Bridgestone Corp
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Bridgestone Corp
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Hello, everyone. I am Shuichi Ishibashi, Global CEO. First, I will explain the Summary of Financial Results for the First Quarter. To start with the conclusion, in the first quarter, we secured increase in both revenue and adjusted operating profit versus prior year, due partly to the tailwind from the currency exchange.
Regarding the business environment compared to our assessment in February, demand declined resulting from the economic slowdown became more prominent, mainly in the United States and Europe. We also saw negative impact to cost from inflation, et cetera. Against this headwind, we reinforced strategic price management and drove the improvement of sales mix, primarily for replacement tires.
We placed further focus on the Premium segment, and accelerated the review of low profit segments, in order to secure revenue and profitability growth. There are no changes to the full year guidance for fiscal 2023 from the figures announced back in February, expecting demand recovery in the second half.
We will not change our approach in pursuing both increase in premium sales volume and price for the full year. To secure revenue and profitability, we will constantly aim to improve premium sales volume, price increase and optimization of the sales mix.
I will here explain highlights of our performance. Our revenue recorded 117% versus prior year, achieving our first revenue of over JPY 1 trillion for the first quarter including impact from currency exchange. Our adjusted operating profit exceeded JPY 110 billion, securing 116% increase in profit versus prior year. In addition to focusing on Premium segments for passenger car premium tires and off-the-road tires for mining vehicles.
We covered negative impact on cost from raw material increase and inflation through improvements in selling price and sales mix. We achieved increase in profit due partly to the tailwind from the currency exchange, despite impact of decrease in sales volume from decline in demand.
So from here, CFO Mr. Hishinuma will continue with further details.
Thank you. That was a summary of the performance for the first quarter by our CEO, Mr. Ishibashi. Next to call upon Global CFO, Naoki Hishinuma to give you, the briefing on the first quarter 2023 financial results.
Thank you. This is Hishinuma speaking, serving as the Global CFO. So I would like to explain our consolidated financial results for the first quarter fiscal '23 and our forecast for the full year '23. This is the agenda for today. I will mainly give you financial supplements and the breakdown of some of the figures.
So, now to begin with the consolidated financial results for the first quarter 2023, consolidated results for the first quarter 2023 are as shown here. On this page, I would like to add explanations on profit for the quarter attributable to owners of parent.
In addition to the year-on-year increases in sales revenue and adjusted operating profit, in terms of adjustment items, a loss of JPY 13.5 billion was recorded in the previous year due to impairment losses on Russian tire business assets. As a result of the JPY 10.7 billion gains from the sales of land and other factors in this quarter, the quarterly income increased by JPY 90.5 billion compared to the previous quarter.
Next, overview of the performance, for the first quarter of fiscal 2023, focusing on the overview of the performance by product. For the passenger car and light truck tires, OE segment, although there were differences, by region and tire demand recovered and - as the vehicle production level at the OEMs was improving since the second half of 2022.
In the Replacement segment, while tire demand declined due to the economic slowdown. Sales from passenger for high-rim diameter tires continue to be relatively resilient, truck and bus tires in the OE segment. Since the second half 2022, demand continued to recover from the impact of semiconductor shortages, tire sales was particularly strong in Europe.
Replacement tires, sales declined versus prior year in the U.S. and Europe due to the economic slowdown. Japan, sales declined in the first quarter, partly due to rush before price increases in prior year. All are mining tires, increased sales versus prior year in global total. Suspension of exports to Russia was covered by sales in other markets.
Moving on to business environment for the first quarter fiscal 2023, currency exchange, Japanese yen depreciated against both U.S. dollar and euro, compared with the prior year. Raw materials, in total, the purchase cost for raw materials increased due to spike of energy, labor and other cost of raw material suppliers, though the feedstock prices of raw materials have softened.
Conversion costs increased versus prior year due to continued inflation in energy, labor and other costs at plants. So costs increased, pushing down earnings. Tire demand in the OE segment. Although there were differences by region, tire demand recovered as a semiconductor showed a situation that the OEMs, was improving.
In the Replacement segment, while tire demand showed prominent - prominent decline due to the economic slowdown, mainly in the U.S. and Europe, demand for passenger for high-rim diameter above 18-inch and the tires continue to be relatively resilient.
Next is the tire sales unit growth for the first quarter. Passenger car and light truck tires and also on the truck and bus at the highest backed by economic slowdown - as in global total, it was lower than what was earlier in sales.
For the OE segment and the regional differences, semiconductor and shortage conditions improved, which meant that OEM is on of the production recovered to ship global total over the prior year level.
In the Replacement market, backed by the slowdown of economy and U.S., Europe, declined year-on-year in sales. For the mining and construction tires, ultra large-size 105%, large-size 110% was exceeding the prior year level, particularly the profitable mining tires. This was continue to increase.
In the premium domain, where our focus has further tightened, the passenger car and hybrid diameter tires above, 18-inches in global market was 104% in terms of the sales units. This relative strength stood out once again.
Adjusted operating profit analysis, JPY 15.7 billion year-on-year increase. Negative impact of inflation of raw material, energy and labor cost was covered by improvements in price and mix. And although declining demand pushing down sales volume, adjusted operating profit landed with an increase, over the prior year with the yen depreciation serving as a tailwind.
Performance by segment, in Japan and Americas regions, the results landed with year-on-year increase in revenue and adjusted operating profit as well as in other regions, increase in revenue, decrease, in profit.
For the Japan segment, robust increase in sales of mining tires, improved profitability of general tires and export business, coupled with the tailwind of weaker Japanese yen improved profitability over the prior year consolidated financial results by product therefore in this first quarter. Passenger car and light truck tires, year-on-year increase in revenue and adjusted operating profit.
However, declining profitability in Europe and changes and OEM versus Replacement segment composition is pushing down profitability, margin dropped from the prior year. For truck and bus tires in the U.S., the trade operations improved with revenue and profitability improvements. And as a result, increase in revenue and profits over the prior year, we see improved margin as well.
Specialties area, highly profitable and mining vehicle tires sold were and coupled with the tailwind of FX year-on-year increase in revenue and profit - operating profit as well as the margin significant improvement. For the diversified products and business, year-on-year increase in revenue, decrease in terms of profits.
So the next page showing diversified products and business on the continuing operations basis. Positive profits continued from the prior year. Chemical and industrial products and business increase both on revenue and adjusted operating profit with the further improvement of the margin, thus continuing on the track of improvement.
Sports & cycle business, positive profit was secured, however, year-on-year decline in both revenue and profits. Diversified products and business in Americas, due to the improvement in selling prices from the final quarter prior year, the margin improved.
Next is, the balance sheet and cash flow highlights for the first quarter. Total assets increased by JPY 32.7 billion to stand at JPY 4,994.9 billion, with the advent of yen depreciation FX was the major factor at play. Equity ratio increased 0.8 percentage points at 60.6%. Financial health continues to enhance. Free cash flow, positive JPY 39.7 billion, increase in quarterly profits as well as improved working capital condition, among others, pushed up free cash flow year-on-year.
Finally, I would like to give remarks on fiscal 2023 guidance. As said before, there is no change in the consolidated financial forecast for the fiscal 2023 from February guidance. But here, I would like to focus on the assumptions. Currency exchange, expect exchange rate levels of JPY 120 per dollar and JPY 135 per euro from the second quarter onward. Raw material costs, though natural rubber and crude oil, they are currently showing softness, raw material cost increase is expected in the second half of the year, as the economy recovers.
Tire demand in the OE segment. No material changes expected from February guidance for the demand recovery associated with continuous improvement in situation. Replacement segment, however, the overall demand, the recovery has been slower than the February guidance, which is expected to catch up in the second half of the year. Close monitoring is required, especially in the U.S. and Europe market and demand for the premium areas, which is passenger car high-rim diameter tires and mining tires is expected to remain relatively resilient.
Under such circumstances, favorable currency impact is expected compared to February guidance based on latest assumption. However, though the positive impact from year-on-year, the volume increased shrinks due to weaker demand. No change in the company's approach to pursue both volume increase in the premium areas and the price sales mix improvement.
And that completes my presentation to you. Thank you very much.
Hello again. This is Shu Ishibashi, Global CEO. In this session, I will talk about the mid-term business plan for the fiscal year 2024 to 2026. To build this plan, we are currently identifying and considering management issues one-by-one, as a global team. So, in this year's quarterly IR communication sessions, I will provide updates on the planning process.
As I have explained in the past, Bridgestone is accelerating transformation along our long-term strategic aspiration road map, which outlines where we want to be towards 2031, the 100th anniversary of our founding. In the mid-term business plan with this year being its final year, we move closer to becoming a strong Bridgestone capable of adapting to change. And we'll move on to the next stage from mid-term business plan '24 through '26.
In involving management, our three are: tackle past negative legacies squarely without delay; focus on execution and delivering results for immediate issues; and lay foundation for future growth. These three assets will not change. In the '24 MBP, we will balance these three assets while also focusing on creating new "premium" towards future growth. We aim to drive various evolution in management.
Regarding our management approach, we will be shifting from the crisis phase in which we focus on solving global common issues starting from COVID-19 to passion towards future growth "a passion for excellence." Building and managing strategy will, also move on to the next stage from being led by a global strategy to encounter common issues, we will deep dive into individual issues by region, while balancing consistency with the global strategy and continued growth.
As for earning power, which we focused in the '21 MBP, we will move from the rebuilding phase into a reinforcement phase. For strategic growth investments, we will move on to an expansion and reinforcement stage basing ourselves on the investment management structure built so far. We will also include talent creativity that we plan to implement as a global KPI from the '24 MBP.
Based on what I just said, above, as a business stage, we will clearly identify which business product category and region to reinforce and expand both a global and regional basis and pursue operational excellence across the entire value chain. I will explain more about the business stage.
In the '24 MBP, we will divide our business initiatives into five, as shown here to build our global and regional strategy. First, we will further reinforce the premium tire business, which we have focused on enhancing in the '21 MBP to a "sustainable global premium tire business" towards the next stage. We will develop strategies according to Bridgestone's position in each region.
The following three will be our core, North America, where we aim to acquire a leader position, Europe, where we aim to establish a unique position by integrating solutions while basing ourselves on the follow-up strategy. And Japan, where we aim to maintain and reinforce our Dan-Totsu leader position. We will also enhance our sustainable global premium tire business and regions which we anticipate will become the next profit contribution areas, South America, Southeast Asia and the Middle East.
Second, in emerging countries and growing markets, we will drive expansion and the premium for the passenger car tier business, especially in India and China. Third, we aim to evolve specialties and tires, which includes off-the-road tires for mining vehicles, one of our primary sources of revenue and profit into a Dan-Totsu premium business, combining premium tires and solutions.
We will take a premium leader strategy for the off-the-road tires for mining vehicles based on our Dan-Totsu product, MasterCore. For aircraft and motorcycle tires, we aim to establish a premium net strategy.
Fourth, we will expand the tire-centric solutions business, mainly in mature countries. For passenger car tires, we will reinforce our retail and service solutions network, primarily in the U.S. as well as in Japan, Australia and Thailand. For truck and bus tires, basing ourselves on retread, we will expand around North and South America, where we have competitive advantage, but also in Japan and Australia as well.
Lastly, as a new challenge, we aim to build a mobility tech business that links premium tires, tires and track solutions and mobility solutions, in order to provide new value to customers in North America.
We will begin by reinforcing the coordination between Webfleet Solutions in Europe and Webfleet Solutions Azuga in North America and expanding rollout of fleetcare, a package service, which includes tire services and fleet management, which will be a key factor in obtaining competitive advantage, hereafter. With this overall picture in mind, we will continue building the '24 MBP.
Now today, I would like to share progress on MBP planning regarding the general picture for our premium tire business as well as in the products in the asset core. In the '24 MBP, we aim to increase profit and reinforce earning power on both fronts. Increasing price, improving position and sales mix through providing - improving value to customers on one side and reducing cause an environmental impact on the other.
The axis for increasing price, are Dan-Totsu product power and product planning power. Leveraging the innovative tire technology ENLITEN, we will enhance basic performance while pursuing ultimate customization to customize products according to the desired performance by customer. We will also improve the sales mix with existing premium products such as high-rim diameter - so-called HRD tires and new premium ENLITEN equipped products.
To realize this, we will refine new brand power which we will establish from here, channel power that will be the growth enabler for both premium tire business as well as the solutions business. And global supply chain management power that ensures flexible and agile supply management et cetera.
Meanwhile, the access to reduce cost and environmental impact is our Dan-Totsu manufacturing and R&D power. Reinforcing Japan's manufacturing leadership, we will clarify the roles and responsibilities of 50 new tire factories around the world. Based on this, we will continue to develop and execute BCMA, which realizes ultimate customization to create new premium efficiently and reducing cost, achieving simplification and differentiation.
Furthermore, we will start realizing green and smart factories which aim to reduce environmental impact through the shift to green and to improve productivity through the shift that is smart. We will also drive co-creation with sustainability partners across the value chain.
Today, I will begin by explaining progress on our Dan-Totsu product power and power to improve sales, mix which are at the core of our premium tire business. First, we will thoroughly ensure enhancement of the existing premium, which we have been promoting. In the '24 MBP, we will continue reinforcement, but also we will add a new perspective, focusing on ultra-high rim diameter tires, which are 20-inches and above in diameter, where we expect strong demand growth resulting from the accelerated shift to EVs.
While focusing - while following the EV expansion trend in the U.S., which is our largest market, we will also reinforce on the global basis. Furthermore, towards the creation of Bridgestone's unique new premium, we will enhance product planning power based on the global product strategy, which we have been re-strengthening from 2020, continually elevating our Dan-Totsu product power.
As an example, illustrating customer recognition of the value of our Dan-Totsu products, in North America, we achieved a number one ranking in 2022 for the number of products, which achieved number one in the voice of customer survey by Tire Rack, a tire distributor based on e-commerce, who has overwhelming support from premium customers.
In Europe as well, we are receiving higher evaluations from magazines that have large local influence for premium tires such as the sport tire, POTENZA, winter tire, BLIZZAK and TURANZA 6 equipped there is ENLITEN. Based on this Dan-Totsu product power, we will continue reinforcing sales of premium tires in each region.
This year, for passenger car tires, we plan to sell more than 50% of premium tires among total sales of replacement tires globally and further accelerate and expand '24 onwards. For truck and bus tires as well, we will continue improvement in mix towards the premium. Moreover, in the '24 MBP, we will start at full scale, the creation of new premium where Bridgestone uniquely create value.
For passenger car tires, we will concentrate on expanding products equipped with ENLITEN, which we consider our new premium in the EV era. ENLITEN achieves both environmental as well as driving performance required of tires. For example, significantly improving EV driving range and electricity consumption through reduced tire rolling resistance, will contribute to lighter battery, reduced cost and improvement in vehicle's space utility.
We will start expansion the products from original equipment fitment then taking the recursion demand to accelerate expansion to replacement tires in the '24 MBP. By 2026, we will launch a cumulative total of 50 products to achieve 70% of ENLITEN equipment, also contributing to solving problems related to electrification of vehicles.
Regarding this ENLITEN to create new premium, we will develop further detailing that was in the '24 MBP, which we will provide updates accordingly. So this is all regarding client updates for the '24 MBP planning process.
We do appreciate your continued support, and thank you very much for your attention.
That was Mr. Ishibashi, our CEO's presentation, the progress of mid-term business planning. Now, we are ready to start questions and answers session. Let us start with questions from Mr. Sakaguchi from Mizuho Securities.
Thank you very much, Sakaguchi speaking. Two questions to you, the first regarding your first quarter performance results. The second question regarding the MBP. First, as the results, market environment in North America and Europe as well as the strategy and I would like to hear more. For the passenger car and the tire business, thank you very much for your explanation in details. So that would suffice. However, for the TBR, I would like to note more.
So the BH Europe and/or the U.S. in the sense of deceleration this year for the market, the economics and then you say, that in the second half, the recovery is contemplated. And the starting point, however, is relatively slow, slow starting ramping up in the phase of recovery. And so once again the confirmation of your reading, the current status and how to recover into the second half, what particular actions in mind?
Mr. Ishibashi answering, thank you very much. For the TBR business operations, more than anticipated, it is true that there has been a decline in demand. However, focusing on retread operation since last year, we have been enhancing this operation, have been making investments. This plan to capture the benefits from those investments and activities from the past so that, that all together can support the overall operations.
In the first quarter, North American retread operation indeed turned out to be quite a strong price volume, coverage and all regards, it was good. So to what extent, we can have good coverage coming from the retread operations going forward in this fiscal year. And as the fleet business, when we say in the fleet business, but it comprises on the two sub-segments; the vehicle fleets as well as those working with the mid to small-sized dealer operations.
The dealer support and dealers are the ones who are caring for these entities. And as we hear, there were various reporting in the midyear, the situation at the moment is tough, although the demand is set to recover in the second half. So as I say its dealers who typically will take care of these inland the trucking companies.
So for the passenger car and operations, the recovery will be more resilient and faster than for the TBR side. It is true, that we do expect recovery to come about into the second half of this year. But then, let me try to sort out our expectations and thoughts. Truck and bus tire operations and mindful of those and the truck fleets, there are sophisticated large fleets. We probably and will start to get on the track of recovery.
That said, though, depending on the particular sort of situations, we have to be flexible. And therefore, the truck and bus tire operations, in the second half of 2022, there was a shortage of supply of our major brands, including Bridgestone and that allowed encouragement made by lower priced, the suppliers and the part - so as a result, inventory was inflated.
In the first quarter, we saw the relatively high level of inventory of goods. So going forward, one key point would be to successfully the - sell those goods in the inventory by capturing real demand. Now once again, in reference to mid-to-smaller size in the trucking operations whom dealers take care of, the sensor speed is very important, dealer support for inland trucking companies.
I met with them in the first quarter. And I spoke about these matters, I will be going back to the stage next week in - to make sure I have the sense of the situations and to further our discussions. But I would say that the concept of having to sell off, from the inventory goods accumulated and the realization of in demand into the actual demand. The sense of judgment is very important. But I would say that more or less speaking, I can be confident that operations will move forward.
This action free after all last year and there was a fiscal year, when despite the shortage of the goods to sell. Leaders were very supportive and cooperative towards us, so now for them have to proceed at pace for the carrying of those - the inland trucking companies.
Well, thank you very much. I understand what you're trying to say. And thank you very much. It's very clear. And the second question. I understood your explanations first of all, but in reference to the long-term strategic aspiration aiming for the year 2030, more than JPY 5 trillion revenue and adjusted operating profit and exceeding JPY 800 billion, in that context, how would you position the '24 MBP that you have made - the various initiatives and spend money for the premium strategy and solutions and business strategy?
Would you say that for the '24 to '26, the MBP horizon - I suppose that you will still be making investments? And if so, the reaping of benefits of those upfront investments would have to wait until the MBP, which will come after the '24 MBP or would you expect some of the good fruits of the past effort will come about can be reaped in the phase of the '24 MBP?
Thank you for the question. My answer as the CEO is that obviously, we have to keep at it. But back in March, as we had a Global Executive Committee meeting, we had the kickoff - in this regard, I'm speaking on a kickoff, last summer, we announced long-term strategic aspiration and since then, various environmental changes and of course, they're having to be mindful of the actual performance results. I have been proceeding, to-date.
One important point is to further enhance our earning power. And in the course of '24 MBP, please take a look at the points one through five, starting with sustainable global premium tire business. It's in the order listed here. We would first start with sustainable global premium tire operation to generate the earnings. So one, two and three out of five points listed here, it is secure earnings solidly.
And in order to execute on this point one, two and three, we need to take a look - at the further premium orientation in the manufacturing on the footprint to be able to accommodate larger rim diameter tire to come into point. This or the conversion of the network of plans as well as the overall enhancement, what I am trying to say is that we will continue to make investments, as it relates to the manufacturing footprint.
But at the same time, they're starting to reap benefits from that so that to be premium enabled to become further ready for the ENLITEN technology. Point number three, in the specialty and the tire business. And that was on point number two, in emerging countries, in particular, India and China. Scenario change is not needed, no change there. By securing the earning or the funds to spend and then we'll move on to number, which is tire-centric solution, retread operations, has history already track record already and also, therefore in the retail network.
So, we should be able to expect earnings to come about a bit through what is already operated, be it retread - the retail network and services. And we will generate on funds to spend for investments and those investments turning on to earnings. And in doing that, I do believe that we can take on the newest challenge of number five, which is mobility tech business in North America.
Speaking of mobility tech business in North America let me say a word about Webfleet Solutions. This is an entity which is acquired back in 2019 to become the member of the Bridgestone Group and since then, various episodes such as now its COVID-19. However, the sense of speed of the operation of Webfleet Solutions I - always wanted them to become - a bit more agile.
However, they are convinced, and I feel that Webfleet and the folks do recognize that this will be real-time monitoring of the data coming from well cores and also from tire, the overall on the program enhancement has been - has started to be made. And that would lead to the value enhancement for the Webfleet operation of large.
Those - the colleagues working in the Webfleet operations obviously feel that and I felt that this will be face-to-face interactions. So, they are more motivated. They are more eager to move forward. So that is very, very heartening, I thought. And also yet another point, which is rather characteristic of the Bridgestone culture which is always to stay close to customers, or stay close to customers being willing from the two-end being able to provide solutions into their problems and trouble.
And in doing that, the service providers, the programs can be enhanced so that's exactly what we would expect from Webfleet and that's exactly what we already experienced back at the time of the Bandag retread and provide you the acquisition in 2007. So first, with Bandag, now with Webfleet, those acquired operations continuously become stronger, more valuable and more motivated.
So although, I'm not going to the names, be it the OEMs - and the trucking companies or the truck manufacturers, there are various on the - respective programs that they develop and operate. So that means that 900,000 vehicle worth of database that Webfleet has its strength. So that is what I will keep in mind.
So speaking of point number five, mobility take business in North America, the combination of premium tire retread and maintenance and mobility solution, all packaged into the solution package. That is quite promising. Of course, that's a challenge which we will take on. But in the period of '24 through '26 fiscal, which is the cause of the '24 mid-term business plan, it's pretty mature to expect, that benefits they can accrue. This is going to be the period of upfront investments.
We need the scale to accomplish a critical math in these services. So point number five, establishment of mobility tech business in North America, we will start on the ways upfront investments. And that's what we are going to do in the '24 MBP. So the large objectives is that in the '24 MBP, that we will generate earnings through the premium tire business operations and tire-centric solutions business, part of the those that can yield the earnings so that we can begin to make upfront investments for mobility tech business in North America.
During the period of '24 MBP, which is '24 through '26 and then that can linearly lead into '27 MBP. With '21 MBP, we were able to go up to some dozen percentage at the point in the progress level. We can continue with upfront the investments necessary, which we are totally willing to do. However, on top of everything that we have been doing, we do need a little new platform. So that is what we are going to do with point number 5, mobility tech business.
First, we have to be mindful of the immediate operation environment, how much we can generate as our earnings. Is it the max that we can do, but in continuously doing that, we will move forward. Key of the performance in the indicators will be the - ROIC/ROE. We will keep on tracking those. It's not as though that we can always constantly expect the improvement in those ratios all the time. But we will do the most that we can do. And come next spring in '24, I'm sure that I will be able to view to you further details.
Thank you very much that completes my questions to you.
Ms. Sakaguchi, thank you very much.
Let's move on to the second questioner who is Mr. Maki from SMBC Nikko Securities.
Thank you, Maki speaking from SMB Nikko. I too have two questions to pose. The first as regards to performance results for the first quarter and the point - question number two is the mid-term business planning. The first quarter is about full year guidance, the effect of pricing. That's what I would like you to explain further. Earlier, I remember hearing that good benefits of the price increase, is the one that you would expect?
However, the softening of the cost situations and I wonder, whether there's any enter the possibility that you would have to - there may be extra room to adjust the prices downwardly, because of the cost development? Also, I'm sure that you are talking with some dealers. But from the standpoint of dealers, what is it that do you think they prefer? The higher prices, which would be – the, enlarge - the value, the inventory or they prefer to have lower selling prices because that would make it easier for them to sell items, which are today in the inventory?
So, in your conversations with them, dealers what's the sense that you get? And by the way, relating to this, raw materials, what you said is that the cost the improvement to the recovery. The non-Japanese manufacturer, tend to think that throughout this fiscal year, it is going to be the continuation of the turn to recovery. What do you think?
Thank you very much for your question. The price increase is always a very sensitive matter. In the current fiscal year, I said that we will continue to hike prices. Of course, mindful of market condition is competitive first, before finalizing our decisions. But for the first quarter, we announced the price increases, which have been executed. So on pricing, I would say that we have a certain leading edge, which can cover various other negative factors.
You also ask about the sentiment among dealers as their method of their inventory. With the higher prices to sell, the total value of the dealer inventory can become larger. That's encouraging provided that they can sell those goods in the term market and also the emerging conditions they can be expected to improve - this little-by-little and their selling price increasing is under the working conditions typically at dealers.
The current situation at dealers is that their inventory has been inflated and they have to make sure that those goods can be sold into the market by realizing inventory demand into real demand for them. So to what extent that can be successful? How much time with dealers need? So those are the considerations and assessments that dealers are making.
I would say that national fleet or existing fleets, these are very important customers of ours. They understand and accept the value based on tires. And therefore and combining also the retread and the service capabilities, they would be more willing bit to listen to and in the end, except the request for higher prices to sell.
Now for your guidance, Mr. Hishinuma speaking, well on the raw material and the prices. Well the second half and thereafter, because we will become larger or - and also having to be mindful of energy, labor and those inflationary effect. The negative on the combined effect is there, but not as much as we once anticipated. So these are all collective positives. So in comparison with what we considered and gave you as guidance back in February the conditions more recently has recovered or has eased.
OpEx and export freight in the conditions. Today's conditions are better than February observations. And as to other costs, conversion cost, no big change. So I'm just repeating, what I already said in the presentation so raw materials and OpEx vis-a-vis February, all in all positive. That is our current observation.
Ishibashi back again. I would like to say a word on ocean freight, which has been for the past several years. Really decline, which was very sharp in magnitude causing much hardships upon all of us based on - has been impacted by that as well. However, relative to others, they have to rely on ocean freight their service impact that we felt as Bridgestone was probably a little less.
Now the situation is starting to ease because the magnitude of negative impact was relatively small. The magnitude of recovery, how much of that we can feel would probably be more limited at least in comparison with smaller manufacturers, who felt the dire impact of the higher ocean freight costs payable and now in turn, they can look to the probably bigger benefits of easing conditions they are based on.
However we at Bridgestone, as we exemplified in the full year guidance, we are looking going forward to the easing of conditions and to an extent in these negotiation measures, and so how successful we can be.
Thank you very much for that answer that suffices. So what you say in my read, let me summarize, what you said is that the so-called Tier 2 manufacturers start on the very challenging conditions of having to compete against manufacturers. They also have the inventory issues and in comparison to business conditions today, is that the selling conditions are good and expected to improve?
The pricing, the situation is stable enough. Having heard that though, that the CPI decline is starting to happen? And if, the cost situation goes - going forward changes, then the overall costs prevailing can become lower, may present you with different considerations necessary, and you will consider what will be the actions to make as you get to that situation, correct?
Well, my answer as the CEO is that business is always like that. There are three fundamental factors of cost, selling price and volume, how to strike the optimal balance among the floor? Operational judgments are very, very important. And we know that there is adequate progress in making those operational adjustments or not. That's all after the top of the operation, the competence of those heads.
In the first quarter, I did have conversations with local operational costs. So to what extent, if you take it with a grain of salt as everyone says, that differs from one head to next. So sometimes, some operational heads were the most successful than others, the slight delay in accommodating accepting the price adjustment, the gate and dire results or others were more successful.
So this sort of sense of balance is very, very important and is always there. Again, under the balance of price volume, that the volume of premium good and cost. When this balance is adjusted successfully, then the bottom line to be generated they can benefit the operations. If you ask me of my - on the result of this balance is very, very important, and I'm not going to yield on that.
Thank you very much for that answer. It was very thorough and clear, more than anything else. My question number two, refers to the mid-term business plan. You said previously that JPY 1.2 trillion understood investment the funds or the amount will be set aside, which is simply put in double what it was in previous MBP. And I recognize that in order for you to challenge the enhancement of the solutions business, you do need to make investments such as for items number four and number five, on that strategy.
So where would you make investments? What will be - and when will be the timing of the return to be recouped? Is it in the course of '24 MBP and leading these discussions will be the BCMA ultimately. I don't know to what extent you can answer on that? Well thank you.
The topic that I very much prefer to answer in our global discussions, we sooner or later recognize that we cannot just stay to take a look at situation from a global perspective. That's the reason why I refer to regions over different businesses and programs. So each of these are the regions, specific or the business-specific or the program specific matters were analyzed to come up with the list of items, which you see on my presentation slide.
And all of these items are the ones that we have more or less the certainty from what it's likely to come about. Speaking of others, which are not even booked in these presentations. There are many more by region, something the premium tire business in Africa, too early to speak. Tire-centric solutions, various challenges and some of the challenges worth that we once took on. However, as we recognize that those challenges and attempts were not yielding well, that we decided to withdraw cancel or modify. I am sure that we continue to have that sort of exercise.
Speaking upfront investments, of course, we need to make upfront the investments. However, we will make sure that a business case can be examined ahead of those investment decisions. Which will not expected to return the business case and that would suffice. So all of these processes have been followed, and before we come up with a set of five that I show on this page or the business case, meaning that there's some acceptable and the numerics are available for each and every one of these items.
So outside of these items, to what extent that we can incorporate those other opportunities into the MBPs, back in '21 MBP, we had similar sorts of discussions. The solution investments, premium investments, the premium tire business, now India, China and other areas. What about mining tires? I know that there are always going to be opportunities which were and the stringent investigations by us.
So our future will be full of - in terms of opportunities. The key to success will be to scrutinize and examine the business case to identify those opportunities - successful opportunities, as early not possible before the others latch onto those and so that we can reap the prior years of the benefits. Management resources being finite, is always with us. So, the choices that we are making are tire-centric solutions, these are basically in mature the country markets.
Mobility tech business, why not start in North America and that is the market with the most preparedness. Certainty is the highest. So I hope I am speaking adequately on what we announced as long-term strategic aspiration to 2030, although the thoughts are with us and here, we are translating that into the contents of '24 MBP. Obviously, we will never allow and wait for the investments or wait for activities which in time - we on the free of funds, which were to be truly ready to be invested.
By the way, investment costs are very tricky, because even if it was expected before the final judgment to make those investments with situation changes and whatever else, we may have to forgo or delay or cancel even some of the originally - expected investments. That's part of it.
Thank you very much you are as always very through. Thank you very much.
Thank you, Mr. Maki.
So that was Mr. Maki from SMBC Nikko. Now let me ask you Mr. Sakamaki from Daiwa Securities. Thank you very much for waiting.
Thank you Sakamaki speaking. Thank you for your time once again. I have two questions. The same as the other analysts, the performance results and MBP, the first question may be answered by CFO. The first quarter, the adjusted operating profit versus the internal business plans that you have how would you assess that? Back in the days of Mr. Yoshimatsu, there was the cyber-attacks in North America, which pushed down the profit by some JPY 19 billion. And you are to compare this first quarter - on the adjusted operating profit result versus that JPY 19 billion. What do you think any repercussion or anything further the slowness of recovery?
Okay. So let me answer the question. This is Hishinuma, CFO speaking. The waterfall chart showed that raw material was a positive factor, because the impact was less than what was anticipated. Price and mix as well, the positive factors and conversion costs and OpEx and these are cost items. But those costs were not as severe as anticipated, so I can see it relatively positive.
On the other hand, volume, sales volume. What we assumed did not come about 100% so it was a little bit vary so the negative, the offset against these set of positives. FX, we thought that yen if anything, may appreciate a little bit, no, it's clearly the phase of yen depreciation. So FX is a factor, is positive.
So are you trying to say that the JPY 168 is over and above your internal business plan, inclusive of FX as a factor?
Yes, it's above our internal business plan.
My second question goes to Mr. Ishibashi is about mid-term business plan. You focused basically on the premium tire business in particular, I'm interested in further explanations about your electric vehicles, EV tire, ENLITEN technology. Other companies say that EV tires tend to show the strongest sense of loyalty from customers. What they're saying is that, the regional OE finish from the tires, other ones that these customers like it to purchase in the aftermarket more so, as a trend than with the conversion or cars and tires?
I wonder, if you agree? And if so, EV markets are starting at first in Europe and also China, would you be willing to capture shares in the OE business, even with a little bit of challenging conditions so that you can recoup the business in the aftermarket?
No. There are other various on the international discussions, which I talked about Euro 7 or the entire road wear particles. Anything that you can say all in all about EV tires, my answer, Ishibashi speaking. EV tires, OE segment is increasing. And it's not only Bridgestone. I know that is on at our French competitors as well. And what you say to be the remarks made by other companies. That's what we refer to, as recursion demand concept.
How the OE fitment - the tires are the ones that customers would seek the purchase in the replacement market. So that has been so with the existing premium tires, even if you sell aside ENLITEN, with EV tires or the high-rim diameter tires. It is true that the Europe and China going ahead of the other EV country markets or regional markets. Next will come is set to be North America, where because have always been driven and with stores and big tires.
So with the shift towards the EVs, even larger diameter tires will come in demand in North America is something like above 20-inches. And already, we have a strategy thereof. We are ready, so that we can aggressively recapture debt coming demand. As the top tier manufacturer, we, of course, we have a strategic first - but as you say, it is always true that in the OE segment of the tire business, we have to be willing to accept a certain rather challenging terms and conditions.
So, that we can look to good benefits to come in the replacement market, OE business is quite tough, to be honest, but even despite that toughness, it's not red ink. It's - the positive little profits. So it's a totally different sort of business required in the OE segment, totally different from that in the aftermarket. Our emphasis on the premium models of all the OEM car models reflect that and high-rim diameter tire fragments
Also that we will be able to enjoy good recursion demand in the aftermarket, obviously and it's not in names only that we always say that our mission is the first and foremost to contribute into car companies, it is so very true. But behind the scenes, there are some rather marginal decisions that we have to make - to accept. So be that as it may, EVs with higher rim diameter tires. OE segment going first to be followed in the replacement segment demand.
How successful we can be? Therefore, on the passenger car and tire and the business that is always very, very critical. So the passenger and the car tire business profit base is there. Now we have something also to look forward to, which is the ENLITEN technology, the new platform technology. So a new premium position, how we are going to establish that? How we are going to secure and sustain that position? Like our French competitor is thinking that we are thinking the same.
In our case, ENLITEN is value. Simply put, it is to enhance the performance of tires. So the customers have varying needs on tires. The performance enhancement is always preferred demanded by customers. You mentioned in tire and road wear particles so-called TRWP. Industry-wide, the endeavor is continuing and the various details have to be identified. But we understand that the concept there is going to be a longer durable life, and yet the protocols and those negative the aspect of the typically considered longer life can be covered further.
So that's what this - ENLITEN technology is all about durable life is set to be extended by some 20%. Well so this foundation technology, they are conflicting the attributes with the conventional technologies. But with the ENLITEN, and this is a complete new foundation platform technology. These are the conventional dynamics of one going up and the others are having, to concede does not have to come about. I'm not going to go into details today, that's for the future sessions.
And speaking of future sessions, BCMA producing this simplistically and yet to be able to positively differentiate, would mean that the value would be enhanced and yet caused to incur and it can be saved. That's very important. What we are doing at Bridgestone is that across all of the 50 manufacturing plants, visualization processes going on. ENLITEN technology or the commonality and; modularity which plans to introduce what's into how the process discussions.
So these ongoing records and discussions will be possibly added into the future mid-term business plans. Identifying further cost saving opportunities further its improvement opportunity. The further opportunities to enhance our pricing positions, we are obviously at the earlier phase of those generations. My expectation is that in the June round of the Global Executive Committee meeting, we will make judgments about these matters, for all of the 50 plants, one after another.
So, please remember the balance that I talked about, the volume mix cost and price, our understanding and expectations will have been clarified. Branding, sustainable brand power, how we are going to enhance the brand power? All of these considerations are going in parallel, with one another because all of these - and the other factors and issues have been with us. Therefore, sometime already each bearing do importance and significance.
So what wasn't done in the past is for review, so that we can possibly realign. So I started to talk about ENLITEN, but be ENLITEN and high-rim diameter tires, EV coming opportunities, we will capture one after another good timing after the thorough examinations. That is the key point about our mid-term business planning exercise.
Well, looking at you hardly you seem to have an expression - on the face and saying that – well - Ishibashi goes again. But I will convince you that it's not just that I have in mind in future sessions.
I am laughing, but thank you very much indeed.
Mr. Sakamaki, thank you very much.
Everyone, we have to be mindful of the time remaining. I'm afraid Mr. Kakiuchi from Morgan Stanley Securities you're going to be the last question. And very sorry, Mr. Kakiuchi, I have to ask you to pose only one question.
Accepted thank you. I also like to focus on the recent passenger car and the light truck on the business repricing business, domestic 81% in Q1, whereas industry average was 92%. You being the top runner in the domestic industry, obviously, I don't think [indiscernible] any had a big disparity between your standing and the industry average. I wonder, if you can analyze this a little bit further. Is it about the effect of the price hikes or something else?
Mr. Hishinuma will go first as CFO.
Yes. Last year, we started to discuss price hikes. We executed that in April. And back in March, there was the - the one-off demand which was created. However, that was in the prior year, and this will compare against that, and there was a repercussion for this year.
Understood and now the challenge of hiking selling prices in the Japanese domestic market. I, as the CEO, also would like to remind you that this is something that we started to do in the prior fiscal year. Once announced, then to what extent that would stick to the market, at this another and sticking of the announcement to the market, this is where the Japanese market is much more challenging than in other markets, be it Europe, or North America.
But, with thorough discussions and explanations, we have been able to overcome some of the hurdles and we have - prices in the prior year that resulted, however, with the prebuy, and we have to compare this quarter's number against the prebuying effect, affected on the results. Speaking of the prebuying income is the phenomenon. In the most recent round, our experience has been that it was not as much as in the prior round of the price hikes.
It seems to have been taken modest speaking as an extension of the normal business course. And of course, we have new products. Now many thoughts, but I would like to also point out that in this tire industry in Japan, Bridgestone is the party who hasn't been relatively aggressive in executing price increases.
Okay. So what you're saying that in comparison with the Europe or the North American markets, do you imply, as I think that this further win for selling price increases, what do you think? What are customer reactions and sentiments?
My answer as the Chief Executive Officer, the Japanese passenger car and tires business. Bridgestone and passenger car and tires be it Regno and BLIZZAK the prices are off overwhelmingly high. Overwhelmingly itself, and that's unique as a condition because going to Europe and North America, Michelin and Bridgestone, the pricing is as comparable to one another. But in Japan, our prices are so high absolutely so.
So that is the situation to want to execute on the price hikes and we have been mindful of the industry characteristics of the national sentiment of the Japanese. The sort of hurdle we can see even higher and higher. And yet, we feel that there's more that we would like to there to execute and extra carrying it becomes necessary to explain and discuss and convince the counterparties to our conversations.
There are other factors, be it inflation, yen depreciation and the heightened energy charges and labor costs. So, all in all, to produce tires in Japan and to sell in Japan, to produce and sell goods in Japan is so very difficult, regardless of whether it is the OE segment or replacement segment. So that's the nature of the tire business in Japan so made in Japan, sold in the outside market. So that's export business is different because in the overseas markets, we have been able to execute price increases more so than in Japan.
And then this is the phase of the weaker Japanese yen. So the export is very good. So on one hand, made in Japan sell in Japan is quite severe and challenging that is the actual sense that I have and my flow of inflationary turn of cost, to what extent we can't really offset all of those negatives with the price increases, not to net 100%. So that's my honest observation.
Thank you very much, Mr. Kakiuchi, and thank you very much, everyone. Our time is up. I'm afraid. This is the end of Q&A. And with that, we complete today's presentation of '24 mid-term business plan in the progress presentation. Thank you very much indeed for your participation. Thank you very much for staying with us, to the very end. This wraps up today's program.