Bridgestone Corp
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Bridgestone Corp
Earnings Call Analysis
Q2-2024 Analysis
Bridgestone Corp
In the first half of 2024, the company reported a mixed bag of financial results. While global revenue showed an increase, profits took a hit, particularly in the Americas. The overall global revenue surged thanks to expanded sales of high-rim diameter (HRD) tires and favorable exchange rates. However, the adjusted operating profit saw a decline due to weaker performances in North America and Latin America. Specifically, the North American business experienced increased sales but a dip in profit margins, largely due to higher imports of low-end products following tariff changes.
The Americas faced significant challenges, with profits in both North and Latin America declining. The retail segment also struggled, primarily due to customer attrition in a tough U.S. consumer market. The company's diversified business also saw a drastic drop in profit compared to the previous year. Despite these challenges, the company remains optimistic about a recovery in the second half of the year, pinning its hopes on overcoming the worst phase experienced in late 2023.
In contrast to the Americas, the Asia Pacific and China businesses reported year-on-year gains, driven by strong sales of specialty tires for mining and aircraft. Sales volumes in these regions benefitted from a favorable sales mix and successful cost reduction strategies. European operations, however, continue to lag, undergoing a phase of rebuilding to regain profitability.
Looking ahead, the company has revised its full-year consolidated guidance for fiscal 2024. Revenue is expected to be JPY 4,410 billion, in line with initial projections. Adjusted operating income and net profit are forecasted to be JPY 490 billion and JPY 336 billion, respectively. The company anticipates that second-half performance will improve due to seasonal factors and strengthened cost-reduction activities. Nevertheless, the full-year outlook remains below the February forecast due to significant challenges in the Americas.
In North America, sales of HRD tires have been strong, though profit margins are under pressure. The market saw increased low-end tire imports after a reduction in import tariffs from Asia. This has led to a dip in demand for higher-end products, prompting the company to push its Firestone brand as a countermeasure. Despite a resilient performance by the Bridgestone brand in fleet sales, the Firestone brand suffered from low-end imports, resulting in decreased sales volumes.
The Latin American market presented severe challenges, with performance deteriorating more than the worst-case scenario envisaged in February. Despite efforts to reduce fixed costs and improve production efficiencies, the business is expected to fall short of its full-year plan. The Argentinian subsidiary, in particular, faced significant hurdles, while Brazil contended with a surge in low-end imports affecting local sales.
The weakened yen provided a tailwind for global revenue but also posed challenges for domestic production costs. Raw material prices saw a mixed impact; while natural rubber prices increased slightly, other materials like crude oil and butadiene experienced a decline in unit prices.
The company is executing strategic cost reductions to bolster profitability. Fixed costs are being optimized by streamlining administrative functions and reducing headcounts in various regions. Capital expenditures are being carefully selected with a focus on enhancing production capacities and building robust IT infrastructure.
Despite the financial challenges, the dividend remains unchanged at JPY 210 per share for the full year. The company aims to deliver consistent value to shareholders by maintaining strong free cash flow and executing strategic growth investments.
The company is in the second stage of its reorganization and restructuring plan aimed at strengthening earning power and building a strong business structure by 2026. This involves leveraging multi-brand strategies to enhance market responsiveness and optimizing the balance between sales quantity and quality. Full recovery in North America and improved profitability in Europe are pivotal to achieving the company's long-term goals.
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Thank you very much for coming to the summary of financial results for the first half of 2024 and fiscal 2024 guidance presentation. I would like to introduce to you the participants today. We do have Global CEO, Shuichi Ishibashi; Global COO, Masahiro Higashi; and Global CFO, Naoki Hishinuma. The 3 will participate in the presentation today.
I would like to, first of all, invite Global CEO Mr. Shuichi Ishibashi to present to you the summary of the financial results for first half of 2024 and fiscal 2024 guidance.
Good afternoon, everyone. I am Ishibashi, the Global CEO and today, I would like to present to you our financial results for the first half of 2024 and fiscal 2024 guidance. First, here are the key points of the results for the first half. Global results showed a year-on-year revenue increase and profit decline. Despite the tailwind from foreign exchange rates, the Americas business, which accounts for about half of global revenue saw a decline in profits with huge impact on global performance.
The worsening trend from the second half of 2023 in Americas business with a decline in TB business profitability in North America and deteriorating business in Latin America has bottomed out in the first half of 2024 and overcame the worst phase. We do expect recovery in the second half. On the other hand, the deterioration of the Latin American business was even worse than the worst case scenario in the February guidance. And the Americas business as a whole is expected to fall short of the full year plan.
European business continues to perform poorly and is undergoing rebuilding. Asia Pacific, India and China businesses as well as specialties such as mining and aircraft tires reported year-on-year gains. Global revenue increased versus previous year due to expanded sales of passenger HRD tires for replacement, steady sales of off-the-road tires for mining vehicles and favorable foreign exchange rates.
Adjusted operating profit decreased from the previous year due to lower income in Latin and North America and lower overall global unit sales of TB and [ PSR ] despite improved sales mix, strengthened global business cost reduction activities and the impact of ocean freight rates contributed to the higher income. Net profit increased from the previous year, we will strengthen the business quality of global and accelerate reinforcement of the earning power. For the North American business saw increased sales and decreased profit versus prior year and fall short of the February guidance.
In the premium business, although profit growth was achieved in replacement PS tires, profitability was negatively impacted by increase in low-end products imports in the market due to tariff rate changes for both passenger and TB tires. As a result, overall adjusted operating profit margin declined year-on-year. The retreading business also reported lower profit due to increase in low-end products imports. In the retail business, profitability declined due to the impact of customer attrition caused by the challenging U.S. consumer trend, despite an improvement in the unit price per customer. In the diversified business, there was a drastic profit drop versus prior year resulting from the challenging business environment.
I will now explain to you the PS tire demand, sales and market share in North America. In the OE market, sales and market share of HRD tires increased from the previous year. For the replacement tires, import tariffs from Asia were reduced in January this year, resulting in an increase in low-end imports to the market. This resulted in decreased demand for major brands. We are strengthening use of the Firestone brands in response and optimizing the balance between quantity and quality.
For HRD tires, we expanded sales by developing new products and cultivating new channels while capturing firm demand, but our market share declined slightly. For the full year, we plan to increase our share of the replacement market, especially a Bridgestone brand, but we expect to fall short of our February guidance due to the stronger impact of the lower impact -- lower end imports.
In the TB business in North America, the worst was over in the first half of the year, but challenging conditions still remain. Demand in OE tires fell sharply in the first quarter, and remained at just over 90% of the previous year in the first half of the year. We will continue to focus on premiums. For the full year, we aim to increase market share by recovering sales in the second half and cultivating new customers. However, compared to the February guidance, demand has not returned to the expected level and is expected to fall short of the plan for the full year.
The replacement market remained low due to continued high interest rates, although dealer inventories normalized in the first quarter. The anticipated increase in tariffs on tire products by May triggered a rush demand resulting in a sharp increase in low-end imports and a significant increase in overall demand. Decision on official tariff rates and its application is affected in October.
Demand for major brands also increased slightly, but the composition ratio in the overall market declined. In sales, the BS brand, mainly for fleets achieved year-on-year sales expansion and sales and share increase and its strong business foundation remains intact, even in this very difficult environment. However, sales for Firestone brand products, which are mostly sold to dealers and retreads were greatly affected by an increase in low-end imports resulting in a year-on-year volume decline.
In order to cope with the changing environment, we have started to recover from the second quarter by strengthening the use of Firestone brands for new products and for retreads, reinforcing the utilization of MaxTread tread as the second brand together with Bandag as the first brand to start the recovery process. Full year sales forecast is on par with the February guidance with continued Bridgestone brand market share increase. Overall, sales are expected to be slightly below the plan.
We believe that the business deterioration in Latin American business bottomed out in the first half of the year and that the worst is behind us. In the second half of the year, we will work to improve sales and profitability, but the impact of the business deterioration against the fiscal guidance remains significant.
In Argentina, we strengthened damage control and will aim to bottom out in the first quarter and start to improve from the second quarter and return to profitability for the full year. We will execute optimization of sales and production by utilizing Firestones and associated brands to promote fixed cost reduction, and we'll continue to closely monitor and manage the situation.
In Brazil, adverse impact in the second quarter increased with a sharp increase in low-end imports due to the shift in an open economy. As a result, we posted a loss in the first half, but with that as a worst period, we will reduce the deficit by reinforcing utilization of Firestone brands and reducing fixed cost for the full year. In the European business, performance remained sluggish.
In the premium tire business, we were able to steadily and thoroughly implement our premium focus in the replacement passenger tires to improve profitability, but losses continued in the OE, TB, retail and retread business. Since the first half of the year, we have been promoting fixed cost reduction in production and sales, and we will continue with further business rebuilding in the second half of 2024 and in 2025.
Let me talk about demands and sales. In the passenger tire business, we will continue to focus on premium tires for the new vehicles without going after volume. In the replacement market, sales of the Bridgestone brand, HRD tires 18 and 20 inches and over will be expanded and sales and market share are expected to increase year-on-year for the full year. The same applies to TB tire business. In both OE and replacement tire businesses, we will thoroughly focus on premium tires without chasing volume. I'll be enforcing the use of the Firestone brands for replacement.
For the Asian region business, sales declined due to a significant decrease in demand for new vehicle tires. The increase in sales mix and thorough management of expenses offset the decline and achieved a year-on-year increase in profit. In the replacement passenger car tires business, we expanded sales and increased market share in key markets of India and Thailand and strengthened premium focus in China. In the TB business, we are also promoting a thorough premium focus by determining the profitability of each business.
As for off-the-road tires for mining vehicles, sales have remained strong and expected to remain at the same level as the previous year on a full year basis. The specialties business, including tires for mining vehicles, we achieved this year-on-year increase in both sales and profit. In the aircraft tire business, the recovery in demand has led to a steady expansion of sales significantly improving profitability. The expansion of mining and aviation solutions also contributed to the increase in profit. We were also able to improve profitability in motorcycle tires where we are promoting a premium niche strategy.
To conclude the first half performance summary, I'd like to explain the business performance by Global business portfolio. The premium tire business, our core business held its own in a difficult business environment with an adjusted operating profit margin of 13.6%. The Solutions business, which is our growth business, sales grew 110% year-on-year, mainly in mining and aviation solutions. However, profit decreased due to the downswing in North American retread and direct retail sales business. In the Diversified Products business, the U.S. air spring business and the Japan Cycle business were unable to overcome the severe business environment, resulting in a decline in profit.
Now I'll explain the progress of our activities in line with our '24 medium-term management plan. As we move into the second half of the year, these activities need to be further strengthened. First, we will discuss the improvement of management and working and business. Since the beginning of the year, we have been promoting initiatives in line with the Deming plan, Bridgestone's own quality improvement activities. Based on the basic philosophy, the company quality a good company quality makes good quality of products and services to promote thorough implementation of the PDCA cycle and why-why-why analysis, we are expanding training to all employees and all levels of management.
We've completed training covering management and all levels of executives by July and quarterly PDCA review management executive meetings are held for each regional business. We are not there yet, but through this initiative, we will establish a continuous improvement cycle that correctly identifies and resolves essential issues. In particular, Bridgestone WEST has an urgent need to improve management and operational quality. Aiming to improve management and governance, we will strengthen the utilization of Japan expats network and reinforce the structuring of a global system as cross-functional teams.
Next, I'd like to discuss global business cost reduction activities. We are optimizing the balance between sales and production, reducing fixed costs and thoroughly exercising lean inventory management. On the sales side, we are promoting fixed cost reductions in line with the volume of goods sold. In production, we optimized our production system in line with sales in each region especially in Europe, to improve the profitability of the TB business, we are promoting fixed cost reduction by shortening the number of operating days and suspending operations of some processes. We are also promoting capital investment on a global basis. We reviewed production investments from the second half of the year through 2013 and plan to reduce and optimize capital expenditure.
We are also thoroughly reducing inventories, both in volume and value. In the second half of the year, we will further strengthen our efforts by thoroughly reducing inventories for the full year of 2012, the company expects 2024, the company expects to reduce assets by approximately JPY 51 billion on a global basis. We will establish a lean structure for 2025.
In addition, we are strengthening business cost reduction activities throughout the value chain to start contributing to business performance. We expect to generate JPY 34 billion in the first half and JPY 65 billion for the full year.
In the global procurement, we expect to increase profit by JPY 36 billion per year by strengthening the global approach. Furthermore, we value co-creation with our global strategic partners and are strengthening our activities in terms of production technology enhancement and sustainability. Global supply chain management and logistics reform will promote inventory reduction as well as promoting business cost reduction through direct shipment to customers smart logistics and steady productivity improvement in warehouse operations to realize an annual reduction of JPY 1.7 billion. We would also closely monitor trends and the impact of ocean freight rates and other factors, which pushed out the profit level by JPY 17 billion globally in the first half of the year.
Turning to business cost reduction and manufacturing. BCMA, which promotes the reduction of development and production costs through simplified manufacturing has been steadily introduced and has started contributing to our business performance starting in our 4 model plants. Along with making our plants greener and smarter, we are also working to steadily improve productivity on site, which is one of Bridgestone's strength. In improving productivity, we have positioned Japan as the core of manufacturing and promoting reductions in manufacturing costs, including conversion costs by strengthening activities on site with our global team. We expect these activities to generate a total of JPY 27 billion in benefits for the full year.
In addition, from Japan, the global core of manufacturing, we have begun efforts to pursue the essence of manufacturing and evolve it to the next level. These activities started at the Hikone plant and will be expanded globally as the Advanced Hikone Model. Specifically, starting with the introduction of the tire molding system equipped with AI examination, we collected data related to production and analyzed using digital technology. This would allow us to identify issues in production, promote improvement activities on site and evolve manufacturing through the fusion of real and digital data.
In addition, the synergy effect of BCMA's realization of simple manufacturing without variation will result in a chain of improvements in safety, environment, quality, cost and other manufacturing indices. This would lead to lower production costs as well as to improve human creativity among production site staff.
Next, I'd like to discuss the progress of the premium focus. Sales of passenger car high rim diameter tires continue to strengthen. In North America and Europe, we are also focusing on more profitable ultra high rim diameter tires of 20 inches and above and steadily improving our sales mix. In addition, we are continuously improving the sales ratio of highly profitable premium tire brands such as Potenza, Turanza, Alenza and winter tire, Blizzak, all recognized for their respective value.
Also, the company is pursuing ultimate customization as a new premium in the EV era based on value creation using ENLITEN, a product and design platform technology. We are also strengthening our approach to premium and prestige OE including EVs. ENLITEN technology being expanded to commercial tires Regno GR-XIII which is launched in Japan this February. And in May, we launched a new winter tire product, Blizzak 6 in Europe. We will continue to further expand the development of this technology while also establishing next-generation ENLITEN technology.
In the Solutions business, we are promoting the strengthening of commercial B2B solutions. Commercial B2B solutions are at the core of our strategic mobility tech business with mining and aviation solutions leading its expansion. We are expanding the development of aviation solutions through co-creation with our customer, and we continue to work on further evaluation in the future. Also for truck and bus based solutions expansion is being promoted based on collaboration with Webfleet and Azuga, which provide mobility solutions. Currently, mobility solutions contracts cover more than 1 million vehicles in Europe and the United States combined.
And these will be integrated into the Fleetcare program, a bundled package of tires maintenance and retreading to be expanded mainly in the United States. In the U.S. We have also begun offering services for commercial vehicle fleets, including light trucks. Through these efforts, we are taking on the challenge of building a mobility tech business in North America.
Mining Solutions being expanded with Bridgestone MasterCore as the core product. MasterCore is currently present in approximately 100 mines globally. And what about the recently announced strategic investment in the Kitakyushu plant? This MasterCore and other mining tires are earmarked for the enhanced production. We will further improve Japan's manufacturing capabilities, ensure a stable production system with high quality and strengthen the competitiveness of our so-called Dan-Totsu products on a global scale.
In addition, we will build a system which can respond to the next generation of Dan-Totsu products. Based on the strengthening of such Dan-Totsu products, we will tackle the evolution of mining solutions through co-creation with customers and will create new customer and social value by amplifying the value of our Dan-Totsu products.
As a final note on progress, let me explain how we judge that based on the first half business performance, further strengthening of business we're building at its second stage is necessary in the second half of 2024 and 2025. To date, we have focused on tackling past negative legacies squarely without delay.
And the first stage of business rebuilding was implemented under the '21 medium-term business plan. And furthermore, into the '24 midterm business plan, we have started on the second stage, and we've already decided to withdraw from the TB business in China. And the second stage, based on the current performance, in addition to measures implemented in 2024, we will further strengthen our measures in 2025.
In Bridgestone East in Japan and Thailand, we will restructure wholesale and retail operations with an orientation towards streamlining of the fixed cost for sales. In Bridgestone West, will consider and implement the restructuring of the TB business in North America, the diversified business and Latin American business.
In Europe, the company has begun reorganization and restructuring, what so-called rebuilding to further reshape its European operations. And through the execution of these plans, though it will be delayed by 1 year. In 2026, which is the final year of the '24 midterm business plan, we will build a foundation to advance into the so-called true next stage.
In the European business, where challenges are particularly deep. At the second stage, the company is working this year to, first of all, restructure, they're continuously losing the trucking entire business and retreading business, further focusing on premium passenger car tire business and restructure on wholesale and retail operations. In 2025, this will be further strengthened with a view to comply with the European anti-deforestation regulations, which will come into effect in January. TB will restructure this business portfolio in order to ensure even more of the premium focus.
In line with this, we will promote simplification of the sales structure and the optimization of the balance between such sales structure and the production capacity. As for retail, we will accelerate rebuilding. In line with the downsizing of sales volume through premium focus, administrative tech center and head office functions will also be simplified and streamlined in order to reduce fixed costs. By reshaping the business and promoting integration and simplification, in 2026 we will build a structure which will enable us to achieve adjusted operating income of 8% or more or even 10%, which is the target of the '24 and TB.
Finally, I would like to discuss our full year earnings forecast or guidance for 2024. As we've explained, the Americas business is down from the plan in addition to a greater-than-expected deterioration in the South American business. Growth in North American business fell short out of February plan, which is a major negative impact. Although we aim to cover this by various improvement activities globally and by other regions, particularly the deterioration of the Latin American business in the first half of the year could not be covered. Thus, we've made a decision to revise our full year forecast downward from the February plan.
Regarding adjusted operating income, we projected JPY 530 billion in the February plan, which we decided to revise our forecast down to JPY 490 billion factoring and a JPY 40 billion decrease in income. We will maintain the full year increase in both sales and profit over the previous year and the dividend per share will remain unchanged.
As for the second half of the year, volatility in the U.S. market requires close monitoring, but the North and South American business has emerged from its wealth period. And the global business is also expected to improve, including seasonal factors owing to winter tires. In addition, we will accelerate the creation of solid effects by strengthening global business cost reduction activities.
In addition further, we will assess risks in each market, which will be reflected in sales. We will strengthen fixed cost reduction by optimizing the balance with production in advance and thoroughly reduce inventories in terms of number of units and value. On this basis, we will embark on the second stage of reorganization and restructuring to further strengthened earning power so that we can build a strong business structure.
On top of all of these, while thoroughly strengthening Bridgestone, premium focus and Dan-Totsu products enhancement, we will develop a multi-brand strategy to strengthen the utilization of Firestone and response to the business environment of each market, and we'll also appropriately promote the optimization of the balance between quantity and quality.
I will explain on the key points regarding the latest full year guidance. First, the assumptions reflect the most recent trend of yen appreciation. We have set the exchange rate assumption at JPY 140 per $1 for the second half of the fiscal year, which is the same as at the time of the first quarter earnings announcement. Sales revenue JPY 4.4 trillion, adjusted operating income, JPY 490 billion. We expect to secure a year-on-year increase in sales and profit, therefore. However, unfortunately, it will be less than the February plan.
Adjusted operating income margin is expected to be 11.1%, which will be the same as last year's. The dividend per share is expected to be JPY 210 as per the February plan. The CFO will explain after my presentation.
So those are the main explanations of the first half results and the full year forecast. Thank you very much for your continued understanding and support. And I would like to thank you for your attention.
That was the presentation from Mr. Ishibashi regarding the financial results for the first half of 2024 and fiscal 2024 guidance. Now we will have Mr. Hishinuma the Global CFO and Executive Director, Global Finance, to provide you with the financial results for the first half of fiscal 2024.
Good afternoon. I am Hishinuma, the Global CFO in charge of Finance. I would like to present to you our consolidated financial results for the second quarter of the fiscal '24 and our consolidated financial forecast for fiscal '24. This is the agenda for today. I will start with the consolidated business and financial results for the second quarter of 2024.
While revenue increased to JPY 2,176.8 billion, adjusted operating income decreased to JPY 229.2 billion. Despite the improvements in raw material selling prices and mix spread with the tailwind of weaker yen, profit decreased due to sales volume decrease and the deterioration in the business in Latin America. The adjusted operating income margin was also down 0.8 percentage points to 10.5%. Profits attributable to owners of the parent for the quarter was JPY 199.1 billion. This is because of approximately JPY 63 billion of gain on sales of fixed assets were recorded as a temporary and significant gain as an adjusted item.
Here, you see the highlights of our business performance as a executive summary. We will promote business quality enforcement in global and accelerate reinforcement in earning power.
This is a business environment for the first half of fiscal '24, yen depreciated against both U.S. dollars and euro compared to previous year. For the raw material, while market price for natural rubber showed an upward trend and crude oil remained unchanged. The impact on our performance in the first half was a slight increase for natural rubber while unit prices for other raw materials such as crude and butadiene declined. Weak yen had negative impact on domestic production.
As for the tire demand, demand for OE tires softened was declined in the new vehicle production volume by auto manufacturers, although with some regional differences. As for replacement demand for PSR remained the same, while TBR demand showed recovery in North America in the second quarter. Japanese demand was much lower, impacted by rush demand before the price increase in the previous year. Demand for HRD tires 18 inches and over continue to grow steadily on a year-on-year basis.
This is the sales volume of the tires for passenger cars and light trucks, LTR. Globally, sales volume decreased to 91% of the previous year's level. In addition to lower number of new cars being built, OE tire sales decreased due to our focus on premium and prestige products. For replacement, slight decline in sales due to increased low-end imports in North America had impacted the result. In addition, sales in Japan were affected by temporary demand increase before the price hike in the previous year, and sales in Europe was greatly reduced due to the effect of reduction in the low profitability area. Sales for HRD tires over 18 inches continued to increase.
Next, the sales volume of the tires for the truck and bus tires and ORR for mining and construction TBR tire sales decreased 93% of the previous year's level on a global basis for OE market due to lower production volume by OEM and on our focus on premium, tire sales decreased. For replacements with demand recovery in North America, also are showing improving trends starting in the second quarter. There is a sharp decline in sales in Japan due to surge in sales before the price hike in the previous year. And in Europe, due to selective reduction in loss-making and profitable business, there are decline.
I will now explain the factors behind the change in adjusted operating income. In addition to softening raw material prices, sales volume declined despite continued thorough efforts to improve the sales mix although there was a tailwind from the exchange rate, profit came slightly down from the previous year due to the worsening of conversion costs, including production adjustments and significant negative impact of the Argentinian subsidiary.
Turning to segment performance. Japan and Asia, Oceania, India and China segment, profit increased and the profit margin improved compared to the previous year. In the Japan segment, although there was a rebound from the temporary demand rise before the price hike in the previous year, strong sales of tires for aircraft and mining had a positive impact and tailwind for the weaker Japanese yen has helped strong profitability.
In Americas and Europe, Middle East and Africa segment sales increased but profits decreased and the profit margin was down over the previous year. In the Americas, sales of HRD tires were strong and TB tires showed signs of recovery and South American business deteriorated and costs worsened.
Turning to the consolidated financial results by product. In the passenger car and light truck tire business sales volume decreased, but sales and profits increased on the back of sales expansion of replacement HRD tires and profit margin increased by 0.2 points sales and profit tires for trucks and buses decreased from the previous year due to the significant impact of lower sales and worsening conversion costs. And the profit margin was down 4.5x -- 4.5 points.
In the specialty segment, sales of off-road tires for mining vehicles have been significantly profitable and the depreciation of the yen helped boost sales and the margin improved by 1.3 points to 22.6%.
In the Diversified Products business, business profit increased and profit margins continue to improve against the backdrop of strong sales of hydraulic hoses and other products in the sports and cycle business, profit decreased, resulting in an operating profit deficit. Diversified products business in Americas saw a major reduction in profit due to the difficult business environment for new vehicles, including large trucks and trailers and the cost burden coming from the need to start up new business in relation to EVs.
These are the BS and cash flow highlights. Total assets increased by JPY 437.9 billion from the end of the previous year to JPY 5,865.7 billion the main reason for the increase was foreign exchange profit due to the weaker yen. And the equity ratio rose 3.0 points to 64.8%, partly due to the effect of foreign currency translation. Free cash flow was JPY 108.9 billion, maintaining free cash flow at about the same level as last year. And due to cash inflows such as proceeds from the sales of fixed assets. With regard to capital expenditures amid a more challenging business environment than anticipated, we are carefully selecting strategic growth investments based on views of returns. And we made investments to enhance production and build IT infrastructure. The investment total is JPY 151.1 billion.
Onto the consolidated guidance for fiscal 2024. As said before, we have revised our full year consolidated guidance for fiscal '24 as shown above. Revenues are expected to be JPY 4,410 billion, in line with the February forecast. Adjusted operating income and profit attributable owner of the parent are expected to be JPY 490 billion and JPY 336 billion, respectively. With regret, we expect the full year performance to be lower than the February plan due to the lower-than-expected growth of the North American business and the significant impact of a larger-than-expected deterioration of the Latin American business. Dividend per share is set at JPY 210 per share for the full year as previously forecast.
The assumptions of forecast are shown here. We expect the yen to depreciate against the U.S. dollar and euro during the second half of the fiscal year to JPY 140 and JPY 151, respectively. In addition to higher unit prices for raw materials, we expect a negative impact from the yen's depreciation on domestic production.
Regarding demand for tires for new cars, we expect demand for tires for new cars to soften from the previous year. Demand for replacement tires is expected to remain mostly unchanged from the previous year. However, we anticipate a recovery in demand for truck and bus tires in North America and growth in demand for premium tires expanding primarily in North America and Europe.
Tire sales volume guidance for OEM fitments, we expect sales to decline year-on-year in each region against the backdrop of softening demand for both PSR and TBR. We plan for sales on the replacement tires and to be on par with the previous year or to recover from the previous year, although there are regional differences. In particular, we expect sales of TBRs in North America to continue to recover from the second quarter onward and global sales of high-rim diameter tires to continue to grow.
I will now explain the factors behind the year-on-year increase or decrease in the adjusted operating profit forecast. The spread between raw materials and selling price mix is expected to continue to widen. Despite negative impact such as lower sales volume, worsening conversion costs due to the deteriorating capacity utilization and worsening operating expenses due to continued inflation, including higher wages, we expect an increase of JPY 9.4 billion from the previous year, partly due to the tailwind of weaker yen throughout the year.
Here is the forecast by segment. The adjusted operating income forecast for Japan has been revised upward from the February forecast. However, the downward revision of the overall consolidated forecast is due to the fact that it cannot cover the impact of the large downward revision in the Americas. We will accelerate our global efforts to brace tighter in our business and aim to achieve our business forecast. That's all for my explanation. Thank you very much for your attention.
Thank you. Mr. Hishinuma, that was the presentation on the financial results for the first half of fiscal '24. Now we would like to move on to a question-and-answer session.
For the Q&A session, we have designated 5 analysts from us. And then we will actually invite the questions from the press by raising their hands. [Operator Instructions] First, we will have SMBC Nikko Security, Mr. Maki.
I am Maki of SMBC Nikko Securities. I have 2 questions. First is regarding the results for this year and another is for next year -- next term. First, regarding the certainty of the forecast for this year. You have stated that the worst is over now, repeatedly during your presentation. For example, compared to other foreign companies in the United States, there are still competitors with the lower-end products, and there may be some delay in the recovery. And from the second half, you need to have promotion in order to enhance and have people understand the value added. And can you elaborate on us as to why you say that the worse is over now in the first half?
In North America, there may be some efforts to increase the share in the retail. How do you try to recover that? In Europe, in June, you said that there may be some decisions that can be made. And there may be some delay, but do you think you can still aim to recover in the second half? I hope that you will be able to elaborate to me about this statement that you had made.
First of all, regarding the worst period, especially in Latin America and North American TB, let me elaborate. As you know, last year, there has been a major negative factor of North American TB and in the latter half, Latin American situation. But in the first half of this year, in Latin America, the situation became even worse than before. But for the North American TB, as compared to the last half -- second half of last year, it has improved.
In Latin America, if you look at the example of Argentine last year, there is a change in President and from the ultra inflationary e-market, there has been a little improvement, and this is some market factor that may be improving. And our activity itself is that we are trying to reduce the fixed cost and especially in the production area, and we are promoting this in Argentina. And as a result, the market situation as compared to the worst last year has improved a little bit. And at the same time, we also are now reducing the fixed costs, and we are now trying to get away from the worst.
And regarding Brazil, in Argentina, there is a reduction in the demand due to inflation, but in Brazil, demand is very strong. But because of the open market, there is a competition from the low-end imports. Regarding this, Firestone in Brazil will be used widely even more so than in North America, in Brazil. Also, we will try to reduce the fixed cost in production and sales. From these 2 factors and efforts in the second half, we believe that there will be improvement, little by little. And in that sense, we said that we are out of the worst.
For the North American TB, as was mentioned earlier, since last year, there has been an issue related to the inventory and also the real demand for the TB tires. As I mentioned earlier, Bridgestone brand in the first quarter this year and the second quarter this year did vary strongly even in a very challenging environment. And I believe this means a lot to us with a national treat as a center, we were able to maintain the strength of the Bridgestone brand.
And in May also, the tariff from Thailand was to be raised. And as a result, there was a demand before that for the low-end products from Thailand and other Asia. And in the latter half of this year, tariff will increase at some point. And as a result, inflow of the imports will probably turn down a little. This may not have a major impact on the Bridgestone brand, but for the Firestone brand and for the retreads, because of the factor of balance, they have been impacted greatly. So there may be some impact. Also Firestone will try to briskly cope with this and by providing the retreads, we are making mitigation efforts.
And as a result of these efforts and with the possibility of the tariff increase as an external factor, we do believe that maybe the first half was the worse and that there will be improvements as we move towards the second half.
And regarding the passenger in North America, for replacement, it's not as high as a hope and expectation, but it has improved compared to last year. So in that sense, replacement will grow. And for OE, for the high-rim diameter tires, I think we have been able to capture the market. And in the OE HRD, we have been able to capture the sales. But the Firestone brand will have to think of how it can actually balance the quantity and the quality in view of the increase of the imports and with the possible weakening of the U.S. demand.
And in the second half, if the market is depressed in the United States. There may be some higher demand for these Firestone products increase. But for that, we need to parallelly carry out the new channel, which we are implementing at present. And these efforts will mitigate the negative factors that we face. And with these efforts, for passenger, too, I believe that we can actually generate certain level of profit, although it is lower than what we had expected.
The second question is for next year, what is your forecast and expectation? When you look at the past 3 years, foreign exchange had been a major contributor to the increased profit. Now we see a little stronger yen. And if you look into the future, there may be further increase in the cost or maybe there may be some tariff issues. And UDR for tires may be another factor. What do you think may be the risk as you see the situation, Mr. Ishibashi? And can you tell us what your forecast is? I think you need to further carry out some evolution within the stronger yen situation. What is the forecast for next year?
Well, as you say, during the last several years, as I mentioned earlier, in 2021, '22, we have actually carried out major restructuring and rebuilding. And based on that, we hope to move on to the next stage. We believe that we did a significant amount of rebuilding and restructuring. But it has not necessarily been enough. And there are some new issues that we see now and there may be some aggravating situation. And therefore, as a result, we do need to take more measures. We say that we are going to go into the second stage, especially in the Americas and in Europe, we will further have to carry out more rebuilding. We hope to be able to fully implement that this year so that we can start renewed next year. That was our original plan.
But unfortunately, we do believe that we will have to continue to carry out restructuring and rebuilding in Europe and in America. And I may not be able to go into details, but in TB, there is a production adjustment and there are production adjustment carried out in the United States as well. So we need to further consider the production and sales balance, and we need to further reduce the fixed cost.
And in North America for the diversified business because we have been facing a lot of difficulties, we do need to restructure and rebuild. So as we look towards next year, we will need to complete this process of rebuilding and restructuring and steady efforts to reduce the business cost and deployment of ENLITEN and improvement of the productivity will have to be combined so that business quality and strength will be stronger, and that will be what will take place in '25.
But the steady efforts to improve will result in definite improvement. And this is what we have been doing in Bridgestone with the people in Genba, we will work together towards this end. And we will strengthen these efforts further and rebuilding and restructuring in Europe and Americas will result in a dramatic improvement.
At present, the situation in Latin America has been very negative, having a major negative impact overall. But I think we have been able to try to overcome this due to steady efforts and the impact of the foreign exchange. Therefore, for the past several years, we have carried out a massive rebuilding and restructuring efforts, utilizing a lot of expenditures and in Europe and et cetera. But we have been able to mitigate this cost by steady efforts so that we can try to improve bottom.
But when you look at the situation surrounding us in order to make Bridgestone even more stronger, we need to truly complete this effort for rebuilding. And we do need to improve our business quality, and we need to further pursue Dan-Totsu and our technology. And for that, we do need to have you all give us a little more time. As stakeholders, you may think that you are taking too much time, but I do hope that you will give us year '25. So we will come up with some good bottom figures, but we will continue with these efforts. So by year 2026 will be in the new stage.
I believe that under these unfavorable environment, I believe that the efforts that Mr. Ishibashi has been carrying out will become more effective.
Thank you very much, Mr. Maki for your question. Now in the interest of time, we would like to limit your question to just one question. Now I would like to invite Mr. Yoshida of Citigroup Global Markets to ask your question.
So asking one question about the profitability of the TB business. In the second quarter, it was 4.2%, 5.9% first quarter number had deteriorated and you said that the demand has recovered. So what is the reason for the deterioration in the second quarter? There used to be a margin of close to 50%, but to return to that level in the business rebuilding process is anticipated, I believe, to be realized in 2026. And so in the meantime, are you going to gradually improve? But in the second half, you need to continue adjusting inventory so that you would remain at around 5%. And in 2026, the margin would go around 10%. So about the TB profitability, can you give us insight over the short term and also the medium term?
As mentioned earlier, the TB business centers on the North American market contributing to our business performance. Europe and China had this negative impact on the TB profitability up to now. About China, we decided to exit the TB business. And the North American TB business, this number includes retread business, not just OE. And when it comes to retread business, we still have a profit level of 20% but with the cheap import products, that was a negative impact. And so profitability is deteriorating.
So how are we to recover? One possible solution is to fully leverage the second brand, as I mentioned earlier. So with a combination of various strategies, we are to recover the retread business and this OE, retread and maintenance package may lead to the improvement of profitability. That's the scenario for 2025 and 2026.
And one important point is the production capacity and sales have a major gap. So production would have to be reduced to the lowest possible level. And this is to be carried out on a global basis. And by process, the production would be frozen for a certain while. That is a fundamental reform that we are conducting mainly in North America. And with this fundamental transformation, there is going to be a recovery expected in 2025, so that sales and production would be rebalanced. And TB fleet Bridgestone brand is quite strong. So it would continue improving profitability.
Now I don't know what happens to the tariff, but if the inexpensive import brands would continue coming in, we have to counter that with the Firestone brand. So the fundamental balance restructuring of the sales and production is going to take place in 2025. I'm not sure about the specific timing. But by 2026, there would be effects that will be felt. And the Firestone brand and the retread, these new programs would gradually expand so that in the 2026 timing, the bottom line would increase. That's what we expect in North America.
About Europe, we have a deficit right now. And this deficit is giving impact on the overall TB business, including North America. So we have to first to rebalance sales and production. And the TB business scale is downsized in Europe so that we are to focus more on the fleet business and therefore, we are going to downsize the business while improving the quality. That's what we're going to do in 2025 in Europe. And then in 2026, by doing so, the profit margin may go up to as close as 10%. That is our current plan.
So with the combination of these strategies, we would like to improve the margin of the TB business to the original level ultimately. Thank you.
Which means that the over short term I guess using the demand is not bad, but particularly with the focus on retread operations, that is having a drag effect and so how you can control that. And also for the TB business in North America, the Bridgestone brand is for the national fleet, which has been doing quite solidly steadily. However, the Firestone has been positioned to be appealed to a more local or the modest size under the fleet that is where the cheap imports have been encroaching into our traditional business area. And therefore, under the current impact that we are suffering from. So that's the structure.
To continue from Daiwa Securities. May I ask Mr. Sakamaki for your question.
Yes, Sakamaki speaking here. So one question. About cost reduction benefits. Would you mind sharing some numbers? For instance, you kept on saying the BCMA and procurement, the JPY 34 billion and JPY 31 billion in the first and second and I understand that these business cost reduction benefits as you move from the current fiscal year to the next fiscal year, how much increment profits do you think you can expect so that it may be offered for you to identify exactly what you're going to do?
I don't know if you started to say a little bit about TB business operations in North America. But whatever that you do, the benefits from the all of the adjustments and initiatives that you are taking, what sort of benefit would you like to expect in the next years on the profits only coming from business and the cost reduction activities? So if there's anything at all that you can share that would be nice.
You started to say that in the second half of the current fiscal year, already, the European turned to profitability will start to benefit more broadly. What is the expected benefits of business cost reductions?
Okay. So where it's booked? Let me ask Mr. Hishinuma.
JPY 65 billion worth of business cost reduction benefits. BCMA and the Green & Smart, that's for the conversion cost had been declined. And as to the SCM and logistics, it is part of the SG&A benefits. So that is where each of those activities are diversified. Procurement and import is part of SG&A and also on the part of the direct material cost, but I'd say that it is more therefore the material costs, which means that beyond the second half, as the market, the severity would become more noticeable. We are trying to prepare ourselves to rate more tightly so that we can go through the period and to benefit further.
Right, the Ishibashi speaking, the volume decrease, the negatively affects the conversion costs. We have been carrying out various activities and initiatives. And with all of those efforts, very hard efforts, we have been able to maintain the magnitude of the negatives at this level, please read it as such. We have excess capacity underutilized. If we are able to come to the situation, we are at that underutilized capacity is actively utilized. Then that's -- you have a much better situation for us. And all the more, the improvement initiatives, the actions that we have been taking will be our gains.
So in the [indiscernible] back in June, we had very hard discussions about these. For instance, European TB scenario for the future, how we should write that out. The top line where we continue to lose, we should reduce that or maybe we should replace that with the fleet, the sales activities, or what about the production costs of the at large and to what lower or better level can we make it to be? Or the simplification that we keep in talking about? What about the expectable magnitude or the amount of the cost reductions? So we have to have the customers being convinced, which means that we hope that we can cater to the needs of the customers who are willing to accept our price increase request even. So that is the target that I have. Double-digit, the better margin is for the European TB business operations. That's for Europe.
Now applying that into the global market. Of course, we are carrying out all of these activities. However, the global picture has not been drawn clearly yet. Roughly speaking, next year, '25 activities, I spoke, the better balance between production and sales, we should be able to do better as the proud manufacturer, and we should do that, particularly for the truck and bus tire productions and sales.
So that is what we truly mean to be at the heart of the rebuilding of the business. And it is not only for the retail or wholesale, it's both. And the part of the business operations do have to think very hard to consider a better way of approach. So all in all, fixed costs just have to be reduced, and this will give you a focus more and more on that area at what the sense of speed and at what exact timing with what magnitude we can do that next year, which we pretty much determine the bottom line that we can expect next year in '25.
Now our assumption is that we have the full completion of all of these action takings in the course of '25. So to come '26 what we committed to you as we announced in '24 MTB, '26 being the final year of that, our expectation is to be able to deliver on our promise to you.
Mr. Kakiuchi from Morgan Stanley MUFG.
I am Kakiuchi from Morgan Stanley. There are inflow of the low-end imports, especially in the United States. There are antidumping duties. And there are those coming in for passengers and light trucks. But here, the performance of these low-end products quality are improving, and I think more people are accepting these low-end products. And there are restructuring in the dealers in the United States, and there seems to be this impact of this flow of the imports are becoming large. And I do understand that the competition is becoming more fierce with the imports. But is it just because of the lower price that the competition is becoming more severe? Any other factor?
As you mentioned about the passenger cars and these low-end imports. But for the passenger cars, the major brand in the United States from the past and the third and the first tier brands ratio or the rate has changed and there are more share by the third and the fourth tier as compared to the reduced amount for the major brands. And this, in addition to the low-end imports, and also, there needs to be some channel to actually sell these low-end products, and the customers must buy them if there is a change in the market, and there is a softening of these consumer trends.
So the tariff reduction and the movement of the customers to these lower-end products with less spending power is the present situation and there is best, better and fighting. So these are the different kinds of tires that are available, and there are various merchandising. And there are customers who go for these best brands. And we need to secure them in this overall trend and we need to sort of keep on capturing these customers that go for the best to keep the balance.
You mentioned about the performance of these products. In the United States, the highest expectation that customers do have is mileage. How long can they use these tires. So within a certain mileage there are competition. For 30,000, 40,000, 60,000 and 80,000, there is 3-mile, 5-mile and 8-mile warranty, and they actually determine the price of these tires. So even for these low-end products, if there is 50-mile, 80-mile warranty, then if it lasts for that long, and they will look for what prices they are.
In the past, it used to be 30,000, which was the lowest. But now with the low-end imports with higher mileage the products are changing. In the past, imported cheap products are some of the brands that you know have been impacted. Especially the brand that was not known in the past from China, for example, are now competing in the market. In that sense, the mileage or long mileage that is valued in the United States will have to be reconsidered and we do need to be so much more superior than these inexpensive products.
And we do have ENLITEN and other products, so that we have a major differentiating factors that are provided by products. And we do have various benchmarks to set our products. So we need to look at our products among the major brands. And at the same time, we need to look to see how our brands are compared to these more inexpensive products. And this is not just the issue of price, and not only the issue of the consumer behavior. But for the performance for the consumer products, even if they are inexpensive products, we do need to be mindful of the fact that the performance or the mileage is improving. And for ORR and mining and for others, the situation may be different. And for the passenger HRD, the difference is that we provide are still large. So we do need to continue to keep on these differentiating factor for these products as a major brand in the future.
Thank you very much, Mr. Kakiuchi.