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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Hello, everyone. I am Shuichi Ishibashi, Global CEO. I would like to give you a summary of the financial results for the third quarter and fiscal 2022 guidance as well as a progress update on our midterm business plan.
First, the results for the third quarter. Regarding revenue, including impacts from currency exchange and the weak yen, we achieved a significant increase, 128% versus the previous year, reaching almost JPY 3,000 billion. There have been irregular negative factors related to the Russia business, the effects of COVID-19 in China and cyber incident in our U.S. subsidiary.
Amidst such circumstances, we executed flexible and agile supply management, leveraging our global manufacturing footprint, which is our strength and minimized impact on results. Entering the third quarter, strong headwinds in the new business environment began to flow, such as the recession in Europe and uncertainty about the U.S. economy.
In order to counter these headwinds, we reinforced our premium business strategy, and executed sales and market share expansion of high rim diameter tires for passenger cars and tires for mining vehicles. On the other hand, regarding truck and bus tires, we were unable to achieve significant growth versus the previous year due to supply constraints in the U.S.
For adjusted operating profit, we achieved an increase versus the previous year, but fell one step short in terms of margin on a continuing operation basis. In addition to the counter measures to respond to negative factors explained in the previous slide, we solidly executed improvement of our sales mix. We covered most negative impacts from raw material increase and inflation of energy costs, et cetera, through strategic price management, including price increase mainly in Europe and the U.S.
Moreover, we achieved solid results, offsetting the rapid decline in profit of global OE tire sales for passenger car tires and truck and bus tires versus previous year, with the sales expansion of replacement tires, or REP tires. We're also continuing manufacturing improvement and expense and cost structure reformation.
Let me talk about the full year guidance for fiscal 2022, reflecting the third quarter results over two pages, one on revenue and the other on profits and management indices. We expect to achieve our first revenue of over JPY 4,000 billion, including currency exchange impact, approximately JPY 800 billion increase in revenue versus the previous year. We will continue our efforts to increase sales volume, market share in premium tires and to improve sales mix.
Regarding revenue for our Solutions Business, we plan to achieve approximately 19% of total revenue in 2022, which is close to our 2023 target of 20%.
Next, regarding adjusted operating profit. We plan to reach JPY 470 billion level, achieving an increase of approximately JPY 76 billion versus the previous year. For margin, we are projecting 11.6%, which is negative 0.5% versus the previous year.
In order to ensure profitability, we will reinforce our focus on premium tires, while continuing to execute strategic price management, including price increase. Also we will continue to ensure lean expense management. We project improved ROIC versus the previous year, the same level as the guidance in August, as we continue to reinforce the building of earning power.
Regarding net profit from continuing operations, we plan increased profit versus the previous year on an operation basis, excluding adjusted items and expense related to the Russia business transfer announced at the end of October.
In terms of the expense related to Russia business transfer, we recorded JPY 21.6 billion of adjusted items for full year 2022. In the fourth quarter, although the business environment remains uncertain, including the recession in Europe, we will drive initiatives to further strengthen our resilient premium area, focusing on execution and results to become a strong Bridgestone capable of adapting to change, as we counter headwinds to secure the group's profit in total.
In light of the changing business environment, I will explain business outlook in the fiscal 2022 guidance by segment, focusing on the Tire business. Regarding the Americas business, which is driving the company's performance, despite a slow start in first half due to the impact of the cyber incident, we achieved the increase in revenue and adjusted operating profit for the first 9 months of 2022 versus the previous year, countering impacts of raw material increase and inflation by price increase and mix improvement. The uncertainty about the U.S. economy is growing in the fourth quarter, but we plan to secure profitability.
We will increase our replacement sales of HRD tires and expand market share. For truck and bus tires, sales mix deteriorated, including increasing OE tire sales and decrease in REP tire sales caused by supply constraints due to labor shortages at manufacturing sites in the U.S. We will alleviate supply constraints through continuous reinforcement of global supply chain management.
Regarding the Europe business, we covered the impacts from raw material increase and inflation by price increase and also focused on the premium area. As a result, we were able to improve sales mix and profitability. However, entering the fourth quarter, profitability has been deteriorating due to distribution inventory management, decrease in sales volume and further cost increase such as energy cost, et cetera, caused by the rapid recession in Europe.
We will continue our efforts to improve mix, including sales expansion of HRD tires, but we expect the challenging business environment to persist in 2023 and onwards. We will minimize negative impacts from the Europe business by continuing our efforts to increase revenue and profitability in the Middle East and India business.
Regarding the Asia Pacific and China business, profitability is on the decline versus the previous year due to the impact of COVID-19 lockdown in China and the fact that price increase was not enough to cover the negative impacts from raw material increase and inflation in China and Asia. We will keep a close watch on future movements.
Regarding the Japan business, business conditions deteriorated for both the OE and REP tire business, including slow growth in demand, difficulty to increase price to cover the negative impact of inflation, such as increase in raw material and energy cost caused by the weak yen, which has been a structural challenge of the Japan business.
We expect the challenging business environment to continue in Q4 and 2023 onwards. Under the circumstances, we will continue reinforcement of talent investment, including at manufacturing sites.
For the global business of tires, for mining vehicles, we expanded sales and market share for the first 9 months of 2022. We achieved growth in both revenue and profitability, including currency exchange impact, which contributed in revenue and profit growth of the total group. Although there is some uncertainty about the business environment, we expect continued growth in the fourth quarter onwards. That is all for the summary of the fiscal 2022 guidance.
In alignment with the roadmap presented in the 2030 long-term strategic aspiration announced in August, we accelerated -- or we accelerate transformation to become a resilient, excellent Bridgestone toward 2031, the 100th anniversary of our founding.
In the midterm business plan for the years 2021 to 2023, we are laying foundations to enhance premium and ensure evolution linked with the Solution business for growth in the 2024 to 2026 midterm business plan and onwards.
We have laid out detailed strategies in this strategic map. As explained in detail during the 2030 long-term strategy aspiration presentation, we will promote linkage between the premium tire business and Solutions business and take on the challenge, balancing creation of social value and customer value as a sustainable solutions company.
Regarding our management structure, I explained in August that we will build a new global and portfolio management structure in the 2024 to 2026 midterm business plan. As a first step, this May, we appointed 2 joint global COOs under the Global CEO. We are strengthening the local management structure according to our business foundation in each region, regional mobility, maturity and market characteristics.
Regarding synergy in the Bridgestone East Asia, which consists of Japan and the Asia business, Bridgestone's home market with a long history dating back to our founding, we are strengthening foundations and will expand global contribution as the core of Bridgestone's global manufacturing.
For energy in the Bridgestone West area, which includes the Europe and the U.S. business, where mobility is mature, we are strengthening linkage between the premium tire and Solutions business -- businesses to generate synergies. Under the joint global COO structure, we have been evolving the global management we have built so far, such as by integrating functions, including supply chain, R&D and administration between Japan and Asia, and between Europe and the U.S.
Next, regarding strategic growth investment. I'd like to give you an update on the premium tire business for passenger cars. We are reinforcing our premium business strategy and steadily expanding sales of HRD tires globally. In Europe and the U.S., we are taking in OE, REP [ recursion ] demands and consistently increasing market share of replacement tire sales, leveraging our Dan-Totsu products.
We will continue to reinforce premium strategy and drive resilient growth, responding to the business environment, where change is becoming common place. We will continue -- we will also continue to strengthen structure to produce and sell premium tires, in addition to investments in manufacturing equipment replacement globally in each plant for HRD tires and enlighten technology.
This September, we announced investment in production capacity expansion at the Bahia plant in Brazil. We will prepare for sales and market share expansion across the U.S. and the Americas. Including these capacity expansions, we will establish a global manufacturing footprint, aiming for global optimization with a local production for local sales ratio of 95% as our aspiration. The total investment amounts to complete the capacity expansion projects currently planned will be approximately JPY 67 billion.
In addition to HRD tires, we are advancing execution of the ENLITEN business strategy, the new premium in the EV era, where the Bridgestone Group uniquely creates value. While continuing to expand new vehicle [ fitment ] of tires equipped with ENLITEN technology, we are launching the first replacement tire in the world with -- in next January in Europe.
As a new product under the premium product brand, TURANZA, it achieves both driving performance centered around with performance highly demanded in Europe and environmental performance at a high level. We will provide ultimate customization adapted to customer's driving conditions. As the technology products and business model, Bridgestone continues to expand value through ENLITEN optimize to fit EVs.
Next, regarding progress on the truck and buses tire business, which links premium tires with solutions, we would reinforce our structure to produce premium truck and bus tires as well, combined with investments to reinforce production of tires for mining and construction vehicles and motorcycle tires.
We plan to invest a total of approximately JPY 180 billion for completion of capacity expansion. In addition to investments already communicated, we announced our investment to reinforce the Warren plant for new products and Abilene plant for retread tires, both in the United States.
The United States is Bridgestone's largest market, and we especially have a strong business foundation regarding retread tires. Through this reinforcement, we are further enhancing our strong foothold, and I would explain further on the next page.
We mentioned in our long-term strategic aspirations that for truck and bus tires, we would create new values as a new premium in the circular business area, deepening coordination between premium tires and solutions with retread at the core.
As part of such initiative, we are enhancing production of retread tires in the United States and Japan. We will reinforce our structure to produce and sell, which is our strong real capability. We are also enhancing our retail and service network sites to provide maintenance and services that accompany customers during their tire use phase.
In addition, we are conducting advocacy activities, promoting the value of retread to globally expand retread, which greatly contributes to sustainability, such as the realization of carbon neutrality and the circular economy. We are striving to create both social and customer value across the produce and sell and used value chain.
We are also strengthening our digital capabilities. In addition to enhancing services, such as for our tire monitoring system, Tirematics, we are equipping truck and bus tires with RFID tags, which allow individual management of tires across their life cycle from new products to retread and maintenance.
We started rollout of RFIDs in Europe from 2019 and are driving global expansion. By 2030, almost all tires used in Europe, the United States and Japan are planned to be equipped with RFIDs. Furthermore, we are developing next-generation RFID tags through co-creation with Toppan Forms.
The new tags aim to improve safety as well as significantly improve the workload for operators on site during tire management and maintenance work. By combining our strong real capabilities with digital, we continue to accelerate the establishment of a circular business model where tires are used more safely, longer, better and more efficiently across the value chain.
I will also explain progress on the recycle business where we are exploring technologies and business models aiming for commercialization toward 2030. This April, we launched the EVERTIRE INITIATIVE to promote the recycling of tires. It is a co-creation initiative utilizing end-of-life tires as resource and renewing them to raw materials.
By gaining understanding and empathy for our desire to realize a society where tire value continues to circulate, we hope to inspire diverse co-creation, which will allow us to preserve the environment for future generations. Currently, we are advancing 4 projects to renew tires to raw materials focused around exploring technologies, leveraging the knowledge of the different co-creation partners.
The first is a co-creation project with ENEOS, which involves precise pyrolysis of end-of-life tires to produce butadiene and recovered carbon black, which are raw materials for tires. This initiative started in 2021. And by 2030, we plan to construct a plant with a scale of 100,000 tons maximum throughput entire way to enable large-scale demonstration experiments.
The second project with LanzaTech in the United States concerns producing PET chemicals through gas fermentation of tires and further aims to produce raw materials for tires.
The third is a joint research project with the National Institute of Advanced Industrial Science and Technology, AIST, Tohoku University, NAS Corporation and JGC HOLDINGS CORPORATION. We are developing technology that decomposes tires using a specialist catalyst and enable selective extraction of substances, which are raw material for tires.
The fourth project, which involves expanding the use of recovered carbon black has already been partially commercialized in the United States from 2019. Recovered carbon black can reduce CO2 emissions during production by approximately 80% compared to new carbon black, and the whole industry is working to expand its use.
While driving these projects, we will continue to lead the EVERTIRE INITIATIVE.
This is all for the update on strategic growth investments. From here, I would introduce initiatives related to our corporate commitment, the Bridgestone E8 Commitment. The Bridgestone E8 Commitment serves as the access and vectors for our 2030 long-term strategic aspiration.
It portrays our journey and commitment to realize -- realizing and supporting a sustainable society, alongside our teammates, society, partners and customers in a Bridgestone-like manner through 8 words beginning with the letter E, such as energy, ecology and efficiency.
Since its launch in March, we have been driving activities to establish the Bridgestone E8 Commitment, both internally and externally. According to the global internal penetration survey held 4 months after the launch, approximately 90% of teammates answered that they were aware of the E8 Commitment, and 70% replied they empathized with it.
With the E8 Commitment as our access, we will continue to deepen teammate engagement through various communication and concrete activities to build foundations for global culture change. Initiatives embodying the Bridgestone E8 Commitment with our external partners are also already taking shape.
Today, I will introduce four examples. The first is in line with extension committed to nonstop mobility and innovation that keeps people in the world moving ahead. We are already involved in JAXA's project developing tires for the lunar rover. But additionally, we have joined the lunar terrain vehicle development team led by Teledyne in the United States.
Based on the ease and extension values to support safety and peace of mind and mobility, Bridgestone researched and developed run-flat tires for ambulances, command vehicles in partnership with the National Research Institute of Fire and Disaster. We have conducted experimental use across the country and verified capability of the technology for social implementation. We are driving this initiative with a desire to ensure nonstop mobility even during disasters and emergencies, supporting safety and peace of mind from the ground up.
Furthermore, as part of our commitment to bring comfort and peace of mind to mobility life represented in ease, we donated a total of approximately USD 1 million to the United Nations Road Safety fund, while also continuing to support safety and peace of mind from the ground up. Through our Dan-Totsu products, we will reinforce road safety initiatives together with the local communities at each of the group sites globally. Lastly, regarding the support of Ukraine refugee students and international students, which embodies empowerment, committed to contributing to a society that ensures accessibility and dignity for all. From this August, in cooperation with the Japan University of Economics, we are driving efforts to accompany the students who would lead the next generation in the future, such as conducting internships and tours of our plants.
That concludes my update regarding progress on our midterm business plan. We will continue to drive execution with the 2030 long-term strategic aspiration as a roadmap.
During the financial results review meeting for fiscal year 2022 planned on February 16 next year, we'll plan to present performance results for 2022 as well as progress of the mid-term business plan from 2021 to 2023 focused on activities planned for 2023, the final year of the current plan. I appreciate your continued support, and thank you for your attention.
Now to move on. Here is our Global CFO, Masuo Yoshimatsu, to present financial results for the third quarter fiscal 2022.
Thank you. Global CFO, Yoshimatsu. So on the subject of the financial results for the third quarter fiscal '22 -- 2022, here's my presentation. Two agenda to be covered in the presentation. So basically, I will focus on the 9 months cumulative, the projections with some financial supplements and the breakdown of some of the numbers.
Be aware also that starting today, as we receive questions regarding the amounts in the underperformance by segment and by product, the others category and respective from the amounts disclosed here.
So let me start. Here is the consolidated financial results for 9 months ended September 30, 2022. Please be aware that I'm going to focus on 9 months to September end in reference to profit attributable to owners of parent or the net income.
In the first half, we had adjustment items such as Russian business related losses. However, 9 months to end of September, the corresponding amount was relatively small, meaning the continuing operations profit attributable to owners of parent increased versus prior year.
On the other hand, discontinued operations at the parent attributable to owners of parent as announced back in December last year, the losses relating to the transfer of 2 diversified business operations, they were ready to be disclosed, whose amount was JPY 3.8 billion. Since its subsequent closing of the processes remaining, but all was completed at the end of September.
So on this new page, overview of the performance for the 9 months by product, for passenger car and light truck tires, for the replacement market, into the third quarter, the slight slowdown in demand was observed. However, the market share of premium tires, for which demand is relatively strong, continued to grow.
And on the other hand, for the OE segment, tire sales in third quarter turned to a significant year-on-year increase due to improved vehicle production conditions at automobile companies.
Truck and bus tires, since last year, sales has been continuously favorable. While demand in Europe showed signs of slowing down in the third quarter, demand in North America remained strong.
As to sales in Japan, it increased significantly year-on-year due to the impact of Russian before the price hikes.
For OR or the mining tires, the March announcement regarding the suspension of exports to Russia was compensated for in the other markets, resulting in an increase in the global market share for the first 9 months.
Moving on, [indiscernible] business environment at the end of September. Currency exchange, both U.S. dollar and euro appreciated against Japanese yen compared with the prior year. Raw materials, natural rubber prices fell sharply in the third quarter, whereas crude oil prices declined from the peak, but we're still well above the previous year's level. And energy costs at plants rose sharply, amid high crude oil and natural gas prices, so this also was the factor of a drag on the profitability.
Tire demand, through the first half, demand was rather constrained. As production at multiple automobile companies began to recover, demand for tires also showed signs of recovery in the third quarter.
Replacement segment, despite a slowdown in demand growth in U.S. and Europe, the outstanding strengths from the truck and bus demand in North America continued at 145 -- 144% of the 2019 level. And for the passenger car and electric segment, the premium tire area with above 18-inch diameter side, demand steadily expanded in U.S. and Europe.
Let me talk about the development in terms of tire sales growth. Passenger car and light truck tires on a year-on-year basis, 104%, that for truck and bus tires 103%. ORR tires, ultra large size, 108%. Large size, 111%. Small and medium size, 105%. So all across on the year-on-year basis, sales increased.
In particular, especially profitable, ORR tires at ultra large and large sizes, the sales growth stood out. Also continuing enhancement or premium strategy meant that passenger car high rim diameter premium tires above 18 inches continued to grow. So on a year-on-year basis, 14% increase. And in comparison with how it used to be back in 2019, which is pre the pandemic, 42% increase.
Adjusted operating profit on a year-on-year basis increased substantially by JPY 53.6 billion. Price and mix improvements as well as volume increase combined JPY 274 billion of improvement, which more or less offset the cost increase, be it for raw materials, conversion cost or the operating expenses as well as the suspension of domestic production in Russia or the suspension of our exposure to Russia, not to mention lockdown in China or the transient impact of cyber attacks to our U.S. subsidiary, and furthermore yen depreciation propelled in this trend.
Next, the performance by segment. Japan, Americas, Europe, Russia, Middle East, India and Africa grew substantially in both revenue and operating profits. On the other hand, in China, Asia and Pacific, due to China lockdown, among others, the profit decreased. Of all segments with growing profits, in particular, I'd say, Europe, Russia, Middle East, India and Africa region drove the overall performance.
Flexible supply management expanded sales, further penetration of higher prices to sell as well as the improved mix fared well. So that on a 9-month basis, adjusted operating profit margin was 9.1%, a substantial improvement from the same time last year.
Financial results by product. Passenger car, light truck tires as well as for truck and bus tires, on a year-on-year basis, there is an increase in revenue and profits margin. With the surging input cost of materials as well as escalating inflation, OE business started to show the [ ton ] of severity and profitability. So a slight decline in profitability.
On the other hand, specialties segment with OR, aircraft, agriculture and motorcycle tires, with a particularly strong performance in sales of highly profitable mining and construction tires, the margin was 23.4% at the end of September this year. Again, much stronger than what it was one year ago.
On to the diversified product basis, business operations as a result of reorganization from continuing operations, continuing from last fiscal year, all business operations were profitable.
Now looking at balance sheet and cash flow. Total assets increased JPY 556.5 billion to reach JPY 5,131.4 billion, mainly owing to the advent of yen depreciation. Equity ratio rose 1.8 points to reach 59.3%, so the health of the -- the financial health continued to improve.
Now as to the framework of JPY 100 billion and treasury share buyback, at the end of September, JPY 74.8 billion were -- was executed already. We do we expect to have it all complete by the due date.
At the end of the 9 months period, free cash flow resulted with net outflow of JPY 152.4 billion, with an increase in cash outflow of JPY 132.1 billion from the second quarter, of which JPY 115.5 billion is associated with the transfer of the 2 diversified businesses completed in this Q3 period. This is all included.
And as to the free cash flow through the last fiscal year, there was -- show the net inflow. However, with the sales increase and the increase in the input cost, inventory level increased. With the advent of yen depreciation, the working capital increased, so this year, we expect net outflow of cash.
For the next page, I would like to talk about adjustment items and losses from discontinued operations for the 9 months. Adjustment items first. Impairment losses and revaluation of inventories, namely losses related to Russian business of JPY 17.5 billion was booked. Also recall expenses of Bridgestone Cycle Corporation, some of their bicycle models and motor-assisted devices, of course, became subject to recall, whose expenses accrued to JPY 15.4 billion. So all in all, adjustment items for this third quarter, 9-month period was JPY 35 billion.
Losses from discontinued operations. As we announced, the 2 diversified business operation being transferred back in December, the losses expanded, resulted to JPY 28.4 billion of losses.
On to the projections for fiscal 2022. So first of all, the Q4 currency assumptions has been changed from JPY 125 to JPY 135.
Revenue for the first time in the operation history is projected to reach above the JPY 4 trillion mark to reach JPY 4,050 billion, 25% year-on-year increase. Adjusted operating income from August, the projections is the upper adjustment of JPY 20 billion to reach JPY 470 billion, which reflects 19% year-on-year increase.
The continuing operations and the profit attributable to owners of parent, JPY 295 billion. And ROIC and ROE from continuing operations will be 9.4% and 10.5%, respectively. The reason why the ROE projection is lower than what was projected back in October has to do with the yen depreciation affecting yen-denominated amount of the equity to be larger. Dividend per share remaining to be the same at JPY 170.
The other -- the assumptions. First of all, for raw material and energy, both lucky to drag the profitability conditions. Tire demand, for OE, demand is expected to recover maybe in the U.S. and Europe, but it will still maintain low level compared to 2019. Replacement market, tire demand is expected to be lower than the August demand projections, but truck and bus demand is expected to remain solid in North America. Premium tire demand is expected to remain relatively strong.
Now by product type sales growth projections all across, very strong, and the incremental 5% migration for all tires. And North American, the replacement, truck and bus tires, particularly strong case of projection. Passenger car tires above 18 inches in the diameter size, premium tires will continue to fare strongly. So the double-digit growth year-on-year.
Analysis of adjusted operating profit for fiscal 2022. In the final quarter, and because we continue to [search ] inflation, the effect income, the adverse impact. However, with the price, sales mix and volume, majority of that will be covered and coupling to that yen depreciation.
So as you can see, one factors of JPY 42 billion, which is shown on the upper right-hand side, that will be more or less absorbed. So on a full year basis, JPY 75.7 billion increase in earnings. The selling price management, premium business strategy to be enhanced as well as expense and cost structure reformation, coupling to that yen depreciation, we are pointing to the expansion and the profit increase year-on-year.
Now by segment, China, Asia and Pacific, because of lingering effect of China lockdown, the slight decline is projected. However, for Japan, Americas, Europe, Russia, Middle East, India and Africa, significant year-on-year increase in both revenue and profits. In particular, in the Americas and Europe, Russia, Middle East, India and Africa, selling price and mix will improve substantially, so profitability will be either equivalent or higher than what was last year.
And that completes my presentation to you. Thank you very much.
First, Mr. Yoshida from Citigroup Securities, please.
I'm Yoshida of Citigroup Securities. My first question is about your operating profit, which stands at around JPY 470 billion, which exceeds your target under the midterm business plan that ends next year. In terms of your thinking toward the next year, I'd like to know if you believe you can continue to ramp up your profit steadily into the next year.
Pricing is a factor. The raw material price hikes looking settling down, while yen is likely to remain at the current level. Then in spite of uncertainties over demand in and beyond Q4, do you think you can continue to earn higher profits next year? You may admit that you have done well over your expectations in this quarter or in this year.
My second question is North American situations, in particular, passenger car replacement tire business, regarding both sell-in and sell-out. Please tell me what is the market situation and how your company is doing.
I understand the market is getting a little challenging with Chinese imports coming in and dealer inventory buildup. That's what I hear. On the other hand, for the July, September quarter, by the end of September, such situation may calm down or turn around according to the articles by some reporters. Now how is the market is doing? And what are you doing? If you could discuss the sell-in versus sell-out, it will be appreciated.
Thank you. Understood. Indeed, we have been discussing this in meetings after meetings globally since September. We have seen things transforming in a month or two since our global conference in September.
There has been major changes. This is our honest observation. We live changes now as a common state of affairs. How can we keep the profits? That is the question as we said. As I mentioned earlier, what are the changes facing us? That is quite uncertain. One thing is for sure that is recession in Europe will continue into 2023. And challenging situations in Japan are going to stay. These 2 situations will remain tough. It could get even more difficult in Europe. That's how we see it.
In the United States, a strong sense of uncertainty exists, but we are hoping to see soft landing in the United States. And we will try and keep our ability to gain greater market share next year. With price hikes and share increases in the United States, we will keep earnings steadily. That is our assumption.
In Asia, China is at its historical lows this year and will gradually recover. Japan and Asia without China do have structural similarities, including the difficulty in having price hikes accepted. How far we can go going into the next year is a question.
My entire business is doing strong this year as well. There are uncertainties next year, but we will secure good earnings next year. And for this purpose, various steps have been taken.
Regarding headwinds, raw materials are linked linearly by the state of economy. Ocean freight is gradually coming down, as you may know, starting this year and will fall further next year. That is our expectation.
To summarize, we have a premium strategy, the basic strategy and we will increase our market share, and we will exercise the strategic price management, primarily in the United States.
And in mining,tire business, in order to realize earnings higher than this year, we keep discussing these through meetings globally. Many things could happen from now on into the next year. And in time for February next year, we will work to finalize our plan.
About your second question on the passenger replacement tires in North America, the big picture is, as you said, ocean freight is getting lower. And so-called second brand or private brand tires are flowing into the market.
In North America, in the United States, Asian brands take 1/2 and the second brands or private brands take another half of the market. Bridgestone naturally does not do business in the lower half of the market. We focus on the top half of the market. And for the top part, where we have Bridgestone and Firestone brands, in the fourth quarter, our sell-in is slowing down a little.
Up to the third quarter, we have been selling and growing sales very aggressively. Competitors were struggling in terms of increasing their volume. Yet we were able to gain greater shares with premium.
Well, as the demand is slowing down, we are slowing down in terms of slowing or slowdown, but we are hoping to increase our market share for the premium. This is our view.
But for sell-out, we think we also see a slowdown a little in sell-out. So as both sell-in and sell-out are slowing down. Yet, we will make sure to take greater share of the market.
In terms of distribution, in the first half and also in Q3, the industry as a whole has been trying to raise the prices quite fast. It's not just Bridgestone, but other manufacturers have been raising prices. I think such move is very strong. Dealers tend to carry a lot of inventory, as they could enjoy a gain in -- on the inventory valuation.
Now things are slowing down, and then dealers also will reduce their inventory in order to take a balance between sell-in and sell-out, and that is what is happening in Q4. Now next year, we expect a further slowdown a little. Yet, we will continue to push to take greater market share. Thank you.
Now we move on to the next question by Mr. Kakiuchi of Morgan Stanley. Please go ahead.
My first question is about your truck and bus tire supply constraints in North America that you discussed earlier on. Could you explain further as to what is happening. I guess, labor shortages are the issue. In what timing -- time line things may turn around? This is my first question.
My second question is on the state of your Japanese segment business. It seems your profits in Q4, that is the profit you get after taking the January, September quarters out of the 12 months numbers, it seems this profit is struggling in usual years. Thanks to additional tires in the domestic market, you tend to enjoy extra profits. As your mining tires are going soon, your exports should be doing well. Your profit projections look a bit too cautious. I wonder if there is anything affecting the segment profitability.
Thank you very much. First, regarding the TB or the truck and bus tire production. Well, this is something that we have a lot of issues in terms of recruiting people in various plants, not just a truck and bus plants. This is happening in passenger tire plants. We hire people but leave. We have difficulty retaining people. So we need to recruit and train workers for production, but this was not working very well. But entering into the third quarter, situations are improving a little. Recruitment has improved a little, and retention is also improving a little, but not to the level that we had before. So it is like we are getting to see some positive signals, in particular, for truck and bus. Our global supply was also very tight, and we pushed our global supply chain management to supply the United States production, but that was very tough. And for passenger tires, well, we do have similar issues as it is production in the North America. So local production in North America have some issues, yet for passenger or car tires, production in Asia and Japan was able to catch up, and we were able to supply the U.S. the production. So this is the difference. No, I invite Mr. Yoshimatsu for the Japan segment.
Yes. Now if you could do some math, you may understand, now for the Q3 results for three months was 13.6%, and projection was 13.7%. So vis-a-vis Q3, we had higher revenue and higher profit and 0.1 percentage point improvement in terms of OP margin.
Now as far as Japan is concerned, as I tried to say earlier, your Q4 should enjoy higher margin because of this no tire business in the Japanese market. This was the case in the past. Is there anything? Well, in the early part of the snow tire season, temperatures were lower, so that was a positive, but you are not improving anything different. Actually, we had the last-minute rush demand before Q3. And this was a special factor for this quarter.
Understood. But overall, for the Q3 results, you had some positives and negatives. And even excluding foreign exchange factors, you had result that was a little bit positive vis-a-vis the plan or even upside vis-a-vis the internal expectations.
Generally yes.
Thank you. Now I'd like to invite Mr. Sakaguchi of Mizuho Securities.
Sakaguchi of Mizuho Securities. Thank you very much for your business. I have two questions. First question is on sales environment and also changes in sales volume and selling price hikes. At this time, according to your annual plan, you are gradually rolling the projection for sales overall. And the volume effect seems to be turning to the negative side, yet for the selling prices, compared with the last projection, you have higher expectations. And also you're expecting fourth quarter getting better profit. Where this balance is coming?
And naturally, as you focus on the premium, this has happened. And given the outlook for the penetration of higher prices in the United States, please discuss this relationship, the volume versus price hikes. Another question is the external environment is getting more challenging. And what is your view on the cost control? Compared with the last projection, your operating expenses are producing greater profit. It is turning positive. And have you done some cost-cutting initiatives as we have exhausted all the items or possible structural reform? I wonder what is a plan for further cost control when things get really tight?
Well, going forward, it's very critical for the price increase to take hold, especially in the United States and Europe. After increasing the price, we believe that we can maintain this position. Naturally, we have to figure out various measures to be implemented. But when it comes to Japan and Asia, price increase is not advancing as in the Western markets. So that is our headache, I should say. The situation in Japan and Asia is different from the U.S. and European markets. And we have to strike a good balance between the solid situation in the United States and Europe and the difficult situation that exists in Japan.
Moving on to the next question. Mr. Maki of SMBC Nikko Securities.
My name is Maki from SMBC Nikko Securities. Now allow me to ask you two questions. The first question concerns your relative competitiveness, especially in the United States, that was mentioned about gradual demand slowdown, but that may be one of the environmental factors that you cannot avoid.
On the other hand, cheaper tires are coming in from Asia, whereas Bridgestone produce and consume the tires locally in Japan. And because of the dollar's appreciation, there are cheaper tires coming in more and more. And I think this is impacting mostly the manufacturers that deal with the commodity zone tires, but Bridgestone is in the premium zone. So maybe you are skimming the cream and you are not being impacted. Historically, we may be in a phase where the value of tires is coming down. So under such circumstances, how can you maintain your competitiveness in the premium zone next fiscal term, even with the drop of volume. You can maintain the price and mix so that it would lead to the targeted performance. So please tell us how you evaluate your competitiveness? The second question concerns your performance forecast for the next fiscal year. I'm sorry, it's a very fundamental question. The fourth quarter margin forecast is 11.9%. And in the United States and Europe, the forecasted number comes down from the level over the third quarter. So is this level going to be a reference for the next year's performance? Of course, isolating the number from a single quarter and multiplying that by 4 may not give us the right perspective, but the European and American market deterioration in the fourth quarter, should we expect that to continue next year as well? I believe the FX impact may further push up the performance results. But adjusting for the transient factors, if I multiply JPY 130 billion by 4, that would give us a level of more than JPY 500 billion. So is this the right picture for us?
Well, first of all, concerning the competitiveness in the United States, the main war zone, if you will, differs from manufacturer to manufacturer that naturally means that the level of impact is not the same. And as mentioned earlier, our name war zone is the premium zone, so the impact is relatively limited that I can say. And not only do we have the product power, we also have the [ family ] distribution channel, including our company-owned stores were very strong. So we have the capability to sell premium tires, not only with its product appeal, but through a strong channel. And this is something that I recognize as a resilient approach going forward.
Now next year, for passenger car tires, we want to achieve our target performance. And concerning tire and truck and bus tires, supplier capacity -- or rather the truck and bus tire supply capacity, I should see local improvement plus increasing the supply from overseas. And for example, business in Europe would start facing greater difficulties. So the truck tire production capacity in Europe can be utilized to supply tires to the United States and such measures are going to be implemented while we are quite strong in retread tires. So we are going to maintain that strength. Well, indeed, second brand private brand markets are expanding, and I won't say there isn't going to be any impact. But in the United States, replacement tires would be used 1, 2, 3, 4x because cars are used for quite a long time in the United States, meaning demand for replacement tires will be generated along the way. In this process, major tire brands would be used up to third round or maybe least up to the second replacement. And gradually, the use of major brands will come down in replacement. And instead, the second brands or the private brands will be used. That's the general practice, and we can't do anything about it, but I think you can understand that for the first or second tire replacement, there is very limited impact.
As for the fourth quarter performance, looking at the level of performance in terms of the operating profit margin, we expect to keep the current level, whereas in Europe, it's going to plummet. And that, I think, you have observed. It's going to affect next year's performance. If that is the question, as mentioned before, there's going to be, of course, some impact. But in the United States, bottom is going to decline, but profitability can be secured. So though the market lacks transparency, we're going to secure profitability. We have to figure out how we can ensure our market share expansion. And naturally, our budget planning will have to change depending on how the market environment would change. This is something you already understand, I believe, and we continue to expect to achieve high level of profitability going into next year. Does that answer your question? Sorry I can't hear you. I'm sorry.
About this fourth quarter performance deterioration in Europe, that is not the result of inventory adjustments, but simply a result of economic downturn in Europe so the volume would come down. Do I have the right understanding?
Well, in Europe, many things show a downward trend in the fourth quarter. Now right now, volume is dropping precipitously. Production utilization rate is dropping also, energy cost is rising. Expenses are all going up over time, while volume is coming down. So in the cycle of producing and selling, we are off balance, and we are having difficulty in the fourth quarter. Under such circumstances, there is this drop of the distribution inventory and the manufacturers' inventory.
So all in all, fourth quarter is going to be a very difficult quarter, but we don't think this would be a full year situation next year. So during the fourth quarter, the manufacturer and distribution inventory will be normalized. So that the inventory level will come down to a level commensurate with the recession, and there should be solid performance being generated. So we're going to focus continuously on the premium zone and the actual number of profit will come down, but this is a question of how much we can withstand the difficulty. And how much can be compensated by the business in India and Middle East. And that is the major point of discussion in formulating our budget next year. So I understand that Europe is an area where you have improved the mix, advanced ahead of other regions and the profitability has been going up. And I think there would be a cost to increase, but I look forward to seeing this profitability generated in year. Yes, we're going to focus on the premium zone in Europe.
Now we would like to go on to Mr. Sakamaki of Daiwa Securities. I'm sorry, please limit your question to one question.
Sakamaki from Daiwa Securities. Well, maybe -- I may be repeating a similar question, but can you explain to me, once again, how much dealer inventory in the North America has been increased? And how long would it take to resolve that inventory? You've been talking about increasing your market share, while there is this inventory building up, which gives me an impression that you are pushing the sale of your tires. So how long would it take for inventory adjustment mainly in the North American market?
Looking at the entire market situation, recently, there is this major inflow of import tires from Asia. Is this going to be transient? In China, there is zero COVID-19 policy and the demand is very weak and Europe also has weak demand. And so the tire manufacturers throughout the world are bringing in tires to the United States. So do we not need to worry about this risk of the U.S. market demand and supply balance being deteriorated with the time lag?
Now the replacement of passenger car tires in the United States is a relevant topic to your question. Basically, we don't think that distribution inventory in the second and third quarters are dramatically increasing. We have this balanced sell-out and sell-in and we are going to increase our share in our distributors and also stores that sell our tires. And we are going to expand our channels as well and expand our market share.
Now in the fourth quarter, as I've been telling you at the now, we are going to secure profitability, but the selling is going to become weaker. So the level would come down, but at the same time, the level -- the demand would come down. So in relative terms, it may be possible to expand our share. And of course, we are not going to push our sales. And so there is no increase -- forced increase of inventory and where the dealers would not increase their inventory in the fourth quarter. So together with the slowdown of business in the fourth quarter, I believe that we can get along. In the merchandising plan and the distribution has dispensed better, good categorization to position their tires. So it's like this position is for Bridgestone. This position is for Firestone. And based on the positioning the business is conducted -- and depending on the position, the role would differ. Like in this position, it's the sales volume that needs to be emphasized. And in this position, profitability would have priority. And we are going to -- in this circumstances, are going to go on with a sensible way of merchandising and doing business with the dealers. And of course, among the retailers, there are retailers that's trying to capture the business in the first and second round of replacement or retailers the third and fourth round of replacement, and Bridgestone doesn't have business with the retailers that focus on the third or the fourth round of replacement. And so I think channel selection is critical. It's not just the product that we offer, but the channel selection is also very critical, and we are very careful about distribution inventory, and we are not unnecessarily increased the inventory and distribution so that there would be a grand amount that distributors because we can't really end up in a win-win situation between us and our customers. We have to be very objective.
No, there is this concern that tires would be flowing into the United States, and this is not a new story. This is an issue since a long time ago. And in the past, there was a big issue in the United States about Chinese-made tires, and there is this tariff issue between the United States and China. And right now, the inflow has decelerated. But naturally, Chinese manufacturers have built their plants in other countries in Asia and trying to export their tires. But under such circumstances, they have to have a solid land and solid distribution channel. Otherwise, they cannot sell the tires. Now private brands are being sold by retailers. And of course, to a certain level, it can be sold. But as you know, it's just like OE. It's a very tough business. So the brand recognition is very important for the business to be successful. It's not an easy business.
Now turning to the question from the media. Now may I ask Mr. Matsuda from Nikkei Newspaper. [indiscernible] I have two questions. Question number one. For the first time in your operational history, you're lucky to go above the JPY 4 trillion mark for your revenue? What's your observation. And also, you have made for the adjustment of mid-to-year projections here to there. Do you think that it's a testimony to your type of the premium strategy?
Okay. Thank you for those questions [indiscernible]. Of course, we've tried many things growing volume mix being improved. And so monitored our efforts have consummated in this particular number. Of course, FX is helping us greatly. However, speaking of FX and the occasion of the acquisition was JPY 133 to dollar and experienced JPY 150 to dollar or JPY 80 to dollar. That's the nature of the volatility of the FX market.
So whatever may be in store, we just to do what we must. So that is my stance always. So in other words, I do not react to every up and down, if I may. So it's yet another milestone, but very important front after all.
And then you talked about my view on the premium strategy. In this volatile and inhospitable the environment. If hypothetically, we had stayed with the commodity on business, then we would not have experience in this day with JPY 4 trillion or above JPY 4 trillion in revenue situations. Being resilient and they can be viewed in multiple ways. But as a manufacturer, we are to make and sell goods. Premium focus is very important. And in saying all of this, we are still at the midpoint in our journey. So I believe in this course of journey, we are only to enhance our operations so that we can't -- the appeal of the premium value or being able to appear more and more effectively to the market. So it just got to be done, if I may. So that's my sense.
Moving on, then I would like to ask Mr. Nakamura from Daily Nishinippon Shimbun paper to ask.
Thank you, Nakamura from Nishinippon Shimbun. Two questions. First, the overall observation points me leading to the market situation in Europe and ENLITEN strategy. Well, you've mentioned and I believe it's true that the market economic recessionary trend in Europe has been getting more and more prominent. What do you think? Do you observe any sense whatsoever of turmoil or the confusion in the frontline operations locally? And of course, your choice of the ENLITEN, the strategy to be deployed on the replacement market. You have a product the schedule to be launched. What is your expectation on this ENLITEN strategy?
Europe has been referred to from time to time where the recessionary trend is becoming more prominent inflation, rising energy costs. So throughout the market of Europe, the multitude of effects that have been filed and the overall turn of slowdown. And then, of course, have featured the inventory is profit. It can be it at a manufacturer level or at the distribution level. So much so that as a manufacturer, we had button to make the adjustments to our production plans. But it's not only at Bridgestone, all other competitors while in Europe or here have had to do the same. But in Europe, one thing different towards Bridgestone is that unlike in Japan or the U.S., we are not #1 in Europe. The leadership position is taken thereby that French company. So unlike in the other regional markets, we are not having to exercise our leadership to daringly change the cost of the tone of the market. Rather, we have to go along with the [indiscernible] times in Europe, making sure that we farewell. And that the concept of being able to farewell has been getting more and more sophisticated, better at Bridgestone. That's the reason why our results in more recent years has been better than before. This sort of premium focus and we're hoping for more. After all, the basic view is that it's quite fundamental that European market and our customers know the automobiles, know tires, they are very sophisticated. They know what they're looking for. The automobile, as a manufacturer we have to review our strength with the performance of our products. And again, the choice of being premium is very important.
In the case of the Bridgestone with participations in the F1 racing car [indiscernible] We did have the experiences the that have been premium or the demand that have to offer the things premium. So -- and also, we have been working, who is the German 3 OEs for a number of years. Now the subject of ENLITEN the strategy in the replacement market with the better rolling of the resistance that was better in the future in terms of the real performance. These are to the hit the card the sophisticated European customers. We need to do this. And this worked higher road, as they say, to make sure that on the basis of performance on fundamentally required over tire, what more can we do with our uniquely strong company performance. So that's what it is for us in Europe. Do you think that Europe in all different ways is the global leader when it comes to being premium in case and the tires, but probably not only ties or the automobiles to run [indiscernible] Japan. We will start first in Europe, running on good reputation in Europe, then we would be ready to deploy it elsewhere around the globe. High rim diameter, the focus. Of course, there is the tailwind for the entire industry. But it's not only the emphasis on the high-rim diameter tire, unique value that we can allocate with the ENLITEN this strategy. First, in the OE segment, going to replacement segment as always. These new products will be launched. And that's what we plan to do starting in the '24 midterm business plan. So I hope that makes sense to you. Are you satisfied with my answer?
Yes, I certainly am.
Okay. Then let us move on to Ms. [ Igani ] from Nikkan Kogyo Shimbun.
Can you hear?
Yes, we can.
My name Igani. I'm with Nikkan Kogyo Shimbun. Towards the end of October that you made a public announcement in about the key decision about the future of Russian business operations to withdraw there from. And we understand that you did make sure to say that this decision will not have any impact on the projected performance at the end of fiscal year. But it's an important business decision in the year you have hired the associates. You have made investments and now the decision to withdraw from the Russia. What goes through your mind?
Since the early part of this year and since the spring, we decided to suspend the local production in Russia. We want to suspend exporting to Russia. But since then still, we continue to maintain the same relationships with local associates working with us and Russia, paying out the compensations, no change whatsoever in our spirit of taking care of those -- that we work with. So that is the fundamental on the thinking that has not changed at all. And about the decision from [indiscernible] suspend and on this occasion to withdrawn from business operations from Russia. Of course, we had to go through the intensive and whole comprehensive from the consolidations and review and check. But from business perspective, with the raw material on the input costs continuing to hike, it's just on becoming very, very obvious that the business continuation does not make sense. That is the reason why we had to make a decision.
And also, it's not only have reformed in the business perspective that the decision was made, you are quite familiar with our E8 Commitment, among which we have empowerment speaking for empowerment trying the best that we can do to make sure that people locally, they can continue to live in the main manner and whatever we can do as the business, the company we would like to do to offer our support. Fundamental position of not at all maybe agreeing to the Russia's decision to invade into Ukraine. But still, there are other observations and senses that we've had, I've had such as from business perspective will be the best answer. What would be the ethical, maybe answer how would be the relationships with customers. So for all those reasons, we decided to withdraw from Russia. So how's that? Are you satisfied?
Thank you very much. I certainly am.
Thank you. Well, everyone, since it is time, we have to close the Q&A. And with that, today's program to present the business of financial the results for September 2022 as well as the progress of midterm business plan is over. Thank you very much for your participation. The program is now finished.