Bridgestone Corporation
Q1 2021 Earnings Call Transcript

Published: 18 May 2021

Naoki Hishinuma:

Hello this is Hishinuma, CFO at Bridgestone Corporation. Thank you very much for gathering on the occasion of the Announcement of Financial Results for the First Quarter Fiscal 2021. So, I am going to lead off by sharing with you the business financial performance for the first quarter. My agenda today. So, I would like to start with the business performance and key initiatives for the first quarter of fiscal 2021. The overview of the performance as well as key initiatives for the first quarter based on the mid-term business plan announced back in February.
Unidentified Company Representative:

That was our CFO, Naoki Hishinuma on the first quarter results. Next, our Global CEO and Representative Executive Officer, Shu Ishibashi will present the midterm business plan progress update.
Shu Ishibashi:

Hello everyone. I am Shu Ishibashi, Global CEO of Bridgestone Corporation. Following the financial results, I would like to provide an update on the midterm business plan. In February, I presented the midterm business plan and the Bridgestone Group's direction towards 2030 and beyond. Going forward, I plan to provide you with its progress update on the occasion of quarterly earnings briefings. The midterm business plan is guided by the group's mission Serving Society with Superior Quality and is based on the mid long-term business strategy, which sets forth a new vision, continuing to provide social value and customer value as a sustainable solutions company toward 2050. To accomplish this and to contribute to achieving the UN Sustainable Development Goals or SDGs, we have defined a new business portfolio, which positions the Tire business that produce and sell tires as our core business and the Solutions business that provides value at the time of the use of tires, as our growth business, which are to be coordinated to amplify their value for continued expansion and reinforcement. Furthermore, we have started exploring the Recycle business, which renews end-of-life tires to raw materials. We aim to facilitate a circular economy by 2030, where business value such as revenue and profits is sustainably generated and is linked with efforts toward resource circulation and carbon neutrality across all of our business areas of produce and sell, provide value at use and renew. This is our unique sustainability business framework. For the full-scale execution of the midterm business plan, we have planned actions by business for 2021 to 2023. The theme is aggressive approach and challenging spirit.
Operator:

First to call upon Mr. Yonezewa from Yomiuri Newspaper.
Unidentified Analyst:

Yonezewa from Yomiuri Newspaper. Thank you very much. My first question refers to the shortage of semiconductors and its impact on your business performance. You said that despite the impact in the first quarter sales did increase year-on-year. However that -- you said that you continue to take note of the situation, so would you elaborate on that?
Shu Ishibashi:

Yes, the shortage of semiconductors. As you are aware by area or by company, there is a sense of variability, which means that for us in each area or with each customer we have been continuously exchanging information with one another. In doing that what we take note of is that first of all, we say our companies, but it's not as though they had full grasp of the situation. So we did create set of numbers. But our reach is that by and large, they seem to say that in the second half of the current fiscal year, there's been going to be a recovery. However, some of the automotive manufacturers are saying that they may not be able to come out of it by the end of the fiscal year.
Operator:

Okay. Next moving on to Ms. Masueda from Automotive Tires News.
Unidentified Analyst:

Thank you. Masueda from Automotive Tires News. I have two questions to you, okay? The first question refers to the Q1 performance. Listening to the announcement made by different manufacturers, quite a few have been taken note of the fact that China drove the operation. How -- what's the situation in that regard at Bridgestone? And the PSR business in China as I understand is categorized into the so-called next category. But with the existence of the local manufactures among others how would you plan to compete in China?
Shu Ishibashi:

Thank you for the question. First of all, Bridgestone's presence in China is not necessarily very high. So that's reality. And so from the standpoint of the overall classification the China is positioned in the next category. The peers or the business in China is really focusing on the premium segment meaning that it has the comparative emphasis on quality rather than quantity or volume. We recognize that the core companies from Japan, US and Europe will focus on the premium raise of car models that be operating in China with be it the OE or rep segment to the market. So that is the key consideration behind our premium focus. Now other competitors they are different. So on the same companies, they -- do you have the volume from which they can count on. In the case of Bridgestone, the volume has been increasing, but not yet to say that it then has a significant impact on the overall operations of Bridgestone. So point number one, we will continue to focus on the premium segment to continue to grow steadily.
Unidentified Analyst:

Thank you. And the question number two, page 18 of the midterm business plan presentation, “the expression of mastering rubber”. Now in reference to that there's some output though the benefits have been introduced already. But outside of Japan for instance in the period of synthetic rubber working with those companies, so the synthetic companies in the process of creating technology platform for the future. I understand that you probably have some projects which are in the pipeline not ready to be announced yet. But what are the overall expectations?
Shu Ishibashi:

Thank you. My answer isn't that. Well the world of rubber is so profound. So although we say "mustering rubber" how are we? We have not mastered rubber yet because many new things are continuously popping up. For instance, natural rubber versus a synthetic rubber, that is no synthetic rubber which eclipses natural rubber and durability. So the development of synthetic rubber with durability which would exceed what can be expected from natural rubber. It's in the lab under the testing stage. And there's some positive signs are there. And as the technology is ready then be it for the shared service application or the mining operations, I'm sure that the benefits will accrue. And also on the rubber, what we consider is that there are features, properties of rubber for instance low rolling resistance, good fuel efficiency that is to say. And yet the braking performance is good. And the durable life is long enough. And these, sort of, agreements coming -- to have the combination of all good features of rubber. That is what all companies aim for. This -- the challenge is made collectively. So for the Bridgestone's purpose we receive requests from our customers. We also have a sense of prior performance which large instance rely on rubber. So many ideas which are in Kodaira, Akron and Rome and there various research activities are going on. I'm sure that from time to time we have opportunities to share those with you. So please look forward. Thank you.
Unidentified Analyst:

Thank you for your answer.
Operator:

Thank you. So let us now move on to Mr. Jodie from Bloomberg.
Unidentified Analyst:

Jodie from Bloomberg. Thank you for this opportunity today. Two questions. Question number one refers to your statement about the mobilities solution in North America by the end of this year inclusive of the possibility of M&A. Would you elaborate on the background the scale or the time line? Or why the end of this year? So I would like to know more details as you see fit? And also the second question refers to the worldwide Olympic partner that you are for the Olympics -- enter Olympics in Tokyo. Only two months the beginning of the games. But of late the TV and the newspaper are starting to record -- the report that many are calling for the cancellation of the games. There were some episodes of the priorities speaking on behalf of athletes. So at present what are your thoughts Mr. Ishibashi? What's your hopes and aspiration? What's your outlook?
Shu Ishibashi:

Thank you for the question. So the question number one as regards to the North American mobility solution. It was back in 2019 that the European number one Webfleet was acquired. And since then the operation has been expanded this step by step. That's exactly what we committed to you. So having started in western part of Europe onto the Eastern Europe to South Africa, Australia, Chile and Mexico we really have been -- the expanding and enhancing. But the world's largest market after all is North America where unfortunate to have to say that Webfleet Solutions does not have a very strong sense of presence. Meaning that whereas the biggest market North America, our aspiration is to establish and startup mobility solutions operation as early on as possible. In North America trucking bus tire business in North America or truck and bus tire retread operations in North America are there in our portfolio and will the biggest share of the market. All the more we seek that -- on the basis of the strong -- the tire business we the retread operations that we would like to have from the mobility solutions which we believe that we can be quite successful at. So sooner than later deleveraging the wisdom and expertise of Webfleet and also knowing that there are quite a few mobility solution providers no one very large and quite a few start-ups, but why don't we join hands with them? With the application of expertise which has been accumulated in Europe basically from Webfleet? So that's the reason why we came to the view that by the end of this year, we will like to have the stage ready inclusive of the M&A. I hope that answers.
Unidentified Analyst:

Yes, it does. Thank you very much.
Shu Ishibashi:

In response to your second question regarding the Tokyo Olympics and Paralympics. Yes, I am aware that varying views and thoughts expressed. And I'd say that particularly of late various comments have been made to or regarding the Olympian athletes, which may I say are extremely regretful indeed. I'm sure that various other Olympic sponsors they have been feeling the same. In the case of Bridgestone based on the empathy and to the spirit you have of Olympics we decided to become this worldwide on Olympic partner. At the heart of it is the existence of the Olympians athletes. Their never yielding efforts, wonderful play and performance and the total -- the movement of emotions that they gave to us. And that's the reason why -- and also the everlasting pursuit of the DPs on the growth and diversity and inclusion those are the reasons why we originally made a decision toward become a worldwide Olympic partner. My thought at present so long as safety and assurance it can be confirmed. Then I still hope that the games can be played. If not be it IOC or other parties will make different sort of decisions. If so then I would -- Bridgestone respect such a decision. So for now the -- believing that the safety and assurance they can be there and therefore the Olympic games numerous parties they are dedicating their efforts, including our own employees who are serving as volunteers, and we still understand ready to support the athletes. Thank you. Thank you very much.
Unidentified Company Representative:

Let's now move on to Ms. Fujiwara from Nikkan Jidosha Shimbun.
Unidentified Analyst:

From Nikkan Jidosha Shimbun, my name is Fujiwara. Thank you very much for giving me this opportunity today. I too have two questions to you. The nurturing of the digital talent in the first question. I would like to know more. For instance, you talk about collaboration linkages leading to your parties in and outside of the organization. How you nurture those digital talents? Can you tell us a little bit more? And what will be the ultimate aim behind the development of digital talents at Bridgestone?
Shu Ishibashi:

My answer is that in reference to the basics of our mid-term business plans it stands on the two pillars of having this strong rail and then the digital. So that's something that I have been explaining to you, and in saying that we are going to develop on such talent. It's the combination of doing it organically within the organization and also the inclusion or the invitation of the new associates who have been -- who will come through M&A transactions in the . Currently, the 900 digital talent our aspiration is to bring that to 1,200 digital talents. Now on the different grades of those talents, the intermediate to the advanced levels of the digital talents. The intermediate level, I'd say that we will be able to develop and strengthen their expertise in-house within the organization of -- I mean, the Bridgestone, excuse me. However, as an advanced level and we are talking about very few or limited experts available in the entire globe, and then those are the eligible persons. Then we'll be able to make the global contributions, which should mean that inclusive of not only universities in Japan, but also universities outside of Japan to make sure that there are opportunities granted to them to have the available inherent skills. So that is the overall considerations that we make. And of course, ultimately, we expect that they will come back to Bridgestone and to make continuous contributions. I have to refrain from identifying which universities, but which universities both in and outside of Japan we have relationships and we tend to enhance those relationships. I hope that answers your question.
Unidentified Analyst:

Yes, it does. And speaking of the relationships were universities, I would like to make sure that you are talking about not only Japanese, but universities outside of Japan?
Shu Ishibashi:

Yes. So it's yes. It's already there. There are fellows who are studying in universities outside of Japan. Of course, in the Japanese universities, but it's both, and the teams of research does vary over the front. For instance, the actual example the increase in the resource and development of the aircraft tire where it trend to the algorithm development, which has been developed uniquely for Bridgestone. It has been developed by digital talent who are on that advanced level of expertise, and other examples, including the mining tire properties and the other ideas, which have never been disclosed yet. This was speaking from relationships with universities. We have ideas, we have resources, we have material so that we can look to for the future.
Unidentified Analyst:

I see. Thank you. My next question is on your efforts to achieve carbon neutrality. I believe this is the first time you mentioned strengthening the internal use of carbon pricing system. So can you elaborate on how it works?
Shu Ishibashi:

Back in 2011, we introduced the carbon pricing system to be applied to the internal investment decision-making process. So that in making various investment decisions for instance on manufacturing facilities the element of carbon pricing is always taken into consideration. Simply put the intention is to incentivize investments to lower the CO2 emissions. And we are planning to raise the level of carbon pricing soon. Currently, it's set at around JPY 3,000, but we are considering raising it to JPY 6,500, on a global scale in Europe to around €50. And this is applied, not only to investing activities, but is to be incorporated in all aspects of our business operation, so that it would always be considered in our business. We are to apply the globally common metrics to various actions we take. We believe that is necessary to achieve carbon neutrality. Of course, at each of the production sites, manufacturing sites, concrete efforts are being made in various activities already. That has already started. So I believe this is very important in changing the mindset within the group.
Unidentified Analyst:

I see. Thank you. A follow-up question. In your procurement process of materials and others, how do you plan to assess the efforts by your suppliers in reducing CO2 emissions?
Shu Ishibashi:

We need to make assessment on a product life cycle basis. Currently, we are working on Scope 1 and Scope 2 which pertain to processes within Bridgestone. But in reducing CO2 emissions, Scope 3 is also very important which involves the level of CO2 emissions at the stage of the usage of our products by the customers as well as the production of the materials that we procure. So we need to look at the CO2 emissions throughout the product life cycle. We need to identify the CO2 emissions level on a life cycle basis and try to lower it. Of course, we do have various policies and procurement to take into account such aspects as CO2 emissions and human rights, through which suppliers are asked to visualize and reduce CO2 emissions. And we are also making joint efforts to reduce emissions. We're trying to reduce CO2 emissions on a life cycle basis.
Unidentified Analyst:

I see. Thank you very much.
Operator:

Thank you for your questions. The next questioner is Mr. Hiraok from NewsPicks.
Hiraoka Daisuke:

Hiraoka from NewsPicks. My first question is on your financial position. For the year ended December 2020, you recorded a year-on-year decline of both revenue and operating income to end the year with a net loss for the first time in decades. Yet, your free cash flow was over JPY 300 billion. And for this first quarter with the divestiture of a certain business, again the free cash flow positive by a similar amount. So in terms of earning capability, you are taking options to address anticipated trends of tires becoming a commodity and you're also working on restructuring the Diversified Products business. Given that you have abundant cash on hand, am I correct to assume that you are thinking that this is a good opportunity to embark on business portfolio restructuring?
Naoki Hishinuma:

This is Hishinuma speaking. I will take that question. In terms of cash allocation, our top priority is strategic growth investments, followed by maintaining sound financial position and then comes shareholder return in that order. As you have correctly indicated, yes, we do have rather a larger amount of cash on hand currently and it is to be used for strategic growth investments as outlined in the midterm business plan. And we are currently reexamining the business portfolio and some of the measures entail cash outflow. So these are the priorities. Should there be any surplus allocate that to shareholder return. That is our basic thinking. I hope that helps.
Hiraoka Daisuke:

Yes. Thank you. You described where cash would be allocated briefly. Do you feel you have enough cash for measures planned for the next year or two including M&As?
Shu Ishibashi:

Yes. The midterm business plan envisions investing around JPY 700 billion during this period up to the year ending December 2023. So we do not believe that large amount of borrowing is needed to finance our investment plans.
Hiraoka Daisuke:

I see. Thank you. My next question is on your plan to transform the human resources system and other institutional organizational changes under the midterm business plan for instance the job-based system. Some companies in Japan are now introducing the job-based system so as to accommodate the talent needed for digital transformation and other specialized positions. And in the case of companies implementing business portfolio restructuring, as they carve out certain businesses certain group of people who will leave the company, while through the acquisitions of companies especially foreign companies, new talent is brought in and that would require changes in the appraisal and payment system. So, more standardized system is needed. I believe that is the motivation. So in the case of Bridgestone what is the background to reforming your HR systems?
Shu Ishibashi:

As I mentioned last year, Bridgestone is faced with issues common to typical traditional Japanese companies. We have the seniority system, so you are promoted to a certain position after X number of years of service in the company. And there are silos from function to function; manufacturing, development, sales, administration, and what have you. And one's career development plan is set within each silo. And in terms of organization so many levels from top management to rank and filers. So, we had a very heavy rigid organizational structure and we wanted to change that break and remove the silos and reduce the number of layers in the organization, simplify the organization to become more agile and flexible. And the basis of that is as we examined what kind of organization and what kind of functions would be needed to be successful in the mid-term business plan? What will be the profile of the people that will be needed to fulfill the functions? We made extensive discussion on that. And what we found was that there are many unnecessary wasteful tasks and work and we wanted to eliminate those. And we assessed what functions and responsibilities are needed and found that there are many mismatches that we the positions and the people who fill those positions. So, we wanted to address that and improve for a better match between the talent and the positions. And the job-based system is clear on that. I spent a lot of time in North America in my career and there the job-based system was given. Responsibilities are clearly defined and the output and expectations are clear, little room for ambiguity. I think that is a global standard. So, step-by-step we wanted to move in that direction. At the same time, the traditional typical Japanese membership system has benefits as well where people would have lifetime employment, have strong loyalty to the company, and feel your personal growth and the company's growth are identical. That is also very important. So, we want to come up with the hybrid system that best fits Bridgestone. So, we introduced a job-based system where they fit, for example, in such areas as digital transformation as you mentioned, as well as, legal, intellectual property, and finance where expertise needed is clear. We decided to start from those areas. Also in the hiring system, although job-based system has not yet been applied, we are asking the applicants to identify what areas they are interested in and try to assign them to those positions so as to avoid a mismatch as much as possible. And on a step-by-step basis, we are clarifying the roles and responsibilities, eliminate unnecessary wasteful work. Job-based system is part of the efforts to create that kind of culture.
Hiraoka Daisuke:

That’s very clear. Thank you very much.
Operator:

Next is Mr. Sakamaki from Daiwa Securities.
Shiro Sakamaki:

Thank you. Sakamaki from Daiwa Securities. I have two questions. First is on your first quarter results. The adjusted operating income for the first quarter. How much was the upside compared to your internal plan? And also you have not changed the forecast on a full year basis, but currently the distribution cost and material costs are increasing. So, how confident are you in achieving a full year forecast? Are you confident that increasing your selling prices would be sufficient to offset the increase in costs? Can you comment on that?
Shu Ishibashi:

I will defer that question to the CFO.
Naoki Hishinuma:

Thank you. Your question is how the adjusted operating profit for the first quarter compared to our internal plan? The first quarter profits projected back in February that we shared with you was in line with the actual results of the first quarter of last year. And therefore, the year-on-year difference was about the same or comparable to the variance from our internal plan. As for higher distribution costs including higher ocean freight in particular, we had already incorporated that in our February forecast to a certain extent and therefore the additional cost is not that significant.
Shiro Sakamaki:

I see. So the higher material costs for the remainder of the year, you are confident that raising selling prices would be sufficient to absorb that. Am I correct?
Naoki Hishinuma:

In the first quarter, we did raise selling prices and the product mix effect was positive as well. So, it's not that we think the selling price would be the only means to be used. We will raise prices, but there are others as well for Q2 onward including the product mix. As for the material cost, the prices are increasing globally. And of course, that will have an adverse impact, but through various measures we are to absorb and offset that impact.
Shiro Sakamaki:

I see. My second question is on the restructuring of manufacturing footprint and business portfolio of 160 sites. About 40% are to be restructured. And during Q1, 21 sites have been restructured. It appears that most are in Diversified Products business. Would that be true for the remainder of the period as well? And at the same time, you are considering acquiring the fleet management company. So, do I understand correctly that restructuring in terms of shrinking is almost complete? And going forward you all will be working on the expansion aspect?
Unidentified Company Representative:

As for business restructuring and manufacturing footprint restructuring since we have tire business diversified business and materials manufacturing businesses like synthetic rubber and carbon black etcetera, we do in fact have a total of 160 manufacturing footprints. And for some time, we have been thinking about 40% of them. And we did make announcement for 21 of them at present. However, as we have stated in the past, since these involve very sensitive issues in relation to the community and employees, we will provide clear explanation when the time is right. But for now, I hope that you will understand that we would like to refrain from providing you any specifics or naming any such footprints. You also asked about aggressive approach. We have stated that for our Tire business we will actually outperform 2019 in the year 2023. For the tire manufacturing footprints, we are looking to close old small and noncompetitive sites. In other words, South Africa and fell into that category. For manufacturing capacity for example as was explained in the Q1 presentation, the basic premise is to improve productivity and increase the volume or increase the manufacturing of more premium products in the existing facilities. We will make full use of them until the end. Secondly, in Vietnam and Thailand in Asia for example, we have high production capacity, but the human capacity and capability has not matched that level yet. At these plants, we will improve human capabilities and make new hires to enable full use of the capacity. This effort has already started. Because the recovery was much stronger than we had anticipated, we are hiring people in Asia and the training will take place to improve the situation in the second half of the year. So, we have already started those efforts. In that sense we will be very proactive. We have always done that and that is playing offense. We will make these aggressive moves in the premium area in the midterm business plan. And even now, we are actually implementing that. Because of the stronger than the anticipated recovery that we are now experiencing we are trying to determine how far we can really advance this offensive move. As you know, we did significantly reduce the inventory last year and we improved our cash flow. Under the COVID-19 crisis situation we did play some defense. But as the recovery started in the second half, we increased our production. However, we are still experiencing a declining inventory. In other words, the production has not caught up yet. We did indeed first reduce the inventory, which is not adapting in itself and we try to improve our organization or efficiency to reduce unnecessary inventory. And that is also a good approach as it improves our structure. While we face various challenges we make efforts in parallel to gain profit and benefit out of this process.
Shiro Sakamaki:

Thank you very much.
Unidentified Company Representative:

Thank you. Next, I would like to invite Mr. Yoshida of Citigroup Securities.
Arifumi Yoshida:

Thank you very much. I would like to ask you one question. On the page of the material, you presented the results, revenue and operating profit by products. Especially for PS/LT, there is quite a good level of profit and the margin looks like 14.3%. The volume recovery is not back yet like that of the trucks and it is less than 2019 level. But then, what could be the factor leading to this much profit for Q1? There could be various factors such as product mix and product -- price increase. But it seems to me that it's a little bit too much. Could it be because of some one-time transient factor? Or is this sustainable? Or would there be any risk for Q2? The number I see looks to be quite surprisingly high.
Unidentified Company Representative:

Let me try to answer the question. As for the profit margin for the product mix improvement and the sales prices, we have reduced the general tire -- general purpose tires, especially the associate brands, significantly in Europe and the Emerils. We reduced the volume as well quite a bit. That is one of the factors leading to improved profit margin as you see here. We do not believe that it involves any one-time transient or a special factor. Obviously, if the raw material cost increase in the future, there could be some impact, but it is basically the result of the improved business structure.
Unidentified Company Representative:

If I may add, as I mentioned earlier, the base is the improvement of both top and bottom line by focusing on the premium products. Especially in Europe associate brands such as Dayton was reduced by -- will be reduced by several million pieces this year. So the focus is on the major brand. Similar approaches are made in the United States as well. In other words, in order to improve quality, we will focus on the premium for passenger tires. There are obviously improvements of the mix for high rim diameter tires, but there is also the brand mix improvement. So, there are these two factors involved here.
Arifumi Yoshida:

Does that mean that you will further reinforce those efforts? I believe even until now, your approaches was more or less like that. But dropping the general purpose tires is this accelerating this year?
Unidentified Company Representative:

In the Americas, the reduction had already started significantly in 2019 some continuing into 2019. In Europe it will be done this year. As you know, we suffered a major loss in Europe last year. So, the huge challenge is to turn it around to a black figure. This year BS EMEA will make a turnaround from loss to profit, which will be a major milestone. We will also generate profit out of the European business. We will close the tune and we will reduce the general purpose production and we will focus on the premium. These efforts are all connected and linked. The turnaround especially in BS EMEA is making a significant contribution to the overall improvement in the profit and we hope to be able to continue this.
Arifumi Yoshida:

Thank you very much.
Unidentified Company Representative:

Thank you. Next, we would like to invite Mr. Kakiuchi of Morgan Stanley Securities.
Shinji Kakiuchi:

In listening to the presentation today, there does not seem to be any essential issue in North America. But in the first quarter, there was an increased demand before the price increased by other manufacturers. While others were raising prices, Bridgestone kept your own stance position as you always seem to have discipline when it comes to prices. Should I assume that there are no inherent issue with that? Earlier in the presentation, you talked about the balance between volume and quality. There was also a related question, and I believe you responded about reduction in the associate brands. But my feeling is that it may be time that you should -- so make some offensive approach of us increasing the volume. What is the trend general direction and future prospect in the North America?
Unidentified Company Representative:

As you know, in North America, we improved our business structure in the first quarter, and we are seeing the bottom line improvements. Also various prices are improving as well. Maybe it is time for us to take an active ambitious steps now. And since March, we are continuing to have some discussions regarding this with the top management in North America. As for the retail business in North America, we call themselves out. But where we actually equip the final users, actual customers with our products, we are very strong and competitive. The data often shows sell in the numbers of shipment to the dealers. And there could be some variation in months to months figures. But I do not think that that is much of an issue. We are very strong in the retail which is very good. But even with that, we believe we can further improve these results, while keeping the quality of the top line numbers. Active discussions are underway. April was better than March. And in that sense, how much we can still improve on this quality and maintain this in May and June for the first half is something we need to challenge.
Shinji Kakiuchi:

For the first quarter, should I understand that negative PSR sales in North America is not a factor drawing lower results for Bridgestone?
Shu Ishibashi:

Well in North America too, the bottom line improving significantly. In that sense, rather than directly linking volume to the bottom line figure, improvements as seen through end-to-end. Gross profit margin has improved significantly. The fact that gross profit margin increased much in Q1 I think is the first indication of the result of the rebuilding of the earning power that improved profit margin in North America is also seen. If we can maintain this while increasing the volume, we can make further advances. And obviously that is what we would like to achieve for we need to -- first we need to build a solid structure and increase the gross profit. That is why we can say that weakness seen in North American passenger is not directly resulting in the bottom line that you see.
Shinji Kakiuchi:

Thank you very much. I hope and expect to then see good results for Q2 as well.
Operator:

Mr. Sakaguchi of Mizuho securities.
Tairiku Sakaguchi:

Thank you. Sakaguchi of Mizuho. Thank you for this opportunity. I would like to ask you one question. For the results by products and for specialties, there seems to be solid profits compared to last year which is even larger than the growth of revenue. Although, I think the volume and internal efforts do have bearing on these numbers there must be a backdrop to this improved profitability. Regarding the recovery of volume around ultra-large is still only in its midway towards recovery. How are you looking at the future trend for recovery? Can we expect to see further improvement in the profitability along with your outlook? Please inform us as to how we should understand the present situation as well as the outlook for Q2 and beyond?
Shu Ishibashi:

As for the improvements for the profitability of specialties, they include products like ORR; AC; AG agri; and MC. For ORR in the latter half of last year, we saw a trend for recovery in the bottom line in volume. In other words, there are trends of recovery for profitability. In addition, we saw significant volume growth for AG and MC which contributed much to overall improvement in profitability. But on the other hand, AC aircraft continues to face a very difficult situation. Looking at the entire year, I expect the AC tires to remain in red this year. For the time being, I think the business will turn around to generate profit in 2023, although there may be different situations which might impact the result. But I expect this to be very difficult. For the mining tires, large mining tires are very strong, medium and small somewhat lagging behind, but there are demands for medium and small OR for construction market where demand is quite strong. I expect that that will make good contribution in Q2 and onwards. For ultra-large, we need more improvement. But right now iron and copper are doing very well and are gaining as we have improved our relationship with major mining companies. When the demand returns I am confident that our sales will also increase. I feel this is an area where we can expect to see much from in the future. So I will take it that with the exception of AC volume is on the trend of recovery and that possibly will make positive contribution to the overall mix.
Tairiku Sakaguchi:

Thank you. I understand the situation very well. Thank you very much.

Bridgestone Corporation Q1 2021 Earnings Call Transcript

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