solutions company." Our mid-long-term business strategy was formulated to realize this vision. With the sense of urgency towards changes in society, customers, the market and competition, we have been driving corporate transformation these past 2.5 years through an aggressive approach and challenging spirit. Our aim is to become a strong Bridgestone capable of adapting to change, and we are close to achieving that in 2022. The access and guiding vectors in our journey to follow through on our mission and realize our vision is our corporate commitment, the Bridgestone EH commitment. I will be talking about Bridgestone like 8 values defined in the Bridgestone E8 Commitment in today's aspirations as well. This time, under our mission and vision and using the Bridgestone E8 Commitment as our accessing vectors, we have laid out a detailed road map towards in 2030. Since 2020, there have been various changes in our environment such as the COVID-19 pandemic and the acceleration of CASE and MaaS. We have acquired flexible and agile management in response to such changes and are close to becoming a strong Bridgestone. However, this year, with the emergence of a new global order, et cetera, we are experiencing extreme turbulence and change is becoming commonplace. In order to survive these unpredictable times, we believe it is essential now to present a road map towards Bridgestone's 100th anniversary in 2031. And this is the 2030 long-term strategic aspiration. This road map indicates how we will transform to a resilient-excellent Bridgestone that transforms change to opportunity and perturbed by continuous change and remaining robust and flexible like rubber. We will establish a new management structure in which the global management team ensures unwavering management following the road map while also being flexible and agile. In the road map, we have set 3 pillars: one, enhancing corporate value as resilient-excellent Bridgestone by creating and balancing social and customer value and gain new competitive advantage; two, aiming for the 100th anniversary and the next stage; three, survive in VUCA, V-U-C-A word, and to stay resilient. Regarding the new management structure, based on glocal management where we deploy local strategies and -- which are adapted to each region market based on the global strategy, we will evolve to a new glocal and portfolio management consisting of 4 business portfolios by 2024. Setting 2030 as the year to complete the first step of our third foundation, we will continue our journey towards a resilient-excellent Bridgestone under the new management structure. Now I will explain about the 4 business portfolios. The Passenger Car Tire business is based around the premium tire business and retail and service solutions business. The Truck and Bus Tire business, we are historically strong. It includes tire-centric solutions and mobility solutions, which propose a better way to use tires as well as a better vehicle operations. The specialty tease-tire business supports customer operations with tires for mining vehicles and aircraft, which can only be produced by tire manufacturers with advanced technological and comprehensive capabilities. And last but not least, in the Diversified Products and Exploratory business, we will be focusing on areas where the group's core competencies can be leveraged. So we will create new value according to the characteristics of each business. This is our aspiration or the target we want to achieve by 2030. We will expand the scale of our revenue from JPY 4 trillion in 2022 to over JPY 5 trillion level. For adjusted operating profit, we will enhance earning power to achieve over JPY 800 billion level, nearly doubling that in 2022. Furthermore, we will reinforce the quality of business by achieving more than 15% in adjusted operating profit margin, 12% level in ROIC and 13% level in ROE. We are aiming to achieve global levels for all of our business indices. In addition, we are newly testing the implementation of talent creativity, and we plan to officially introduce this in the Mid Term Business Plan from 2024 to 2026. Regarding sustainability, we aim to accomplish reducing 50% of CO2 emissions compared to 2011, which is our target for 2030. And this shall go on to realize carbon neutrality by 2050. For a circular economy, we will increase our user recycled and renewable materials to 40% of resources by 2030 and achieve 100% sustainable materials by 2050. We will reinforce our efforts more than ever. In expanding the scale of revenue, we will focus on and reinforce the Premium business for tires. We will also nearly double the revenue of our Solutions business to JPY 2 trillion. In terms of profit, we will not only expand scale but also attain over 15% in adjusted operating profit margin to step up to the next level as a resilient-excellent Bridgestone. We have laid out a strategic map in order to accomplish these aspirations. I will start explaining this from the bottom of the diagram. Our unique DNA, which we have acquired through our 91-year history, such as focus on quality, respect for being on site, being attentive and supportive of our customer problems and championing a challenging spread lives on the strong fundamentals, which we have continued to carefully reinforce, sustainability, compliance and human rights, D&I governance. We have established our strategy based on new competencies borne from such fundamentals and DNA. Our 5 new core competencies consist of: a new global footprint, which rightly covers production, logistics and sales will and digital capabilities which realize ultimate customization; new brand power, which acquires a new pricing -- price -- new price positioning has been based on global brand power and trust, technology and innovation; and new glocal portfolio management. On top of that is our fundamental price. "Tires and solutions carry life." As also promised in the Bridgestone E8 Commitment, Bridgestone's belief is to continue supporting safe mobility of people and objects with peace of mind. Based on these strong foundations, we build our business strategy, which is shown as a red pyramid. The pillars of our strategy is amplifying the value of our Dan-Totsu products and trust with society, partners and our customers. The group's core business will remain the Premium Tire business in which we produce and sell tires. For the Solutions business on top, in which we amplify value during the customers' use of tires, we will accelerate growth towards in 2030 based on Retread and Dan-Totsu services, et cetera. What stretches horizontally in between these two is the enabler that will allow the growth of the 2 businesses, the retail and service solutions metric. This is a unique view and digital platform, which accompanies customers on site in various places around the world. As shown by the circles in the middle by evolving the value created, we will support vehicles and vehicle operation systems through interaction with empathy to co-creation. In the future, we aim to support the entire society and its mobility systems such as smart cities and MaaS. What will be important in doing this is the cloud platform, which is positioned towards the top of the page. Linking this with our unique, real and digital platform, collaborating with global cloud partners, and sharing tire and mobility data based on the trust with our customers, we will amplify data value, create new value and thereby gain competitive advantage. Similarly, we will create value in the Diversified Products business and the Exploratory business, which includes the Recycled business and renewing tires to raw materials shown in the bottom left. Now from the next page onwards, I will talk about each business based on this strategic map. First, regarding the Premium Tire business. The road map towards 2030 is separated into 3 phases based on 3-year Mid Term Business Plans, each starting from 2021, 2024 and 2027. For the Premium Tire business, in the Mid Term Business Plan, from 2021 to '23, we have been laying foundations to enable growth, enhancing premium and ensuring it involves the various Solutions business. From Mid Term Business Plan commencing in '24 lasting to '26 onwards, we will further focus on creating a new premium with ENLITEN and ORR tire for mining vehicles, master core at the core. The theme in the Mid Term Business Plan starting in '24 lasting till '26, our first stage is from volume to value, we will complete establishing the structure that focusing on -- focuses on the Premium Tire business. In the Mid Term Business Plan, starting in '27 until '29, which will be our last -- which will be our second stage. We will reinforce the Premium Tire business, leveraging the Solutions business and our networks to elevate it to an even stronger premium, amplifying value. We will reinforce the new Premium Tire business portfolio management. We will also take on the challenge of pursuing both sustainability and business growth, driving BCMA, Bridgestone's unique commonality and modularity that enables the simplification and differentiation and driving the shift to green and smart factories. Why is the creation of a new premium needed? Let me explain using this graph. For passenger car tires, the growth in demand for high rim diameter tires is a growth driver for the premium segment. This trend is expected to continue. However, we anticipate that as replacement of tires proceed from the first-time replacement of original-equipment tires to the second time and the third time, the ratio of customers choosing premium tires will gradually decrease. In other words, as both the growth rate and the ratio among total demand of passenger high-rim-diameter tire demand for the first time replacement decline, its premium level will decline. Growth rate compared to the previous year is expected to slow down from 10% in 2021 to 5% in 2030. And the ratio is also expected to decline from 50% in 2021 to 40% in 2030. For this reason, the creation of a new premium post-2030 is essential. For passenger car tires, while gaining trust from customers based on our Dan-Totsu products and increasing market share to the maximum in the existing premium segment, we will create new value or new premium by expanding the ENLITEN business strategy. For commercial products, such as truck and bus tires and ORR tires, we will expand sales volume and share as an area in which we are historically strong. Also, we will continue to build foundations for a new premium that evolves with the Solutions business and that gains further trust from customers. We will further reinforce such efforts to establish a new premium with the ENLITEN business strategy for truck and bus tires and the ORR tire MasterCore at the core. For both commercial and consumer products, we will realize evolution of new premium in 2 stages: by providing customers with new value, gaining trust and having them recognize the value, we will enhance appropriate price positioning. BCMA is the foundation to support the new premium by realizing simplification and differentiation. The technology device divided into 3 modules: Carcass, which is the scouting of the tire, Module 1; Belt, which reinforces the tire, module 2; and Tread, which makes up the tire service module 3. Module 1 and 2 can be shared between products, which lead to simplifying the value chains spanning from development to production and sales. Differentiation will be made through customization and performance in the Tread. Taking passenger car tires for the Japanese market as an example, we will consolidate the existing 30 to 40 modules per product to 1 module per tire category, which, as for summer, for winter and for sports, to a total of 5 modules. We will incorporate this into our product strategy and plan to complete consolidation by 2025. Man hours for development will be reduced by approximately 30% compared to now. By 2030, BCMA will be adopted in approximately 100% of passenger car tires and truck and bus tires. Through the BCMA, we are aiming to simultaneously create value that can be contradictory across the entire value chain. We will reduce the breakeven point by improving productivity and optimizing cost, while also enabling ultimate customization that allows performance to be adapted to each customer and market. Furthermore, this will not only lead to business growth, but also largely contribute to sustainability, such as saving resources, improving resource productivity and reducing CO2 emissions. In terms of our global tire manufacturing footprint, we will establish a structure with local production for local sales as a basic concept, which includes initiatives for carbon neutrality. We will also aim for global optimization by being able to respond to changes in the business environment flexibly. While leveraging the Japanese and Asian plants as global supply sites, we will reinforce our structure to produce premium products in each region. Our aspiration is to maintain the ratio of local production for local sales at 95% for passenger car tires and 85% for truck and bus tires. We will also reinforce investments for green and smart factories. The Premium Tire business will shift from volume to value. We will expand sales in the premium segment for all products. For passenger car tires, we will largely increase the ratio of high-rim-diameter tires to approximately 60% by 2030. On the other hand, the total sales volume will basically remain flat after reaching a branch point in 2026 and will shift toward enhancing value. For premium truck and bus tires, we will continue to expand sales of premium new products and we'll also expand Retread in conjunction. For ORR tires, we consider all products to be ultimate premium and will expand sales. Ultra-large, 63-inch tires, which boasts an especially high premium level, will be 100% MasterCore. Linking it with the Solutions business, we will provide large value. We will drive the ENLITEN business strategy for passenger car tires as new premium in the EV era. In 2030, almost all products will be equipped with ENLITEN technology. The technology and product, we will realize ultimate customization optimal for EV fitment such as lightweight, rolling-resistance improvement, noise improvement and wear-performance improvement linked with BCMA. We will offer products customized to each market and customer usage conditions. We will also create value as a business model as a new premium in the EV era. The manufacturing of vehicles will drastically change, such as the shift to EVs and software-first development. The value required of tires will also significantly change and we will respond with ENLITEN. With significant improvement of driving range and electricity consumption through improvement in tire rolling resistance, we will contribute to ensuring space for battery in vehicles, lighter vehicle weight, cost optimization and improvement of space utility. Through BCMA, we will shift from tailor-made tire development according to the hardware to tire development that balances both efficiency and ultimate customization. Even in the EV era, we will bring out the vehicle's maximum driving experience. We will support vehicle manufacturing and the realization of a carbon-neutral mobility society across our entire value chain, leading to gaining trust from customers. With technology and innovation, we will evolve our Premium Tire business. At the center of the group's innovation is the Bridgestone Innovation Park, which creates new value with various stakeholders, starting from interactions with empathy and moving to co-creation. Along with innovation sites in Europe and the U.S., the Mobility Lab in Akron, Ohio U.S. and Digital Garage in Rome, Italy, we will generate various technologies and innovation, which will create new premium. At the core, 3 types of mastering. First, mastering rubber involves reinforcing and utilizing materials informatics to drive the development of double-network rubber, which simultaneously realizes both fuel efficiency and durability. We plan to implement it in the ORR tire MasterCore first from 2027, the second stage of new premium as MasterCore can maximize leverage of the benefits. Moreover, the development of easy-to-recycle rubber and other sustainable materials will also be promoted. Second, for mastering road contact, we will leverage knowledge cultivated through Formula 1 and other motor sports. Using digital capabilities, we will evolve Bridgestone's knowledge of various roads around the world to realize the digital twin, tire simulation, which can -- we produce tire usage conditions in each market, including road services. By 2030, we aim to realize a digital twin mastering road contact, which can monitor tires used in the real markets in real time. The third is mastering manufacturing. We will introduce the green and smart factories. Regarding the green factories, we plan to attain a renewable energy ratio of 50% globally by 2023. In addition, in the Mid Term Business Plan from 2024 to 2026, we are planning electrification of energy sources for manufacturing equipment. We will especially consider an aim to implement our unique curing process of electric curing. For Mid Term Business Plan from 2027 to 2029, we will drive manufacturing, leveraging methanation through co-creation. Methanation is a technology which generates methane from hydrogen and CO2. We will procure hydrogen and retrieve CO2 emitted in the factory to generate gas, which will then be converted to energy. This will allow the circulation of energy within the factory. We will implement this in 4 global model plants and contribute to carbon neutrality. As for the realization of a circular economy, we will incorporate utilization of recycled and renewable materials into our product strategy. We will realize manufacturing where our resources continue to circulate. As for smart factories, we will implement automatic control of the manufacturing process, which make up a strong, real capabilities faster through producing Dan-Totsu products. We first started with the automation of each process. In addition, we evolve and expand our sensing technology cultivated through Bridgestone's unique state-of-the-art tire assembly system, EXAMATION. The Mid Term Business Plan from '24 to '26, we will introduce digital sensing technology and AI control to build a manufacturing platform that connects the entire manufacturing processes. In Mid Term Business Plan from '27 to '29, we will implement this in 8 global model plants. We aim to build a next-generation manufacturing platform, which connects the entire value chain even beyond the factory from product development and procurement in the upstream of the supply chain to logistics and sales in the downstream and creates new value. These initiatives will also lead to further improvement in tire quality, enhancement of labor productivity by reinforcing [indiscernible] activities on site and promotion of D&I. We will drive the shift to being green and smart in manufacturing sites around the world. Next, I will explain our retail and service solutions network, which is our unique real, digital platform as our growth enablers for the Premium Tire business and Solution business and cloud platform that amplifies data value. We have worldwide service solution sites comprised of more than 18,000 sites for passenger cars, nearly 7,000 sites for commercial fleets and approximately 130 sites for mining vehicles. This is Bridgestone's unique, real, digital platform. On the basis of this platform, we will provide Dan-Totsu products, Dan-Totsu services and then total solutions and amplify trust from customers. In addition, through the collaborations with Microsoft and Amazon's cloud platforms that we recently announced, we will amplify the value of tire data and mobility data. Through the collaboration with Microsoft, we will utilize data to strengthen Retread, Prior Data business such as wear-durability production and digital solutions for the Tire-centric Solutions business. Through a collaboration with Amazon, we aim to improve the value of customer experience in the Retail & Service Solutions business and Mobility Solutions business. These are the important enablers in this long-term strategic aspiration to gain new competitive advantage, while balancing social value and customer value creation. Next, I will talk about the Tire-centric Solutions business linked with the Premium Tire business. We will build the ENLITEN business strategy for truck and bus tires as the new premium in the circular business era. The circular business model linked with Dan-Totsu products and Retread is based around maximizing tire value by using each tire asset until the end of life. The first element is our competitive new tires, our Dan-Totsu products. Based on the technology, pursuing high durability and wear performance that we have cultivated, we will maximize the number of Retread. We will also contribute to resource productivity and reduction of CO2 emissions. In addition, by also integrating the Tire Data business, which leverages the tire monitoring system, Tirematics, among others, we will enhance durability, wear prediction and efficient Retread. We will combine these initiatives into packages and propose solutions according to each of the customers' usage conditions so that they can use tires safer, longer, better and more efficiently, and we will accompany customers and deepen trust. The other pillar of new premium in addition to ENLITEN is MasterCore for ORR tires. With MasterCore performance, such as durability, vehicle speed and payload, can be customized and improved adapted to each customer's operational conditions and mine layout without sacrificing other performances. Based on MasterCore, we will combine real and digital capabilities to propose better ways to use tires adapted to the customer to support their vehicle operations. Mining solutions contribute to maximizing efficiency and economic value of mining operations. MasterCore is our on-site service which will be reinforced in close cooperation with Otraco, which we acquired last year. We will combine this with digital solutions to propose better ways to use the tires, leveraging the tire data and vehicle location data to our customers. Currently, we have long-term contracts, including such solutions with 41 mines and we will continue to further expand this. In the future, we will take on the challenge of establishing a circular business model that links with Repair, Retread and Recycle. In our group, Aviation Solutions will become the strategic starting point for the Solutions business and also has great synergies with other consumer products businesses. We have established a pioneering circular business model where Bridgestone owns the tires, leases them to customers and carries out multiple retreads under the cost-per-landing type contract. We will also provide a value through the Data business such as tire-wear prediction, leveraging tire data and flight data acquired through co-creation with customers. Furthermore, we will collaborate with system vendors to connect to airline system and enable solutions to amplify data value and maximize tire-asset value. This includes management of each tire, which is indispensable to ensure safe flight operations as well as efficient tire inventory plans. We will continue to reinforce our business to be able to support operation systems, contributing to maximizing efficiency and economic value while also contributing to sustainability. Regarding Mobility Solutions, we just launched Fleet Care, which combines premium tires, services such as maintenance and fleet operation management as a customized package adapted to each customer in Europe. Expanding this concept globally, we will continue to enhance fleet solutions, which amplify the value of the tire data and mobility data. Including the expansion of customer base, we will strengthen this as a business that contributes both to the growth of Truck and Bus Premium Tire business as well as to the establishment of a circular business model, mainly in Europe, United States and Australia. Let me summarize the Solutions business. In the Mid Term Business Plan, '21 to '23, we will determine synergies with the Premium Tire business, profitability and growth potential for each business. And in the Mid Term Business Plan, '24 to '26, we will expand investment in certain businesses. Based on such investment, we will rapidly expand our Solutions business, leveraging the strength of the Premium Tire business in the Mid Term Business Plan of '27 to '29. For revenue of the Solutions business, our aim is to expand by nearly twofold from JPY 1.1 trillion in '22, to JPY 2 trillion in 2030. Furthermore, we will respond to new mobility in addition of accelerating evolution in the industry. We will build an extensive mobility ecosystem, including autonomous driving, tire recycling, et cetera. Next, regarding the Diversified Product business and Exploratory business, we will sharply focus on areas where our core competencies can be leveraged. We will promote premium and solutions in various businesses, including hydraulics, rubber truck, plastic pipe, systemic isolation, air springs, sports and cycle, to support industries and spread joy. Regarding sustainability, which is at the core of our management and business, we are building a sustainability business model. Across the entire value chain where we produce and sell, use and renew products, we are taking on the challenge of linking initiatives, focus on realization of carbon neutrality and circular economy and business model. Regarding circulations from raw material, we will drive initiatives releveraging biotechnology and performing hybrid polymer technology, which is one of our core competencies. For the natural rubber business, we will reinforce the operation of 3 plantations in Iberia, Sumatra and Kalimantan in Indonesia. We will promote the establishment of sustainable natural rubber plantation across the entire industry. In Iberia, we have been operating natural rubber plantations for over 90 years since the days of Firestone, contributing to the local community. In Indonesia, we will strengthen the business through investment in the planting of elite trees, which grow faster with high-yield efficiency. We will establish a sourcing structure for sustainable renewable material that supports the Premium Tire business and Dan-Totsu products. In addition, we will maintain approximately 5.9 million tonnes of CO2 fixation at the plantation we operate and increased CO2 absorption and fixation through new planting on a devastated land aiming for significant contribution to carbon neutrality. We will also continue our social contribution activities such as providing productivity improvement technology support to small farmers in the local community as well as offering and supporting of the health care and education. We will contribute to a society that ensures accessibility and dignity for all. Also, we will strengthen the Guayule business to realize diversification of natural rubber resources. Guayule can be grown in arid zones with little water. After the development activity of tires derived from guayule in the United States in the past during the period of Firestone, we officially relaunched R&D activities in 2012 and we have invested approximately JPY 13 billion until 2022. This year, race tires made from guayule derived natural rubber debuted at an INDYCAR race in the United States. Going forward, we will expand the business mainly in the U.S., while promoting co-creation with partners and building an ecosystem and accelerate initiative aiming for industrial use in 2026 and full-scale production and commercialization in 2030. For the Recycling business, we launched the Evertire initiative this April to realize society where the tire value circulates, renewing use tire to raw material as a resource. By reading initiatives, for recycling as a global leading company in the tire and rubber industry, we will continue our challenge to preserve a better environment for future generations together with all of our partners who emphasize this initiative. Finally, I will explain our new core competencies, DNA and fundamentals. Regarding new power -- new brand power, which supports our new premium, we will secure a new price position as premium based on our global brand power and trust also by gaining empathy for the Bridgestone E8 Commitment and the committee to realize a sustainable society together with employees, society, partners and customers, we will amplify trust. By 2024, we will also reactivate global motor sports activity, which we have widely participated in since our founding. As we stated in a motion of the Bridgestone E8 Commitment, we will commit to inspiring excitement and spreading joy to the world of mobility, 10 years -- 20 years from now through the support of motor sports culture development. Regarding fundamentals, we will enhance talent creativity. Bridgestone Group's talent strategy is based on the idea of allowing diverse talent to shine through the spread of individual success and confidence, while aiming to enhance corporate value by added-value creation aligned with the corporate strategy. Enhancing talent creativity is necessary to transform to a resilient-excellent Bridgestone, although we have been driven -- by driving reinforcement initiatives in increments since 2020 applying PDCA cycle, there is still room for improvement, strengthening talent investment, these to increased added value, we will create this virtuous cycle of value creation. In addition, we will promote global corporate culture change in line with the Bridgestone E8 Commitment, which has penetrated into the hearts of more than 80% of global teammates. As an important initiative for talent investment, we will provide opportunities to take on the challenge for added-value creation and personal growth aligned with the business strategy in Bridgestone's broad business portfolio. For example, the Soft Robotics business in the Exploratory business will be an in-house company from 2024 and serve as a place to demonstrate entrepreneurship. I would like to summarize the strategic resource in order to execute these strategies. In Mid Term Business Plan, from '21 to '23, we are laying foundations to enhance premium and to evolve the Solution business. In midterm business from '24 to '26, we will focus on the injecting resources of [indiscernible] to JPY 2 trillion, which will be extra -- mostly double the amount of the Mid Term Business Plan '21, '23 towards a growth of '27 onwards. This will be mainly to accelerate expansion of the Determined Solutions businesses and complete building the foundation for the Premium Tire business. In Mid Term Business Plan, '27 to '29, we will shift to the investment in green and smart factory and sustainability. Strategic resources that we will inject from this year to 2030 will be JPY 2.8 trillion level in total. We will inject resources of approximately JPY 1 trillion, respectively, for the Premium Tire business and Solution business and Determined, where we will inject strategic resources with flexibility and agility among the road map towards 2030. As for the direction of capital allocation and shareholder return with the 2030 long-term strategic aspirations as a road map, we will secure necessary internal reserve for strategic reserve investment to balance the creation of new social and customer value and gain competitive advantage while aiming for maintaining and appropriate financial position and enhancing shareholders' return in order to secure financial health that maintains our current credibility. We will aim for less than 0.3 of net DE ratio and consolidated equity ratio of 60% level considering the balance of capital efficiency based on the enhancement of shareholders' return and agile capital management, we will gradually increase the dividend payout ratio from 40% in 2022 to 50% level in 2030. That was the explanation of our road map 2030 long-term strategic aspiration. Amplifying trust and value through the Premium business, Solution businesses, linking each other and Diversified Products and Exploratory business evolving to a talent group, which can create new business value and support business portfolio and building new corporate culture and DNA. Realizing these, we will accelerate transformation from the strong Bridgestone capable of adapting to change into a resilient-excellent company towards 100th anniversary of our founding. Many obstacle will awake this journey, including the pursuit of both social and customer-value creation and enhancement of corporate value as well as the pursuit of sustainability and corporate growth. However, Bridgestone will confront and overcome these challenges and continue advancing. Thank you very much for your attention.

Now we would like to have Q&A discussions. In this Q&A, 2 members from Bridgestone Corporation will respond to the questions. Representative Executive Officer, Global CEO Shu Ishibashi; Executive Officer, Global CTO, Masato Banno. May I ask Mr. Yoshida of Citigroup Global Markets Japan to begin.

Yes, Yoshida speaking. I have 2 questions to you. Question #1 refers to your reference to the Retread business grows towards 2030. And this seems to focus pretty much on Retread service. Of all Solutions business, tire-centric solution, how revenue is expected to basically triple? How you are going to accomplish that is my question because since the acquisition of Bandag, the past profile of revenue growth, retread in the business has not been dramatically high, coming needs to be sustainable. So the changing customer needs may present further opportunities to you. And at the same time, however, what about implied risk of cannibalization with your OE tire business? That's my first question. My second question refers to the adjusted operating profit from margin, which was about 11% in the 2022. 2030, the target is 15% or thereabout. Now I'd like to know how you're going to get there again? Is it going to be the step-by-step approach this through the next round of the Mid Term Business Plan, or something else? Particularly for the coming round of Mid Term Business Plan, I see that you are rather aggressive on the strategic investments. So does that mean that you would expect with the benefits from those investments in the subsequent period?

Thank you for those questions. About Retread or the Tire-centric Solution. As you point out, looking over the history since the acquisition of Bandag, we basically have been focusing on the Americas market, comprising both North and LatAm, we have not been able to expand that globally. That is true. And I would accept that. Now coming out of that, the significance of the tire-centric solution is that as we are going to shift more and more towards the circular business model, we have a bit new trucking bus tires with better performance, for instance, the car passenger durability would become better than before. They saw full potential or the full value of a tire have the -- would be utilized and consumed for sure to the brand, which means that what has been underutilized, that would be utilized. For instance, for the retread service, uneven wear would not enable the retread. And also the excess need to wear is no good either. So having the control, and therefore, the wear of a tire, they can enable multiple time retread services. And also, whereas we have been focusing on the Americas market, for the production facilities and production capacity for retread, we are in the process of enhancing that in Japan and Europe. This -- in the past, we were not able to offer retread services in regions other than the Americas. However, going forward, the combination of both new tires and retread services, they would be there. And given the trend in the other times on the sustainability, cost reduction needs, I mean for customers, this is prime time for us to become more global in this operation. And number three, there is a movement towards the possible the government support towards retread in the U.S. It is not known exactly when it is going to be legislated on the regulation to come about, but that's in the U.S. likely to be followed by Europe, certainly thinking and hoping that it will happen in Japan. So the circular business model is strong, the tailwind blowing to our favor, not only to Bridgestone Corporation, but also our customers -- Fleet customers, they have various needs and which basically are pointing to the same. So retread the service to be enhanced. And as you say, tire data business, Tirematics, we made the recent announcement about this in Japan, the monitoring of the inner tire pressure and data temperature have no list of data that will be applied to the various applications and services, the use of Toolbox and others. So the Tire Data business itself can be enhanced, and potentiality is very, very high. So it would be expectable benefits will be the longer use of life from the other tire or the multiple rounds of retread operations. So the Tire-centric Data in the business or Tire-centric Solution, this solution is very, very viable. And number two, responding to your second question, in the course of the Mid Term Business Plan since 2021, adjusted operating profit margin has been hovering around 11%, 12%. By step-by-step approach, we aim to get to the 15% level. So we are talking about the operating profit, which has led to -- refer to how more of the Premium business we can have in the entire tire operations. The premium ratio, the premium level, the premium portion be passenger car tires, truck and bus tires or ORR, the theme is the same. And also, what we have been involved in is the hike in input costs of raw materials, which caused us to high condensation prices. But in the B2B business, with the combination of products, new products and the solution of the options, that we can propose the value add. And by proposing that, we would verify that and give evidence that x that of value -- the value add would be -- has been recognized. So it's not so in our approach that we will allocate in the B2B area and that would lead to the superior profitability. I basically have been talking about the profitability boost coming from the top line, be the increase -- increase. On the cost side, remember, I talked about commonality and modularity architecture. This is very analogous to what car companies have been doing with the respective platform-based business. So simplification and differentiation. Remember, differentiation is the key to value add. However, with the conversion of the tailormade and tire development approach, is constrained as to how much more productivity on the cost optimization that we'll be able to pursue. However, with commonality, modality -- the modularity approach, we'll be able to enhance productivity, optimize costs. This is the top line growth. The coming -- with the larger portion of the overall business coming from the premium segment, while optimizing costs. Also, what I said is that with the premium tires, Dan-Totsu product, you've been talking about very amplification, then we would have this solution approach. Now we will be making much strategic investments in the course of the next round of MTP commencing in '24, ready to be reaped with benefits in 2027 and beyond. So it's not going to be a one-step approach, but rather step-by-step, we will get to the over 15% adjusted operating profit margin. I hope that makes sense to you.

Let us move on now to Mr. Yamada from [indiscernible], please.

My question #1 to you is to seek your own evaluation assessment of the performance in the Mid Term Business Plan, which started in 2021, progress to date, be it restructuring of business portfolio, initiatives become leaner in the operation. So please talk about that, which, of course, leads into your long-term strategy which points to a new round of growth. So I would like to know more about your background thinking. And question number two, to significantly grow Solutions business revenue. Now Solutions business, you have many of them. So rather than focusing on the conventional retail and service operations such as Tirecon. I suppose you are more focusing on digital services such as Azuga and others. So does that imply the Solution business by 2030 will be much different from how Solutions business has been to date? And also how about the M&A investments? I know that you have reinvestment from the different -- the seller side, much of that go to M&A?

Thank you for those questions. You started by taking my summary of the valuation of the current round of Mid Term Business Plan. Remember, we still have one more year to go. But just quickly, how we have free access [ Metacore ] passed negative legacies without delay. Number two, is the focus on execution and delivering results therefore immediate issue. And number three is the late foundation for the future. No, of course, to return to a strong Bridgestone capable of adapting to change, so those are supporting periods of the current Mid Term Business Plan. Of course, reconstruction of the earning power has been one of the key points. And the reason why it itself is because through 2019, regardfully, revenue -- the trend was flat and better as margin was, if anything, declining modestly. So how to return to be a strong Bridgestone? That's what we have been focusing on. And I believe that we are getting closer to being there. No, in the past to date, business portfolio restructuring had to be executed with rather painful decisions from time to time, but it's more or less speaking, complete right now. So as I said, I just meant is that we are quickly approaching back to the state of being strong. So I like to make sure that we accomplish what we were committed for before moving on to the next round of mid-term business plan. Solutions business U.S., I talked about 4 business portfolios, how -- there are 4 of them. And therefore, passenger car tires, truck and bus tires, specialty tires. So for those 3, each with premium, the focus. And as you can see, for instance, for passenger car tires, we have Premium Tire business, ENLITEN with the Retail and Service Solutions business. For truck and bus tires, the Premium Tire business plus Tire-centric Solutions Business with Retread Entire Data business plus the referred to the Azurga and the Mobility Solutions business all tied together. And moving on to Specialties Tire business realized a circular business model and the Premium Tires as well as Tire-centric Solutions business. So as you can see, in these -- in the 3 business portfolios, each of the 3 has Premium Tire business and Solutions business. And each of the business domain to amplify value would come from the Solutions business. You wanted to know which ones are more certain and which ones are likely to evolve and change. Please remember that we are already committed to give you the clear judgment in the answer, as to which Solutions business, in our view, are likely to be more certain with the higher probability of success, that's by '23, we are going to make that clear to you. So the various programs there, some going very well. Others are almost being successful, whereas yet the group of initiatives, they're still left with issues. We are very busy having ran discussions globally so that in February '24 as we make the announcement of the next Mid Term Business Plan, that will start in '24. We will make clear announcements to you, which ones that we will bank on. But as of today, which ones do I think, are more certain, that retail and service solutions network, which is positioned at the center of the strategic map. There is that the [indiscernible] which is supposed to be the platform of the dark -- the product, which is supposed to be the platform to support the operations. The platform, meaning uniquely strong, wear and digital platform for passenger car tires, commercial tires and ORR tires that we have global operations on the [ tire ] platform. So that network is very strong. So retail and service solutions network itself comes with its own value. And because of that network, we can begin to make the recommendations to our customers, what premium tires that we have, all the Solutions business can be deployed. This solutions network gives us touch points with our customers. That is viable assets that we have, and we are to nurture that Bridgestone. Furthermore, other businesses with higher degree of certainty, as was mentioned in the previous question, include retread tires and leveraging data to help customers use tire better or tire-centric solutions. This is a business derived from the Premium Tire business, one of our strengths and therefore, it's more familiar to us, which gives us higher degree of certainty. Obviously, these are the solutions that we are making more investments in. Now the Mobility Solutions business, such as Azuga and Webfleet Solutions operating in the U.S. and Europe currently, is now beginning to encompass everything from new premium tires for trucks and buses, retread tires, maintenance services and Tire Data businesses. And because we have those businesses in our portfolio, we believe our premium tires for trucks and buses, one of our strengths and tire data business can be more valuable. Now if you ask me whether they are going to be among the major pillars by 2030, I would say we don't expect them to be at least for now. There are still a lot fast to learn and to do about these businesses, including how we can realize synergy and link with our Premium business. For example, in Fleet Care, which we operate in Europe, we have just finished building a program to cover tires, retread and tire data services. Only after determining to what extent this is going to be accepted by customers, and we'll be able to offer values to customers, can we decide to go ahead with more aggressive investments in the Mobility Solutions business. In that sense, major changes are more likely to take place in the field closer to our Premium Tire business such as retail and tire-related solutions. We will need to steadily expand those businesses so that we can enjoy logistic effects. That is the scenario that we have at the moment. Now as for M&As, obviously, we are assuming a certain level of resources to be allocated. That said, however, things could change depending on the situation. And this is not the case that we are spending a huge amount here out of the total JPY 2.8 trillion in strategic resources posited. Amongst the different businesses that we have identified, once we decide that a particular one stands more chances and will be effective, we will invest resources. But it is not the case that we have assumed some huge M&A deals in this figure. Does that answer your question?

The next question is from Mr. Sakamaki of Daiwa Securities.

I am Sakamaki of Daiwa Securities. I have 2 questions. The first question has to do with commonality in BCMA. Am I correct to understand that this involves reducing the variety of tires by removing those that are not so profitable? Is it not just about simply standardizing the core part of all tires but is designed to reduce the variety of tires, so that you can ultimately reduce the number of types of moves in curing press in the factories? Could you elaborate more on the concept of commonality? Moreover, what about the monetary effect as a result of this effort? Is there a case where you have estimated the benefit in terms of yen, like how much improvement you can expect from the current cost, which may contain some waste through this undertaking?

Let me answer the first question. I will have Banno explain about technologies later, but the idea about commonality and modularity is simplification and differentiation. As you said, therefore, different customers have different requirements and so no different markets. Therefore, customizing performances would mean maintaining the broad variety when our products are actually delivered to customers so as to meet their needs. Our conventional approach was to carry out tailor-made tire development according to the hardware, which was inefficient. But in the new approach, the skeleton of top higher, consisting of module 1 and 2 will be shared among different tires to manufacture them in a simple manner. Therefore, as I said, in the case of Japan, there will only be simply 5 types. However, when the tires are actually incorporated into vehicles by customers, the Module 3 or the tire surface or the Tread should have different performances depending on the pattern, tread compounds and other factors. So you can realize tires of many different types, while remaining simple inside. What we want is to make those 2 contradictory values work simultaneously. And as for efficiency in our discussions on the long-term strategic aspirations, we are looking at different ideas. In Japan, we plan to reduce the number of types to 5 in 2025. Although we did start working on this partially, we have yet to come up with the proper financial estimates for costs. Well, we did, but in my perspective, the savings are still too small. I'm telling the relevant departments that they should be able to do much better. So we are kind of fighting internally on that front. Now over to you, Banno.

I am Banno, the Global CTO. Let me make some comments on the technologies. Historically, we have customized the performance of vehicles for each customer by using various parts of the tire. But going forward, from the perspective of saving resources, and realizing sustainability, in addition to conventional requirements of tires, more durability, more careful use of resources and lighter weight, among others, are also being required. In response, what we are trying to do is to clarify the roles and responsibilities even more than previously, which is the basic concept. Rubber has quite complex behaviors, which is called viscous and elasticity, where depending on the length or speed of extension or the temperature, the hardness will change. In fact, no rubber has fully elucidated this behavior of rubber anywhere in the world. Furthermore, the rubber in the contact surface extends our contracts at various speeds. That's the complex behaviors on the contact service manifest themselves as various phenomena, such as rolling resistance, wet grip and wear. Therefore, we used to allocate the responsibility to realize deficits in performances to various parts of the tire by understanding the mechanism of the behavior. But now we have decided to concentrate the responsibility to tread alone then we would be able to leverage our understanding on the mechanism to differentiate ourselves. In other words, we can compete in our familiar field of Bridgestone's homeground. Furthermore, the module 1 and 2 of the commonality and modularity serve primarily to support the load by utilizing tension as an air vessel in radial tires. This represents a majority share of the total weight of the tire. So lighter weight and more flexibility should be enabled by this part of the tire, which will be standardized across tires and go through model changes regularly to seek even lighter and more flexible tires. On the other hand, in terms of differentiation and variety, we will reflect our knowledge on the mechanism identified in module 3, so we can expand the variety even further. This is the idea that we have in mind.

I see. My next question, you have given us the breakdown of the revenue showing say, how much is expected to come from Tire-centric Solutions Business in 2030, I wonder if you can also share with us the similar breakdown for the adjusted operating profit of JPY 820 billion? And based on that, as you envision the long-term strategic aspirations from your perspective, Mr. Ishibashi, could you tell us what you think is still missing if there is anything particular? For instance, I would say if Webfleet has its business presence in the U.S., it will be much more strong. So as you aim for the targets in 2030, if there are any factors that you feel specifically missing now, could you share them with us?

First of all, as for the breakdown of profits because this is aspirations, we are making various calculations with different outlooks in 4 sites. We started with the best-case scenario and are working onwards with different sites and combination of 4 sites and outlooks. Obviously, we are working on 3 Premium Tire categories and on different assumptions for each solution. As I mentioned earlier, I believe that, in particular, we have a high degree of certainty in the area of premium tires, but I think we still need more discernment in the area of solutions. We need to find out more about the solutions. As you mentioned in your question, in that sense, I would like to refrain from indicating the breakdown at this point. However, we do have a major goal of 15% operating profit margin, which cannot be achieved without a significant contribution from the Solutions business. As you know, we have disclosed the operating income margin for the retreads at about 20% to 25%. But in other areas, it is not so easy to attain such figure, and we are working on the ways to raise them. As for your question about Mobility Solutions, as you may be aware, in May of this year, we established a joint global COO system, with 2 COOs. We have 2 -- #2 position, COOs, one in the West and one in the East, Japan and Asia, on one hand; and Europe and United States on the other. These are 2 very different cultures with different past Bridgestone histories and having different competitors, but we are seeking to generate lots of synergies. We also wanted to create more flexibility in the actual sites and goods. In fact, one of the COOs, Paulo, is not only the head of the United States, but also the head of the Bridgestone's Solutions business. So he is the top of the West U.S. and the Mobility business. We are looking to expand our Mobility Solutions and tire-centric solutions, especially in the mature markets of Europe and the United States. In this sense, under his leadership, Europe and United States will work more closely together, and we'll be able to react quickly. We have been having lots of discussions with Paulo on the Solutions business in this long-term strategy, but we have not yet identified or sorted out everything yet, and we are not yet ready to discuss this with specific breakdowns. We have promised that we will make a determination of this in the midterm plan for 2024 this year and next year. So I will discuss this in the '24 midterm plan.

Next, I would like to call upon Ms. [indiscernible] from [indiscernible].

I'm [indiscernible] of [indiscernible]. I would like to ask 2 questions. The first question is about the -- enhancing the talent creativity. I understand that you will set new KPIs in the next Mid Term Business Plan, but I would like a little more explanation on how you will measure these KPIs? Also, in order to achieve this goal, for example, are you planning to strengthen and enhance investment in human resources? In that case, I would like to find out how much maybe quantitatively are you expecting to invest? The second point is that under the current Mid Term Business Plan, you are working on the manufacturing footprint restructuring. It is my understanding that this will be almost completed by '23. Is this the right understanding?

As you pointed out, we are talking -- we are taking on a different challenge in terms of talent creativity and I am studying what the KPIs will be. This is not an easy task. We are trying to determine what KPIs would be the best. Talent creativity is defined as having human resources investment in the denominator and value-added numerator. That is called the talent creativity, but increasing the Azuga investment is not the only factor. We can increase added value and that in turn will enhance the corporate value as well. I am hoping to generate this kind of virtuous cycle, and at the same time, I would like to provide a place where individual can grow and shine. This is what I'm hoping for. Therefore, in today's long-term strategic aspiration for 2030, we have set out financial targets for other area, but we have decided that talent creativity will rather be included in the Mid Term Business Plan of 2024 because we are still discussing the KPIs, et cetera. Human resources investment itself can be simply considered personnel cost. But is that really enough? Is it better to invest in training or rather in a place where everyone can learn, for example, added value simply put is operating profit, but it is -- is that really sufficient? Maybe it should be the new added value. We have lots of discussion. In fact, concept of talent creativity itself was proposed by Omron in Japan, and we would like to utilize this approach and would like to apply it, but we still have much to learn about this. We will try it out in 2023 on a trial basis. As we are discussing every month at the management meeting, now we hope to find the answer to your question, Mr. [indiscernible], in 2024 Mid Term Business Plan by doing some specific initiatives in 2023. In terms of money, we are spending significantly more money globally than in '22 compared to 2021. In that sense, although our approach is not only about money, we will definitely be spending more next year along with other efforts, which are still not sufficient, and we are communicating about these efforts internally within our organization at present. Regarding the reorganization of manufacturing footprint, as I mentioned earlier, we have made some very difficult decisions regarding business reorganization in the 2021 Mid Term Business Plan, and we believe that business reorganization is almost complete. Naturally, this does not mean that all is totally done, but we have completed some of the major restructuring, especially in the area of tires, as was explained earlier. We have about 50 sites globally for tires, and we will continue to strengthen them one after another, while we place -- refit some facilities for premium tire production along other efforts. But in terms of business restructuring, we are almost complete, finished.

We will now have the last question as we have already reached scheduled time. Mr. Nakamura of [indiscernible].

I am Nakamura of [indiscernible] I'd like to ask 2 major questions. First, well, there may be some overlap with the earlier question, I would like to ask you about the Solution business, which covers a wide range of ventures and startups like Mobility and Tier 4 or also including Landatec, et cetera, and others where you are engaged in collaborative creations in a variety of areas. You also mentioned that you will invest in growth areas while monitoring their progress. But how about those without much signs of progress? Will you drastically reduce them and concentrate more on the investment in those with growth opportunities? What is your approach? That is my first point. The second question is about the return to international race or motor race after 2024. In one of your slides, you mentioned the contribution of sustainable motor sports. In your slide, you mentioned that you are contributing to sustainable motor sports and you are also developing sustainable tires for INDY races. In this context, I would like to ask if this kind of motor sports technology can be fed back to sustainable areas in terms of replacement tires?

Mr. Banno will respond to your second question. We are currently working with serious startup in the field of solutions. As you can see in the list, we are partnering with others on Mobility Solutions, Retail and Premium Tire area. Each investment itself is not a major investment. There are minor investments as well. This will enable us to work together and do things together. We are able to do research together and search together in many other aspects like that. In this sense, it is not a matter of pulling up immediately because we have not seen an immediate results, it is more a long-lasting relationship. I think it is a great opportunities for our employees to study and learn together with these start-ups and to be exposed to their culture. For example, in Japan, we are working with Tier 4 at Bridgestone Innovation Park in Kodaira. Tier 4 and our people work together every day to conduct research. I think that such activities themselves are very valuable, and I don't think that all of them are quantifiable in terms of numbers, but we are trying to broaden our scope, learn together and do something and get something out of here. So we are not thinking of pulling anything out immediately. We are not looking to pull things out right away. Instead, it is not a large investment but more a long-lasting investment.

I'm Banno, Global CTO. I think your other question, Mr. Nakamura, is about whether motor sports technology will be used in replacement tires after 2024 and beyond. First of all, in the past, world of motor sports has been so different from the replacement tires in that the raw materials used in the structure of the tire itself, for example, have rarely been able to be directly applied to replacement tires. The main focus has been on improving the performance of the replacement tires through the use of peripheral technologies such as measurement technologies. However, from now on, for example, replacing carbon -- recycled carbon or replacing polymers with bioderived materials, whether for motorcycle -- motor sports tires or normal tires, I believe that this is a new area where technology we have cultivated in the motorcycle -- motor sports can be used. Incidentally, we have already begun testing this at INDYRACE. The good thing about the motor sports is that it ends with 1 single race. With one race to finish, it does not take years to run, years to drive. And as the conditions are extremely severe, it is the best place to check the basic performance of driving, turning and breaking. There are many aspects of replacement tires that cannot be understood without testing them in the market, or in the field such as deterioration within the environment after 5 or 10 years of use. In this sense, I think it is a very good way to start checking and confirming tires in motor sports as a starting point. So I think the most significant result of the INDYRACE was a confirmation that the recyclable materials used in the U.S. have no problem with contact where durability at high speeds or basic performance, such as driving, turning and breaking under the severe conditions of racing. We would like to actively utilize motor sports as a means of verifying other recycled materials under high severity and high-performance environment within a short time frame.

We would like to now conclude the Q&A session. With this, we would like to conclude the long-term strategic aspiration presentation by Bridgestone. Thank you very much for your participation.