Bridgestone Corporation (5108) Earnings Call Transcript & Summary

Hello, everyone. I am Shuichi Ishibashi, Global CEO of Bridgestone Corporation. The Bridgestone Group has been driving management along the mid-term business plan, which covers the 3 years from 2021 to 2023, aiming to become a strong Bridgestone capable of adapting to change. Today, I would like to provide a summary of 2022 as well as a progress update on the medium-term business plan 2021-2023, especially around plans for 2023 as the final year. Last year, despite global unrest and rapid inflation, we responded to change with flexibility and agility, steadily approaching the strong Bridgestone. Aside from moving even closer to a strong Bridgestone, this year will be a key in building foundations for future growth, using the 2030 long-term strategic aspiration, our growth strategy towards group's 100th anniversary in 2031 as a road map. We will continue driving transformation based on 3 axes, tackle pass negative legacies squarely without delay, focus on execution and delivering results for immediate issues and lay foundation for future growth. First, I will talk about the financial results. This graph shows our revenue. In 2022, we responded to a turbulent change in the business environment as a global group, reinforcing flexible and agile supply management, sales and market share expansion in the premium segment, strategic price management and others. As a result, including tailwind from currency exchange impact, we were able to achieve our first revenue of over JPY 4,000 billion. This year, we are planning a 107% growth versus prior year, excluding currency exchange impact. In the premium tire business, which is our core business, we will reinforce our focus on premium, whereas in the solutions business, which is our growth business, we plan a 111% growth versus prior year, a double-digit growth, exceeding the growth of the core business. The solutions business will come to account for 20% of the group's revenue as set out in the mid-term business plan 2021-2023. We are working to improve our most important management index ROIC across the entire value chain being conscious of capital cost. In addition to achieving 9.4% in 2022, we plan to achieve 10.5% in 2023, which exceeds our target of 10%. Despite irregular negative impact of 2022, we focused on premium and strategic price management, reaching an adjusted operating profit of JPY 480 billion, a 122% growth versus prior year, including tailwind from currency exchange impact. For 2023, by continuing to focus on execution and results, we plan to achieve JPY 510 billion, a 116% growth versus prior year, excluding currency exchange impact. For adjusted operating profit margin, we plan 12.3% in 2023, achieving a 12% level average for the period under the Mid-Term Business Plan period, 2021-'23. We also plan to continue increasing shareholder returns through sustainable enhancement of corporate value, with a target of 40% in dividend payout ratio. Next, I will explain progress on the Mid-Term Business Plan and our transformation aligned with the 2030 long-term strategic aspiration road map. This is a strategic map summarizing the long-term strategic aspiration road map toward 2030. With the premium tire business at the core, we will enhance its linkage with the solutions business and take on the challenge of balancing the creation of both social and customer value as a sustainable solutions company as set out in our vision. I will start by talking about the premium tire business. To combat change, we are continuing to reinforce our approach in premium segment, which is relatively resilient. We will continue expanding sales of high rim diameter passenger car tires globally and steadily expand replacement tire market share by improving their value customers. Building on 2022, we plan further expansion of market share in 2023 for replacement tires in Europe and North America. In addition to HRD tires, we are reinforcing sales of premium tire brands which have been built through proving the value of our Dan-Totsu products to customers. In 2023, more than half of the sales of passenger car tires for global replacement will be premium products. We will further reinforce our premium focus also for truck and bus tires, establishing the foundation for the new premium ENLITEN business strategy. We are also reinforcing our manufacturing structure. For passenger car tires, we are investing and replacing manufacturing equipment globally to manufacture HRD tires and ENLITEN. For truck and bus tires, where we are continuing to build a circular business model, we are strengthening the manufacturing structure for new tires and retread. We will respond to sales and market share expansion, especially in the U.S. where we have strong business foundations. We will also reinforce manufacturing structures for off-the-road tires and motorcycle tires. We plan to invest a total of approximately JPY 280 billion, including future plans, making sure the investments are lean through on-site productivity improvement and full leverage of existing equipment. Regarding global manufacturing footprint, for passenger car tires and truck and bus tires, we are building a structure, aiming for global optimization by ensuring flexibility, all keeping local production for local sales as our basic principle. We will accelerate synergy creation in Bridgestone west and east synergy areas, leveraging each region's strength and characteristics. Japan will be the core of manufacturing, supporting the premium tire business where high levels of on-site and technological capabilities are required, such as for high difficulty specialty tires like off-the-road tires and aircraft tires. Our retail and service solutions network, which accompanies customers and provides Dan-Totsu product and service solutions is the enabler that supports the growth and evolution of the premium tire and solutions business. We will continue enhancing them globally as table customer touch points. Based on these premium strategies, we will start the creation of new premium at full scale. The core for this will be the ENLITEN business strategy and the MASTERCORE strategy for off-the-road tires. By evolving technology, production, products and business models and by building new brand power as new core competencies, we will drive the premium tire business to an even higher level. The foundation to support new premium is BCMA, which realizes simplification and differentiation, creating value across the entire value chain. It divides the tire into 3 modules: carcass, which is the skeleton of the tire; belt, which reinforces the tire; and tread, which makes up the tire surface. The carcass and belt will be shared between different products, while differentiation will be achieved by performance customization through the tread. This enables providing customized Dan-Totsu products for each customer through simple operations. Furthermore, it will also contribute to sustainability, such as improvement of resource productivity and reduction of CO2 emissions. We will execute this in ways adapted to the needs and market characteristics of each region. In the Americas, we will improve production efficiency through common modules. And for Europe, we will realize the simple development and production of diverse products. In Japan, we are striving for simplification and differentiation across the entire value chain. Shortening production lead time through modularity will enable flexible production and optimization of logistics and inventory. We can provide customers with products at the right timing by making operations most lean and efficient. This will not only improve customer satisfaction, but also especially reduce lost sales opportunities of winter tires, which is our high value-added product, and maximize sales opportunities. In Japanese and Asian plants for export tires, we will advance sharing of modules between regions and strive to build a supply structure, ensuring global optimization. Based on BCMA, we will contribute to build the ENLITEN business strategy for passenger cars, the new premium in EV era, supporting the realization of a carbon-neutral mobility society from the ground up. First, we will continue expanding products equipped with ENLITEN technology for OE fitment. We will also gradually expand ENLITEN equipment for replacement tires from Europe towards full-scale rollout, planning 5% in 2023 and 20% in 2024. Furthermore, we will start the building of new global brand power, the last piece in the creation of new premium with ENLITEN at the core. Bridgestone began participating in motorsports in Japan from 1963 and started global motorsport activities such as Formula One racing in the 1990s. These activities were a driving force for Bridgestone to become recognized as a premium brand around the world. This year, we are celebrating the 60th anniversary of our motorsport activities. During this memorial year, we plan the reactivation of activities in a new way, placing sustainability at the core and start to build a sustainable global premium brand. Regarding the solutions business, which is our growth business, we are clarifying what we do and what not to do in each of the retail and service solutions, tire-centric solutions and mobility solutions towards the period under the Mid-Term Business Plan 2024-2026 and beyond. By this June, we will complete determining business potentials for each solution in a comprehensive manner, taking into account synergy with the premium tire business, growth potential and profitability. Bridgestone solutions aim to understand and solve the pain points of society and customers. We aim to amplify the value of Dan-Totsu products continuously even our Dan-Totsu network and Dan-Totsu service solutions with a combination of strong real and digital capabilities. Striving to support vehicle operation systems and society and mobility systems, we will create both social value and customer value. These activities are made possible through co-creation with society, customers and partners. By amplifying trust based on our Dan-Totsu products, we will generate co-creation and build Bridgestone's mobility ecosystem. For growth of solution business, we integrated our solutions organization in Europe and North America to maximize Bridgestone's west synergy and establish a new organization, Bridgestone Mobility Solutions, BMS. BMS manages the entire solutions business, excluding retail tire sales, enabling efficient operation through integration and strengthening customer focus. We will scale up in North America, with Europe as a strategic starting point and aim to increase our revenue in this year at the level of 125% versus previous year. We are evolving the tire-centric solutions focusing on trucks and buses. As a new premium in circular business era, we offer retread and advanced tire models such as tire wear and durability prediction, et cetera. Deepening coordination between the produce and sell and use of tires, we will establish a circular business model, which amplifies the value of Dan-Totsu products and expand social and customer value. In order to build Bridgestone's mobility ecosystem, we are also forging various partnerships with sustainability at the core. As a recent example, in the Mobility Solutions business, Webfleet Solutions have entered into a new partnership to support the electrification of fleets in Europe. It enables us to propose best suited EV models for customers and support optimal operations such as electric fleet management and EV charging solutions through vehicle data analysis. With this initiative, we will strive to support a carbon-neutral mobility society from the ground up. We are enhancing the mining solutions, which is a new premium based on a Dan-Totsu products, MASTERCORE, which is active in 88 mines as of the end of 2022. We will contribute to maximize our productivity and economic value of mining operations through the combination of on-site services, which propose maintenance and a better way to use tire accompanying customers and digital capabilities. Regarding aviation solutions, a strategic starting point for the solutions business, we will evolve the business model that amplifies the value of Dan-Totsu products. strengthening co-creation with customers and combining digital capabilities, we will support safe aircraft operation with peace of mind from the ground up. As for the management structures, which supports the evolution of our businesses, we are enhancing the global management structure that we have been cultivating. From the Mid-Term Business Plan 2024 to '26, we will initiate new global portfolio management, leveraging regional characteristics as well as characteristics of each of the premium tire and solutions business. As part of this, in the Mid-Term Business Plan '21 to '23, we set 4 categories as shown here: main, next strategic and developing. And in 2023, we will review our business by categories in light of 2022 results and our 2023 plan. And this is the foundation for portfolio management. We support -- what supports our growth is technology and innovation. Last April, Bridgestone Innovation Park, a global hub to generate new value through innovation with the concept from interaction with empathy to co-creation started full-scale operations. We had 1,000 visitors at the Open Innovation Hub in 2022. Among these visits, 200 cases of Sprout for co-creation have been created, with 10 of them evolving into joint research. We are driving co-creation activities in the external co-creation area limited to associated members. Also from this year, we are utilizing this site in Kodaira, Tokyo, where the Innovation Park is located as the business base for Japan business for tires. We will promote creation activities, integrating R&D, research and business. With regards to sustainability, which we consider the core of management and business reinforce our initiative across all businesses and corporate activities. The Bridgestone Group has been driving initiatives to live in harmony with nature based on the environmental mission statement defined in 2011. Building on this, we set out Bridgestone E8 Commitment in March 2022 announcing a commitment to support the realization of a sustainable society based on the belief that the earth has been entrusted to our care by future generations of children. From 2023, we are incorporating the concept of avoid, reduce, restore, regenerate and transform from the SBTs for nature action framework into the entire value chain. Produce and cell use and renew towards nature positive. In this way, we are evolving a unique sustainability business that links our business with efforts to realize carbon neutrality and a circular economy. Aiming for a regenerative business model, we are also further increasing efforts to live in harmony with nature. As one example, through the guayule and natural rubber businesses, we aim to not only diversify renewable material sources, but also contribute to tree planting and afforestation in devastated areas, et cetera. Furthermore, during the tire use phase, we are reducing impacts on nature through retread and solutions. In the renew phase, we will promote activities to restore and regenerate such as through the recycle business. Regarding carbon neutrality, we acquired the SBT certification in January of 2023 and are progressing activities both for minimizing CO2 emissions and expanding our contribution in reducing CO2 emissions, including for Scope 3. This year, we will raise a ratio of renewable energy for electricity to more than 50%. As for CO2 emission reduction, we aim to reduce more than 30% of our emission in 2011. We are also promoting initiatives across the value chain to realize a circular economy. We are steadily increasing our recycled and renewable material ratio. Towards the realization of circular economy, in 2012, we set a target of 100% sustainable material by 2050 and has since been driving pioneering initiatives across the value chain based on 3 axes. The first involves contributing to reduce, resource consumption through ENLITEN, BCMA the solutions businesses, et cetera. The second is reuse and recycle, recycling resources through retread, the recycle business, et cetera. The third concerns enhancing and diversifying renewable materials such as natural rubber and guayule. We are promoting tire development that links these activities to our product strategy, developing tire technology with a recycled and renewable material ratio of 90% and the test tire with recycled and renewable material ratio of 70% in the United States. We are verifying such technology through modern sports where extreme use conditions are required. What supports these corporate activities is talent. The 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 through the creation of added value aligned with the corporate strategy. Reinforce talent investment and increased added value in order to create this virtuous cycle of value creation, we will place talent creativity as a fifth global management KPI and start trial from this year, planning for implementation from the Mid-Term Business Plan '24 to '26. In 2023, we plan to increase talent creativity by 25% versus 2019. We will also expand talent investment globally in 2023, especially in Japan, we will start various initiatives such as reskilling, DX training for a wide range of employees and owns 100-day challenge program that encourages a challenges on-site in Japan and global SBUs in different workplaces. In addition, we will continue the improvement of welfare and benefits and working environment to realize both the group's growth and each employees growth, we will accelerate various initiatives while focusing on execution and results. As one of our initiatives to enhance talent creativity, we are developing various opportunities for diverse talents to shine. For example, the Soft Robotics business, which is an exploratory business, have become a corporate venture from this year. A variety of talent with entrepreneurship is gathered here. Based on being attentive and supportive of our customer problems, one of our Bridgestone's DNA, we stick to support the lives of all individuals through the power of rubber. In addition, in a business environment where change is becoming commonplace, thorough risk management is essential. We have reinforced structure to cope with global management risk unaffected by change and set 3 priority items. First item is geopolitical risk. The second item is tire and road wear particles, TRWP. TRWP is a result of friction between the tire and the road surface, which is essential to secure a safe, comfortable journey with peace of mind, consisting of a mixture of tread, the tire surface and the road pavement material. As a leading company, we will lead initiatives to investigate their environmental impact. We will proceed a continuous approach, including the promotion of long-life products and linkage with the solutions business. The third item is cyber incidents. We are strengthening global cybersecurity and establishing fundamental measures. Finally, regarding strategic resources, we enable a strategy. We plan JPY 290 billion of strategic resources for 2023, ensuring the balance of resource allocation between the premium tire business, solutions business, sustainability and talent. A total of JPY 570 billion is projected to be invested during the Mid-Term Business Plan 2021 to 2023 period. While examining strategic growth investment in alignment with the 2030 long-term strategic aspiration, we will build Bridgestone's unique foundation for growth centered around the premium tire business. Also, we will continue investments in strategic partnership to build Bridgestone's mobility ecosystem. Until now, Bridgestone has executed proactive investment towards the next stage, even in times of economic recession based on our DNA of challenging spirit. We expect there will also be various changes in the business environment in 2023. However, we will continue laying foundations for the future with an aggressive approach in challenging spirits. That concludes my update regarding progress on our Mid-Term Business Plan. This year, we will continue to accelerate our transformation, focusing on execution and delivering results. We appreciate your continued support. Thank you very much for your attention.

Thank you. So that was the presentation by our CEO, Mr. Ishibashi. Now to move on to the presentation by Mr. Hishinuma, Global CFO, to present financial results for fiscal 2022.

Thank you. Global CFO and Executive Director Naoki Hishinuma, to present financial results for fiscal 2022 as well as financial projections for fiscal 2023. This is my agenda today. Basically, the focus on the financial or some additional information as well as further details on some of the key numerics. To start with business and financial performance for fiscal 2022, please take a look here. Consolidated financial results for fiscal 2022. Here, I would like to focus on profit attributable to owners of parent. On a year-on-year basis, revenue and adjusted operating profit both increased. On the other hand, profit attributable to owners of parent decreased versus prior year to JPY 304 billion due to the booking of gains on the transfer of U.S. building materials business in the prior year and others. Profit attributable to owners of the parent from discontinued operations. As a result of reviewing the tax effect and the other is on transferring anti-vibration, rubber and chemical solutions businesses ended at JPY 5.1 billion losses. Both of these businesses completed transfers in the third quarter, except for some subsequent closings. Moving on to the overview of performance in the same fiscal 2022. Let us focus on the bottom half of this slide. For the passenger car and light truck tires, in the replacement market, slowdown in demand from the third quarter onwards was witnessed in Europe and North America. However, with the continuation of the premium strategy, we were able to increase the sales despite the slowness with the premium tiers for which demand was relatively strong. On the OE tires, since the second quarter, the tire sales trend year-on-year increase due to improved vehicle production conditions at automobile companies and increase year-on-year on a full year basis. Truck and bus tires. In the final quarter in Europe and North America, demand decelerated. However, on a full year basis, sales in Japan, North America and Europe remained strong, with North America, in particular, showing a strong increase over 2019. OR tires, mining tires. Sales declined due to suspension of exports to Russia announced in March was compensated for in other markets, resulting in an increase in the global market share. Moving on to business environment throughout the fiscal 2022, both USD and euro appreciated against Japanese yen compared with previous year. Raw materials. Natural rubber prices fell sharply from the third quarter onward. Crude oil prices declined from the peak, but we're still well above the previous year's level dragging profits, therefore. For Energy. Energy costs at plants rose sharply amid high crude oil and natural gas prices, again, pushing down profits. Tire demand. OE production at automobile companies began to recover in the second half. Demand for tires also showed signs of recovery starting in the third quarter. Replacement market, the economic slowdown, particularly in the U.S. and Europe gradually became apparent in demand for tires load. However, demand for premium segments, such as high rim diameters in passenger cars and premium brands in TBR in North America was relatively solid. And also, North American replacement market sales for TBR, 115%. This also includes a significant growth in tire imports from Asia. Next, on to tire sales growth for fiscal 2022. PSR/LTR global sales performance was 101% of the prior year. Sales increased, therefore. On the other hand, truck and bus tires global sales was 99%, slightly lower than 1 year earlier. For ORR, ultra-large size, 107% to the prior year; large, 110%; and small- and medium-size, 105%, all going very well. In particular, the profitable water large mining tires and large mining tires, the sales growth increase was quite phenomenal. And with the advent of premium strategy, passenger car above 18-inch rim diameter premium tier sales, they continue to grow in the replacement market, year-on-year increase of 10% over the 2019, which was the year before the corona pandemic, 37% increase indeed. And that is adjusted operating profit for fiscal 2022, JPY 88.3 billion substantial increase. Russia production export suspension, China lockdowns, Americas cyber incidents, and those one-off factors were there on the -- on one hand. On the other price/mix volume, positives were there, almost covering negatives such as raw material input cost surge and inflationary conversion costs and operating expenses, backed also by the tailwind from the FX market, increasing the adjusted operating profit. Now performance by segment, Japan, Americas, Europe, Russia, Middle East, India and Africa all increased year-on-year substantially. On the other hand, in China and Asia Pacific, due, among others, of the 2 lockdowns in China, the drop in profits. For the Japan segment, mining and construction tires, the sales were expanded and the share increase was executed. And coupled with the FX effect, both revenue and operating profits grew smoothly, major contributions. Inflationary impacts, such as for raw materials and energy cost was difficult to counter by higher selling prices such that in the global OE business, profitability has been pressured. And so it's been in Japan and Asia and the [indiscernible] operations. Consolidated financial results by product for fiscal 2022 in the tire business. Passenger car and electric tires as well as truck and bus tires year-on-year increase in the top line and turnover profit was recorded. Therefore, the margin -- the raw material cost surge and inflationary trend were there and the OE business profitability became more severe. And in either regard, the year-on-year decrease was there. On the other hand, however, for specialties segment comprising mining, aircraft, agriculture and motorcycle tires, highly profitable mining and construction tires sold as well as the tailwind from the FX market. So the margin on a full year basis became 23.4%, indeed, much higher than 1 year earlier. Now moving onto the diversified products business and the continuing operations. Continuing from the prior year, the positive net profits were recorded. Balance sheet and cash flow highlights for fiscal 2022. Total assets grew JPY 386.9 billion from the prior year fiscal year-end, at JPY 4.618 trillion, yen depreciation have pushed up number. Total equity ratio increased 2.3 percentage points from the fiscal year-end prior year, and it reached 59.8%. Financial health continued to improve. Full year free cash flow was JPY 69.5 billion outlay of free cash. Cash flow from investing activities includes JPY 115.7 billion expenses associated with the transfer into diversified businesses. Other than that, it would have been the positive free cash flow. Now adjustment items and losses from discontinued operations. Starting with adjustment items. Impairment losses and loss on revaluation inventory is comprised in losses related to Russian business at JPY 18.4 billion and Bridgestone cycle, bicycles and some of the motor-assisted in the bicycle record expenses of JPY 16.4 billion was booked. So all in all, adjustment items total was JPY 41.3 billion. Losses from discontinued operation. Mainly in this third quarter, transfer of 2 diversified businesses completed in the third quarter with bookings of losses, JPY 5.1 billion losses. Now moving on to the projections for fiscal 2023 on a consolidated basis. Projections are as shown here. Revenue JPY 4.150 trillion, which is a 1 percentage point increase versus the prior year. Adjusted operating profit, JPY 510 billion, 6% increase year-on-year. Adjusted operating profit margin is projected to be 12.3%, which is a 50 basis point improvement from the prior year. From continuing operations, profit attributable to owners of parent at JPY 340 billion. On the same basis, ROIC and ROE are projected to be 10.5% and 11.4%, respectively, was improving from the prior year. Business environment assumptions for fiscal '23, currency, yen appreciation. Raw material and energy was continuing to drag profits. Inflation such as energy and labor costs at suppliers, which are accepted as higher input costs for our company to pay after thorough discussions with the suppliers. So it's part of our assumption in fiscal 2023. Tire demand. OE demand is expected to recover. And for the replacement in tire demand, although there are differences by region, a solid recovery is expected globally from the second quarter onwards. By the way, North America TBR replacement demand is shown to be 89% of the prior year. Please be aware that due to normalization of tire imports from Asia, which increased significantly in 2022, it appears at this level. Premium tire demand is expected to trend relatively strong. For fiscal 2023, tire sales growth projections in the increment of 5%. Between the final quarter 2022 and the first quarter 2023, total demand will soften according to our projections and assumptions. However, the second quarter onward, robust growth is expected. On a full year basis, therefore, all across year-on-year increase in plant sales. For the passenger car, the high diameter tires above 18 inches, the so-called premium tires, will continue to be strong. So on a full year basis, double-digit year-on-year increase is projected. For mining tires, mineral demand will be strong, and therefore our sales will continue to be strong as well. To continue looking at analysis of adjusted operating profit for fiscal 2023. For raw materials, JPY 109 billion negative. This includes our acceptance of inflationary and the cost of energy and labor at our raw material suppliers. In this fiscal year '23, continues the negative factors such as surge of raw material input costs, inflationary and conversion costs, and operating expenses will be negative. However, those will be offset by selling price and mix so that year-on-year increase of JPY 27.4 billion in adjusted operating profit. Focus on premium domains and strategic price management that will be executed, not to mention expense and cost structure reform. And so without currency effect, large increase in profit, at JPY 84 billion. Segment projection, Japan, Americas and China, Asia Pacific projected have to increase in both on revenue and the profits. In Europe, Russia, Middle East, India and Africa, increase in revenue, decrease in profit. Americas segment. Adjusted operating profit margin will improve by 80 basis points to become 13.4%, high profitability indeed. Lastly, let me talk on the subject of shareholder returns. At our company, we comprehensively reevaluate factors, including business results, financial positions for the relevant fiscal period, medium-term earnings forecast, investment plans and cash flows. Based on these considerations, the company strives to live up to the expectations of our shareholders by driving to achieve continuous increase of dividend payment amount through a stable consolidated payout ratio of 40%. Based on this policy, for the fiscal year ended December 31, 2022, the company plans to increase the year-end cash dividend of JPY 90 per share, an increase of JPY 5 per share. So this will make a total cash dividend of JPY 175 per share. For fiscal '23, the company plans to pay a cash dividend of JPY 200 per share, which is an increase of JPY 25 per share. Of course, we will continue to strive to achieve continuous and stable increase of dividend payment amount, thus returning to our shareholders. That is it from myself. Thank you very much indeed.

Thank you very much. So that was the presentation by CFO Hishinuma. Let us move on to questions-and-answer session.

So to begin, I would like to first call upon Mr. Kakiuchi from Morgan Stanley Securities.

Kakiuchi from Morgan Stanley Securities. My question #1 refers to your sense of the industry environment as well as your view on business conditions, because 3 months ago, on the occasion of our Q3 presentation, I thought you portrayed the new ones hinting at the rather severe demand to come in the new fiscal year. However, today, I heard that, on a constant currency basis, entire business operations alone pushing up revenue by 4.4%, not necessarily to say that it's totally optimistic, but maybe the situation as it turns out were better, maybe the possibility of the inventory adjustment, which went quite smoothly in Europe with some more robust sellouts than you had expected. Or maybe the demand has been better than you had expected. So -- or it may be that you are very, very confident in your number premium strategy and your share is increasing. So could you just give us your view in the sense.

Thank you for that question. This is Ishibashi speaking. Indeed, the final quarter last fiscal year, the first quarter of this new fiscal year, the demand is in the dire state, particularly last year, Remember, in Europe, the situations were assumed to be very severe. For the North America, we thought that it was to be the scenario of soft landing. Now, the total sense that I have for the industry is that drop of Europe was not as severe as what we once thought. It's severe indeed to beat the final quarter last year with the first quarter, particularly so in the TBR operations, it's very, very severe. And speaking of Europe, towards the end of the fiscal year, we had the inflation -- inflating truck inventory. So in that respect, we are going to clear out or finish the round of inventory adjustment as aided by the temporary production down with adjustments as well. So the first quarter, there will be the completion of the inventory adjustments in Europe. North America TBR business, also, in the second half of last year, the situation was very tight for supply. As you know, we have 2 major brands, of Bridgestone and Firestone, with a particular emphasis on the Bridgestone brand, which meant that for the Firestone-branded tires, this top line could not catch up with the shortage. We try to support that globally, but still was not enough, so the second half last year for the truck/bus tire operation in North America, we kept on saying that the bottleneck is indeed the supply shortage of goods to sell, of course, from Japan and Asia, with the sourcing arrangements, we supported as much as possible. However, in the third quarter and final quarter fiscal year, there was a shortage of goods, in the meantime, the third tire -- third tier and fourth tier, the imports went into the market of North America. So the Firestone domain, the second tier, the line of operations, there was encroachment by newcomers in the third tier, fourth tier importers. In the meantime, we did supply truck and bus tires from Japan and Asia. However, because of the timing delay the deliveries did not reach North America towards the end of last year. Now the inventory has been increased or inflated, and we're trying to reduce that now. My view is that -- this is my view. The first quarter in this fiscal year, the third tier, fourth tier tire inventories will continue to decrease. In the meantime, our supply conditions are getting better. Meaning that my sense is that in the second quarter and beyond, both Bridgestone and Firestone brands will perform more strongly. The other day, we had North American dealer meeting held. This is for commercial of the tires. So that was an occasion for us to confirm the results. First of all, having to offer apologies for the shortage of supply last year. And of course, we recognize and as confirmed by North American dealers, they need third tier, fourth tier businesses, and then they have inflated inventories. So they first have to trade it out, and then it will become the trend for Bridgestone and Firestone. The 2 will expand business operations. So that is the overall flow that we anticipate. And those of the flow that we would also anticipate with respect to customers as well. So that's one view that I have from Europe and North American TBR business. PSR. The first quarter is dipping a little bit. However, the downtrend in Europe, as it turns out, it's not as severe as we had anticipated. So that even in the first quarter, it's severe, but still, it's relatively better than what we had anticipated. North America. Final quarter last year was very challenging. However, with our performance with respect to the high rim diameter, the so-called premium tire segment, we're able to secure the volume. Total volume, [ the debt ] -- however, we reflected the premium segment. We were successful at capturing business opportunities, profit contributions as well. And in this regard, my sense is that it is going to become better and better beyond the second quarter with rising of the real demand. So no inventory issues. So the HRD, high rim diameter tire businesses, we will grow and demand will stay strong. Finally, OR tires, mining tires. There was very strong demand last year. We were able to increase our share. And I expect the continuation of the robust demand. And it is going to be the mainstay of the business for us. From the perspective of an increase in the share market in Europe and North America passenger car high rim diameter tires, back in 2021, '22 and '23, we will have better -- and the fiscal '22 last year, we continue to increase our share. And for this year, the fiscal '23, I expect that once again, this year will increase. So high rim diameters, the share will increase in Europe and North America. The same for mining tires, the further share increase this year.

Now this is Kakiuchi speaking from Morgan Stanley. This fiscal year, the annual CapEx plan exceeds JPY 400 billion, so as a percentage of net sales is 10%. It's a typical sort of percentage that we tend to see, and this growing business is just from the numerics. But listening to you carefully, I would like to focus on -- and with that, I'm leading into my second question. For this year, you planned the selling price, the plus JPY 253 billion. So I guess it combines the OE, OR and mining tires as well and maybe further price increases in the Japanese market. So in particular, in Europe and North America, are you thinking -- assuming that you increase selling prices in those markets, that isn't going to benefit you this year? On top of that, this year, you are going to further -- thereby hiking prices further. So is that correct? And also for the past 2 fiscal period, selling price on the combined JPY 578 billion, or raw material, the input cost of JPY 344 billion over the past 2 years. But what about items such as ocean freight and energy costs? Because basically, I understood that your approach was to counter raw material input costs with selling prices. But what about the others?

Thank you for that question. Let me respond with the latter part of what you said, raw material input cost surge, it's not only that because energy cost surge is really phenomenal in Europe. Of course, Japan as well. In a case of Japan, a weaker yen, is another factor pushing up energy costs. Labor costs, Europe, and particularly in North America, the wages are going up sharply and naturally so in Japan as well. On top of that, our partners who are suppliers to us, they are in very pressured situations themselves. Suppliers are important partners. They help us. They have been supporting us. So this is the partnership, the sort of approach that we would like to take with them. Of course, we will look at businesses separately, but it is the win-win situation, which should serve as the base. So we would like everyone to accept the value of our products, which then will be passed on the selling prices, which then furthermore to be accepted and understood by customers. This is the common approach throughout the world. Now, the specifics. I'm sure that or CFO, Mr. Hishinuma will talk after myself. But for the replacement tire business, be it the passenger car tires or the truck and bus tires and it is, I'd say, mining tires, as I say, in all different ways, costs have been increasing. These have to be countered solidly. So that means, once again, in FY '23, we have to continue to hike selling prices. We have to. Now another point about the OE business. Last year was a very challenging year. So the OEMs, the car assemblers were also in dire states themselves. And this is a factor of staggering timings with respect to under the timing of raw material input cost surge and then the timing of which will be reflected in the formula. So we have been continuing to have conversations separately in the ways of the car companies, truck companies, construction, the machinery manufacturers. And of course, it's very difficult from time to time. But inclusive of this timing adjustment factor, we should be able to convince them for our selling price increase request.

Hishinuma speaking. According to fiscal '23 plan selling prices, JPY 253 billion is the trend of increase. About 20%, or a little less than 20%, refers to the so-called RMI contractor agreements with OE companies and rising formula with mining operators. This combined this formula-based portion accounts for a little less than 20% of total. And other than that, we have what we are to do in the replacement business. Now saying this, among others, Latin America, the currency impact has to be taken into consideration, which also will be countered by selling price increases. That's it from myself.

So may I confirm that your assumption is that in the fiscal year '23, we will continue to hike selling prices in the replacement segment. Is that correct?

Yes, that is so. Let me add something. In North America, we already made the announcement of the price increases back in January. And so indeed, we are trading quite steadily in this regard.

Thank you. Sakaguchi from Mizuho Securities.

Sakaguchi from Mizuho Securities. I have 2 questions. One is on your new year forecast. Adjusted operating income is projected at JPY 510 billion. Could you comment on risks and opportunities? You have kindly explained marketing environment and your sales activities earlier. But in terms of mix, you are projecting a positive impact of JPY 40 billion. Did OE business return? I'm afraid there could be a downside, but you are projecting sizable positive impact. And I take it that you have confidence in HRD tires and premium products performing strongly. But given that there still are many uncertainties, could you elaborate on risks and opportunities relative to the projected adjusted operating income of JPY 510 billion. That's my first question.

Thank you for your question. In that sense, as risks, one possibility is the cost. Energy and other costs are increasing in Europe, and there could be further increase. Also, in Asia, in Thailand and in other countries, for example, demand situation is rather challenging, and that might have an impact. So these are possible risk factors. In terms of opportunities, as was mentioned earlier, soft landing of economy in North America. That could be an opportunity. Also, in emerging markets, suggest the Middle East, India and elsewhere, growth might further accelerate and those could be some opportunities for this fiscal year. And regarding the mix, OE versus replacements. For this fiscal year, in terms of volume, OE growth is expected to be a little higher. But still, not much difference in terms of volume. So we are not assuming this to be a major negative factor. Let me add. In terms of risks, of course, geopolitical risk is the most important as mentioned earlier. And for Europe, we believe Europe to be -- or Europe to do better than our assumption, but increase in energy costs and recession should they progress more than we anticipate, that could become a risk in Europe. As for China, we expect some recovery after bottoming out last year. But there is a risk here as well. In terms of opportunities, as CFO Hishinuma mentioned, the level of soft landing in North America is a factor. Some people say, I'm too optimistic, but I think there is a good chance that even with the soft landing, given our strong foundation, including the market share increase potential, I believe we can be the winner. Earlier, I showed you the portfolio included in the current Mid-Term Business Plan, and one of the 4 categories is next. Areas expected to drive earnings next. Included in here are South America, which is really getting stronger and India and the Middle East. We see potential in these markets. So there are further opportunities here. Yes, some uncertainties in China, but in Asia Pacific, we can expect further opportunities. Of course, North America in mining will be major pillars. But in addition, as the next areas in these regions, we can expect further enhancement. So that overall, we can have a better balance and diversity, better risk diversification. That's what we have in mind.

I see, my second question pertains to HRD tires. 98% in the Q4 sales, a slight decline year-on-year. Yes, I think it could be explained by the previous year being strong, but how about quarter-on-quarter from Q3 to Q4? You're expecting sales increase this year coming particularly from increase in market share. Can you elaborate on the factors for sales increase projections for FY '23, especially market share increase? What measures do you expect to bear fruit?

We do not disclose market share. But in North America, from 2021 to 2022, our market share improved by close to 1 point, even including the fourth quarter, even with strong Q4 in 2021. And for this fiscal year, we expect to increase the market share by another point. At this point in time, we expect the combination of brand power and product power and the channel power will support the strong business for HRD tires for passenger cars. We also expect to securely capture the demand in the aftersales market, as products that have been supplied to OEMs will move into the maintenance phase. We envision this general scheme or cycle. As you can see here on the slide, HRD tires are mounted on more and more new cars. And as we have a large market share in North America, we expect demand in the aftermarket to follow. Securely capturing that demand is critical. And that requires strong product power and brand power. Most important is the channel power, our equity stores and the family channel. We have extremely strong channel to help us capture the demand. And it's not just our family. We are communicating closely with various retailers have shared understanding on product line up plans, clearly defined merchandising plan with clearly defined position for, for example, Bridgestone products, Firestone products and others, respectively. And retailers do not change this plan frequently, like on a monthly basis, and they sell accordingly. Why? Because products in different positions have different expected roles. This position for higher margin and that position for volume gain, for example. That's how retailers think, and in it, our [ RDM ] tires have clearly defined position. With addition of new retailers, including mass merchandisers, we are to ensure a secure position in the product lineup. That's how we expect to increase the market share. Of course, for that, we need to enhance our product capability, which is indeed improving as many data suggest. The fact that we can do that while raising prices suggest we are seeing the solid foundation being built, both in terms of brand and channel.

I see. Thank you. So we can expect the market share to continue to increase, correct?

Yes. Well, rather than the share continuing to increase, we will work to raise the market share.

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

Maki from SMBC Nikko Securities. My first question pertains to price and volume, which was briefly touched upon earlier. Regarding price, you raised the selling prices in the U.S. in December and your French competitor and another competitor did the same. Whereas this time around, we don't see a similar move. They are not following. So can you elaborate on the background to the latest round of price revisions? Is it that you can afford to raise prices because you are in the premium zone and because of strong competitive edge? Obviously, it isn't an industry-wide movement. So are there differences in zones where you can raise prices and where you cannot? Also, looking at your operating profit variance analysis waterfall chart, price effect is rather strong. Volume effect is also projected to be rather strong. Now in the case of your French competitor, volume effect is kept rather moderate while expecting to maximize profit through pricing, it seems. So my question is, can you pursue both volume and price? Is there not a risk in doing so?

Well, I cannot comment on what peers or competitors are doing. In our case, as mentioned earlier, we are factoring in partners and suppliers and increased energy costs, labor costs and others. And based on that, by leveraging our brand, product and channel power and capabilities, we implement price revisions through steady effort to prove the value to our customers. We will continue with that steady effort. In fact, that enabled us to increase both volume and price last year, while some of our peers did not see volume increase. As far as Bridgestone is concerned, while Q4 saw a decline, we increased volume on an annual basis, together with higher prices. I think this was possible because of the solid foundation, which is not going to collapse this year. In fact, the foundation will continue to be enhanced. For example, regarding the retail network in the U.S., we are making aggressive investments. As mentioned earlier, we are making strategic investments not just investment in premium tires, investment into retread as well as retail. So we will pursue price and volume both. And in terms of volume, we don't intend to increase volume in the commodity zone. Rather, we will be pursuing both higher price and higher volume in the premium zone. This assumes market share increase as the base. So should we see volume decline? We will try to secure the price level and reconfigure the business. So in that sense, Bridgestone and the French competitor may be sharing the similar thinking as you indicated, but we would like to pursue both.

My other question is on the solutions business. In the guidance, sales for the solutions business is to be about JPY 1.2 trillion or a little less than 30% of total sales as I calculate the ratio. But I think it was about 20% in the past. I apologize if my calculation is incorrect, but it appears to have gone up quite a bit. What are some changes compared to the previous year for this kind of increase? For example, how much growth is expected in the retread business? Or maybe what changes are expected in the retail business? Would you be able to share the breakdown? Also with a strategic investment increasing significantly compared to the last year, would you be able to share with us where and how you plan to strengthen investment for the next Mid-Term Business Plan? And what kind of mechanism you have in mind for sowing the seeds for the future?

It is true what you have mentioned, Mr. Maki. The figures on Page 24 are actually the figures for our solution retail service network, which includes the tire business. In the past, in the Mid-Term Business Plan for 2021, the tire business was excluded from the retail business, including the equity store and franchise. However, this time, in the 2030 long-term strategic aspiration, we decided to look at the retail business more firmly. Since tire is one of our retail business and while manufacturers sell tires to the retail business, the retail business is the final point of contact with the customer selling premium tires. The amount is about JPY 400 billion. So there is a different where these figures are included, the JPY 400 billion. We are currently examining various ways to properly present for the full year figures and solution business figures for the Mid-Term Business Plan 2024. In this context, the JPY 900 billion of the JPY 1 trillion is for retail service. Of the JPY 900 billion, JPY 400 billion is for the tire business and JPY 500 billion is for maintenance and services. So JPY 900 billion is a rough figure for the retail business. The remaining JPY 300 billion is for retread business and solutions related to the tire business. A little less than half of JPY 300 billion is for retail business, and the rest is for the mining solutions and for aircraft or aviation solutions related to tire business. There are also tire package programs such as cost per mile and mileage programs. And they add up to the remaining half, each constituting JPY 150 billion. And the mobility solutions, they include Azuga and Webfleet. They are worth about JPY 30 billion. The remaining JPY 300 billion or so for the diversified products and businesses was about JPY 300 billion. In a nutshell, that is our portfolio. As such, JPY 3 trillion for the tire and JPY 2 trillion for solutions that I've mentioned in long-term strategic aspiration, we have come to the level of about JPY 1.2 trillion at this point. Regarding strategic investments, this year's strategic investment is, first of all, focused on premium tires, and we will make this firmly on the global basis. Let's show the slide with the details on the investment for tires. Yes, this is it. This is the investment for the creation of the production structure for the premium tires for the passenger tires, production facilities and HRD. And then production capacity increased, then there are investment in Warren and Thailand for truck and buses and for retreads, and tires for mining, which will be mostly in Japan. We are also making investment in the area of motorcycle tires, high-performance motorcycle tires, which are also in the premium niche. These are the areas with major strategic investment. The second is retreads, which is also one of our major investment area and solutions, including retread, and retail is also one of the big item. And IT infrastructure investment, this is going to be a large investment in fact. In Japan, various companies are now working on the cliff response measures for the 2025 digital cliff and working to establish better, solid IT structures, including the measures against cyber-attacks. Considerable resources are being invested globally to build the IT structure. This is generally how the investments are being considered. We are currently sowing seeds in various ways, such as soft robotics. As an example, in the mobility solutions that I mentioned earlier, we will continue to sow seeds in areas such as various supports for EVs, although this is not a large sum of money. And because solution businesses or retreads and retails are area of high certainty, they will serve as the major pillar for the Mid-Term Business Plan of 2024. And for other items, as I have already explained, we will continue to further review and study them towards determinations in June this year. As I mentioned earlier, we will also examine which areas are acceptable and which are not in -- not so in terms of business model, such as in the area of cost per mile and mileage sales. So the investment is somewhat suppressed at this time in those areas, before we go on to the next stage of investment.

The amount of retread at the beginning of the presentation was about JPY 150 billion. I think they were more than JPY 100 billion or maybe JPY 130-or-so billion in the previous year as well. So do you expect to see major growth or speeding up for growth in this area this year?

Well, I think it will be a little less than JPY 150 billion or a little decline, to be precise. But this is the -- about the level that we expect. The basic premise is to expand sales in Americas, North and South America, while here in Japan, trucks and buses are in a very, very difficult situation. Naturally, transport or shipping companies are facing extreme difficulties in their business conditions. We are trying to support them in various ways through solutions business, such as reducing total cost, sustainability and CO2 emissions. We believe that new tires alone will not solve the issues. Therefore, we are rapidly increasing our production capacity investment for retread tires in Japan. We are supporting various transport, shipping companies with a combination of new and retread tires. So although North and South America are very, very large, you also expect more from retreads here in Japan to follow.

Now I would like to ask Mr. Sakamaki from Daiwa Securities to present his question. [Operator Instructions]

I am Sakamaki. I've heard from local dealers in the United States, the price gaps between Tier 1 and Tier 2 brands have widened so much that the consumers are no longer willing to accept it. Price competition has already started in Tier 2. And as a result, I hear that some say trading down is already happening. Under circumstances, Michelin has announced the plan to prioritize selling price with a reduction in volume. I saw that it is quite difficult to go for both, but where do you see the room for opportunities to achieve both targets? When you look at the external environment, it seems a little difficult. I mean, for example, in January, the macro statistics show that prices for tires have actually fallen since December. I am wondering if there is something different or something that you have, which allows you to achieve the results of the prices and the volume like you are indicating.

So the gap between your plan and the dealer voice that I hear, well, I don't think there is a mismatch of what you hear in the market and what we plan. As I mentioned earlier, we have a very strong channel in the United -- in North America. We have an extremely solid dealer network in terms of the passenger tires or consumer goods. We have a very solid retail outlets, numbering 2,200, which we have been strengthening since the 1990s when I was in North America. So with these 2,200 retailers and a solid family channel and combined to that, there are discount tire stores and independent retailers and so on, this is a definite differentiating point with the French company. The fact that the ratio of our family channels, a very solid channel, is very high, I think that is our strength. I believe that ratio for the French company in this area is low. The difference is that in a highly volatile market like this, I believe that there should be differences resulting not only the French company, but other companies as well. Unless you have a firm grip on the solid channel and have a good merchandising plan and product lineup, results varies and become very unstable. If the company is only in the area of sell-in, in a volatile market, they will feel the direct impact from the market in terms of volume. Dealers and retailers naturally look at the end customers. And -- but they need to generate profits. If they only offer inexpensive products, retail prices will fall and no matter how long the wholesale price may be, even if the margin is x percent, the businesses cannot operate on percentages, so you need to earn absolute dollar in order to sustain your business. And in order to earn the dollar or the profits, you need to carry product, brands that has a stable market and easy to sell. And the reason why the market is stable for Bridgestone is that with equity stores and Bridgestone's family channel, we have retail price positioning, and we have a uniformly clear merchandising, which can be maintained. And that leads to a stable market, and it does not collapse. When I cannot maintain such as positioning, it collapses and it is naturally difficult to make profit at the retail level with the increased sense of instability. So brands that are relatively stable, brands that are easy to sell, brands that have connected to car manufacturers, brands with strong merchandising power, they soundly sold at our 2,200 direct family dealerships. Dealers, obviously, are the ones who decide on the retail price, and they do sell a product at a price slightly below that of the Bridgestone equity stores. And in those cases, the price level in equity stores will serve to secure stable market price level. Of course, different manufacturers will have different perspective or views on this. And there are some who just keeps on selling their products at a lower price. That may be fine for them, but that is not the kind of business we do. One cannot do business with only cheap prices and cheap tires. In American tire business, cheaper tires go through fierce competition at that level, lowering the price further and further. While the whole price wholesale price continues to decline, the retail price will not always go down that much, making it tougher and tougher for the manufacturers. The retail price itself is basically divided into best, better, good and fighting price. The fighting prices here is worth to begin with. So even with a certain amount of margin, it is really tough in terms of dollars to earn profit. They cannot keep on doing business like that. They need it. They need it at some level because they have half of the market. Some retailers are only selling those cheap tires. Others may mainly sell major brands, but they are actually on the average, half and half. So this is a business structure that prevails in the United States in the channels and the networks that we have created, and the fact that the value shared together with these channels and networks, to appeal to the value, we can offer to our customers. As partners are very effective, we will together promote Bridgestone's value to our customers, and they buy our products when they are convinced of the value offered by Bridgestone. I think this kind of relationship is very important. I don't know about the other manufacturers, but that is how we get to win working alongside with our customers. But actually, I always talk about win, win, win. First customer, then partners and dealers and finally, Bridgestone. I believe that this way of thinking has helped us build a solid foundation that will not collapse. Even when times get tough or when the situation get even tougher, there are more support for us. Thank you very much.

Thank you very much.