Coca Cola Bottlers Japan

This is Gomi, Head of Investor Relations for Coca-Cola Bottles Japan Holdings. Thank you for joining us today for the first quarter 2024 earnings presentation for analysts and investors. Today, we have President Colleen Dragan, CFO, Beyond Organis, and Coca-Cola Japan CMO, Sue Choi. We are also joined by Executive Officer and the President of the Little Company, Alex Gonzalez, Executive Officer and the President of the Food Service Company, Chief Business Strategy Officer, Maki Kado, Executive Officer and Chief Supply Chain Officer, Andrew Fallot, and Executive Officer and Chief Human Resource Officer, Yuki Higashi. Following prepared remarks, we will be happy to take your questions. Simultaneous interpretation in both Japanese and English is being provided for both today's call and the Q&A session. Before we begin, let me remind you that today's presentation contains forward-looking statements and should be considered together with cautionary statements contained in our presentation. With that, I'd like to turn the call over to Karin Dragan. Karin-san?

Good afternoon, everyone. This is Karin Dragan. Thank you for joining our earnings briefing today. I will begin by sharing today's highlights, so please turn to slide number four. 2024 is an important first year of our strategic business plan, Vision 2028, and we have begun the year in a very good shape. In the first quarter, business income increased by 1.6 billion yen over the previous year. And we are on schedule to achieve our ambitious full-year business income goal of 10 billion yen for 2024. Especially good was the top-line growth. And as was the case last year, it played a significant role in our profit improvement. This confirms the successful implementation of our profitability-focused commercial strategies. Despite the challenges of last October's price revisions and poor weather conditions in March, we maintained our sales volume at the previous year's level. In addition, the series of price revisions and other profitability-focused measures resulted in revenues increasing 2.5% year on year. Furthermore, transformation initiatives generated benefits of 0.8 billion yen in the first quarter, enhancing the profit increase. Our efforts are on track to deliver the 6 billion yen in annual benefits for this year, supporting our goal to establish the solid business foundation that is key to achieving our vision 2028. In the second quarter, we will sustain the positive trends of the first quarter and position ourselves to maximize benefits during the summer, our peak demand season. Alongside the precise execution of our transformation and profitability-focused commercial activities, we will ensure the successful implementation of the May price revisions and maintain their stable pricing. We have also decided to implement further price revisions starting this October. Efforts are progressing well to achieve sustainable profit growth in the coming years. Now, let me hand over to CFO Bjorn Ørkenes to provide you with details of the results.

Bjorn Ørkenes Thank you, Kalin. Hello, everyone. This is Bjorn. Please turn to slide five. for the first quarter P&L. In the first quarter, successful efforts to focus on profitability achieved increases in both revenue and profits. As Colleen mentioned earlier, while sales volume was flat compared to the previous year, revenue grew by 2.5% from the series of price revisions and factors such as mixed improvements. Gross profit rose strongly by 3.4%, outpacing revenue growth. Improvements in wholesale revenue per case, driven by price revisions, led to an overall improvement in the gross profit margin. Business income improved by 1.6 billion yen from the previous year, with top line growth being a major driver. Factors behind the change in business income will be detailed on the following slide. Operating income improved by 6.1 billion yen from the previous year. This was largely due to the rise in business income and the booking of other income from the sale of fixed assets, part of our efforts to optimize the balance sheet. Consequently, with improved operating income, net income improved by 3.6 billion yen from the previous year. Please turn to slide six for our primary business income drivers. On the left-hand side, you will see volume, price, and mix. These represent the year-on-year change in marginal profit from commercial activities of 2.8 billion yen. This was primarily driven by the series of price revisions improving wholesale revenue per case, while sales volume was on par with the previous year due to the unseasonable weather in March. Additionally, improvements in channel and package mix had a positive effect on profits. Consequently, our focus on profitability in our commercial activities has made topline growth a consistent driver of profit expansion, continuing the positive trend. Moving to transformation, initiatives are progressing as planned and have generated benefits of 0.8 billion yen, primarily from efficiency improvements in supply chain and back office. Marketing expenses achieved a 0.5 billion yen reduction from the previous year. This stems from thoroughly implementing cost-effective marketing activities as we prepare for the peak demand period. Turning to manufacturing, costs increased by 1.3 billion yen from the previous year, This increase is attributes to the establishment of a flexible structure of high-mix small-lot production for the overall optimization of the supply chain, as well as a decrease in the manufacturing volume. Other costs rose by 1.5 billion yen compared to the previous year, driven by rises in IT-related expenses, sales equipment costs, and depreciation costs. Next is commodity and utility costs. Despite the continued severe cost environment, we managed to reduce total costs by 0.4 billion yen, contributing to our profit growth. Effective cost control measures for raw materials and energy helped offset the cost increase impact resulting from the weaker yen. This is the result of procurement strategy that leverages the strength of the Coca-Cola system. Please turn to slide seven for volume performance by channels and categories. In the first quarter, sales volume was flat year on year, while wholesale revenue per case continued to improve. In supermarkets, sales volume decreased for large PET bottle products due to a significant impact from the price revisions of last October. However, wholesale revenue per case improved by more than 100 yen from the previous year. In convenience stores, although the competitive environment remained severe, sales volume increased by 8% as core products became a regular item in our customer stores, and the effects of leveraging digital in our marketing activities became evident. In vending, sales volume grew by 1% despite the incremental weather, supported by the market share base built to date, as well as measures to capture demand through digital initiatives. such as implementing Coke on app campaigns and expansion of QR payments. Volume growth was achieved while increasing wholesale revenue per case by 68 yen. In retail and food service, volume increased by 7% from the previous year with traffic recovery at restaurants. In online, volume increased by 23% year-on-year due to successful promotions collaborating with online customers. By category, sparkling volume was flat year-on-year due to an increase in Coca-Cola at restaurants and online, despite price revision impacts particularly for large PET products. Tea volume increased by 2% due to contributions from Kochakaden and Ayataka. Water volume was down 6%, reflecting a decline in large PET bottle products from price revision impacts. Coffee volume was flat year on year with contributions from renewals of core products such as Georgia and Costa coffee. despite the impact of price revisions for canned products last May. Slide 8 highlights market share and retail price trends. Here we can see that the results of profitability-focused commercial activities are materializing. In market share, total channel value share grew by 0.2 points from last year, Although the trend in sales volume and volume share was impacted following the price revisions for large PET products implemented last October, wholesale revenue per case by channel improved and the value share of convenience stores improved significantly by 0.7 points, all contributing to a total value share improvement. Our products continue to maintain a price premium to the industry average. OTC retail prices for small PET remain mostly unchanged from the previous year, maintaining the elevated levels following the price revisions implemented in October 2022. For large PET, the two price revisions implemented in May and October of last year resulted in a significant increase in OTC retail prices of 19 yen from the previous year. Please see slide nine. This is the status of commercial activities during the first quarter. Under the new commercial structure implemented in January this year, we have executed growth strategies tailored to the three channels, vending, OTC, and food service, with a unified theme to capture sales space, improve mix, and leverage digital. First is vending. We have placed vending machines in prime locations and strengthened our strategic product lineup to grow sales and profits. Vending is leading initiatives in adopting digital technology. To further promote DX, we have worked to increase the functionality of the Coke On app as well as expand QR payment options, which are very popular with inbound tourists. Installation of smart modems in vending machines have been progressing on plan and will lead to further operation optimizations. In the OTC channels, such as supermarkets and convenience stores, we introduce core products into regular sales spaces and strategically rolled out double-band products to meet consumer needs, considering the characteristics of each store. We also work to improve mix by introducing multi-packs and mini-sized packages with a higher unit price per volume. In terms of leveraging digital, we focus on use of digital assets at convenience stores, including the implementation of digital marketing that links retail media with the creation of sales spaces. In the food service channel, where demand is expanding from the traffic recovery and with increasing inbound tourists, we stepped up activities to acquire new businesses especially in the rapidly growing hotel and other new sectors. To improve MIX, we worked on product proposals tailored to business categories and customer characteristics, as well as strengthened our offerings in high-value added products, such as 100% fruit juice and Costa coffee. In the area of digital marketing, we took on the challenge to implement implementing measures to stimulate demand unique to food service, such as a campaign through apps in collaboration with food delivery customers. As described, activities by each channel to date have been progressing well, and we are well prepared for the period of highest demand. We will continue to work closely between channels and implement growth strategies tailored to each channel's characteristics. Slide 10 is on building a business foundation to support profitable growth. In the areas of supply chain, back office, and IT, activities are progressing as planned with a focus on transformation. In the supply chain, we are pursuing various initiatives to optimize the entire end-to-end process. For sales and operational planning, we are working to further improve the accuracy of our planning this year as we prepare for the summer season when demand is at its peak. In addition, we are steadily building a system of high-mix, small-lot production in each area which is the key to local production for a local consumption model, a concept based on manufacturing products at plants closer to the place of consumption. We are also making progress in improving our logistics network by taking advantage of our flexible manufacturing system, which has led to shorter product transportation distances and fewer touches. We are working to optimize product inventories together with the reorganization of our logistics network. Also, we are addressing social issues such as the logistics 2024 issue. And in early February, we began collaboration with Family March on logistics through the use of delivery trucks. Next, regarding back office and IT functions, Various initiatives are progressing as planned and profit contributions are beginning to emerge. NeoARC joint venture with Accenture commenced full-scale operations in January and a new corporate culture is developing well. Currently, as the first phase of promotion data-driven management, we are undertaking a fundamental review and standardization of operations in the areas of business process operations and information technology operations. For the next slides, I will ask Sue from Coca-Cola Japan to share us the marketing updates. Sue, please.

Thank you, Bjorn. Hello, this is Sue Choi from CCJC. Please turn to page 12. Allow me to take you through a review of 2024 first quarter and the key highlights of our marketing initiatives in the second quarter of this year. Starting with the first quarter performance of 2024, the business grew ahead of the market. Our value share in the soft drink market grew, driven by strong renewals and new innovation. First, we continue to strengthen the core brands through renewals and improvements. On the coffee category, we are continuing to grow Georgia through renewing PT lineup by enhanced coffee aroma and taste. And Lemon Dough was renewed with new campaign to expand user base with more relevant insights and occasion with the slogan of better lemon, better time, better me. Moving on to innovation. In March, we launched Coca-Cola Zero Creation K-Wave in collaboration with JYP, one of the most renowned K-pop entertainment companies. This initiative aimed to recruit Gen Z users into the Coke trademark by devotion to K-pop artists and their fans, providing exciting experiences. Along with the product launch, the collaboration song, Like Magic, was released as a music video and reached over 5 million views. Furthermore, the promotions that offered winners a chance to attend the K-Wave concert in Korea was also exceptionally well received, successfully building strong engagement with their core users. In February, we relaunched the new campaign for Coca-Cola Zero with the message, Choose Your Great Taste of Coke Zero. To coincide with the new campaign, Living marked by Coca-Cola Zero, a pop-up store designed to appear alive, where Coca-Cola Zero engages with you just as it does in the new TVC, was open in Harajuku for a limited time. This initiative successfully provided consumers with great taste experiences through an iconic and unique way of sampling. Next page, please. I would like to also share with you key highlights of the second quarter of this year. In green tea, we relaunched Ayataka in April with a new taste, design, and amount, making its first major revamp in seven years as one of the key priorities of 2024. Ayataka now focuses on replicating the taste of very first brewed tea to meet modern consumer needs while maintaining the authentic tea taste that it's been known for. The new flavor evolves into new balanced taste, which has authentic umami yet light aftertaste, relevant to the current consumer taste palette. Additionally, the main package size has been increased to 650 milliliters, fit for various occasions throughout the day. Beyond the product relaunch, we've also introduced a new brand campaign with a message of live to your own rhythm. aimed at encouraging people who aspire to live smartly and maintain their pace amidst daily routines. To embody this message under new Ayataka, Hikaru Utada has been named the new brand ambassador. In innovation, we launched Yakan Koi Barley Tea in April as Foods with Functional Claims, product for daily hydration with added ingredient of body fat reduction efficacy. This launch aims to cater to expanding preferences for richer taste among users aged 50 and above, while also addressing the consistent need for metabolism improvement for health benefits. Lastly, we're gold partners of Osaka Kansai Expo, and we plan to leverage this opportunity to grow our consumers, customers, and coverages. To commemorate the one-year countdown to the Expo scheduled for 2025, We launched a new portfolio promotion in April to award a total of 200,000 winners with Coke On drink tickets and Osaka Kansai Expo tickets by drinking Coca-Cola products. The campaign fully leverages the Coke On platform, one of our unique assets, enabling shoppers to accumulate the points necessary for entry by making purchases at vending machines. as well as at the supermarkets and convenience stores. That's it from my end. Thank you for listening. And now over to Colleen.

Thank you, Sue, for your presentation. This is Colleen again. Before I take you through the outlook, let me once again touch on our positioning of 2024. 2024 will be the important first year of our strategic business plan vision 2028 and is an important period for us to build momentum towards achieving it. I want to reiterate that our commitment to both the 2024 plan and to vision 2028 has not changed. Slide 16 is on the outlook. In the second quarter, we will further accelerate our efforts to maximize activity benefits during our peak demand period, building on the results achieved to date. In commercial activities, to maximize summer season demand, we will take measures including launching new products such as the full renewal of IATACA in April and expanding sales space with a focus on profitability. For price revisions, we have revised the prices of certain small packages products from May 1st shipments. We will work to appropriately reflect pricing and maintain shipping prices following this revisions. In addition, we have announced further price revisions for PET bottles and cans scheduled for this October. This will be the sixth Price revisions is 2022. As shown on the slide, we will revise the manufacturer's suggested retail price of 141 SKUs by 20 yen per bottle across all channels. These price revisions are one of the key measures to enhance profitability and serve as the foundation for sustainable profit growth. We are committed to ensuring the success of these revisions as we have achieved in the past. We are already in the second quarter, and performance so far has been good. April sales volume grew by 1% year-on-year, despite the continued impact of volume decline from last year's price revisions. The price revisions continue to show steady progress with improved wholesale revenue per case and revenue growth exceeding volume. To build a solid foundation, we will continue to accelerate transformation efforts, particularly in the areas of supply chain, back office, and IT. Please see slide 17 for a summary of today's presentation. I am very pleased with our first quarter. Our commercial activities and efforts to strengthen the business foundation are progressing well, leading to a 1.6 billion yen increase in business income compared to the previous year. In particular, the continuation of last year's positive trends and profit growth driven by top-line growth is the result of our steady focus on profitability. We see this as a strong progress towards maximizing performance for our peak demand season in the summer. From the second quarter onwards, we will further accelerate this positive trend. We will execute measures that have proven successful to date to a greater degree, and with strong marketing plans and profitability improvement measures, we will aim for further growth. As I shared at the beginning of the year, 2024 is the year of strong profit buildup. For business income, we have an ambitious target of 10 billion yen, which is an increase of 8 billion yen over last year's strong 16.5 billion yen profit growth. Our progress to date gives us every reason to believe that we will achieve this. This year also marks the crucial first year of our strategic business plan vision 2028. The price revisions announced to begin in October, along with transformation that leverages technology, are important initiatives that will lead to need to long-term sustainable profit growth. By promoting this initiative this year, we will not only achieve 2024's performance targets, but also make a significant leap forward towards achieving the overall target of Vision 2028. That concludes our presentation today. Thank you very much. Now, let me invite back Gomi-san to take us through the question and answer session.

GOMI- Thank you, Colleen. This Q&A session is for analysts and investors. For members from the media, please refrain from asking questions at this time, as we will have a separate time provided today. Simultaneous interpretation will be used, so please be sure to ask questions in the language of your participating line, and please ask one question at a time. Now, I would like to start the Q&A session. Operator, please begin. If you would like to raise request for the question, please press sharp seven. If you double click sharp seven once again, you are going to cancel your request, so please be careful. Also, you can raise your question request at any time during the session by pressing sharp seven. So now please raise your question request.

So we would like to move on to the first question. I will call your name. So before you ask a question, please mention your name and your company. I will unmute the first question. From UBS, this is Ihara-san. Please go ahead. Well, thank you very much for the presentation. I am Ihara from UBS. I have two questions. My first question is slide 17. It's about the summary page. And you mentioned about the additional announcement you have made for the price revision. And it's for the future sustainability and profitability. And you're convinced that it will be the case. So the sustainable profitability and you are saying that you're convinced that it will be part of it. So can you be more specific why you are so sure that this will be a strong measure for profitability? For example, the price will be revised. From that, you will have a source of profitability. Are you going to reinvest that to some other area? Or are you saying that you have a steady background to increase the price contingency? So do you mean that 2025, you have further options to increase increase the price even more. So which is it? This is my first question. Thank you, Ihara-san, for the first question. So in the summary, we do mention that this price revision is going to lead towards the profitability for the future. And this will be answered by Kaleen-san.

Kaleen speaking. Thank you very much, Ihara-san, for breaking the ice and asking the very first question. Let me Let me try answer to this very first. Opening of the discussion regarding pricing. We are actually behind driving pricing in the industry for the last number of years, performing and announcing right now the sixth price increase to be implemented in the market. I think that demonstrate leadership and demonstrate commitments on behalf of our company on leading this journey. We believe that this is the right thing for the company, and as well, we firmly believe this is extremely important element for the industry future outlook. Historically, we know that we were competing as an industry mostly on volume and on improving our mix in order to be able to build revenue. For the last number of years, I think we opened another opportunity, which is pricing. And the only three elements that drive revenue in the industry are volume, mix, and pricing. We were like an engine with three pistons, but actually we were operating only on two. Right now we have the opportunity to leverage the third piston of the engine and really drive revenue growth and health within the industry. Having said that, the benefits that are going to come from the pricing, but not only, mix and volume growth this year, Definitely, we are going to use them wisely. We are definitely going to invest them back in the market, part of them. Part of them, we are going to use them to drive value for our shareholders. But nevertheless, we need as well to acknowledge that it is important to think over the years, and the next years are critical for the industry and as well implicitly for our business. We believe that there is pricing opportunity going on in the following years, and that for a number of reasons. The volume declines in the industry over six waves of price increases are not big, which gives us the confidence that consumers are willing to purchase bottled beverages which are where they perceive value that's a very good news in the meantime japan it's targeting an inflationary environment going on hence pricing should be part of the way how we manage and we execute our strategies in the market in such environment it's true that that's not necessarily the habit of our regular consumers here in Japan over two or three decades. But we are living in new times right now in Japan, and these new realities might require new actions. And pricing will be one of them. It's our belief. I hope that answers your question, and we are very happy to take the following one. Thank you so much.

Well, thank you very much for that. So my second question is, again, related to price revision, 2022, 2023. So compared with those price revisions, this 2024 October price revision, that's going to happen. So what are the positive factors? What are the negative factors that we have in mind? Can you kind of call out the negative and the positives of the following price increase? Well, Ihara-san, thank you for the second question. So we have announced the next price revision in October. So what are going to be the negative and positive factors for the next one? So this question will be answered by Byung-Sang.

Thank you, Ihara-san, for the question. And let me give you some perspective, and if required, Alex Gonzalez can give more of the commercial aspect. Correct. We are aiming to increase prices in October this year with the effect on our P and L between 7 to 10 billion. And when you look to the past price revisions. So this is we have five price revisions now in the market. This is going to be the sixth one. So From the scale and the scope, this price revision we're aiming for now in October is up there among the biggest ones, similar to what we did in 2022. And you also have to account for we are already, as of last week, executing large PET price increases in the markets effective 1st of May. Trying to be specific to your question, the positive sides, of course, is, again, we're focusing on profitability, which is the key driver for everything we do as management for the company. And pricing, as we have repeatedly said, is one of the levers we're pulling to improve profitability. So all of this is, again, driven to make sure that we get a fair price of our products in the markets. Negatives is more on all price revisions will have an impact on volume. And as we go forward, we are measuring very closely the impact, in other words, the price elasticity. We are not making any statements about the price elasticity impacts of the October price increases. But again, that's something we will have to measure and value as we go forward. So I hope that that addresses your question. And if I forgot anything, Alex is okay, then. Thank you.

Thank you very much. So may I additionally add? So 2024, the October price revision. So compared to the past ones, the impact that you're looking at is smaller. for the benefit part. So you probably are assuming there's going to be a major drop in the volume, I guess. But other than that, is there other negative factors that will kind of minimize your impact from price revision? Well, thank you very much for the additional questions. So the October price revision, the impact seems to be smaller than the past So is it only volume, or is there any other element that is impacting the scale of benefit? From Dion, please.

Thank you, Harasan. Let's continue. So, yes, the impact of volume, of course, will be, as part of what I said in my earlier reply to you, the function of price elasticity. To us, given that we're executing these price increases, I think, flawlessly in the market with our customers and our consumers, the price elasticity will be the big key that we will have to continue to monitor and manage as we put the price into play as of October 1. So we believe volume is the prime function. Yes. Thank you.

Understood. Thank you very much. Thank you very much, Yoharu-san. Operator, we'd like to move on to the next question.

Next question. I will unmute the next person. Saji-san from Mizuho Security. Thank you very much. I have one question about private brand impact. When you look at the market, about 1% of the total market is, 10% of the total market will be private brand. I think that's where we stand right now. But at this point in time, how do you look at the situation and how do you manage the situation with the private brand? Since you are going to devise the price, from October and how the private brand will come into competition against your product in that situation and what's your view on this? Thank you very much. I would like Alex to pick up on this question.

Certainly, the dynamics that we're monitoring, as Bjorn has alluded to, while there is consumers taking hold and taking roots and adopting the price increase. There is also the rise of private brands that we're seeing in the market, particularly on some of the categories that are more price sensitive. And there is price sensitivity with consumers. And that's sort of the underlying dynamic that we will need to continue to monitor. The way we're seeing this obviously is working on driving and earning the right to price and working and giving that differentiation from a brand standpoint and working very closely with our partners from CCJC. And at the same time leveraging all the levers behind a flexible RGM algorithm and looking at our pack mix, driving more profitable immediate consumption packs that are very relevant in some of the occasions like multi-packs, et cetera, and leveraging further our pack and pricing architecture to address potential sensitivity on shoppers on absolute price points. And that's the way we are approaching and driving our response to create value for consumers and create value for customers.

I hope that answers your question.

Thank you. By the way, by increasing the price for large PET, how PE goes up by that? And I know that you already factored in the climate back in March as a negative factor. I would like to understand what will be the actual impact coming from PE, price elasticity. Thank you, Sajisan, for your question. This is about the PE impact coming from the large PT price hike. So, Alex, can you pick it up?

We don't comment on a specific price elasticity. We're looking in the overall integrated approach behind evidently price impact and weather. I'll just try to make sure that from a focus standpoint, we're focused on expanding our relevance of execution as pays to sell and controlling for all the different variables and metrics into our consumption.

Colleen would follow up. Thank you so much. This is Colleen Dragan speaking again. And I'm just intervening to this question because I saw a certain level of the internist regarding the private brands. Now, private brands in Japan had a slower start than in other developed markets in the world. And they are growing right now. But if it would be to look at the learnings from other markets in the world, yes, of course, on this phase of expansion of the private brands, there is an accelerated rhythm of growth. However, over the years and after a number of years of growth, it is demonstrated in many, many markets around the world that the private brands' growth, it's stabilized. basically, or in some places even decline because the consumer would prefer high quality, high brands to purchase. That's one element. The second element is pricing per se. What we learn in other markets in the world, when the prices are going up, well, there is already existing price gap now between us and the private brands in the market. Having said that, that price gap enlarging, at a point in time, any price increase will have less and less impact because the gap is already there. The consumer already sees it. So it's not anymore a surprise that a serious standalone brand is more expensive than a private brand. So there are a couple of elements that are affecting this dynamic. And as the price gap, it's enlarging between us and the private brands at the point in time, that's not necessarily going to be a bad thing. It's going to position us very differentiated out in the market. And it's going to have a different dynamic in the future. And all what I'm sharing with you right now is based on our international experience of standalone brands versus private brands. I hope that helps with the overall picture that we have experienced somewhere else.

Thank you very much, Understood. Thank you, Sajisan, for your question. Operator, please put through the next question.

Unmuting the next person. From Morgan Stanley, MUFJ Miyake-san, please go ahead. Thank you very much. This is Miyake from Morgan Stanley. My first question is your line is breaking, I'm afraid. Sorry, can you hear me now? Is it better? I think so. Could you please start from the beginning? My first question is about the PE price elasticity. You said that your estimation is quite sizable. I would like to know what led to that decision or that position because You need to consider the consumer sentiment as well as the moves of the competitors. And those are the considerations you use when you make decisions about the price strategies as well as price elasticity. And you also pay attention to the impacts of private brands. so what is the most important factor when you decide on the pricing among these thank you very much and when you consider the price elasticity what is the most important factor that you take into consideration consumer sentiment or competitors of private brand impact

As probably we have alluded in the past, we are taking everything as a bundle. There's not one single element that stands out. We're obviously looking at not only how the consumer is the sentiment, even consumers themselves. There are categories of sensitivity of even consumers. So we're looking at all the variables behind sentiment, the rise of private brands in the near term, just as Colleen has alluded, but also the rational pricing or not of other competitors. That all lends into a common view as to how we look at the pricing strategy for our brands. But let me just go back. Pricing is one of the elements, but we definitely are leveraging on further pistons or levers to actually drive our flexible top line and profitable growth behind transactions growth and also profitable packages and channels.

Thank you very much, Alex. And your estimation is relatively higher when it comes to PE this time. And one of the reasons you cited is you are paying attention to the consumer reaction or impact from the main price hike. As I understand, let's say that if all the top players decide to raise their prices in August as well as your company, then does it make any difference on your price elasticity estimation? Thank you very much, Marketsan, for your additional question. So going forward in the industry, if other top players decide to increase their prices from October, then will it make a difference in our price elasticity decision? Alex, please take this question.

Alex, certainly that is a factor to be considered. Let's just remind ourselves that this will be the sixth price increase. It's a different thing to talk about the first price increase or the sixth price increase in terms of absolute terms. So all these, not only the competitors, but also private brands and the consumer sentiment plays into the decision of the pricing strategy for October.

Thank you very much.

And then that leads to my second question. I'll be very quick. After the October price hike, and I think that in nature, a price hike comes with negative impacts on the volume. So while you maintain the price level after the price division, I think advertising is very important to maintain the increased prices while the volume is increasing. likely to go down. So how much spending you can use for the advertising or sales promotion will be very important, especially after the October price hike. So I'd like to know, or I believe that advertising spending is mainly on the Kokoro Japan side. So I'd like to know their level of commitment. If we face a situation where the volume is impacted negatively because of the October price hike, then what would we do with advertising to boost the sales or maintain the price level? Susan, please take this question.

Thank you for the question. We have our plans for our core brands and our new brands that we're supporting throughout the year, and we've developed our plans regarding And our commitment to invest behind our brands that we're focusing on stays true and continues to be despite the price increases. So the commitment to continue to reinvest into the market with the advertisement remains unchanged.

Thank you very much. Thank you very much, Miyake-san. Operator, put through the next question, please.

I will unmute the next question. SMBC Nicole, this is Takagi-san. Please go ahead. Hello, this is Takagi. Can you hear me? Yes. Thank you. So I have a question around the price revision you're planning for October and also the relationship with the price elasticity and how much it will impact your volume. Well, last time when you increased the price for the small PET bottles, I think it was single digit, maybe a smaller single digit for the volume drop. And your impact that you are thinking for the October price increase is pretty limited. So probably you're thinking that the volume will drop quite a bit. And that means that the price elasticity is going to be high. But what is the background for you to have, like, an assumption that the price elasticity will be high? Thank you very much, Alexandra, for the question. For the PE, we are, you're asking that if we're assuming a large drop in volume or not. But, Alexandra, please.

Thank you, Alexandra here. As I probably just referred to, What we're looking into the October price increase is obviously we are factoring in the sixth price increase, that the absolute levels of prices are indeed higher from what we were doing back in October 2022. And this certainly plays into it together with consumer sentiment. And also, as we have alluded to, the price differential in other companies particularly on price. We at this point in time, this is our best estimate of what the impact of volume decline will be. And I hope this answers your question.

So is that the case, like next term? probably you will have a large drop in volume, I'm assuming. But in order to minimize the drop you're going to have in volume, are you planning for any measures or something that you can do to keep the volume? What is your understanding on volume? Is it correct to understand that you'll have negative volume because of this price increase? Well, thank you for your question. So for the next term, what is going to be the volume of your measures after price increase? From Alex, please. Sorry. And additionally, so if you have a large drop in volume, probably you need like additional transformation projects or like cost reduction projects. But is that in your plan? Additional question. Okay. And due to the price revision, if the volume is going to greatly drop, is there any other measures that you're planning for, like cost reduction, et cetera? So Alex, please.

Thank you, Takagi-san. It's Bjorn. I'll answer that question. To summarize it, yes, we are expecting an impact on the price elasticity for the October 1, but for 2025, when you have the analyzed impact of this Wave 6 price increase coming through, you have to consider it from a little bit of a different angle. Pricing, as we have said earlier, is one of several measures that we as management will put into action. And we are delivering on all our transformation projects and most importantly, our profits targets and therefore our profits expectations. So pricing is one element that will help us drive all of this, but we are balancing the impact of that with all other measures that we can implement in the business to, again, make sure to deliver our most important objective, drive profitability. I hope that answers your question. Thank you.

Well, thank you. So for other, you know, measures or drivers, what would it be? Okay, so that answers your question. You mentioned it's only one of the measures, but what are the other measures? So, Bjornsan, please.

The other measures will come in if you think about the commercial part first. We talked about pricing, of course. That's one of the measures. The other one is commercial execution. So all the programs are being implemented with our customers in vending, OTC, and food service. The third one, we're a brand business. We're a franchisee of the Coca-Cola company. So the Coca-Cola company in Japan that you heard Sue talk about earlier are implementing continuous brand building strategies, both for the core brands, what they call the edge, and also from an innovation standpoint. So all these meshes together constitute what we call the commercial levers. then we have the whole procurement part that we have spoken about many times that we use saying global procurement hedging strategies and cost optimization to manage commodity costs and the last one is our transformation savings initiative which is all about making our business more efficient So all of these are levers that we pull as management in ensuring that we can deliver the profitability targets that we have given to the market. So hope that gave a little more flavor to what we're doing. Thank you.

Thank you very much. I know it was long. Thank you very much. Well, thank you very much for your question. I think those were all the questions that we have for today. And I would like to close the session. The contents of today's presentation will be available on our website following this call. If you have any questions or feedback, please contact our IR team. Thank you very much once again for joining the call today.