Coca Cola Bottlers Japan

Good afternoon. I am Masaomi Gomi, Investor Relations Department Manager for Coca-Cola Water Japan Holdings. Thank you for joining us today for our full-year 2022 Earnings Call for Analysts and Investors. Today, we have President Colleen Dragan, CFO, Beyond Organics, and Sue Choi from the Coca-Cola Japan Company. Also, Joining us today are Executive Officer and Chief Commercial Officer Kostin Mandrea, Executive Officer and Executive Business Manager Maki Kado, and Executive Officer and Chief Supply Chain Officer Bruce Harbert. Following prepared remarks, we will be happy to take your questions. Simultaneous translation in both Japanese and English is being provided for both today's call and during the Q&A session. Before we begin, let me remind you that today's presentation contains forward-looking statements, including statements concerning annual and long-term earnings objectives, and should be considered together with cautionary statements contained in our presentation. With that, I'd like to turn the call over to President Kaleen Dragan, Kaleen-san.

Good afternoon, everyone. Kaleen Dragan here. Thank you for joining us for our earning call today. I'd like to begin by summarizing our full year earnings for 2022. Please turn to slide four of the presentation. We are pleased that in 2022, many of the key initiatives we focused on produced positive results. We achieved 3% volume growth by capturing demand sparked by the heat wave and recovering traffic. Achieving strong growth in volume and revenue despite the impact of price revisions is a result of efforts to strengthen our growth foundation. In addition, the price revisions we implemented in May and October are significantly improving profitability. We took the decisive action to revise prices despite the difficult environment, and we put all our efforts into a strong market execution. This was reflected in the results with the price revisions exceeding the initial expectations and resulting in a raise in a wholesale revenue per case. In the fourth quarter, including October, small package price revisions, wholesale revenue per case greatly improved for all channels. Total channel value share grew by 0.5 points compared to last year. Value share growth in our important vending channel, drove overall growth. In terms of profit, we achieved a significant profitability improvement by about 20 billion yen in the areas under our control, such as volume growth, price divisions, and transformation efforts. External factors, such as commodities, higher utility costs, and yen depreciation, had a significant impact. However, business income exceeded the previous year's level as initially planned. Transformation efforts are steadily producing results. Annual recording cost savings achieved 6 billion yen in 2022, exceeding our original target. Please see the next slide. Slide five is the 2022 review. Here, we have summarized the key initiatives and major results. In 2022, while COVID impact eased, we had to navigate our business through a difficult environment as external factors significantly impacted costs. Despite the circumstances, the major initiatives implemented to achieve future growth have produced solid results. As mentioned earlier, we achieved both volume and value share growth by maximizing marketing activities based on the growth foundation we have built to date. We maximized opportunities to capture increased demand from the traffic recovery and the heat wave. In addition, the revamped SNOP process has transformed the service level of product supply during times of volatile demand. Although this was previously a challenge, SNOP has supported volume growth by ensuring a stable supply through the record-breaking heat wave in 2022. The initiative also helped reduce operational costs. Price revisions implemented ahead of the market were successful through strong management decisions and market execution. They have contributed significantly to higher wholesale revenue per case and improved profitability. In addition, transformation cost savings, as well as efforts to optimize the balance sheet, are making steady progress and producing results. We have learned that the key initiatives implemented for future growth are steadily generating results. We are convinced that the direction of our strategy is the right one. Now, let me ask our CFO, Bjorn Ulganes, to take you through the details of the full year earnings.

Thank you, Killeen. Hello, everyone. This is Bjorn Ulganes. Please turn to page six. Sales volume grew by 3% and revenue growth was 2.7%. Steady growth in vending business with high wholesale revenue per case and the effect of price revisions resulted in sales revenue growth that was in line with volume growth. Business income was a loss of 14.4 billion yen, but this is an improvement of 0.2 billion yen on the previous year. Factors behind this change will be explained on the next slide. Operating income improved by 9.5 billion yen on the previous year. This includes the continued balance sheet improvement efforts, such as the gain from the sale of fixed assets. Net income decreased by 5.6 billion yen. This was mainly due to the cycling impact of a 12.5 billion yen gain on the sale of shares in our subsidiary QSI being included for 2021. On slide seven, you will see our primary business income drivers. From the left are volume, price, and mix. This shows the year-on-year change in marginal profit from commercial activities and improvement of 9.4 billion yen on the previous year. Traffic recovery and the heat wave contributed significantly to the increase in volume growth, as well as the effects of price revisions. This includes the impact of higher variable costs due to volume growth and increased rebates from promotional activities to respond to the severe competitive environments. Next is manufacturing costs. The analysis excluded the large impact of utility costs with a rise in energy prices. The analysis excludes the impact of a large increase in utility costs due to higher commodity prices. Here, the main contribution came from improved manufacturing efficiency with increased production volume, resulting in a 4.8 billion yen improvement over the previous year. The impact of utility costs is shown as a total in the commodity and utility cost bar on the far right. In other costs, we saw an improvement of approximately 5.1 billion yen compared to the previous year. Labor costs increased with the cycling of last year's temporary leave. However, contributions from improved S&OP, lower logistics costs leveraging the MegaDCs, and controlled CAPEX resulted in a decreased depreciation. This also includes 8.3 billion yen of earnings improvements from the change in the useful life of sales equipment. Marketing expenses decreased by 0.8 billion yen from the previous year. We implemented marketing activities emphasizing a return on investment by strategically investing in the first half of the year to maximize recovering traffic and capturing demand during the peak season with a view to controlling it from the third quarter onwards. As you can see, the elements under our control explained so far from volume, price, and mix to DME have significantly increased their business profits from the previous year. Next are commodity and utility costs, which were significantly impacted by external factors. Cost increased by 19.9 billion yen from the previous year. The impact of commodity prices, including Forex, was 15.2 billion yen, impacted by the higher prices of materials, such as PET resin and aluminum, as well as the yen's depreciation. In addition, utility costs increased by 4.7 billion yen due to higher energy costs caused by the higher oil and natural gas prices. We have worked to reduce procurement costs by all possible means and have achieved a certain degree of success, but the impact has been substantial and has offset the factors contributing to improved earnings, as I have just explained. These are the main drivers of business income. Please turn to slide eight for volume performance by major channels and categories. Channel total sales volume increased by 3%. I will now provide the channel details. In vending, despite the volume impact of price revisions for small packages from October, the market share base built to date and the campaigns through the COCON smartphone app contributed to a 3% increase. In retail food, volume grew by 18%, benefiting from a recovery in traffic at restaurants. Online also continued its strong growth, capturing at home demand even during the traffic recovery phase. Supermarkets, drugstores and discounters and CVS were impacted by the price revisions and severe competition. Wholesale revenue per case are on an improving trend In particular, looking at the fourth quarter alone for small packages after the price revisions, there was a significant improvement in all channels, with vending improving more than 100 yen from the previous year, and supermarkets, drugstores, and discounters, and CVS improving more than 60 yen from the previous year. Please refer to the appendix for the fourth quarter to date details. By category, all categories achieved growth except tea category that was significantly impacted by the price revisions. This growth was achieved despite the large PET and small package price revisions. Sports and water grew with the recovery in traffic, the resumption of various events, and the heat wave. Coffee grew with the launch of a New Georgia Black, as well as the expansion of the Costa Coffee line-up. Slide 9 highlights market share trends. Total channel value share for the full year grew by 0.5 points from the last year. This is a result of vending value share that saw 2.3 points growth in value share. Also, while the volume share was impacted in OTC channel with the price revisions, value share was maintained at an almost flat level compared with last year. For OTC retail prices, large PET achieved growth for the full year with price revisions. We were able to increase the premium to market for large PET from the previous year. OTC retail prices were flat for the full year. But looking at the data for the fourth quarter since October, when the price revisions for small packages was implemented, the OTC price has increased by 12 yen from the previous year. This indicates that the price division has been reflected in OTC prices. Please look at slide 10 for updates on our ESG activities. We were accelerating various initiatives towards sustainability management. We are strengthening our information disclosure based on the TCFD's recommendations, and we intend to do so in line with the TNFD's efforts, which we have endorsed. Through our business, we are also committed to working with local communities and customers. As an example, as well as working with our customers, we have also signed an agreement with the Saitama Prefecture for the development of global talent. Our efforts to achieve a world without waste are progressing well. For further recycling and utilization of resources, we have newly established a can-to-can system for horizontal recycling of aluminum cans and started manufacturing and selling products using collected aluminum cans. As a result of these ESG initiatives, We have been selected as a constituent of the DJSI Asia Pacific, a leading global ESG investment index for five consecutive years, and have also been highly evaluated by external organizations. Now I'd like to ask Ms. Sue Choi of the Coca-Cola Japan to take you through a marketing initiative update. Sue, please.

Thank you, Bjorn. Hello, konnichiwa. I'm Sue Choi from CCJC, the newly appointed CMO since last November. To provide a brief background of myself, I've lived and worked in both U.S., United States, and Korea prior to coming to Japan, and I've been working in the Coke system for 17 years, in which 13 of those years were marketing across different categories. I'm excited to be a part of the great system in Japan and hope that I can add value and support the continuous growth of Japan for today and for tomorrow. Today, I would like to take you through a recap of 2022, the marketing strategy for 2023, and the highlights of our marketing initiative in the first quarter of this year. If you could go to slide 12, Let's start with the review of 2022. Last year, despite the competitive market situation, the Coca-Cola system successfully grew the value share by plus 0.5% points. The soft drink market, leveraging robust Coke-on platform with 43 million downloads. Our last year's success can be contributed to the following three key strategic pillars. The first pillar was pivoting to the core. And we focused on revitalizing the core brand, starting from the Coca-Cola brand. And we continue to leverage the real magic global platform as the main communication message and strengthen the key occasion of meals and breaks. Next, Georgia. We launched a new campaign, The Coffee That Makes You Glow, with a variety of promotions to expand the user base. Next is Ayataka. We implemented a major core restage and evolved the brand value of Ayataka. Based on the new concept, we renewed all packaging graphics and advertising campaigns to attract a wider range of users. Next, Ilohas. We nationally rolled out the new iconic bottle last December. This was the first full renewal bottle for the brand history in 13 years. Initial results showed very positive start with top line growth and user-based expansion. Moving on to second pillar, fewer, bigger innovation. We launched selective strong new innovations as well as successfully nurturing second year innovations to build them to become the next core brand. In terms of the new innovations, we launched Ayataka Cafe Hojicha Latte as the second flavor from Ayataka Cafe series to strengthen the brand. Real Gold X and Y is a new energy drink to tap into the profitable energy drink category. And Coca-Cola Zero Sugar, the Artist Marshmallows Limited Edition, is one of the Coca-Cola creation series to recruit and engage Gen Z. Georgia Zero Coffee series was launched to offer an attractive new healthier option. which also showed positive potential for further growth. For second-year innovation, we successfully nurtured Ayataka Cafe Matcha Latte as Ayataka's second pillar through offering seasonal drinking style along with a hot product launch in the fall. Yakan Barley Tea expanded market share and sales revenue thanks to the strong marketing support with strong in-store executions. Chill Out successfully increased trial and created a profitable new relaxation category. And Costa Coffee grew by capturing RTD and NRTD dual coffee users and is establishing its unique brand edge, which is authentic cafe quality taste and premium coffee brand as a mass premium positioning, complementing the total KO portfolio with Georgia. Moving on to the third pillar, stay at home. Coca-Cola trademark 100% recycled label-less 350 milliliter PT bottle was launched to accelerate both the brand and reducing the amount of plastic used. At the same time, across the portfolio, we accelerate the label-less product as well as half case selling. To capture at home occasions in alcohol, We launched a new product, Lemon Dough Uchiwara Lemon, tapping into growing lemon sour concentrate market and Lemon Dough Tokubetsu Jikomi as limited product offering. At the same time, we successfully tapped into a non-alcoholic beverage market with Yohanai Lemon Dough, the system's first non-alcoholic brand. Now, let's go to slide 13, the marketing strategy for year 2023. We will continue to do what is working and accelerate some changes needed in the marketplace with our consumers. We will continue to build a strength to strengthen the core, which is critical for sustainable growth of our business. We will continue to focus on fewer, bigger innovation and to continue to innovate our innovation. We will work on transforming the way of marketing to stay relevant, close to our core consumers, and to become more effective and efficient. Marketing transformation includes an evolution from exposure to experience, shifting traditional media to become more digital-centric, and building advanced CRM capabilities and digital experiences. We will also leverage the global network to drive more efficiency and effectiveness in working with their agency partners in building marketing capability. To deliver the marketing strategy and plan, the Coca-Cola system will further strengthen the partnership to work as one Coca-Cola system in order to win together in the market. Please go to slide 14. Now, I'd like to share with you the key initiative highlights for the first quarter of this year. Let's begin with the core brands. To start their year strong, we launched Coca-Cola Zodiac Design Bottle to bring good fortune in the year of the rabbit. Consumers are able to participate in New Year's fortune-telling and lucky draw, which can be unlocked through the QR code in the pack label. Next, Georgia. In January, we launched a new tie-up campaign with popular anime Urusei Yatsura, and are conducting attractive clothes promotions for all channels utilizing Coke On platform, aiming to capture trials from a wide range of people. Next, Ayataka. On February 6th, it just started Sakura campaign under a new key message. Actually, it was Ayataka. Along with the Sakura design, Bottle launched for Ayataka Core and Ayataka Cafe series aiming to capture wider generations and seasonal drinking occasions. Next, Lemon Dough. We're implementing tie-up campaigns with Samurai Japan and World Baseball Classic to drive trials tandem with launching six-can multi-pack with Samurai Japan designed to capture at-home occasion. Moving on to the innovation, Georgia Clear Blend was launched in January 23rd. This Bito coffee offers clear coffee-ness by a splendid premium quality means to win in market share at one of the most profitable segments. Next, Santa Premier Melt Tea Peach was launched on January 30th, which offers superior taste experience by stronger viscosity in texture to deliver eating experience of peach in RTD format to recruit new users. Last but not least, Ayataka Koi Green Tea was launched on February 6th. This was upgraded to a FFC product with the effect of reducing both visceral fat and subcutaneous fat to meet the consumer health needs, especially for adults and seniors. And that closes my part of the presentation. With our mission to refresh the world and make a difference, we will continue to strive to deliver refreshing moments and make positive difference through our brand. Thank you.

Thank you, Sue. Colleen here again. And from slide 16, I will explain our full-year business plan for 2023. First, I would like to share our strategic direction for 2023. As I mentioned before, in 2022, we implemented action plans that targeted return to growth and improved profit structure, and we have achieved a great deal. That said, we expect further cost pressures in 2023, which we believe will require additional measures. Therefore, we set 2023 as a year to focus on profit and to place the highest priority on improving profitability. We will leverage the accomplishments and lessons learned in 2022 to implement the recently announced additional price divisions and continue implementing commercial strategies that focus on profitability and efficient investments. We will promote further transformation to achieve stable and low cost operations. Please turn to slide 17 for the 2023 P&L for our earnings plan. We plan for a 4.9% year on year increase in sales revenue, mainly due to demand driven by traffic recovery as well as the implementation of price revisions. This plan includes the effects of price revisions for cans and large PET bottles to be implemented in May. Sales volume is expected to decrease by 2% from the previous year, accounting for the price revision impact on volume. We plan to improve business income by approximately 10 billion yen on the previous year. Although cost pressures from commodities and other factors are expected to remain severe, we are aiming for a significant improvement in profitability through our initiatives. Turning to slide 18, I will explain our primary business income drivers. From the left, a volume price mix. We are projecting an improvement of 30 billion yen from the previous year with market growth on a value basis and our commercial initiatives, including the price visions. We believe that the market will recover on a value basis. However, it remains in a fluid condition and therefore it is necessary to respond accordingly by closely monitoring market trends. With transformation, We expect to generate recurring cost savings of 3.3 billion yen. For 2023, we expect the benefits from supply chain as we leverage our mega DCs. DME, it's expected to increase by 1.6 billion yen from the previous year, but the ratio to sales revenue remains unchanged. We will continue to make marketing investment at appropriate levels. that will lead to mid- to long-term growth. As for manufacturing, we expect a deterioration of 1.7 billion yen, mainly due to an increase in the unit production cost per case from the decrease in production volume. In other costs, we predict an increase of approximately 7.8 billion yen compared to the previous year. Despite the expected reduction in logistic costs with our improved distribution network, the increase in depreciation expenses due to the change in the useful life of self-equipment in 2022. The increase in personal expenses is mainly due to the cycling of the temporary leave we implemented last year. For commodity and utility costs, we expect a deterioration of $12.8 billion on the previous year. Market conditions related to commodities and foreign exchange have shown some stability since the end of 2022, but compared to last year's procurement price levels, including hedging positions, the situation is expected to continue to have a significant negative impact. Slide 12 is our commercial strategy for 2023. As the main pillars of our 2023 strategy, We are prioritizing enhancing portfolio age, growth through wending, profitability-focused pricing strategy, and strong market execution. Towards expanding portfolio age, we are preparing marketing plans for 2023 focused on our core category. We will introduce delicious new products and maximize their marketing at launch. we are also planning to propose new occasions to take advantage of opportunities for further recovery of traffic. The vending channel will become an increasingly important sales channel during the traffic recovery phase. Our value share has steadily increased every year, and in 2022, we expanded the number of vending machines in operation by more than 10,000 units. In 2023, we will enhance this growth base by strengthening new installation activities and strengthening our product lineup. We will also improve the user experience and operational efficiencies through COCON and further DX promotions. Profitability-focused pricing strategy means we will focus on market execution of the newly announced May price revisions, as well as monitoring trends following the last year's price revisions. In addition, we will strive to thoroughly implement profitability-focused commercial activities and marketing investments. The final pillar, strong market execution, means that we will work to strengthen relationship with customers by conducting multi-phased customer management through a cross-functional commercial structure. We will also further enhance our SNOP process to meet customer needs through the stable supply of products and an improved quality of service. And as Susan explained earlier, we will further demonstrate our strength as the Coca-Cola system in Japan by enhancing our collaboration with Coca-Cola Japan. On the next page, I will explain more about the recently announced price revisions. On slide 20, I will share more on yesterday's price division to be implemented in May this year. Although commodity prices have been on an upward trend worldwide since 2021 and have regained a certain degree of stability, the negative impact of commodities and forex on our business this year, including higher utility costs, is expected to be approximately 13 billion yen, which points to a particularly challenging business environment. In addition to hedging strategies on the procurement side, extensive efforts have been made to reduce costs and improve productivity throughout the business, but it has become difficult to absorb cost increases through corporate efforts alone. It was a difficult decision, but we have decided to implement price revisions for some of our products, can and large PET bottle products from May 1st shipment in all channels. We will continue to monitor the commodity situation and business environment closely and are seriously considering further price revisions. On slide 21, I would like to share our work around the supply chain for this year. For manufacturing, To strengthen the supply capacity of high-value-added products, such as Costa Coffee and the Ayataka Cafe series, which are driving sales growth, we will introduce a production line equipped with state-of-the-art manufacturing technology for the first time in the Canto area at our Ebina plant in April. Through the stable supply of high-value-added products in the Canto area, we will promote consumption model of local production for local consumption. In addition, the use of automated distribution centers, or mega DCs, is in full swing, and company-wide improvements to the logistic network are underway, including the early launch of the Akashi mega DC. As an example, in 2022, we were able to reduce the total distance traveled by more than 15% from the previous year, while increasing logistic volumes. This year, we will continue to focus on the stable operations of the megaDCs as the foundation for our optimized logistic network, and we'll continue to promote cost-saving initiatives. We are also committed to further improving our SNOP process. Last year, the revamping of SNOP made a significant contribution to achieving stable supply in the peak season. Our product supply service level has been improving year on year, and the amount of product disposal in 2022 improved by about 20% compared to 2019. This year, we will work to deepen our SNOP process, including further improving demand forecasting accuracy with the aim of realizing a stable and low cost product supply. Please look at slide 22. This is an update on our current focus on good stewardship of capital. I would like to touch on three areas, good allocation of capital investment, balance sheet optimization, and shareholders' returns that emphasize stable dividends. For capital expenditures with cash outflows, given the uncertain business environment, we intend to control them while continuing to strengthen those that will lead to a mid to long-term growth, our total CAPES plan is lower than the previous year's level. Depreciation is expected to be slightly higher than the previous year, but this is due to the effect of the change in the useful life of sales equipment in the previous year. We will continue our efforts to optimize the balance sheet in 2022. We reduced fixed assets by approximately 10 billion yen from the previous year by controlling new investments and assessing existing assets closely. Excess assets identified in the process of transformation were promptly sold, and we gained 4.6 billion yen from the sale of such assets in 2022. We have also continued to reduce cross-shareholding shareholding is in accordance with the corporate government's code, selling down approximately 2 billion yen equivalent of shares during the year. We intend to continue these efforts to reduce assets and generate cash in 2023. As for dividends, we plan to pay an annual dividend of 50 yen per share, the same as last year, striving to pay stable dividends even in difficult business environments. We will continue to explore all possibilities and implement financial strategies to create shareholders' value. So for today's summary, please see slide 23. I believe that the results achieved in 2022, such as the strong volume growth created from the growth foundation built to date and the profit improvement of about 20 billion yen from areas under our control demonstrate that we are heading in the right direction with our strategy. In 2020 and 2021, we have focused on resources on protecting our business, giving the huge top line impact from COVID, including strict cost controls. During that time, we have continued to focus on the mid to long term, maintaining a foundation for growth and accelerating transformation while maximizing our focus on the business at hand. In 2022, we were able to maximize the opportunities for traffic recovery and achieve strong top-line growth. The price revisions implemented ahead of the industry were a difficult management decision in a challenging competitive environment, but we acted decisively and focused on our efforts on market execution. These actions are showing positive results. Transformation efforts started from 2020 have reduced fixed costs by about 28 billion yen. We have also worked to build an agile and resilient business model that can flexibly respond to changes in the environment. I strongly believe that this wins learnings and achievements will lead to a mid and long-term business growth. In 2023, We will continue to promote our business under our strategy of placing the highest priority on improved profitability. Although the impact of commodities puts pressure on profitability and will increase costs by about 13 billion yen, we will improve business profit by about 10 billion yen from the previous year. We have set our performance goals for 2023 and will make significant progress towards achieving profitable growth in the future. That concludes my presentation. Thank you very much for your attention, and I would now like to ask Gomi-san to open the question and answer session.

Thank you, Colleen-san. 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 is scheduled separately today. We are using simultaneous interpretation, so please try to ask one question at a time. Now, I would like to begin the Q&A session. Operator, please.

If you would like to ask a question, please press sharp 7. Please note that if you enter sharp 7 twice, your question request will be canceled. You can also request a question by pressing sharp 7 anytime during the Q&A session. We will now start to take your question requests. Please press sharp 7. We have received requests for questions. I would like to begin the Q&A session now. We will now call the names of those who wish to ask a question. When speaking, please state your company name and your name before your question. We will now welcome the first person with a question. We will unmute you. The first question is from Mizuto Securities, Saji-san. Hello, this is Saji from Mizuto Securities. I have one question about vending. And improving the profitability for vending will be my question. So before COVID-19, you mentioned that the GP, 40% of the GP comes from vending. And therefore, you mentioned that to have a sustainable vending business is going to be important. And that's what you're going to aim for. And after that, COVID has continued. And I'm sure that you are continuously working on vending. But if we say 2019 vending profit was 100, last year, what would it be versus 100, 2019? And in the future, if the business environment is going to improve, will the vending business be able to grow, and will it become a sustainable business for you in the future? This is my question. Thank you, Saji-san. So your question is about the profitability of the vending business. I would like to ask Kostin-san to answer this question.

Thank you, Sajisan. This is Costin. Thank you for the question on vending. As you know, this is a channel very important for our consumers and very important for us. For the last years, we built a new platform for growth. And we start to see the results. In 2022, vending continued to grow in market share. We have a good solid 2.3 points in terms of market. Also, for 2022, as we got out of COVID, out of restrictions, we see good recovery for vending with the traffic and normalization of people moving, contributing for it. We grew last year vending with 3%. When we look versus 2019 versus before pandemic, of course, the channel dynamics and the way... The consumers are shopping change significantly. Vending is still minus versus 2019. It is around minus 11. And as we move into 2023 and 2024, we expect vending to benefit from this normalization of traffic. How will continue to grow profitability in vending? I said we have a good platform is delivering. But we'll continue to place profitable machines, and this is a significant focus for our sales force. We'll continue to focus on what we sell inside the vending, so stronger portfolio with higher prices. We increased last year prices, and we saw good performance. But also, all our efforts on digital transformation of vending are paying back, both in terms of consumer engagement with CoConn digital platform having more than 43 million downloads, but also in digitizing all our operations for our routes and for our people. So overall, we see vending recovering being one of the benefits of traffic recovery and of the price increases. Thank you for your question.

Sarisan, would that be the answer for your question? One additional thing I would like to ask, so page 27, so the revenue per case, you mentioned that it has gone up by 100 yen, which is a great jump, which means that the price revision is working. And what is the background of that? Can you explain why the price revision is working so well, one or two reasons maybe? Well, thank you very much for the question. And your question was about if the price revision is going well and what the evaluation is. Costin, some, please.

Indeed, we see the price per case in vending growing. We adjusted prices last year before the critical summer season with our top five SKUs, and this delivered good profitability. But also when we implemented from October, the price increase for small PET. This was executed very disciplined and again delivered results. Moreover, you will see in 2023 that our announced price increase for cans will around 40% of all the volume is going into vending. So again, we'll see positive benefits in terms of profitability for funding in 2023. Thank you, Saji-san.

Saji-san, would that answer your question?

Yes. Operator, can we move on to the next question?

Next, I'm going to unmute next question. MUFJ Morgan Stanley, Tsunoyama-san. Tsunoyama-san, please go ahead. Hi, thank you very much. This is Tsunoyama. Can you hear me? Yes, we can hear you. I have two questions. One is, back in page 18, when you look at the volume price and mix, you have $300 billion here, 30 billion here. So I believe in the presentation, you mentioned that you have more benefit than what you expected from the price division. But I believe that we talk about 10 billion benefits almost for the unit price. So can you tell me what is the driver for this benefit from the price revision? Thank you, Tsunoyama-san, for your question. The question is about this year's plan, volume, price, and mix. So I would like to ask Bion to pick up this question.

Thank you, Tsunoyama-san, for the question. Yes, it's correct. Pricing is an element of this. So let me try to give you some details about these drivers. I think, though, you will appreciate for strategic reasons, we will not be able to provide details around pricing, but I'll give you some directions what's behind this. Roughly of the 30 billion, you see a marginal profit improvement. You can say about two thirds are coming from price benefits from last year and this year. And that's important to take into consideration. We took two price increases in 2022, and we have now decided on one more price increase in May this year. So that's the combined effect. However, in addition, you also have to consider other elements of volume price mix and especially the mix part, because we sell our products in many different channels with different profitabilities. And we also have different categories of products like tea, coffee, sparkling, et cetera, and different package sizes. But all of these combined gave us that lift in performance for this year. And I think it's a strong statement building on what Kostin said earlier. We led in the market of taking price increases twice last year, and we're now going out with a price increase again in May. I hope that answers your question. Thank you.

Okay, thank you. So initially, hang on, for the price division, you said that you're seriously considering the further price division. So can you give me an intention behind this? Because right now, the commodity and the raw materials is coming to some stable price range. But what will be the trigger for you to consider the next wave of the price division? What will be your idea behind the trigger for this? Thank you, Tsumayama-san, for your question. The question is about the farther price division. So I would like Kostin to pick up this question.

So first of all, I will share what we all observe across the industry for the year 2022 and in 2023. All the industry is suffering from raising costs, both raw materials and utility costs. Also, we know that price increases are a very new tool for the industry. And we already took last year two price increases and we announced we are going with the third one. Because we always said we believe in a healthier and more profitable beverage business in Japan. Now, why do we think we believe further price revisions must be considered? And how do we decide this? First of all, we will continue to monitor the future business environment, competitive environment, but also all the costs. We will continue to evaluate all the options. We did not decide at this point when or how much we will increase prices. But obviously for the next period, Our focus is to disciplinely implement the surprise increase in May, and like I said, continue to analyze the effect and how the overall business environment in Japan will be. I hope this answers your question. Thank you.

That's the answer. Thank you very much. Thank you very much. So operator, please put through to your next question.

Next question, I will take the question from the person with the question. Monita-san from Diver Securities. Monita-san, please go ahead. Hi, Monita from Diver Securities speaking. So regarding the further consideration of price revision, that's my question is about too. You have done the several price divisions, but what is the goal? What is the milestone that you have in mind? So price division, after the price division, I'd like to hear what you are aiming at. Monita-san, thank you very much for your question. So long-term concept regarding the price division, that's what your question is about. So Karin-san will answer.

Thank you so much, Morita-san, for the question. And I find the question very fair, and it should be addressed to the entire industry, in my opinion, because of numerous reasons that happened over the last years. Personally, I believe that for us and for the industry in Japan, it is a historical moment. We were not able... in the industry for decades to leverage all the elements of growth. And let me be simplistic on this by saying that this includes volume growth, mixed growth, and pricing growth. Historically, all the industry in Japan was primarily focused on volume growth, and you were observing and criticizing us often for this volume and share battles, and that was a very fair observation. As well, we were facing a tough environment, challenging the mixed trends at some points in time, and we were always trying to improve to innovation through new product launches, to new packaging, to new products, to new flavors, to improved mix in our portfolio. And that was the game that we have played historically. Finally, we are having in this very tough environment generated by the cost raise, yen devaluation, and energy cost raising, we are in a way put in the impossibility to continue only with two of the elements, and we have to take action. And I'm very pleased to see that the entire industry moved to action and acted responsibly last year so we were able for the first time to put the prices up and that's a great thing for our business and for our industry and your question comes in that context okay what's next well what's next in my opinion it is a healthy management of a balance between the three elements of growth volume price and mix so what I meant by that it's that this price increase should not be just one time event mitigated from some cost and freezing them for another decade. That's a recipe for failure, not for our business, but for industry. So this, in my opinion, should become a norm in our business here in Japan, that periodically we are going to seriously consider and implement price revisions according with the market trends in a very healthy way for the industry. I hope that answers your question.

Thank you. Thank you very much. I have another question. You can just answer simply. 25 yen price raise of the canned coffee was announced. But in your case, the raise is 10 yen only. So why there is such a gap? So regarding the amount of price raise in canned coffee, Kostin-san, your answer.

A very simple answer. This is our fourth price increase in four years. We are always communicating our adjustments in percentage. And this is basically due to two big reasons. First of all, the structure of our portfolio. It is very complex and we are selling with different prices in different channels. So the best way to engage with customers is by recommending percentage increases. And the second piece is we have our direct sales force and direct route to market. We sell directly to our customers, while other players in the industry, they operate through wholesalers. So this is the reason. What is important? It will be an increase in the range north of 10 yen per SKU, but again, depending on large PET adjustment or SOT can or pouch. I hope this explains simply enough. Thank you.

Thank you very much. Now we are closing to the end time, but I'd like to take two questions. So very sorry, but because of time constraints, please limit your question one per person. Operator, please go to the next question.

The next question will be from Bank of America, Kaneko-san. Hello, this is Kaneko Shunpei from BOA. One question. So let's say competitors, they will not do additional price revision for the small size packages. What will be your scenario if that happens? in, what is the scope that you can control? And by the controlled areas, will you be able to make your business on the profitable side? Kaneko-san, thank you for the question. And this will be our road towards profitability, including our price revision options. From Kaneko-san, please.

Thank you so much for the question, Kaneko-san. Great to hear from you. I'm going just like a continuation to my previous answer. So for that reason, I was interfering to answer your question as well. We are all for healthy decisions for medium and long term in our, for our business and for the health of the industry. We strongly believe that we were able to untap another element of growth, which is pricing in our market and we need to leverage that. I think that by now you should have the comfort of the courage and of the management decisions in our company because I just want to remind you we have unilaterally priced up the large packages in three years ago for the first time after 27 years of no price movements. Last year in May, we have been the first one that we move the prices up for future consumption packages again without any move from the competition. So we have moved by ourselves with courage and determination on doing the right thing for our business and the right thing for the industry. But we are strongly believing the fact that industry is acting responsibly for the future in the benefit of the health of the businesses and on the benefit of all the industry shareholders. Thank you so much. I hope that answers the question.

Kaneko-san, that will be our answer. Thank you. And sorry, because we're running out of time, we'd like to move on to the next question. Operator, can you move on to the last question?

I'm going to unmute the next person. Morgan Stanley, MAFG. Miyake-san, please go ahead. Thank you very much. This is Miyake from Morgan Stanley. My question is about a bit over with Morita-san's question, but I would like to ask in the mid to long term, do you believe that there's a volume growth in the Japanese market, in the beverage market? including OTC and vending. I would like to ask your opinion separately on the OTC market and the vending machine market. Thank you, Miyake-san, for your question. Your question is about the long to mid-term volume growth in the Japanese beverage market.

Thank you for the question. Kaleen here again. we strongly believe on the Japanese market, and we have endorsed this for many years through the decisions that we have made. Our belief is that this market has potential to grow in almost all the channels that we are operating in. Let me start with vending. I think on short to medium term, vending has a great potential of recovery through various elements. And here I am talking about traffic recovery, which is going up and is contributing to our growth. We know, monitoring the traffic areas, that there is room to grow to come back to the previous levels of 2019, which will make a significant difference in our opinion. That's going to happen, in our opinion, based on return to work of the Japanese citizens, but as well to a significant increase in tourism footprint, which is going to primarily shop and consume from vending channels, from convenience occasion, where we are very well positioned through the unprecedented performance in terms of market share of our vending channel recently. So that will be one channel, and in the OTC channel, I think we proved that it's a growth market. We are evaluating with the trends in the market and ahead of it through our innovation pipelines, and we are delivering growth over time, and that's going to come in the future, in our opinion. However, let me go back and say that an important driver, and here I make a nuance, onto it, an important driver of the health of the business, it is pricing. And you ask us, and I don't know if I picked it correctly through interpretation, about the volume potential. I would rather like to talk about the revenue growth and the margins in these channels going on. And we strongly believe that there is business potential, to call it like this, through revenue growth in almost every channel in Japan. This is where we are steering our business through. I hope that answers the question. Thank you so much.

Miyake-san, sorry for the time constraint. I would like to wrap up this question. So this will be the end of the Q&A session. Thank you again for your attention in our business. The replay of this webcast call will be available on the Investor Relations website soon after finishing the call. We invite you to reach out to our Investor Relations team with questions or feedback. Thank you very much.