Coca-Cola Bottlers Japan Holdings Inc. ($2579)

[Interpreted] Good evening. This is Gomi, Head of Investor Relations at Coca-Cola Bottlers Holdings. Thank you for joining our first quarter 2026 earnings presentation for analysts and investors. Today, we are joined by President, Calin Dragan; and Vice President and CFO, Bjorn Ulgenes. Also with us are Vice President, President of the Food Service Company and the Chief Business Strategy Officer, Maki Kado; Officer and President of the retail company, Alex Gonzalez; and the Executive Officer, Chief Supply Chain Officer and the Chief Sustainability Officer, Andrew Ferrett. Following prepared remarks, we will be happy to take your questions. Simultaneous interpretation in Japanese and English is available for both today's presentation and the Q&A. Before we begin, please note that today's presentation contains forward-looking statements and should be considered together with cautionary statements contained in our presentation materials. With that, I would like to turn the call over to Calin Dragan. Calin-san?

Good evening, everyone. This is Calin Dragan, and thank you for joining our earnings call. Today, I am honored to be able to open my prepared remarks by reminding everyone the next month on May 8, Coca-Cola brand celebrates the 140 anniversary. With that occasion, we want to wish Coca-Cola brand a warm Happy birthday. We are really proud that we are able to bring such an iconic global brand to consumers in Japan, and we remain committed to further enhancing its value in the market. For the highlights of today's presentation, please turn to Slide 3. We are off to a very strong start in 2026. Business income for the first quarter exceeded our target, growing by JPY 3.8 billion versus the previous year. Already, we have achieved more than 1/3 of the full year business income target. This was primarily driven by a strong volume growth of 4% versus the previous year, gains in value share and improved profitability from price revisions, resulting in a solid profit growth. In vending, Top line trends are improving and showing positive momentum. Announced today, we will offer Japan's leading energy drink plant, Monster Energy through our vending machines starting this peak summer season, positioning us to further accelerate growth in our vending business. In the first quarter, we successfully executed key initiatives to improve profitability, price revisions, one of our core profitability drivers. We've implemented as planned or green deep products in March and are steadily delivering results. Our transformation initiatives are also progressing smoothly, generating cost savings to strengthen operational foundation. Despite continued uncertainty in the current outlook, we have assessed the potential impact of the situation in the Middle East and we are confident in our ability to manage any resulting cost increases this year. By leveraging the strength of the global Coca-Cola system, which is one of our core strengths, we expect to mitigate these pressures to our procurement efforts. In addition, by accelerating our profit growth momentum pursuing further cost savings and seriously considering harder price revisions, we will take all necessary actions, which are we are determined to achieve the full year business income target of JPY 35 billion. Now our CFO, Bjorn Ulgenes, will provide a detailed explanation of our financial results.

Thank you, Calin, and good evening, everyone. This is Bjorn. Please turn to Slide 5 for the first quarter profit and loss. In the first quarter, we achieved both revenue and profit growth that exceeded our targets. Despite the impact of changes to the channel mix, Revenue exceeded the target and achieved strong year-on-year growth of 3.6%, driven by higher-than-planned volume growth and improved wholesale revenue per case. Gross profit outpaced revenue growth and grew by 5.2%. In addition, the top line growth, this was supported by commodity cost management, including joint procurement across the Coca-Cola system and solid hedging strategies despite a challenging external environment marked by rising costs. In addition, as the first year of our strategic business plan, Vision 2030, we reviewed the useful life of our manufacturing machinery and equipment in line with our policy of making selective capital investments to improve capital efficiency and deploy capital effectively over the long term. As a result, lower depreciation expenses totaling approximately JPY 0.5 billion contributed to profit growth. Business income increased by JPY 3.8 billion year-over-year, primarily driven by top line growth and cost savings achieved through transformation initiatives. Factors contributing to this profit change will be explained later. Operating income increased by JPY 9.8 billion year-over-year. In addition, the business income growing year-over-year. Gains on the sale of tangible fixed assets recorded as part of our efforts to optimize the balance sheet contributed. Net income increased by JPY 5.5 billion from the previous year, primarily reflecting higher operating. EBITDA, a measure of cash generating profitability increased by JPY 0.6 billion year-over-year to JPY 5.4 billion. Slide 6 shows our financial results by segment. In the first quarter, a significant increase in the vending business profits drove overall profit growth. For the vending business, volume trends for existing machines improved and volume remained flat overall versus the previous year. While revenue for the business declined year-over-year, specifically Coca-Cola vending machine increased revenues due to improved wholesale revenue per case. In addition, driven by transformation benefits, improving rates. Segment profit increased significantly by JPY 4.6 billion year-over-year, returning the segment to profitability. While this includes the benefit of lower depreciation expenses following the prior year's impairment loss in the vending business, we also achieved solid organic profit growth. In OTC, revenue outpaced volume and increased by 6.5% year-over-year, driven by robust top line growth and price revision benefit. Volume and revenue growth were driven primarily by online drugstores and discount. Through a rigorous focus on profitability-driven initiatives, segment profit increased by 25.6% year-over-year. In the Foodservice business, we achieved high growth with double-digit increases in both volume and revenue compared to the previous year, driven by an expanded product portfolio tailored to customer needs and successful efforts to secure new customers. To sustain this momentum, we are steadily executing investments to support mid- to long-term growth and are driving business expansion in line with our plans. Please turn to Slide 7 for the factors behind the change in business income. Business income grew strongly, increased by JPY 3.8 billion compared to the previous year. Starting from the left, we can see the impact of volume, price and mix. Together, these factors reflect changes in marginal profits from our commercial activity and contributed a positive JPY 2.6 billion year-over-year. The main factors were a positive impact of JPY 2.3 billion from volume, including channel mix and a positive JPY 3.8 billion impact from pricing partially offset by a negative JPY 3.5 billion impact from other factors. Although adverse channel mix due to changing consumer trends remained a headwind, volume growth and improved wholesale revenue per case resulting from price revisions are steadily contributing to profit growth. Transformation benefits totaled JPY 1.9 billion, in line with time. Savings were particularly significant in the commercial function where benefits from the transformation of the vending business continued to materialize steadily. In the supply chain and back office, we are building a foundation that contributes to mid- to long-term growth while also generating cost savings. Marketing expenses decreased by JPY 0.2 billion year-over-year. We continue to invest appropriately in marketing are carefully managing spending based on the return on investment philosophy and market conditions. Manufacturing costs increased by JPY 0.1 billion year-over-year. Although production volume rose in line with sales and manufacturing efficiency improved changes in product mix, including a higher proportion of outsourced production increased cost. We continue to pursue cost savings in the production floor and strengthening our production structure ahead of the peak demand season. Other costs increased by JPY 1.6 billion, primarily due to higher IT-related investments and expenses to support future profit growth as well as increased labor and outsourcing costs. This increase includes the benefits of lower depreciation expenses resulting from the impairment cost recorded in the vending business in the previous year. Commodity and utility costs decreased by JPY 0.8 billion, thanks to successful hedging strategies and our procurement function, leveraging the Coca-Cola system's global network, one of our companies [indiscernible]. Net cost improvements from commodities and foreign exchange amounted to JPY 0.4 billion. Utility costs also achieved a decrease of JPY 0.4 billion. On the next slide, Alex will give an overview of our commercial activity. Over to you, Alex.

Good evening, everyone. This is Alex. Slide 8 shows sales volume by channel and by category. Although price revisions negatively impacted demand, our effective commercial activities and contributions from core categories meant that Q1 sales volume grew 4% year-over-year, exceeding both the overall market and our plan. Additionally, because of the series of price revisions, wholesale revenue per case continued to improve across most channels. First, by channel, vending volume trends improved and remained flat year-over-year supported by a strong performance from core products and existing vending machines. In Supermarkets, drugstores and discounters, sales volume increased as well as we successfully expanded shelf space through campaigns tied to the FIFA World Cup. In Convenience Stores, where price revisions impacted volume wholesale revenue per case improved significantly, leading to improved profitability. In online, volume grew by 20%, driving overall growth despite a decline in wholesale revenue per case due to a higher mix of large PET water. In Foodservice, volume grew by 12% supported by an expanded product lineup, including customer-exclusive launches and stronger sales of a sparkling pressure products and restaurants. By category, in sparkling, Coca-Cola and Coca-Cola Zero contributed to a 10% increase in volume. In tea, products such as [indiscernible] contributed while Ayataka continued to perform well. Although the March price revisions impacted Green Tea products, volume levels in Q1 were comparable to the previous years. Sports, water and coffee declined due to price revision impact. Slide 9 shows the status of market share and OTC retail prices. This year, through profitability focused commercial activities, we achieved balanced growth in both value and volume share. Our total channel value share increased by 1.1 percentage points. Despite a challenging market, volume outperformed the market and the year-over-year increase in volume share has contributed to value share growth. inventing, growth in volume share drove an increase in value share. Growth initiatives in the vending business, including profit focus assortment optimization using our AI-based assortment system and targeted promotions through Coke ON have delivered strong results. We successfully captured demand while improving wholesale revenue per case through price revisions. In the LTC channel, despite the impact of lower volumes resulting from price revisions and channel mix changes, we have enhanced our competitiveness through expanded shelf space and targeted commercial activities, achieving balanced market share growth. In the first quarter, we effectively capture increased demand, improved value share by 0.3 percentage points year-over-year. Our OTC retail prices have continued to maintain a price premium relative to industry averages. As a result of the series of price revisions, OTC retail prices for a small PET products continue to exceed those of the previous year. For large PET, although affected by channel and packaging mix shifts, we have maintained the elevated price level. In March of this year, we implemented the green tea product price revision as planned, market [indiscernible] such provisions since 2022 and we expect further improvement in trends during the second quarter. Slide 10 highlights key topics for our quarter 1 commercial activities. We have successfully translated robust volume growth and improved profitability into solid profit growth. initiatives aimed at enhancing competitiveness have driven volume growth in the core categories driving overall volumes such as sparkling MT marketing campaigns highlight in drinking occasions have proven effective. To expand shelf space, we are focused on maximizing unique Coca-Cola assets such as the FIFA World Cup and rolling out exclusive products for our customers, thereby accelerating efforts to improve competitiveness. In vending, Positive signs are emerging in volume trends. Growth strategies such as further leveraging of Coke ON and revising product assortments with our assortment system are proving successful. In particular, volume trends for existing machines have improved and vending channel value share has increased. At restaurants, we promoted perfect serve to ensure consumers can enjoy Coca-Cola assets at its best, and aim to enhance the dining experience through proposals such as effectively utilizing bottle, Coke and Glassware. Our efforts to improve profitability are making steady progress. We've implemented price revisions for green tea products such as plan, effective for shipments starting March 1. At the same time, we're focused on maximizing the impact of price revisions and wholesale revenue per case continues to show an upward trend. In addition, we have proceeded as planned with the rationalization of rebates and promotional expenses, implementing marketing activities that are flexible and focused on ROI in accordance with market conditions. Furthermore, to improve our product mix, we have to strengthen our efforts by rolling out products and packaging tailored to each customer's profitability. Our prioritization of profitability in commercial activities remains unchanged this year. We're implementing optimal growth strategies for each business unit, while rigorously enforcing detailed data-driven performance management. On the next slide, Maki will go over our first quarter commercial selective marketing activities. Maki, please?

[Interpreted] Good evening. This is Maki Kado. On Slide 12, I will review our marketing activities for the first quarter. In Q1, we achieved strong growth in revenue and value share through powerful campaign activation. To strengthen our core category, in February, we launched limited addition, Coca-Cola FIFA World Cup bottles. We maximize in-store visibility by implementing effective campaign that leverages Coca-Cola's unique assets, including dedicated self displays. These efforts proved successful, further accelerating Coca-Cola's growth trend from the previous year. Volume in the sparkling category, including Coca-Cola, increased by 10% year-over-year. Additionally, for Georgia, we revamped our core products in parallel with a new campaign launched in March, aiming to enhance the brand's appeal. For Ayataka, we continued and the strength in the last year's campaign that successfully highlighted its bearing with Onigiri and worked to expand Ayataka drinking occasions. In particular, China Ayataka under rental price revision this March, we are thoroughly implementing in-store displays that emphasizes values. Regarding new products, Minute Maid fruit juice brand. In March, we launched Minute Maid Zero Sugar Peach Lemonade as an addition to the Minute Maid Zero Sugar Lemonade lineup, which has been well received and seen steady sales growth since its launch last month part. We will continue to strengthen sales efforts from the second quarter onwards, aiming for further growth and expanded consumption occasions. In terms of experiential marketing, we have launched campaign for users of the Coke ON app, which serve as 70 million downloads cumulatively by the end of 2025. The campaign will run throughout the year to celebrate the app tenth anniversary, and the first wave has already begun. For the FIFA World Cup '26. We have organized a trophy tour and launched a promotion where consumers can enter code found on the outer side of caps from purchased products via Coke ON to enter a draw for regional merchandise based on the number of points earned. By building excitement for the FIFA World Cup '26, even before the tournament begins, we aim to maximize exposure on the sales of our products. Slide 13 highlights our marketing activities for the second quarter. To strengthen core category, Coca-Cola is releasing the second installment of its limited edition FIFA World Cup packaging for a limited time starting April 20, featuring a selection of design inspired by the uniforms and flags of popular participating nations. In April, Fanta relaunched this core flavors. For the first time in the Coca-Cola Japan product, we utilize global AI technology to create a pace that goes beyond the boundaries of traditional fruits for regard sparkling liberties. As for new products, we are launching [indiscernible] from the [indiscernible] line this week. With zero sugar and n0 calories, it provides superior hydration compared to water. By introducing this innovation product, we aim to revitalize the sports drink market. For Ayataka, we are launching for new products and revamping existing ones. In April, we launched [indiscernible], a functional food designed to meet health needs. In May, we will introduce Ayataka Mineral Green Tea, the first mineral and green tea in the brand's history. By expanding our product lineup to address diversified consumer needs, we aim to achieve further growth for the Ayataka brand. For experiential marketing, in addition to launching the second phase of the Coca-Cola FIFA World Cup '26 promotion, we implemented initiatives leverage in bottled Coke and launch certification program called Coca-Cola Fruit [indiscernible]. For restaurants where consumers can enjoy delicious meals paired with the ultimate Coca-Cola experience. Through these efforts, we aim to enhance the experience of value sold in today's dining out. Next, Calin will share our outlook. Calin-san, please?

Calin again. Slide 15 outlines our outlook to ensure we achieve our full year business income target of JPY 35 billion, we will carry forward the positive trends we have seen so far in implementing additional measures and maximize profit. And as we enter the second quarter, all initiatives continue to progress smoothly. In April, sales volume achieved a robust growth of more than 2% year-over-year while improving wholesale revenue per case. In addition, we are implementing further cost saving measures to help offset anticipated cost increases. Furthermore, while we are seriously considering further price divisions, we will ensure that we met this year profit target and drive mid- to long-term profit growth by offering Monster Energy in our vending machines. With regards to the impact of the situation in the Middle East, assuming that conditions stabilized during the second quarter and that oil prices, exchange rates and other factors will improve towards the year-end. We expect the additional cost increase for this year to be limited. Our hedging strategy provides a clear visibility in the near term, and we expect usually no impact on first half earnings. For the full year, we anticipate additional cost increases of approximately JPY 2 billion to JPY 4 billion. And as discussed earlier, we plan to absorb these costs across the business by accelerating our positive earnings trend and implementing further measures. And accordingly, there is no change to our full year business income target. We will work closely with the global Coca-Cola system to leverage scale advantages for competitive procurement, helping us to maintain and to contain the cost increases and ensure a stable supply of material. Given our strong underlying performance momentum and the resilient business foundation we have built, I'm confident in our ability to achieve our targets. Slide 16 is about Monster Energy, as mentioned earlier. Starting from this summer, our peak demand season we will begin offering Japan's #1 energy drink brand, Monster Energy through the industry's largest vending machine network. This is an exciting initiative that will bring about significant change for us. This was made possible through the agreement between Coca-Cola Bottles Japan, Monster Energy Japan and Asahi beverage. By sourcing products from Asahi beverage, we will leverage the strength of both parties, namely the leading energy drink brands, Monster Energy and our industry-leading vending machine network to create synergies and maximize value for our consumers. We aim to expand consumer choice and purchasing opportunities for vending machines while further improving sales and profitability in the vending business. We plan to introduce product to core [indiscernible] vending machines in our business area by this summer, which is the peak season with the aim of driving immediate sales growth and improving profitability. The products to be introduced, Monster Energy comes in at 355-milliliter can with the manufacturer suggested retail price of JPY 230, including tax. We anticipate that strengthening the energy category was significant growth, we will significantly boost vending machine transactions. This product will be in the highest price brackets within our vending machine product portfolio, we also have high expectations for improving wholesale revenue per case to product mix improvement. And under our Vision 2030 strategic business plan, we are striving to improve profitability and capital efficiency while aiming to achieve ambitious goals. And to realize this vision we are exploring every opportunity for growth. And in this context, we are very pleased with the introduction of Monster Energy has paved the way for us to strengthen the energy drink category which holds significant growth potential for our company. Also, as explained today, the vending business is aiming for an increase in segment profit of over JPY 9 billion this year. We achieved a steady profit growth in the first quarter and current sales volume trends are showing signs of improvement. Now offering Monster Energy will build on this positive momentum and further accelerate profit growth in the vending business. Furthermore successful execution of these initiatives will further strengthen our thought towards achieving Vision 2030. And finally, here is today's summary. Please turn to Slide 7. As the first year of our strategic business plan Vision 2030, we delivered a strong first quarter performance. Business income exceeded our plan, and we have already achieved more than 1/3 of our full year profit growth target. We achieved strong growth across all KPIs, including sales, volume, value share wholesale revenue per case and profit, and we are very pleased that this has led to improved competitiveness and profitability. As a result, business income surpass our targets. And as we move into the second quarter and beyond, we will prepare totally for the peak demand season. We will also build on our positive underlying momentum and steadily implement additional measures with strong discipline. And by doing so, we will mitigate the impact of the situation in the Middle East and deliver our full year business income target of JPY 35 billion. I would also like to reiterate that our short- and medium-term targets remain unchanged. The measures discussed today, including the potential for further price revision, and the introduction of Monster Energy to our vending machines are important initiatives that will support mid- to long-term profit growth. And by further advancing this lead long-term initiatives and fundamental transformations while continuing to strengthen our business foundation, we will accelerate our profit growth trajectory towards achieving Vision 2030. That concludes today's presentation. thank you for your attention. And now we'll move on to the question-and-answer session. Gomi-san, please take it from here.

[Interpreted] This Q&A session is intended for analysts and investors. Members of the meter are kindly asked to refrain from asking questions at this time. As a separate session will be held later today. Due to interpretation, please ask only 1 question at a time. We will now begin the Q&A session.

[Operator Instructions] We will now unmute the first participant. UBS Securities, Ihara-san, please go ahead.

[Interpreted] Thank you very much for your presentation. This is Ihara from UBS Securities. I have 2 questions. Firstly, it is not just about this year. I would like to rather know what's your outlook for the next fiscal year because this year, you have our offset measures to offset the inflation, cost inflation this year. But if this trend or the market situation continues, then what's your expectation for the cost push next year? And you target for next year's BI is 45 or 50. Are you able to commit to that target? And what do you need to show your commitment to those targets for next fiscal year?

[Interpreted] Ihara-san, thank you very much for your question. So basically, he's asking your ideas about next year's business. So Calin can take this question.

For the question. And well, I decided to pick this question on purpose to try to reiterate on exactly what I mentioned in prepared remarks. I said a couple of things, which I'm going to repeat. 2026, it's a tough year. But as you can see, we were able to over deliver our first quarter and basically in the smallest quarter of the year we already have been able to deliver more than 1/3 of our profit targets. All the parameters of the year are going extremely well as we mentioned, so we are remaining confident for the year-end results, and I mentioned loud and clear that we are forward looking to absorb the costs of the crisis in the Middle East from our own transformation efforts as well initiatives in the market. Having said that, already that position in the very first year of our journey, the JPY 35 billion, I would say, it's a jump start for the lack of a better world, a jump start on a fantastic journey towards 2030. With that in mind, I mentioned as well that we remain committed to our Vision 2030, including our targets communicated so far. We believe and we based all this on the resilience that we have been able, in our opinion, to build in our business over the last years. going through a number of crises as well fundamental transformation in our business. Nevertheless, through the crisis of Middle East that we are passing through, I just want to remind you that we are part of the worldwide consortium of Coca-Cola Company called [ CEPG ] of Coca-Cola system, I'm sorry. And it's just fair to assume that we are able to acquire at best prices probably in the world, leveraging the power of the entire Coca-Cola system worldwide as well availability of supply. And nevertheless, I would add is the fact that we are having our company hedging policy which delivered very good results so far. It's helping us at this moment in time, and it's only fair and normal to assume that going on our hedging policy and pricing policy, it's going to deliver results as we deliver so far based on a clear track record. All this gives us confidence that we are going to be able to deliver the results, but primarily, we are very proud of the current trend that we were able to build, especially in the vending business, basically growing from all key performance indicators. Hope that answers your question. Thank you so much.

[Interpreted] Additional questions. And when there was a crane crisis, you utilize the power of our [indiscernible] system, but still you face the push cost increase. So if this trend continues into next year, what the size of the cost push you would expect for next year?

For your additional question, and Bjorn, please take this question.

Thank you, Ihara-san. As Calin price outlay already, we are very confident about our 2026 delivery. And we're also definitely maintaining our 2027 outlook even 2028 for that matter. Speculating today what costs will come in 2027 is not very meaningful for us. I think instead focus on what Calin tried to convey, we have probably the world's most powerful buying consortium for all the commodity baskets. We have a very good hedging policy that you can see the effect of in the Q1 results. We are already taking proactive cost measures to manage the JPY 2 billion to JPY 4 billion that we included in the prepared remarks. And I think from a qualitative standpoint, you should also think about the flexibility, the agility that we have built into our business over the journey coming out of spending. That's ability to turn around to manage the situation because this is not the first crisis where experience gives us the comfort to believe in our targets and make sure that we will deliver. Hope that answers your question. Thank you.

[Interpreted] Let me quickly ask the second question. Monster Energy, up until now, I haven't seen many non-products in your vending machine up until now, but now you receive supply from your competitors, which is quite rare in the market. So what was the mindset change that you pursue this opportunity positively? And do you think there are any other routes to explore further collaboration with Asahi or...

[Interpreted] Thank you, Ihara-san. So we've just announced the sales of Monster Energy in the venue. So Calin, please take these questions.

This is a strategy question. He has clean back here on the mic. Thank you so much for the interest in our business. Well, very well known that Coca-Cola Company has a stake within Monster business and the collaboration worldwide. So there should not be made a surprise that we are leveraging and trying to exploit exactly in the same way all our all options that are available to us in order to grow our business. So we believe that Monster Energy, it is a good brand. As you can see, it's a sizable market, and it's the leading brand in Japan. We are opposing to this our significant and basically the largest in the world, vending DASH retail business. and we are convinced through the combination of Monster Energy within our largest lending network outstanding results are going to come out over time. So we are going to look forward to strengthen this partnership and as well to use, as I mentioned in my prepared remarks, every possible opportunity for our business to grow and to build a solid base for our shareholders and their shareholders case. I hope that answers your question.

I will unmute the next person with the questions. SMBC Nikko Securities, Furuta-san.

[Interpreted] I have one question. Further price release, you are going to consider seriously the further price revision. So what is the time line for that? And what the target scope of the other price items have -- could you please tell us that uses price for the green tea category in March is will that be a target for the product price divisions, the kind of scope and further possibilities, I would like to ask.

Furuta-san, thank you very much for your question. The concern [indiscernible] Alex will take this question.

Furuta, Alex here. As you rightly pointed out, we are executing the wave of price revisions with [indiscernible] and that's progressing pretty much as planned. Now with what has been shared in the prepared remarks, if there's evidently a very fluid situation around Middle East and as Calin and Bjorn have shared, we're looking at every single option to make sure that we deliver the business income target. So in that regard, we are seeing that the pressure is on cost is not only for CCA as a cost pressure for the entire industry. So we always, I think, have been walking the talk as seeing price increases as one of the levers to ensure that we are driving and protecting the margins of our business. So in that regard, we are seriously considering price regions at this point in time, nothing has been decided yet as with regards to the timing endoscope and we would come back when -- in due course to share more details. So that's it for now.

So under such circumstances for the Middle East crisis, the cost increase will further increase the cost. And under such circumstances, the price revision, you probably have to do the price revision at early timing and also green tea categories, you are -- competitors are not following up. And under that market conditions, do you think you are able to do the further price revision?

[Interpreted]Furuta-san, thank you for additional question. This will also -- Alex will answer this question.

Furuta-san, at this point in time, we will continue to evaluate the situation, and we will come in due course when the time is right to share with you more details.

I'll unmute the next person with a question. Nomura Securities, Morita.

[Interpreted] Morita from Nomura Securities. I have 2 questions. First question is regarding the Monster Energy. So EBITDA contract with CCJC within the contract with the CPTC -- or is it outside the contract with CCJC?

Thank you for the question. Regarding the Monster Energy, Calin will answer.

Calin, again, I'm just -- so we need to clearly understand the question to be able to answer precisely inside or outside the framework of our company. I just want to remind everyone, we are working on a franchise or franchisee framework with Coca-Cola Company. And of course, within that framework, there are, of course, certain rules of dozen ones. So of course, this is something that is aligned within the frame of operating in Japan as arrangements between the Coca-Cola Company and the Bottlers regarding this category are happening around the world. In terms of monster for sale product supply, this is something that is happening between us, Monster and as well [indiscernible].

[Interpreted] Well, did we answer your question Morita-san?

[Interpreted] Sorry, I didn't understand very clearly. So basically, the marketing belongs to the CCJC? So will CCJC provide that market into the Monster? Or is it included in the [ concentrate ]?

Coming into that. So then we need to -- I'm sorry to slow down the answer, but we need to determine some basics and explain a couple of basics which might not be well known. So once the company, it's a stand-alone company as well as publicly listed a separate entity than Coca-Cola company, well, of course, Coca-Cola Company holds equity stake in it. But that's a matter of ownership in terms of marketing and the means of distribution, Monster, it's operating like a separate company. ends from that perspective, the marketing relationship between us and the brand owner happens between Coca-Cola Boto Japan and Monster as a company. I hope that answers the question.

[Interpreted] Additional question is the profit per case with -- compared with other products that must provide a more profit per case?

Morita-san, this Calin speaking again. I'm sorry, to drag these tests. But I'm not going to disclose at this moment in time, details like profit per case. However, we try to be as explicit for you to be able to model telling you that this is going to be in the range of JPY 230 bracket as a price point, one of the highest that you can find within the vending machines in Japan. And if you overlap that SKU at the highest price possible there over the highest number of vending machines in Japan, which is our Coca-Cola network, probably you can stimulate the size of the benefits that can bring to our business. I hope that answers the question.

[Interpreted] My second question is regarding the possibility of additional cost increase because of Middle East, you said that it's JPY 2 billion to JPY 4 billion. So could you explain the background of that calculation. So do you think that in the other hand this year, the will subside and improve. Is this [indiscernible].

Thank you, Morita-san. On the costs, as you heard in our prepared remarks, we estimate the net impact of this with 2026 to be in the range of JPY 2 billion to JPY 4 billion. We're not going to give details on how we arrive at that. That builds on the set of assumptions that in the foreseeable future, this is the impact. And it's within the range of what we will definitely manage. And again, remind yourself exactly what we also said to Ihara-san about the cost levels we are buying at the best prices most likely globally through our global procurement system of whole the commodities used in our beverages in Japan. Secondly, we have a very strong hedging policy. As I also said to Ihara-san, as you can see that from the impact of Q1, which helps us manage the highs and the lows of commodity basket fluctuations for hedging currency, like I'm assuming is normal. And we have already, as we also said in the prepared remarks, we're taking additional measures already on the cost increase and you heard Alex comment on the on the strongly considering pricing increases into the future. So we believe we are managing this within this year. We are fully committed to delivering the profit for this year and definitely for next year, and we will continue to update you as we go through. Thank you.

I will unmute the next person. Next person is Miyake-san from Morgan Stanley.

[Interpreted] This is Miyake from Morgan Stanley. I would like to check on this current term that you just completed. First question is that with regards to the change in the useful year of your equipment, and then you have enjoyed the benefit of reducing the depreciation of about the tune of JPY 500 million. So it's annualized maybe about JPY 2 billion. Is this already factored in your business plan?

[Interpreted] Thank you, Miyake-san. So your question is about whether or not we are factoring in the benefits coming from the change of the useful life -- useful year of the life for the machinery. So Bjorn, would you like to answer this question?

Yes, correct. We have reevaluated the useful life of our manufacturing assets, again, part of the overall focus on ROIC and sensible uses of our capital. The impact will be JPY 1.5 billion to JPY 2 billion on a full year basis. It was not included in the initial plan, but it's not material enough at this point to revision anything up or down on a full year basis. We put this into the mix and again, remain strongly committed to deliver our JPY 35 million target for [indiscernible]. Thank you.

[Interpreted] So when you come up with the business plan at the beginning of the year that you already factored in you already have factored in this JPY 1.5 billion to JPY 2 billion on a full year basis. So you're not putting this on top? Just to follow up, this is not included at the beginning of the year. Okay. Understood. So if that's the case, you mentioned that you can commit to about JPY 35 billion target, right?

Yes, right.

Okay. One point or point. So against the first quarter plan, you have overperformed for the profit, right? So you have divided into these segments. And can you show me the each contribution breakdown, for example, vending versus last year, JPY 4.5 billion was the amount. And then because of the depreciation decline, there was about JPY 2 billion plus. But the sales, the revenue is not like on top of versus last year. So what are the benefits coming from? Is that the cost? And for the OTC, I know you have a better revenue than last year. But is there any cost increment behind that? And also the vending, are you not factoring in the reduction in the depreciation, right? So anyway, by looking at the segment, what is the contribution factor for each segment that you can overperform versus the plan?

[Interpreted] Thank you, Miyake-san. So you would like to understand the background to why we could overperform the first quarter versus the plan. So Alex, would you like to answer this question.

I'll take that, Miyake-san. So as you know, we have started publishing the segment profitability. We're very happy with that. In your question, I think let me just go back a little bit again to August last year when we issued the Vision 2030 plan because it contains some very key elements of how we run the business. You remember, we talked about job tickets or job profiles by business unit. So therefore, you can't just correlate immediately volume and revenue and profitability by segment. You have to look at the role of that business unit. Let me quickly take them, so we don't spend too much time on it. But the whole purpose of vending is to drive profitability and capital improvement. That's what you see happening in Q1 with a very, very strong improvement in cost and efficiency. That's the job ticket at the present one for vending, while we continue to maximize the revenue opportunities coming up in that channel or business unit. OTC, yes, there are expenses related to running OTC, but most of that is related to our work with the customers. and also, therefore, all the programs we're doing in supermarkets and online in convenience stores, et cetera. The role of food service business unit, albeit smaller than the 2 others is to drive both top line growth and profitable growth. And again, the expenses there are more related to customer activation in the model. So hopefully, that gives us a little bit of texture to your question.

[Interpreted] So maybe we shouldn't look by the segment. So at the end of the day, in the first quarter, you could gain more profit than the plan because you have overperforming in the volume. And also, you have more benefit coming from the transformation effects. So can I understand in that way? Or is there any other additional cost reduction activities that we should be fulfilling in here?

Correct a little bit. It might be the translation, but you said you should not be looking at the segment profit. Remember, the segment profit is again to give insight into how we run the business, going back to what I've said, the 3 business units have very distinct and clear topics, the objectives they're supposed to deliver. When it comes to transformation, a lot of the efforts you see coming through in vending improved profitability is the function of transformations. We're optimizing the routes. We're optimizing resources we're optimizing how we buy the products and the [indiscernible]. On top of that, remember, we're also driving a lot of revenue initiatives again pricing, but also the key elements of Alex, we have talked about earlier, on product assortment and how we optimize [indiscernible] profitability. So there are always a lot of activities happening in the big business unit like them. So you can't isolate in most cases, one single cost effect to explain the all profitability. My suggestion, look at the overall profitability, but also how the key drivers are manifested in the second disclosure, then you will have a good picture of what is actually happening.

[Interpreted] So when you look at the overall company base, I was just thinking, I believe that you have many transformation impact effects in every corner of your business and particularly in vending, it was very strong. That's what I understood.

[Interpreted] Thank you, Miyake-san. Since we are approaching the designated hours, we would like to pick up a couple more questions. But I hope that we can keep one question by person. Operator, please put to the next question.

I unmute our next speaker. Next, we have Saji-san from Misuho Securities.

[Interpreted] I have one question about Monster Energy. I would like to just double check. So I would like to understand this will be a wholesale apply from Asahi to VGI. And you say that Asahi is a flyer of Monster Energy to VGI. So VGI has no involvement in the manufacturing meaning that the -- financially, it's about margin. It's only about margin, no production cost because I would like to understand the nature of contribution -- financial contribution of this business.

Thank you Saji-san. So you would like to understand whether VGI is involved in the maturing and this is a pure wholesale business. So Alex can take this question.

Saji-san, Alex here. Yes, just probably building on your confirmation is the agreement with Asahi is we're buying product from them, and we're deploying into the largest network of many machines. So yes, we're not involved in the manufacturing of this product. I help this clarifies question.

[Interpreted] Then you will earn only the sales margin. Is that on the revenue from this business model?

[Interpreted] Yes, that is correct.

Fujiwara-san from JPMorgan Securities.

[Interpreted] Fujiwara-san from JPMorgan speaking. So I have a one question. Just simply would like to ask about the figures. Page 7, Slide 7, there's faster increased decrease. And I'd like to know the first volume price mix, and there is a breakdown number here. And volume other than volume and unit price. And there's other and that is a minus JPY 3.5 billion that's what I heard. I believe, and that is pretty big. I'd like to know the breakdown of that. And after the second quarter, what will happen to the others? What is the outlook for the other segment that also might hold?

Thank you for your questions. The waterfall chart, the volume price mix and there's other. And you would like to know the breakdown of other of the volume price mix. Bjorn can take this question.

It's inside the other, that is a collection of several items. So by selling more volume, and therefore, generating more revenue, which is good. you also incur additional sales costs the moving cost tensive, et cetera. So that will come as part of that because not always having sales that goes straight through overall. The commissions, which is also part of the vending business inside here, decreased a little bit in the quarter. And we also have the, what we call the variable transportation also the [indiscernible] also those again because we're moving more product in the quarter. So all of those mixed elements will come in that category.

[Interpreted] Okay. Then that means the variable promotion costs, the rebate or the kind of impact is coming from those impacted by that. And the negative amount is big for your other is something that is not negative. Is that correct understanding?

Absolutely, 100%. It's the cost of doing business.

Igarashi-san from Daiwa Securities.

Igarashi-san from Daiwa Securities speaking. So quickly, I have one question regarding the volume. So sustainability of the successful volume growth. So plus 4% is very good. In April, it's plus 2% in the first report. So is it slowing down or in the first quarter, so it was too good. So could you give us a comment regarding the growth in the volume?

Thank you for the question. Regarding the sustainability or the growth of the volume and also how to assess the 2% growth in April? Alex will answer.

Thank you. Alex, the preliminary report in April is plus 2% flash so far, we believe we continue to outperform the market, which is a positive thing. What we're seeing in the volume impact is, as you recall, we took the price increase of [indiscernible] that's negatively impacting the trend in the early part of the month. So nevertheless, I think what I want to call out is the fact that we believe to be outperforming the market, and we feel confident about the outlook that we have to deliver the JPY 35 billion profit for the full year.

Next person is Sumoge-san from BofA.

[Interpreted] This is Sumoge speaking from BofA. I know this has been repeating questions. I know this has been repeating questions. I would like to ask about the cost side of about the JPY 2 billion to JPY 4 billion cost push. In Slide 11, you mentioned about those plans. And then you mentioned that in the first half, you don't really have much impact. But then can I understand that you are expecting some kind of impact in the second half? And also, you mentioned about JPY 2 billion to JPY 4 billion is a potential one. They may not happen. But then as you know, if we see the price of the oil stabilize after the April, is that the kind of scenario that you assume in here?

[Interpreted] Thank you, Sumoge-san. Your question is about the cost pressure for this year. So I would like to ask Bjorn to pick up this question.

Again, we reiterated our belief that the net impact will be about JPY 2 billion to JPY 4 billion in our commodity and currency basket for this year. And again, speculating about the future is not very helpful here. We are, again, committed to deliver our JPY 35 billion, and we will manage towards that. But I think instead, I would remind you of what happened back in 2022 when the Ukraine crisis hit, again, the commodity and the currency market. You saw what we did and we manage that through probably 1 of the bigger impacts to the beverage business ever in Japan. And you heard also the termination of Alex saying we are seriously considering price increases, which is exactly what happened when that Ukraine crisis started flowing through into the commodity. So rest assured, we are on that, and we will manage towards our targets.

[Interpreted] Understood. What about the time line? Because in your presentation on Page 15, first half, you're not expecting any impact, but then you are saying about like maybe second half, you might be having APAC. So what do you think about the time line?

Thank you for your question. The first half and the second half assumption, I would Bjorn-san also to answer these questions.

Yes. Again, Sumoge-san, we're operating with different scenarios that we're managing, again with the purpose of delivering our profits. We estimate as we also said in the prepared remarks that in the foreseeable future, the effects of this event will start subsiding and that's what we're managing against. So I'll leave it at that. Thank you.

[Interpreted] Thank you very much. Thank you for your question. Since we are running over time, I would like to pick the final question.

[indiscernible] from Goldman Sachs.

[Interpreted] I also like to ask a question related to Middle East situation, and you've already explained the cost impact. So it's clear to me, but how about the procurement risk. correct to understand that you have no -- almost no risk in the procurement aspects such as PET, bot or packages how about the physical procurement risk. I'd like to understand how you see it.

[Interpreted] Thank you very much for your question. About the impact of Middle East situation, the risk of our procurement, Calin-san will take this question.

I'm Calin here. I'm jumping again here to take this last question. And to try to answer your question as well to make a comment about this continuous concern and questions directed to us of the company about the political situation in the Middle East as well. Well, I can answer very simply the first part of the question. Right now, we are not facing any shortage of product. Second thing that I can say, in the foreseeable future, we don't foresee having any shortage of road. We can estimate some cost increases that we have measured because of the overall dynamic of the pricing because of the demand and supply situation, but we are confident that through our network, we are able to supply at least to what we have visibility the supply for our raw materials. And I hope that clarifies the overall situation. Now let me go back to the Middle East situation, which concern everybody. With all due respect to the audience, I think, asking us about scenarios of product shortage and product pricing for 2027, it's at least unrealistic, meaning we are not geopolitical experts, and we are not having the call here to debate political trends, meaning what's going to happen in 2027, I can tell you right now, I don't know and nobody in our company knows what the impact would be, it describes is going to stay here for another 40, I don't know 24 months or 48 months, nobody can estimate it. But we are doing our best estimations for watching our control as well leveraging our power of purchasing in any conditions out there. We need to make sure that no matter the condition out here, we are buying at the best price in the market. No matter the conditions out there, we need to make sure that we ensure supply as well, we need to make sure that we are as well best industry in ensuring supply. This is the only thing that I can tell you right now and the fact that we have created a very solid business in Japan over the years through our transformation. The fact that we are purchasing through the consortium, which is one of the biggest in the world. And third, we are having a very healthy hedging policy, which proved to work over the last years gives us confidence to believe that no matter the scenarios are we will manage above average within the industry in Japan and outside Japan in the world within the Coca-Cola system. But more than that, going and giving granularity now for quarter 4 impact of costs in 2027, I think that's totally unrealistic to be questioned at this moment in time. And this is what I want to highlight. At this moment in time, we stay committed the results of this year through fantastic rents out there in the market for our company. And with all due respect, the way how I would suggest you read the numbers is that we have over delivered in all the KPIs in quarter 1, not only profitability. More than that, we stay committed for the year-end profit as well for step-by-step 2027, 2028 and 2030, Vision 2030 results. Now I hope that, that concludes the answers today and as well try to set the scene for how we are looking at the crisis in the Middle East. Thank you very much for your questions and your interest in the business.

[Interpreted] Thank you very much for your questions. With that, we would like to conclude the Q&A session, and we are running over time, and thank you for your patience. And we will put the information in the presentation on our website. So if you have further questions, then please contact the IR team in our company. Thank you very much for your participation. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]