Coca-Cola Bottlers Japan Holdings Inc

TSE:2579

Earnings Call Transcript 2020-Q4

[Raymond Shelton, executive]

Good afternoon, everyone. I'm Raymond Shelton, Head of Investor Relations and Corporate Communications for Coca-Cola Bottlers Japan Holdings. Thank you for joining us today for our full year 2020 earnings call for analysts and investors. I'm here with President, Calin Dragan; CFO, Bjorn Ulgenes; and Mr. 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 telephone 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 deck. Both are posted to the Investors section of our company website at ccbj-holdings.com. Please look on our website for this information in both Japanese and in English.

Now I'd like to turn the call over to Calin Dragan. Calin?

[Calin Dragan, executive]

Thank you, Ray, and good afternoon, everyone. I am Calin Dragan, and thank you for joining today's earnings call. Today, we will present our full year 2020 financial results and initial outlook for 2021. First, I'd like to provide an overview of how we have successfully navigated a very difficult period impacted by the coronavirus pandemic in 2020 with speed and agility. Although we saw gradual improving trends as we move through the year, the Japan market faces new uncertainty in 2021 as the government declared a second state of emergency in January with related restrictions on travel, commercial activities and people movement through at least March 7.

Please look at Slide 6 on the presentation deck. Since I returned to Japan in 2019 to lead this company transformation, I have always told my employees business as usual is not an option. And now more than ever, this is so true, but there are a few things that are unchanging in terms of our priorities and commitments. This includes a focus on maintaining the safety and security of our many stakeholders and partners. And I would like to express our thanks to the many people that's helping to keep us safe and healthy during this very difficult time.

Our mission here at Coca-Cola Bottlers Japan is to deliver happy moments to everyone while creating value, and now more than ever, this mission motivates us to work every day in new ways to provide the safe and secure supply of beverages and services to our customers who are also navigating new and challenging situations.

Second, we are driving agility in our ability to respond in real-time as circumstances change with robust processes and systems and the more empowered workforce to ensure we stay ready for the future.

And finally, we have a strong focus on building business resilience grounded in the solid foundation we set over the last year as a result of the important transformation work we accelerated in 2020. The Coca-Cola business has managed through tough challenging times before, but around the world -- both around the world and here in Japan and has always come out stronger. With our clear focus on these 3 priority areas, I believe we are well positioned to weather the storm and emerge with a stronger foundation to continue to develop and grow.

Please move to Slide 6. Let's look at the highlights of our performance in 2020. Business income came in ahead of our revised plan in spite of the JPY 100 billion in top line pressure during the pandemic. Working together, our team was able to deliver significant cost savings, flexible planning and operational processes and a lower fixed cost base to help protect the bottom line in 2020, but also to continue to deliver into the future.

The building blocks of this performance reflect the following: a rigorous focus on winning in the market with continued share growth in the vending channel, and starting in the fourth quarter, a recovery in the retail channels. We are pursuing key transformational initiatives that help us save costs and navigate the current challenges, but also ensure we are well positioned to emerge stronger.

Let me continue the highlights of 2020 on Slide 7. We are ensuring we stay relevant to consumer demand by growing where the growth is. Good examples here are alcohol, at-home consumption and winning in the online channel. Also, our product supply capacity has never been better across both manufacturing and distribution. This is our future and is key to ensuring excellent customer service and lower cost operations.

Finally, we have maintained fiscal discipline as good stewards of capital. Our balance sheet is strong, and we have been divesting noncore assets, including the recently completed sale of the Q SAI health and skincare business. Bjorn will provide more details on this later.

I think key message for 2020 is that we kept a clear focus on what is in our control in order to protect the bottom line even with unprecedented external pressure.

Please look at Slide 8. Despite approximately JPY 100 billion lower revenue in 2020 reflecting the external environment, including impacts from COVID-19 and the delay of the Olympic games, we were able to deliver JPY 4 billion higher business income than plan and prevent business income loss for the year. Certainly, JPY 35 billion cost savings in 2020 was a major driver and a huge achievement.

But -- so 2 were less visible factors. Investments in people, processes and systems over the last years have made us more nimble so that we can now better flex our planning, operations and market execution in real-time to reflect changes in the market. This helps deliver not only cost savings, but also more flexible and rightsized operations that essentially variablize fixed processes and costs and help to offset top line uncertainty. This focus on what is in our own control has helped deliver results in a tough year, but also ensures we are better prepared to navigate market changes and continued uncertainty in 2021 and beyond. This is an example of what I mean when I say business as usual is not an option, and I expect to be able to continue to flex our business through clear transformational initiatives grounded in our strategic business plan to weather the current storm and deliver more profitable growth as conditions start to normalize.

Previously, I mentioned growing where the growth is. On Slide 9, I will share with you a successful example of our expansion into new untapped growth opportunities or white spaces. Since launching the Lemon-Dou alcohol brand nationwide, sales have trended well ahead of plan, and we continue to expand the product lineup and production capacity to meet growing consumer demand. Lemon-Dou is our first entry into the highly competitive, ready-to-drink alcohol market, and I'm pleased that we have already achieved top market share for the Teiban lemon flavor in 2020, the first full year of national sales.

I also mentioned a more agile and flexible supply infrastructure as a key highlight for our activities in 2020. We have invested in 7 new manufacturing lines since 2019, giving us 20% additional aseptic capacity to meet consumer demand growth. In addition, we continue to expand in-house alcohol production capacity. We are converting existing underutilized soft drink in capacity to alcohol rather than building new lines from scratch. So this is a good example on how we are applying a diligent ROI perspective to this kind of growth investments.

Finally, our Shinsei logistic network optimization project is on track. We opened the Saitama mega distribution center just this month. At full operation capacity, it will be one of the biggest and most automated warehouse and distribution centers in Japan, with storage capacity of 60,000 pallets and annual shipping capacity of 85 million cases.

I will now ask CFO, Bjorn Ulgenes, to review our full year results and provide some color on current conditions and outlook. As I do that, let me reiterate that although this has been a very tough year for our entire industry in Japan and also for the world, our first priority has been to protect our business and ensure we continue to support customers, employees and communities in need. We have moved quickly in an agile way to address the immediate challenges of volume and mix pressure in important channels like convenience stores, vending and food service due to reduced consumer traffic, all while continuing to make deep changes in people, processes and systems to set a solid start for 2021 and beyond. Bjorn?

[Bjorn Ulgenes, executive]

Thank you, Calin. Good afternoon, everyone. I'm Bjorn Ulgenes, CFO of Coca-Cola Bottlers Japan Holdings. Let me direct your attention to Slide 12. Because we announced the sale of the Q SAI health and skincare business last year, our full year 2020 results showed results of continuing operations only down to operating income. This means our core beverage business as Q SAI is treated as a discontinued operation. Net income includes both beverages and Q SAI.

Revenue from continuing operations declined about JPY 100 billion as nonalcoholic beverage volume declined 11% and total beverage volume, including alcohol, declined 9%. Overall, we have managed in a period of extreme volatility to deliver positive business income and significant improvement in operating income versus the prior year.

On Slide 13, you can see the main drivers of our full year business income for the beverage business. Stand-alone fourth quarter show the moderating trend versus the previous quarters. We made strong progress in cost savings to partially offset the massive top line pressure with about JPY 35 billion of net cost savings for the full year, including both recurring and onetime savings from across the business. We estimate about JPY 13 billion in recurring savings through transformation efforts.

Starting on the left-hand side of the slide, you can see volume, price and mix, which shows the year-on-year change in marginal profit from the commercial activities of our beverage business. We experienced a net JPY 45.3 billion decline in marginal profit on JPY 100 billion in lower revenue, driving a 9% beverage volume decline and negative channel mix. The marginal profit decline in the stand-alone quarter was JPY 10.4 billion, which was an improvement versus second and third quarters. Of the JPY 45.3 billion decline, negative volume and channel mix make up approximately JPY 45.1 billion as the vending convenience store and retail food channels decline. Price and product mix were negative, driven primarily by package mix declines, reflecting shifts in consumer behavior towards larger package at home consumption.

Our alcohol business sold 7.9 million cases for the full year. This is a decline -- this and a decline of variable expenses, such as vending, commissions and promotional discounts, helped to offset some of the volume and mix pressure. Fixed marketing expense, or DME, decreased JPY 7.3 billion as we cut back on marketing activities during the peak of the coronavirus period. We started to bring back marketing initiatives and investments to more normalized levels in the fourth quarter, though still somewhat lower than the prior-year period, and we expect to build momentum for growth into 2021.

Raw materials and commodity costs continue to ease with a JPY 1.5 billion benefit, driven by favorable foreign exchange and commodity trends, including PET resin and aluminum. Manufacturing costs increased JPY 2.4 billion, reflecting lower-than-planned production volume and higher depreciation expenses from the investments we have made in new production capacity. This has offset some of the efficiency gains in manufacturing we are seeing from new lines and transformation work. Depending on how sales volume trend during 2021, we would expect renewed benefits from efficiency at scale as we cycle the initial impact from COVID-19 in the prior year. But it's too early today to tell how volumes and mix will trend given the renewed state of emergency announced in January.

In Others, there was a benefit from significant cost savings in labor, IT, travel and entertainment and other areas we have focused on during the COVID-19 period. We are also seeing a benefit from accelerated transformation in vending operations as well as lower logistics and distribution expenses.

Business income for the full year was slightly positive at JPY 200 million, exceeding our previous guidance of a JPY 3.6 billion loss for the year, again, in spite of JPY 100 billion in revenue declines.

I'm pleased that how our teams were able to shift gears very quickly early last year when the first coronavirus state of emergency was declared in order to identify and implement cost mitigation actions and still continue to deliver well above the plan on our core transformational initiatives for the future.

You can find volume performance by major channels for nonalcoholic beverages on Slide 14. Growth in Supermarket and Drug & Discounter channels reflect where consumers are shopping during this pandemic. First and foremost, we need to make sure we are winning where the growth is. For one, this represents growth in case sales for home consumption, but also strong growth in the rapidly expanding online channel, where we have achieved the #1 market share position with one of the major online retailers.

Importantly, we continue to grow value share in the vending channel. Although vending volumes declined 13% in 2020, we believe it is important to stay relevant and strong in this channel as it is an important channel for consumers, and we expect it to recover as consumer traffic gradually returns. Although average wholesale revenue per case is negative this year. It is primarily driven by changes in package mix, with volume growth in large PET packages and declines in small PET and cans.

In the fourth quarter, average wholesale revenue per case showed a sharper decline than previous quarters in retail channels. This is mainly driven by a change in configuration of number of bottles per case for the 1.5 liter PET package from 8 bottles per case to 6 bottles per case, and does not reflect the deterioration of price/mix per bottle. This change in case configuration improves shipping efficiency, allowing 20% more bottles per pallet, which should also result in more efficient truck loading and fleet management. Finally, we continue to observe a retail price premium for our products versus the market for both small PET and large PET packaging.

On the next slide, Slide 15, you can find full year volume details by beverage category. In general, the full year trends reflect consumer demand and mix shifts due to the COVID-19 situation.

And the fourth quarter numbers, you'll see on Slide 16, reflect improving trends versus the second and third quarters. Sparkling and tea categories reflect consumer traffic declines in convenience stores, vending and on-premise food outlets, partly offset by new product launches at the Fanta Premier series and Ayataka Koi Ryokucha green tea.

For the full year, water volume declined 3%, driven by small PET as the media consumption channels declined. In the fourth quarter, water volume grew 5% as production capacity has increased versus prior year and also reflecting growth in the Supermarket and Drug & Discounter channels.

For coffee, ongoing weakness of can and bottle can volumes offset growth in PET packages driven by Georgia Latte Nista and Japan Craftsman. Bottle can started to see renewed growth in the fourth quarter, driven by Georgia Black. Finally, juice volumes reflect the strongly negative trends in the on-the-premise food channel, given store closures and restricted operating hours.

On the next slide, Slide 16, you can find fourth quarter volume data as well as by package information.

Slide 17 highlights our continued momentum in value share performance. Fourth quarter OTC value share is getting back to 2019 levels, supported by a return to more normal levels for market investments and activation after a delayed and replanned marketing calendar due to the Olympics postponement. We expect this momentum to continue into 2021 and have seen similar results so far in January.

In vending, market share growth momentum continues with 21 consecutive months of value share growth. This is an important reflection that our transformation efforts in this channel are delivering results even during this depressed period of traffic during COVID-19. Fundamentally, we believe this puts the vending business in a healthy position when consumer traffic and sales volumes return.

Slide 18. We have spoken about the roughly JPY 35 billion in cost savings achieved in 2020 through accelerated transformation initiatives and more urgent mitigation actions to offset significant top line pressure. These savings, on Slide 18, are combination of recurring and onetime items. We achieved recurring savings of JPY 13 billion in 2020, well ahead of our original plan of JPY 5 billion for the year and also ahead of our revised guidance of about JPY 10 billion.

This performance comes from deep transformation of our vending operation model and optimization of how we manage customer visits. It also includes the benefit of our supply chain recovery and expansion with additional high-speed manufacturing capacity, new facilities in the Hiroshima area and gradual rationalization of local sales center locations. Other more urgent mitigation actions drove savings in labor costs, marketing activities and general strong cost management across travel, entertainment and support functions. We ended the year slightly ahead of the revised plan on total cost savings originally targeting over JPY 30 billion for 2020. For 2021, we expect to deliver about JPY 7 billion to JPY 9 billion in new recurring cost savings on top of JPY 13 billion in 2020. And we will keep tight control of overall expense management to be able to flex cost savings as conditions warrants.

Slide 19. My final slide is, I think, a good summary of our approach to value creation and stewardship of capital in highly uncertain times. They say, cash is king. Our focus in 2020 was to ensure an appropriate cash position amid the extreme uncertainty and volatility of COVID-19. As the year progressed, we were pleased to reinstate a year-end dividend payment of JPY 25 per share after withdrawing dividend guidance early in the year. As we start 2021, we are comfortable returning to a more stable dividend plan of JPY 50 per share for the full year, JPY 25 at mid-year and JPY 25 at year-end.

In terms of balance sheet and cash flow, we are in a solid position. JCR recently affirmed our credit rating as AA minus, and we have an equity ratio of 53.4% as of the end of the year. In addition, we sold idle assets and cross-sell shares for a cash influx of JPY 15 billion in 2020. And earlier this month, we completed the sale of our Q SAI health and skincare business for an additional cash inflow of JPY 45 billion in the first quarter of 2021. We intend to continue to evaluate our appropriate cash position given macro uncertainty with overall priorities of investing in sustainable growth and generating value for our shareholders. For the time being, as the business environment remains impacted by the coronavirus, we will continue to exercise restraints in terms of capital investment. We ended 2020 with CapEx of JPY 69.3 billion, a reduction of about JPY 26 billion versus initial plan. And in 2021, I expect CapEx in the range of JPY 45 billion to JPY 50 billion.

So to wrap up, we are approaching 2021 with a focus on scenario planning and how to react quickly and in an agile way to change. The way I see it, there's no 1 proof, but multiple scenarios to manage by. No matter what, though, a few core principles apply to our approach for the year: We expect to continue a care focus on winning in the market to drive value share growth and revenue recovery; we will continue to act the good stewards of capital; shareholder value creation is a priority; transformation across people and systems will continue in order to make our business more nimble, able to react to change and with a cost base that is appropriately scaled to current business conditions and outlook.

Now I'd like to introduce Chief Marketing Officer of Coca-Cola Japan, Takashi Wasa, who will take you through an update of our marketing initiatives and outlook this year. Wasa-san, please?

[Takashi Wasa, executive]

[Interpreted] This is Wasa from Coca-Cola Japan. Today, I would like to share with you a review of the fourth quarter of 2020 and marketing highlights for the first quarter of 2021. First, we will look back at our major activities in Q4.

Coca-Cola Zero Sugar underwent a full renewal on August 31 last year. In the fourth quarter, we continued to expand our share in the carbonated market and steadily increase the number of drinkers. We believe that we have been able to meet the needs of consumers who are spending more time at home due to the impact of the new coronavirus and who want to refresh themselves and reduce their calorie intake due to lack of exercise.

The Georgia Lucky Charms campaign, which started on September 7, has been able to offer the good taste of coffee and the excitement of lucky charms to a large number of consumers with a total of 4.1 million participants and 32 million times of participation in the campaign. Thanks to this campaign, Georgia won the #1 position in the RTD Coffee Market for 2 consecutive years. In addition, Georgia, Japan Craftsman, Cafe Latte has been #1 in the PET bottle coffee category for 2 consecutive years and continued to perform well. This was followed by our winter promotion that was implemented across categories. We conducted a large-scale digital promotion using PayPay for all Coca-Cola products. Customers of all ages from all over Japan participated in the promotion, and the final number of participants exceeded 1.1 million.

Through the Buy 1 Get 1 campaign, coke on was able to attract users back to the vending machine, which is the core business of the Coca-Cola system. During the campaign period, Coke ON gave away 1 Coke ON drink ticket for the first purchase every week to users who were using the Coke ON application for the first time or had not purchased in a while. As a result, the campaign attracted approximately 1 million users and contributed to the expansion of Coke ON app downloads.

The Lemon-Dou brand celebrated its first anniversary on its national launch in October 28 last year. And on December 28, the Lemon-Dou brand launched its first dry tasting product, Kamisori Lemon. The addition of Kamisori Lemon to line up of different flavors and alcohol content has been well achieved and has allowed us to attract a wider range of users.

And to close out the year like never before, we held the Coca-Cola countdown from space event. The moment we start a new year was broadcast live from the international space station, offering a new experience of bringing in the new year, while connecting with space. The total number of viewers was 9 million. While it was not possible to hold an event that attracts as many people as in the previous years, we were able to share the same experience with so many people online, and we were convinced that we could provide the kind of surprise and excitement that only the Coca-Cola Company can provide in our new lives.

Moving on to the next slide, looking back on the year 2020. I would like to conclude by informing you the valuations received for the I LOHAS natural water 100% recyclable PET bottle introduced in March 2020 and the I LOHAS natural water label-less bottle introduced in April 2020 as part of our sustainability efforts. Two products, I LOHAS natural water 100% recycled PET bottle and I LOHAS natural water label-less won the grand prize in the plastic resource recycling special category of the 21st Green Purchasing Awards run by the Green Purchasing Network on environmental NPO. The bottle to bottle 100% recycled PET bottles and label-less of these products is an industry-leading initiative, and the company was recognized for its proactive use of recycled materials and its contribution to the social implementation of horizontal recycling. We will continue to strengthen these efforts in the future.

Now I would like to introduce the major marketing programs for the first quarter of this year. First, here are the major programs for January. The year 2021 started with Coca-Cola's This Moment Is Me campaign. While it is difficult to achieve self-fulfillment due to the corona disaster, the campaign sends out a positive message to share those moments spend with friends, family and colleagues that only Coca-Cola can provide. The new TV commercial features the Popular Girl group, NiziU, who also participated in the Kouhaku Uta Gassen last year. The theme of the commercial is This Moment Is Me, depicting the moment when the members can be themselves. In addition, the Instant Win campaign in which participants can win an exclusive Coca-Cola NiziU online event by applying using the QR code on the product has been very successful with 650,000 people participating in the first 4 weeks.

Next is the Georgia Mobile Suit Gundam campaign, which started on January 11. Georgia's brand message, The World is Made Up of Someone's Work, is now in its eighth year. And in the spring of 2021, Georgia is collaborating with the TV anime Mobile Suit Gundam and GUNDAM FACTORY YOKOHAMA, which has realized a full-scale move in Gundam. In addition to the Georgia Mobile Suit Gundam promotion that has been running since December 28, the campaign will be conducted through a wide range of channels. Including vending machines that support Coke ON, supermarkets, convenience stores and e-commerce sites.

On January 25, we launched Aquarius Mamoru lactic acid bacteria water, which contains 10 billion shield lactic acid bacteria. A survey conducted by our company revealed that about 90% of people understands the importance of hydration in winter, but feel they are not able to practice it properly, and 70% of people think it is difficult to hydrate their children. It was also found that about 80% of the responders were concerned about whether they were able to properly manage their family's health with corona damages. We hope the Aquarius Mamoru lactic acid bacteria water will be useful for rehydration, which is an important part of maintaining the health of the family along with masking, gargling and washing hands. This product has been on the market for 2 weeks, and it's doing well. We have already received nearly 40,000 tweets, which is 1.6x our forecast. 98% of the comments are positive, especially from parents who want their children to make it a habit.

With people refraining to go out, the sports and functional market is down by 23% year-on-year, but within that, the functional market is growing at plus 15%, in particular, lactobacillus, a vitamin-based products, are the drivers. And we hope to promote this growth in the future.

Page 25. And just this week, on February 8, we launched Karada Odayakacha W, Japan's first food with functional claims, they contain which works to improve memory and blood pressure. This year, with the change in lifestyle in the corona disaster, more and more people, especially those in their '40s and older, are concerned about their memory and blood pressure. Karada Odayakacha W is a green tea with a moderate stringency and a refreshing taste, so that such people can continue to drink it as daily health habits. It can be consumed on a daily basis regardless of the occasions, such as during work breaks or meals.

On February 15, Ayataka will launch the Ayataka Traditional Crafts Support Bottle. Ayataka has been part of our daily lives for long like tea food in a tea pot. Through the Traditional Craft Support Bottle, we propose to introduce wonderful traditional crafts, which are full of human wisdoms and skills, not as something special, but as an everyday object. 12 types of Japanese traditional crafts from all over Japan will be used as motifs for the bottle design, and a portion of the proceeds from the sales of each bottle will be donated to activities to support Japanese traditional crafts.

Tea has a very long history in Japan, and this will be a special initiative that only Ayataka will be able to provide.

The last product I would like to introduce to you is Fanta Premier. It was launched in March last year as a premium carbonated drink for adults and has succeeded in attracting the adult generation in their '30s and '40s back to the Fanta brand. On March 1 of this year, Fanta Premier will be relaunched with a new orange flavor, along with a renewed grape flavor. As the way we work in changing -- as a way we work is changing, we will further strengthen our position as a premium carbonated drink for adults by proposing a refresh and break with the refreshing sweetness of fruit and the stimulation of carbonation.

Now I would like to conclude my presentation today. The expansion of COVID has brought about changes in peoples' lives from which we have identified a variety of business opportunities: The importance of selection and concentration, returning to our core business and uncovering demand in the home. All of the programs introduced today have been developed by taking advantage of these learnings and staying close to consumers. We will continue to strive to refresh the world, make a difference, following our mission, and we will continue to provide refreshing moments and positive fillings through our soft drinks.

Thank you very much for your kind attention.

[Calin Dragan, executive]

Thank you so much, Wasa-san. Calin here again. Let me now address our 2021 outlook. Although we saw traffic and sales volume weakness moderate through the end of 2020, the resurgence of COVID-19 infection and the new state of emergency has introduced more uncertainty. Predictions are difficult this year. But after a big hit to the Japan economy in 2020, a rebound to some level of GDP growth, and therefore, volume growth is expected in 2021. Although the current third wave of COVID-19 infections seems to be stabilizing, consumer traffic has declined again with the second state of emergency, but at moderate levels than during the first declaration in early 2020.

Last year, we talked about this crisis as time-bound, but the experience has been a prolonged one, and we have to manage our business in a weak coronavirus environment with multiple scenarios amid changing conditions. Our sales volumes gradually improved over the course of last year. We expected that trend to continue into the first quarter of 2021. But the new state of emergency in January requires a whole new round of scenario planning, depending on the progression of the virus and the uncertain timing and outlook for vaccines, economic recovery and the return to more normal consumer behavior. Because of this uncertainty, including the expected impact of revenue mix on first quarter results, we have decided to hold off on providing a full year 2021 earnings forecast until we can better estimate the outlook for the full year. It will be important to understand the scale and duration of the pandemic and how channel and package mix will evolve over the coming months.

So in 2021, we remain focused on managing what we can control and responding to change in an agile way with scenario planning as a core element of managing our business. We have learned from our experience in 2020. And as Wasa-san presented, we have a strong and flexible set of marketing plans in place to leverage an ROI focus on fewer, bigger innovations, a private to the core and the stay-at-home occasion. Our bottler commercial team's clear priorities are revenue recovery, winning in the market, driving better ROI on market execution and capturing new consumption occasions. We can't let up on our key transformation work in this tough environment. We must dig deeper for change as we continue to build on the progress we have achieved so far. And thus, we address short-term savings to prepare our business for a gradual exit and recovery.

We expect to achieve new recurring costs of JPY 7 billion to JPY 9 billion in 2021 on top of the significant savings in 2020, and we'll stay flexible to identify other savings opportunities as needed. Bjorn mentioned our reduced CapEx outlook of JPY 45 billion to JPY 50 billion in 2021, a 30% decline versus previous year. Good stewardship of capital and maintaining a solid financial position is essential. We expect to return to an annual dividend payout of JPY 50 per share, and we will carefully consider an appropriate cash position while continuing to optimize our balance sheet.

Finally, we create share value across our business with a strong focus on ESG initiatives. In 2021, we will continue to make progress in sustainable packaging, and we are raising our diversity and inclusion targets among managers as part of our sustainability framework centered on resources, inclusion and communities.

Please turn to Slide 31. I mentioned the key priority of our commercial activities is revenue recovery through value share growth and a more disciplined focus on ROI. Here is a more detailed view on this growth framework.

On Slide 32, I share some specific examples of our actions to drive growth in this new norm. We continue to launch label-less SKUs and new package in case combinations, including driving revenue growth from subscription customers in the online channel. Multipack bundle offerings and new packaging sizes, like the 950 ml PET in convenience stores and the 350 and 700 ml PET packages in Supermarkets and Drug & Discounters, are driving revenue growth. An example of disciplined investment that yields a solid payback is new display rack configurations in retail channels. And we are expanding our digital presence by leveraging the Coke ON app to drive cross-channel promotions that led to higher traffic at vending machines and investing future in cashless functionalities.

Slide 33 outlines the ongoing transformation across our supply network. Our focus in 2021 will be to transform distribution operations as new, highly automated and centralized logistics infrastructure gets up and running. After consolidating 14 sales centers in 2020, we will continue to do more this year by expanding hubs and ramping up operations at mega distribution centers. The Saitama Mega DC opened this month and will enable an end-to-end transformation of the way we work from supply chain to field operations, including digitizing planning and accelerating the transformation of our vending operations by connecting online machines with automatic picking at the warehouse and optimize route planning and servicing all the way to cash settlement.

Switching gears to nonfinancial indicators on Slide 34. ESG is more important than ever, and we are making steady progress towards our world without waste goals. In 2020, we achieved 33% content of recycled PET and plant-based PET in our packaging, and we'll continue to expand recycled PET content in 2021 to 40%, which will put us on track to achieve 50% recycled content in 2022 and 90% by 2030. Other areas of progress are our inclusion in leading stock market indices like the MSCI Japan, empowering women index, and the Dow Jones Sustainability Indices. We recently were awarded the grand prize in women's participation from the Tokyo Metropolitan Government and made solid progress supporting local communities in areas such as water replenishment and product donations to medical institutions and food banks as part of our response to the COVID-19 pandemic.

Here, on Slide 35, I remind you of our creating shared value or CSV goals. In 2020, we already reached our initial target of 6% female managers across the CCBJI Group and have announced a new target of 20% female managers by 2030. These goals are aligned with our company's sustainability framework that focuses on 3 pillars of resources, inclusion and communities.

We will provide an update to full year earnings guidance when we are able to estimate the impact to our outlook. In the meantime, here are 6 indicators based on what we can actively control that we will focus during the year. Value share growth and winning in the market, driving revenue recovery; new recurring cost savings through ongoing transformations of JPY 7 billion to JPY 9 billion; a return to a stable annual dividend outlook of JPY 50 per share; a more restrained JPY 45 billion to JPY 50 billion in CapEx; and about JPY 55 billion to JPY 60 billion in depreciation, led by investments we have made over the past few years; and finally, continued progress in package sustainability. We will expand the use of recycled PET content in new packaging to 40% in 2021, which puts us on track to deliver our long-term goals.

Despite the current market and macro uncertainty, we are shifting from a clear focus on resilience in 2020 to recovery and growth in 2021. And we will look forward to updating our guidance for the year as conditions become clearer. I said before that our company mission is to deliver happy moments to everyone while creating value. I think I can restate this mission in 2021 as delivering sustainable growth and creating shared value.

My promise to you is this. No matter how the various scenarios of COVID-19 infection, market impact and consumer trends play out over the coming year, we will stay focused on driving sustainable growth and creating shared value for our stakeholders by winning in the marketplace, continuing our transformation and remaining good stewards of capital in uncertain times.

Let me now ask Ray Shelton to come back for question and answers.

[Raymond Shelton, executive]

Thank you, Calin. 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're using simultaneous interpretation, so please make sure to ask questions in the language you are joining, Japanese on the Japanese line -- phone line and English on the English phone line. [Operator Instructions]

Operator, we're now ready for questions.

[Operator]

[Operator Instructions] The question is from Saji-san, Mizuho Securities.

[Hiroshi Saji, analyst]

[Interpreted] I would like to limit myself to one question. So in the U.S., the Coca-Cola Company in Atlanta, I think they have started to reannounce their guidance, but you have not announced your guidance for the full year as CCBJH. And the Coca-Cola Company, I know that their sales has gone down by 9%. But in the second half, you started to recover. And in 2019, they said they were confident to get back the results to what they had in 2019. And last year, your volume was down by 11% for your soft drinks. And what is the trend going to be for this year? And is it difficult to have a different answer on that?

In 2019, you had JPY 11.4 billion of business income, and it's going to go down in 2020. But for this year, what is going to be your expectations? Please tell me whatever you can.

[Calin Dragan, executive]

Calin Dragan here. My understanding is that your question is related with the guidance for 2021. And the answer I will try to provide to you, it's the following. First, in relation with the Coca-Cola Company worldwide comments, I personally refrain to give any comments at this moment in time because we are a separate company, a Japanese legal entity listed in Tokyo Stock Exchange, and we are operating exclusively in Japan. For that, we are reflecting in our objectives and our area of focus, the Japan realities. And this year 2020 continuing in 2021, it was a very tough year for the entire industry. Hence, our decision at this moment in time, it is to provide guidance on the areas, which are in our control. And that is very much related with the value share growth and winning in the market while driving revenue recovery.

The second area of focus would be new and recurring cost savings through ongoing transformation of JPY 7 billion to JPY 9 billion; a return to stable annual dividend outlook of JPY 50 per share; a more restrained, JPY 45 billion to JPY 50 billion in CapEx and about JPY 55 billion to JPY 60 billion in depreciation, led pretty much by investments that we have made over the past few years; and finally, the progress in sustainability area that I mentioned. We are looking forward to come back with guidance while the perspective of the year and the exit from the COVID reality, it's going to be way more clearer. For further questions, please, I'm going to pass back the mic to Ray Shelton.

[Raymond Shelton, executive]

Thank you, Saji-san. I hope that answers your question.

[Hiroshi Saji, analyst]

Yes.

[Operator]

[Interpreted] The question from Fujiwara-san from Nomura Securities.

[Satoshi Fujiwara, analyst]

[Interpreted] This is Fujiwara speaking. I would like to ask about the operational transformation for the vending business unit. Right now, you are saying that you have decreased 10% of the annual cost for the vending business unit operation. And I would like to understand what will be the ultimate goal for the reduction. And also when it comes to the vends operation transformation, if you complete this, for example, the revenue of the vending machine will be recovered to some level that -- so what will be the expected level versus 2019? Can you maintain the profit at the end of this journey of a transformation? Even though you stay with this lower level of the revenue, would you be saying that we will be comfortable saying that you will be gaining back to profitable level with the vending machines?

[Raymond Shelton, executive]

So we got the question in the translation. So your questions around vending machines, given current circumstances and declines with traffic, how do we see going forward? When do we see ourselves getting back to profitable levels, especially given the fact that we've taken out fixed cost -- 10% of fixed cost, how do we see about returning to profitable levels? Costin, would you like to take this?

[Costel Mandrea, executive]

Yes. Thank you, Fujiwara-san. This is Costin Mandrea. I will start with the last part of the question. Vending, it is profitable for our system and for the last years. All the transformations that we are doing are having in mind to increase profitability of this channel. But giving you some flavor on the vending transformation, I think the top line is we have a strategy that is delivering even in difficult times. We are happy to see vending share growing for the last 24 -- 21 months. And during 2020, we accelerated our transformations, taking significant cost out.

You know vending is a very important channel for consumers. It is low touch. It is highly convenient. And during the COVID crisis, it has proven even more useful. CCBJI commitment stays very high. And in the Japanese industry, we are leading the vending channel transformation. Ours reporting to you that we are increasing share for the last 21st month, and this is a combination of placements in profitable locations, permanent improvement of portfolio assortment and prices to reflect the consumer preferences, utilizing proprietary Coke ON platform and implementing cashless platforms as well from a cost point of view and to show our focus on profitability.

During 2020, we completed our transformation effort ahead of schedule, creating significant effects, such as reducing the number of routes, reducing labor cost and improving the out of stock rate. Approximately 20% or 1,000 routes were reduced. Overtime hours were reduced by an average of about 1 hour per day, and the number of shortages and product replenishment was improved. As a result, the fixed cost annualized were reduced by 10% in the second half of 2020. We believe it is important to stay relevant. It's important to stay strong in the vending channel because this is an important channel for consumers. As you said, we expect the vending to recover as consumers' traffic gradually will return. We are open and agile during the start of 2021, and we have a set of measures in such way that CCBJI -- when the consumer traffic will return, CCBJI is better positioned than the industry to generate incremental profits.

[Raymond Shelton, executive]

Thank you, Costin. I hope that answers the question. Operator, we're now ready for the next question.

[Operator]

The question is from Tsunoda-san, JPMorgan.

[Ritsuko Tsunoda, analyst]

[Interpreted] This is Tsunoda from JPMorgan. So I will limit myself to one question as well. So about the performance for the past year, and you're going to -- you have done a large amount of cost reduction, but you are saying that it was less investment and also the depreciation was less as well. And therefore, it piled up, and it was increasing the amount of cost reduction. That was last year. But from this year, 2021, what is going to be your image for depreciation for 2021? And is it like an increased factor due to a onetime thing? Is that the case this year? Maybe you will turn into deficit this year, so that's why I want to ask on your depreciation. In Calin-san's presentation, you mentioned about continuity. So this is something that I want to confirm.

[Raymond Shelton, executive]

I'll repeat your question, primarily focused on the cost reduction background from last year as well the reduction in CapEx and depreciation versus plan, given tight controls in that year. For next year, what is our outlook on CapEx and depreciation? And how do we think about that going forward? I'm going to pass this question over to Bjorn, if I may.

[Bjorn Ulgenes, executive]

Thank you, Ray. Thanks to Tsunoda-san, for the question. So I think there's 2 parts to your question. First, in 2020, you're right to say, we cut back on capital expenditure. But we also made sure we focus on what we call strategic investments. And last year, for instance, we completed the Hiroshima plant and we continued investing in aseptic capacity to make sure we can meet demand.

For 2021, we are further lowering our CapEx outlooks to JPY 45 billion to JPY 50 billion of cash CapEx, and that translates into, depending on the scenarios, JPY 55 billion to JPY 60 billion depreciation. And again, it's important to distinguish between what is strategic and what is more tactical operations. You recall from the presentation, we said, we opened the Saitama Mega DC now in January. So that, of course, forms part of the CapEx for this year, which is highly strategic and a key building block for us to deliver our synergy savings in our strategic business plan. The major variable part comes in what we call cold drink equipment or you can call them substantially vending machines. So it will depend again on which scenario we end up executing throughout the year, how many machines we will play sending. And remember, they are profitable when we place them, and the timing, of course, we do so.

And the third bucket, albeit smaller, of course, inside CapEx is our continued investment in IT infrastructure to make sure, again, when we move forward, we optimize how we work, and therefore, are systems that come with it. So I hope that answered your question.

[Ritsuko Tsunoda, analyst]

[Interpreted] To add, in 2021, I think you are going to control your investment for this year, but 2022 is a plan to increase the amount of investment. And what is your understanding on risk as well?

[Raymond Shelton, executive]

Follow-up question was just as we look out a little bit further into 2022, after controlling CapEx investments in 2021, would we look to pick that back up? And how would we look to that going forward?

[Bjorn Ulgenes, executive]

So for 2022, that's, of course, still work in progress as we move through settling in, first, 2021 and get a handle off of these scenarios. But I think it's safe to assume that if volumes change dramatically and again, we get into situations where we need more capacity to deliver demand, of course, we will have to evaluate CapEx at that point in time. The bigger variable, again, just like this year and last year, we'll continue to be cold drink equipment and vending. Again, if we see markets starting to expand while we continue to take share, we will, of course, evaluate CapEx at that point in time. Again, underlying, they will always be profitable for us in the -- how we operate this channel.

[Raymond Shelton, executive]

Operator, I think we're ready for our next question.

[Operator]

Next question is from Morita-san from Daiwa Securities.

[Makoto Morita, analyst]

[Interpreted] This is Morita speaking. I have question on the pricing on your products. So you have a lot of environment surrounding you, like consumer preferred to have a lower price and you have a severe competition with your peers. So what's your strategy on your pricing?

[Raymond Shelton, executive]

Question is on the pricing outlook, competitive environment and how we're thinking about pricing as we move into this year. I'm going to pass this over to Costin-san.

[Costel Mandrea, executive]

Thank you. This is Costin. Our strategy did not change. We are focused on promoting profitable products in the market. And as you saw earlier from the presentation of Wasa-san, moving forward, our focus is on growing core and investing in big bets. We are not going to price promote per se. However, we carefully watch the market, and we will react selectively depending on how the situation will evolve. For the last years, we share with you that the focus is value share ahead of volume share, and our statement stays absolutely the same. I hope this answers your question.

[Makoto Morita, analyst]

[Interpreted] And I understand your strategy against the competitors, but how do you see the market trend? What's your view on how the market is going to move from here on?

[Raymond Shelton, executive]

Competitive trend, market trends, how we see the market progressing into this year? Costin, I'll pass this back to you as well.

[Costel Mandrea, executive]

Right. So obviously, what we observe for 2020 and moving into '21, we see changes in business environment, and we see changes in consumers' behavior. But we look at this not like threats, but like opportunities, and we focus our activities on what's in our control. You heard Calin mentioning about growing where the growth is. So our focus on continue to grow market share. And if Supermarket, Drug & Discounters are growing because shoppers are moving towards this channel, well, our commitment and our focus is onto these channels. You heard online is growing significantly, and we got the #1 position for online. This is also proving we are growing where the growth is. But moving forward, we operate with different scenarios. We assume there will be volume growth in 2021, and we assume the consumer traffic will grow after we will get out of the state of emergency. And we have significant plans in place to gain on these new consumer trends.

[Raymond Shelton, executive]

Operator, we're ready for the next question, please.

[Operator]

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

[Haruka Miyake, analyst]

[Interpreted] This is Miyake from Morgan Stanley. My question is related to transformation. So, so far, you have mentioned the transformation that you have done for vending machines, and I'm guessing that you have done mostly what you can do for vending. And you have done things for the logistics channel, for the distribution channel as well. You have the DCs that have opened. And in e-commerce, you are collaborating with the strong players and you said that you have #1 in that channel as well. And we still -- 2020 was, as we heard, but what are the remaining areas that you need to go into in the future in regards to transformation? So maybe there are certain areas that you're planning to invest more for CapEx. I want to know where your transformation areas will be in the future.

[Raymond Shelton, executive]

Just to repeat. So you've kind of indicated, as we've presented today, that we're making tremendous progress around vending. Taking our next steps into distribution, making progress in online, and you wanted to know where the next areas of focus are going to be going forward, including investments, et cetera. I'm going to hand this call over to Bjorn -- this question over to Bjorn, and we'll see if we have any follow-ups afterwards. Bjorn, please?

[Bjorn Ulgenes, executive]

Thank you, Miyake-san. So yes, we are instituting a lot of transformation efforts gearing up in 2020 and continuing into 2021. And if you remember back to our original strategic business plan presentation we called out by end of 2024, we would have delivered a JPY 35 billion savings coming from these changes in how we work and how we structure ourselves.

When it comes to the key drivers, of course, commercial being the biggest function, again, vending being a big part of our business is leading this, and you saw that in 2020. However, vending is not stopping with the activities we instituted last year and the ways will go on looking for further opportunities.

Supply chain, which will also go on. That's a mixture of the CapEx we had in the original plans that we will evaluate, again, depending on volume scenario outlooks. And we are investing, as I said, in IT infrastructure to, again, make sure we can work a lot more efficiently in the future. So the transformation will impact our whole enterprise, not only commercial or vending and logistics. And we will continue looking for significant ways to improve how we work and, therefore, how we structure us in the future. So I hope that answered your question.

[Raymond Shelton, executive]

I think we have time for one more question that's left in queue.

[Haruka Miyake, analyst]

[Interpreted] Thank you very much. But may I ask a follow-up question? So when the transformation efforts are accelerated, I think the remaining 2 years, originally, the top line was going to go up to hit your targets. But maybe you are able to reduce the fixed costs in an accelerated schedule? Or as of now, is it going to be the same plan? Are you just going to continue the initiatives that you are doing right now? And are you going to wait for the top line to recover?

[Raymond Shelton, executive]

Question is really more around progress and outlook for the longer-term plan and any color that we can share there. Bjorn, I'll pass this over to you, please.

[Bjorn Ulgenes, executive]

Thank you, Miyake-san. So I think your question is about how we will face the strategic business plan. And you recall in the original presentation back in 2019, we said it's a 3- plus 2-year plan. However, we all know that 2020 through uncertainty and replanning required into that mix. And we will have to, of course, reevaluate as we first make sure we manage through 2021, depending on which scenario we come out with. And then always, we will have a focus of returning to profitable revenue growth. That will not go away in any of our strategic plans. How we go about that? We are reassessing. And again, as I said, depending on how 2021 now pans out and the uncertainty subsides, we will come back with updated plans. That's the right point in time.

[Raymond Shelton, executive]

Thanks, Bjorn. And we have one more caller in the queue, so we'll take that call as well. Please, operator?

[Operator]

[Interpreted] The question from Miura-san from the Citigroup.

[Raymond Shelton, executive]

Yes. Thank you. We can hear you.

[Nobuyoshi Miura, analyst]

[Interpreted] I have a question about your top line. So looking back, in 2020, time to time, you have seen your share kind of standstill. So what will be the background to explain this kind of trend?

[Raymond Shelton, executive]

Your question is on share trends and what's the background to us getting back to stopping some of the declines that we saw in 2020. Costin?

[Costel Mandrea, executive]

Yes. Thank you, Miura-san. So...

[Nobuyoshi Miura, analyst]

[Interpreted] Not about -- I'm talking about your share gain in a way because your share is not declining as much as we used to see.

[Costel Mandrea, executive]

What we saw in 2020 in second quarter, obviously, we saw that the new product launches and with the postponement of Olympic and Paralympic games, we had the situation that we had to overcome. And at that point in time, the number of transactions decreased. So we had to change our marketing plans, some of the new product launches, and we had to refocus on core. But what we saw very good is from Q4, our market share in OTC channels started to grow and to be at the neutral level. We started the year with a positive share in OTC. And as you heard a few times today, in vending channel, we continue to grow significant share month-on-month.

So moving forward, obviously, we maintain our focus on profitability and getting value share ahead of volume share. You heard for -- you heard from Wasa-san, our marketing calendar, it's strong for Q1. And of course, we stay open to understand what will happen with the market, what will happen with the consumers.

[Raymond Shelton, executive]

Thank you, Costin. Well, I'd like to...

[Nobuyoshi Miura, analyst]

[Interpreted] Why in 2020 -- probably starting from fourth quarter, you have a very favorable trend. Is that because of your new launch? Or is that your marketing plan? But can you elaborate more on what would be your success factor, if you can explain?

[Raymond Shelton, executive]

And so, again, this is a question related to the move in Q4 towards more of a normalized series of investments and activities in marketing after a pullback earlier in the year as we had committed to do. And I'm going to pass this over to Costin, just to talk a little bit about one of the things that we're doing again in Q4 after a bit of a pause. Costin?

[Costel Mandrea, executive]

Right. So marketing...

[Nobuyoshi Miura, analyst]

[Interpreted] So I would like to understand how you are going -- the detail of your marketing activities. And actually, I would like you to elaborate your story with backup with the state numbers as well.

[Takashi Wasa, executive]

[Interpreted] This is Wasa speaking. Thank you very much for your question. Just before as Costin mentioned, starting from fourth quarter, we have been gaining back the share in -- mainly in the OTC channel, and this is a good news for us. And last year, the COVID-19 situation has become even more severe, and we saw the postponement of the Olympics and the Paralympic games. Given such situation in summer, we were revising the investment of the marketing and also the plan for the new launch. So some postponed it, some we replanned. And with that, particularly in May, June, July, we had a pretty tough situation in the marketing arena. However, starting from September onwards, the COVID-19 situation somehow subsided. That's why we wanted to get back to the game. That is why we restart our marketing activities in some part of the plan. And I suppose this has resulted in a favorable trend in share gain.

[Costel Mandrea, executive]

It's a very good combination of new marketing plans and increasing in execution in the market. So if you see the share of visible inventory, the additional placements of racks, if you see the execution of promotions in the market, month-to-month, you see improvements. And I think they work together in getting the share stabilized and positive. Thank you.

[Raymond Shelton, executive]

Thanks to both of you, Wasa-san and Costin-san. Well, we've certainly come to the end of a good -- the replay webcast of this call will be available on our Investor Relations website soon after finishing the call. We invite all of you to reach out to our team in Investor Relations with questions or additional feedback, and we look forward to continuing the conversation going forward. Thank you very much for your time.

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