Coca-Cola Bottlers Japan Holdings Inc

TSE:2579

Earnings Call Transcript 2023-Q1

[ゴミ マサオミ, executive]

Good afternoon. I am Masaomi Gomi, Investor Relations Department Manager for Coca-Cola Bottlers Japan Holdings. Thank you for joining us today for our First Quarter 2023 Earnings Call for analysts and investors. Today, we have President, Calin Dragan; CFO, Bjorn Ulgenes; and [ Su Choi ] from the Coca-Cola Japan Company. Also joining us today are Executive Officer and Chief Commercial Officer, Costel Mandrea; Executive Officer and Executive Business Manager, Maki Kado; and Executive Officer and Chief Supply Chain Officer, Bruce Herbert.

Following prepared remarks, we will be happy to take your questions. Simultaneous translation in both Japanese and English is being provided for both today's call and during the Q&A. Before we begin, let me remind you that today's presentation contains forward-looking statements, including statements concerning annual and long-term earnings objectives and should be considered together with cautionary statements contained in our presentation.

With that, I'd like to turn the call over to Calin Dragan. Calin-san?

[Calin Dragan, executive]

Good afternoon, everyone. Calin Dragan here. Thank you for joining us for our earnings call today. I would like to begin by summarizing our first quarter 2023 earnings. Please turn to Slide 4 of the presentation. Sales revenue for the first quarter grew strongly by 8% over the previous year. This was a result of last year's price revisions, improving wholesale revenue per case. We also saw a positive effect from commercial activities to capture opportunities from traffic recovery, minimizing the impact of volume decline from price revisions and achieving a 4% volume growth over the previous year. The intended effects of last year's price revisions implemented with strong determination are materializing as planned. Across all channels, wholesale revenue per case improved by more than double digit in yen.

Business income improved by approximately JPY 3 billion versus the previous year, in line with our full year plan. This was achieved by a significant profit improvement in the areas under our control, such as the top line growth that improved profitability despite the external cost pressures of higher commodity and energy prices, yen depreciation and the cycling of temporary cost reductions of same period of last year. In the first quarter, we negotiated with customers to prepare for one of our key initiatives for this year, the price revisions of can and large PET. These revisions were implemented on schedule, starting with May 1 shipments. And moving forward, we will continue to implement them in the market with agility. The driver of profit improvement in the first quarter was top line growth.

Please look at Slide 5. Of particular value was the improvement in both wholesale revenue per case and sales volume as contributing factors to the strong 8% revenue growth. I'm sure you are aware that these 2 factors are very difficult to balance, and let me provide additional details. First is growth in wholesale revenue per case. Agile and speed implementation of price revisions led to the early benefit realization. We made every effort to negotiate carefully with customers to gain their understanding of our situation and approach. Achieving successful price revisions would be impossible without their understanding and support. Additionally, we have closely monitored market conditions, including the impact of revisions on retail prices and volumes. Despite the competitive environment, we have maintained shipment prices by focusing on disciplined commercial activities.

Second is sales volume growth. The growth foundation built to date has positioned us to capture increased demand from traffic recovery and minimize the negative impact on volume from price revisions. Especially in the second half of last year to the present, while looking ahead to increase traffic trends. We have launched new products and renewed existing ones, expanded our sales space with a focus on key customers and executed effective marketing campaigns. These initiatives have resulted in a strong top line growth and driven profitability improvements in the first quarter. These outcomes have provided us with valuable learnings and the sense of confidence as we move forward.

Slide 6 shows the quarterly growth rate of sales revenues versus the previous year from 2020. In 2020, the severe impact from the spread of COVID led to a difficult period for revenue with decreased volume from reduced traffic. But since 2021, revenue has been on a gradual upward trend. We believe this is the result of our efforts to build foundation for growth as well as pushing forward with key transformation initiatives even in the difficult business environment of COVID. Furthermore, we have accelerated the upward trend as a result of our strong commitment to price revisions of profit improvement initiatives that was previously difficult to achieve.

These outcomes are the result of the hard work of our employees. Regular employees -- employee engagement surveys have shown improvement scores -- in scores since 2021, which we believe is supporting this top line growth. Our employees are an asset to the company and improved employee engagement creates a positive cycle. I believe that these results are an indication that our employees working hard in the marketplace every day are experiencing an improvement in the company's situation. I would like to share that the strong top line growth in the first quarter is not only the result of the price revisions, but is also backed up by this historical uptrend. We believe that our strategy is the right one, and we'll continue to maintain this good momentum as we prepare for the upcoming peak season.

Now let me ask our CFO, Bjorn Ulgenes, to take you through the details of the first quarter results.

[Bjorn Ulgenes, executive]

Thank you, Calin. Hello, everyone. This is Bjorn Ulgenes. Please turn to Slide 7. As Calin explained earlier, in the first quarter, sales volume grew by 4% and revenue growth was 7.8%. Gross profit grew 9.3%, exceeding revenue growth. Although impacted by higher costs related to external factors, such as higher commodity, energy prices and the weakening of the yen, the effect of improved profitability through price revisions and other measures led to an improvement in the gross profit margin.

Business income was a loss of JPY 9.4 billion, but this is an improvement of JPY 3.3 billion on the previous year. Factors behind this change will be explained on the next slide. Operating income improved by JPY 0.5 billion on the previous year. This was mainly due to a year-on-year increase in business income, but a decrease in other income due to the cycling of gains on sales of property, plant and equipment recorded in the first quarter of the previous year. We maintained efforts this year to improve our balance sheet. As a result, net income improved by JPY 0.1 billion from the previous year.

On Slide 8, you will see our primary business income drivers. From the left are volume, price and mix. This shows the year-on-year change in marginal profit from commercial activities, an improvement of JPY 7.2 billion on the previous year. As we explained earlier, it includes the contribution of a 4% volume growth, maximizing opportunities to capture traffic recovery and the effect of the improvement in wholesale revenue per case through price revisions.

Next is transformation. Transformation has generated recurring cost savings of JPY 1.2 billion. This effect was mainly from operational efficiency improvements in supply chain. We are on track to achieve our full year cost savings targets of JPY 3.3 billion. Marketing expenses decreased by JPY 0.3 billion from the previous year. This is the result of strategically invested marketing activities that account for cost effectiveness to fully capture the demand from traffic recovery.

Next is manufacturing costs. Although we benefited from improved manufacturing efficiency from increased production volume, costs increased by JPY 0.8 billion from the previous year from the shift in consumption trends from small packages to large packages following the price revisions. Other costs increased by approximately JPY 2.6 billion from the previous year. This includes the cycling impact of a onetime cost saving of approximately JPY 3 billion in the first quarter last year, with approximately JPY 2 billion from the temporary leave.

On the other hand, cost saving efforts also progressing, including a decrease in logistics costs through an efficient supply network operation, leveraging S&OP and the mega distribution centers. As shown here, elements under our control from volume, price and mix to others, excluding the external factors, including commodity and ForEx impact have increased profitability by JPY 5 billion compared to the previous year. Next, our commodity and utility costs. These were significantly impacted by external factors. Cost increased by JPY 2 billion from the previous year.

The impact of commodity prices, including ForEx was JPY 1 billion, impacted by the yen's depreciation and higher raw material prices, such as PET resin. In addition, utility costs increased by JPY 1 billion with higher electricity costs resulting from higher crude oil and natural gas prices. Although we continue to be impacted by cost increases from external factors, we view it positively with profit contribution from top line growth making a significant contribution to the overall improvement in business profit. These were the main drivers on business income.

Please turn to Slide 9 for volume performance by major channels and categories. Channel total sales volume increased by 4%. We believe we were able to minimize the impact of the volume declines from the previous -- from the price revisions implemented in the previous year by thoroughly implementing commercial activities to capture increased demand with traffic recovery. In addition, the wholesale revenue per case improved by more than double digits over the previous year in all channels from the price revision benefits. In vending, despite the volume impact from price revisions, market share foundation built to date and the campaigns through the Coke ON smartphone app contributed to a 1% increase.

For the price revisions in vending, wholesale revenue per case improved significantly by JPY 167 through speedy price reflections in vending machines. In retail food, volume grew significantly by 23%, benefiting from a recovery in traffic at restaurants and the cycling of COVID-related restrictions that was still in place in the previous year. Supermarkets, drugstores, discounters and CVS volumes were impacted by the price revisions and severe competition. However, drugstores and discounters achieved 3% growth with the recovery in large PET volume, which was weak after the price revisions. Most categories achieved growth, except tea and sports that was significantly impacted by the price revisions. Sparkling grew 6% with growth centered around traffic recovery and Coca-Cola at vending and restaurants. Water grew strongly, supported by the bottle design renewal effect. Coffee was positive with the renewal of the Georgia brand and the expansion of the Costa Coffee lineup.

Slide 10 highlights market share trends. Total channel value share for the full year grew by 0.3% from the last year. This is led by 0.7 points growth in vending value share. Vending value share has grown for the 10th consecutive months. For OTC retail prices, the benefit of the price revisions are materializing with both large PET and small PET exceeding the previous year's levels. The smaller increase in the retail price of large PET compared to the growth in small PET is mainly due to a change in the package mix with the increased composition of water. Both large PET and small PET have maintained their price premiums to the industry average. The detailed status of the price revisions that will be explained in the next slide.

Please look at Slide 11. These are the trends after the price revisions in the OTC channel. In the OTC channel, we implemented 2 rounds of price revisions for large PET in May 2022 and for small packages in October. Retail prices have steadily increased after the shipment price increase and have remained at a higher level since. Graph shown on the slide represent the change in retail prices in the OTC for large PET on the left side and small PET on the right side. You can see that both are rising steadily. As shown in the graph on the left, in large PET, we implement the price revisions in May last year ahead of the industry, and since the second quarter, we increased the price premium against the industry average.

Until the third quarter, the situation remains severe in terms of volume with a large price difference against the industry average. But efforts to maintain shipping prices through sales activities that emphasize discipline resulted in retail prices remaining at an elevated level. The graph on the right illustrates the price revisions from the small PET that were made at the same time as other companies. Therefore, there is almost no difference in the timing of the retail price increasing, but price premiums have expanded significantly. We believe this is the result of speedy and strong determination in price negotiations, product deployments and creating sales space. For the second quarter onwards, we will continue to strengthen our sales foundation by building sales space for the peak season. At the same time, we will continue to strive to maximize the effects of the price revision through commercial activities with discipline.

Slide 12 shows the recovery in vending with higher prices. The graph on the left shows the level of price reflections in vending machines and our wholesale revenue per case trends. In the vending channel, we were among the first in the industry to complete the price reflections in vending machines leveraging our strong and agile operations. Within 1 month of the price revisions, we completed price reflections for over 1/3 of our overall vending machines. And within 3 months by the end of December last year, we had completed reflections of almost all vending machines in our operating area.

By comparing the 2 line charts, you can see that we have been able to reflect our prices ahead of the industry. We believe that this rapid response has led to the early realization of the improvement in wholesale revenue per case. Vending achieved volume growth in the first quarter despite the impact of price revisions. This has also led to the materialization of the effects of price revisions. The market share base that we have built to date and the user base on the Coke ON app has supported volume growth following the price revisions. While leveraging these solid foundations, we continue to provide a unique user experience by strengthening our product lineup to suit each location, including the introduction of new products and introduced vending machines exclusive campaigns using Coke ON.

We believe this has helped minimize the volume impact from the price revisions. In vending, we are encouraged by the fact that we were able to improve wholesale revenue per case and achieve volume growth together in the first quarter. We will apply this experience and learnings towards market execution to the price revisions implemented starting this May.

Please look at Slide 13 for updates on our ESG initiatives. We are accelerating various initiatives towards sustainability management. We're focused on collaboration with our customers. As an example of our efforts, we have started the collaboration with Family Mart for the promotion of sustainable development goals. Also with 7 & i, we have introduced our 4 fully recyclable PET bottle products. By working together on sustainability initiatives, we not only aim to work together with customers and social issues, but also to expand business opportunities through strengthened collaboration.

For collaboration with local governments, we are making steady progress in our efforts to achieve a zero-waste society and are steadily increasing the number of local governments with which we collaborate through Bottle-to-Bottle initiatives. We will continue to accelerate our efforts to create a circular economy. Other initiatives include participation in LGBTQ events, water source conservation through forest preservation activities and donation of beverages to food banks. In recognition of these ESG initiatives, we have received high recognition from external organizations. We will further accelerate our efforts with a wide range of stakeholders to enhance the value we provide to society.

Now I would like to ask [ Ms. Su Choi ] from Coca-Cola Japan to take you through a marketing initiatives update. [ Su-san ], please.

[Unknown Executive]

Thank you, Bjorn. Hello, I'm [ Su Choi ] from the Coca-Cola Japan Company. I'm on Slide 15. I would like to take you through a review of 2023 first quarter and highlights of our marketing initiatives in second quarter of this year. Let's start with the review of 2023 first quarter. As the market recovered from the COVID-19 pandemic, we were able to grow more than the market. Our value share in the soft drink market successfully grew by plus 0.3 points, driven by strong renewals and activations in the core and new innovations to recruit new drinkers enabled by digital-centric experienced way of marketing.

Our first strategic pillar is to strengthen the core, and we're continuing to focus on revitalizing the core brands. Starting with the Coke with Meat campaign launched in March, the unique and refreshing taste of Coca-Cola goes well with meat is a key occasion platform to build habit of drinking Coca-Cola for consumers. Through leveraging our strong partnership with influencers, digital, TV and consumer promotion, we're able to bring virtual into these key occasions with our consumers.

Next is Georgia relaunch in March. Georgia has been our core coffee brand since its launch in 1975, and we decided to relaunch the Georgia brand under our new strategy in 2023. The full relaunch, including a new brand logo, product and positioning was implemented for consumers and new consumers through relevant and exciting communication and activities. With this relaunch, we're off to a good start, showing strong distribution and turns in stores, revitalizing the Georgia brand through system effort.

Moving on to the innovation. Let's begin with Ayataka Koi-Green tea, which is launched in February. This is an upgraded [ 2 ] Food with Functional Claims product with effective of reducing both visceral fat and subcutaneous fat. Through this product launch, we successfully addressed the wide range needs of health-conscious consumers, in particular, seniors.

Moving on to the marketing transformation. We're working on transforming the way of marketing to stay relevant and connected with our consumers and to become more effective and efficient. Let me quickly walk you through the [indiscernible] as the first user participation experience content for the Georgia brand, which is one of the core programs of the Georgia new campaign. This program is an AI illustration maker function that convert to a regular normal photo into an illustrator version that makes you feel like you're the main character of your own story, making your everyday moment into an extraordinary drama. This became one of the most engaging consumer promotions we've done in Georgia, generating significant buzz especially among Gen Z.

Next, Coca-Cola brand has launched a Coca-Cola Original and Coca-Cola Zero campaign called, which great taste do you like. This campaign includes the first time under the cap promotion with unique code printed in each cap of the bottle. By registering this code using the Coke ON app, users are in a taste judge vote and can participate in avoiding promotion to win a 1,000 year supply of Coca-Cola. In addition, through the Coca-Cola Taste Judge Tour in 6 cities across Japan, we're conducting experiential marketing. The initiative is to continue recruiting new users in the Coke TM, growing both Coca-Cola Original and Coca-Cola Zero.

Now on to Slide 16. Next, I'd like to share with you the key initiative highlights in the second quarter of this year. On the core, Kochakaden is evolving further as high-quality black tea brand aiming for even better taste. In April, the entire package design will have been refreshed to intuitively convey the even more quality taste. Furthermore, we renewed the formula of Royal Milk Tea and Peace Tea to enhance the richness of the original black tea flavor and to achieve a refreshing finish. [ New TVC ] Kochakaden featuring actress, Fuka Koshiba-san conveys the deliciousness of Kochakaden which makes people smile and feel positive when they drink it.

I LOHAS brand launched a new bottle nationwide last December, and a new brand campaign was just launched today on May 15 under the key message of a gulp of water that changes tomorrow. The new campaign aims to convey the message that choosing I LOHAS will lead to a better tomorrow and future. Along with the new brand campaign, we've also launched a consumer participation sustainability promotion that consumers can easily participate in through a QR code on the package. We pursue to strengthen the brand edge while attracting new drinkers.

Moving on to innovation. In April, we launched AQUARIUS NEWATER, a completely new hydration drink with superior hydration functions as well as 0 and 0 calories. Our proprietary technology, which uses amino acid instead of sugar provides superior hydration than water, absorbing water faster and longer than water with 0 and 0 calories. We offer a new hydration drink option to support your daily life.

Next, Jack Daniel's & Coca-Cola was launched in April. This is the Coca-Cola's first RTD alcoholic beverage that mixes Coca-Cola and Jack Daniel's, one of America's leading Tennessee whiskey brands. The refreshing taste of Coca-Cola and the rich Tennessee whiskey flavor of Jack Daniel's are in perfect balance, providing a one-of-a-kind perfect taste that can be enjoyed easily. We're expanding our RTD alcoholic beverages option for those who regularly drink whiskey, high-balls and other alcoholic beverages.

Now moving on to marketing transformation. When Jack & Coke was launched, Jack & Coke Bar was opened for a limited time in Shibuya as an experiential marketing activity to provide the new experience of Jack & Coke directly and indirectly. In the Jack & Coke Bar, great taste experience of Jack & Coke, along with DJ performances, relate games and photo spot to experience the world of Jack & Coke was offered to create social buzz and to continue increasing the trial of Jack & Coke.

Now to Slide 17. This is a summary of my presentation. Our marketing strategy for the year continues with 3 main pillars: strengthen the core, fewer, bigger innovations and marketing transformation. To deliver the marketing strategy and plan, the Coca-Cola system will continue to strengthen the partnership to work as one Coca-Cola system in order to win together in the market. With our mission to refresh the world, make the difference, we will continue to strive to deliver refreshing moments and make positive difference through our brands.

Thank you. Over to you, Costel.

[Calin Dragan, executive]

Thank you, [ Su ], for your presentation. Calin here again. From Slide 19, I will talk about the outlook. From the second quarter onward, we need to monitor the impact of the previous year's early end of the rainy season and the record-breaking heat wave. The effects of commodities and exchange rates continue to put pressure on earnings as does the impact of domestic inflation on consumer sentiment.

In such a business environment, we will continue our efforts in 4 main areas. First is that the price revisions for can and large PET bottles for shipments from May 1 for all channels have been implemented. We will take a disciplined approach to price revisions and work to maintain this revised shipping prices. We continue to seriously consider further price revisions while monitoring the market conditions. Second is commercial activities focus on profitability. Key commercial initiatives implemented to date are steadily delivering positive results. We will continue to enhance efforts to launch new products and expand sales pace to minimize the impact of volume decline following price revisions.

In the first quarter, the number of sales points per store increased from the previous year, and we will continue to strengthen such efforts. Sales volume in April maintained a flat level from the previous year. This was achieved despite the previous year's rebound from COVID restrictions and while price revisions continued to impact volume. For supply foundation supporting growth, we will further straighten our S&OP process. This process was vital to ensuring a stable supply of products during last year heat wave. By improving the accuracy of demand forecasting and leveraging our Mega DCs, we will strengthen our ability to respond to the demand fluctuations and ensure stable product supply for this year as well.

In addition, the operations of a stable supply network will help capture sales during the peak demand season while achieving low-cost operations. In April, the Ebina plant started a new production line on schedule. We will continue our efforts to provide further value through beverages by strengthening our manufacturing capacity for strategically important high value-added products. This year, we are engaged in transformation efforts centered on operations in the areas of manufacturing and logistics with a target of generating JPY 3.3 billion in annual cost savings.

And for today's summary, please see Slide 20. In the first quarter, we improved profitability by about JPY 5 billion in the areas under our control, excluding the impact of external factors such as commodity and foreign exchange effects. We are pleased that the price revisions implemented last year with strong determination contributed significantly to revenue growth and that we were able to improve profitability using that top line growth as a driver. We have been clear that this year will be a year to improve profitability, and we are pleased with the progress up until now.

From the second quarter onwards, we will keep this momentum and concentrate on commercial activities that maximize profit. We aim to achieve top line growth by maximizing market recovery opportunities and meeting our profitability improvement target for the full year.

That concludes our presentation. Thank you very much for your time. And now I would like to ask Gomi-san to open the question and answers.

[ゴミ マサオミ, executive]

Thank you, Calin-san. As the following Q&A session is for analysts and investors only, members of the media are asked to refrain from asking questions at this time. We will hold a separate media Q&A session later today. Simultaneous interpretation is provided. So please ask your question in the corresponding language of the participating phone line. Please speak Japanese on the Japanese line and likewise English on the English line. Due to the constraints of simultaneous interpretation, please limit your question to one at a time. Now I'd like to start the Q&A session. Operator, please begin.

[Operator]

[Operator Instructions] We have received request for questions. I would like to begin the Q&A session. We will now call the names of those who wish to ask a question. When speaking, please state your company name and your name before your question. We will now welcome the first person with a question and we will be unmuting you. This is Fujiwara-san from Nomura Securities.

[Satoshi Fujiwara, analyst]

[Interpreted] This is Fujiwara from Nomura Securities. I would like to ask about the possibility of doing another price revision. And last year, you did the price revision and the volume went up, and it has contributed to the growth of sales. But at this point, why haven't you announced that you will be doing another price revision in the future? So let me continue my next question is kind of related to my first question. And if we just continue as is the price revision in the future, probably it will be like around the fall season, I'm guessing. And in the past, there was a lot of price revision for the food industry and the information has continued. But the later you are on the price revision. This momentum we have for the food price revision, the momentum is going to be gone, and it might be not be successful for the beverage industry. So my question is around your future possibilities of price revision?

[ゴミ マサオミ, executive]

Thank you, Fujiwara-san for your question on the price revision, I would like to ask Costel-san to take this question, please.

[Costel Mandrea, executive]

Fujiwara-san, this is Costel. Thank you for your question. So first of all, I will say that the previous 2 price revisions in May and October 2022 were disciplinedly executed, and they made a significant contribution to the revenue growth. And we see this in the results of first quarter, and we see it in the wholesale price across all channels. As you saw also in the presentation, we are seriously considering additional price increases, and we are right now monitoring all the market conditions.

Our focus right now is to implement with discipline, the third price increase, the one in May for can, bottle can and large PET. And also, we are working with our customers to understand what is the impact on the total market. As you said, there were significant price increases in the market, and we are evaluating the effect of this for every single channel and for overall consumer behavior. We'll keep you updated with the further decisions. Thank you very much.

[Bjorn Ulgenes, executive]

And maybe, it's Bjorn, Fujiwara-san, just a quick build. The 2 price increases, Costel Mandrea talked about are included in our full year forecast that we announced back in February for this year. It's included in the JPY 30 billion marginal profit uplift we're planning to execute for this year. Thank you.

[ゴミ マサオミ, executive]

Fujiwara-san, would that be okay?

[Satoshi Fujiwara, analyst]

[Interpreted] So at the risk of having another price revision, do you see there's any risk, the later you are to announce the price revision, I think you're going to miss the best timing to do the price revision. But do you see if there's any risk if you are late in announcing the price revision?

[Costel Mandrea, executive]

Costel again. Like I said, our entire focus is right now on implementing the third price increase. And let me remind you that we executed already with discipline and across the market, 2 price increases. So our sales force, it is ready to execute in the market, whatever decision we are making at a later stage. We'll keep you updated with all the scenarios and with further decisions. Thank you very much.

[ゴミ マサオミ, executive]

[Foreign Language] Fujiwara-san, thank you very much for your question and thank you for the answer. Operator, can we move to the next question, please?

[Operator]

Next question is from Saji-san from Mizuho Securities.

[Hiroshi Saji, analyst]

[Interpreted] This is Saji. I would like to ask about the price hike in the past. I would like to understand the background to your success of all those past price hike in comparison to those in previous ones. And also, you mentioned about the vending benefits is becoming very large. But what is the success factor behind the vending success? Will you expect the May price hike to have the same kind of benefit in the vending channel?

[ゴミ マサオミ, executive]

Thank you, Saji-san for your question. You would like to understand the background to the success of the price hike. I would like to ask Costel to pick it up.

[Costel Mandrea, executive]

So it doesn't matter it is vending or OTC. What we know is that we executed already with discipline 2 price increases. And 2 weeks ago, we started the third one. And I think what is very common for us in the last year plus, it is the way we engaged with our sales force, making sure they know how to discuss, how to negotiate with our customers. The effort we spend with our marketing department to make sure we have programs to compensate for the price increase. And the most important is once we increase the price, we maintain the wholesale price, so we do not discount further.

In the case of vending, as you asked in your request, Saji-san, we being market leader gives us the agility to move faster with the price increases. So we see, for example, for the May price increase, already, we implemented the price increase. We raised the prices in 70% of the vending, and we expect the rest of the vending machines to be increased in the next weeks before the summer season. I hope this answers your question. Thank you very much.

[Hiroshi Saji, analyst]

[Interpreted] I would like to make clarification on one thing. In May, I believe that after the May price hike for can, do you see any volume decline after the price hike?

[ゴミ マサオミ, executive]

Thank you, Saji-san, your question about the volume decrease in main price hike.

[Costel Mandrea, executive]

Only 2 weeks after we increased the prices, we see some movement of volume in the market, but this is in line with our expectations. We learned from the previous 2 price increases that in the initial period after the price increase, we see the volumes being affected, but they recover after that and I expect the same to be this year. What is also very important this year is that we prepared a significant marketing plan. We -- you had some examples in Q1, and you saw what we have in the pipeline for Q2. So I expect this price increase in May to be also disciplined and successfully implemented and to help us in benefiting for the overall NSI. Thank you.

[ゴミ マサオミ, executive]

Saji-san, I hope that answers your question. Thank you very much. We still have time. So I would like to see -- I would like to see whether we have other questions. Operator, please?

[Operator]

[Operator Instructions] SMBC Nikko, Takagi-san, please.

[Naomi Takagi, analyst]

[Interpreted] This is Takagi. And I would like to ask about the possibility of price revision in the future. So when you are going to execute another price revision, what are you going to be the factors for you to make the final decision? What is the background, when you're going to have another revision? And looking at the beverage market and also the leadership is at [ Century ] as well. But are you going to make your own decisions to do this another price revision? Are you going to depend on the competitors' movements or not? That's my question.

[ゴミ マサオミ, executive]

Thank you, Takagi-san, for the question. So you want to ask about our judging criteria for another price revision. Bjorn-san, please?

[Bjorn Ulgenes, executive]

Thank you, Takagi-san. So any future price increases, which we have said in the prepared remarks, we are seriously considering we'll take into account a couple of factors. First is the market reactions to price increases. In other words, how our customers and our consumers absorb any increases in pricing. And secondly, it is about the impact of commodities and currency as we have highlighted over the last few quarters in our report. And all of these factors combined will help us determine if and how and how much any price increases might be executed. And I'll get Costel Mandrea to give some more flavor to the price increase.

[Costel Mandrea, executive]

Takagi-san, this is Costel. Thank you. So first of all, I will say we want a profitable and healthy beverage market, and we believe price increases are working in this direction. Second, you -- I don't think it's a need for us to prove. We increased prices alone in 2019, and in 2022, in May, we took the decision to increase price, and we're alone in the market. So yes, we are leading this market from a pricing perspective. And right now, like we said, we are seriously considering additional price increases. But our focus for the next weeks, it is to make sure the May price increase is disciplinedly implemented and to monitor the reaction in the market. When we have news, rest assured we'll come back to you.

[Naomi Takagi, analyst]

[Interpreted] So for the beverage industry, you -- do you think it's healthy now? Just a simple question. Do you think there's still challenges in the beverage industry or do you think it's already healthy?

[ゴミ マサオミ, executive]

So the question is about the healthy level of the beverage industry, from Calin-san please?

[Calin Dragan, executive]

Thank you so much for follow-up question. Calin Dragan here. Yes, so I can answer very quick to your question and say, yes, I think the industry through the last year trend, it become healthier because we were able for the first time probably in 3 decades to put the prices up. And as you remember, in the past, the entire industry was focusing on leveraging just mix and volumes. And that was an unhealthy work until we were able to start tackling pricing in the market.

You can see in the whole industry performance for the very first quarter and as well quarter 4 last year improvement. So yes, that is a positive trend. What -- having said that, as beverage industry in particular and food industry in general, we are still under pressure, cost pressures out there from commodity prices valuations, utilities, but as well yen depreciation. And that puts pressure on the entire industry to create a dynamic environment on where we can leverage all the elements of the revenue growth, basically, volume, mix and most importantly now, pricing.

We can see that the pressure on the volume trends in the market for the beverage industry, the consumers are prepared to pay premium prices for beverages, packaged beverages. And that gives us confidence the industry is ready to price continuously in the years to come in a healthy way for the health of the industry and, of course, of each business individually. I hope that answers the question.

[ゴミ マサオミ, executive]

Thank you. Thank you, Takagi-san for the question. Operator, next question, please?

[Operator]

We have Ihara-san from Credit Suisse Securities.

[Rei Ihara, analyst]

[Interpreted] This is Ihara from Credit Suisse. I have one question about OTC share. I believe after the price hike, you are keeping up with the premium price against the competitors, but in the value share is on declining trend. So to start with this premium pricing doesn't really -- doesn't -- it looks like it doesn't really work with the consumers. So in order for us to keep up with the share in the OTC, what do you see the success factor to achieve that goal? And also, if you are to with the price hike, if you can go back to profitability next year or following years, but wouldn't this kind of share trend doesn't your business go back to the declining trend? So including all these questions, everything, what will be your positioning of your business in -- share in the OTC market?

[ゴミ マサオミ, executive]

Thank you very much, Ihara-san.

[Costel Mandrea, executive]

It's Costel. So profitable share growth is our strategy. And I'm very specific about profitable share, not any kind of share. And this gives me a great pleasure to see in vending, the market share increasing consistently. We increased prices and the share is still increasing. In the case of OTC, here in supermarket, in drug and discounters, we see a good performance, both in terms of price increase, but also in terms of share. In CVS, the competitive environment, it is very aggressive.

And our strategy is focused on profitable growth. So we -- you observe that we are getting gradually out of high discount promotions, like Buy One, Get One Free. We are minimizing this. We are staying consistent with our packages. We do not upsize, and we invest a lot in marketing programs. And just to give you a few examples of marketing programs and how we are planning to grow share profitably in CVS, I want to invite my colleague, [ Su ] from the marketing department.

[Unknown Executive]

Thanks, Costel. In terms of OTC share, specifically in CVS, and as Costel already talked about profitable share, we have new strategy to focus on increasing our share in strategic channels like CVS. So a couple of examples that we have done that I've shared in the presentation part is the initiatives like Georgia relaunch, we've just relaunched end of March, and the focus has been recruiting new users in CVS with new logo, new products, new lineup with a new brand message. And this has been very effective to turn around the share in CVS. Along with Georgia, we also have very strong growth coming from I LOHAS through a new bottle launch as well, too. So with efforts such as this from marketing, we're seeing shares turning around in CVS.

[ゴミ マサオミ, executive]

[Foreign Language] Ihara-san, I hope that answers your question. Thank you very much for your question. Operator, please put through the next question.

[Operator]

The next question will be from Daiwa Securities, Morita-san.

[Makoto Morita, analyst]

[Interpreted] This is Morita from Daiwa Securities. And I want to ask about the Coca-Cola Group or the Coca-Cola brand power. How has it changed in the past couple of years? So looking at the past like 3 years or so, is the brand power like stronger, weaker? Can you give us kind of like history on how the brand power has changed?

[ゴミ マサオミ, executive]

Thank you, Morita-san. So you want to ask about the Coca-Cola brand with a longer perspective and kind of look back at the past. So [ Su-san ], please?

[Unknown Executive]

In terms of Coca-Cola, as you know, it's one of the most important categories, not only for the company but for the consumers in terms of how we look at the growth potential in Japan. If you look at the last 3 years, we have made quite a lot of effort in growing the Coca-Cola brand. And the brand power has been in the past, but is even stronger in terms of brand power. We are growing year-on-year. And this year, you will see that we have developed brand marketing campaigns to really not only grow the brand power, but to recruit new users into the key occasions. And this will continue to be one of our key focus area to increase new users into the Coca-Cola total portfolio.

[Makoto Morita, analyst]

[Interpreted] So the brand equity, what are the ways that you measure? Do you have like important KPIs to measure your brand equity or brand power?

[Unknown Executive]

Thank you for the question. We have extensive research methodology to look at the brand equity. So we look at things starting from brand awareness to the brand that I love. The first brand that you think about, that's top of mind. We also look at on a weekly basis, the brand purchase and consumption as well too and the intention to drink Coca-Cola along with the tracking of brand images or edges such as like Coca-Cola is a great tasting drink or Coca-Cola is a happy -- makes me happy, which, in turn, drive the overall brand power of the brand. I hope that answers your question.

[ゴミ マサオミ, executive]

Thank you very much. And thank you very much, Morita-san for the question. And we are very sorry, but our scheduled finish time is approaching. And the next question will be the last question. Operator, please, last question.

[Operator]

Miyake-san from the Morgan Stanley MUFG.

[Haruka Miyake, analyst]

[Interpreted] This is Miyake speaking here. I also would like to ask about the midterm content. So I have a couple of questions for that. To start with, you said the profitable growth will come to the first priority. But having said that, you really have to focus on the growth on the volume, too. Back in 2018, you -- do you think that you can go back to the volume level back in 2018 or do you think that you will never be returned back to 2018 level because of the pricing? And also for the cost reduction part, I think since the merger, you have been taking up a significant amount of transformation. But in a midterm view, do you think that you still can generate the cost reduction effect of JPY 4 billion to JPY 5 billion every year or is there any other scale that you have in mind?

[ゴミ マサオミ, executive]

Thank you, Miyake-san. So you are talking about the volume perspective in midterm and also for the cost reduction perspective. I would like Calin-san to pick it up.

[Calin Dragan, executive]

Thank you so much, Miyake-san, and thank you for the question. So from my side, I just need to let you know that, first, return to profitability and the construction of the mid- to long-term plan, it's for every employee in our company is the top priority. So we are working right now on building up a mid- to long-term plan that we are going to communicate at the appropriate moment in time based on market conditions and as well, especially market stabilization in term of cost pressures generated by the yen devaluation as well commodities and utilities pricing.

Going more specifically to your question on the volume trends right now, well, I am pleased to say that in a number of channels, which will be supermarkets, drugstores, discounters, I would say the volumes were coming back to the levels of pre-pandemic already. So it's not for the future to reach that level, but rather to build on top of that. In the meantime, there are certain channels, especially the ones heavily affected by the traffic, and here, I'm referring to the CVS to vending and probably the food service, which are coming back significantly, but still not at the levels of the pre-pandemic that we have experienced at that time.

So -- but with the help of now price increases and leveraging the full balance of pricing, mix and volume, we are able to display way better performance than during the pandemic time. That would be probably about the revenue construction. If you ask me about the continuation of our transformation efforts that have been a relentless process. We haven't stopped during the COVID. We were transforming every year the business because we are coming from a background of 12 local bottlers, which have to be integrated, processes streamlined and capturing synergies.

With the investments we have made over the last years and with our transformation mindset embedded in our mission, vision and values, we are going to deliver every year savings at various levels. For this year, we have a commitment of JPY 3.3 billion in cost reductions. And we promised to come back with targets for the years to come whenever we decide it's appropriate to communicate the long-term plan. So I hope this answers your question.

[ゴミ マサオミ, executive]

Miyake-san, I hope that answers your question. Sorry, we're running over the [ significant ] time, but I would like to close the Q&A session now. The content of today's presentation will be available on our website following this presentation. If you have any questions or feedback, please contact our IR team. Thank you very much for joining the call today.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]