Bridgestone Corporation (OTCPK:BRDCY) Q3 2022 Earnings Conference Call November 10, 2022 1:00 AM ET
Company Participants
Shuichi Ishibashi – Global CEO
Masuo Yoshimatsu – Global CFO
Conference Call Participants
Shiro Sakamaki – Daiwa Securities
Shuichi Ishibashi
Shuichi Ishibashi, Global CEO. I would like to give you a summary of the financial results for the Third Quarter and Fiscal 2022 Guidance as well as a progress update on our midterm business plan. First, the results for the third quarter; regarding revenue including impacts from currency exchange and we achieved a significant increase 128% versus the previous year reaching almost ¥3,000 billion.
There have been irregular negative factors related to the Russia business, the effect of COVID-19 in China and cyber incident in our US subsidiary amidst such circumstances, we executed flexible and agile supply management, leveraging our global manufacturing footprint, which is our strengths and minimized impact on results. Entering the third quarter, strong headwinds in the new business environment began to blow such as the recession in Europe and uncertainty about the US economy.
In order to counter these headwinds, we reinforced our premium business strategy and executed sales and market share expansion of high rim diameter tires for passenger cars and tires for mining vehicles. On the other hand, regard in truck and bus tires, we were unable to achieve significant growth versus the previous year due to supply constraints in the US.
For adjusted operating profit, we achieved an increase versus the previous year but fell one step short in terms of margin on a continuing operation basis. In addition to the accounting measures to respond to negative factors explained in the previous slide, we executed improvement of our sales mix.
We covered most negative impacts from raw material increase and inflation of energy cost, etcetera, through strategic price management including price increase mainly in Europe and the US. Moreover, we achieved solid results of setting the rapid decline in profit of global OE tire sales for passenger car tires and truck and bus tires versus previous year with the sales expansion of replacement tires or REP tires. We also continuing manufacturing improvement and expense and cost structure deformation.
Let me talk about the full year guidance for fiscal 2022 reflecting the third quarter results over two pages, one on revenue and the other on profits and management. In indexes, we expect to achieve our first revenue of over ¥4,000 billion, including currency exchanging impact approximately ¥800 billion increase in revenue versus the previous year. We will continue our efforts to increase sales volume market share in premium tires and to improve sales mix regarding revenue.
For our solutions business, we plan to achieve approximately 19% of total revenue in 2022, which is close to our 2023 target of 20%. Next, regarding adjusted operating profit replanted reach ¥470 billion in level achieving an increase of approximately ¥76 billion purchases the previous year. For margin, we are projecting 11.6%, which is negative 0.5% versus the previous year. In order to ensure approach stability, we will lean force our focus on premium tires while continuing to execute strategic price management including price increase.
Also, we will continue to ensure lean expense management. We project improved ROY versus the previous year, the same level as the guidance in August as we continue to reinforce the building of earning power regarding net profit. From continuing our operations, we plan increased profit versus the previous year on an operation basis, excluding adjusted items and expense related to the Russia business transfer announced at the end of October.
In terms of the expense related to Russia business transfer, we recorded ¥21.6 billion yen of adjusted items for full year 2022 in the first quarter. Although the business environment remains uncertain including the recession in Europe, we will drive initiatives to further strengthen our resilient premium area, focusing on execution and results to become a strong sustained capable of adopting to change as we counter headwinds to secure the group’s profit in total. In light of the changing business environment, I will explain business outlook in the fiscal 2022 guidance by segment focusing on the entire business regarding the America’s business, which is driving the company’s performance.
Despite a slow start in first half due to the impact of the cyber incident, we achieved an increase in revenue and adjusted in profit for the first nine months of 2022 versus the previous year. Countering impacts of raw material increase and inflation by price increase and mix improvement. The uncertainty about the US economy is growing in the fourth quarter, but we plan to secure profitability. We will increase our replacement sales of HR tires and expand market share what truck and bus tires face mix deteriorated including increasing or tire sales and decreasing REP tire sales caused by supply constraints.
Due to labor shortages at manufacturing sites in the us, we will alleviate supply constraints through continuous reinforcement of global supply chain management. Regarding the Europe business, we covered the impacts from low material increase and inflation by price increase and also focused on the premium area. As a result, we are able to improve sales mix and profitability. However, entering the post quarter possibility has been deteriorating due to distribution inventory management,
Decrease in sales volume and further cost increase such as energy cost, et cetera caused by the rapid recession in Europe. We will continue our efforts to improve mix including sales expansion of HRD tires, but we expect the challenging business environment to persist in 2023 and onwards. Will you minimize negative impacts from the Europe business by continuing our efforts to increase revenue and profitability in the Middle East and India business?
Regarding the Asia Pacific and China business possibility is on the decline versus the previous year due to the impact of COVID-19 lockdown in China and the fact that price increase was not enough to cover the negative impacts from raw material increase and inflation in China and Asia. We will keep a close watch on future movements regarding the Japan business.
Business conditions deteriorated for both the OE and REP tire business including slow growth in demand, difficulty to increase price to cover the negative impact of inflation, such as increase in room material and energy cost caused by the we which has been a structural challenge of the Japan business.
We expect the challenging business symbol environments to continue in Q4 and 2023 onwards in under the circumstances where we continue reinforcement of talent investment including at manufacturing sites for the global business of tires for mining vehicles, we expanded sales and market share for the first nine months of 2022.
We achieved growth in both revenue and possibility including currency exchange impact which contributed in revenue and profit growth of the total group. Although there is some uncertainty about the business environment, we expect to continue to growth in the fourth quarter onwards.
That is all for the summary of the fiscal 2022 guidance. In alignment with the roadmap presented in the 2030 long term strategic aspiration announced in August, we accelerated or we accelerate transformation to become a resilient excellent Bridgestone toward 2031, the 100th anniversary of our founding in the midterm business plan for the years 2021 to 2023, we are laying foundations to enhance premium and ensure evolution linked with the solution business for growth in the 2024 to 2026 midterm business plan and onwards.
We have laid out the detail, the strategies in this strategy map. As explained in detail during the 2030 long term strategic aspiration presentation. We will promote linkage in between the mobility business and solutions business and the take on the challenge balancing creation of social value and customer value as a sustainable solutions company.
Regarding our management structure, I explained in August that we will build with a new global and portfolio management structure in the 2024 to 2026 midterm business plan. As the first step this may we appointed to joint global COOs. Under the global c o we are strengthening the global management structure according to our business foundation in each region, vision, mobility, maturity and market characteristics regarding synergy in East Asia, which consists of Japan and the Asia business s home market.
With a long history dating back to our found founding, we are strengthening foundations and will expand global contribution as a core of a s global manufacturing for energy in the British Stone West area, which includes the Europe and the US business where mobility is mature, we are strengthening a linkage between the premium tire and solutions business businesses to generate synergies under the joint global COO structure.
We have been evolving the global management we have built so far, such as by integrating functions including supply chain r and d and administration between Japan and Asia and between Europe and the US. Next, regarding strategic growth investment, we’d like to give you an update on the premium tire business for passenger cars.
We are reinforcing our premium business strategy and steady expanding sales of HRD tires globally. In Europe and the US we are taking OE, our recreation demands and consistently increasing market share of replacement tire sales labeling our
We continue — we also continue to strengthen structure to produce and sell premium tires. In addition to investments in manufacturing equipment replacement globally in each plant for H L D tires and enlightened technology. This September we announced investment in production capacity expansion at the plant in Brazil where you prepare for sales in the market share expansion across the US and the Americas, including these capacity expansions where will establish a global manufacturing footprint aiming for global optimization with a local production for local sales ratio of 95% aspiration. The total investment amounts to complete the capacity expansion projects currently planned will be approximately ¥67 billion.
In addition to HRD tires, we are advancing execution of the enlightened business strategy, the new premium in the EV era where the Bridgestone group uniquely creates value while continuing to expand new vehicle fitment of tires equipped with enlightened technology, we are launching the first replacement tire in the world with enlightened next January in Europe as a new product under the premium product brand, it achieves both driving performance centered around with performance highly demanded in Europe and environmental performance.
At a high level, we will provide ultimate customization adopted to customers driving conditions As a technology, products and business model, Bridgestone continues to expand value through enlighten, optimize to fit EVs. Next, regarding progress on the truck and business tire business, which links premium tires with solutions,
We would reinforce our structure to produce premium truck and bus tires as well. Combined with investments to reinforce production of tires for mining and construction vehicles and motorcycle tires, we plan to invest a total of approximately ¥180 billion Japanese for completion of capacity expansion. In addition to investments already communicated, we announced our investment to reinforce the war plant for new products and Abilene plant for re-tread tires both in the United States.
The United States is Bridgestone’s largest market and we especially have a strong business foundation regarding retread tires. Though this reinforcement, we are further enhancing our strong foothold and I would explain further on the next page. We mentioned in our long term strategic aspirations that for truck and bus tires we would create new values as a new premium in the circular business era, deepening coordination between premium tires and solutions with re-tread at the core.
As part of such initiative, we are enhancing production of retread tires in the United States and Japan. We will reinforce our structure to produce and sell, which is our strong real capability. We are also enhancing our retail and service network sites to provide maintenance and services that accompany customers during their entire use phase. In addition, we are conducting advocacy activities promoting the value of retread to globally expand retread, which greatly contributes to sustainability such as the realization of carbon neutrality and the circular economy. We are striving to create both social and customer value across the produce and sell and use value chain.
We are also strengthening our digital capabilities in addition to enhancing services such as for our tire monitoring system, we are equipping truck and bus tires with RFID tax, which allow individual management of tires across their life cycle from new products and to maintenance. We started rollout of refieds in Europe from 2019 and are driving global expansion by 2030.
Almost all tires used in Europe, the United States and Japan, our plant to be equipped with RFIDs. Furthermore, we are developing next generation RFID tax through co-creation with top on forms the new tax aim to improve safety as well as significantly improve the workload for operators on site during tire management and maintenance work. By combining our strong real capabilities with digital, we continue to accelerate the establishment of a circular business model where tires are used more safely, longer, better, and more efficiently across the value chain.
I will also explain progress on the recycle business where we are exploring technologies and business models aiming for commercialization toward 2030. This April we launched the ever tire initiative to promote the recycling of tires. It is a co-creation initiative utilizing end of life tires as resource and renewing them to raw materials by gaining understanding and empathy for our desire to realize a society where tire value continues to circulate. We hope to inspire diverse co-creation which will allow us to preserve the environment for future generations.
Currently we are advancing four projects to renew tires to raw materials focused around exploring technologies, leveraging the knowledge of the different co-creation partners. The first is a co-creation project with Enio, which involves precise PY paralysis of end of life tires to produce, but Dion and recovered carbon black, which are raw materials for tires. This initiative started in 2021 and by 2030 we planned to construct a plant with a scale of 100,000 tons maximum throughput entire way to enable large scale demonstration experiments.
The second project with Lantech in the United States concerns producing pet chemicals through gas fermentation of tires and further aims to produce raw materials for tires. The third is a joint research project with the National Institute of Advanced Industrial Science and Technology, Iced Toki University in NAOs Corporation and JGC Holdings Corporation. We are developing technology that decomposes tires using a specialist catalyst and enables selective extraction of substances which are raw material for tires.
The fourth project which involves expanding the use of recovered carbon, black has already been partially commercialized in the United States from 2019. Recovered carbon black can reduce CO2 emissions during production by approximately 80% compared to new carbon black and the whole industry is working to expand its use while driving these projects. We will continue to lead the ever tire initiative. This is all for the update on strategic growth investments. From here I would introduce initiatives related to our corporate commitment, the Bridgestone E eight commitment.
The Bridgestone E8 Commitment serves as the access and vectors for our 2030 long-term strategic aspiration. It portrays our journey and commitment to realize, realizing and supporting a sustainable society alongside our teammates, society partners and customers in a Bridgestone like manner through eight words beginning with a letter E8 such as energy, ecology and efficiency.
Since its launch in March, we have been driving activities to establish the Bridgestone E8 commitment both internally and externally. According to the global internal penetration survey held four months after the launch, approximately 90% of teammates answered that they were aware of the EA commitment and 70% replied they empathize with it.
With the EA commitment as our access, we will continue to deepen teammate engagement through various communication and concrete activities to build foundations for global culture change initiatives. Embodying the Bridgestone EA commitment with our external partners are also already taking shape.
Today I will introduce four examples. The first is in line with extension committed to non-stop mobility and innovation that keeps people in the world moving ahead. We are already involved in Jackson project developing tires for the lunar rover, but additionally we have joined the Lunar Terrain vehicle development team led by Teledyne in the United States. Based on the ease and extension values to support safety and peace of mind and mobility, Bridgestone researched and developed run flat tires for ambulances command vehicles in partnership with the National Research Institute of Fire and Disaster.
We have conducted experimental use across the country and verified capability of the technology for social implementation. We are driving this initiative with a desire to ensure nonstop mobility even during disasters and emergencies, supporting safety and peace of mind from the ground up.
Furthermore, as part of our commitment to bring comfort and peace of mind to mobility life represented in East, we donated a total of approximately US$1 million to the United Nations Road Safety Fund, while also continuing to support safety and peace of mind From the ground up through our products, we will reinforce road safety initiatives together with the local communities at each of the group sites globally.
Lastly, regarding the support of Ukraine refugee students and international students, which embodies empowerment committed to contributing to a society that ensures accessibility and dignity for all. From this August in cooperation with the Japan University of Economics, we are driving efforts to accompany the students who would lead the next generation and their future, such as conducting internships and tours of our plant.
That concludes my update regarding progress on our midterm business plan. We will continue to drive execution with the 2030 long-term strategic aspiration as our roadmap during the financial results review meeting for fiscal year 2022 planned on February 16th. Next year we’ll plan to present performance results for 2022 as well as progress of the midterm business plan from 2021 to 2023 focused on activities planned for 2023, the final year of the calling plan. I appreciate your continuous support and thank you for your attention.
Now to move on here is our Global CFO, Masuo Yoshimatsu to represent financial results for the third quarter of fiscal 2022.
Masuo Yoshimatsu
So on the subject of the financial results for the third quarter of fiscal 2022, here’s my presentation to agenda to be covered in the presentation. So basically I will focus on the nine months cumulative and the projections with some financial supplements and the breakdown of some of the numbers. Be aware also that starting today as we received questions regarding current the amounts in the, on the performance by segment and by product the others category and respective from the amount that disclosed here. So let me start
Here is the consolidated financial resource for nine months and September 30 as in 2022. Please be aware that I’m going to focus on nine minutes until September end in reference to profit attributable to owners of parent or the net income in the first half we had adjustment items such as Russian business related losses. However, nine minutes to end September, the corresponding amounts relatively small meaning that continuing operations profit attributable to owners of parent her and increased versus prior year.
On the other hand, discontinued operations and the parent attributable to honor parent as announcing back in December last year the losses, the relating income to the transfer of the diversified the business operations they were ready to be disclosed and his amount was ¥3.8 billion in some specific inter closing processes remaining, but all were completed the end of September. So on this new page overview of the performance for the nine months by product for passenger car and large truck tires for the replacement market into the third quarter the slight slowdown, the in demand was observed.
However, the market share or premium tires for which in demand is relatively strong could continue to grow. And on the other hand, for the OE segment, tire sales in third quarter turned to a significant year until increase due to improved vehicle production conditions. At automobile companies, trucking was since last year, sales has been continuously favorable while demanding Europe showed signs of slowing down in the third quarter demanded North America remained strong as the sales in Japan, it increase significantly year here due to the impact over Russian before the price hikes for the money tires.
The March announcement, the regarding the suspension of expos to Russia was compensated for in other markets resulting in an increase in the global market share for the first nine months. Moving on hardly to confirm from business environment at the end of September. Currency exchange both years in data and Europe are appreciated.
Asian Japanese here and compared with the prior year raw materials, natural rubber prices feel sharply in the third quarter, whereas crude oil prices declined from the peak, but we are still the world above from the previous years level and energy costs add plants, the roads sharply made high crude oil and natural gas prices. So under this also there was the factory of drag from the for profitability.
Thai demand from the 31st half demand was a budget constraint as production at multiple automobile companies began to recover. Demand for highest also show sign of recovery in the third quarter placement segment. Despite the slowdown and demand growth in US and Europe, the outstanding strengths of from the, the truck and demand in North America continued at 145, 140 4% of the 2019 level and for the passenger car and light track segment, the premium Thai area with above 18 inch diameter size demand steadily expanded in US and Europe.
Let me talk about the development in terms of tire sales and growth. Passenger car on the truck tires on the here and here basis one oh 4% and therefore truck bus tires one oh 3% all are our tires at which large size one or 8% large size one 11%, so small and medium size one oh 5%. So all across on the year tier basis cells increased in particular, especially profitable. All our tires at water lodge and life sizes and the cells growth stood out. Also, continuing enhancement to premium strategy meant that passenger coral high diameter premium tires, the above 18 inches continued to grow.
So on the here and year basis, 14% increase. And in comparison with how it used to be back in 2019, which is pre the pandemics 42% increase adjusted operating profit on year-over-year basis increased substantially by ¥53.6 billion e price and mix improvements as well as volume increase and combined ¥274 billion year recipe improvements, which more or less offset upset the cost increase, be it for more materials, conversion costs, the or the operating expenses as well as the suspension of domestic production, Russia or the suspension were exposed to Russia, not to mention lockdown in China or the transient impact of cyber-attacks to our US subsidiary and the furthermore in depreciation prepared on this trend.
Next, new performance by segment. Japan, America’s, Europe, Russia, Middle East, India, and Africa grew substantially and both revenue and operates on the other hand in China, Asia and Pacific due to China lockdown among others. The profit decreased of all segments from the waste growing from the profits in particular I’d say Europe, Russia, Middle East, India, and Africa region drove from the overall of the performance.
Flexible supply management expand itself further penetration of a higher prices to sell as well as the improved makes field. Well the saw that on the nine months basis, adjusted operating profit margin with 9.1% has substantial improvement from the same time in last year. Financial results and byproduct, passenger car, light truck tires as well as on the four truck bus i on the year and year basis that there is an increase on revenue and profits margin with the searching input costs of materials as well as escalating inflation or business attempt to show the tone of severity and profitability.
So slight decline profitability on the other hand specialty segment with or aircraft agriculture and motorcycle on the tires with the particularly strong performance and so of highly profitable of mining and construction tires, the margin from there was 23.4% at the end of September this year, again, much stronger than what it was one year ago onto the diversified products and basis business operations.
As a result of reorganization under from continuing operations continuing from last fiscal year, all business operations were profitable. Now looking at balance sheet and cash flow, total assets increased 556.5 billion year to reached many to the advent of year depreciation equity ratio rose 1.8 points to reach 59.3% and this or the house of the financial health continued to improve. Now as to the framework of 100 billion year and treasury ratio buyback at the end of September, ¥74.8 billion whereas is executed already.
We do they expect to have it all compete on the by due date at the end of the numbers period. Cash flow resulted with net outflow of ¥152.4 billion with an increase in cash outflow ¥132.1 billion from the second quarter of which ¥115.5 billion is associated with the transfer of Toyota waste develop businesses completed from the in this the Q3 period.
This is all included and they as to the free cash flow on through the last fiscal year was the net inflow. However, with the sales increase and the increase income, the input costs inventory level increased with the advent of and depreciation from the working capital increased. So this year we expect net outflow of cash. For the next page, I would like to talk about adjustment items and losses from discontinued operations for the nine months adjustment items.
First pyramid losses and re variation of inventory is namely losses related to Russian business of ¥17.5 billion. Here was booked. Also recall expenses of Bridgestone Cycle Corporation, some of them there have bicycle motors and motor assisted and became subject to recall whose expenses accrued from the two ¥15.4 billion y. So all in know adjustment items from the third quarter nine months period was ¥35 billion y losses from discontinued operations.
As we the two diversified business operation, the transfer back in December, the losses expanded and they saw ¥28.4 billion young of losses onto the projections for fiscal 2020 to, so on the first of all on the queue for currency assumptions has been changed from ¥125 to ¥135 revenue for the first time in the operation. History is projected to reach above the four tri mark to reach 25% increase did operating income.
They’re from the August and the projections the, the adjustment of ¥20 billion to reach ¥470 billion, which reflects 19% year and year increase. The, the continuing operation from the profit attributable or owners parent ¥295 billion I and ROIC and ROE from continuing operations will be 9.4% and 10.5% respectively.
The reason why the ROE the projection is lowered than what was projected back in October has to do with the yen depreciation, authentic thing Ian denominated amount of the equity from the two be larger dividend pressure remaining to be the same at ¥170. The other the assumptions first of all the for raw material and energy, they’re both are lucky to drag the d the profitability conditions tired demand for OE demand is expected to recover mainly in the US and Europe.
But it still have the maintains low level compared to 2019 replacement market tire demand is expected to be lower than the demand projections, but trucking bus demand is expected to remain solid in North America. Premium tire demand is expected to remain relatively and strong, strong now by product type zero and gross projections all across and the very strong in the incremental 5% migration for all oral tires and North American the replacement drug and tires, particularly strong case of projection passenger car is above 18 inches in the diameter size premium tile will continue to feel strongly so the double digit growth year and here and notice adjusted operating profit for fiscal 2022 in the final quarter input cost will continue to surge inflation, the income, the adverse impact however the reason the price sales mix and volume, majority of that have really covered and couple linked to that yen depreciation.
So as you can see one the factors of ¥42 billion, which is shown on the upper right side. There will be a more or less absorbed, so on a four year basis, ¥75.7 billion year increase in earnings. The selling price management premium business strategy to be enhanced as well as expense and cost structure reformation co to that year end depreciation, the will pointing towards in the expansion and the profit increase here and here now on the BI segment China Asia Pacific because of lingering effective China lockdown, the slight decline it is on the projected however for Japan, Americas, Europe, Russia, Middle East, India and Africa, significant here and here increase in both revenue and profits in particular in Americas and Europe ratio Middle East, India and Africa will the Africa selling price at makes the real improve substantially profitability will be either equivalent to a higher than what was last year. And that completes my presentation to you. Thank you very much.
Now we’ll begin the Q&A session. First, [indiscernible] from City Group Securities, please.
Unidentified Analyst
Thank you. I am [indiscernible] of Citigroup Securities. My first question is about your operating profit, which stands at around ¥470 billion in which exceeds your target under the midterm business plan that ends next year.
In terms of your thinking toward the next year, I like to know if you believe you can continue to ramp up your profit steadily into the next year. Pricing is a factor. The raw material place hikes looking, settling down why again is likely to remain at the current level. Then in spite of uncertainties over demand in and beyond Q4, do you think you can continue to earn higher profits next year? You may admit that you have done well over your expectations in this quarter or in this year.
My second question is the North American situations in particular passenger car replacement tire business regarding both sell-in and sell-out, please tell me what is the market situation and how your company is doing. I understand the market is getting a little challenging with Chinese imports coming in and dealer inventory build-up, that’s what I hear.
On the other hand, for the dry September quarter, by the end of September, that situation may come down or calm down or turn around according to the articles by some reporters. Now, how is the market registering and what are you s doing and what are you doing, if you could discuss the sell in versus sell-out, it will be appreciated.
Shuichi Ishibashi
Thank you. Understood. Indeed. We have been discussing this in meetings after meetings globally since September. We have seen things transforming in months or two since our global conference in September. There have been major changes. This is our honest observation. We leave changes now as a common state of affairs. How can we keep the profits that is the question as we say it. As I mentioned earlier, what are the changes facing us that is quite uncertain? One thing is for sure that is recession in Europe will continue into 2023
And challenging situations in Japan are going to stay. These two situations will remain tough. It could get even more difficult in Europe. That’s how we see it in the United States. A strong sense of uncertainty exists, but we are hoping to see soft lending in the United States and we were trying and keep our ability to gain greater market share next year with price hikes and share increases in the United States.
We will keep earnings steadily. That is our assumption in Asia, but China is at its historical laws this year and we’ll gradually recover Japan and Asia without China. Do have structural similarities, including the difficulty in having price hikes accepted. How far we can go going into the next year is a question. Now my entire business is doing strong this year as well. There are uncertainties next year, but we real secure good earnings next year and for this purpose various steps have been taken regarding headwinds. Low materials are linked linearly by the state of economy.
Ocean freight is gradually coming down, as you may know, starting this year. And we’ll fall farther next year. That is our expectation. To summarize, we have a premium strategy at the basic strategy and we’ll increase our market share and we will exercise the strategic price management primarily in the United States and in mining tire business in order to realize earnings higher than this year.
We keep discussing these through meetings globally. Many things could happen from now on into the next year in time for February next year, we will work to finalize a plan about your second question on the passenger replacement style in North America. The big picture is, as you said, ocean freight is getting lower and so-called second land or private plant. Tires are flowing into the market in North America. In the United States, Asia, Browns take one half and the second brands or private brands take another half of the market.
Bridgestone naturally does not do business in the lower half of the market. We focus on the top half of the market and now for the top part where we have British Stone and Firestone runs in the fourth quarter, our sewing is slowing down a little up to the third quarter. We have been selling and growing sail very aggressively. Competitors were struggling in terms of increasing their volume yet we were able to gain greater shares with premium.
Well, as the demand is slowing down, we are slowing down or in terms of slowing or slow down, but we are hoping to increase our market share for the premium. This is our view, but for sell out, we think we also see a slowdown, a little in sell out. So I suppose so in and sell out are slowing down yet we will make sure to take greater share of the market in terms of distribution in the first half and also in Q3, the industry as a whole has been trying to raise the prices quite fast. It’s not just be, but other manufacturers have been raising prices. When such move is very strong, dealers tend to carry a lot of inventory as they could enjoy, gain in on the inventory variation.
Now things are slowing down and then the dealers also will reduce their inventory in order to take a, a balance between sell in and sell out. And that is what is happening in the q4. Now. Next year we expect further slow down a little yet we will continue to push to take greater market share. Thank you.
Unidentified Analyst
Now we will we move on to the next question by [indiscernible] please go ahead. Yes, thank you. My first question is about your truck and bus tire supply constraints in North America that you discussed earlier on. Could you explain further as to what is happening? I guess labor shortages are the issue in what timing or timeline things may turn around. This is my first question. My second question is on the state of your Japanese segment business, it seems your profits in q4, that is the profit.
You get after taking the January September quarters out of the 12 months numbers. It seems this profit is struggling in usual years thanks to additional tires in the domestic market. You tend to enjoy extra profits as your mining. Mining tires are going strong. Your exports should be doing well. Your profit projections look a bit too cautious. I wonder if there is anything affecting the segment. Pushability, thank you very much.
Shuichi Ishibashi
First, regarding the truck bus attire production. Well this is something that we have had A lot of issues in terms of recruiting people in various plants, not just the truck and bus plants. This is happening in passenger at tire plants. We hire people but they leave. We have difficulty retaining people so we need to recruit, recruit and train workers for production. But this was not working very well. But entering into the third quarter, situations are improving a little recruitment has improved a little and detention is on also improving a little but not to the level that we had before.
So it is like we are getting to see some positive signals. In particular for truck and bus. Our global supply was also very tight and we pushed our global supply chain management to supply the United States a production, but that was very tough. And for passenger tires, well we do have similar issues as it is a production in the North America, so local production in North America have some issues yet for passenger car tires production in Asia and Japan was able to catch up and we were able to supply the US production. So this is the difference now remain by Mr. Yoshimatsu for the Japan segment.
Masuo Yoshimatsu
Yes. Now if you could do some math, you may understand now for the Q Q3 results for three months was 13.6% and projection was 13.7%. So these will be Q3. We had higher revenue and higher profit and one 0.1 point percentage point to improvement in terms of op margin. Now as far as Japan is concerned, as I tried to say earlier, your Q4 should enjoy a higher margin because of the snow tire business in the Japanese market. This was the case in the past.
Is there anything? Well, in the early part of the snow tire season temperatures were lower, so that was a positive. But you are not improving anything different. Actually, we had the last minute rush demand before Q3 and this was a special factor for this quarter.
Unidentified Analyst
Understood, thank you very much. But overall for the Q3 results, you had some positives and negatives and even excluding for an exchange factors you had result that was a little bit positive VI the plan? Or even upside vis-à-vis the internal expectations generally.
Shuichi Ishibashi
Yes. Thank you. Now I’d like to invite Mr. Sago or securities. It’s psych of me whole securities. Thank you very much for your business. Hello, hello. I have two questions. First question is on sales environment and, and also changes in sales volume and selling price hikes. At this time, according to your annual plan, you are gradually rolling the projection for sales overall and the volume effect seems to return into the narrative side. Yet for the selling prices compared to the last projection, you have higher expectations and also you’re expecting a fourth quarter
Unidentified Analyst
Getting a greater profit, prove it where this balance is coming. And naturally as you focus on the premium, this has happened and given the outlook for the penetration of higher prices in the United States, please discuss this relationship, the volume versus price hikes. Another question is the external environment’s getting more challenging and what is view on the cost control compared with the last projection?
Your operating expenses are producing a greater profit, it just turning positive and have you done some cost cutting initiatives? As we have exhausted all the items or possible structural reform, I wonder what is the plan for father cost control when things get really tight?
Shuichi Ishibashi
Well, going forward it’s very critical for the price increase to take hold, especially in the United States and Europe after increasing the price, we believe that we can maintain this position naturally we have to figure out various measures to be implemented. But when it comes to Japan and Asia, price increase is not advancing as in the western market. So that is our headache, I should say the situation in Japan, in Asia is different from the US and European markets and we have to strike a good balance between the solid situation in the United States and Europe and the difficult situation that exists in Japan. Thank you very much.
Unidentified Analyst
Moving on to the next question, [indiscernible] Now allow me to ask you two questions. The first question concerns your relative competitiveness, especially in the United States. There was mention about gradual demands slow down, but that may be one of the environmental factors that you cannot avoid. On the other hand, cheaper tires are coming in from Asia, whereas Bridgestone produce and consume the tires locally in Japan. And because of the dollars appreciation there are cheaper tires coming in more and more. And I think this is impacting mostly the manufacturers that deal with the commodity zone tires. But Bridgestone is in the premium zone, so maybe you are skimming the cream and you are not impact being impacted.
Historically, we may be in a phase where the value of tires is coming down. So under such circumstances, how can you maintain your competitiveness in the premium zone next fiscal term, even with a drop of volume you can maintain the price and mix so that it would lead to the targeted performance. So please tell us how you evaluate your competitiveness.
The second question concerns your performance forecast for the next fiscal year. I’m sorry, it’s a very fundamental question. The fourth quarter margin forecast is 11.9% and in the United States in Europe, the forecasted number comes down from the level over the third quarter. So is this level going to be a reference for the next year’s performance? Of course, isolating the number from a single quarter and multiplying that by four may not give us the right perspective, but the European and American market deterioration in the fourth quarter, should we expect that to continue next year as well? I believe the FX impact may ha further push up the performance result, but adjusting for the transient factors, if I multiply ¥130 billion by four, that would give us a level of more than ¥500 billion. So is this the right picture for us?
Shuichi Ishibashi
Well, first of all, concerning the competitiveness in the United States, the main war zone, if you will, differs from manufacturer to manufacturer. That naturally means that the level of impact is not the same. And just mentioned earlier, our main war zone is the premium zone. So the impact is relatively limited that I can say. And not only do we have the product power, we also have the family distribution channel, including our company owned stores. We’re very strong. So we have the capability to sell premium tires, not only with its product, but through a strong channel. And this is something that I recognize as a resilient approach going forward
Now, next year for passenger car tires we want to achieve the target performance and concerning tire and bus truck and bus tires, supplier capacity or rather the truck and bus tires supply capacity, I should see local improvement plus increasing the supply from overseas. And for example, business in Europe would start facing greater difficulties so the truck tire production capacity in Europe can be utilized to supply tires to the United States.
And such measures are going to be implemented while we are quite strong in retread tires. So we are going to maintain that strength. Well indeed second brand private brand markets are expanding and I won’t say there isn’t going to be any impact, but in the United States, replacement tires would be used one, two, three, four times because cars are used for quite a long time in the United States, meaning demand for replacement tires would be generated along the way.
In this process, major tire brands would be used up to third rounds or maybe at least up to the second replacement. And gradually the use of major bands will come down in with replacement and instead the second bands or the private bands will be used. That’s the general practice and we can’t do anything about it. But I think you can understand that for the first or second tire replacement there is very limited impact.
As for the fourth quarter performance, looking at the level of performance in terms of the operating profit margin, we expect to keep the current level, whereas in Europe it’s going to plummet and that I think you have observed it’s going to affect next year’s performance. If that is a question as mentioned before, there’s going to be of course some impact, but in the United States, bottom is going to decline, but profitability can be secured
So though the market lacks transparency, we’re going to secure profitability. We have to figure out how we can ensure our market share expansion and naturally our budget planning will have to change depending on how the market environment would change. This is something you already understand, I believe, and we continue to expect to achieve high level of profitability going into next year. Does that answer your question?
Unidentified Analyst
Sorry, I can’t hear you. I’m sorry about this fourth quarter performance deterioration in Europe that is not the result of inventory adjustments, but simply a result of economic downturn in Europe. So the volume would come down. Do I have the right understanding?
Shuichi Ishibashi
Well, in Europe, many things show a downward trend in the fourth quarter. Now right now volume is dropping precipitously, Production utilization rate is dropping. Also energy cost is rising, expenses are all going up over time while volume is coming down. So in the cycle of producing and selling, we are off balance and we are having difficulty in the fourth quarter under such circumstances there is this drop of the distribution inventory and the manufacturer’s inventory.
So all in all, the fourth quarter is going to be a very difficult quarter, but we don’t think this would be a full year situation next year. So during the fourth quarter, the manufacturer and distribution inventory will be normalized so that the inventory level will come down to a level commensurate with the recession and there should be solid performance being generated. So we’re going to focus continuously on the premium zone and the actual number of profit will come down.
But this is a question of how much we can withstand the difficulty and how much can be compensated by the business in India and Middle East. And that is the major point of discussion in formulating our budget next year. So I understand that Europe is an area where you have improved the mix advanced ahead of other regions and the profitability has been going up and I think there would be a cost increase, but I look forward to seeing this profitability generated in Europe. Yes, we’re going to focus on the premium zone in Europe. Thank you. Thank you so much for your answer.
Masuo Yoshimatsu
Now we would like to go on to Mr. Shiro Sakamaki of Daiwa Securities. [Operator instructions] Shiro Sakamaki of Daiwa Securities.
Shiro Sakamaki
Well maybe I may be repeating a similar question, but can you explain to me once again how much dealer inventory in the North America has been increased and how long would it take to resolve that inventory? You’ve been talking about increasing your market share. While there is this inventory building up, which gives me an impression that you are pushing the sale of your tires.
So how long would it take for inventory adjustment mainly in the North American market? Looking at the entire market situation recently, there is this major inflow of import tires from Asia. Is this going to be transient? In China there is this zero COVID-19 policy and the domestic demand is very weak and Europe also has weak demand. And so the tire manufacturers throughout the world are bringing in tires to the United States. So do we not need to worry about this risk of the US market demand and supply balance being deteriorated with a time lag?
Shuichi Ishibashi
No, the replacement of passenger car tires in the United States is a relevant topic to your question. Basically, we don’t think that distribution inventory and the second and third quarters are dramatically increasing. We have this balance sellout and sell in and we are going to increase our share in our distributors and also stores that sell our tires. And we are going to expand our channels as well and expand our market share.
Now in the fourth quarter, as I’ve been telling you up to now our, we are going to secure profitability, but the selling is going to become weaker. So the level would come down, but at the same time the level the demand would come down. So in relative terms it may be possible to expand our share and of course we are not going to push ourselves. And so there is no increase, forced increase of inventory and the dealer would not increase their inventory in the fourth quarter.
So together with the slowdown of business in the fourth quarter, I believe that we can get along and the merchandising plan in the distribution has this best, better, good categorization to position their tires. So it’s like this position is for Bridgestone, this position is for Firestone. And based on the positioning the business is conducted and depending on the position, the role would differ.
Like in this position, it’s the sales volume that needs to be emphasized and in this position, profitability would have priority. And we are going to in these circumstances going to go on with a sensible way of merchandising and doing business with the dealers. And of course among the retailers, there are retailers that’s trying to capture the business in the first and second round of replacement or retailers taking the third and fourth round of replacement.
And Bridgestone doesn’t have business with the retailers that focus on the third or the fourth round of replacement. And so I think channel selection is critical. It’s not just the product that we offer, but the channel selection is also very critical and we are very careful about distribution inventory and we are not unnecessarily increase the inventory and distribution so that there would be a grudge among the distributors because we can’t really end up in a win-win situation between us and our customers.
We have to be very objective. No there is this concern that tires would be flowing into the United States and this is not a new story. It’s an issue since a long time ago and in the past there was a big issue in the United States about Chinese made tires. And there is this tariff issue between the United States and China.
And right now the inflow has decelerated, but naturally Chinese manufacturers have built their plants in other countries in Asia and trying to export their tires, but under such circumstances they have to have a solid land and solid distribution channel.
Otherwise they cannot sell the tires. No private brands are being sold by retailers and of course to a certain level it can be sold. But as you know, it’s just like OE it’s a very tough business. So the brand, brand recognition is very important for the business to be successful. It’s not an easy business.
Shuichi Ishibashi
Thank you very much for your answer. Thank you. Now turning to the question from the media. Now, may I ask Mr. Matsuda from [indiscernible] to ask?
Unidentified Analyst
Thank you very much. I have two questions. Question number one, for the first time in your operation history, you are lucky to go above the four Tridion mark for your revenue. What’s your observation? And also that you have made of the adjustments from the two year projections here to there. Do you think that it’s a testimony leading to your choice of the premium strategy?
Shuichi Ishibashi
Okay, thank you for those questions. For tri level, of course, we’ve tried many things, growing volume from mix being improved. This, so multitude of all efforts have consummated in this particular number. Of course effects is helping us currently. However, the speaking of FX and the occasion, no Firestone, the acquisition was ¥133 into that and experience ¥150 or ¥80 that’s the nature of the volatility of the effects market.
So whatever may be in store, we just to do what we must. So that is my stance always. So in other words, I do not react to every up and down if I may. And so it’s yet near milestone the very important fund of, and then you talked about my view on the premium strategy.
In the volatile and inhospitable the market environment, if hypothetically we had stayed with the commodity they own the business that we would not have experience in this day. There is for tri or for tri revenue situations being resilient and they can be viewed in multiple ways. But as the, the human fracture and we are to make and sell goods, premium focus is very important.
And in saying all of these, we are still at the midpoint in our journey. So I believe in this, in this course of journey, we are only to enhance our operations so that we can the appeal of the premium value or being able to appeal more and more effectively in the market. This just got to be done if I may. So that’s my sense.
Unidentified Analyst
Thank you very much. Thank you very much indeed. I appreciate it those answers. Thank you. Moving on then, I would like to ask [indiscernible] from daily auto paper to ask thank you Na, from of this two questions. First,
The overall observation points me to the market situation in Europe and enlightened strategy will you mentioned, and I believe it is true that then the macroeconomic recessionary trend in Europe has been getting more, more prominent.
What do you think from the, do you observe any sense whatsoever of turmoil or the confusion in different line operations locally and of course your choice of the enlightened of the strategy to be deployed on the two replacement market? You have a product, the schedule to be launched. What is your expectation on this enlightened strategy?
Shuichi Ishibashi
Thank you. Europe has been referred to from time to time where the recessionary trend is becoming more prominent inflation to rising energy costs. So throughout the market of Europe the multitude of effects may have been felt and the overall return of slow down. And then of course the even featured the inventory is called can be at the manufacturer level or at the distribution level.
So much so that as a manufacturer we had burden to make come the adjustments to our production plans. And, but it’s not only at Redstone, all other competitors of ours in Europe and the had they have had to do the same. But in Europe, one thing different the two was in Bridgestone is that unlike in Japan or the us we are not number one in Europe, the leadership position is taken under by that French company.
So unlike in the other regional markets, we are not tempted to exercise our leadership to darly change the course of the talent of the market. Russia, we have to go along from the title of times in Europe making sure that we feel well and that the concept of being able to fare well has been getting more and more sophisticated and the better.
At Redstone that’s the reason why our results in more recent heres has been better than before this sort of premium focus. And they hoping for more after all. The basic view is that it’s quite fundamental that European market and our customers know the autos tires. They are very sophisticated and that they know what they’re looking for and the auto more as manufacturer that we have to review our strengths with the performance of our products.
And again, the choice of being premium is very important. In the case of the waste participation in the, the fund raising income, the secretary we did have the experiences the of that have the being premium or the demand that having to offer the things premium. So, and also we having working who is the German three s for a number of years now, the subject of enlightened the strategy in the replacement market with the better rewarding of the resistance there were the better the future in terms of real performance.
These are two the hit the corridor, the dis sophisticated from the European the customers. We need to do this and this. So work the higher road as they say that to make sure that on the basis of web performance and fundamentally required higher, what more can we do with our uniquely strong company performance. So that’s what it is for us in Europe. Don’t you think that Europe, the end to lead all different ways is the global leader for when it comes to being premium and okay, but probably not only Thai.
So the automobiles to run there as known by in Japan, we will start first in Europe winning the good reputation in Europe, then we would be ready to deploy it elsewhere and around the globe high diameter focus of course there is detail for the entire industry, but it’s not only the emphasis on the high room diameter tie is unique value that we can advocate is the enlightened the strategy first in the segment going to replacement segment as always this new products and we launched and that’s what we plan to do starting the 24 midterm business plan. So I hope that makes sense to you. Are you satisfied with my answer?
Unidentified Analyst
Yes, I certainly am. Thank you very much.
Shuichi Ishibashi
Okay, then let us move on to [indiscernible]. It was towards the end of October at that you made a public announcement him about that key decision about the future of Russian business operations to withdraw from. And we understand that you did make sure to say that this decision will not have any impact on the projected performance at the end of fiscal year, but it’s an important business decisions that you have the hire the associates that you have made investments and now the decision to withdraw from the Russia. What goes through your mind?
Unidentified Analyst
Thank you. Since the early part of this year and since the spring, we decided to suspend the local production in Russia, the water suspend exporting to Russia. But since then still we continued to maintain those same relationships with local associates working on with us in Russia paying out the, in the compensations, no change whatsoever, in our spiritual of taken care of those that we work with.
So that is on the fundamental and the thinking that has not changed at all and about the decision from the two process spent and on this occasion to withdraw from business operations in Russia, of course we had to go through the intensive and whole on the comprehensive from the consolidations and the review and check. But from business per perspectives with the raw material on the input course continuing to hike, it’s just the becoming very, very obvious and that the business continuation does not make sense.
That is the reason why we are heading to make decision. And also it’s, it is not only the form, the business perspective, the decision was made. We have family and with the E eight commitment among which we have empowerment speaking or empowerment trying the best that we can do to make sure that people locally, they can continue to live in the main manner. And whatever that we can do as the business that the company we would like to do to offer our way of support.
Fundamental position of not at all the agreeing to the Russia decision to invade into Ukraine, but still there are other the observations and sensors that we’ve had, I’ve had such as from business perspectives, what would be the best answer? What would be the ethical the, the answer, the how would be the relationships, the wisdom customers. So for all those reasons, we decided to withdraw from Russia. So how’s that? Are you satisfied? Thank you very much.
Shuichi Ishibashi
I certainly am. Thank you. Well everyone, since it is time we have to close the Q&A and with that today’s program to present the business of financial, of the results for September and 2022, as well as the progress of midterm business plan is over. Thank you very much for your participation. The program is now finished.
Question-and-Answer Session
End of Q&A
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