Bridgestone Corporation (BRDCY) CEO Shuichi Ishibashi on Q2 2022 Results – Earnings Call Transcript

Bridgestone Corporation (OTCPK:BRDCY) Q2 2022 Earnings Conference Call August 10, 2022 2:00 AM ET

Company Participants

Shuichi Ishibashi – Global Chief Executive Officer

Masuo Yoshimatsu – Global Chief Financial Officer

Conference Call Participants

Shiro Sakamaki – Daiwa Securities

Shinji Kakiuchi – Morgan Stanley Securities

Tairiku Sakaguchi – Mizuho Securities

Kazunori Maki – SMBC Nikko Securities

Shuichi Ishibashi

Hello, everyone. I am Shu Ishibashi, Global CEO of Bridgestone Corporation. First of all, I would like to apologize for canceling the February 15 financial results review meeting for full-year 2021 and the Bridgestone E8 Commitment launch event scheduled the day after at the last minute due to my health conditions. Thankfully, I am recovering and will resume external communications from today.

On March 1, 2022, on the occasion of the 91st anniversary of the company’s founding, we announced our new corporate commitment, the Bridgestone E8 commitment. Using this as the axis to drive the group’s management while earning the trust of future generations, and our guiding vectors, we will accelerate our transformation to a sustainable solutions company as set out in our vision.

Today, in announcing the financial results for the first half, I would like to start by providing a summary of financial results for the first half and fiscal 2022 guidance. I will explain progress in our midterm business plan from ’21 to ’23, especially regarding strategic growth investments. First, a summary of financial results for the first half. Regarding revenue, including impacts from the weak Yen, we achieved a significant increase in revenue versus previous year.

We experienced many negative factors, including irregular negative impacts, such as the suspension of Russian manufacturing and exports to Russia, the effect of COVID-19 in China, the cyber incident in U.S. subsidiary, et cetera, and the continuing disruption in the supply chain around the world. And in such situation, we executed flexible agile management, leveraging our global manufacturing footprint, which is our strength and maximized supply of premium tires.

In addition, we also expanded sales and market share of premium tires, high rim diameter tires for the passenger cars, truck and bus tires and tires for mining vehicles based on the product power of Dan-Totsu products. For adjusted operating profits, we achieved an increase in amount. We were able to largely cover impacts of unprecedented raw material information through improvement in premium tire sales mix and strategic price management including price increase based on the product power of Dan-Totsu products.

We minimize effects of irregular impact through continued flexible, agile management or by supply chain, et cetera. In addition, we responded to soaring inflation in energy, labor, ocean freight, logistic fuel costs, et cetera, which led to rising costs through expense and cost structure reformation, such as productivity improvement, reduction of global procurement costs through expense management, et cetera. However, we fell one step short of covering all effects and marked a 1% decrease versus previous year in adjusted operating profit margins.

Regarding profit from continuing operations, we recorded factors such as impairment loss for the Russian business, which resulted in approximately ¥13 billion decrease in profits compared to last year. Following the first half results for fiscal 2022, we plan to approach close to ¥4 trillion or ¥4,000 billion level in revenue, including currency exchange impact. Regarding gross profit, we project to maintain a favorable guidance level. We plan to continue expanding sales and market share of premium tires and will further reinforce improving the source mix of premium tires and our strategic price management. Moreover, we will ensure flexible agile management to deal with irregular negative impacts I previously mentioned and rise in cost that is expected to remain.

For our solutions business revenue, we plan to achieve approximately 19% of total revenue, which is close to our 2023 target of 20%. Regarding adjusted operating profit margins, we are projecting over 11% level. We will continue to flexibly and agilely manage irregular negative impact in supply, sales and costs.

By responding to inflation effects through cost reduction through productivity improvement, reduction of global procurement costs and thorough expense management, although our margin level is projected to fall one step short of that of the previous year, we will maintain the same level as in February guidance.

We project ROIC, our most important management index to surpass that of 2021 and achieve 9.3% in line with our guidance in February. Excluding temporary negative impact, we ensured thorough improvements of business quality and are close to accomplishing the rebuilding of earning power. We believe we are coming closer to becoming a strong Bridgestone. These are the highlights of performance for 2022.

Now I will provide updates on the progress in our midterm business plan. In this first half, of 2022, we mark the halfway point in the midterm business plan for the year ’21 to ’23. Today, I will focus on the phase, lay foundations for future growth, and we will talk about strategic growth investments that we will make by 2023 with regards to building foundation for the premium tire business and the Solutions business, sustainability, reinforcing investment in talent, et cetera. First, regarding the premium tire business.

To build foundations for the premium tire business, we are continuing to reinforce our structure to produce and sell high rim diameter or HRD tires for passenger cars. In U.S. and Europe, which are the main market for HRD tires, and in emerging markets, where the shift to higher inches are expected to continue. We will ensure taking the rep recursion demand and plan to strongly drive sales on a global basis. To prepare for further sales expansion, we are maximizing and leveraging of the production capacities in our existing plants. Globally, in almost all of our plants, we will invest in replacing equipment to produce HRD tires and in increasing capacity.

A total of approximately ¥48 billion is planned by and will be executed by 2023. Aside from the investment for HRD passenger car tires, we will also increase capacity to produce premium tires for mining vehicles, trucks and buses, et cetera. We will build a structure to focus on premium in all categories, including in truck and bus tires and trucks tires for mining and construction vehicles, which are historically our strength as well as in motorcycle tires where we will reinforce our premium position and focus on race sports area.

Furthermore, as a first step in building a sustainable tire production structure, we opened a facility in Akron U.S. to produce racing tires for the NTT IndyCar Series using guayule. With a mid-to long-term perspective, we will continue to build a manufacturing footprint network aiming for global optimization, but based on local production for local sales to some extent. We will also make investments in going green and smart to evolve manufacturing through digital capabilities with sustainability at the core.

We are planning ¥74 billion level investments for such capacity increase including those that we have yet to announce. In addition to further reinforce the premium tire business, the ENLITEN business strategy will be the new premium in which the Bridgestone Group will uniquely create value.

We will develop this as a core of the premium tire business. Positioning ENLITEN as the new premium in EV era for passenger car tires, and the new premium in circular business era for truck and bus tires, we aim to simultaneously create value that can sometimes speak contradictory, such as balancing sustainability with business growth and balancing customization of tire performance with productivity improvement and cost optimization across the value chain.

We plan to expand ENLITEN equipment first to 10% in 2023, then rapidly from 2024 onwards to 25% for passenger car tires and 20% level for light truck and truck and bus tires. For passenger tires, we are expanding all equipment of tires equipped with ENLITEN globally to various vehicle models.

ENLITEN technology that is optimized to fit EVs can be customized to meet customers’ usage conditions or to meet performance required for EVs. It will greatly contribute to solving pain points brought about by the electrification of vehicles, such as improving power consumption, ensuring driving range and distance, rate and cost increase. We will continue expanding ENLITEN to support the realization of carbon-neutral mobility society from the grounds up.

We are introducing the ENLITEN business strategy for truck and bus tires for the first time as the new premium in circular business era. This is a business strategy linking — is a solution business such as Retread to create new value as an entire value chain. First of all, the all-round Studless W999, the first Dan-Totsu product to be equipped with ENLITEN technology will be launched in September in Japanese market ahead of other markets.

At the same time, we will make strategic growth investment to enhance Retread in Japan and also start real-time monitoring service for tires from September in Japan, which utilizes Tirematics that has been rolled out in Japan from December 2020.

Tirematics is a digital tool that monitors tire air pressure and temperature. Rollout of services started from Europe in 2012 and are now offered globally with enhanced service content. This will be the core service in our tire-centric solutions. By combining the strong rail that consists of Dan-Totsu products, Retread in approximately 900 sites across the country with digital capabilities. We aim to build a circular business that contributes to the realization of a circular economy and carbon neutrality in Japan also.

For light bus and truck tires, we will build a business model combining Dan-Totsu products and solutions, adapting business models for passenger cars and those for truck and bus according to market characteristics in each region globally. We started with OE fitment and have been selected this year for the OE fitment on Hino’s light BEV truck. Through the ENLITEN business strategy, we will support the realization of carbon neutrality and a circular economy also in large and last one mile delivery.

Next, regarding the Solutions business. In the Solutions business, we will invest approximately ¥72 billion of resources by 2023, a strategic growth investment to build the foundation for accelerating our growth. Following the acquisition of Webfleet in 2019, we have been executing M&A and strategic investments in Retail and Service Solutions business and Mobility Solutions business with the focus on the U.S. from 2021. In the tire-centric solutions business, we have been conducting M&A in Mining Solutions and investments in reinforcement of Retread in Japan and the U.S.

In addition, we started investments in start-ups for the future in the U.S. and Japan laying foundations to respond to new mobility. While building the foundation for a solid solutions business, we will examine growth potential and profitability of each business by 2023, and assess focused investment areas for 2024 onwards.

From here, I will explain our initiatives in each business. Regarding Retail and Service Solutions business, we are enhancing customized service for each customer to improve customer experience during the use of tires. We will strengthen the business focusing on the U.S., where we have a Dan-Totsu network composed of approximately 2,200 company-owned stores. We will reinforce our mobile van service that offers maintenance on site to customers and EV charging service that contribute to carbon neutrality.

Regarding Mobility Solutions business, we acquired Webfleet in 2019 and conducted organization and company integrations of our solutions business in Europe last year. Developing synergy with the premium tire business, we are promoting enhancement mainly in the mature country markets such as Europe, Australia and North America. As one of the results, we launched our new service Fleet Care in Europe in June.

It proposes the optimum combination of services from sales of premium tire to tire maintenance and fleet operation optimization through Webfleet and offers the combination as a customized package to each customer. Understanding customers’ problems, we will provide peace of mind, safety and efficient mobility operations to fleets and drivers. We will expand this concept globally and strengthen the synergies with Webfleet Solutions and Azuga, which has approximately 1 million connected vehicles in Europe, the U.S. and Australia.

Next, the Diversified Products Business. In Diversified Products Business as well, sharply focusing on areas where we can leverage our core competencies, we have been promoting investment to reinforce premium business and solutions with sustainability at the core, including response to the shift to EVs. We will invest approximately ¥8 billion by 2023 in order to increase production capacity at our premium hydraulic hose plant in Thailand and our air spring plant in the U.S. which supports the shift to EVs. We are planning to invest ¥13 billion level in total, including this for 2024 onwards.

Our hydraulic hose business has the strength of a business model, linking original equipment replacement and solutions based on core competencies, including Dan-Totsu products with master forming hybrid polymer technology handling rubber and global manufacturing and sales footprint. We will execute investments in production capacity expansion at our premium hydraulic hose plant in Thailand. We will invest approximately ¥5 billion by the first quarter of 2026 and increase your global production capacity by approximately 30% compared to the current level.

As for sustainability, which is at the core of management, we are building the sustainability business model. In order to realize carbon neutrality and circular economy, we will reinforce our natural rubber business in addition to the recycled and guayule businesses that we are promoting as our exploratory business. We will invest in planting at two natural rubber plantations in Indonesia and strengthen the business, including contributions to local communities around the plantations.

First, we plan to invest ¥500 million by 2023 and over ¥3 billion in total by 2030. As stated in the Bridgestone E8 Commitment, Bridgestone commits to the realization of a sustainable society for the sake of the earth, which future generations of children have entrusted in our care. In order to preserve the environment for future generations, we are accelerating our initiatives across the value chain, produce and sell, use and renew tires to raw materials, focused on carbon neutrality and circular economy.

Finally, regarding the reinforcement of talent investment, which supports our business growth. Regarding our talent strategy aligned with the business strategy, we will first take on the difficult challenge of realizing both the growth of Bridgestone and that of individuals working at Bridgestone globally. Also, we will promote global culture change in line with the Bridgestone E8 Commitment to globally transform our corporate culture.

We have two global common strengths related to talent and corporate culture. First is quality and customer orientation. This is exactly the permeation of Bridgestone’s DNA. Second is permeation of vision and strategy since the announcement of the mid-long-term business strategy framework in 2020. We will continue to reinforce these strengths. On the other hand, we have four items that require improvement, such as promotion of collaboration and overcoming of organizational silos, agile execution of operations, DE&I and talent development.

In Japan, we are especially strengthening our initiatives to reinforce engagement, women empowerment and others as we saw large rooms for improvement compared to Global. I will explain concrete initiatives in Japan. We have driven initiatives in HRX from 2020 as a critical management issue.

These include expansion of town hall meetings with the top management team, execution of top management talent development system, Bridgestone Next 100 and active promotion of female managers. We have been executing in gradual steps applying PDCA cycle. However, we, as management, consider that it still needs to be improved.

From the second half of 2022, we will reinforce further talent investment in Bridgestone Corporation with the plan to inject resources of ¥800 million in 2022 and ¥1.5 billion in 2023, which is approximately double the amount compared to the prior-year into training and talent development expenses. As for top management talent development, we have strengthened the development of Next 100 composed of 100 talent in global and NeXJapan30 composed of 30 talents in Japan. Also, as for advanced digital talent, we have recruited and developed approximately 140 talents in Japan and approximately 1,300 talents globally.

We are planning to increase the number of talents to 1,400 by the end of ’22. In the second half of 2022, we will invest ¥3.6 billion and execute additional measures focused on talent on site, younger talent and managers. Regarding younger talent, in particular, from 2023, we will start the introduction of on-site 100 days challenge. First year, second year challenge system and significant expansion of DX training for assistant and associate level.

I would like to summarize our strategic growth investments explained so far. As strategic resources in midterm business plan by 2023, we plan to invest approximately ¥620 billion in total. We will continue to promote flexible and agile management adapting to change with an aggressive approach and challenging spirit. At the same time, we will promote initiatives towards 2023 to achieve the midterm business plan and lay foundations for the future growth, including building foundations for the Premium Tire business and the Solutions Business and reinforcing sustainability and talent investment.

We will take initiatives to return to a strong Bridgestone capable of adapting to change. As I mentioned at the beginning, the business environment changed significantly in the first half of this year. We consider new management issues will emerge one after another, and that change will become commonplace.

Transforming such change to opportunity with Bridgestone E8 Commitment, as your axis and guiding vectors for corporate strategy, we will accelerate the transformation to a sustainable solutions company towards 2030 and the group’s 100th anniversary in 2031. We will have an opportunity to explain our 2030 long-term strategic aspiration as the road map in this challenge on August 31. We would appreciate it if you can join us for that occasion. Thank you for your attention.

Operator

Thank you. That was the presentation made by Global CEO, Ishibashi. Now to continue on, we would actually listen to the presentation by Mr. Yoshimatsu, who is our Global CFO.

Masuo Yoshimatsu

Thank you. I am Yoshimatsu serving as the global CFO. So let me give my presentation on the financial results for the first half of fiscal 2022. This is the page showing my agenda today. Materials did combine business financial performance for the first half and the consolidated projections for the full-year fiscal 2020 and that Mr. Ishibashi, Global CEO has already given you the key points on the materials. I would like to offer some additional explanations and breakdowns for some of the numerics.

So on to the business and financial performance for the first half 2022. Consolidated results for the first half appears on this page. And now I’d like to focus on profit attributable to our owners of the parent in the first half. Debt from continuing operations decreased by 10% versus previous year to ¥117.6 billion due to adjustment items such as ¥16.8 billion losses related to operations in Russia and ¥15.3 billion expenses for safety inspections at Bridgestone Cycle Corporation, among others.

Debt from discontinued operations resulted in ¥24.7 billion losses in the first half. In reference to the announcements made in December last year regarding the antivibration Rubber business and Chemical Products Solutions business, slower demand stemming from automobile productions reasoning business balance to the completion of the transfer duty cost inflation as well as the expanded loss estimates for the cost of transfer due to Yen depreciation and inflation.

Next, overview of the performance for the first half ’22. Let us focus on overview of the performance by product. For Passenger Car and light truck tires, sales remained strong despite a series of price increases since the last year. And particularly in the premium — in the tire segment with prominent demand expansion based on share in the premium segment sales increased. Truck and bus tires, strong sales continued since last year and particularly in Europe and Japan, sales increased by more than 20% year-on-year in this first half to lead the overall operations.

With respect to the mining and construction tires as announced back in March, the sales declined due to the suspension of exports to Russia, which however, was covered by other market sales, which means that we result with a double-digit sales growth year-on-year and a further increase in global market share as well.

On to the business environment surrounding Bridgestone Group for this first half, currency exchange, both U.S. in dollar and Euro appreciated against the Japanese Yen. Raw material costs. Natural rubber prices were generally flat year-on-year. Crude oil prices remained at high levels after breaking through the $100 per barrel level in February, blowing headwind against the group’s performance. And the energy cost at plants continue to rise sharply in response to surging crude oil and natural gas prices, again the factor of headwind against our operations.

Tire demand. In the OE segment with automobile production cutbacks continued to remain on the lower level in the first half. However, in the Replacement segment, solid demand in development countries — in developed countries continued. Demand in North America continues to be strong, especially in truck and bus tire segment, 139% versus 2019, even though demand growth was slowing somewhat.

So the very strong demand persisting. In PSR, the demand for premium tires above 18 inches in the so-called high rim diameter tires, in North America and Europe, with relatively tight supply/demand balance, the performance was very good, backed by strong demand. Next, let me talk about tire sales growth.

Passenger car and light truck tire sales of 102% of the previous year. Truck bus tires 104% over the previous year. Mining and construction tires for auto light sizes, 111% in the prior-year, large size, 111% and small and medium-sized 103%. All in all, the increase in sales in particular, with large, ultra-large and large-sized mining tires with high profitability, sales growth stood out. With the advent of continuing enhancements in premium strategy, higher rim diameter passenger car tires above 18 inches continued to grow in sales, which was 17% up year-on-year or 44% up from 2019, which is, of course, before the pandemics.

Analysis of adjusted operating profit for this first half over the prior-year first half. ¥147 billion combined positives from selling price and mix factors exceeded by ¥25 billion. The combined negative of ¥122 billion, which were with raw material costs size of ¥114 billion, and that in American currency depreciation of ¥8 billion. And furthermore, increased volume and Yen depreciation, we’re absorbing one-off negatives such as suspension of domestic production exports in Russia, lockdown in China, cyber attacks in the U.S. subsidiary operations and cost inflation, the conversion cost and operating expenses contributed to ¥24.2 billion increase in adjusted operating profit for the first half ’22 from the first half ’21.

Results by segment. Japan, Americas, Europe, Russia, Middle East, India and Africa regions increased the revenue and profit substantially year-on-year. On the other hand, in China, Asia Pacific, as impacted by lockdown and China operating profit declined. In segments with increase in operating profit, Europe, Russia, Middle East, India and Africa, really stood out with the rate of increase higher the rate of increase, which is particularly phenomenal.

The higher selling prices to the market and the mix improvement written there. And the tight supply-demand balance, flexible supply management enhanced sales and made a positive penetration of higher prices and mix improvement enabled adjusted operating margin climbing to 9.2% in the first half approaching the double-digit mark.

Financial retail by product for this first half. Passenger car and light truck tires as well as for tire — truck and bus tires, up in revenue and adjusted operating income. Therefore, margin, however, with the resurge in material costs and escalation of inflation for passenger car and light trucks 11.8%, or truck and bus segment 10.2%, which were somewhat lower than last year.

On the other hand, specialties category comprising mining and truck tires, aircraft, agriculture and motorcycle tires with the particularly high performance coming from mining and construction tires, the margin further improved to 23.6% OP margin. Diversified Products business next.

Resulting with the restructuring of the diversified products business portfolio, we continue to see that all businesses were profitable as in the previous year. Next is the balance sheet and cash flow highlights for this first half. Total assets increased by ¥434.6 billion from the end of the previous year at ¥5,009.5 billion, mainly owing have been to the Yen depreciation of ¥530 billion. Windfall profit from the FX, equity ratio rose 1.5 percentage points to reach 59.0% and therefore, the financial health has been enhanced further.

Please note that for this first half, free cash flow, owing to the sales increase accompanied by working capital increase was negative. However, on a full-year basis, our projection is that free cash flow is going to be positive. Next, adjustment items and losses from discontinued operation in this first half. Adjustment items, impairment losses for fixed assets was booked in the first quarter and the revaluation of inventories that was booked in the second half — second quarter — excuse me, second quarter, which is ¥2 billion. So losses related to Russian business was ¥16.8 billion.

Also, Bridgestone Cycle Corporation decided to book expenses related to safety inspections for some bicycle at more assisted bicycle models manufactured by the company, among others. So in total, adjustment items, turned out to be ¥32.6 billion for this first half. Losses from discontinued operations, as said before, and as announced back in December last year, the larger losses relating to the transfer of Chemical product solutions business as well as for anti-vibration rubber business. Please note, that the transfer of chemical product solutions business was completed on the August 1 and anti-vibration rubber business transfer is scheduled to be completed within this year.

Now on to the full-year projections. Now on this page, you see the actuals from past years as well as the revised consolidated projections for fiscal year 2022. The substance was explained by our Global CEO, so I am going to skip further explanations on this page.

On to the next page. Consolidated projections for fiscal 2022. FX assumptions for second half is revised to be ¥125 per dollar, whereas the first half actual was ¥123 per USD. Revenue approaching the ¥4 trillion mark for the first time, ¥3,950 billion year-on-year increase of 22%. And adjusted operating profit that has been upwardly adjusted by ¥25 billion over the previous projection at ¥450 billion year-on-year increase by 14%.

Profit attributable to owners of parent from continuing operations, ¥280 billion, continuing operations are ROIC and ROE are 9.3% and 10.8%, respectively. Profit attributable on the owners apparent from discontinued operations with the larger losses from anti-vibration, rubber and Chemical Products Solutions business, ¥30 billion losses projected. Dividend per share stays as before. The February projection as well as the actual for fiscal 2021 stay at ¥170 per share. Now on the business environment assumptions for fiscal ’22.

Currency exchange assumptions as year-over-year for raw material and energy. Crude oil prices are expected to remain at high levels for the raw material front. And energy, higher energy costs at plants are expected to become more severe in the second half. Tire demand although the demand on OE tires is expected to improve moderately, demand will remain at a low level. Replacement segment, demand in Japan, U.S. and Europe is expected to increase year-on-year.

In particular, demand for premium tires is expected to remain strong in the second half this year. Tire sales growth projections for fiscal 2022 in the increment of 5%. All efforts, we project a strong performance in particular, mining and construction tires are projected to increase sales relatively strongly and for passenger car premium tires above 18-inch rim diameter. The second half performance is projected to remain strong. This is on a full-year basis, the upper 10% order sales growth over the 12 months.

Next, analysis of adjusted operating profit for fiscal 2022. Costs are projected to worsen largely from February, given the unprecedented raw material cost of sales and growing inflation. On the other hand, price, mix and volume will counter that, however, further coupled with the effect of Yen depreciation to project ¥55.7 billion increase from 2021. Upper right-hand side of the page show that Russian production export suspension, China lockdowns, as well as the cyber attack incident in the Americas operation, among others, the all in all, ¥38 billion one-off factors are there.

However, with the strengthening of the selling price management, premium business strategy, ¥340 billion, combining the positives from price and mix improvement will exceed by ¥83 billion compared to negatives, which are combining ¥244 billion raw material cost search and ¥13 billion Latin American currency depreciation totaling ¥257 billion.

As the benefits of expense and cost structure reformation supporting the operation, expectation is to solidly secure year-on-year increase in profit. Consolidated projections by segment has shown on this new page. In this current fiscal year, rapid surge of input costs and event of inflation point to our projection that in Japan as a segment is projected to decline in operating profit.

However, Americas and Europe were projected to increase adjusted operating profit. So consolidated revenue will increase 22% year-on-year and consolidated adjusted operating profit to increase 14% year-on-year in our projections. That is all from myself. And I thank you, indeed.

Question-and-Answer Session

Operator

We have just heard from Mr. Yoshimatsu about the financial results for the second quarter of 2022. I would like to now continue on this question-and-answer session. First, I would like to invite Mr. Sakamaki from Daiwa Securities.

Shiro Sakamaki

Hi, thank you. I’m Sakamaki of Daiwa Securities. Can you hear me?

Shuichi Ishibashi

Yes.

Shiro Sakamaki

I am very, very happy to see Mr. Ishibashi doing well again.

Shuichi Ishibashi

Thank you, thank you very much.

Shiro Sakamaki

I would like to ask you two questions. One is about your business results. It seems that there is a negative impact from unrealized gain on inventories. Is the unrealized gains on inventory having some impact? If that is excluded, actual profit for the second quarter looks to have been a little higher. And when you look further, there are considerable amount of profits in the second quarter, especially in specialty tire orders.

And I wonder if this may have been somewhat affected by the fact that Michelin was struggling. May I ask whether some temporary factors as well as unrealized gain on inventory in the second quarter played a role? Also, please let me confirm the sustainability of the specialty tire profit? The reason for asking this question is I would like to really find out the actual earning capacity. May I continue with the second question?

Shuichi Ishibashi

No, let’s take one question at a time. Regarding inventory, Mr. Yoshimatsu will be able to respond. But regarding the tires for mining, of course, we are very much head-to-head with a French company. But I believe since the latter half of last year, we have been raising our share. Naturally, our shares — sales are increasing and our market share is also rising. I have also talked with the Head of BHP recently. And in that sense, our relationship with our customers are very good, and I believe we can continue to win with our various solution products and proposals and our Dan-Totsu product, Mastercore.

Masuo Yoshimatsu

As for your question about unrealized gains on inventory. We have not seen any major change. No, well inventories on the balance sheet are increasing because the exchange rates used at the end of the term or at the time of posting was significantly weaker at ¥137 compared to the average rate of ¥130, and that is why there is a inventory balance and working capital increase. Our analysis is that there is no significant change in unrealized gain on inventory.

Shiro Sakamaki

Thank you. Secondly, I would like to confirm with Mr. Ishibashi about the demand environment for tires, especially in North America. I believe you have been successful in rising prices with relatively good volume continuing so far. A company such as Goodyear is expecting increased profit in next fiscal year as well. But on the other hand, we are hearing that tire prices has become too high and consumers are reluctant to buy tires or that demand is shifting towards cheaper tires is more in service. Are there any signs of changes in dealer inventories or back orders from your company’s perspective? Or is it your feeling that the April price increase has been approved and that there is room to further increase in the second half, partly due to the exchange rate factor? Could you tell us a little bit about the market situation and your outlook for the second half of the year and its impact on your business performance?

Shuichi Ishibashi

First, let’s talk about the inventory. For the passenger car dealer inventories, they are back to 2019 level. As far as inventory is concerned, inventory is not overstocked, inventory is not low. It is back to the standard level, average level. This is the way we see it. On the other hand, inventory levels are still low for truck and bus inventory. This is the inventory situation in terms of price increases and sales of tires for truck and buses, dealer naturally wants to secure inventories before raising prices. And supplies or suppliers for high-performance truck tires are basically in short supply. As I mentioned earlier, we expect to see strong demand for truck and bus tires on an ongoing basis.

For passenger cars, as I mentioned earlier, inventory levels have returned. So we are in a sell-out phase. There has been there, of course, sell-in and sell-out. And until now, it has been more of a sell-in activity, seeing strong demand anyway. Inventory has been decreasing all along. And since this is retaining back I believe we are entering into a new stage. However, in terms of demand, there are major brands. And as you know, in the United States, there are second and credit brands in the tire, which are cheaper, the second brand and the private brands are certainly growing. They are what we call the low inch category.

As for the premium high inch category that we are targeting, as you know, OE has been creating demand for us for a long time. We are still chasing it with replacement. Simply put, OE, the installation in new cars by car manufacturers are continuing to grow. The number is increasing rapidly. This means that more and more aftermarket or the market is being created. And for the first and the second replacement, people tend to use the major brands and switch to the same brand that the car originally came with. But after the third time, they tend to switch to second brands and private brands. This is the basis of the U.S. market.

I believe you saw in the first chart that there are increasing number of OEs to be supplied to in the way that replacement is still growing. It is still low with much room for growth. So I think there is still a tailwind for our premium tires. And the same can be said about our TV tires where our strength is.

Shiro Sakamaki

So does this mean that there is still some upside available for the result in the second half of the years, including foreign exchange rate?

Shuichi Ishibashi

Well, naturally, there will be a turning point at some point. We will obviously keep a close watch on the market, but my current view is that the second half of this year will continue in this manner.

Shiro Sakamaki

Thank you very much.

Shuichi Ishibashi

Thank you very much.

Operator

Now we would like to invite Mr. Kakiuchi of Morgan Stanley Securities.

Shinji Kakiuchi

Thank you. I’m Kakiuchi from Morgan Stanley Securities. First, I would like to ask a question related to energy costs. First of all, I would like to know how you have factored in the increase in energy cost compared to the previous year or the basic plan? And how you look at the analysis of the factors behind the increase or decrease in energy cost. In addition, do you think that there is a potential business risk where the procurement of natural gas or electricity in Europe itself will become more difficult or impossible? I don’t think there is that much of that risk, but if there is, I would like appreciate your view on that. That’s my first question.

Shuichi Ishibashi

Regarding the energy cost you asked about, they are included in the breakdown of the processing cost, and they increased sharply in terms of the unit production by 2.5x compared to the previous year in Europe and Japan followed with 1.5x increase. So we have worked hard to absorb them through improvements.

Shinji Kakiuchi

And how about the procurement for the supply of natural gas? Not natural or rubber, but potential for the difficulty in securing natural gas?

Shuichi Ishibashi

Inflation has been factored in, but we have not yet reached a point where supply is reflected as a concern. As I said, our business in Europe has been improving since the first half of last year. Maybe I should not talk about our competitors, but they seem to be struggling, and we are managing our supply chain on a global basis on relative terms and supplying our product in Europe that way. I think we are able to hedge risks in that respect. In the future availability of energy itself, which you just pointed out, will also be a risk factor. So we really need to watch out for that.

Shinji Kakiuchi

If you do not mind me asking, can you tell us how much of the first half result for processing cost or the minus ¥50 billion for full-year was due to the increase in energy cost?

Shuichi Ishibashi

We are not disclosing that information at this time. Therefore, I hope you would understand.

Shinji Kakiuchi

Thank you. Then moving on to the second point, which may be somewhat similar to that of Mr. Sakamaki’s earlier question. That is a figure in the slides 8 or maybe 9 out of the 19 slides, which are the sum of the operating profit by products and segments. They were approximately ¥221 billion by geographical area and ¥230 billion by products. So there is this gap in adjusted profit. There is a gap with the ¥206.6 billion, which are about ¥15 billion and ¥22 billion, respectively. Can you tell me what the reason behind this gap we see is?

Masuo Yoshimatsu

In terms of disclosure, we have slightly changed our approach to global adjustments between segments and products. And I believe that is the reason for the difference between the two that you see. The item global adjustment is not included here. So it actually increased various items such as the back and forth of the various [indiscernible] et cetera. In addition to these items, certain level of risk is also taken into account on a global basis, of course.

Shinji Kakiuchi

Will we make adjustments within the domain of management judgment? Yes I understand the full-year plan at the beginning of the fiscal year was minus ¥40 some billion from the figures summed up for the segment. But now it is minus ¥20 billion plus when you make the addition. So there is less over buffer or a buffer to just as the plan on the head office side. It is because maybe half of a fiscal year has passed or would it be correct to think that the other factors or various risks, including energy cost as I mentioned earlier, have increased?

Shuichi Ishibashi

Well, at the beginning of the year, in a very truly volatile environment, management naturally put all of the various risks on the table, while setting priorities. Of course, we consider the highest risk item first. This is done through global less risk management. And after six months, of course, there are risks that have been apparent — there are also raw material increases that are greater than what we had originally anticipated. And we are trying to fight that back. We have not anticipated the energy cost to be this much and new risks are now emerging in various forms.

So it is the half year accumulation of those things. And if you do the arithmetic, you will see it. In other words, various risks, including one-off transfer pricing that I mentioned earlier are reflected. I understand — I apologize for the details and figures. Thank you very much. If you look at the revised forecast for the first half of the fiscal year and the difference between the segment and actual results for the first half of the fiscal year, you will see the differences by SBUs. And I think that some of the risk has been factored in this time by the SBU side this time. At the beginning of the year, it was factored in on a global basis. This is due to a combination of factors, including the fact that half of the year has passed.

Shinji Kakiuchi

Are you saying that the Japanese segment has been revised downward of it?

Masuo Yoshimatsu

No, no. I think that is — if you look at the segments and do the arithmetic, you will be able to see the upper and the lower balance and so on.

Shinji Kakiuchi

Thank you very much.

Operator

Now please continue on Mr. Sakaguchi with your question of Mizuho Securities.

Tairiku Sakaguchi

Thank you. I am Sakaguchi of Mizuho Securities. Thank you for your assistance. Good afternoon. I would like to ask you a few questions. First, as you are revising your full year plan, I would like to ask you about changes in the external environment and how your company is responding to these changes in terms of strategy? The sales focus has been lowered and while it has led to a decrease in profit in terms of the volume compared to the previous year. The sales prices have been further increased and the figure seems to indicate that the mix is also doing well.

In terms of sales, the mix of sales are good since middle and low end products are being reduced or as for the selling price, you have more strength in high-end products, which makes it easier for your company to sell them in the market environment. What kind of strategy have you adopted to changes in the business environment, including the second half of the fiscal year? And how have these figures changed? I would like to appreciate it if you could explain in more detail in the mix of volume and sales prices. This is the first point.

Shuichi Ishibashi

First, on this subject, I will be giving the details in the long-term strategic aspiration presentation at the end of this month. As we’ve been seeing, we are shifting to the premium tires. And this in all segments. So rather than pursuing volume, we are going to shift to value-oriented approach in earnest. This is the strategy and we’ve been talking about it for quite a while. And now we are gearing it up towards that. That’s one.

So value premium, and this is true for solutions as well. All of this, the business needs to shift in that direction. Otherwise, as investments are expected to grow including our sustainability-related investments as well as premium tire business-related investments. As we are expecting increase in strategic investments, we need to create value in premium, enhance value to be viable as a company, given that material costs are increasing, and there are inflationary movement. And in Japan, with the depreciation of the yen, business environment is becoming more difficult.

So how can we survive and win in that environment? Of course, we need to create social value in terms of sustainability also, we need to enhance the customer value. And we also need to enhance corporate value. Simply put, that is the reason why we are focusing on premium tires. That is the reason why we are creating value. The value of Dan-Totsu products that people in Gemba generated that needs to be maximized, by not just selling the products, but by leveraging the full potential as a follow-up.

Otherwise, as we have been saying, we will not be able to sustain our business. That’s the overall underlying trend. And within that context, product mix and sales price are key elements as well as optimizing the global supply chain. We are focusing on the model of local production for local consumption. That accounts for about 95% of passenger car tires. For trucks and buses 85% are locally produced and consumed. That’s how we manage the business. But that rate is declining in the U.S. So in that sense, we need to invest more in the U.S. producing more challenging, higher-value products in Japan and Asia to sell in the U.S. and Europe.

For that remaining 5% and 15% portions, we are going to be flexible. Through this, together with Dan-Totsu products, we will increase volume. Of course, we expect things to get tougher going forward. So through sales price, product mix and volume through the combination of these, we will be building and managing our business. I wonder if that answers your question.

Tairiku Sakaguchi

Yes. Thank you. So as far as this term is concerned, some additional upside on sales price, more so than such negatives as higher material costs and freight cost increases. So do I take it that this is because based on the strategy that you just explained, the price revisions, price hikes are better accepted by your customers?

Shuichi Ishibashi

Basically, price hikes are being accepted, especially in the U.S., Europe and Asia because customers are seeing value in our products. For those premium products, customer appreciate the premium value in our products and with increase in demand, customers want more of our products. That’s how it works. And so if our business were in a state that we had in the past, where low rim diameter had higher weight, we would not be in where we are today.

In recent years, we withdrew from low rim diameter in Europe and the same for the U.S. With such change in our business structure, price increases are better accepted. That’s how we should be looking at this.

Tairiku Sakaguchi

I see. Thank you. My second question, again, you might be explaining this at the meeting at the end of the August. But I have a question regarding the likelihood of achieving the targets spelled out in your midterm plan. Sales and adjusted operating profit as far as the amount is concerned, I understand that you are projecting to achieve this year. But the 13% operating margin, in order to achieve that next year, what do you think are the risks and opportunities?

Masuo Yoshimatsu

For this year, excluding one-off factors, the margin, I think, will be over 12%. So in that sense, I think given the effect of the rebuilding of earning power and the premium strategy gaining traction, the 2023 target would be achievable. But at the same time, material prices and other prices are increasing.

Tairiku Sakaguchi

So what do you think is the likelihood of achieving the profit margin target under the midterm plan?

Masuo Yoshimatsu

Currently, we are working diligently so as to achieve all the midterm targets. From the top line to adjusted operating profit to the bottom line and ROIC. We consider achieving all these to be important. As for operating margin of 13% that you mentioned, frankly speaking, with the various cost increases, which expect to continue next year, to what extent we can address and overcome them. That is the question. As mentioned earlier, we believe we’ll continue to see strong market in the U.S. in the second half of this year, where towards the beginning of next year as many project, there likely will be a mini recession, and we don’t believe business as usual will get us there. In that sense, it will be a new challenge.

So how certain are we about the 13% target for FY ’23. Unfortunately, we are not certain. We consider it to be highly challenging. I will not be revising the target, but we consider the road to be uphill. Of course, amount-wise, we will achieve the operating profit target, and we will — we also believe that ROIC would be at a fairly good level as well. But when it comes to the operating margin, it is going to be rather challenging.

Tairiku Sakaguchi

I see. Thank you.

Operator

Thank you. Next question is from Mr. Maki of SMBC Nikko Securities. We ask you to limit your question to one question, please.

Kazunori Maki

I see. This is Maki from Nikko SMBC Securities. I have a question on mining vehicle tires. Can you give us an update on sales progress? I understand the sales of Mastercore products are growing. And what with your French competitor having a supply issue, you had a rather strong first quarter. But for the second quarter, it appears that the growth rate will moderate, still strong profit, strong profitability. So can you elaborate on the reasons behind that? And what is the likelihood of upside? Your French competitor is indicating a recovery in the second half of the year. So with that risk in mind, what is your view?

Also on Mastercore that is selling well. What is being appreciated by the customers? And is your market share increasing based on your own merit not because of a decline in supply by your competitor? And what is its percentage to your sales?

Shuichi Ishibashi

Higashi will take your question.

Masahiro Higashi

First of all, ultra-large ORRs for mining vehicles. When you look at the year-on-year comparison, please note that last year’s figures included Russia. I cannot say exactly how much. But in terms of volume, Russia accounted for over 10% of our ultra-large ORR sales. As you know, in March of this year, we stopped the export to Russia. So last year, Russia was included. This year, Russia is not included. In the absence of Russia, was more than made up for to result in the increase this year, and we achieved 110%. And the driver is Mastercore products. So what is being appreciated? Well, this is mining operation. We evaluate contribution to cost reduction in mining operation as well as extending the product life of tires. We evaluate that by account. And we did analysis and the results of the valuation is communicated to the customers before they make the purchase.

Since last year or a year before, we’ve been doing that, as was mentioned by CEO. This is attributable to concluding long-term contract with a mega global customer. We’ve been winning such long-term contract over a certain level. We have several of such business cases. So there is a factor of product performance behind this growth, and there is a factor of customer-specific approaches being effective. And also, our conventional strength, not only supplying products, but we are satisfying the customer needs, solving customers’ problems closer to Gemba. And as per our M&A strategy, we acquired on-site service company, as mentioned earlier. Through these measures, we are winning the business.

As for profit, for the second half, we are factoring in some cost increase. And given the results in the first half, we’re not expecting the operating margin to deteriorate in the second half. Still, in the first half, it was very aggressive 111%. Compared to that, considering changes in economic situation, and given that customers cannot increase operation due to labour shortage, we are being slightly conservative for the second half, but no change in terms of profit margin.

Kazunori Maki

Thank you. As for global market share, I think it used to be 50-50, and maybe it was inflated somewhat in the first quarter. So what is the current situation? And is this sustainable?

Masuo Yoshimatsu

We cannot comment on specific market share, but it is true that our market share is growing because our share within the global customers is growing, and we know that for sure.

Kazunori Maki

I see. How much you do Mastercore products account for in your sales for ultra large tires? As unit price profit margin increase, would your profitability improve?

Shuichi Ishibashi

Well, among ultra large mining tires, the largest is 63 inches. And next year, this 63-inch tires will be 100% Mastercore. We are looking at profitability per product. And as mentioned earlier, the business model is that with improved performance, the benefit is shared with Bridgestone. So the unit price is increasing as well.

Kazunori Maki

I see. Thank you.

Operator

Now we would like to move on to receive questions from the media. [Operator Instructions]. So first [indiscernible] Mr. Yamada [ph].

Unidentified Analyst

Thank you very much. This is Yamada speaking. I have a rather vague question. Listening to you, you used expressions such as returning to a strong based on or all in all, I felt the sense of confidence or the shortness in your presentation today. And yet you also say that please be cautioned. It’s not going to be necessarily so optimistic or easy. So simply put, are you being bullish or bearish? See, for fiscal year ’23, you said adjusted operating profit projection of ¥450 billion. I agree you should be able to accomplish that, if not higher. So — and yet, it has that sense of caution not to be too optimistic. What are you feeling? What are the risk factors?

Shuichi Ishibashi

The answer is as follows. See the midterm business plan 2021. We regard everything that is sit there to be our commitments to stakeholders. So from the top down to the bottom, setting aside whatever risk awareness, we must accomplish those targets. So to return to a strong Bridgestone being able to adapt to changes in tailing various factors. But at the same time, so many things have been happening over the years. 2020 COVID-19 and the other changes totally unexpected. So what we say to ourselves is that we can be confident of the fact that we have the set of business assets, which are ever so solid have been to be available on the operations.

Back in 2020, things happened. And yet with all of the changes, what we came out with our learning is that people and goods would continue to move. So long as there is going to be the continuing movement of people and goods, we Bridgestone will support that, and that’s our business. And as we continue to offer the business support, we will continue with the value creation, value to the society, to our customers and to our own business operations as well. So value added the things that we can offer, the premium services and the goods and services.

In that regard, yes, I am confident that we have a solid point of access. And therefore, if you ask me, why not being bullish. At the same time, though, there are things which we continue to surprise us. Back in February, the tension between Russian and Ukraine — or have the inflation? When is it going to happen? Is it going to be happening? How deep is it going to be? Energy, the supply and demand, it’s getting tighter and tighter, and we know.

But is it going to become so severe that one day, we may have to suspend our productions? So these are a set of unknowns. So all the more, we have to be mindful of the surprises to come about, how we can enhance our own corporate physique and the capacity so that if and when we will be able to counter back how effective we can do that is the key.

So as we consider the possible global risks mindful of the Russian and Ukraine tension or the cyber-attack to our U.S. operations. Global management team continues to deliberate on that. We continue to come up with ideas and approaches. I know that I’m being abstract. But when it comes to the business in the period and the exits we are to make them every so solid. And yet, not to forget that there are unknown risks, which are always there in our future.

So the essence of the caution is valid. You say that we should be able to aim higher in terms of the operating profit to be accomplished. I agree. And as one, of course, we are going to approach with that assumption. So in the second half of the current fiscal year, with the premium focus and the mix of the products and services, yes, we will aim higher. The price and pricing wind up being aggressive within reason. And that isn’t going to continue into the next fiscal year again, and that is our responsibility as well. Sorry, I’m being ambiguous.

Unidentified Analyst

No, no, no. That’s my other question, which was ever so ambiguous. Just a follow-on point. What is it that you consider to be the biggest risk are implied?

Shuichi Ishibashi

Well, the answer is that as there are various risk factors. Everyone talks about so-called semi-recession these days. Is it really going to happen? How deep is it going to be? When that isn’t going to come about, particularly in markets such as in Europe and the U.S.?

Masato just mentioned that we are going to call. That’s going to be the key. So the key is the judgment call in order to mitigate whatever risks and the premium focus is going to support us Dan-Totsu products with the global flexible supply network, geopolitical [indiscernible], Russia, Ukraine, China and Taiwan. So the geopolitical have the tensions that we are going to take note of the implied risk as well. Why not being prepared or anticipated before the new viral infections? Or are they plants continuing to operate for now, but is it going to be a given? I don’t think so. We should be prepared at all fronts.

Unidentified Analyst

Thank you very much for your answer. I appreciate it.

Operator

Thank you. So let us move on to the next person. Next person is Ms. [indiscernible]. Please go ahead.

Unidentified Analyst

Thank you. [Indiscernible] speaking on behalf of [indiscernible]. Thank you very much for giving me this opportunity to ask one question. Mr. Ishibashi as Global CEO, you talked about sustainability business model to be constructed. That’s on Page 25 of your — on the presentation deck. And also, I read the news release, which is made today as regards investment into the area of natural rubber. Well, the tone of social contribution is very strong. And yet, I understand that you are intending for the business development or the business benefits. So what is your intention, what is it that you are aiming for? What’s your concern?

Shuichi Ishibashi

My answer is that vision to 2050, it is to create both value to society and value to customers. Usually, it’s one or the other, but we are going to pursue both. Sustainability is at the heart of our vision. We say this. We are committed to that as a solutions company. So to pursue the creation of both social value and customer values. It may be contradictory from time-to-time, but we are going to need to challenge that. So the sustainability business model, not in the context of the social contribution or the benevolent cause, but also to establish those as businesses.

Now with the concept of carbon neutrality or the circular economy, what I say from time-to-time is that with the truck and bus tires, new tire sellers, twice re-treading and the maintenance, meaning that resource-efficient services can be offered to the frequent users and longer life available there for the same product. CO2 emission isn’t going to be eased up. The responsible of the production. And the customers will be able to benefit from the better fuel economy or to reduce the CO2 emission for the usage of the products.

So it’s really good at both fronts, not only for Bridgestone, but also to our — the feed customers. So it’s that sort of the Dan-Totsu product incorporated into the package of services and solutions to be provided. So as said on this page, produce and sell which has been done at the Bridgestone for the past 90 years, use does the customer’s usage of the products to enhance value or the value amplification, as we say and to renew.

With the amplification of the value available to customers, we will offer the benefits to the customers. And more than anything else, we will further take care in the use of the finite resources available. And in final analysis, to renew tires to materials back to raw materials. And what sort of technologies and possibilities, we are working together with start-ups and also with [indiscernible]. So each size of the business may be rather limited in scale, may be modest, but we must establish those into our future businesses.

So all the way to the renewal, the — back to raw materials. When I say the tire is going to be renewed to become raw material once again. For synthetic rubber, yes, that’s exactly going to be happening, Natural rubber is a sustainable resources. We around the globe, may have the 3 plantations around the world. Two plantations in Asia, we have not been making much investments over the years. We are going to do that. Obviously, we are not going to destroy the tropical rainforest available. It’s only within the available of the plantations, that we are going to enhance the yield available. In our activities, we approach various technologies such as but not limiting to the DNA analysis.

With those the efforts that we have now the set of high-quality seedlings, we refer to those seedlings as elite trees. This is the brand and those elite trees, the aiming for the higher yield and better earnings. And by the way, plantations, there are [indiscernible] farming households. They are typically engaged in slashing brands to farming activities, which is really not good for the environment. So in order to prevent that, we are going to plant those — the high-quality seedlings natural robust seedlings within the current tropical rain forest, the plantations.

We will grow those seedlings supporting farmers and then the variable natural rubber we will buy from the farmers. So support breaking together with the neighbouring of the de-farming community, so that we can work together with them. And of course, that’s our business, natural rubber plantation. We will be able to the directors the [indiscernible] or the arresting the CO2 within the plantations. So that’s a benefit to the overall or the community. So sustainability contributions that we can make. But after all, it’s a business to Bridgestone. It’s a business but we are going to make contributions to the neighbouring community. We will work together with the farmers, cover neutrality, circular economy to come about. And so it’s those investments that we are talking about.

Unidentified Analyst

Thank you very much. Very clear. On August 31, there’s going to be a session to be held. Please come over, we’ll talk about further details, looking forward very much.

Shuichi Ishibashi

Thank you very much.

Operator

Thank you for that question. Now it’s already past the closing time, but we would like to take one final question from Mr. Nakamura of [indiscernible]. Nakamura.

Unidentified Analyst

Thank you very much. Listening to your remarks just now somewhat related. I took note of what you said on Page 18 of your presentation as the global CEO over the three year period between fiscal ’21 and ’23, how you’re going to make the company ¥72 billion the investments to solutions businesses. So listening to you, and I see that various investments that are listed here. When at what phase of the investment, do you think that you can start to recruit initial investments? From which one of all of these investments that you show on this page, how — the profit contribution is it going to start when?

Shuichi Ishibashi

Okay. I understand your question. By the way, please come over on August 31 because that certainly is going to be discussed in the presentation. Our division to 2030 have the long-term aspiration. Premium tire solutions — so there’s going to be that uniquely — unique platform combining real and digital, that means 2,300 stores that we have in the U.S. Retail and Service Solutions business is going to be deployed from there. So the global network already available on the combining both fiscal and the virtual, the bill retail and services and solutions business. So we’re going to stay close to the community.

Just yesterday, I believe we made an announcement about the new arrangement working together with Microsoft that’s going to be the use of the conventional network account on the ground. And the cloud network, which is going to be a point of strength from Microsoft so that we can offer the value add. We can offer premium solutions.

Number one, the Retail and Service Solutions business, 2,200 stores in the U.S. That is one of more certain investments to be made, including financing and mobile van service as well. We will enhance the offering there to make it stronger. So that’s quite solid. Speaking of being solid, with Trade Service, after the wearing of the tire retread services once, twice — so that’s for the tracking numbers on the fleet customers, acquisition of [indiscernible] and the services have been offered in West now just started up in Japan as well. Speaking of the solid return, that retread service along with the retail and service solutions business are more solid or the more certain investment opportunities in terms of return.

I would like to mention the third one, which is Tirematics, utilization of tire data. Tire centric solution is what is intended for. If you ask me, that’s very sure and certain. Combination with Bridgestone’s premium tires. So the better usage of the tires by our customers will offer a benefit to the customers. We can recoup the investment as a return. Now on this page, there are various other investments talked about. We’ve already acquired Azuga, we’ve acquired Webfleet for mobility solutions that we are making investments into start-ups. These will take relatively longer period of time. Webfleet and Azuga, we are working so that we can enhance the packaged services of combining tire-centric as well as mobility solutions. That, however, isn’t going to take longer before we can start to recover investments, it isn’t going to take longer.

In the meantime, with the ORR customers, Tire-centric solution, Mr. Higashi talked about this solution. Combination of the solution with our Dan-Totsu product, to extend the viable [indiscernible] products. And speaking of the ORR customers, customers really do have the varying needs and the interest to be able to carry a larger volume of mineral resources or to be able to move them faster.

So whatever the customer needs our aspirations are Mastercore, there’s the foundation technology that we have. We will make offering on that. So customization in reference to the retail and service solutions business and we will incorporate Mastercore. With the acceptance by customers, we will be able to have — expect the further usage — further utilization, more effective utilization of our products.

So our roadmap to 2030 entails all of that. So both the Premium Tire Business and Solutions Business, these are the two big pillars. However, from this perspective of the speed at which we can recoup investments or the certainty or profiles are different between the two.

Unidentified Analyst

Well, thank you very much for all of that. I’m looking forward to the session on the 31st of August.

Shuichi Ishibashi

Thank you very much. Well everyone, this is the end of the Q&A. And with this, we complete in today’s presentation to you for the first half fiscal 2022 as well as the progress to date of the midterm business plan. Thank you very much for your attention. The forum is now closed. Thank you.

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