Bridgestone Corp
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Bridgestone Corp
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I am Hishinuma, CFO at Bridgestone Corporation. Thank you very much, first and foremost, for your participation on the announcement of the financial results for the first half fiscal '21. So I'm going to lead off by giving you the overview of the performance overview.
This page shows my agenda today. So first, business and financial performance for the first half fiscal 2021.
This page shows the overview of the performance and key initiatives in the first half fiscal 2021 based upon the midterm business plan, which was announced back in February. Both sales and profit increased significantly year-on-year as global tire demand recovered and sales increased mainly in Replacement segment. Because of the raw material shortage, the negative impact was there. However, it was offset by the price/mix improvement. In addition, the expense and cost structure reformation contributed to a further improvement in adjusted operating margin, which improved from the second half -- from the first half -- first quarter to the second half.
And therefore, the sales by product and PS/LT, sales of both Replacement and OE increased, especially for high rim diameters above the 18 inches, even in reference to 2019. Replacement tires expanded sales volume while focusing on major brands. Sales in North America, which lagged behind in the first quarter began to recover in second quarter. For the OE, they recovered significantly year-on-year, but the market is still far recovering due to the impact of semiconductor shortages.
TB tires. Replacement sales in the first have recovered significantly, supported by strong construction and transportation demand. OE, the impact of semiconductor shortages as in the PS/LT category.
ORR tires. The trend is in recovery since the beginning of this year for mining tire sales. However, the recovery is still a little bit weak. Construction sector have boosted the sales of the construction tires, both in Replacement and OE.
Please be aware that based upon the midterm business plan announced back in February, we have been proceeding through the structural transformation to 2023.
Setting aside the details, for now, let me say that premium business strategy meant that premium portfolio of reinforcement was acted on. Expense and cost structural reformation, productivity improvement and maximum usage of existing equipments yielded JPY 12 billion improvement in conversion cost in the first half. Business portfolio and manufacturing footprint restructuring has been continuing.
Strategic growth investment, the growth in investment to expand mobility solutions. Investment in Kodiak Robotics, and we developed autonomous long-haul tracking technology was executed in June. And the agreement to acquire Azuga Holdings, who is an American digital solution provider, was announced back in August.
Next, let me move on, kind of, to the performance results for the first half. Business environment first, currency exchange. U.S. dollar remained at the same level as in the previous year, while euro appreciated against Japanese yen. Raw material prices, natural rubber, inflation since last year subsided slightly, but prices are still high. Crude oil, prices soared greatly from the second quarter -- from the first quarter to the second quarter. Tire demand, significant recovery year-on-year, mainly in North America and Europe. Especially Replacement in North America was much above the level of 2019. On the other hand, OE demand remained still lower than 2019, which is due to the impact of semiconductor shortages.
Next, I would like to move on to discuss the tire sales growth for the first half of fiscal 2021, referencing to the previous year and also 2019. The global sales of PSR/LTR tires versus 2019 was 90% and that for TBR was 97%.
Speaking of TBR sales, in North America and Europe, Replacement segment sales exceeded the 2019 level, exhibiting strong recovery. For the PSR category, above 18-inch-high rim diameter tire sales continue to stand out. For ORR tires, ultra-large size tires in reference to 2019 level was still a little bit weak. However, for large and small and medium sizes, backed by robust construction demand, sales recovered remarkably.
Consolidated results for the first half of fiscal 2021. Revenue JPY 1,568.8 billion, which is 24% increase year-on-year. Adjusted operating profit, JPY 176.2 billion, 369% increase year-on-year. Profit attributable to owners of the parent, JPY 352.3 billion, which made a remarkable recovery from having less yielding conditions.
Be aware, please, the JPY 352.3 billion increase, JPY 228.7 billion profit contribution from the Firestone building products in the first quarter, which by now has been classified as discontinued operations.
Into the second quarter, raw material costs as such impacted significantly. However, rebuilding our earnings target initiative enabled profitability to improve further. And as a result, adjusted operating margin in the second quarter was 11.6%, which was a further improvement from the first quarter.
Analysis of adjusted operating profit for the first half. On a 6-month basis, raw material impact was negative year-on-year, which has been more than offset by price improvement and mix improvement. And also sales volume increased, particularly in the Replacement segment and the conversion cost improvement pushed up the profit. So excluding the impact from the sales of the FSBP in the previous year, increase of JPY 138.6 billion.
Be aware, that conversion costs include the effect of improvement in Gemba operation at production sites standing at JPY 12 billion on top of the sales improvement. And also for operating expenses on top of the effect of sales and volume increase, which pushed off the variable costs, impact of ocean freight rate increases and pressure on profit, but there was an increase in adjusted -- on the operating profit as you see here, much owing to the cost structure improvement.
Next, let me discuss the financial results by segment. In all regions, please note that the results this year shows much improvement in revenue and profit from last year, where COVID-19 impact was quite severe, particularly in Europe, Russia, Middle East, India and Africa region, volume and mix improved, which pushed up and improved the profitability from loss-yielding conditions last year, so that adjusted operating margin of about 5% was recorded from this region.
Next, by product, PS and LT, revenue was JPY 789.4 billion, with the operating margin of 14.2%. TB tires, revenue JPY 370 billion with adjusted OP margin of 11.1%, in either regard, testing to the improvement of the situations. For the specialties category, comprising of the road, aircraft, agriculture and motorcycle tires, revenue was JPY 191.2 billion with the adjusted OP margin of 18.9%. Whereas off-the-road and aircraft tire sales are still a bit weak. Profitability nonetheless has been improving season last year to a record in the higher-level margin.
Moving on to discussing Diversified Products business. On the 6-month basis, revenue was JPY 179.7 billion and adjusted operating profit was negative JPY 2.2 billion. On one hand, Diversified Products business in the Americas and Sports & Cycle business were favorable. On the other, Chemical and Industrial Products business in Japan, though improving from last year, continuing to embrace portfolio issues. So JPY 6.2 billion negative adjusted operating profit.
Balance sheet and cash flow highlights for the second quarter of fiscal 2021. Total assets JPY 4,436.4 billion. Particularly in the first quarter, the sales of Firestone Building Products had cash in effect, so a year-on-year increase of JPY 247.1 billion in assets. Equity ratio having increased 6.9% from December end of last year, 58.2% exhibits continued strength. Free cash flow, due to the sales of business, cash flow from investing activities had cash in hand, resulting in a free cash flow of JPY 381.4 billion.
Adjusted items and profit from discontinued operations for the first half. Adjusted items: Expenses related to the closure of restructuring overseas plans at JPY 5.1 billion, impairment losses of JPY 1.7 billion, also JPY 0.3 billion for others, totaling JPY 6.5 billion. With the classification of Firestone Building Products as a discontinued operation, gain on sales relating to the transfer of FSBP as well as profit from the operation for the 3 months from January through March totaling JPY 228.7 billion is recorded as discontinued business quarterly profit.
Moving on now to give you the consolidated projections for fiscal 2021. Business environment assumptions for the 12 months. Currency exchange, U.S. dollar expected to appreciate against the Japanese yen compared with the February assumption and the same for euro as well. Raw material prices, both natural rubber and crude oil prices are expected to remain at a high level throughout the year. Tire demand, we expect solid demand growth year-on-year, thanks to the continued global recovery trend. And for the OE demand, we expect that segment to recover as the impact of semiconductor shortages will be resolved in the second half.
Tire sales growth projections for fiscal 2021 in the incremental 5% versus the previous year. Let me point out that be it for the Replacement or the OE segment in all regions, a substantial sales increase is projected by product, in particular, backed by robust demand coming from construction and the transportation sectors, TBR, large and small and medium sizes in the ORR category is expected to recover strongly. For PSR tires, to continue above 18-inch-high rim diameter and PSR sales will increase. Two, contribute not only to the volume increase, but also towards the sales mix further improvement.
Consolidated projections for the fiscal 2021. Revenue, JPY 3,320 billion, which is an 18% year-on-year increase and be aware that this represents 10% upward revision from the February announcement. Adjusted operating profit, JPY 360 billion, 85% year-on-year increase and 38% upward revision over the February announcement.
Profit attributable to owners of the parent had JPY 325 billion, remarkable recovery from the previous year, which was in the losing condition. And as adopted by key indicators for the management, ROIC at 8.3% and ROE at 10.4%, both represent substantial upward revision from the February announcement.
For the adjusted operating profit, let me give you the analysis for fiscal 2021. On a 12-month basis, raw materials price surge will impact negatively, and that negativity will expand. However, majority of that can be covered by the improvement of the price and mix improvements. And sales volume increase and conversion cost improvement will push up the profitability. So excluding the impact from the sales of FSBP in U.S. last year, JPY 165.1 billion is magnitude of increase in the adjusted operating profit.
For operating expenses, please be aware that those aiming to maybe inflating variable cost increase associated with the sales increase and also the impact of ocean freight rate increases is there. And also, the previous year's gains on sales from the fixed assets, which served as a negative operating expense should be reminded of.
Finally, to talk about revision of dividend forecast. It was back in February that Bridgestone revised our dividend basic policy, which means that stable and continuous increases of dividend payment amount by substantially enhancing our corporate value. We recognized that the first half performance for this fiscal year exceeded our projection back in February. And also for the full year forecast, you can see that we made upward revisions. Given such results and reference to the revised basic policy and dividend, we determined that interim dividend payout of JPY 85 per share and fiscal year-end payout of JPY 85 per year, totaling JPY 170 per share will be paid out.
And going forward, the company will strive to achieve stable and continuous increases of dividend payment amount by sustainably enhancing our corporate value, thereby responding on to the shareholders' expectations towards us. And that completes my presentation to you. Thank you very much indeed.
Hello, everyone. I am Shu Ishibashi, Global CEO of Bridgestone Corporation. Following the first half results presentation, I would like to give you the progress update on the midterm business plan, execution and results during the first half of the year.
The midterm business plan that we announced in February is our detailed action plan for the years 2021 to 2023 to accomplish toward a sustainable solutions company, support the mobility and movement of people and objects, create social value and customer value, and gain competitive advantage. Positioning the tire business that produce and sell tires as our core business and solutions business that provide value at the time of tire use as our growth business, we will coordinate the 2, amplify their value and continue their expansion and reinforcement.
Additionally, we started exploring the recycle business, which renews end-of-life tires to raw materials. By 2030, we aim to facilitate a circular economy, where business value, for example, of revenue and profits, is sustainably generated, linked with efforts towards resource circulation and achieving carbon neutrality across all of our business areas of produce and sell, provide value at use and renew.
For the first half, considering the remaining uncertainties of COVID impacts, we continued thorough crisis management, while also thoroughly execute rebuilding of earning power, which started last year. We have also fully started strategic growth investments toward the future. We will continue carrying out our midterm business plan with an aggressive approach and challenging spirit.
I will first describe execution results and the 2021 full year forecast from a financial standpoint. We continue to push forward with rebuilding earning power, which started last year. In terms of revenue, we expect to achieve the 2022 level outlined in the midterm business plan ahead of schedule.
As for gross profit margin, we expect to partially exceed the plan and approach the planned 2022 level of 40%. We will continue to focus on execution and results in the second half.
Adjusted operating profit, ROIC and profit from continuing operation -- continuing operations, also are expected to achieve the 2022 plan ahead of schedule. To achieve our 2023 target in advance, we will continue to thoroughly execute rebuilding of earning power and accelerate transformation into a strong Bridgestone.
Let me now highlight execution results for the first half by business. In the Core business, to continue thoroughly improving the quality of business, we are driving rebuilding of earning power and the premium business strategy, focusing on and expanding sales of high rim diameter PSR tires and major brands, improving the mix for all product categories, continuing to reinforce price management, including price increases in response to rising raw material prices and continuing manufacturing improvements that translate into results.
Flexible agile management around our supply chain is supporting to capture demand recovery and an aggressive sales plan. We're also reinforcing our structure for premium production. To respond to the accelerating shift towards EVs, we are expanding and reinforcing ENLITEN technology as a new premium, which takes into account the evolution of mobility and sustainability. For expense and cost structure reform, we are continuing to examine and execute the restructuring of the business portfolio and manufacturing footprints.
In the Growth business, we have started strategic growth investments at full scale. We are expanding our mobility solutions from the acquisition of Azuga Holdings, the American digital fleet solution provider that we announced on August 3 to the investment in Kodiak Robotics that develops autonomous long-haul trucking technology.
To further drive our solutions business with global alignment and speed, we established the role of Global Chief Business Solutions Officer and appointed Paolo Ferrari, President and CEO of Bridgestone Americas to that role.
We've also created a Global Business Solutions Model Committee for global information sharing and active discussions toward execution.
In the Exploratory business, while continuing to explore technical seat, we've also organized our structure to drive commercialization efforts, setting up a preparation office, both for the recycle and soft robotics businesses.
Regarding enablers for execution, we've established an extended global CFO role to reinforce the management structure. We're also reinforcing structures and processes to support the execution of mergers and acquisitions and investments.
For HRX, we are advancing efforts such as the maintenance of a lean organizational structure.
I would now like to explain the details of rebuilding of earning power, strategic growth investments and enablers for execution. First, rebuilding of earning power in the Core business. This year, tire demand is recovering, and the key issue is how to capture the recovery trend and connect it to results with an aggressive approach. For this, we are promoting flexible agile management of our supply chain, globally reexamining our sales projection, deciding on a supply plan to support it, building a system that can adapt to changes in the business environment in an agile manner.
For example, in the first half, we increased our supply from Japan and Asia, while maximizing local production for local supply at each location to support demand recovery and corresponding aggressive sales plan in the U.S. and Europe, which brought about the positive results in the first half. We will continue this flexible agile management with an aggressive approach.
Regarding conversion cost reduction, through manufacturing improvement, we saved approximately JPY 12 billion in total compared to last year. With Japan as the core of Gemba improvement, we will continue supporting plants in Asia, Europe and the Americas. As for the reinforcement of sales in premium, we are continuing expansion of HRD tire sales. In the U.S. and Europe, HRD sales ratio is expected to outperform its 2021 target set in the midterm business plan. We are also expanding sales as planned in the emerging markets, and we'll continue to thoroughly improve the quality of our business on a global scale.
In our premium business strategy, we are reinforcing our premium production, taking into account sustainability and the evolution of mobility. To prepare for the accelerating case trend, especially the expansion of xEVs and electric vehicles, we made an investment to increase production capacity of our Bahia plant in Brazil. This will allow us to expand sales of HRD tires for EVs in the Americas. Furthermore, we have moved up our examination of global premium production structure reinforcement to execute it ahead of plan.
Regarding Dan-Totsu products, we are reinforcing and expanding our in-licensed technology, an innovative tire technology, which achieves both environmental and driving performances. We're also adapting to meet the shift to EVs in our diversified products business and decided on investment to expand the Firestone Industrial Products air spring plant in the U.S., which develops and manufactures products that contribute to improved efficiency -- electricity efficiency of EVs and production of battery.
Starting from air springs, we will support the EV demand increase in the Americas. The air spring business is highly profitable and is expected to contribute to the group. Our Dan-Totsu products have been selected by many vehicle manufacturers and fitted on many EVs and FCVs, fuel cell vehicles.
In addition, we are pursuing co-creation with new partners. On August 6, we announced our partnership contract with Fisker in the U.S. to develop and provide customized tires for the electric SUV Fisker Ocean. The vehicle made with recycled materials and a vegan interior will be fitted with POTENZA sport tires with ENLITEN technology.
Interacting and empathizing with new partners, including Fisker and Lightyear, which we explained back in May, we hope to continue co-creation to contribute to the realization of sustainable mobility.
Last but not least, for rebuilding earning power, we are continuing expensing cost structure reform and looking into manufacturing footprint and business portfolio restructuring. So far, we've put into place the restructuring of 23 locations, and we'll continue our consideration for all businesses, including diversified products and material manufacturing over in mid- to long term.
Focusing on execution and results in the Core business, I would like to provide updates on the 4 categories: Main, next, strategic and developing that we laid out in the midterm business plan. In the main and next categories, we are continuing to work on reinforcement and expansion. In the Europe business, defined as strategic, we first prioritized thorough rebuilding of earning power and as a result, expect to restore profits.
In the Russia and Africa businesses, defined as developing, aiming to break away from deficits, we expect to achieve profitability for the full year. Efforts to rebuild earning power in the Core business and the transformation to a strong Bridgestone are beginning to bear fruit in each region. In the Japan business, defined as main, we are reinforcing sales based on our Dan-Totsu products to establish our Dan-Totsu position in the Japanese market.
We offer 2 lines for the premium SUV tire, ALENZA, ALENZA 001 and ALENZA LX100. 001 draws out driving performance heightened in the European markets at a high level, enabling a quality ride. LX100 is a new product launched this year. It builds on the technology of REGNO, our long-time established premium tire brand in Japan.
With REGNO for SUV as the concept, LX100 ensures total performance superiority. The BLIZZAK VRX3, slated to be launched this September, is a new dimension studless tire for passenger cars that has undergone 2 generations worth of evolution from its predecessor product. With the highest ever BLIZZAK performance, the tires provide safety and peace of mind to drivers on winter roads.
In addition, it is the first example of utilizing commonality and modularity, a technology that enables streamlining of entire value chain from development resources, production process and logistics, also saving costs through simplification and differentiation. The system and process to deliver tires in a timely manner according to customer needs is under development by using demand forecast system. The demand forecast system will enable prediction of tire sales trend and seasonality using digital AI technology. The forecast system will also contribute to sustainability by reducing CO2 emissions during the tire delivery. We will continue to support the safety and peace of mind of our customers on various roads throughout Japan from the ground up.
The Europe business has been thoroughly executing the premium business strategy throughout the value chain since last year. Manufacturing improvement with support from Japan and the closure of Bethune plant in France led to improved conversion cost and fixed cost.
In sales, we rolled out a sales strategy focused on high rim diameter tires and major brands, while withdrawing associated brands. We've also effectuated strategic price increases capitalizing Dan-Totsu products and continue to improve our profitability.
Our end-to-end efforts have produced results and the 2021 full year forecast expects restoring profitability a year ahead of plan. We will continue reinforcing and maintaining this foundation for profit generation and solidify its role to contribute to the global strategy as a strategic function. The Russian and South Africa businesses, defined as developing, achieved profitability through thorough improvements of operations. They will move up to the next category, aiming at stable profits and further growth.
From here, I will talk about strategic growth investment in the Growth business. As announced on August 3, we have agreed on acquiring Azuga Holdings. Azuga provides digital fleet solutions to over 6,000 fleets and approximately 200,000 connected vehicles in the United States. The Bridgestone Group provides tire-centric solutions leveraging cutting-edge tire technology and retreading to fleet customers in North America at one of the biggest scales in the industry. With Azuga joining the group, we can now provide mobility solutions using digital capabilities to even wider range of customers. We will also use the vehicle and operation data to evolve tire-centric solutions and also anticipate synergies in the Core business, such as Dan-Totsu product development and expansion of our customer base for tire sales.
With the strategic growth investment, group's mobility solution will expand globally. After the completion of the acquisition, together with Webfleet Solutions, which pose a #1 position in Europe, we will be providing solutions to approximately 1 million connected vehicles, mainly in Europe and the U.S. With Webfleet Solutions at the core, we will continue to expand within Europe and to other regions and also leverage the knowledge and expertise to scale up mobility solutions in North America, which we anticipate to be the biggest market.
Using frameworks, such as the Global Business Solutions Model Committee explained earlier, we will discuss and share information globally to continue to expand and reinforce mobility solutions in an effort to create social and customer value. Furthermore, in the United States, we have decided on the investment in Kodiak Robotics, which develops autonomous long-haul trucking technology. Currently, Kodiak moves freight autonomously for its customers in the state of Texas with safety driver on board.
Through synergies with our technologies like tire sensors and tire-centric solutions, we aim to contribute to safe transportation and the advancement of autonomous driving technology. We also hope to enhance Dan-Totsu product and solutions by connecting to the autonomous vehicles and leveraging their data.
We will continue to expand synergies with the mobility industry as a leading tire company and promising partner in the combined effort towards the development of mobility that is more sustainable, safe and assures peace of mind.
To support such strategic growth investment and the rebuilding of earning power, we are reinforcing enablers for strategy execution. As of September 1, we will establish an extended global Chief Finance Officer role. Financial planning and analysis, in other words, corporate business planning and managerial accounting will be added to the current finance function. And other managerial functions like business planning, procurement and IT infrastructures will also be integrated. By enforcing our management structure, we aim to continuously increase our financial value. We are also promoting portfolio management, activities to emphasize and reinforce ROIC with the group are being carried out in all businesses and regions. ROIC ambassadors are appointed in each business region and Genba-level improvements are being accelerated.
To strictly evaluate strategic growth investment, we have reinforced the global controller function and created committees such as the Global M&A Committee and the Global Investment Committee to ensure global discussion and speedy decision-making process. We are adjusting our management structure and processes to increase financial value, accelerating our transformation to a strong Bridgestone.
For HRX, we are separating our organization for each of our Core, Growth and Exploratory business as well as improving their management structure for each business. In Japan, we named it Bridgestone's HRX, B-HRX and are working to build an environment where the company and diverse individuals can grow together. Talent is a key element in the midterm business plan, and we will continue to improve our processes and structure to support all those who are taking initiatives in their career.
We are also reinforcing our R&D organization to enable technology innovation. We introduced a Chief Engineer concept to improve the certainty of technology development and accelerate the speed of product development. Chief Engineers in charge of product planning will ensure consistency throughout the value chain from product planning to development, production and sales of each project. We are planning an ISO development structure in line with product strategies.
In addition, in the Bridgestone Innovation Park, planned to be completed at the end of this year, we are working to create an optimal working environment for improved productivity and diverse and flexible work styles. We are going to be promoting a new work style strategy, where teammates can select their workplace according to their objective and activity.
Regarding organizational transformation, learning from the past, where organizations were oversized as of January 1, 2021, we reduced the number of organizational layers from 5 to 3 to ensure a simple and lean structure. In order to maintain this lean structure, we have put in place a process where each division will rotate PDCA semiannually to continuously improve the organization in HR system. In managerial positions, we are clarifying roles and responsibility by position, managing the number of positions at a certain level and matching the right talent to the right position. We are coordinating efforts to support individuals taking initiative in their career and improving our organizational structure overall.
Regarding sustainability placed at the core of management and business, we are focusing our efforts around the realization of carbon neutrality and circular economy. In the May update, I explained that we had switched to 100% renewable energy for electricity in European new tire plants. In July, we also switched to 100% renewable energy for electricity sourced from outside providers in 4 plants in Japan, Hikone, Kitakyushu, Tosu and Shimonoseki. This will reduce the total amount of CO2 emission of all our tire plants in Japan by 30% compared to that of 2011.
We are also working to raise awareness towards carbon neutrality across the company. We have introduced internal carbon pricing for investment decision-making back in 2011, but in addition, we have set the unit price for group's emission in the manufacturing process to be USD 60 per tonne and reinforced its application. Efforts to raise attention and awareness on internal carbon pricing throughout all our activities is also being carried out.
To reinforce such sustainability initiatives, we have renewed our enforcement structure, reinforcing the corporate sustainability division in the global headquarters in Tokyo and creating a global sustainability business committee that ensures a link between sustainability and business. We will continue to globally reinforce our structure to realize our sustainability business framework.
I would also like to talk about our initiative to realize a society where all people can live well, which is one of our sustainability agenda items as well our idea regarding the enhancement of enterprise value. The group's social contribution activities are guided by our global CSR commitment, our way to serve.
In line with our corporate mission, serving society with superior quality, we are working to contribute to improving the way people move, live, work and play, mainly in the 3 priority areas of mobility, people and environment.
Today, I will introduce our activities, mainly in the people area. First, to promote diversity and inclusion, we are driving efforts to create a workplace that respects diversity and empowers all teammates. This year, we joined The Valuable 500, the global movement empowering people with disabilities and are reinforcing our efforts in this direction.
Also in Japan, we achieved a gold status, the highest ranking in the PRIDE index 3 years in a row. This index evaluates companies based on their initiatives to promote LGTB in the workplace. We will continue our global efforts in creating a workplace where people with diverse backgrounds and values can work well and play an active role.
We have carried out various community contribution activities amidst the ongoing COVID-19 situation. In the face of a sudden surge of outbreak in India, our teams in Japan, U.S. and Europe worked together to provide ventilators and oxygen concentrators. In Spain and France, our team provided 24-hour emergency tire maintenance free of charge to health care professionals and emergency vehicles. In each region, our teammates are voluntarily taking initiatives to overcome the crisis together with communities and stakeholders.
In Japan, we started workplace vaccinations from the latter half of June. Based on the principle, safety first, always, we are providing vaccinations in 16 locations across the country to our group employees, families and business partners to vaccinate as many people as early as possible.
We are also carrying out different activities around the world to protect biodiversity and the environment, maintain local infrastructure and support accessible and inclusive education. We will continue to provide the social contribution activities fulfilling our responsibilities towards the future as a leading tire and rubber company. That is all regarding progress of the midterm business plan.
Here, we have summarized how we will enhance our enterprise value through both business activities and social contribution activities. Our mission, serving society with superior quality, will serve as a basis for all of our activities in business, amplifying value from our core tire business to the solutions and exploratory business. In line with the midterm business plan, we are taking on the challenge of creating both social and customer value and securing competitive advantage. Per our CSR activities, we will create social value from activities guided by Our Way to Serve, building trust from society and our stakeholders.
The force supporting these efforts are our talent and corporate governance, which is the foundation for value creation. Through business and social contribution activities, we will ensure sustainable enhancement of the entirety of our enterprise value, including both financial and nonfinancial value. This is our framework in our ambition to become a sustainable solution company.
Lastly, I would like to introduce an inspiring project. The Bridgestone Group is participating in an international space exploration mission together with JAXA, the Japan Aerospace Exploration Agency, and Toyota Motor Corporation. The rover for exploration of the lunar surface, LUNAR CRUISER, is planned to be fitted with Bridgestone tires. In a harsh environment where neither air nor rubber can be used, we will support the dreams of humankind through air-free tires made with steel wool. We are introducing this challenge in a commercial using the tune, Dokomademo Ikou, Go Farther, Go Anywhere, by Asei Kobayashi.
Tires have always evolved along with the mobilities supporting the movement of people. With every new dream, tire will continue evolving. We would also like to take a challenge of overcoming the harsh lunar environment carrying the dreams of humankind. Together and towards the end of 2020s, before we celebrate our 100th anniversary, we may be able to see tires riding on the moon. This year marks the 90th anniversary of Bridgestone's foundation, an important milestone towards the 100th anniversary and the second year of the Bridgestone 3.0, the third foundation. We will continue to focus on execution and delivering results with an ambitious approach and challenging spread in the second half.
Thank you for your attention.
Now we would like to move on to questions-and-answer session. To start off, I would like to ask [ Mr. Otsuka ] from Jiji Press.
Otsuka from Jiji Press. So one question, given this particular timing, I would like to choose to the topic of Olympics and Paralympics. Olympics Games were completed the other day, many medals won. But at the same time, criticisms have been heard. Success, failure, this is the period for people to debate. But as the worldwide Olympics partner and sponsor, I would like to ask you, for your observation, as you look back over the Olympics Games and expectations from that as well as Paralympics?
Thank you for the question. Tokyo Olympics Games, Safe and Secure Olympics, that slogan has been referred to from multiple angles, be it the people involved as staff, medical professionals and volunteers, all exhibited have the maximum contributions and efforts. As a sponsor and also as a Japanese individual, I am here to appreciate all of the events. And I know at the same time that various views have been expressed over the hosting of the Tokyo 2020. But key themes, united by emotion, stronger together, as I think of the original opportunity that I had to get involved in Tokyo 2020, I thought that as a top sponsor to be able to be involved as a stakeholder or the party immediately involved to move the emotions and then to appreciate. So in reference to original spirit of Olympics, which is Faster, Higher and Stronger, and now, Together. The Together was added to the original slogan.
So speaking of being on the Together, I really thought that the Olympics games that were very, very effective. So unity and diversity, going beyond the numerous differences that we all have from individuals around the globe, we were able to be moved together or to be able to share together back to the basics. But at the same time, from the standpoint of Bridgestone Corporation per se, even though we had the original set of 5 objectives and going beyond the concurrence to this slogan of Olympics. Therefore, Bridgestone's purpose is: number one, to strengthen brand; number two, to enhance business; number three, innovation. How we can use the Olympics Games as a showcase opportunity for innovation and the engagement for global associates of 140,000 employees and diversity inclusion.
As the games are completed now, for the first 3, brand enhancement, business enhancement or the innovation showcase, we probably did not have meet the expected opportunities. But I would more than anything says that as we have athlete ambassadors, and there are 70 of them, for the Olympics Games, 32 of the 70 athlete ambassadors came over. 20 of them were Japanese and the rest were from outside of Japan, so 20% Japanese and 80% non-Japanese. Together, they won 24 medals. And we had an opportunity to share the sense of emotion and excitement that athletes have for themselves.
Also, as the top sponsor, we offered and maintained the tires fitted on to 3,000 official vehicles and also the same for 800 bicycles, bicycle tires, offer to fit, our tires on those bicycles and maintenance support. So the background support by 100 persons in charge of the maintenance of those tires every day. And on top of that, there were 300 volunteers from Bridgestone. So these were Bridgestone employees, 300 of them. So out of 140,000 globally, we had 300 Bridgestone volunteers who were mobilized. So in terms of the engagement, I do believe that there is value of the involvement there.
As per diversity and inclusion, what I think is that in the Olympics Games, females, LGBT (sic) [LGTB], those were the words that we all heard very cautiously and frequently. So the Olympics Games on this occasion served as a very important point of change, turning point. So diversity and inclusion. Yes, we expect to continue to host the Paralympic Games and that concept, we will continue to apply. The 12 Paralympic Olympians will participate and who are our ambassadors. Again, 20% Japanese and 80% from [indiscernible] road. I do expect that we will continue to contribute. And we will continue to be able to share that experience of being moved unity by emotion. And that's my strong expectation. Thank you.
Now let us move on to [ Ms. Kuni Hiro ]. She's from Nikkan Kogyo Shimbun.
I would like to choose the topic of midterm business plan. I'm looking at Page 9 of your presentation deck, which, among others, points out flexible agile management. How the original set of demand is focused on Europe and North America? And in order to fill that demand opportunities in EU, your will supplement to support from Japan, Asia. But speaking of support from Japan, Asia, I immediately think of the costs, which tend to escalate, particularly the freight charges are escalating. How would you minimize that?
Thank you for the question. That question applies not only to Bridgestone, not only to the tire industry, but throughout the business community. Speaking of freight charges, it's not just a matter of how much what the rates are. We all experienced that only limited volume cargo can be moved. So capacity is quite limited. Over the years, Bridgestone, for our business needs, have worked with the set of conventional, so-called partners. So we started to explore new partners that we can hope to collaborate for our business purposes, so that we can capture demand available in the U.S. or Europe. But I certainly am aware that ocean freight rates continue to decline. But it's something that we have to accept as a fact and given the environment, even if we are to pay the premium charges still so long as we are able to capture the demand available in U.S. and Europe that would serve our purpose.
Of course, the original principle is to produce locally to fulfill the local demand. But going beyond, the increment support can be offered, albeit with some premium freight charges, we would be willing to do that. Thank you.
I, Hishinuma, CFO, would like to share some information with you as the magnitude of cost impact. So the ocean freight rate increases, how much has been the impact? JPY 4 billion during the first half and JPY 14 billion on a full year basis. This we will offset that with the cost and -- expense and cost structure reformation and also on the numerous efforts to be more efficient.
So let us move on to the next person, who is [ Mr. Fujiwara ] from Nikkei Business.
I would like to ask a question as well. My question also refers to your midterm business plans. So I understand about your foremost emphasis is on the Solutions business to grow and expand into the future. I understand first in Europe, and North America. How about Japan? What is your expectation and plans there for the penetration in the Solutions business in Japan?
Thank you. Growth strategy and mobility solutions. Solutions, there are 2 types: tire-centric solutions for one and mobility solution for the other. Currently, for mobility solution, we are focusing in Europe. We acquired Webfleet. And since then, we have been expanding mobility solutions in Europe. And with the M&A in North America, now we are to move on to North America. So Europe first, now the U.S. The import, South Africa, Australia, Chile, Mexico, with Webfleet, they had sites for operations that we have been offering services. So all of that is for mobility solution.
The other type of solution, which is tire-centric solution, which is retread servicing and other Mobox subscription model, we cover Japan, Europe and North America. We do penetrate Asia inclusive, which means that for Japan, we will first focus on the current retread services, which is part of the tire-centric solution.
Well, in North America, nearly 1/2 of the newly sold tires are up for retread services. In Japan, that penetration is only 20%. So for Japan, most immediately, we will work to enhance the penetration of retread services, which is tire-centric solution. And as we do that, next, there will be -- there are opportunities to start and penetrate mobility solutions in Japan. But for now, it's retread and tire-centric solutions first.
Next is [ Mr. Yamada ] from Toyo Keizai.
This is Yamada from Toyo Keizai. I have a question on your operating performance for this year and the next year as well, although it may be a little early. For the second half of this year and also in the full year forecast revision, you are envisioning material price increase to be made up for by selling price increase and mix. In your midterm plan presentation, you said you expect targets to be achieved ahead of schedule, reflecting that. But I suspect soaring material costs to continue next year, and other costs are expected to increase as well, including steel cord. Can you still expect mix improvement to be sustained in that environment?
You are revising your selling prices in the premium line. And I personally expect some decline in sales volume, but that doesn't seem to be the case. In fact, it appears you are enjoying only the positive aspects in the premium line. Over the medium to long term, would this be continued, or do you expect volume to go down eventually?
First, the sharp rise in material prices. Of course, they move in line with the economic situation. So they go up and down, as you know. For next year, yes, we anticipate an increase. So our basic approach remains unchanged, in that we will try to offset that increase through mix and selling price revisions. In addition, as we rebuild earning power, we will become leaner, improve the quality of business to further make up for the difference. That will be the basis in running the business.
Secondly, about the premium product lines versus volume products, it's a rather challenging issue. But for example, in Europe, we will withdraw associate brands, primarily Dayton brand tires, non-Bridgestone, non-Firestone brand tires, about 1.5 million tires altogether, they will be withdrawn. It's rather drastic in Europe. But in the Americas and Europe, we will go after favorable areas only. That's the strategy. So in that sense, that will be well articulated and grow the overall business. Otherwise, we can't secure the sustainability or the continuation of the business. So that means, while focusing on premium, we would also try to increase top line overall, which means core business will be expanded continuously. For that, we need Dan-Totsu products, and we need to aggressively pursue new premium, such as ENLITEN, a new premium product line. Through these activities, while they are somewhat contradictory, we will pursue both for next year and the year after.
I see. So a follow-up question. You are and you will be pursuing both, I understand. And are you already getting confidence that it's effective?
Yes, we are committed to the midterm business plan targets for 2023, and we would like to achieve them ahead of schedule. And also regarding the next mid-term business plan for 2024 onward, as I said, we are working on various programs on ENLITEN. 10 years ago, we launched Ecopia, eco-friendly tires. And now it's accounting for approximately 90%. So now we are going into the next level of ENLITEN, the new technology. And in 10 years' time, that should account for 90%. In other words, we are always pursuing the next stage, upgrading the stage. ENLITEN is a symbolic example, but we are doing the same in many other areas as well.
Innovation for solution, focus on premium and the core as well as for expansion, pursue both. And the answer to your question is, yes, we want to, and we will make it work and we will pursue those.
We will take questions from analysts. First, Mr. Sakamaki from Daiwa Securities.
Sakamaki from Daiwa Securities. My question is on a very short-term perspective, your plan for the second half of the year. Sumitomo Rubber, which announced its results last week as well as Toyo Tire, which just made the announcements are forecasting profit to decline in the second half given that material costs are going up and it is getting harder to secure a means of distribution or sufficient workforce for production, but you are expecting profit to increase. In terms of material cost, you apparently expect lighter impact than Sumitomo. Is it simply due to different price assumptions? Sumitomo is assuming the price of natural rubber to be JPY 1.67. Is your assumption lower? Is that the reason for the difference? Or is it because you have your own materials production capability, and that is making a difference, added with local production? So while your competitors are struggling with freight transportation, perhaps you are gaining market share. So are those the reasons for your stronger forecast?
First about the material cost, I give the floor to the CFO.
About the material price, we can't give you the details of our assumptions. But basically, regarding the basic supply and demand, we do not expect a major change. There are some inflows of speculative money but basically no major change in supply and demand. And it is based on that understanding that we are making price assumptions. Now we don't know what formula our competitors are using, so we cannot make a comparison, but that's how we calculate the price.
Regarding the procurement, we expected from last year that the prices are going to go up. So we launched a global procurement team, a project. And we have embarked on global procurement of items previously out of scope of the global procurement or consolidate on a regional basis that is instead of purchasing on a plant-by-plant basis. So we started making those steady efforts from the second half of last year. And we now see material prices increasing overall, but we have been making proactive efforts, putting together new schemes, and they are contributing to improving our fundamental structure.
Regarding natural rubber, this is a very sensitive question. So it's very hard to comment on that. But of course, we enjoy the top volume in the world and that gives us an advantage for sure. It's not that we are making conservative procurement assumptions. In fact, we are taking a very realistic view. Of course, the prices may go up more than we anticipate. But for the first half, primarily in Europe and the Americas, we were able to more than offset higher material costs through mix and revised selling prices.
For the second half, while there are lots of movements, we are implementing a flexible management system. 2 to 3 times a month, we hold meetings of global top management, and we flexibly and quickly make decisions to change things when necessary, change on a monthly basis, change management policy. When we see a yellow flag in our monthly conversation, we take necessary actions, so as to achieve our commitments. That is the management structure that we have in place since last year. So in that sense, of course, the certainty or the accuracy of the assumptions are needed to be high and accurate. But even if they change, we are capable of adapting. We are gaining capability to respond flexibly and appropriately, although it's not yet perfect.
Do you think you can gain more market share given that you have greater percentage of local production than your competitors?
In the premium area, I think that will be the case. Be it in the U.S. or in Europe, we are withdrawing associate brands. As I said earlier, primarily Dayton brand in Europe and some associated brands in the U.S. being withdrawn as well. So it may not be the case overall, but in major brands and in the premium area, we are growing our market share. That's for sure.
Next, I would like to invite Mr. Yoshida from Citigroup Securities.
Can you hear me?
Yes.
Now regarding dividends, the dividend of JPY 170, this term is higher than the high level of JPY 160 of the past 3 years or several years ago, which is considerably higher than the assumption of the stock market. I think this means that the dividend payout ratio will exceed 50% if one thinks of -- on the basis of the continuing operations. And it is above your target of 40%. This could be conceived that you have lots of confidence in your ongoing businesses in the next fiscal year and beyond. Is this the right way of looking at this?
We believe that it is expected that JPY 3.3 trillion in sales and earnings under the midterm business plan is expected to be reached this term. However, about JPY 90 billion or so of profit is behind the midterm plan. Does this mean that even if sales couldn't be increased in the future, there are individual elements that can increase and make up the profit of about JPY 90 billion? Or is there something like a hidden ball, which can have this increase next year or the year after? How should I interpret this prospect?
This year shipment in the United States was quite a bit higher than 2019, reflecting an element of special demand. So even if you cannot increase sales much for the next year and after, there are some room to maneuver. And because of that, you expect the dividend to be at this level. Is that the logical way to understand this situation?
I will ask the CFO to answer first.
At this time, we are forecasting a dividend of JPY 170. In 2019, we paid a dividend of JPY 160. Compared to the year 2019, our earning power is steadily improving. Quality of our business itself is better and improved. And in view of our balance sheet as well, we made a comprehensive indication of the figure of JPY 170. We do not know what the future holds for the next fiscal year and beyond, but we will and want to steadily achieve our midterm business plan for now.
As for your question of even if sales do not increase, there will be some businesses that will see a decline in sales as we restructure our business, we will make up for them with premium, and the basic thinking is to increase profit in that way.
If I may add, it is not a hidden ball that we have, but rather, we will continue to strengthen to rebuild our earning power end-to-end and implement premium strategy in our midterm business plan. As we have been saying, this will not change. Then there are the businesses we are still in the midst of restructuring our manufacturing footprint. We have only been able to restructure 23 of our manufacturing footprints so far. Therefore, we will naturally continue to fully implement what we had committed to in the midterm business plan.
In that sense, the basic idea of midterm business plan is to raise the bottom line in the way that does not depend on the top line through basic and highly certain measures. Naturally, our approach is to fully catch up with the current recovery taking place and raise the top line. But even if the top line increase becomes somewhat more difficult, we will deliver the bottom line with improvement of the quality of our business. Naturally, premium and solutions business will create new demand and they will make step-by-step contributions. And we would like to expand our top line, but we still have a way to go in that area of solutions.
In that sense, we want to secure the bottom line firmly with our core businesses. We would like to achieve bottom line that does not depend on the top line. And at the same time, we would like to increase both sales and bottom line on top of that through solution businesses.
How can we balance such a scenario?
As I have said many times before, our current midterm business plan covering up to 2023 is to generate bottom line base by focusing on our core business, the sales of tires and production of tires. Does this answer your question?
Next, Mr. Kakiuchi of Morgan Stanley Securities.
I am Kakiuchi of Morgan Stanley. I would like to ask you about price and price increases, although you have discussed this earlier. As mentioned earlier, in North America, there is a kind of special demand for tires. New cars are not selling and thus used cars in aftermarket. But other companies are raising their price 3x a year or 4x by September. Would you say that this is about the pricing level of tires, which is acceptable by the market? Well, of course, there is a relationship with demand. And at the same time, it seems to me that it is natural that there has not been any price increase in the Japanese domestic market. What is your view on this?
Pricing strategy is a very sensitive matter. As Mr. Kakiuchi already knows each country has a different tolerance for price. On a global scale, I believe that the U.S. market has the greatest capacity for price increases. It is true for the market itself, and I believe Bridgestone has that as well. Therefore, I am certain that we will raise prices in the second half of the year. Also, we have already started so in Europe and in some parts of Asia. And in Australia, we have already started doing so. We believe that in Europe, we believe we will also make adjustment to prices, although it may not be as strong as that in the United States. I would like to refrain from commenting on the Japanese pricing policies as they are our competitors in the market. Does that answer your question?
As for North America, this year's level is higher than that of 2019, and the market is at its highest. But if the semiconductor shortage is resolved next year and the number of new cars increase, will there be a possibility that aftermarket sales will decrease in North America? Or do we need to think about such a risk?
As you know, new cars are in tight situation this year and used cars are exploding in sales. And in addition, miles driven by cars have been gradually increasing. Therefore, our retail business is also this booming. Next year, well, probably from the fourth quarter of this year, car manufacturers will start to increase their production. And naturally, we will have to support them. In the same way, we believe that demand for replacements will be strong as vaccination will gradually progress and as the overall situation normalizes. Although they are obviously some relationships between the government support and demand, but tires are proportional to the amount of miles driven.
This year, ratio of premiums was very high, but they were purchased by those who are not really affected by the present situation. In this sense, the volume will expand next year and the general-purpose zone may also expand -- may possibly expand. In this sense, we will not anticipate a significant drop in demand for replacement tires business at this time.
Next, I would like to ask Mr. Sakaguchi of Mizuho Securities for questions.
Sakaguchi of Mizuho Securities. I believe you have been explaining about the increased certainty towards achieving the midterm business plan. That is the feeling that I get. What do you think is the background on which that is the case? Is the pace or the standard have been accelerated against the original case? Is the external environment accelerating this space, for example, external factors such as strong sales? Or is it more of an internal pace of implementing the internal initiatives such as the rebuilding of the earning power accelerating the pace? Does it come more from the steadily increased improvement in the structure firmly taking root? Or is there a stronger formation of the assumption of the external environment when viewed from the short-term perspective? There have been talks of moving forward of all of the targets by next year. I would like to ask you where the confidence is coming from?
As you just mentioned, the external environment has really improved. And of course, all of our competitors are also feeling this same wind. Therefore, in this perspective, we are all doing our business by firmly working with these winds as others are, too. But Bridgestone has come up with this firm midterm business plan last year to this year. And I have mentioned earlier, we are rebuilding our earning power as the major access. And inclusive of the strategic investment, we must first face the challenge of the path head-on and then we build our earning power. Since last year, the global team has been discussing this thoroughly, and we have been confirming at a global level that it is not just talk, but it is about execution and results. And everyone in the global team is gaining awareness, and they are now wearing 2 hats. We are becoming a very good team that considers both the overall global optimization and SBUs for which each are responsible, which is a great positive for my management.
In addition, as I have been talking about the high level of certainty and for that the first step is to manage resources profitably. We need to manage the expenses and investment by following proper processes and steps so that investment with high level of certainty will be the one being focused, then we will discuss and arrive at decisions. The system is now starting to -- and as a result, we have tight control. This is no longer a just onetime thing. To that end, by making and selling is the basis of our core business. But of course, there are still many issues remaining in the manufacturing. But in the area of production and manufacturing, we are still able to do good work on the global scale.
For sales, we have been able to do a good job, not only in raising prices, but also in the overall positioning. I am very happy to see that our business structure is improving in this sense. And even though the external environment naturally goes up and down, we will continue to accumulate highly reliable and certain measures and built on highly certain future investment, which will be connected in an integrated manner. For example, as I mentioned earlier about the commonality and modularity, last year, we had a discussion on ways to develop using commonality and modularity. We discussed how this would have positive impact on production, sales and logistics. And this year, we are actually implementing them in lots of businesses ahead of plan.
We are also starting to discuss how to invest in production now. In fact, we have to think about bringing forward what we thought we would be doing in 2024 and onwards. When we started such discussions, we realized that commonality and modularity, which refers to both passenger and TB, is a key to our success. We are now starting to do things properly. As a result, for the future investment toward the manufacturing footprint, this approach based on flexibility is actually working and making connections. This is where the next discussion is coming. And in this sense, good structures are being connected in many ways and good actions have been carried out, and everyone is thinking about the overall optimization.
Well, of course, there are different temperatures, but the entire company is getting involved and things are being much firmer. Naturally, when the environment externally is good, we must draw on it and make use of it and we have to produce results even better than that. But we also have to produce results even when the external environment becomes more severe. We are thinking about how we can do this, how we want to do this and how we will do this. This is in the second half of the year and into the next year.
Earlier, we talked about dividends. I want to make sure to realize that it is our responsibility to shareholders. Last year, we did not meet the expectations of our shareholders. So this year, we would improve our performance to meet the expectation of our shareholders. This is our promise. So in that sense, we will continue to carry this on. Thank you.
Now it is time, and we would like to conclude the Q&A session. With this, we would like to now complete the results of the first half as well as the midterm business plan progress for Bridgestone. Thank you very much for your participation today.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]