Coca-Cola Bottlers Japan Holdings Inc. (2579) Earnings Call Transcript & Summary

Good evening. This is Gomi, Head of Investor Relations at Coca-Cola Bottlers Japan Holdings. Thank you for joining our second 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 Chief Business Strategy Officer, Maki Kado; Executive Officer and President of the Retail Company, Alex Gonzalez; and Executive Officer, Chief Supply Chain Officer, Chief Sustainability Officer, Andrew Ferrett; and Executive Officer and Chief Human Resources Officer, Yuki Higashi. Following the 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'd like to turn the call over to Calin Dragan. Calin-san, please.

Good evening, everyone. This is Calin Dragan. Thank you for joining our earnings call. Before the presentation today, I would like to express our deepest sympathies to all those affected by the Kumamoto earthquake on July 28, 2026. The safety of our employees and their families remains our highest priority. We are currently confirming the safety of our employees and assessing the impact on our facilities and equipment, manufacturing and logistic operations and product supply at the Kumamoto plant and other sites within our business area. At the Kumamoto plant, safety and product quality are our top priorities, operations have been suspended while detailed inspections are carried out. Logistics and delivery operations in certain areas have also been affected due to damage to roads and other infrastructure. We will continue working closely with the local authorities and internal teams. We will provide further updates as soon as material information becomes available. And once again, we sincerely hope for the safety of all those affected by the disaster and for a swift recovery. Now I would like to share our first half financial results. These are the highlights of today's presentation. Please look at Slide 3. In the first half, we continued our trend of profit growth and achieving strong results. Business income for the first half grew by JPY 6.6 billion versus the previous year. Although we are still ahead of the peak demand season, we have already achieved over 60% of our full year profit growth target, representing good progress. Furthermore, for the first time in 8 years, since 2018, we have returned to profit in our first half. We view this as a significant achievement that demonstrates steady improvement across our entire business. Even while the whole industry faces rising costs, we are steadily improving our profitability. In the first half, revenue grew by 1.3% versus previous year, while gross profit grew by 3.4%, exceeding revenue growth and contributing to an increase in business income. Furthermore, during the first half, key initiatives that will drive future profit growth such as expanding sales space in preparation for the peak demand season, implementing price revisions and accelerated rollout of Monster Energy vending machines made significant progress. Transformation efforts to build growth foundation also proceeded smoothly. In addition, building on the strong earnings performance, we have announced a JPY 40 billion share buyback program to be carried out over 1 year starting in November as part of our shareholder return program under Vision 2030. We have increased the scale of the buyback by JPY 10 billion compared to the previous program, thereby accelerating our shareholder returns. We believe we are successfully creating a positive cycle of steadily improving our earnings performance and enhancing shareholder returns. Looking ahead into the second half, we will achieve our full year business income target of JPY 35 billion by maximizing commercial activities during the peak demand period, further advancing our key initiatives and addressing cost increases impacted by the situation in the Middle East. We will also make significant progress towards achieving our ambitious mid- to long-term targets. 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 half profit and loss. The first half saw an increase in both revenue and profits compared with the previous year, and our business performance performed smoothly. Sales volume grew at a rate faster than the market despite the impact of price revisions and other factors. Revenue grew by 1.3% year-over-year, driven by volume growth and an improvement in wholesale revenue per case despite the impact of a less favorable channel mix. Gross profit increased by 3.4% year-over-year, outpacing the revenue growth rate. In addition to top line growth driven by price revisions, this was due in part to our ability to control commodity and material costs, including joint procurement within the Coca-Cola system and hedging strategies in an environment of rising costs caused by external factors. As a result of such initiatives, business income grew significantly at JPY 6.6 billion year-over-year, which was more than 5x the previous year's figure. I will explain the factors contributing to this increase in profit later. Operating income increased significantly by JPY 10.3 billion year-over-year, driven by business income increases and cycling of the JPY 88.4 billion impairment loss recorded in the vending business during the second quarter of the previous year. Net income improved by JPY [ 70.77 ] billion year-over-year, reaching JPY 4.8 billion. This was primarily driven by an increase in operating income and marks a return to first half profitability for the first time in 8 years since 2018. Slide 6 shows our financial results by segment. In the first half, Vending achieved profit driven by the benefits of transformation initiatives, while OTC and Food Service achieved revenue and profit growth. Let's look at the Vending business. Sales volume declined due to price revisions and unfavorable weather in June. And although we continue to see improvements in wholesale revenue per case, revenue decreased. On the other hand, segment profit was JPY 5.3 billion, an improvement of JPY 6.7 billion from the previous year. While this figure includes the positive impact of lower depreciation expenses resulting from the impairment loss in the Vending business recorded in the previous year, the transformation benefits such as improved profitability and enhanced route productivity are steadily becoming evident. As a result, we were able to achieve organic profit growth even in a challenging business environment. In the OTC business, revenue increased by 2.6% year-over-year, outpacing volume growth, driven by both volume growth and price revision benefits. In particular, Online, Drugstores & Discounters channel led the growth in both volume and revenue. Segment profit grew 8.3% year-over-year through a relentless focus on profitability-driven initiatives. In Food Service business, we achieved strong double-digit growth year-over-year in sales volume, revenue and segment profit, driven by business expansion with existing customers and the success of our efforts to secure new customers. Initiatives aimed at driving mid- to long-term profit growth is progressing smoothly, and we will continue this positive trend going forward. Please turn to Slide 7 for the factors behind the change in business income. Business income grew strongly, increasing by JPY 6.6 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 profit from our commercial activities and contributed a positive JPY 3.8 billion year-over-year. The main factors were a positive impact of JPY 1.4 billion from volume, including channel mix and a positive JPY 8 billion impact from pricing, partially offset by a negative JPY 5.6 billion impact from other factors. Although adverse channel mix due to the 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 3 billion, in line with our plan. Savings were particularly significant in commercial, where benefits from the transformation of the Vending business continued to materialize steadily. In 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 increased by JPY 1.4 billion year-over-year. This was due to our marketing investments made with return on investments in mind while taking market conditions into account while strengthening marketing activities in the second quarter in preparation for the peak demand season. Manufacturing costs decreased by JPY 0.7 billion versus the previous year. As production volume increased alongside higher sales volume, manufacturing efficiency improved. In addition, we continue to implement cost-saving initiatives on the production sites. Although other costs increased due to higher IT-related investments and expenses aimed at future profit growth as well as higher personnel and outsourcing costs, the increase was limited to JPY 0.1 billion, offset by a reduction in depreciation expenses this year, resulting from the impairment loss on the Vending business recorded in the previous year. Commodity and utility costs decreased by JPY 0.7 billion, thanks to successful hedging strategies and our procurement function leveraging the Coca-Cola system's global network, one of our company's key strengths. Commodities and foreign exchange were flat year-over-year, while utility costs achieved a decrease of JPY 0.6 billion. From the next slide, Alex will give an overview of our commercial activities. Alex, please.

Good evening, everyone. This is Alex. Slide 8 shows sales volume by channel and by category. Sales volume for the first half grew 2% year-over-year, exceeding both our plan and the overall market despite the impact of unfavorable weather in June. This growth was driven by commercial activities that fully leverage events such as the FIFA World Cup as well as contributions from our core strategies. Additionally, wholesale revenue per case continued its upward trend in the second quarter because of a series of price revisions, resulting in year-over-year growth across nearly all channels for the first half. Vending saw contributions from campaigns and other initiatives through the Coke ON app. Sales declined by 1% year-over-year due to adverse weather conditions in June. In Supermarkets, a decline in sales volume for water and sports due to price revisions impacted overall sales. At Drugstores & Discounters, efforts to secure sales space through campaigns such as those tied to the World Cup proved successful, resulting in a 4% year-over-year growth in sales volume. At CVS, we achieved a significant improvement in wholesale revenue per case and a steady improvement in profitability by implementing price revisions and carefully controlling rebates and promotional activities, particularly for coffee, although sales volume declined. In Online, while wholesale revenue per case was impacted by an increase in large PET water, volume achieved strong growth of 8%. In Food Service, volume grew strongly by 11%, driven by business expansion with existing customers and efforts to secure new accounts as well as initiatives to strengthen core categories. By category, Sparkling grew by 8% in volume, driven by campaigns and in-store activities that made full use of the FIFA World Cup, a key asset of Coca-Cola. In tea, strong growth in Yakan no Mugicha and Kochakaden helped to offset the decline in green tea volume following price revisions, resulting in a 3% growth for the category as a whole. For sports water and coffee, adverse weather in June and price revisions impacting, leading to a decline in volume. Slide 9 shows the status of market share and OTC retail prices. Against the backdrop of continued intense competition, we maintained balanced growth of both value share and volume share during the first half through commercial activities focused on profitability. Our total channel value share increased by 0.9 percentage points. While we have been implementing price revisions, our volume outperformed the market and the year-over-year increase in volume share contributed to the rise in value share. In Vending, as in the first quarter, growth in volume share drove an increase in value share. We achieved sustained growth in value share through initiatives such as optimizing our product lineups based on profitability using an AI-powered assortment system and conducting promotions via Coke ON. In OTC channel, although the price revisions for green tea products implemented in March had an impact on market share, we enhanced our competitiveness through commercial activities based on data insights, resulting in both volume and value share remaining roughly at the previous year's level. Our products, OTC retail prices continue to maintain a premium over the industry average. As a result of a series of price revisions, retail prices for both small and large PET products have remained above last year's level despite the impact of factors such as channel mix. A more detailed overview of our green tea products of which we implemented price revisions in March on the next slide. Slide 10 covers the topics for the first half. Our price revision initiatives are progressing smoothly, and we're steadily improving profitability. First, regarding the green tea price revisions in March, we have carefully implemented increases in shipment prices aligned with revisions to the manufacturer suggested retail price on a business unit basis. As a result, the wholesale revenue per case of Ayataka achieved a significant improvement of over JPY 150 between March and June cumulative period. We are generating results as planned. We're also working to optimize rebates and promotional expenses, focusing on improving profitability from every angle. Green tea is one of the most competitive categories. And while price revisions have had an impact on sales volume, the launch of several new products under the Ayataka brand and strengthened sales efforts for products such as Yakan no Mugicha have enabled the tea category to achieve positive sales growth. Furthermore, the upward trend in retail prices for green tea is accelerating. The graph in the lower right corner of the slide shows the trend in the per bottle retail price of our green tea at Supermarkets, Drugstores & Discounters. As you can see, retail prices for both small and large PET have been rising since the price revisions last October and following the price revisions in March. The upward trend has accelerated. In addition, as previously announced in May, we will implement price revisions for our major products in September. We have already begun negotiations with customers and are proceeding with swift and thorough preparations, including the formulation of a market execution plan that leverages the lessons we have learned to maximize the impact of these price revisions. In addition, during the first half, key initiatives in each area that will drive future profit growth progressed smoothly. Please refer to Slide 11. In commercial, we maximized our market execution to capture summer demand and strengthen the growth foundation for the future. This year, we made the most of the World Cup by launching limited edition packages, rolling out the Coca-Cola FIFA World Cup '26 campaign and thoroughly optimizing store displays to support these initiatives, resulting in significant volume growth for Coca-Cola. In addition to Sparkling, we focus our marketing efforts on promoting drinking occasions within the tea beverage where demand increases during the summer, which led to increased sales volume and expanded sales space ahead of the peak demand season. In Food Services, we're generating results that are expected to contribute to profits over the mid- to long-term, such as securing new customers and expanding business with existing customers through initiatives such as tailored sales proposals for growing business. In addition, the rollout of Monster Energy through vending channels, which we discussed at our previous earnings briefing, has progressed smoothly. To ensure we're fully prepared for the peak demand season, we focused on an early rollout of vending machines and began sales in June. Initial sales have been trending well and as the high price point product, we expect it to contribute to profits through increased volume and mix. As part of our transformation initiatives to strengthen our foundation in the supply chain area, we plan to launch 3 integrated distribution centers in the Kanto region by the end of the year and have been steadily preparing for the launch. We also work with the Commercial teams and our customers to optimize cost to serve by leveraging our direct sales model. Furthermore, to improve the accuracy and efficiency of our S&OP aimed at a stable, high-quality and low-cost supply, we have focused on ensuring the stable operation of the new system introduced at the end of last year. In back office and IT, we steadily advanced the development of our foundation for system and data integration with an eye toward the various system implementations we will undertake in the future to further promote digital transformation. Now starting with the next slide, Maki will explain our marketing activities. Maki, please go ahead.

Good evening. This is Kado. Slide 13 provides a review of our marketing activities for the first half. To strengthen core categories, Coca-Cola launched the second installment of its FIFA World Cup limited edition packaging in April, featuring designs inspired by the uniforms and flags of popular participating nations in the FIFA World Cup with the aim of encouraging repeat purchases among consumers. In addition, Fanta underwent a renewal of its core flavors in April. By leveraging AI technology and making repeated product improvements based on insights gained from analyzing consumer evaluation data, the brand has achieved a new level of taste distinct from previous Fanta products. Sales were boosted through campaigns and other initiatives tied to the renewal. Thanks to these initiatives, volume in Sparkling category, including Coca-Cola and Fanta, increased by 8% compared to the previous year. As a new product, we have launched AQUARIUS THE 0 from the Aquarius brand. By combining the distinctive taste of Aquarius with zero sugar and zero calories, the product has achieved repeat purchase rates on par with our standard products. And we will continue to strive to maximize sales during the summer, which is the peak season. Under the Ayataka brand, we have launched 3 new products and introduced product renewal. We launched Ayataka Rich Hojicha, our food product with functional claims designed to meet health needs as well as Ayataka Mineral Green Tea and Ayataka Cafe Gently Sweet Matcha Green Tea. By expanding our product lineup to address diversifying consumer needs, we aim to strengthen the brand. In terms of experiential marketing, in addition to launching the second phase of the Coca-Cola FIFA World Cup '26 promotion, we are collaborating with Coca-Cola Japan to implement initiatives aimed at enhancing the experiential value sought in today's dining out theme, such as launching the Coca-Cola FoodMarks certification program for restaurants that offer delicious meals and the ultimate Coca-Cola experience. Next, Slide 14 highlights our marketing activities for the third quarter. We will continue to focus even more on our core categories through campaigns and new products. To strengthen our core categories, we launched the Coca-Cola Summer campaign in July to capture summer demand. We are running a digital summer slot promotion where users can win limited edition Coca-Cola summer merchandise with the aim of attracting younger customers. Additionally, starting in September, we plan to launch a Coca-Cola Zero campaign featuring [ BTSSV ] for encouraging consumers to try the Coca-Cola Zero series. As a new product, we will launch Georgia Cafe Water, a coffee-taste drink without coffee beans in September. Designed to address future coffee supply risk caused by climate change, this product leverages Coca-Cola's proprietary technology to minimize bitterness and astringency, making it easy to drink in large gulps while still offering the aroma and flavor characteristics of coffee, which will be a new value proposition. In addition, I LOHAS Tennensui began selling 400-milliliter label-less PET bottles from July 13. This is a smaller version of the label-less bottle, which is currently available primarily through online channels. And it retains the features that have earned praise such as no need to peel off the label and easy to recycle with additional benefits like being easy for women and children to grip and drink from and easy to carry even in small bags. The product aim is to attract new consumers and create new drinking occasions that cater to diverse lifestyles. As part of experiential marketing efforts, we will launch a new Coca-Cola FoodMarks initiative in Shibuya starting in August as a way to deliver experiential value to the Food Service market. In 2026, we will work to provide even greater experiential value to the Food Service market by evolving and strengthening this program. Slide 16 outlines our outlook. We aim to further enhance shareholder value by achieving our full year business income target of JPY 35 billion and expanding shareholder returns. In the second half, to achieve our full year business income target, we will maintain to steadily -- we will maintain the steady momentum seen in the first half while striving to expand business income during the peak demand season through continued growth and improved profitability. Regarding the top line, we will make maximum use of the growth foundation we have built to date to capture summer beverage demand. Although the first half of July was affected by unfavorable weather, sales have gradually rebounded, supported by strings of hot days starting in the middle of the month. While we had anticipated a decline in volume during efforts to improve profitability through price revisions, the start of the peak demand season has been steady. We will also focus on the steady implementation of price revisions for our major products in September. This price revision covers 165 major items, which account for approximately 50% of our total sales volume with manufacturers suggested retail price increasing by between 3.2% and 18.7%. This marks the 10th price revision since 2022. We will leverage the data and insights we have accumulated to date to ensure the success of this price revision and work toward further improving profitability. We are also confident that the early launch of Monster Energy in the first half will contribute to profits during the peak demand period, and we will continue to strengthen sales efforts. Regarding the short-term outlook for the impact from the situation in the Middle East, there is no change from what we have previously shared. With the contribution of our hedging strategy, the impact on our full year earnings forecast within this year is expected to be limited to a cost increase of approximately JPY 2 billion to JPY 4 billion. Through the price revisions and the rollout of Monster Energy that will -- that we have discussed as well as the implementation of additional cost savings measures, we aim to offset this impact and achieve full year business income of JPY 35 billion. In addition, we are accelerating our shareholder returns. Since November 2024, we have been conducting share buybacks totaling JPY 30 billion for 2 consecutive years, and the 2026 buyback is expected to be completed as scheduled this October. Furthermore, based on the shareholder return targets set forth in Vision 2030, we have decided to carry out a new share buyback program totaling JPY 40 billion over 1 year, starting this November. In light of our strong business performance, we have increased the buyback amount by JPY 10 billion compared to the previous program. We remain committed to our ambitious shareholder return targets, including the cumulative share buyback of JPY 150 billion through 2030 and a dividend per share of JPY 140 to JPY 150 in 2030, and we will continue to actively seek opportunities to further enhance shareholder value. Finally, summary of today. Please turn to Slide 17. In the first half, we achieved a significant increase in business income, continuing the strong performance trend from the first quarter. Although we were impacted by unforeseen business conditions such as unfavorable weather in June, we view it as a strong achievement that in the first year of Vision 2030, we achieved more than 60% of our annual profit growth target before the peak demand season while continuing to make investments towards sustainable growth as planned. Also, as we explained at the beginning of today's presentation, this marks the first time in 8 years that we have posted a net profit for the first half. Given that we generate majority of our profit in the third quarter, we view this as a very encouraging result. The solid growth foundation we have built to date, along with our ability to execute strategies aimed at improving profitability, have served as the driving forces behind our strong business performance and earnings growth even in this environment, reinforcing our conviction that our strategic direction is the right one. The key initiatives we have steadily advanced through the first half are all poised to drive future profit growth. And in the second half, we will ensure we fully reap the benefits of these efforts. Furthermore, while the share buyback announced this time amounts to JPY 40 billion, which is an increase of JPY 10 billion from the previous program, I would like to reiterate that accelerating the pace of shareholder returns reflects our confidence in our performance to date and our future profit growth. As we enter the second half, our top line revenue is progressing as planned, and we have gotten off to a good start during the peak demand season. We remain firmly committed to improving our business performance, and we will achieve this year's business income target of JPY 35 billion. As the first year of Vision 2030, we will make significant strides toward achieving our ambitious mid- to long-term targets. Throughout the year, we will deliver substantial results in both business performance and shareholder returns, thereby embodying the further enhancement of shareholder value outlined in Vision 2030. That concludes today's presentation. Thank you for your attention. Now we will move on to the Q&A session. Gomi-san, please.

Thank you. This Q&A session is intended for analysts and investors. Members of the media 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 one question at a time. We will now begin the Q&A session. Operator, please proceed.

[Operator Instructions] We have received request for questions, and we would like to begin the Q&A session. [Operator Instructions] From UBS Securities, this is Ihara-san.

I am Ihara from UBS Securities. So I have 2 questions. My first question is, you are buying back your shares, not JPY 30 billion, but you have announced JPY 40 billion, and we would like to once again hear about the background of it being JPY 40 billion. I know that you have a strong commitment here. But in 5 years, it's going to be JPY 150 billion, and that has not changed. And looking at your cash generation capability for the first half, it seems that it is the same. It's not growing. So this JPY 40 billion, why did you announce this number with an increase? And in 5 years, you're saying that it's JPY 150 billion. Is there a plan to make this number even larger for 2030? I would like to know about that as well. That's my first question.

Well, Ihara-san, thank you very much. This is regarding the buyback of shares. Bjorn-san would like to answer this question.

Thank you, Ihara-san. So yes, correct. We have issued an acceleration of our share buybacks of JPY 40 billion for this tranche while retaining the JPY 150 billion target in our Vision 2030. And the background is very, very straightforward. You heard us say multiple times in the prepared remarks, our first half of 2026, our first 6 months, therefore, of the Vision 2030 is very strong. We have delivered organic growth. We have delivered top line growth. And you see profit delivery in all our business units, which we believe is a strong statement towards our commitment in delivering our Vision 2030 objectives. So yes, we are accelerating now on the backbone of that good performance, and we remain fully committed based on our free cash flow deliverables to continue buying back stock. There is no plan at the present moment to adjust the JPY 150 billion. So we are seeing this as an acceleration based on the good results for this year.

I see. So as now, you don't have a plan to change JPY 150 billion, but is there a possibility to change that JPY 150 billion if the path in the future might be different? Should I understand in that way?

As I said, we have made no determination of changing the cumulative target for now. But of course, everything will be evaluated as the performance continues to deliver.

I see. Then moving on to my second question. So once again, I want to hear about next year. In your mid-term plan, you have JPY 45 billion to JPY 50 billion for the business income. Is there no change in that? And if that is the case, that means that you need to increase the profitability by JPY 10 billion to JPY 15 billion. In 2027, what is your understanding on cost as well? So how are you going to jump up to those numbers? And what is the background for you to be confident to achieve the numbers?

Thank you, Ihara-san, for your question. So you want to ask about the BI for the next term. So again, we'd like to ask Bjorn-san to answer.

Thank you, Ihara-san. First and foremost, we're in 2026. So our first protocol is to deliver this year, as you heard several statements of commitment in the prepared remarks. For 2027, yes, you rightly say, we need to deliver JPY 45 billion, JPY 50 billion, and we remain very committed to deliver that. And this is based on, again, having a very sound strategy in our Vision '30 plans. We have clear deliverables for our 3 business units. We have clear cost-saving targets. And we will also look at inflation, as you all see coming into Japan from external sources as one of the reasons to continue also evaluating price increases and further cost optimizations. So yes, there will always be changes in the operating environment as we execute our strategy plan, but we believe strong strategies, clear focus and the ability to action items like pricing and cost savings will make it very deliverable also for 2027.

I see. So I know that might be difficult to make a comment right now. But what is your assumption on the cost next year? Any assumptions?

I'm not going to comment to...

Go ahead.

Sorry, was somebody speaking? Yes? No. So we will come back in the normal process, Ihara-san, with our 2027 targets in our February disclosure. But of course, as I said earlier, we remain very committed to delivering it and cost increases will happen as they do in the normal course of running a business. And that's why it's very important that we stay committed to our pricing initiatives that you also saw commented on in the prepared remarks. But we will come back with more details on that in February. Thank you.

Next person is Morita-san from Nomura Securities.

One point, I would like to look at the inventory. I believe that your inventory asset has increased by about 25%. So can you tell us about it? Is it because of the impact coming from the bad weather in June?

Your question is about the inventory level. It seems that it's rising up. So maybe Bjorn-san, can you answer to this question?

First and foremost, Morita-san, stepping back a little bit and looking at the last 3, 4 years, you have seen a tremendous evolution in what we call S&OP, sales and operational planning, where we have captured all opportunities for sales in the market coming through the different heat periods, et cetera. And in normal course of business, we will always build inventory in -- a little bit in Q1, but mostly in Q2, again, anticipating our Q3 main peak season. So that's all within the normal course of business. And we are updating our sales and operational planning, in other words, matching demand and supply, therefore, through inventory adjustments on a daily and weekly business. And we are launching new products continuously to meet demand. On top of that, we are also, as you heard in the prepared remarks and in prior announcements, introducing the IDCs, the Integrated Distribution Centers, which also impacts inventory. So all of that comes together in quarterly year-on-year ups and downs, but this is all in the course of normal business. Some bad weather will, of course, impact inventory. But overall, the sales and operational planning is working very well.

The second question is about the OTC situation. From April to June, in these 3 months, the market share in OTC has been declined pretty big, I guess. So what's the background to this sharp drop? And also why is -- are you looking more on the strategy of getting the margin than the share? Is that the kind of shift in your strategy? I would like to understand any shift in your strategy in OTC or if there is any plan to change your strategy in OTC?

Thank you, Morita-san. Your question is about the trend in OTC share. So Alex, would you like to take this question, please?

Morita-san, this is Alex. Just to probably give a little bit of color on the share in OTC, particularly in the second quarter. Probably what you're reading is -- let me unpack a few dynamics of interest. On the one hand, you -- particularly in the month of June, we saw a significant decline in enhanced hydration category, which typically where we have a high share. So what you're seeing here is a reflect of the negative impact that the decline on this category, high share category because of external factors, it's impacting the overall share. So that's probably one of the most significant impacts that is, again, out of our control. What I can also share is there's no fundamental change on our stance of expanding our value share in the market and outpacing the market. We have been very disciplined against this. We are implementing a very disciplined revenue growth management strategy with a focus of expanding profitable and sustainable value share. So what you're seeing as well on the back of this, we're reflecting the price increases, particularly in green tea. So evidently, there is a natural impact as not all industry players follow that in the short term, you will see an impact on particularly green tea share. Nonetheless, we have been able to manage our portfolio in a proactive way with the rest of the non-sweetened tea portfolio such as Yakan no Mugicha, Sokenbicha and helping offset as well as some of the exclusive portfolio in the OTC channel. So we -- back to your -- the genesis of your question, there's no change in our stance of expanding market share. We want to make sure that our share expansion is sustainable. So we are activating in a very proactive way our full revenue growth margin expansion algorithm.

Next, we have Furuta-san from SMBC.

This is Furuta from SMBC. I have one question about price increase. So you announced the September wave already, but the timing is different maker by maker. And what are the pricing benefits you can expect because the industry's price increase timings are varied? So do you think that you can really realize the expected benefit from September price increase?

Alex-san, please take this question.

Furuta-san, Alex here. We're very confident on our ability to implement very disciplined price increases. We are -- I think we have stayed committed and we have always walked the talk around our stand of shaping healthier industry economics. And we are progressing very smoothly against this price increase in September. So we are very confident in our ability to work with our customers and implement in due course.

But I think that this benefit from the September price increase will totally offset the expected cost increase in the next year. So you said that about JPY 3 billion, JPY 4 billion cost impact. So you mentioned that 2027 cost increase expected and whether this September price increase can offset that impact?

Bjorn-san, please take this question.

As we said, Furuta-san, in the prepared remarks, we are very committed to taking price in the market. But we also said, as you heard, pricing is one of the options we have to mitigate inflation and over time also grow our business sustainably. So in our toolbox, so to speak, pricing is one. Transformations, cost savings is another one. Capital management is a third one. And we are, as management, using the full toolbox to manage this implication. So pricing is top of mind, but there are also other actions we are taking as a company to again manage the deliverables. Thank you.

Miyake-san from Morgan Stanley MUFG.

Miyake speaking. I have 2 questions. I'm sorry, but at the beginning, I was late to join the call. So if we already -- if you ask -- if I ask a question that you already explained, I'm sorry. But for the first half results, the business income to the initial plan, what was the progress compared to the initial plan in terms of your first half business income?

Miyake-san, thank you for your question. The first half business impact evaluation, Bjorn-san, would answer this question.

Thank you, Miyake-san. Our first half business income of an increase -- sorry, of JPY 6.6 billion is in line with our plan. Volume was probably a little bit ahead of plan. But overall, we have delivered according to plan by the 3 business units, which, of course, we're very pleased with. Thank you.