Earnings Transcript for BRDCY - Q3 Fiscal Year 2023

Unidentified Company Representative: Thank you very much for attending the Summary of Financial Results for Third Quarter 2023 and Fiscal 2023 Guidance of Bridgestone. First of all, I would like to introduce to you the attendees. We have a member of the Board, Global CEO and Representative Executive Officer, Shu Ishibashi; Global CFO and Executive Director, Chief Finance Naoki Hishinuma; Vice President and Senior Officer responsible for Public Relations, Yoshika Yoshida. These three people will be attending this session. I would like to first have our global CEO Mr. Shu Ishibashi, to talk about the summary of the financial results for third quarter 2023 and the fiscal 2023 guidance.

Shu Ishibashi: Good afternoon, everyone. I am Shu Ishibashi, Global CEO. On the occasion of the financial results for the third quarter, I will first explain the direction for the summary of the last year of the '21 midterm business plan. In the 21 MBP, the main follow [ph] of management is aiming to evolve to a strong Bridgestone capable of adapting to changes with rebuilding earning power as the main objective. We are reinforcing our premium business strategy, advancing expense and cost structure reforms and steadily executing plans, including the restructuring of our manufacturing footprint. Especially in 2023, amidst the deterioration of the business environment, mainly in North America and Europe, we will focus more thoroughly on premium products to challenge the continuous improvement of business quality. On the other hand, deterioration of the business environment exposed issues that we have not been able to address to become strong Bridgestone in '21 MRP. This includes a weak business foundation in channel infrastructure in European business. We will squarely face these issues and establish details of the '24 midterm business plan with passion for excellence. As our management stands in placing respect for being on-site, Genbutsu-Genba and improvement of working is quality of the core, quantifying our achievement as well as issues and by making sure to apply the PDCA cycle we will build a 24 MBP focusing on execution and delivering results, that includes the second stage of restructuring to rebuild foundation mainly in Europe, along with another level of premium focus. Regarding recent results, the business environment was more challenging than we had anticipated due to the delayed recovery of demand for truck and bus tires in North America and Europe which you had reported as a concern in August and the slowdown of recovery as well as extended economic slowdown in Europe. I will now explain the key factors affecting the demand for replacement tires in North America, U.S., and Europe. Overall passenger car tire demand in North America is on a recovery trend and is expected to be on par with the previous year's level for the full year. On the other hand, in Europe, where sellout recovery is slow and distribution inventories are still at high level now. We expect the annual demand to remain at approximately 90% of the previous year's level. Relatively resilient high rim diameter tires, HRD tires demand is expected to increase year-on-year in North America. Demand in Europe is ever expected to be severe down from the previous year and below the August forecast. The most notable deterioration in business environment is in truck and bus tires. Although sellout in North America is on the recovery trend, and the recovery has slowed over the year. However, distribution inventory level also remained at high at the end of the third year, and selling demand is expected to be about 90% of the previous year's level. In Europe, the environment is even more difficult and severe with sell-outs, not recovering over the year and distribution inventories a lower level than usual as dealers tend to reduce inventories, reflecting the economic slowdown. Reflecting these factors, selling demand had fallen sharply to approximately 80% of the previous year's level and below the August assumptions. In such a difficult and challenging environment, our focus on previous tires -- premium tires for passenger cars is supporting the group's performance. We expect unit and mix of high rim diameter tires, HRD tires sales to increase year-on-year and we will make sure to capture the replacement tire demand from the original equipment market, which will lead to growth in the 2024 and beyond. In the truck and tire -- bus tire business, which are facing a challenging environment, we expect to increase our share of the premium tire market, Retread market share and unit sales in North America, although the unit sales will be down for the year based on a strong business foundation. In Japan, we will continue to create demand for Retreads as a market leader and expect to increase our market share and sales volume. We will link the stressing of the TV business to the expansion of solutions and the establishment of a foundation for the mobility tech business in 24 MBP. In the mining tire business, we expect to increase unit sales and market shares of ultra large and large of the road tire centered on Dan-Totsu products as they are expected to support our performance under the severe business environment. We will also build a foundation to enhance Mining Solutions business. I will now explain our recent business performance, reflecting the premium focus described so far. Revenue increased year-on-year, partly due to a tailwind from foreign exchange rates. Adjusted operating profit also increased year-on-year, including the impact of foreign exchange. Higher raw material prices, energy costs and labor costs due to inflation were offset by improvement in selling prices and sales mix while thorough expense management and productivity improvement initiatives secured revenue and profit. However, the profit margin fell one step short of the previous years level, and we do recognize the urgent need to further improve the quality. CEO -- CFO will explain the details of the financial results later in this session. There is no change in the fiscal 2023 guidance and shareholders' return from the figures announced in February. In the final year of the '21 midterm business plan, we will continue to strive to optimize the balance between premium tire sales volume, improved prices and sales mix and to get as close as possible to a strong Bridgestone capable of adapting to changes while laying the foundation for the growth in the 24th midterm business plan. We do look forward to your continued understanding and support and thank you very much for your attention.

Unidentified Company Representative: Thank you, Mr. Shuichi Ishibashi. This was a presentation on the direction of the summary of the last year of the 21 MBP and management issues for the 24 MPB. Now we are going to ask [indiscernible] CFO and Executive Director, and Chief Finance, Naoki Hishinuma. Mr. Hishinuma would explain about the financial results for third quarter of fiscal 2023.

Naoki Hishinuma: Good afternoon, ladies and gentlemen. My name is Hishinuma, I'm Global CFO and Executive Director of Global Finance. And I would like to explain about the third quarter consolidated financial results and fiscal 2023 annual forecast. This is today's agenda. I shall give supplementary explanation of some of the financial aspects and give you a breakdown of some of the numbers. Starting with the consolidated financial results up to the third quarter of fiscal 2023. This is a consolidated result for 9 months ended September 30, 2023. On this page, I would like to focus my attention on profit attributable to owners of parent. So over the previous year, revenue as well as adjusted operating profit has increased in the previous year in the adjustment item, there was impairment loss of the business asset from Russia as well as loss from recall expenses of Bridgestone cycle and the loss was accounted for whereas this year, proceeds from the sale of [land] was accounted for and the quarterly profit ended at JPY 266.7 billion, 41% increase over the previous year. Going on to the overview of the performance for 9 months ended September 30, and I would like to focus my attention on the overview of the performance by product. For tires of passenger cars and [night] trucks, although there is a regional difference the auto production situation continued to improve in OEMs. And overall, there was an increase in sales. And for the replacement tires because of the economic slowdown, over the previous year, there was a drop in sales. But for the replacement tires, relatively speaking, it was quite robust in Japan. There was this last minute advanced demand before the increase of the prices of the winter tires last year. So the third quarter has seen a graph over the previous year. In tires for bus and trucks is -- for buses and trucks, there was an improvement trend that was observed in the third quarter and beyond for replacement tires in the United States and Europe, the reduction in sales continued over the previous year, especially there was a sales reduction in Europe of tires for mining vehicles saw a growth as a result of the solid demand for [Migros]. Now moving on to the business environment surrounding Bridgestone Group. As for currency exchange, Japanese yen depreciated against both U.S. dollar and euro over the period this year. For the raw materials, while the feedstock prices of raw materials continues to fall due to the spike of energy, labor and other costs of raw material suppliers, the purchase cost raw materials increase. Turning to tire demand for OE tires, although there were differences by region, tire demand continued to recover and the production of the OEMs recovered by improvement of semiconductor shortage. For replacement tires, the tire demand for both PSR and TBR has declined due to global economic slowdown especially, as announced in August, the concerns for business environment had become apparent as recovery for TB tires in the United States and Europe has slowed down. However, for the 18 inches or above tires, there was a relatively resilient demand. Now turning to the tire sales unit growth for the 9 months. And for the tires, for passengers, cars and light trucks, and tires for truck and buses because of the economic slowdown, there was a sales reduction on a global basis over the previous year. For OE tires there are regional differences, but because of the production recovery of car OEMs together with the improvement of semiconductor supply, the tire sales has shown a recovery trend for replacement tires, there was a major reduction in sales because of the prolonged sluggish economy in Europe. For mineral tires and construction tires, the ultra-large tires saw an increase of 103% and large tires 106%. So there was a growth in sales. In the fema region, there is a focus -- continued focus placed on the tires in the premium area. Adjusted operating profit for the 9 months grew by JPY 20.1 billion. There were increases in raw material input costs, not to mention inflationary trend of energy and labor costs. So these negatives were offset by the improvement of selling prices and the sales mix. There was dip in sales volume, owing to the lower demand, the tailwind grew on the FX front, so increase in operating profit. By segment, in Japan and in China, Asia and Pacific increased in both in revenue and adjusted offering -- adjusted operating profit. However, in other segments, the growth in revenue, but the decline and adjusted operating profit. Japan as a region. The increase in the sales of mining tire reflecting the robust growth as well as in general tire export business with better profitability, yen depreciation tailwind. This saw the year and here a significant improvement in profitability. Next, moving on to update to the performance in the by product. For passenger car, light truck tires, the -- both on revenue and adjusted profit. However, the lower sales volume and in the margin erosion and the composition changes between the OE and replacement segment of business, bringing down the profitability and the margin was down by 0.7 percentage points. Truck and bus tires, particularly in U.S. and Europe, replacement in tires sales decreased whose impact was rather large. This will drop both on revenue and operating profit margin eroded by 0.8 percentage points. Specialty tires, the highly profitable mining tires continue to sell well, FX tailwind. So up in revenue and up in operating profit and margin improvement as well, and diversified on the products and continuing on the trend of increase in revenue and profit, margin improvement by 1.1 percentage points. Details to follow. The breakdown of the diversified business on the continuing operations basis, continuing to post positive profit, the better erosion margin. And therefore, the -- in the chemical and industrial Honda products business such as with hydraulic hoses backed by continuously favorable on the situation per revenue and operating profit, the margin improved. This continuation of good trend. For sports and cycle business. Whereas this business took charges for safety inspection in the prior year. It came out of it this, though the revenue decreased, profit improved. And for the diversified products business in the Americas due to the improvement in selling prices, the improvement from the final quarter prior year. Balance and cash flow, total assets was JPY 5,518 trillion, backed by yen depreciation, this -- the line item grew. The equity ratio grew 1.8 percentage points from the end of the prior year to get to 61.6%. Financial [indiscernible] was confirmed. Free cash flow, they saw it a positive of the JPY 224.8 billion, including the increase in quarterly profit, also the compression of the working capital and others. And this sort of free cash flow improved significantly. I would like to end with the fiscal 2023 guidance now. As explained before, fiscal 2023 guidance sees no changes from the February guidance, the bid, therefore, the overall performance of the dividend and the forecast. But assumptions to be confirmed business environment. On a full year basis, currency exchange, JPY 130 to a dollar and 150 per euro. Raw material costs, fee administered cost, they are continuously softening. However, with energy costs and labor cost, the continuous increases at raw material supply use. It is going to be the pushdown factor for our profitability. Tire demand is more or less the same as on the level of the February announcement. Replacement tire demand and the outlook at the end of the fiscal year, we still believe that demand recovery will continue, though at a slower pace than in August. So on a full year basis, it is going to be lower than the February planned or in the prior year. On the other hand, passenger car high-rim-diameter as well as mining tire demand will be relatively strong. So as you can see, more than down heading the August environment that the business environment severity has grown. So what are we going to do? For sales we are going to focus more on the premium areas. The increase in premium tire sales volume at the same time to reduce loss-making unprofitable in the business. North America and the strategic price management will continue on this so that we can anticipate a significant improvement. Strategic, the investments for the future will continue. But at the same time, the thorough cost management need to persist, so the OpEx ratio is going to be more or less the same as in the prior year. Dividend, no changes there are from the beginning of the fiscal year. So as you can see, our outlook to the end of the fiscal period for business environment is severe, right? But all the more to evolve they become a strong Bridgestone capable of adapting should change so that we can lay the foundation of growth and therefore the 24 MBP. Thank you very much.

Unidentified Company Representative: Thank you. This was -- that was the presentation by Mr. Hishinuma, our CFO, on the mid quarter and the financial presentation. Let us move on now. Now we would like to start the midterm business plan covering 2024 to 2026 its planning process Update 3. I would like to again introduce to you the attendees today. We have Mr. Shu Ishibashi, the Global CEO and Representative Executive Officer; Naoki Hishinuma, Global CFO and Executive Director, Chief Finance; Yoshika Yoshida, Vice President and Senior Officer responsible for Public Relations. These three will participate in this session. Now I would like to invite Mr. Shu Ishibashi, the Global CEO and Representative Executive Officer to talk to us about the midterm business plan '24 to '26 and its planning process updates 3.

Shu Ishibashi: Hello again, this is Shu Ishibashi, I am the Global CEO. In this session, I will provide an update for the planning process on the midterm business plan between '24 and '26. We established a basic business scenario based on the determination of management issues on one by one and the clarification of what to do and what not to do, which we explained at the previous update last August. We have 3 points for a strategic direction from mid- and long-term point of view, with 2030 long-term strategic aspiration as a north star. The first point is reinforcing earning power. First of all, we assume the tailwinds in demand increase in passenger car, HRD tires and off-the-road tires for mining vehicles, will be continued in the '24 MBP period but can be reduced after 2030. We will make the most of the tailwind in the period of '24 MBP. While in business environment of 2023, even in new tires for truck and bus, where we are facing headwinds, we will stand firm in North America and Japan to build a future mobility tech business. Moreover, we will completely focus on the premium tire business in the solutions business, which creates new premium. As a core of it, we will take on the challenge to create value and gain competitive advantages through the fusion of ENLITEN and BCMA. The second point is brush up of a solid business foundation to overcome or withstand the decrease in tailwinds after 2030. We will persistently pursue operational excellence and always aim for the improvement of working and business quality, respecting being on site. The third is to expand and reinforce reinvestment of earned resources to build business foundation for solid Bridgestone premium tire and premium plant as well as sustainable business in the solutions and mobility tech business in order to build new business stage towards are 100 anniversary of the founding in 2031. On the other hand, as for 2024, which is the first year of 24 MBP, we expect a challenging business environment to continue on from 2023. We executed a business decision considering economic slowdown, cost increase related to energy, labor and sustainability as well as for demand where challenging condition is expected to continue throughout 2024 mainly in North America and Europe. In 2024, we will prioritize reinforcing business quality, staying attentive and lean in the challenging business environment. As one initiative of that, we plan the second stage of restructuring and rebuilding mainly in Europe where we have weak business foundation. As for the strategic resources injection in 2024, we will limit it to a certain extent and executed only for a thoroughly selected items. However, throughout 24MBP, as a whole, we will continue to expand and reinforce strategic resources injection for the next stage. So here is the overall picture of the basic scenario or basic business scenario based on the business environment

A - Unidentified Company Representative: So thank you. There was a midterm business plan branding the process update #3 presented Mr. Shu Ishibashi, the Global CEO and Representative Executive Officer. Let us get into the Q&A. [Operator Instructions]. So let us get started with Mr. Sakamaki from Daiwa Securities.

Shiro Sakamaki: I am Sakamaki of Daiwa. Can you hear me? I would like to ask the first question. which is the results for this year as well as the results and the expectation for the next year. And I believe that the situation has changed a little bit to a more challenging situation. This year's results, I think, has been contributed by the foreign exchange. And therefore, maybe you are a little more sure of this year's results. But for the next year, why is it that your view is even more severe. According to the presentation material, PSR and the higher rim diameter seems to be improving, but PVR seems to be a drag on you. Is there a sign of bottoming out of the situation? Do you think the next term will continue to be of concern? I would like to confirm that aspect. So that is my first question.

Shu Ishibashi: According to the result for the '23, I had already explained, and there were many headwinds, especially for the truck and bus tires. For these our expectation was somewhat too soft. So -- and for the passenger tires, it is improving little by little. For Americas or North America, it is improving. But in Europe, the situation continues to be very difficult. For the high rim diameter, there is growth. And by that, we are able to possibly reach the value that we presented in February. The drop in Europe is extremely severe and difficult. Here, for the passenger tires, and we also talk about the truck and buses. The truck tire business in Europe is in the deficit very, very difficult. Because of the drop in this volume, the cost has increased. And for Europe, the retail network exists, but that's not strong and as a result, we face a lot of difficulty there as well. For Retread, unlike situation in the United States, it is very challenges. There are strong retailers in U.S., but the Retreads in Europe is very difficult. Under those circumstances, truck tires, the new tires and Retreads, these mixes had all faced difficulty and challenges in Europe, and that is the situation this year. In short term, it seems to expect a turnaround we need to follow what we can do next year, and we are now discussing what we can do and where we can focus. We do need to pursue what we decide. But the demand as a whole is that we had a very soft forecast. And I think we do need to sort of focused approach and sharpen-up approach. For next year, high rim diameter will be emphasized, and we will continue to grow them. And there is no actual concern for those tires. We will grow further the HRD and ENLITEN will be deployed even wider. And in terms of the cost, BCMA will be more concrete starting from the pilot plant. And within this combination of initiatives, I believe that we will be able to steadily improve. But Europe and American TB is something that is difficult ones to deal with. I will not talk about the competitors. But for the consumer goods, those that are specialized in those, the damage is weaker, less American TB has -- is resulting in a major damage for the manufacturers who actually focus on those areas. The product mix or the strengths and the weakness there of are now becoming more apparent. And next year, I believe that we do need to work harder for Europe and American TB. Present we cannot say that we will see a major growth in those areas. Therefore, as I have been telling you, at the outset, we want to, in the future, have a solid mobility tech business, and we are now sowing a good seed. So this has to be maintained, which means that even by compromising volume, we have to maintain a solid foundation. And so we have to make sure that we can go forward with a solid foundation to grow the future business, and we have to make this strategic investment for growth in 2024. So in 2023, we had this 21MBP strategic resource investment plan, and this is to be doubled. That was our original plan, but we are now compressing this level. But overall, we are trying to expand the overall investment level. So compared to this 24MBP. Of course, the strategic resource investment would have to expand. But because of this challenging environment, we are trying to make sure that we would not make any waste in what we do. Therefore, while we try to minimize the resource that is utilizing we are carefully looking at the surrounding environment. And if there is any change, we are going to switch gears. From the beginning of this year, we were doing business based on the optimistic forecast. And so the production level keeps going up, then the manufacturers inventory level kept going up. But with the rising manufacturers inventory level, we have to now reduce the production level, which means that the conversion cost will further deteriorate, but we have to continue this. and we have to build up the manufacturing inventory. In parallel to that, we have to achieve the original budget for fiscal year '23 and grow in fiscal year '24. So we're not pessimistic at all. Because I think it's quite evident that the areas that we are strong at are growing, but we have to really streamline what we invest in and whatnot.

Shiro Sakamaki: Now one other question in this reorganization Stage 2 centering around Europe and BCMA effectiveness is now in the second step, and it seems that West is going to be better and improving. So in this overall reorganization and restructuring picture, what is your focus?

Shu Ishibashi: From 2020 to 2021, the reorganization was mainly on the production sites. Tire production plants and also internal manufacturing plants were really streamlined and reorganized as a result of product diversification. And of course, part of the production sites remain without thorough reorganization, but we would complete that. When it comes to Europe, this plant, Bethune has been closed. And so what we are thinking in Europe right now is the retail network and Retread. So sales and retail would have to be reorganized. That is our current focus. So in terms of the magnitude of reorganization, it is not on par with what we did in 2020 and 2021 and but we want to implement a solid restructuring plan. Thank you very much indeed.

Unidentified Company Representative: Now going on to the next question. Mr. Kakiuchi you're the next from Morgan Stanley Securities.

Shinji Kakiuchi: Question number one. severity in Europe, I would like to pursue a bit rather you were already starting to have a rather disciplined view towards Europe last time and [indiscernible] today, I understand the macroeconomic deterioration of the resin. But aside from that, what about customers in Europe? Maybe their behavior is changing in terms of how long they would keep the same tires or your competitors' business models, maybe that they're changing, perhaps, it's hard for me to expect that. But since the severity seems to be persisting for such a long period of time, which is, for the first time, in my understanding, would you please share further insights with you with you -- us.

Shu Ishibashi: Okay. So for each and every line of business we are having difficulties. But Historically, Bridgestone has had rather the less reliable on business foundation in Europe than in other regions. So about 1% of the margin, that's what that we were persisting with back in the -- in 2010. And then that really we continued with that. And then came on the reorganization of the Bethune plant and to roll out the newer and "better products" and also the industry-wide the movement to hike prices. So that we are now up to 3% or 4% the margin profitability level. But that is where we are staying. We can not [going to] break through the break above that. So the business environment is tough in Europe indeed. The meaning from that -- was we knew that we were rather on the feeble and less resilient in Europe. That starts to unhurt us even more than in other regions such as North America or in Asia, we do have on the strong standings. Our network available in Europe is less reliable, loosing in the network. And so again, differences between Europe business and the businesses in North America and Asia, so I'm talking about the foundation of business. We need a strong enough foundation of business. And that is less of the focus when the conditions are quite favorable throughout under the market or the industry. But as the industry becomes more and more volatile, then the difference in the degree of the reliable -- the strength of the management and the foundation is the more visible. So the U.S. -- the competitor starting with the alphabet -- the symbol C that one is also starting to feel debt and us too, and it isn't different from what local parties are able to exhibit to be there the strength sort of franchise or the business foundation. So we need to change for the future. So what to do, how to do. And I need to make sure that everyone is convinced that we move forward in the direction, and I tend to be positive in terms of the outlook for the future. but that's my view on Europe and the challenge that we are facing today. So I know that I'm not answering your question straightforwardly, but to an extent, I do accept our business foundations is relatively weak in Europe. No particular aspects or nothing in particular but relative -- collectively relative to some others ours is not as reliable. So that's something that we would like to do in the next MBP period, have many thoughts in my mind.

Shinji Kakiuchi: After all, you have overcome various periods of the critical challenges that will come out to be stronger. My question #2 has to do with the United States. UAW, the strike is the most visible one. And in your -- the situation, I understand the revision led to the agreement that has been reached already. But this is not going to be the very end of it in your future operations. So I wonder what you think about North America going forward. because in the past, from the United States of America, you may have shifted the footprints into Mexico or to Canada. What about in the future, you talked about East versus West. The U.S. is in the West. Do you think that this further room and expectation didn't -- to overturn the situations?

Shu Ishibashi: Well, Joliette is the plant based in Canada. And it is in the Quebec, in different speaking, area of the country of Canada and Union Labor, Union Management relationship always has been rather tough throughout our history of operations. And as I look back, my reading is that so long as the work environment becomes better for the planned workers. Then there's not something that union members would resist. So that's what we need. And before the UAW issue, URW and that matter was settled even before with rather sizable on the wage increase was agreed to by the company. And so all across in North America it's not only the Bridgestone, but mid-wage costs and the labor charges will become bigger and the local production ratio, the due percentage should be preserved. And whether it is regarding the lock on the production ratio need to improve that further towards the better efficiency or the higher productivity. So that's North America still. Europe, I went to visit Burgos plant 2 weeks ago, that's in Europe. And what they had already started was on the various efforts to improve the productivity or the efficiency, so the fellows at Burgos, we're inviting the [indiscernible] from outside of their plants, so that they can benefit from the ideas coming from the outside of their own plant. So that's Europe. Japan and Nong Khai in Thailand, if we refer to the Gentang because these plants are already productive to begin with, the further room for improvement is more limited. But because the productivity level is very high in Japan and also in Nong Khai the upstream opportunities as well as the downstream the opportunities for improvement are starting to be focused on. So as we become much broader in perspective, more opportunities. Going to our Tochigi plant, their operation is quite disciplined, but down to the material level. There -- even in Tochigi there is room for further improvement because it is the collective the accuracy and the productivity in that plant. So the Tochigi being a factory and they need a lot of different materials. So in order to be truly successful with the concept of BCMA each and distinct on the discrete and materials would have to be focused on. That's not something that we had to dictate or instruct the Tochigi plant to focus on. They volunteer, they initiated those activities themselves, which is very heartening to us. So I talked about the primary benefit. The secondary benefit expectable from BCMA. But as we get to the secondary on the benefits level, I would have very high expectation from the those plants in North America and Japan. Europe, before speaking about a second benefit is the primary benefit level of the challenges. So for the time being, was more challenging to produce be it needed passengers for use, the mining tires or the specialty tires on aircraft. It's the same. We will continue to have to produce those units in Japan. So BCMA to be included in the 24MBP. That is limited at the secondary and the benefit, and I'm not going to well from any further on that. But in the much deeper way, on your much more fundamental way, I tend to think that this BCMA will bring about less of benefits. So just inform how [indiscernible] is reacting, I'm very encouraged.

Unidentified Company Representative: So there is the first and the second primary and the secondary impact, and then there are other side impacts. Thank you very much, Mr. Kakiuchi. Now from Mizuho Securities, I would like to ask Mr. Sakaguchi.

Tairiku Sakaguchi: Thank you. I'm Sakaguchi. I have two questions. The first is according to -- regarding the TB in the United States. It may be difficult to expect a very quick return to a better situation. But regarding the present inventory manufacturers and the dealers' inventory, how has it changed since the end of June from the present situation, if you try to reduce the inventory, how much do you need -- time do you need to come to a better situation? Regarding the manufacturers and the dealers inventory, can you describe how you will reach that in both separately? Do you have some numbers on the manufacturers inventory?

Shu Ishibashi: Basically, in case of North America, this year, we had a very high expectation for sales. So production kept at a high level because of the high expectations of sales. And as a result, there is a large amount of manufacturers' inventory. From the standpoint of demand since it is declining, there are increase in the dealer inventory manufacturers and the dealers inventory had both increased in summer. As for the manufacturers inventory, we are now carrying out production adjustment, not only in North America, but Japan and Asian countries, which are exporting to the United States or North America is doing that. So manufacturing is facing a rather difficult situation. But this is something that we need to do, and we do need to reduce the production level and carrying out adjustment. So adjustment for the manufacturers' inventory will be completed this year, and we will start fresh next year. As for the dealers' inventory, this will depend very much on the actual demand in the market. I do talk about this each time, but we are hoping that there will be some improvement recovery. But for the time being, I think that there is a high level of distribution inventory for passenger cars, it has declined. But for the commercial, it is still very high. I think that by the end of the year, I am hopeful that we will be able to be clear of this dealer's inventory, but that may not be so easy. It is not that I have specific data based on that. But when I look at the movement of goods, I don't really see much prospect for a sudden improvement. In that sense, I believe that we need to sort of have a better control or tighter control.

Tairiku Sakaguchi: My second question is regarding the strength. Regarding the specialties. In the third quarter is July to September, 23.7% of the operated operating profit margin. Compared to the second quarter, the sales declined somewhat, but the margin has improved. Maybe there is an improvement of the price improvement or the MasterCore impact. In the third quarter, what is the background leading to the improvement? And for this area, I believe that Mr. Hibachi talked about the fact that you expect this to be a strong area next year. Is the room for one step upward improvement or you are going to be maintaining what you have now, but you will increase the top line. Therefore, you will have an overall improvement in growth in the business results.

Shu Ishibashi: Concerning the specialties, as you mentioned, there is improved profitability overall and maybe there is some impact of the exchange rate. And as a result, profitability has improved. The aircraft, which is included in these specialties, there is a recovery of demand. For that, there is growth in the sales. So that has also had a positive impact. And in addition, MC motorcycles, for this as well, we are now in the stage of improved profit. So this has combined to lead to the situation that you see now. As I mentioned now, in case of ORR, we have had a lot of activities to actually have the customers understand the value on site. During the last week or so, Rio Tinto and others, I've met with the top of the BHP as well. And as I mentioned earlier, what they have the issues with, they need to improve their productivity. And for that and Brazilian [bale] as well. The desire is very strong. So we are working together with them. Therefore, price increase to customers who recognize our value has been realized in tires for mining vehicles and this is a positive factor. And naturally, we can secure sales volume. But in terms of volume, ultra large or large tires are now up to its full capacity and production and so we cannot increase the supply. So with full production capacity to sell larger volume means that we have to change the way we hold inventories in Japan, Australia, Chile, how we can control effectively the local inventory. This is going -- this was an initiative that we have implemented this year. And I think the result of the inventory is improving. But in terms of the sales volume, especially for the ultra large and large tires. Of course, there is with special promotion push up the sales volume. But we have to, first of all, have our customers recognize the value of our tires and then increase the volume at the next stage. So in order to improve the value of the MasterCore, we want to introduce new technologies. So improve the value of the tires, the -- each of the tires so that the overall business situation would improve. And that is what we mean by amplifying the value of the Dan-Totsu product. And the ORR solution durability solution included, would have to go up to the next dimension, the next level. That is a scenario that we are formulating. Now AC aircraft tires, used to have a very challenging surrounding environment. But recently, the operational rate of aircraft are certainly going up the demand for aircraft tires naturally goes up, and this is contributing to our bottom line. Until last year, we wanted to make the aircraft tire business profitable. It was in the red. But right now, it is, of course, contributed to the bottom line. Tires for motorcycles. It's in a similar situation. It's one of the premium strategy. And the last 750cc or over motorcycles are the area that we offer premium tires and the demand is high and the Japanese OEMs. Of this top ranking status or premium attached. And so this is called the premium niche area and this is a very solid business. Well, we enjoy doing business in this premium niche business. In that regard, even in a difficult business environment, relatively speaking, I believe this situation is quite resilient. Thank you very much.

Unidentified Company Representative: Mr. Sakaguchi. Thank you for your questions. Now, moving on to Mr. Maki of SMBC Nikko Securities.

Kazunori Maki: Thank you Maki from SMBC Nikko Securities. I have also two questions. So we've been talking about this TB business in the United States, TFC, HRD premium area business has then is something that I would like to reconfirm once again. Looking at the situation in the first quarter, it was 13% second quarter a 13% increase in the third quarter, a 5% increase. So the margin of increase is dropping. And in relation to the pricing, probably the growth rate has come to drop. Well, conventionally, it was like 10% growth or 20% growth I think this is a market that allowed double-digit growth. And so I'd like to confirm that this basic story line can be maintained or next year, I believe you are trying to make a major recovery in this area. So HRD, especially the strength in the U.S. market is what I would like to confirm.

Shu Ishibashi: HRD in the United States is relatively good. Out of this total of 100, HR demand is growing. And I don't think the structure would change. Therefore, high-rimmed diameter. Well it was, first of all, OE went ahead. And for the higher end diameter tire business, this is the U.S. and also the European tire rim diameter. And so for the new OE fit, the rim diameter is rising, and there is this replacement demand for that as well. So this growth would continue for sure. But looking at the overall aggregate demand, it also depends on the driving distance, how the car had drive the mileage but it's going to basically increase in demand for the high-end diameter tires, and it would get started from the OE equipment and then going on to replacement. But according to my estimate, in the 2020s, I think this situation would continue. And it would only slow down from around 2030 with the increase of new cars rising, replacement is would, of course, change in a 3- to 4-year cycle. That's the cycle of replacement. And in the initial replacement buying a major brand for high rim diameter tire. And in the second round, the replacement, it may go in part to the second brand. And then the third round of replacement, I think it's quite normal to shift to the second brand. So that is a factor for a slowdown. Okay. So there are so many different models of EVs and the big cars. The first round replacement still going to the major branded tires. In the second round, you have [indiscernible] years, with some encroachment by the second brand. And it isn't going to go away from the major branded tires by the time the driver replaces the tires for a third time. We should be aware of that.

Kazunori Maki: Yes, so I've noticed that things are changing. In the premium zone, you are quite competitive and you have a well balanced in the portfolio already. And in terms of the pricing, you have been able to hold on to that pricing wise.

Shu Ishibashi: Correct because the wholesale price as well as the retail price, we have been monitoring the price conditions quite closely. In the United States, for the ENLITEN the new products, the Turanza and EV, the 5 percentage point higher in the pricing. We do have examples where we are more or less speaking, comparable in the North American market. vis-a-vis that French company going to Europe, there is the difference which works against us. But we would like to wish to ENLITEN the brand they move up quite higher in the price point even in Europe. Thank you.

Kazunori Maki: So you had the subject of my second question, which is ENLITEN Page #12, 10% this year and mid next year. This sort of portion occupied by ENLITEN will become the bigger and bigger as years go by. As that happens, the profit mix this should go up as well. Is that correct? Because HLP has been driving the improvement of the profitability. But now going to the ENLITEN I suppose that due the increase in profitability will be necessary to the penetration of the enlightens against the total would be necessary to cover the cost incurred in the making production, manufacturing of this ENLITEN tires. So I would like to think about the possible the profit contribution coming from further penetrated ENLITEN fitted vehicles.

Shu Ishibashi: Okay. As we define the 24MBP sort of level of penetration that we can expect or we should expect. That's one key point of the rate to aim for the higher level of the product mix, that is continuously necessary for sure. But that's not only for our company, but for the entire tire industry, and then we have to be mindful of the input costs as well. But something like ENLITEN, which is the new application that we are making for a tire of the future. Turanzo EV 5%, it says. Sustainable materials count is 50%. So the raw material on the cost will become higher. So I would say not 5% as against the total about 10%, this should start should be the starting point. From where we would see the reaction of the market or the customers to see how they would react. So there is some different views as to what will be the starting point. In any case, the approach would be to set the price and the other certain premium level to see the reaction in the market to see how much further that we can go, we can make it. As of 2024, the ENLITEN is going to be still at the initial phase. So the trough year is '25 and '26 we would have the expanded portion occupied by ENLITEN, how much more aggressive we can become -- we should become up, those are the internal debate. So they use, let's say, 25%. This always changed a little bit. In any case, you have the concept of BCMA to under reduce the overall or the cost level further. Not only ENLITEN but also at the same time, the execution of BCMA, so the benefits will accrue from both ends. BCMA is surely it is going to slope up like this, because the more we make efforts surely the benefits that we accromed -- and accrue and will be much bigger. So according to our initial plans, which we have as of today, that is going to be the slope or the curve of the benefit creation. But we have to make sure that customers accept what we advocate -- advocating. So that is the key to success and what we are trying to be the best. So BCMA, once it takes off, it is going to be more certain.

Unidentified Company Representative: Thank you, Mr. Maki. Now we have to close the Q&A at this point in time. I'm sorry, we've run out of time. So with this, we close today's presentation, of midterm business plan and the planning process update round 3. Thank you very much for staying with us for a lengthy period of time. We appreciate your attendance.