Coca-Cola Bottlers Japan Holdings Inc

TSE:2579

Earnings Call Transcript 2022-Q2

[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 second quarter 2022 earnings call for analysts and investors. I'm here with President Calin Dragan; CFO Bjorn Ulgenes; and Takashi Wasa from the Coca-Cola Japan Company. Following prepared remarks, we will be happy to take your questions. This presentation is intended for analysts and investors, so we ask members of the media listening to today's call to please hold your questions for our media session scheduled separately. Simultaneous translation in both Japanese and English is being provided for today's call and during Q&A, with separate phone lines for Japanese and English.

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 supporting presentation. Both are posted to the Investors section of our company website. With that, I'd like to turn the call over to President Calin Dragan, Calin-san.

[Calin Dragan, executive]

Thank you, Gomi-san. Good afternoon, everyone. Calin Dragan here. I will begin by sharing the summary of our first half 2022 earnings. Please turn to Slide 5 of the presentation. In the first half, sales volume increased by 4%. Volume growth was achieved overcoming the large initial volume impact from the large PET revision implemented ahead of the industry. With the foundation built to date, we achieved growth by capturing opportunities, introducing new products and implementing effective promotions. In late June, we faced a sudden charge in demand from the heat wave. Improvement in the S&OP process followed last year's supply challenges. This allow us to flexibly respond to record levels of demand fluctuations and contributed to volume growth.

Total channel value share grew by 8 points versus last year. Value share growth in our important vending channel drove overall growth. Value share for the OTC channel, which has been facing challenges, turned to growth in the second quarter and for the first half. This is thanks to initiatives that captured market share overcoming severe market conditions.

Wholesale revenue per case is on an improving trend overall. With the price revisions, wholesale revenue per case for the OTC channel grew in the second quarter compared to the previous year. Our vending channel also saw improvement through initiatives to optimize selling prices. We achieved growth in wholesale revenue per case while growing volume. Business income loss widened compared to the previous year, though. Volume growth, price revisions and transformation efforts all contributed to profits. However, this was offset by rising commodity prices, rapid currency depreciation and a continued severe competitive environment and the cycling of the onetime cost savings achieved last year.

From a profit standpoint, we are still in a difficult situation, but the top line is returning to a growth trajectory as we capture the recovery in traffic trends. And for July, we continued to grow volumes. To improve profitability, we have already implemented price revisions for large PET as planned, and they are preparing for the price revisions for small packages in October.

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

[Bjorn Ulgenes, executive]

Thank you, Calin. Hello, everyone. This is Bjorn Ulgenes. Please see Slide 6 for the first half results. As Calin explained earlier, although sales volume increased by 4%, revenue growth was 1.8%, due to a challenging competitive environment and increased sales deductions. Looking at the second quarter alone, the mix is improving with volume growth of 3% against the 3% revenue growth.

Business income decreased by JPY 3.4 billion on the previous year, resulting in a loss of JPY 18.2 billion. The factors behind the decrease will be detailed on the next slide. Operating loss improved by JPY 3.8 billion from the previous year. This includes the continued balance sheet improvement efforts, such as the approximate JPY 3.7 billion gain from the sale of fixed assets.

Net income decreased by JPY 9.5 billion. This is mainly due to the cycling impact of a JPY 12.5 billion gain on the sale of shares in our subsidiary Q'sai being included for 2021. On Slide 7, you will see our primary business income drivers. From the left-hand side are volume, price and mix, which shows the year-on-year change in marginal profit from the commercial activities improving by JPY 2.7 billion from the previous year. This was supported mainly by volume growth in the immediate consumption channel, with recovery in traffic and from the heat wave.

We also saw improved wholesale revenue per case in the second quarter from price revisions as well as improved package mix. This also includes the impact of increased rebates due to promotional activities in response to increased competition. As volume grew, fixed marketing expense or DME increased by JPY 3.5 billion from the previous year. This was driven by strategic investments to capture traffic recovery demand, (sic) [ recovering traffic demand ] as well as strengthen marketing activities ahead of the peak season. It is progressing on plan. For our 2022 commercial strategy, we target marketing investments with a focus on profitability, and we believe our investments in growth channels and packages will lead to mid- to long-term market share and volume growth. Impact of commodity was a JPY 6.2 billion deterioration versus the previous year.

As we are affected by rising raw material prices, we are taking all possible countermeasures, including hedging. The price rises in P&T (sic) [ PET ] and aluminum are significant. Additionally, the rapid depreciation of the yen had an impact. The effect of these factors has been ongoing and is expected to impact future business performance as well.

Manufacturing costs improved by JPY 1.8 billion compared to last year. Improved manufacturing efficiencies helped absorb higher energy costs caused by crude oil prices. In other costs, we saw an improvement of approximately JPY 1.8 billion compared to the previous year. Labor costs increased with the cycling of last year's temporary leave. However, we achieved a net positive contribution with the improved logistics costs [ and ] our new mega distribution center.

Controlled CapEx has resulted in a decreased depreciation expense. This also includes a lower depreciation expense with a change in the useful life of sales equipment from 9 years to 11 years. CapEx is broadly in line with initial full year plan. The investment in the Akashi Mega Distribution Center was booked in the first half, but investment has decreased from the previous year with the cycling of the Saitama Mega distribution center investments booked last year. These were the main drivers of business income.

Please see Slide 8 for volume performance by major channels and categories. For the first half, sales volume increased by 4%. By channel, supermarkets, drug stores and discounters, volume was impacted by the large PET price revisions and intensified competition. Convenience stores, which has been experiencing challenges, posted a volume increase of 8% in the second quarter and 2% for the first half. This was achieved through the contribution of new products and strengthening collaboration with customers despite the persistent intense competitive environment.

Vending was up by 3% from the previous year, thanks to both strategic machine placements, reinforced in anticipation of traffic recovery, and effective deployment of the Coke ON app. Retail & Food volume increased by 20% with the recovery in people dining out as COVID restrictions lifted. Wholesale revenue per case is improving overall. In supermarkets, drug stores and discounters, we saw the positive effect of price revisions for large PET. Vending also grew from the previous year with sales price improvement activities. Details of price revisions and other initiatives will be explained later.

By category, sparkling had contributions from new products Fanta Premier Lemon and Coca-Cola Zero Sugar Lemon. But volume was flat year-on-year, impacted by the large PET price revisions. The tea Yakan no Mugicha from Hajime continues to grow volume since its introduction last year. A new Ayataka Cafe Matcha Latte also contributed to growth. The sports drink category grew by 9%, benefiting as COVID restriction lifted on events and from the heat wave.

Slide 9 highlights market share trends. Our operating area's total channel value share for the first half grew by 0.8 points from last year. This is a result of a continued growth in vending value share and value share turning positive for the second quarter in the convenience store channel, which previously saw slow growth. We will continue to improve market share by leveraging our growth foundation and capture the recovering demand opportunity. For OTC retail prices, large PET has turned positive from last year with the previous revisions. Both our small PET and large PET are maintaining a premium price to the market average. We will continue to supply refreshing products and implement effective promotions.

Slide 10 is on the progress of price revisions for large PET and efforts to improve wholesale revenue per case in vending. Large PET price revisions implemented in May to improve earnings base is progressing as planned. Supermarket, drugstores and discounters wholesale revenue per case improved by JPY 52 in the second quarter with the benefit from price revisions. While large PET volume declined significantly following the price revisions, volume is recovering ahead of the peak summer season. The rate of recovery is at a faster pace than the 2019 price revisions.

Retail prices are increasing alongside shipment price. Our retail prices were at a premium to the industry average even before the price revisions. And our retail prices have increased while maintaining the premium, allowing us to confirm the effectiveness. The left graph below shows the trend of the retail price of Brand Coca-Cola's large PET bottles. As 1 example, one can see the retail price has increased by approximately JPY 20 since the time of the 2019 price revisions. Our large PET price revisions ahead of the industry was carried out with determination to build a revenue base. We will continue efforts to maintain the shipment price of large PET and are determined to carry out the price revisions for small packages scheduled in October.

In the profitable Vending channel, we improved wholesale revenue per case by JPY 29, while achieving volume growth of 3% in the second quarter. To achieve volume growth, we captured a tailwind of traffic recovery and favorable weather conditions. We strengthened our product lineup, launched new products, implemented campaigns through Coke ON and placed new vending machines in prime locations. In addition, we have been able to achieve volume growth and wholesale revenue per case growth together. This was made possible by strengthening premium products with high unit prices and actively reviewing price promotions. We feel that the strong market share foundation we have built to date has made a significant contribution. In this difficult business environment, we believe that efforts to improve our earnings base are important, urgent and will continue implementing our profitability-focused pricing strategy.

On Slide 11, I would like to share the supporting factors for the volume growth. In the second quarter, the market environment was characterized by tailwinds such as the recovery in traffic and an early end of the rainy season, and the heat wave in the second half of June. In this environment, we were able to achieve steady growth by leveraging the foundation we have built and capturing increased demand opportunities. In commercial, we continued investments to strengthen our sales base even in the difficult times of COVID. This allowed stable growth when the traffic recovers. We have taken measures such as reinforcing vending machine placements, while assessing the return on investments, expanding store sales space and rebuilding our market share base.

We also introduced new products and packages to suit different locations and develop promotions centered around our core brands. As a result, we captured increased demand during the current phase of traffic recovery and achieved steady growth in volume and sales revenue. Efforts to avoid lost sales opportunities have been successful, and the challenged supply structure of last year have improved greatly. Demand jumped in the last week of June with traffic recovery, an earlier than usual end of the rainy season, and the heat wave. Our product shipments achieved historically high levels, and we were able to supply products without major disruptions, thanks to our efforts to fundamentally improve the sales and operational planning process, using learnings from the previous year.

Inventory has remained tight since July with rising demand, but we are working to ensure a stable supply while minimizing shortages. Our new sales and operational process have improved demand forecasting accuracy, sped up decision making based on scenario planning, enriched financial data to support decision-making and enhanced communication throughout the process. Through these improvements to modernize infrastructures such as mega distribution centers, we continue to build a supply system that can flexibly respond to demand fluctuations.

Now I'd like to ask the Chief Marketing Officer of Coca-Cola Japan, Takashi Wasa, to take you through the marketing initiatives updates. Wasa-san, please.

[Takashi Wasa, executive]

[Foreign Language]

This is Wasa from the Coca-Cola Japan. Let me walk you through 2022 quarter 2 review and quarter 3 marketing highlights. To begin with, 2022 quarter 2 review. In June, Coca-Cola Brand launched the Coca-Cola summer campaign with the key message Coke Music, charting the magic of summer. We launched Coke Studio, a new platform for enjoying music content featuring up and coming artists from around the world, including K-pop rising star Enhypen.

In conjunction with the summer campaign, we are also implementing an instant win promotion, which can be entered by purchasing eligible products. In addition, the first flavored Coca-Cola Zero, Coca-Cola Zero Sugar Lemon, was launched as a limited release contributed to sales growth. Coca-Cola and Coca-Cola Zero, 100% recycled label with 350 million PET bottles were launched in April, exclusively online. The Coca-Cola Spencer logo is debossed on the labelless bottles, a process that creates a concave effect, successfully promoting both the brand and reducing the amount of plastic used, which helps promote our ESG initiatives.

Turning to Georgia and Costa. Georgia communicates its support for daily timely refreshment during the hot summer sampling on the renewal of the Georgia Japan Craftsman series that maintain its refreshing taste from the beginning to the end. In addition, our new product, Georgia Japan Craftsman White Mocha was launched in June. From Costa Coffee, Costa Coffee Almond Latte, a high-quality latte, was launched, rich espresso domestic milk and almond milk. The number of Costa Coffee fans who are particular about the home-brewed quality of Costa Coffee has been steadily increasing. Leveraging Georgia & Costa Coffee brands effectively, we have succeeded in expanding our market value share in the coffee category.

In April, Ayataka celebrated its 15th anniversary and revamped its package designing campaign. We are strengthening our core products by conveying the peaceful aromatic flavor of Ayataka, delivering the relaxing taste that accompany people in their daily life. On the concept of aromatic, umami made with tea leaves brewed until fully open. In addition, in April, Ayataka Cafe Hojicha Latte went on sale. The second product in the Ayataka Cafe series of authentic lattes made with the finest ingredients and manufacturing methods, combined with Ayataka Cafe Matcha Latte, launched in March of last year. Total shipment of Ayataka Cafe series has exceeded 200 million bottles. Through the -- next and next-generation relaxation drink Chill Out was renewed in April. Together with renewal, a new campaign Want to Chill? or [ push too hard ] was launched. We are expanding product awareness through trials and creating a new profitable category.

And in May, we launched a new energy drink in cooperation with Yoshiki of [ rajinterview ] rock group X Japan. [ They are both ] X was inspired by uplifting rock music, and [ reo worldwide ] is inspired by concentration through classical music. Through Yoshiki's message of nothing is impossible music asset marketing, we are inspiring the next generation to take on various challenges with this new energy drink. We successfully tapped into the profitable energy drink category.

Next, I'm going to walk you through Q3 highlights. Coca-Cola Creation is a new platform for collaboration between Coca-Cola and pop culture. From this Coca-Cola Creation series, Coca-Cola Zero Sugar, The Artist Marshmello's Limited Edition was launched in July. A limited release collaboration [ followed of these ] electronic music producer and DJ Marshmello, who has huge following among zoomers around the world. Turning to Fanta. Fanta has launched Fanta Mix at home in Summer campaign. The campaign aims to bring smiles to the faces of the whole family by sharing ideas to create an original Fanta Mix of your favorite Fanta, topped with fruit, ice cream and sweets. At the same time, Fanta created a wave commercial through a special collaboration with Gold Group, NiziU and the general public. This collaboration will deliver the positivity from powerful individuality and [ flavor ] spreads that Fanta varies along with NiziU's music.

A summer campaign for Ayataka Cafe will start in July. Through TV commercial, digital art and [ aural hedge ] the appeal of the delicious chilled Ayataka Cafe will be delivered. This summer, enjoy the cool and relaxing coolness of summer in Japan with a cold Matcha Latte and Hojicha Latte from Ayataka Cafe. Ayataka Core will launch its second campaign based on the concept of aromatic umami made with tealeaves brewed until fully open at the end of August. The campaign aims to further expand and invigorate the green tea market by offering autumn season food and ingredients. In its second summer, Yakan Barley Tea, which aims to provide the authentic taste of barley tea brewed in kettle, we launched a big campaign with a [ marriage ] promotion, whereby consumers can receive original goods when purchasing products alongside television commercials and other advertising activities. We aim to expand our drinkers to more generation through this campaign.

Last but not least, the Lemon-Dou brand, which specialized in specialty lemon sour has launched a summer campaign focusing on 1 of the most important [ locations ], enjoying drinks with a meal. The campaign is designed to encourage the combination of strong flavored, hearty food and the strong lemon [ sour ] Lemon-Dou. Along with the campaign, Lemon-Dou 6 packs will be launched as a limited offering to attract loyal consumers. This is a summary of my presentation today. Our marketing strategy for this year continue to have 3 main pillars: pivot to core; fewer, bigger innovations; and capture stay-at-home demand. We will continue to respond flexibly and quickly to changes in the environment and further grow sales and revenue by strengthening our core brands and strongly accelerating the growth of second year innovations launched last year and this year's new innovations. Our marketing plan is underlying our company purpose: refresh the world, make a difference. We will continuously strive to deliver refreshing moments and positive feelings through our beverages. That's it for my presentation today. Thank you very much.

[Calin Dragan, executive]

Thank you, Wasa-san. Calin here again. Please turn to Slide 17. I will now explain the outlook for the second half of the year. And first, I will discuss the external environment. The beverage market in the first half of the year is estimated to have grown by about 4% from the previous year, supported by the rebound in traffic with the lifting of COVID restrictions, the fastest end of the rainy season on record and the heat wave in late June. The market has been growing for 4 consecutive months since March.

For the second half, our overall view of the beverage market to continue steady recovery in volume remains unchanged. However, new COVID cases have recently been rising. It is necessary to carefully monitor the impact on the future restrictions and traffic trends. In addition, the risk of higher costs due to external factors is increasing. Commodity prices remain high compared to pre-COVID levels, and together with the yen depreciation this will have significant impact on corporate earnings in our industry. The business environment is expected to be challenging, with the commodity prices and yen depreciation having an even greater impact. The risk of inflation on household finances and consumer sentiment also needs to be closely monitored.

The following slide will explain our outlook for the second half considering this business environment. Please see Slide 18. I will explain the risks and opportunities expected for the second half of the year. As briefly mentioned earlier on risk, there are 3 major factors. First is the commodity impact. Commodity prices have remained above our initial expectations, and we are working to mitigate the impact by using hedging and other measures. Price of materials such as PET have been trending above our estimates, making the impact unavoidable. Second, its ForEx is expected to have an even greater impact. Although the situation has stabilized somewhat, the yen has depreciated more than initially expected, leading to higher cost for raw materials and impacting our business performance. As for the additional impact from commodities and ForEx, we are currently expecting an increased cost of about JPY 3 billion on top of the JPY 11.3 billion communicated in the guidance announced in May.

Thirdly, we need to pay attention to the uncertainties in the future consumer behavior coming from the current unstable environment. There is a risk that a COVID resurgence will affect traffic and changes in consumer sentiment with inflation, which could impact future demand for beverages. We must closely monitor the impact of these uncertainties, especially as we prepare for price revisions in October. While we are faced with various headwinds, we will create new growth opportunities to overcome the impact. First, we will grow by taking advantage of the recovery in traffic. With the growth foundation and the supply structure we have built, we will capture the opportunity for demand increase, especially during the peak season.

In the first half of the year, the results of our activities such as growth in volume and market share in the highly profitable immediate consumption channel are becoming evident. We will continue to strengthen our efforts in the second half of the year. And we will further improve profitability by successfully implementing the price revision for small packages scheduled for October. This impact has not been reflected in the full year earnings forecast announced in May. We continue to monitor the situation after the price revision of large PET in May and work to generate the benefits as planned.

In addition, we will work to mitigate the impact by controlling all the costs. While the business environment in the second half is by no means optimistic, we will continue to commit to the full year business income targets announced in May, and we will do this by overcoming the negative factors through various growth opportunities. Please look at Slide 19 for updates on our ESG initiatives. With creating shared value as the foundation of our business, we have formulated CSV goals representing our commitment to realizing this value as we promote various initiatives.

In our efforts to realize a world without waste, we have been promoting horizontal recycling of PET bottles in collaboration with partner companies. We are working to increase the ratio of sustainable material used, including bottle-to-bottle recycling. In May, we were certified as a Green Partner 2022 under the forest and decarbonization challenge 2022, organized by the Forestry Agency in recognition of our efforts for forest development for water resource conservation. We will continue our activities in various areas to achieve our CSV goals.

Please turn to Page 20 for today's summary. In the first half of the year, we were able to leverage the growth foundation and supply structure we have built into volume growth. We have captured the opportunities presented by the recovery in traffic and demand increase from the heat wave. Growth in the profitable immediate consumption channels has had a positive impact on business performance. The price revision for large PET implemented ahead of the industry, and efforts to improve profitability in vending, are delivering results with improving wholesale revenue per case. While we are making good progress in areas that we can control, we face the risk of additional cost increases due to external factors such as commodity price increases and the sharp depreciation of the yen.

We expect the business environment to become even more challenging in the second half of the year. And with the consumption environment becoming increasingly uncertain, we will continue to monitor the situation very closely. However, our efforts have steadily produced positive results. We believe that we will be able to drive our business forward in the second half despite the challenging business environment. While facing headwinds we will further accelerate our efforts and implement various action plans, including price revisions for small packages. And by overcoming the headwinds, we will remain committed to achieving the business income target announced in May. We have been focusing on what we can control to prepare for when the traffic returns. We are confident in our strategy, which is producing steady results. Although the traffic has not fully returned and we face new challenges such as cost pressure, we believe that our initiatives and our ability to respond to the challenging business environment will not only produce short-term results, but also lead to sustainable growth over the mid- to long term.

As I shared in the previous earnings call, it is important here to move from protecting our business to growing our business, and we will further promote measures for growth and earnings improvement to return to a growth path. That concludes my presentation. And let me now ask Gomi-san to come back and take us into the question and answers.

[ゴミ マサオミ, executive]

Thank you, Calin-san. Let me remind you this Q&A session is intended for analysts and investors. So we ask members of the media on the call to please hold your questions until our media session scheduled separately today. We are using simultaneous interpretation. So please make sure to ask your questions in the language you are joining, Japanese on the Japanese phone line and English on the English phone line. Please try to ask 1 question at a time, as we are translating your questions. Please state your name and your company. Now I would like to begin the Q&A. Operator, please put through the first question.

[Operator]

[Operator Instructions] The question is from Credit Suisse, Ihara-san.

[Rei Ihara, analyst]

This is Ihara from Credit Suisse. And I have 2 questions. The first question is regarding the unit price and also the situation of competition. So looking at the numbers from April to June, the large PET, not just that, but the convenience stores, the vending machines, it seems that the revenue per case is on the positive side. So finally, it seems that it's growing. And I think it is a simple question now. Now the volume will go directly to the profit increase. And looking at the situation by channel, what is the revenue per price -- per case? And what is the competition situation? This is my first question by channel, please.

[ゴミ マサオミ, executive]

Thank you, Ihara-san, for the question. The first question is the unit price and the competitive situation by channel. Costin-san will answer.

[Costel Mandrea, executive]

Thank you, Ihara-san. This is Costin. I will address first important question about the price increase across the channels. We announced, as you know, from first of May an increase of large PET. And we executed this with discipline across supermarket, drug, discounter channels. We did this in partnership with our customers, and this was critical because this was our second price increase in the last 3 years.

We see retail prices and wholesale prices increasing across all the SKUs. And although the initial effect on volume was negative for the first few weeks, we saw the trend of sales recovering to expected levels after that. And this is very important for us, all the learnings that we had from the price increase of large PET, because we consider price increases as a way to mitigate cost, but in the same time to increase profitability for BGI and for our customers, but also very important, the health of the entire industry.

When it comes to other channels, although it didn't increase prices per se, we continued to act very cautiously with profitability in mind, managing our consumer and marketing promotions. That's why in CVS, you will see in second quarter, our NSR per case increasing by JPY 8, and in Vending, you will see same increasing by JPY 29 in the second quarter. So we did this by executing diligently the new launches, by promoting higher value-added products and overall executing with discipline the price strategy.

And I will wrap up saying this is very important, and all these learnings on price management in the market are very important because we are now moving towards the big step, big milestone in the year. From first of October, we announced we will increase the prices for small packages and looking forward as well to turn this into profitability for us, for our customers and for the industry. Thank you.

[ゴミ マサオミ, executive]

[Foreign Language]

Ihara-San, can you move on to your next question?

[Rei Ihara, analyst]

Yes. So my second question is -- so you did mention about this a bit, but from October 1, you are planning to revise the price. And in Suntory's explanation, they were saying that the price revision from October 1, they're going to change the Japanese culture. This is what they said. And you have already raised the price for the large packages. And I think you were planning to raise it by JPY 20, but probably, in reality, it's like up by JPY 10 or maybe less if you look at the actual market situation and based on this background and looking at the competitors. So this price revision from October 1, do you really think that you'll be able to change the culture of the beverage industry? Or are you wishing to do it? This is my second question.

[Costel Mandrea, executive]

Again. I think we proved by increasing pricing for 2x in 3 years that we take a very disciplined approach to this. And the moment we commit something to the market, we go and execute discipline. I don't want to comment for other companies but CCBGI, we do what's right for us and what is right for industry. For the time being we are prepared, and this is the best estimate that we have, going live with a price increase for October 1.

[Operator]

Next question from Mizuho Securities, Saji-san.

[Hiroshi Saji, analyst]

This is Saji. I have a question about the first half one-off factors. I would like to organize those factors and go through the numbers. There are 3 things. One is the one-off cost reduction cycling is JPY 18 billion for the full year. So how was the first half? And also when you change the useful life of sales equipment you said the impact is about JPY 8 billion. So what was for the first half?

And also, you are reviewing the costs for the raw material. So I would like to understand what was the exact cost for the raw material for the first half? I think you have about 14.3% for the raw materials. But in order for you to commit to the business income that you announced, I think this is a great thing. But then you are now in the red for about JPY 14.3 billion. So how would you going to keep your commitment? And how will it like in the first -- going forward?

[ゴミ マサオミ, executive]

Thank you, Saji-san. So you would like to go through the number on those 3 factors. I would like to ask Bjorn-san to pick up on this question.

[Bjorn Ulgenes, executive]

The question. So first of all, confirming, as you said, we are maintaining our full year revenue and profit forecast for this year. And when it comes to the different cost items. First of all, when it comes to the one-off items we have, it's important to remember, we took significant one-time cost savings in 2021. This was primarily led by what we call temporary leave, which are, in essence, support from the government when you see a reduction in business. We have offset that partially by the vending useful life extension for this year. I believe it's about good JPY 4 billion for the first half that will help offset the onetime from last year. And when it comes to raw materials, as you said, we have increased our estimates to a good JPY 14 billion for commodities and exchange combined, which is another JPY 3 billion on top of what we estimated in the main disclosure. And the reason for this is we've seen continuous pressure on the dollar-based commodity prices. And we also, in Japan, have experienced a fairly significant yen devaluation to the dollar. So all of them combined make the impact increasing on a full year basis.

But trying to pull this together, to your question about effectively, what are the risks and opportunities for our business. And I will refer to that page in our prepared deck, where you can see risk and opportunities in the second half for this year. Some of them, as we talked about, comes in commodities and exchange. We all know that's out there. Also what Costin mentioned, about the price increase and capturing the consumer behavior and the consumer demand, are important factors. We believe, though, that the actions we have taken here, Saji-san, have proven we stick to our commitments to deliver what we plan to execute.

However, there are also opportunities out there that needs to balance this off. Traffic is expected to come back again. Again, consumers start moving outside and then buying products from the convenience stores and the vending machines. We are taking the first price increase in good 30 years now, I believe, for small packages. Significant decision, as Costin said, we promised to deliver it, we will deliver it. And lastly, we're also continuing the continuous efforts around transformation and costs. So all in all, we believe, again, this is our best estimate at this point in time for the full year, and therefore confirming our full year guidance. So hopefully, that gave some color to your question.

[Hiroshi Saji, analyst]

For the raw material, it's JPY 6.2 billion on Page 7. So I understand that, and you're expecting one -- JPY 18 billion negative impact on the -- negative impact, what was the impact for the first half exactly because I believe this number is for full year?

[ゴミ マサオミ, executive]

[Foreign Language]

This is Gomi. You are talking about the first half commodity, right? So it's JPY 6.2 billion for the first half.

[Hiroshi Saji, analyst]

The one-off cost, how is it -- for the one-off cost is JPY 6 billion. The one-off cost saving is JPY 6 billion. You said the full year is JPY 18 billion. So it's JPY 6 billion out of JPY 18 billion, is it?

[ゴミ マサオミ, executive]

Yes.

[Hiroshi Saji, analyst]

All right. So are you going to be turning into a profit next year?

[Bjorn Ulgenes, executive]

Thank you, Saji-san. First of all, let me say that we're not going to make any predictions about 2023 at this moment. We are now fully committed and focused on delivering the summer peak season for this year and the price increase that's coming in the 1st of October. But again, we'll remind you of all the controllable actions we have put in place, the effect of the price increase we took in May and will come in October. The continued transformations we're doing in our business, staying committed to our execution for next year, therefore being able to capture any upside that might come in the market. So thank you.

[Operator]

The question is from Morgan Stanley, MUFG Miyake-san.

[Haruka Miyake, analyst]

This is Miyake from Morgan Stanley. And well, it's a great opportunity. So I want to hear from Wasa-san. So CCJC and Coca-Cola Bottlers Japan, and I'm sure there's other bottlers in Japan as well. But what kind of information do you share with each other, with what frequency? And the marketing plans, like the new launches, et cetera, it all is initiated by CCJC. But how do you leverage it -- that information with the other bottlers? I think I want to understand the flow or maybe the structure you have to share all the information between the bottlers. Because in your market share overall is not really growing and it's getting some hit.

And I think the bottlers that have work on the ground, there are things that they can see. But maybe those in the bottler insights are not reflected to the product, like development. And after the price revision, I think these kind of alignments will be extremely important between you 2. So can you give us some flavor on what your process is?

[ゴミ マサオミ, executive]

Miyake-san so that is CCJ marketing and the bottler, how do we collaborate with each other. So by Wasa-san, please?

[Takashi Wasa, executive]

Miyake-san, thank you for the question. So first, this is a really positive piece of news, but let me say that you mentioned about market share. But last year, in March, starting from that timing, there is this market share, which is a value share that we track continuously. For 18 months in a row, the value share has grew. And I think the reason for you asking this question is between the company, which is the CCJC, and the bottlers, how are we aligning with like the strategies or like the product innovation. I think this is what you want to ask. And my answer is we have close collaboration, to be short. So we have this mid long-term plan that we established together. And from the beginning, we and the bottlers, we come up with the detailed building blocks. We think about the detailed strategy together. We talk about the innovations.

So we think about the innovations to come for the next 3 years. We look at everything together, like targets, the by category strategy, we do share everything with the bottlers, and we get the bottlers' input, too. And we make sure that they're all reflected to the next year's ABP. So probably you are wondering about the level of collaboration, if it's really happening or not. But I can say that we have close collaboration and it's really working. And in the last IR -- excuse me, in this IR event, I'm here, always. So I think this is 1 way to show that we have close collaboration.

[Haruka Miyake, analyst]

Okay. Then the market share overall, you mentioned that you are improving, and that's good news. But coffee category, and especially Georgia brand. If we look at certain brands category, what is your understanding of the trend? And especially for the OTC channel, what is going to be the trend? Or maybe like green tea or I'm wondering about the breakdowns. And looking at the share, you might be growing as a whole, but I'm just wondering about each category, each brand, do you have some challenges in certain areas?

[Takashi Wasa, executive]

Okay. So we have brands, we have categories, and I don't want to use a lot of time to go into all the details. But in the last couple of years, what we're trying to focus on is to develop our core business. And in addition, we have the new launches. So the new launches are treated as on top, like incremental. And as a fact, if you can look at the numbers for this year, the core products are growing successfully. And on top of it, we have incremental innovations. And I guess it's like maybe 2% or so as terms of the growth rate. And that is all because the core is performing stably. And of course, in every year, some years the coffee might be a little bit weak. In other years, the tea might be a little bit weak. But we understand the trend, and we make sure that we strengthen the weak areas. And for the strong areas, we try to grow even more, and we want to have successful new launches as well. So we do the planning all together. So that is like the major answer I have for that question.

[ゴミ マサオミ, executive]

Miyake-san, Costin-san wants to add some information.

[Costel Mandrea, executive]

I just want to confirm what Wasa-san said, the process of commercialization, it's a very common one, and we collaborate very close with our partners from CCJC. Also the roles are very, very clear with CCJC being responsible for coming with new ideas for innovation and to make sure the core portfolio is performing, while on the bottler side, our responsibilities are, again, very simple. First of all, it's the demand planning and the forecast. And Calin was just mentioning that this year, we saw a significant improvement. The second big responsibility for the bottler is the relationship with our customers.

And over the last 3 years, we see a significant improvement across each of the channels. And I think there is no better proof than the current price increase for large PET. And the last and also most important responsibility for the bottler is the execution in the market. And here, we have -- our incentive -- my team incentives are very directly linked with the way they sell the new products, with the share of visible inventory in the market, with the speed to market, and all these indicators are overperforming for the last few years. I hope this clarifies a bit how the process is working between CCJC and CCBGI.

[Haruka Miyake, analyst]

Okay. But lastly, I may ask about Lemon-Dou. It seems that Lemon-Dou is not doing that well this year, but what is your plan for the future for Lemon-Dou? How should we look at this brand?

[Unknown Executive]

So the alcohol business, it seems that the number is negative as a whole. But the reason behind that is, last year we had this brand [ Nomiliza ]. And -- so we have this cycling. It's not working this year, so we have the cycling impact. And also for the Lemon-Dou we have the non-alcohol version, the [ UMI ] Lemon-Dou. And of course, it's not really alcohol because it's non-alcohol, but it is working under the Lemon-Dou umbrella, and we have the [ compact too ] that you drink with water. But after we started to sell Lemon-Dou, this premium seller lemon category. Other competitors, they are launching similar products in this category. So the competition is intensifying. But as a leader, I think we can do various things using the Lemon-Dou brand and the Coca-Cola alcohol portfolio will have Lemon-Dou, of course, but we want to have the second pillar, the third pillar. We want to prepare for those new pillars to come. So we think that we have a lot of possibilities for the alcohol beverages as well.

[Operator]

Next question is from Mitsubishi UFJ Morgan Stanley, Tsunoyama-san.

[Tomonobu Tsunoyama, analyst]

This is Tsunoyama speaking. I have 1 question. The price, I would like to understand about the price hike. So after October, what will -- which kind of impact are you expecting from the price hike from October onwards? That's 1 thing. And also, when you look back your experience in the price hike, you will see the patterns. Sometimes the price may go up and down right after that. So for the current price hike, if you are to hike the price, what's your plan on maintaining the price on that level? So if you can share any details about your plan on maintaining the price, I would like to understand.

[ゴミ マサオミ, executive]

Tsunoyama-san. Your question is on about the price hike in October and the impact coming from that. So Bjorn-san will pick up on this question first.

[Bjorn Ulgenes, executive]

Thank you, Tsunoyama-san. It's a very good question. So again, as you've seen from our diverse prepared remarks, we're putting a lot of effort into executing the large PET price increase we took in May. And now the small packages price increase that will come in October. We believe, again, we're leading the market here in making these decisions, and we will execute them. When it comes to the impact, again, of course, this depends on how the consumers, in the end, react to price increase. But to the best of our estimates, we believe a full year impact of this price increase for the small PETs is probably in the JPY 10 billion to JPY 12 billion range annualized. And since this is an increase that hasn't happened over the last 3 decades, we, of course, will have to observe elasticities and impacts, et cetera, of this. And when it comes to the scope of the small PET, this is about 230-odd million cases in our business. And therefore, about 50% of the total based on the 2021.

So now I'll ask Costin to talk about your second part of your question about the trends. Thank you.

[Costel Mandrea, executive]

Thanks, Bjorn-san. This is Costin. So I will share with you what was the direction to my team for the price increase in May. It was very simple: raise the price and keep the price. Do not discount after that, and this was made loud and clear throughout the entire organization, which means after we increase the price, yes, we expect to see the transactions going down, but do not run price promotions, redeploy the [ chiashi ] toward consumers toward national promotions and toward new development, because we want to make sure this new raised price is kept, it's maintained in the market.

And this was pretty difficult for the team to do, but say discipline [ lay second only ] and it was difficult because what they saw in the market, they saw other players doing exactly the opposite, reducing the price significantly, running promotions or even upsizing at the same price. Why this is important, as we move into October this will be a massive change, affecting more than 50% of our volume in the market, the price increase for small PET. And it is, for the first time in 30 years that we increased the small PET.

So the keyword here is to be disciplined to work with our customers to make sure we increase the price and to keep the price at that level. I hope this answers your question.

[Operator]

The question is from BOA Kaneko-san.

[金子 駿兵, analyst]

I have 1 question. And I am sure that you're working on the midterm plan at the moment. But in the future, what are the challenges you're going to have in the midterm? I would like to know -- and for example, like which areas do you want to plan to focus on, et cetera. And of course, 1 of the areas we'll probably to focus on price. But other than that, what are the areas that you plan to strengthen in the mid-term; two, improve your profitability level? This is my question.

[ゴミ マサオミ, executive]

Thank you, Kaneko-san, for the question. So related to the midterm plan. So I would like to ask Calin-san to answer.

[Calin Dragan, executive]

Thank you so much, Kaneko-san, for the question. Well, 1 thing I want to say from the beginning, please all rest assured that the focus of our entire organization, it is to return to profitability and everyone work every day in their markets, in the plants and distribution centers and in our back office, it's towards that goal. Having said that, we have to acknowledge the fact that there are certain elements that needs to happen for us to be able to return to profitability and things that we need to observe going on. First, and probably the most important one, it is the return of traffic. So during these COVID years, that was probably the most affected element of life in Japan and around the world, traffic reduced significantly.

So coming back to that, we are very optimistic about the fact that after every state of emergency, and we have observed traffic return. And immediately, our business performance start improving. So we are optimistic about that, but we are observing closely that reality, having in mind this recent surge in COVID cases again. At the same time, another big element that influenced, again, the growth, the revenue part of our business, it is the price increase. We cannot take this price increase lightly. It is the first price increase for single-serve packages, which are -- we are doing it for ourselves in the last 30 years and for the entire industry, basically, almost in 3 decades.

So all this involved a lot of unknown. For the time being for this year, we have our best estimates, but we are optimistic that with the positive approach from the industry, this is going to significantly contribute to our future performance. Nevertheless, we are having a couple of elements cost related recently bumping in, and that's the message that we put throughout our presentation today. We are taking hits from things that are not in our control, like commodities.

Now commodities costs have impact of tens of billions of yen in our business. And the second element in terms of cost, it's the yen devaluation, which overlapping it with the current commodities cost make the growth, of course, exponential. So assuming that all these things are getting aligned and we are going to get visibility and certainty on them, at that moment in time, rest assured we are going to come back with a plan -- midterm plan that is going to give answers to all that questions. As well, another element of optimism would be our new base that we have created through our new processes, to know our system implementations and the way how we operate the business that already show results, as you could see on our first half of this year.

Thank you so much. I hope that answers your question.

[ゴミ マサオミ, executive]

[Foreign Language]

And it's time -- and we would like to end the QA session here. And thank you again for your interest in our business. The replay of this webcast call will be available on our Investor Relations website soon after finishing the call. We invite you to reach out to our IR team with questions or feedback. Thank you very much.