Bridgestone Corp Ord

Thank you very much for taking the time to join us today for Bridgestone Corporation's financial results briefing for the first quarter of fiscal 2026. First, I would like to introduce the two attendees. Vice President and Senior Officer, CFO, Naoki Hishinoma. Director of IR and Finance Planning Division, Kazuchika Higuchi. We have two speakers today. Now CFO Hishinuma will present the financial results for the first quarter of FY2026.

I am Hishinuma CFO. I will now explain our consolidated financial results for the first quarter of fiscal year 2026 and our four-year outlook guidance. This is today's agenda. Now, let me begin by explaining the summary of financial results for Q1 and fiscal 2026 four-year guidance. In the first quarter of 2026, our consolidated results achieved record high revenue, and adjusted operating profit, supported by a tailwind from yen depreciation. We will provide further details on our considered results later, but amidst the continuing challenge in business environment, particularly in North America, the expansion of HRD, tire sales, and effects of business rebuilding have contributed to our performance. The capital policy announced in February is being steadily executed as planned. Next, regarding our four-year guidance, there are no changes from what we announced in February. We will provide further details on the fluid situation in the Middle East on the next page. Regarding the impact of U.S. tariffs, there are no significant changes from our February assumptions. While the situation in the Middle East remains fluid, We prioritize two things, safety comes first, and close collaboration with the local partners. The sales from this region account for approximately 1.5% of our consolidated revenue, so the direct impact on our consolidated performance is limited. We do anticipate, however, indirect impacts, including the cost inflation. We estimate the impact of cost inflation on raw materials, conversion cost, and logistics cost due to the rising crude oil prices and energy cost to be approximately 70 million yen for the four-year, assuming that our crude oil prices remain at $90 per barrel throughout the year. We anticipate that the cost increases, including raw material costs, will become apparent from the second quarter onward, but we will strive to minimize the impact by implementing various measures such as business cost reduction and cost optimization. Regarding the impact on production due to the supply chain disruptions, we have no immediate concerns. Although the situation is volatile, we will continue to closely monitor the situation and take appropriate measures. Next, I'd like to talk about the business and financial performance for Q1 of fiscal 2026. For the first quarter of 2026, consolidated results showed net revenue of 1,113.4 billion yen, adjusted operating profit of 122.2 billion yen, and adjusting operating profit margin of 11%. The factors contributing to the year-on-year change in adjusted operating profit will be shared on the next page. Profit attributable to owners of the parent company was 92.1 billion yen. In addition to the increase in adjusted operating profit, the year-on-year increase was due to factors such as expense accounting related to the business rebuilding in the previous fiscal year. Let me now explain the factors contributing to the year-on-year change in adjusted operating profit. In addition to improvements in raw materials and the sales mix due to increased sales of HRD tires, steady progress in global business cost reduction activities and improvements in business structure through the rebuilding efforts have steadily supported the performance, despite the decrease in the sales volume and the impact of U.S. tariffs. Profits increased year on year, even excluding the impact of exchange rates.

Next is results by segment. In the Japan segment, revenue and profit grew year-over-year and margins improved, driven by higher sales of replacement tires and improved price and mix, as well as yen depreciation. In the Asia, Pacific, India, and China segment, sales of passenger and replacement tires remain strong, resulting in a year-over-year increase in revenue. Excluding the impact of one of items that occurred in the previous year, profit also increased year-on-year. In the Americas, revenue increased year-on-year, but profits declined. In North America, although demand slowed down partly due to the cold wave, new replacement tires and a multi-brand strategy contributed to sales exceeding demand for PS, LP, and TB tires. We steadily increased our market share, which supported our performance. In Latin America, despite a continuing challenge in business environment, we maintained our efforts to strengthen business fundamentals in sales, thereby securing black ink. In Europe, Middle East, and Africa, while sales and profits declined in the Middle East due to geopolitical impact in the region, Europe had continued growth in sales of HRD tires, as well as the steady contribution of business rebuilding efforts, resulting in the increase of revenue and profit and a significant earlier improvement in profit margin to 8.3%. Now let me explain our results by product. While sales volume of PS and LT tires declined due to falling demand for replacement tires in North America, we continue to expand sales of HRD tires and increase their share of the product mix This, combined with improved profitability in the retail business, resulted in year-on-year increases in both revenue and profit, with margins showing a slight improvement. Profit for TB tires increased year-on-year, and profitability improved, driven by the effect of business rebuilding in the Americas and Europe, as well as increased profits from the retread business. Regarding specialties, sales of OR tires declined year-on-year due to factors such as lower coal demand in Asia. However, revenue and profit both increased, driven by favorable exchange rates and raw material prices. The segment continues to maintain high profitability above 20% and is contributing to the consolidated results. Diversified products business continued to make steady improvements. Both revenue and profit increased around year, and profit margin also improved. Next, I will explain our performance by business portfolio. Despite challenging conditions, the tire business maintained an adjusted operating margin of just under 13%. The solutions business, which is a growth driver, saw increased revenue and profits along with improved profitability. The retail business also saw increased revenue and profits along with improved profitability, while the commercial B2B solutions also saw improved profitability, achieving a margin of over 13%. Finally, here is the status of our balance sheet and cash flow. Total assets amounted to 5 trillion, 645.8 billion yen, a decrease of 101.9 billion yen from the end of the previous fiscal year. The ratio of cash and cash equivalents to monthly sales stood at 1.7 months, ending 0.2 months lower than at the end of the previous fiscal year, partly due to the use of available liquidity for the repurchase of Treasury stock. We continued thorough lean inventory management for finished products resulting in a year-on-year decrease excluding foreign exchange effects and a slight improvement in the cash conversion cycle. Free cash flow amounted to 108.7 billion yen. This represents an increase of 17.4 billion yen year-on-year driven by an improvement in operating cash flow resulting from higher pre-tax profit and reduction in working capital. Regarding the capital policy announced in February, we are steadily proceeding with both the share buyback and the debt financing. This concludes my presentation. Thank you for your kind attention.

So that was a presentation by Mr. Hishinuma on the financial results for the first quarter of fiscal 2026. Next, we'd like to have a Q&A. Now, from Japan Rubber Weekly, Sasaki-san, please go ahead. From Japan Rubber Weekly, my name is Sasaki. Can you hear me? Yes, we can hear you. Thank you. Thank you, and thank you for the explanation. On slide 10, about the diversity products business, I have a question. In the first quarter, the business has improved. On this slide, you mentioned continued steady improvements, achieving enhanced business fundamentals. As much as possible, if we can elaborate further in more specifics, is that possible? Thank you. For the diverse by-products business, the business environment continues to be quite challenging as we understand. For just the horse and glora businesses, the sales is steadily increasing. And in order, on top of growing the top line on the cost side as well, we are accumulating the steady cost reduction efforts therefore resulting to a significant improvement in the profit margin. Therefore, it's not that there was any special one-off factor here, but rather it was the results of the steady improvements that have been accumulated leading to this level of performance. That's our understanding. Now, the sales volume itself is not increasing. The sales volume itself is also increasing. I understand. Thank you very much.

Thank you, Sasaki-san. Next question is from Takahashi-san from Nikkei. Please go ahead. Thank you for the explanation. My name is Takahashi from Nikkei. Can you hear me all right? Yes, we can. Thank you. I apologize if I have missed it, but Regarding the impact of the Middle East situation, you said that the estimated 70 billion yen. Is it correct that this is not reflected in the guidance for this fiscal year? And if you can provide us with the breakdown of the 70 billion yen, I would appreciate it. Yes, regarding the 70 billion yen, we announced our annual plan in February, and that did not include this impact. This time we are nearly estimating this impact and through various measures we are planning to minimize the impact so that we can achieve the targeted annual performance. And in terms of the breakdown, about 70% is related to raw materials, petrochemical raw materials and synthetic rubber situation. Well, we are experiencing an increase in the prices of rubbers. So that accounts for about 70% of the 70 billion yen and the remaining 30%, out of which 20% is, well, we have global operations and there are transportation freight which is anticipated to rise and in manufacturing, we could experience increase in the utility costs. That accounts for 20%, and the remaining 10% is related to the ocean freight in overseas. That accounts for the remaining 10%. In total, we are estimating the cost impact to be 70 billion yen. I hope I answered your question. Yes, thank you.

Thank you very much, Takashi-san. Next, from Nikkei BP, Tomioka-san, please go ahead. From Nikkei Automotive, my name is Tomioka. Can you hear me? Yes, we can hear you. Thank you. With regards to Honda's review of EV strategy, if you can tell us the impact of that. I think with Zero Series, you are jointly developing the tires with Honda. That's what I'm assuming. So what kind of impact can you potentially see? And do you think you can get compensation from Honda if you can elaborate on those points? I'm sorry. I cannot make a comment on any matters related to individual clients. I have to refrain from answering. But generally speaking, when it comes to EVs, the tires for EVs, it's not going to be dedicated to EVs, but our policy is basically that it can be applied to EVs, not necessarily dedicated. So any issues with EVs, for instance, the wear related or the running distance, by enhancing those performance to be able to address the EV. So that's the basic policy in that sense, the impact of EV specifically, because this performance is common across the general tires. So it's not that it will be directly impacted by any EV-specific factors. That's what I'm understanding. Thank you very much. Did I answer your question? Thank you.

Thank you, Tomioka-san. The next question is from Ota-san from Nikkei. Please go ahead. I am Ota from Nikkei. Can you hear me? Yes, we can. Thank you. Thank you. I also have a question related to the impact of the Middle East situation. it says that growth impact is expected to be around 70 billion yen. And below that, you have described business cost reduction and optimizing costs. But by optimizing costs, are you referring or suggesting price increase? Can you please give us some more color on specific options? Yes. As you just pointed out, regarding the potential price increase, among the measures to minimize this cost impact, it would include passing on the impact to the selling prices. The raw material prices continue to go up and down over many years, but in principle, We have always worked on business cost reduction and price increase and mix improvement in order to minimize any impact. So we will be addressing this expected impact in the same manner. That means price increase will definitely be one of the measures, and we already have been implementing this measure in some of the regions. Specifically, by region, we have different competitive or business landscape. So, by region, by product, by brand, we will be balancing the price and volume in our future decisions. I hope I answered your question. Thank you. I have a follow-up question. Regarding the indirect impact, the second bullet point says impact on production due to supply chain disruptions. And it also says that no concerns so far as it requires cautious monitoring. My understanding is that the closure of the Strait of Hormuz is leading to the slowdown of imports of NASA and oil. But what is the rationale for saying no concerns so far? And do you have any alternative routes? Do you have inventory sufficient? Yes, regarding the procurement of raw materials, our procurement team is taking the initiative to work with suppliers and for individual material having monitoring and exploring the availability. As a result of such monitoring efforts, we learned that for the time being, we would not have a risk of not being able to produce or having to produce in lower volume. Understood. Thank you. Thank you.

Thank you, Ms. Oda. From Nikkan Judo Shashinbun, Nomoto-san, please write. Daily Automotive newspaper. My name is Nomoto. Can you hear me? Yes. Thank you. Related to the last question, so in Japan, in the tire plants, I think the price increase has already started in Japan, and you mentioned earlier that the price to give it to the selling price is one of the measures that you will look into. So, any impact to the domestic tire market that you may have to worry that it may actually slow down the market. So how do you see the balance? Yes, as you pointed out correctly and as I said earlier, rather than just Japan, but by region on a global scale, the competitive landscape is different from region to the other. So as such, we have to see the balance between the prices and the volume. and then consider the specific measures, looking at the balance. Now for the domestic sales, please allow me to refrain from making a comment specifically on Japan. Is that because looking at the competitive environment or looking at the market trend, you would decide? Is that what you mean? Yes, exactly. Thank you.

Thank you. Thank you, Nomoto-san. The next question is from Sushi-san from Rubber Times. My name is Sushi from Rubber Times. Can you hear me all right? Yes, we can. I also have a question related to the Midori situation. Working closely with local partners was one of your priority measures. So after two months, what is the situation so far? What kind of coordination have you realized so far? Is there anything that you can share with us? Yes, regarding the Middle East region, basically we work with local distributors to supply and sell our product. In that regard, together with the local partners, we are continuing to have close coordination so that we do not cause inconveniences to customers. For example, we are changing the port of discharge to avoid the trade of hormones. We are taking responses on a case-by-case basis. Can I assume that tires have been delivered smoothly to customers? Yes. However, as I said, because of the situation in the region, there is a slight impact on the sales. I understand. Thank you.

Thank you very much, Jishan. Now we would like to take questions from the analysts from here on. Due to time constraints, please limit to one question per person, and thank you for your understanding. So if you have any questions, at the bottom of the screen you should see raise hand button. So please click raise hand button, and once your name is called, Please unmute yourself, and if possible, please turn on your camera to show your face and speak up. From Mizuho Securities, Sakaguchi-san, please go ahead. This is Sakaguchi from Mizuho Securities. Thank you very much. And thank you for this opportunity. Thank you. So the four-year guidance... remained unchanged. So on that, I'd like you to elaborate further. Q1, originally, what you were looking internally, the adjusted operating profit, compared to your internal level, was it better or worse? I think there was some ups and downs in the breakdown. So after going through that, the impact from the Middle East, other than the cost inflation, I think it could have an impact on maybe the potential lower volume and other factors as well. So going forward, any potential risks? And considering all those risks at this point in time, by taking meticulous measures, you think that you can still maintain the guidance? Is that the idea behind this? So given the current circumstances, what's the significance of not changing the four-year guidance, if you can elaborate further? Thank you. So on your first point, Q1 against our internal plan to give you the conclusion vis-a-vis the internal plan, actually we're able to achieve higher. Now in terms of different factors, in North America, there was unfavorable winter weather, so the volume was a bit weak. But the positive factors is on the cost and expenses. We had good control of the optics given the challenging environment. There was some time lag, but there was an optics control. And also the raw materials was a little bit better compared to what we had anticipated. And on top of that, for North America, some retailers, were actually stronger than planned. Because of the factors against our internal plan, we were able to actually go a bit higher. Now, we decided to keep the four-year guidance unchanged on that point. As I mentioned earlier, the 70 billion yen So as it has been continuing from the past, the business cost reduction and the supply chain optimization, and on top of that, as I explained earlier, some measures from the sales perspective. By accumulating those different actions and measures, we would like to strive to achieve the plan. That's our basic stance. And the opportunity, so to speak. As the Momentum was quite strong in the first quarter, and for the foreign exchange, I think it will be a tailwind. It could be a tailwind for us as well. So because of that, I would like to stick to the four-year guidance and try to achieve the target. The sales impact as a marketing condition, for instance, the gasoline prices are going up, so maybe people will drive less and the market may slow down because of that. Is there any signs of that, any possibility? So in that sense, as you pointed out correctly, the gasoline prices will increase if that's the case. Then it could impact the demand. That's a possibility. And if the impact lags, then it could have an impact. It could have a potential impact on performance. But at this point in time, we're not seeing any impact pushing down the demand. That's not what we are seeing yet. But again, if I may repeat, if this continues to be a long-term trend, then that could become an impact, so we need to look into that and consider that. Thank you very much, and thank you.

Thank you, Sakaguchi-san. Next question is from Tokai Tokyo Intelligence Lab. Kanai-san, please go ahead. I am Kanai from Tokai Tokyo Intelligence Lab. I have one question regarding the results of the first quarter. On page 11 of the presentation deck, this time profit increase is probably driven by the solutions business. But because of my ignorance, I cannot really align this with the factors of four the operating profit increase and decrease on page eight. So what were the factors and why did not, why did the profit not increase in the tire business? Thank you, Higuchi-san is going to respond. Thank you, Kanae-san, for your question. So first of all, on the page 11 of the deck, The solutions business is being the great profit growth driver, as you rightly suggested. And if you look at the breakdown, we have the OP growth year over year for the retail business. And as Hishnuma explained earlier, especially in North America retail services, we had an increase in the revenue year on year, which contributed to the profit growth. We have been discussing revitalization of Firestone since last year, and I believe that efforts have been making or starting to make contributions gradually. When we look at the current North American market, the number of years one person drives, that is becoming longer as a trend, and for us, we have 2,200 retail outlets in North America where we also sell tires. And there we replace engine oils, brake pads, alignment. We offer diverse services together with the sales of tires. So our efforts to strengthen such services is also contributing to this increase in the profit. And the other chunk is the commercial B2B solutions. on year-on-year basis, the profit increased partly due to the retread business. Well, there are a couple of things I can share, but for example, regarding new fleets, we were able to acquire business opportunities. And last year, we had some one-off costs, which is no longer the case this year. So in the retread business, that is also becoming a driver in the commercial B2B solutions and for the entire solutions business. And to your second question regarding the relations with the increase and decrease in the profit, in authors, service, gross profit, growth is included. And the negative factors are, for example, the impact of U.S. tariffs and losses from unrealized profit. And that is negatively offsetting the profit growth in the retail services business that I just explained. I believe that is making it more confusing. And to a third point, Why is the profit in the tire business not growing? Well, the TV tires, the demand is in a very difficult situation on a year-on-year basis, especially in North America. So we are working on increasing the market share. And it is not that there is something significantly out of expectation, but partly due to the cold wave, the demand recovery is being slow. So we struggled, especially in the TB tire business. That is one of the factors for the decline in the profit. And as a one-off factor, as I have been saying, there was an impact from the cold wave in January and February. There were two significant cold wave impacts in North America. And our factories had to slow down production. So in conversion costs, I believe that was a negative factor. On the other hand, in the entire business, that was one of the negative factors for the profit development. I understand that was very clear. Thank you. Thank you.

Thank you very much, Akane-san. Next, from Morgan Stanley MUSG Securities, Kakeichi-san, please go ahead. Thank you. This is Kakeichi from Morgan Stanley Securities. Thank you. As was mentioned a bit, the sales trend in North America, the market is quite challenging, as you mentioned, but you also mentioned that the passenger and TV, for the replacement, for the entire market, you actually outperformed the market. Your share is increasing for the replacement. So for the passenger and the truck and bus, for both lines, with the Firestone revitalization, being effective. If you can elaborate further and make some additional comments. Was it just coincident the first quarter was good, or do you think it's sustainable? So if you can elaborate further on that. Thank you. Thank you for that question. First of all, for North America passenger, starting with that, as has been mentioned, the multi-brand strategy in the first quarter results for North America, I think that made a contribution on the volume-wise. And the multi-brand strategy with two brands, Bridgestone and Firestone, we have two major brands in North America, and we talked about the share increase. Bridgestone and Firestone, for both brands, were able to achieve the sales that was above the demand for the first quarter. Especially attractive products, it's one of our issues. We're focusing on providing more attractive products. And Bridgestone Brand this year launched a new product, Potenza, this year. And for Firestone, we launched a new product linked to Indy 500 called Firehawk. This is a sort of collaboration. So both for two brands, so we launched a new product, and as a multi-brand strategy, we've been enhancing and strengthening the sales. So gradually, it's starting to have a positive contribution. And if I may add a little bit, what we call HRD, so-called the high rim diameter, more than 18 inches and over, the sales is very solid for the HRD. And in this Hiram diameter area, we're steadily increasing the share. And that's another positive factor on the passenger side. Now for truck and bus, for TB tires, again, for Bridgestone and Firestone brands, we've been able to outperform that demand in terms of the sales volume. That's the first quarter results. Now for TB, both for fleet and dealer, there is a stronger business foundation for retreat, as was mentioned earlier, in the truck and bus business, as a package, not just selling the single part, but to deliver the package with services. It's one of our strengths to be able to deliver the solutions of the package, including the services, despite the challenging demand, we're being quite persistent being able to perform the demand, and that's the result for the first quarter for TB as well. Thank you. Now for the passenger, the lower-end products are trading down, so that's like the market trend, so to speak. But with your measures with attractive products, you'll be able to offset that trend. you've been able to offset that trend and achieve the strong results. Thank you for that point. Again, for North American market, looking at the consumer sentiment, it's still weak. It is still quite stagnant. So the business environment itself, how should I put it, is not necessarily improving, but rather the business environment continues to be quite challenging and tough. And there's a pricing pressure that is continuing. Now, looking at the breakdown of our sales, Bridgestone and Firestone, I already explained, but very limited. But the Associates brand sales was quite challenging for the first quarter. So we cannot be optimistic at all. But the consumer sentiment, looking at the data in the details, for instance, staff who enter the middle income layers, it seems like they have hit the bottom, and we're starting to see some signs of improvement. But overall, it's still at the low level. So given such business environment, we need to strengthen the sales. Thank you very much. I understand you very well.

Thank you. Thank you, Kakiuchi-san. Next question is from Daiwa Securities. Ohashi-san, please go ahead. Thank you. As always, I am Ohashi from Daiwa. So the operating expenses, I do not think that is much of a negative driver for the OP in the first quarter, and I believe there will be more concentration in the second half. So can I assume that this can be used to offset the Middle East situation? And also regarding the business cost down for raw materials, I would appreciate it if you can provide us with a breakdown. And this is a more big question, but because this is Q1, given the Middle East, situation um did you not decide to revise the plan or do you think that there is a high probability of being able to offset the negative factors yes thank you for your question i believe um that contained a couple of questions so i would like to answer them one by one first of all regarding the um opex in our annual plan presented in February, there isn't much buffer, but this is just an accumulation of different numbers. And I'm repeating myself, but as the breakdown of 70 billion, 70 billion, 20% is due to the increase in the variable cost, and 30% is related to the strategic growth resources for the future. We will be strengthening grants. that is what we would like to use the money for, and the remaining 50%. Well, we had a gain on sale of assets from last year, but that does not exist this year, so that is becoming the negative factor. That is a rough breakdown of the 70 billion yen. In Q1, profit grew on YOY, and the OPEX is not increasing much. And this is much impacted by the timing difference from Q1 to Q2 and beyond. This includes things to be used from Q2 and beyond. So there is much uncertainty regarding the Middle East situation, but basically we are planning to use these strategic resources to succeed for the future. But in order to secure the bottom line, well, we haven't made any decision, but depending on the situation, we will be deciding the right timing to take necessary actions. I believe that is the answer to the question regarding operating expenses. I hope I answered your question. Yes, that was very clear. Thank you. And to your second question regarding the raw materials, So the breakdown of this OP increase was the question? Well, it was regarding the conversion costs. It includes return from business rebuilding and business cost reduction. And the business cost reduction is also included on the raw material. So how are they distributed between these two? If you have any breakdown, I would appreciate it. That was my question. Okay, thank you. In that sense, So business cost reduction in Q1 in total, the impact was about 12 billion yen positive. That is the amount of cost reduction we were able to make. And the breakdown is raw materials were 4 billion approximately, and conversion costs were 6 billion, and the remainder was operating expenses and et cetera. business cost down is making a certain contribution to these three items. Thank you. And the reason why we did not make dollar revision of the guidance? Yes. And what is the probability of being able to achieve the plan? Thank you for clarifying the question. So 70 billion yen. is the estimated cost impact. And as an assumption, WTI $90 per barrel is assumed to continue until the end of the year. So I hope you can understand that this amount is based on such assumptions. And we will be working to minimize this impact for business cost reduction and utilization of global supply chain for the sake of cost optimization. And we will be strengthening sales initiatives, including price increases. We will be accumulating such various actions so that we can achieve 515 billion yen as publicly disclosed. That is the reason why we did not make downward revision. So we are setting certain assumptions to estimate the impact, but within this certain range, we do have a visibility to minimizing the impact. So we decided not to make downward revision. That was very clear. Thank you.

Thank you, Mr. Hashif. So the time has come, so I'd like to finish the Q&A session. So with this, we would like to conclude the briefing for financial results for the first quarter of fiscal 2026 of Regents to Incorporation.