Coca-Cola Bottlers Japan Holdings Inc

TSE:2579

Earnings Call Analysis

Strong Financial Performance Driven by Ayataka and Cost Savings

In the first half of the year, the company increased business income by JPY 4 billion and saw a 1.8% year-over-year rise in sales revenue. This growth was bolstered by the complete renewal of the Ayataka brand and strategic market execution. Cost-saving measures generated JPY 2.1 billion in the first half, with an annual target of JPY 6 billion. The second half outlook includes intensified commercial activities to capture summer demand and continued focus on profitability, aiming for a full-year business income target of JPY 10 billion.

Strong Financial Performance in the First Half

Coca-Cola Bottlers Japan Holdings reported positive financial results for the first half of 2024. Business income increased by JPY 4 billion year-over-year, demonstrating robust growth as the second quarter's business income improved by JPY 2.4 billion, surpassing first-quarter gains. The company remains on track to hit its annual business income target of JPY 10 billion, driven significantly by top line growth and effective transformation initiatives.

Revenue and Gross Profit Growth

For the first half of 2024, sales revenue grew by 1.8%, attributable to price revisions which enhanced wholesale revenue per case. Gross profit rose at a slightly higher rate of 2.5%, indicating improved overall profit margins. Notably, operating income also saw a JPY 7.7 billion increase compared to the previous year, reflecting continued operational efficiency.

Cost Savings and Transformation Initiatives

The company's transformation initiatives have produced substantial cost savings, totaling JPY 2.1 billion in the first half. These initiatives focus on enhancing the supply chain and operational efficiency, aiming for total annual savings of JPY 6 billion. Marketing expenses were also reduced by JPY 1.1 billion, reflecting a strategic cut while preparing for peak demand in summer.

Volume Performance and Market Dynamics

Sales volume increased by 1% in the first half, despite challenges from price revisions. This was supported by a 2% rise in the second quarter, led by the successful full renewal of Ayataka, which alone contributed to over 20% volume growth in its category. The Convenience Store segment experienced a 6% volume increase, driven by new product launches and effective marketing, even amidst competitive pressures.

Challenges and Strategic Outlook

Looking ahead, the company acknowledges that the third quarter poses significant challenges due to past performance from month-to-month trends. However, it aims to sustain momentum with intensified commercial activities to capitalize on summer demand and maintain profitability. The effective execution of strategies to combat the impact of price revisions scheduled for October 2024 is crucial, with an anticipated annualized benefit of between JPY 7 billion and JPY 10 billion.

Investment in New Products and Innovations

Coca-Cola Bottlers Japan continues to invest in product innovation, as evidenced by the recent launch of Ayataka’s new version and Yakan Koi Barley Tea. The Ayataka brand’s revival is a center-point of their strategy to attract new consumers and enhance brand equity. There's optimism that these innovations can spur further growth despite the pressure from private label competition.

Digital Transformation and Marketing Strategies

The company has invested in digital initiatives such as the expansion of QR code payments and the Coke ON app to meet emerging consumer behaviors, particularly among tourists. Marketing plans include leveraging major upcoming events like the Osaka Kansai Expo in 2025 to enhance brand visibility and engagement, alongside targeted promotions to drive summer sales.

Summary of Management’s Commitment

Management expressed confidence in overcoming upcoming challenges by continuing to implement successful strategies from the first half and preparing adequately for peak periods, stating the collective efforts will reinforce their Vision 2028 commitments. The next steps focus on sustaining growth while ensuring effective cost management amid fluctuating commodity prices and foreign exchange rates.

Earnings Call Transcript 2024-Q2

[ゴミ マサオミ, executive]

[Interpreted] Good afternoon. This is Gomi, Head of Investor Relations for Coca-Cola Bottlers Japan Holdings. Thank you for joining us today for the Second Quarter 2024 Earnings Presentation for Analysts and Investors. Today, we have President, Calin Dragan; CFO, Bjorn Ulgenes; and then Coca-Cola Japan CMO, Su Choi. We are also joined by Executive Officer and President of the Retail Company, Alex Gonzalez; Executive Officer and President of the Food Service Company, Chief Business Strategy Officer, Maki Kado; Executive Officer and Chief Supply Chain Officer, Andrew Ferrett; and Executive Officer and Chief Human Resources Officer, Yuki Higashi.

Following prepared remarks, we will be happy to take your questions. Simultaneous interpretation in both Japanese and English is being provided for both today's call and the Q&A. Before we begin, let me remind you that today's presentation contains forward-looking statements 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, please?

[Calin Dragan, executive]

Good afternoon, everyone. This is Calin Dragan. Thank you for joining our earnings briefing today, and I will begin by sharing today's highlights. Please turn to Slide 3.

I'm happy to report on our good performance in the first half where we have increased business income by JPY 4 billion compared to the previous year. The positive trends were accelerated with second quarter business income improving by JPY 2.4 billion, exceeding first quarter gains. We remain on track to achieve our annual business income target of JPY 10 billion. Top line growth and transformation have contributed significantly to this profit results. Full renewal of Ayataka and strengthening market execution in each channel for the summer season have delivered significant results for our top line growth. We grew volume and improved wholesale revenue per case resulting in a 1.8% year-over-year sales revenue increase.

Our transformation delivered cost savings of JPY 2.1 billion in the first half. Initiatives are progressing as planned and we are on track to generate JPY 6 billion of annual benefits this year. We are seeing results in both short-term gains and in building a solid business foundation for medium- to long-term growth. Such efforts are leading to profitable growth and with a renewed sense that will be key to achieving our strategic business plan, Vision 2028. Further drive this important transformation forward, we have announced a strategic sales equipment service collaboration. While details will be shared later, this partnership aims to achieve cost savings over the medium to long term and enhance value for our stakeholders.

Although, the hurdles for the second half are high, we will intensify commercial activities to capture summer demand and remain focused on profitability, maintaining strong momentum in the third quarter, which generates the majority of the year's profit is crucial. And we will accelerate the measures that have been producing results while implementing sustainable growth strategies for the coming years.

Now, let me hand over to CFO, Bjorn Ulgenes to provide you with detailed results.

[Bjorn Ulgenes, executive]

Thank you, Calin. Hello, everyone. This is Bjorn. Please turn to Slide 5 for the first half P&L. In the first half of this year, we saw earnings improvement trends continue; increases in both revenue and profits, making 2 consecutive quarters of improved earnings this year. Sales volume grew 1% compared to the previous year despite the impact of price revisions. Revenue increased by 1.8% due to these revisions, which boosted wholesale revenue per case. Gross profit rose by 2.5%, outpacing revenue growth. Improvements in wholesale revenue per case, driven by price revisions enhanced the overall gross profit margin.

Business income improved by JPY 4 billion from the previous year, driven by top line growth and transformation benefits. The quarterly increase in business income shows an upward trend with second quarter improvements exceeding that of the first. These factors behind this change in business income will be detailed on the following page. Operating income increased by JPY 7.7 billion from the previous year. This is largely due to the rise in business income and the booking of other income from the sale of fixed assets that's part of our efforts to optimize the balance sheet. Consequently, with the improved operating income, net income rose by JPY 3.7 billion from the previous year.

Please turn to Slide 6 for our primary business income drivers. On the left-hand side, you will see volume, price and mix. These represent a year-over-year change in marginal profit of JPY 3.2 billion from commercial activities. This was primarily driven by the series of price revisions, improving wholesale revenue per case and from sales volume growth. Our focus on profitability in commercial activities has made top line growth, a consistent driver of profit expansion, continuing the positive trend.

Moving to transformation, our initiatives are on track and have generated JPY 2.1 billion in benefits in the first half. Significant improvements have been made in the supply chain and the effects of the vending transformation also began to emerge in the second quarter. We remain on course to meet our annual goal of JPY 6 billion in cost savings from transformation. Marketing expenses decreased by JPY 1.1 billion from the previous year. This reduction stems from strengthening commercial activities and leveraging new products such as Ayataka, combined with cost-effective marketing activities as we prepare for the peak demand season.

Next is commodity and utility costs, which decreased by JPY 1.2 billion despite the continued challenging cost environment. Effective raw material and energy cost controls helped offset the impact of the weaker yen. This is the result of a procurement strategy that leverages the strength of the Coca-Cola system. In manufacturing, cost increased by JPY 0.6 billion from the previous year due to reduced manufacturing volume from inventory optimization. Other costs rose by JPY 3 billion compared to the previous year, driven by higher sales equipment costs and IT-related expenses, while labor costs were reduced. This year, we plan to use costs appropriately to achieve sustainable growth.

Please turn to Slide 7 for volume performance by channels and categories. Sales volume in the first half increased 1% from the previous year despite the impact of price revisions. This growth was supported by effective commercial initiatives and a 2% increase in sales volume in the second quarter with contributions from the April full renewal of Ayataka. We accelerated the year-over-year sales volume growth rate while continuing to improve wholesale revenue per case.

In Supermarkets, despite efforts to expand sales space by fully leveraging new products, volume declined, mainly in large PET bottles due to significant impacts from price revision. However, wholesale revenue per case improved by more than JPY 8 from the previous year. In Convenience Stores, volume increased 6% despite continued intense competition. This growth was due to new product launches, expansion and strengthened customer-exclusive products and effective marketing tailored to the sales space.

In Vending, sales volume maintained flat while wholesale revenue per case continued to improve. Despite the pricing revision impact, this was achieved through our established market share base built to date as well as measures to capture demand through digital efforts such as Coke ON and expanded QR payment options. In Retail and Food Service, volume increased by 5% from the previous year with traffic recovery at restaurants and tourist spots. In Online, volume grew by 18% year-over-year, thanks to successful promotions in collaboration with customers.

By category, Sparkling volume grew 2% year-on-year from increased Coca-Cola sales in restaurants and online. For Tea, the successful introduction of Ayataka fully renewed for the first time in 7 years, resulted in volume growth for more than 20% year-on-year for the brand in the second quarter. This contribution from Ayataka drove overall category growth, with overall Tea category volume up 4% in the first half. Negative growth in Coffee and Water was due to the impact of price revisions. Minute Maid contribute to the fruit juice category, mainly in restaurants.

Slide 8 highlights market share and retail price trends. Here, we can see that our profitability-focused commercial activities are growing value share and maintaining price premiums. In market share, total channel value share grew by 0.3 points from last year. The value share of Vending returned to growth in the second quarter, driving overall share growth. In the OTC channel, volume growth from new products such as Ayataka has improved the market share trend. Convenience Stores also continued to show value share growth. Our products OTC retail price continue to maintain a price premium to the industry average. For large PET, the price revisions implemented in October of last year resulted in the continued recovery trend.

Please turn to Slide 9. To capture demand during the summer, our most important season, each channel has focused on executing growth strategies in the markets. In Vending, we strengthened activities in the Sparkling and Tea categories, leveraging campaigns for Coca-Cola and the fully renewed Ayataka. We also stimulated demand through cross-channel campaigns utilizing the Coke ON app and expand the new features such as the Coke ON Wallet. In the OTC channel, such as Supermarkets and Convenience Stores, we fully leverage renewed Ayataka to its maximum potential, securing significant sales space. As a result, the initial delivery of Ayataka renewal has been a remarkable success.

In Convenience Stores, on top of strengthening the rollout of core products, including Ayataka, we have focused on introducing exclusive products that meet customer and consumer needs and have strategically launched double-branded products and limited edition flavors. In the Food Service channel, demand is expanding due to traffic recovery and increased inbound travel. We expanded a number of our products carried by customers by strengthening Coca-Cola Zero, which has significant growth potential and leveraging the assets of the Coca-Cola system, including the Olympics. We also focused on acquiring new accounts, particularly in growing and new business categories. As described, we have tailored growth strategies to each channel's characteristics, achieving results in sales acquisition for the first half and preparation for the peak demand period. We are confident that this growth base will lead to top line and profit growth in the third quarter onwards.

Slide 10 focuses on our transformation efforts. As mentioned earlier in the financial results, we are making good progress in generating benefits and building a solid business foundation. In Vending, we have improved operational efficiency and reduced the number of routes by optimizing routes and visit frequency. Although still in the testing phase, we are also working on measures such as piece-picking model to enhance work efficiency on the routes by presorting products for each vending machine. We are also improving our portfolio of vending machines by visualizing the profitability of each machine. While many of these initiatives are expected to yield medium- to long-term benefits, some efficiency gains were realized in the second quarter. DX promotion efforts are also on track with the expansion of QR code payments, which are favored by tourists visiting Japan and the deployment of smart modems in vending machines progressing as planned.

In the supply chain, we are pursuing initiatives to optimize the entire end-to-end process and are prepared for the summer season. In manufacturing, we are continuing to build a system for high-mix small-lot production in each area to promote the local production for local consumption model based on the concept of manufacturing products close to the place of consumption. In addition, through productivity improvement efforts at each location are contributing to the expansion of manufacturing capacity. To enhance our logistics network, we are expanding collaboration with customers while reducing transport distances and the number of touches. We are also improving the accuracy of the sales and operation planning process with a particular emphasis on ensuring a stable supply during the summer months when shipment volume peaks.

For the next slides, I would like to ask Su from the Coca-Cola Japan to share the marketing updates. Su, please?

[Su Choi, executive]

Thank you, Bjorn. Hello. This is Su from CCJC. Allow me to take you through a review of second quarter of 2024 and highlights of our marketing initiatives for the third quarter of this year.

Starting with the second quarter performance of 2024, the business grew ahead of the market. Our value share in the soft drink market increased, driven by strong renewals and activations in the core and new innovations to successfully attract new drinkers. First, we continue to focus on and strengthen the core by revitalizing our core brands through renewals. Secondly, on Green Tea, we relaunched Ayataka in April. The new taste, design and volume, making its first major revamp in 7 years as one of the key priorities of this year. Ayataka focuses on replicating the taste of the first cup of freshly brewed tea to meet contemporary needs while maintaining the authentic tea taste that it has been known for.

Beyond the product relaunch, we also introduced a new brand message, Live to Your Own Rhythm, aimed at encouraging people who aspire to live lightly and maintain their identity amidst daily noise. Thanks to this relaunch, Ayataka has successfully regained strong growth momentum by attracting new drinkers. Moving on to the innovation, we launched Yakan Koi Barley Tea in April as Food with Function Claims, product for daily hydration with the added ingredient of body fat reduction efficacy. This launch captures older consumers group who prefer a richer taste and also have the consistent need for metabolism improvement.

In marketing experiences, we're gold partners of Osaka Kansai Expo and plan to leverage this opportunity to grow our consumers, customers and coverage. To commemorate the 1-year countdown to the Osaka Kansai Expo scheduled for 2025, we launched a new portfolio promotion in April toward total of 200,000 winners with Coke ON drink tickets and Osaka Kansai Expo tickets by drinking the Coca-Cola product. The campaign fully leverages the Coke ON platform, one of our unique assets.

Next, I would like to share with you the key initiative highlights in the third quarter of this year. To accelerate Ayataka's momentum and encourage more drinkers to enjoy the new Ayataka, we launched a summer campaign with a comprehensive program, including tour tickets for Hikaru Utada, our new brand ambassador. For the Coca-Cola, we launched the Cokes with Meat Summer campaign covering everything from media to store fronts with by channel promotion to expand brand users during the peak season by capturing family requirements of summer meal occasion.

In innovation, to capture directory therapy needs in case of heat stroke and dehydration, we renewed the packaging and communication of Aquarius ORS in June after obtaining the labeling approval as an official food for medical use. This renewal aim to alleviate consumers' concerns over heat stroke, which is becoming a growing problem every year due to extreme hot summers. In the brand FANTA, we have expanded beyond and above fruit sparkling into lactic segment with the launch of FANTA YogurRush Marble Orange in July, a new carbonated beverage that combines real yogurt and orange flavor jelly. This innovation is characterized by the mildness unique to dairy products that only real yogurt can provide. It is aimed at capturing the lactic SSD market.

In marketing experiences, to capture the excitement of the 2024 Paris Olympics and Paralympic games, we fully leveraged our unique assets by launching a new portfolio of promotion. This initiative offers a chance to win original Coca-Cola Olympics and Paralympic goods for up to 10 million winners by drinking Coca-Cola products through the Coke ON platform, aiming to maximize our sales and share during the peak summer season.

That is it from my end, and thank you for listening. I'll pass it over to Calin.

[Calin Dragan, executive]

Thank you, Su for your presentation. This is Calin again. Slide 15 shows our outlook for the second half of the year and onwards. Although, the third quarter process a hurdle due to the benefit we gained from last year hot weather, we will accelerate the momentum from the first half through the top line growth and cost savings initiatives to achieve strong profit growth. To achieve the top line growth center of maximizing profits, we will continue to maximize commercial activities, leveraging new products and campaigns to capture summer demand. In July, we were able to grow sales volume strongly by 3% despite the cycling of the previous year hot summer and weather impact. So, we are off to a good start for the third quarter.

With respect to price revisions, we will work to maintain the revised shipping prices, minimize volume and channel mix impact and maximize the benefits of the revisions. Preparations will also be made for the price revisions in October of this year announced at the time of our previous financial results. In terms of costs, we will accelerate our transformation and intensive activities to materialize the benefits of JPY 6 billion for the year and to generate benefits in the coming years. And for the marketing investment, we plan to step up investment in the second half of this year to achieve sustainable profit growth, but we will do so appropriately while keeping an eye on the market environment and cost benefits.

Although, the impact of commodity market, ForEx and utilities remain uncertain, we will strive to contain them by leveraging the Coca-Cola system's procurement advantages and other measures. We have achieved profit growth for 2 consecutive quarters this year and are well prepared for the peak demand period. By continuing and accelerating the strong first half momentum in this most crucial third quarter, which generates the majority of the year's business income, we will achieve strong profit growth and meet our full year business income target.

Slide 16 shows the recently announced reorganization plan for our sales equipment service. Working with thinkrun and Genpact, we aim to create further value in this field. We have been fundamentally transforming our business for future sustainable growth and have achieved solid results. This reorganization will transfer our Group's sales equipment installation, maintenance, repair and quality control functions to long-term business partners and change to a partnership-based collaboration structure.

Our 2 partners are thinkrun, which has supported Coca-Cola system, logistics and sales equipment operations in Japan for over 50 years and the global professional service solutions company, Genpact. The joint venture between Coca-Cola Bottlers Japan and thinkrun holdings will manage field operations. A new company 100% owned by Genpact will handle planning and administration. We will continue to oversee investment in deployment planning, technical quality development, asset management and contract management for our sales equipment. This initiative is a key part of our commercial transformation in our Vision 2028 strategic business plan. And with our strong partnership under this new structure, we will enhance sales equipment service processes to provide high-quality competitive services. This will increase value for our stakeholders and save costs in the medium- to long-term perspective.

Please see Slide 17 for the summary of today's presentation. I am confident that we have made significant progress in the first half of the year, both in business performance and in advancing key initiatives. Our business income has built up steadily driven by top line growth from profitability focused commercial activities and transformation benefits. For the second consecutive quarter this year, we have achieved increase in both revenue and income. The business income improvement in the second quarter surpassed that of the first quarter, accelerating basically, our profit growth trend. These results affirm the effectiveness of our consistent commitment to profitability focused activities.

The second half of the year, particularly the third quarter presents a hurdle from the previous year. However, the progress made so far gives us confidence that we can overcome these challenges. We have ended the peak demand period and are approaching the summer season well positioned maintaining the recent trend. By maximizing our performance during the peak demand period and building on our profit momentum, we aim to achieve our ambitious full year business income target of JPY 10 billion.

Finally, as the first year of Vision 2028, we want to emphasize that we have made great strides towards and forward with important measures such as price revisions and transformation. These efforts are foundational for our sustainable profit growth outlined in Vision 2028. We are committed not only to achieving this year's performance target but also to make substantial progress towards achieving the goal of Vision 2028 by advancing key measures with the medium- to long-term perspective.

That concludes our presentation today. Thank you very much. Now, let me invite back Gomi-san to take us through the question and answers.

[ゴミ マサオミ, executive]

[Interpreted] Thank you, Calin-san. This Q&A session is for analysts and investors. For members of the media, please refrain from asking questions at this time as we will have a separate time provided today. Due to interpretation, please ask only one question at a time.

Now, I would like to start the Q&A session. Operator, please begin.

[Operator]

We have received request for questions and we would like to begin the Q&A session. We will now call the name of those who wish to ask a question. While speaking, please state your company and your name before the question. We will now welcome the first person with a question. We will unmute you.

UBS Securities, Ihara-san.

[伊原 嶺 (いはら れい), analyst]

[Interpreted] Thank you very much for the presentation. This is Ihara from UBS Securities. Thank you, Ihara-san. Thank you. I have 2 questions. My first question is about the reasons for the improvement in the business income. In the second quarter, looking at the volume and price mix, what is the reason for the growth there? The volume has grew by 2% and the revenue per case is going up as well. But Q2, looking at the mix here, only JPY 400 million here for the volume price mix. What is the background for this? And is this only like a temporary situation? Is this the correct understanding? And also for the second half, you are going to hit business income JPY 10 billion at the end of the year. Is that really going to be possible? So, what is your explanation around the volume price mix background?

[ゴミ マサオミ, executive]

[Interpreted] Thank you, Ihara-san. So BI, with BI, what is the background of the volume price mix impact? So Bjorn-san, would like to provide the answer.

[Bjorn Ulgenes, executive]

Thank you, Ihara-san, and thank you for kicking us off. As we said in the prepared remarks, we believe we had a very strong first half of the year and also a very strong second quarter. But let me give you some breakdowns of the second quarter performance. Overall, both volume and price increased for the quarter. So, the volume channel mix impact was positive, over JPY 1 billion. The price impact continues to remain very strong, more than JPY 3 billion and we have invested both in our Vending business and in Ayataka that you heard earlier, driving significant positive results for the quarter, which we also believe will give significant knock-on positive impacts into Q3. So, these are the 3 main drivers -- or 4 main drivers, sorry, of the performance for the second quarter. Thank you.

[ゴミ マサオミ, executive]

[Interpreted] Ihara-san, so that'd be the answer for your question.

[伊原 嶺 (いはら れい), analyst]

[Interpreted] I see. So, vending machine, Ayataka investment is some of the factors. And due to that, the Q2 gross profit looks smaller. But in Q3, you're going to recover, you're going to get the return on it. And therefore, in the second half, at the end, it's going to be JPY 10 billion. So, is that the correct understanding?

[ゴミ マサオミ, executive]

[Interpreted] Well, thank you for the additional question. So, the investment is heavy in Q2. But from Q3 on, you are going to get the return back on the investment and that will be a positive impact for the volume price and mix. So, Bjorn-san again.

[Bjorn Ulgenes, executive]

Ihara-san, yes. We're very confident we got to reach our JPY 10 billion target for the year. Thank you.

[伊原 嶺 (いはら れい), analyst]

[Interpreted] And my second question then. So, Ayataka is like a [indiscernible] I'll say. And due to that, the market share has grew. And Ayataka, excluding Ayataka, what is the situation? Have you analyzed the case? And from next year, the Ayataka impact, maybe you'll finish the cycle and the impact might not be that large. But in next -- the following year, is there any additional things that you're going to do to maintain the momentum of Ayataka?

[ゴミ マサオミ, executive]

[Interpreted] Thank you for the question. Ayataka is a big hit right now. But excluding Ayataka, what is our evaluation in terms of products, in terms of channels. So Alex-san, would like to answer that question.

[Alejandro Gonzalez Gonzalez, executive]

Ihara-san, so first of all, we're very pleased with the performance of Ayataka. What we're seeing is a very strong and comprehensive renewal behind the taste profile, the positioning which is driving a significant uplift in our volumes, transactions, but more importantly, the consumer base and the trial and repeat. So, we're very positive. We are also seeing great progress in the rest of the portfolio, particularly Coke trademark is performing very well. So, we're pleased with the overall performance of the portfolio.

[ゴミ マサオミ, executive]

[Interpreted] Well, thank you very much, Ihara-san for the questions and that was our answer. Okay. Thank you very much. Operator, let's move on to the next question.

[Operator]

Next question. I'm going to unmute the next person. Next person is Morgan Stanley MUFG, Miyake-san.

[Haruka Miyake, analyst]

[Interpreted] Thank you very much. This is Miyake speaking. I would like to ask about the market conditions and the view on the market condition from you. When you look at the Tea category, Ayataka is trending very strong and we understand that. And all the other competitors were also relaunching this category. So in this context, we are seeing the private label also launching some products. We know that some people say that the consumer has a weak sentiment. So, I would like to have your view on this PB in the entire market. And also, I would like to understand what's your view on the PB in other categories, too.

And also, my second question is the price revision in October, what do you think about the reaction from the market? I believe that the other competitors are also doing the price revision in coming October. So in that context, how do you see the market condition going into the October with all this price division?

[ゴミ マサオミ, executive]

[Interpreted] Thank you, Miyake-san for your questions. For the first question, this is about the market conditions, particularly Green Tea, private one and other than Tea category. So, I will like Alex to pick up on the first question.

[Alejandro Gonzalez Gonzalez, executive]

Alex here. What we are -- as repeating myself, we are very positive with the performance of Ayataka despite private brands. I think that it's clear that we are seeing a certain impact on more consumer sensitive parts of the market. But in the overall, we are able to drive growth for Ayataka brand. Thank you.

[ゴミ マサオミ, executive]

[Interpreted] So, I hope that answer your first question, Miyake-san.

[Haruka Miyake, analyst]

[Interpreted] Okay. If that's the case -- from -- I wanted to see what's your view on this market? Do you believe that the private brands are growing its share in the market? Or you think that it's kind of coming to the kind of stable stage, and then you still think that your Ayataka brand is driving the share very strongly?

[ゴミ マサオミ, executive]

[Interpreted] Thank you for your question. So, I would like Alex to pick up on this PB branch -- PB shares in the market.

[Alejandro Gonzalez Gonzalez, executive]

Miyake-san, in the short term, we're seeing obviously still private brands taking an effect. We'll continue to monitor the impact of the trends and see how this pans out. What I can tell you is our focus is really on building the brand power of our portfolio and really addressing from a full all the levers to actually drive transactions growth and value growth in the market.

[Haruka Miyake, analyst]

[Interpreted] So just before, towards to October's price revision, in comparison to the previous conference call, is there any changes in your assumption?

[ゴミ マサオミ, executive]

[Interpreted] Thank you for the second question. Is there any change in the assumption for the market condition for the October price revision?

[Alejandro Gonzalez Gonzalez, executive]

At this point, we don't see any material changes in consumer behavior. Thank you.

[ゴミ マサオミ, executive]

[Interpreted] So, let's move on to the next question.

[Operator]

I will unmute the next person with a question. Mizuho Securities, Saji-san.

[Hiroshi Saji, analyst]

[Interpreted] I have one question. Regarding Ayataka package strategy. That's what I'd like to ask about. So, Ayataka is working very well in the market. And the 650ml package, for example, or 300ml package and the multipack of 650ml. So, there are a variety of packages that you put in the market. And regarding the package, what do you think work the best? So, at the renewal, I'd like to know the details. And also, all the manufacturers try to do the same in terms of the price strategy and also increasing the quantity of the package. And in that case, your success in Ayataka in the package strategy, do you think it will continue to work?

[ゴミ マサオミ, executive]

[Interpreted] Saji-san, thank you for your question. Regarding the package strategy of Ayataka and it is working, but there are a variety of packages and what kind of strategy we have regarding the package. So, Alex will answer the question.

[Alejandro Gonzalez Gonzalez, executive]

We place the success and the remarkable success of Ayataka in the whole comprehensive set of initiatives that we have placed out in the market, is not one single item, but rather the full combination of the positioning, the product and the new visual identity together with our packaging architecture that follows a very specific channel-by-channel location and specific and strategic objective. So all in all, everything is working towards the resounding success that is driving new users, expand the user res and trial and repeat into the brand. So, we're confident on the outlook for Ayataka.

[ゴミ マサオミ, executive]

[Interpreted] Su-san will answer your question additionally.

[Hiroshi Saji, analyst]

[Interpreted] So in that case, your answer is, for example, the individual package strategy, it's not the package strategy worked well. So by package, by channel, so a variety of the strategy worked together. And then so you were able to have a competitive advantage over the competitors. Is my understanding correct?

[ゴミ マサオミ, executive]

[Interpreted] Thank you for your additional questions. So, instead of the individual strategy, the combination of variety of the strategy worked well. So, Alex will answer the question.

[Alejandro Gonzalez Gonzalez, executive]

Correct. It's a full combination of all deliveries working in tandem and in synergy to drive the growth of the brand.

[ゴミ マサオミ, executive]

[Interpreted] Thank you very much. Operator, could you go to the next person's question.

[Operator]

[Operator Instructions] We will unmute the next question. SMBC Nikko, Takagi-san.

[Naomi Takagi, analyst]

[Interpreted] This is Takagi. Can you hear me?

[ゴミ マサオミ, executive]

[Interpreted] Yes. We hear you.

[Naomi Takagi, analyst]

[Interpreted] Two questions, please. My first question is about channel mix and package mix. And both in the second quarter is negative. It's going down, I think. And especially, the channel mix, so how do you evaluate this channel mix deterioration? What is your thought around that? And the revenue per case at the Convenience Store channel for the second quarter, it's negative in this trend, what's going to happen in the future with this trend, is I want to ask about? So both channel mix, the package mix is deteriorating? And what is your forecast on that? So that's my first question.

[ゴミ マサオミ, executive]

[Interpreted] We would like to take one by one. So first question is about channel mix and package mix, the trend. What is our evaluation in the future. And especially, at the Convenience Store channel, the revenue per case is going down. So, what is the reason for that as well? Alex-san would like to answer.

[Alejandro Gonzalez Gonzalez, executive]

Thank you. Alex here. First, I just want to say that we're pleased with the fact that we're growing our revenue base and our volume base in the first half of the year, particularly to the effect of mix in the second quarter. This is probably on the back of the recovery of large PET volume after the industry players follow on the large PET in May that we implemented in the quarter 4 of last year.

[ゴミ マサオミ, executive]

[Interpreted] Sorry, there was another question. It was about the Convenience Store and the revenue per case is going down. And any -- what is our understanding on that? Alex-san please?

[Alejandro Gonzalez Gonzalez, executive]

On Convenience, again, we're pleased to see the performance of top line growth in Convenience and the fact that we're expanding value share. This is coming on the back of the effect of the focus on the core portfolio and innovation with some of the exclusive products with some of their customers. Particularly on price mix, what we're seeing is in Convenience, the effect of the price increase that obviously we have experienced in some of the channels is winning down in CVS as the fact that we have not implemented any other price increase -- major price increase after Q4 of 2022 and this is reflected. In addition, the listing of I LOHAS 1 liter PET by a major customer had an impact of mix that. Although, it had an impact on mix, it was critical in driving volume and revenue growth in the channel.

[ゴミ マサオミ, executive]

[Interpreted] Okay. Thank you very much. So the package, I guess, it's a package impact and we don't have to worry about the revenue per case going down at the Convenience Store. Correct. And sorry, additionally, package, large package reduction is kind of easy. So, in the second quarter, the large PET was minus 6%, the small PET, it's like plus 5%. So, I don't think what you're seeing matches what I see in the deck. For Q2, large PET volume and the SPET volume, is your question, right? Yes. Alex, please?

[Alejandro Gonzalez Gonzalez, executive]

Takagi-san, Alex here. The effect that you're seeing in large PET in the second quarter is primarily because of the price increase that other industry players follow in through May. So, what we are seeing sequentially within the quarter is an improvement in the volume trends. Therefore, we're confident that, that's leveling out as price differentials are normalizing.

[Naomi Takagi, analyst]

[Interpreted] Okay. And one more question. So after October, you're planning for another price revision and what is going to be the impact of that. And all the major players in the industry, they have announced that they're going to raise the price. And also they have announced the impact they are expecting from the price revision. And clearly, your company, Coca-Cola seems that the impact scale that you're expecting is extremely small. And related to that, so you mentioned that the market trend has not changed, but Ayataka is doing very well and it's really contributing positively to the business. So once again, what is your assumption going to be on the impact that you will see? Is there any updates related to that?

[ゴミ マサオミ, executive]

[Interpreted] Takagi-san, thank you very much. From the price revision that will be planned in October, it seems that the business is going very well right now, but is there any change in the impact that we are forecasting? Bjorn-san, please.

[Bjorn Ulgenes, executive]

Thank you, Takagi-san, for the question. The short version of the answer is no. We are not changing our outlook for the impact of the price revision in October, JPY 7 billion to JPY 10 billion annualized. The little longer version is that this is our sixth price increase into the market, which we're executing. And as you heard earlier from Alex and also the prepared remarks, the consumer sentiment is stable and welcoming. And we continue executing in the market and now going into our main selling season. So as of today, no changes in the estimate. Thank you.

[ゴミ マサオミ, executive]

[Interpreted] Takagi-san, would that be okay? Yes. Thank you. So, we do not have any additional questions. With that, we would like to finish our Q&A session. The contents 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.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]