Bridgestone 2004 Annual Report Download - page 4

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Bridgestone Annual Report 2004
This is a time of tremendous opportunity for Bridgestone,
and we are moving aggressively to capitalize on that opportunity
even while addressing huge challenges. Global demand for tires is
growing, and demand for passenger car tires in the industrialized
nations is shifting toward high-performance tires and tires of
large rim sizes. Our global production network and our unex-
celled capabilities in product development position us better than
any other tire manufacturer to serve both of these trends.
In 2004, our fiscal performance reflected the positive trends
in our markets. Net income rose 29%, to ¥114.5 billion ($1.1
billion), its highest level ever, on a 5% increase in net sales, to
¥2,416.7 billion ($23.2 billion), also a record. The growth in sales
reflected the global growth in tire demand and our success in
increasing supply capacity to meet that growth. It also reflected
a strong performance in diversified products, led by automotive
components and—in North America—by roofing materials.
The growth in net income reflected the growth in sales, but it
also reflected the challenges that we face. Chief among those chal-
lenges is an upturn of unprecedented magnitude and persistence
in prices for raw materials. That upturn diminished our operat-
ing income about ¥49 billion ($470 million) in 2004.
Another challenge is the continuing appreciation of the yen
against the dollar. The average yen/dollar exchange rate in 2004
was $1= ¥108, compared with $1= ¥116 in the previous year.
Movement in currency exchange rates diminished our operating
income about ¥6 billion ($58 million) in 2004.
We reinforced our profitability in 2004 by achieving unit sales
growth, by raising prices, by shifting our sales portfolio toward
higher-value-added products, and by employing a tax credit
available in Japan for R&D expenditures. Raw material prices
and exchange rates, however, will continue to weigh on earnings.
High and rising raw material prices, especially, are a pressing
issue of long-term ramifications for our entire industry.
While dealing with opportunity and adversity, we continued
to demonstrate a strong commitment to maximizing shareholder
value. We have repurchased shares worth approximately ¥100
billion since 2003, and we have retired shares worth about ¥50
billion. Our plans call for repurchasing shares worth ¥50 billion
in 2005.
Dividends are another important way of rewarding share-
holders. We raised our dividends for 2004 by ¥3 ($0.03), to ¥19
($0.18), and we plan a further dividend increase in 2005, to ¥20.
Management policy at Bridgestone emphasizes steady dividends.
The dividend increase for 2004 and the one planned for 2005
reflect what we regard as a fundamental improvement in our
structure of earnings.
Capitalizing on Opportunity
Our management policy centers on pursuing strategic, qualitative
growth. In that spirit, we launched a capital spending program of
unprecedented scope in 2003, and we announced a broadening
of that program in February 2005. Our tire production volume
increased an average of 4% annually over the 10 years to 2004.
To maintain that growth momentum, we have earmarked ¥227
billion for capital spending over the five years from 2003 to 2007.
That capital spending addresses the overall growth in global unit
demand for tires and the shift in industrialized-nation demand
toward high-performance tires and large rim diameter tires.
We began producing tires in 2004 at two new plants in
Thailand and China. Bridgestone Group companies are building
or preparing to build two more tire plants in Brazil and Mexico,
and we will expand our Chinese production capacity further.
The Poznan Plant, in Poland, became the Bridgestone Group’s
first plant to produce runflat tires outside Japan in late 2004,
and we are preparing to produce runflat tires in South Africa.
Runflats continue to operate safely for up to specified maximum
distances and speeds after a loss of air pressure. We have estab-
lished a de facto standard for runflat tires with our sidewall-rein-
forcement technology, and we anticipate huge growth in global
demand for those tires.
Our revolutionary BIRD production system for tires began
operation in January 2005 at our Hikone Plant, in Japan.
BIRD, which stands for Bridgestone Innovative and Rational
Development, is the world’s first tire production system that
automates the entire manufacturing sequence from the process-
ing of materials to the final inspection of the finished tires. The
new Bridgestone Group plant in Mexico will also use BIRD.
Raw materials are another emphasis in our capital spending.
We recently agreed to purchase our second rubber estate in
Indonesia. In carbon black, we reinforced our production capac-
ity in Japan in the past year and opened a plant in Thailand. We
are building a steel cord plant in China, and our U.S. production
capacity for synthetic rubber is also undergoing expansion.
A Technological Edge
Asserting a technological edge is essential to the strategic, quali-
tative growth that we seek. I have already cited our leadership
in runflat tires and our revolutionary BIRD production system.
Another example is our success in motorsports. Bridgestone tires
have carried drivers and teams to seven consecutive titles in
Formula One racing, and our tires also demonstrate convincing
performance in IndyCar and Champ Car racing, where we are
the sole tire supplier.
Message from the President
A Time of Unprecedented Opportunity (and huge challenges)