Coca-Cola Bottlers Japan Holdings Inc.

Good evening. This is Gomi, Head of Investor Relations for Coca-Cola Bottlers Japan Holdings.

Thank you for joining us today for our third quarter 2025 earnings presentation for analysts and investors. Today, we have our President, Calin Dragan; and CFO, Bjorn Ulgenes.

We are also joined by Executive Officer and President of the Retail Company, Alex Gonzalez; Executive Officer, President of the Food Service Company and Chief Business Strategy Officer, Maki Kado; Executive Officer, Chief Supply Chain Officer and Chief Sustainability Officer, Andrew Ferrett. Following prepared remarks, we will be happy to take questions.

Simultaneous interpretation is both -- in both Japanese and English is being provided for both today's call and the Q&A. Before we begin, let me remind you that today's presentation contains forward-looking statements and should be considered together with cautionary statements contained in our presentation.

With that, I'd like to turn the call over to Calin Dragan, Calin-san, please.

Good evening, everyone. This is Calin Dragan.

And thank you for joining our earnings call. Before I share details of our financial results, this time, we are announcing earnings about 1 week earlier than before and compared to any other major company in the domestic beverage industry.

This progress reflects our efforts to standardize and streamline our operations through process reengineering and digitalization. It shows that our transformation initiatives are delivering positive results in this area as well.

Now, let's move on to the financial results. First, I would like to explain the positive trend in our current performance improvement.

Please turn to Slide 3. Over the past 4 years, we achieved a robust increase in business income of JPY 39 billion.

We highly value this and are very satisfied with this trend of profit growth. Now looking back in 2021 under the severe business environment, our business income was at a loss of approximately JPY 15 billion.

Since then, we focused on profitability-driven commercial activities and transformation of our business, achieving significant results and remarkable performance improvement. Regarding price revisions, one measure for improving our profitability, we have implemented 8 revisions since 2022, driven by our strong commitment to enhancing profitability.

And as a result, this year's business income is expected to reach JPY 24 billion following this upward revision. This JPY 24 billion business income includes the impact of significant cost increases due to external factors not in our control, such as ForEx and commodities.

If would be to exclude this impact, the adjusted business income would exceed JPY 50 billion, reaching the highest level in the history of our company. Overall, business restructuring has led to this very strong performance.

We achieved this business growth together with our customers and partners. In our customer survey satisfaction survey conducted by Advantage, we are recognized as the most highly valued partner within the consumer goods industry and the domestic beverage industry, which includes many local and global companies.

This demonstrates that we have built a solid growth foundation and a great partnership. Our achievement of improved performance based on this robust growth foundation proves the correctness of our strategic direction and gives us great confidence in achieving our upcoming strategic business plan, Vision 2030.

Slide 4 details the largest shareholder return program in our company history announced in Vision 2030. Alongside ambitious growth in business income, we plan to significantly accelerate the pace of expanding shareholder returns in line with our Vision 2030.

The JPY 150 billion planned for share buybacks announced in Vision 2030 represents approximately 35% of our market capitalization. We are pleased to note that, this represents one of the largest buyback amounts relative to market capitalization in the Japan market.

Our company has thus created a positive cycle linking improved performance with enhanced shareholder returns, and this announcement is consistent with that approach. Now, let's turn to today's highlights.

Please take a look at Slide 5. I'm very pleased to share another set of strong results with you all.

This year, third quarter delivered financial results that demonstrate the steady success of our ongoing initiatives. The third quarter year-to-date business income reached JPY 24.5 billion, 1.7x higher than last year, exceeding the plan that had been revised upwards in August.

This strong performance was the solid result of profitability-focused commercial activities and cost savings achieved through transformation and other measures during the peak demand third quarter delivering above plan. Sales volume also stayed strong in the third quarter, exceeding the growth rate of the overall market.

So based on this strong performance, we have decided to further raise our full year business income forecast once again. We are now targeting JPY 24 billion in business income for the full year.

This is double of the last year results and 20% above our original plan. Along with this upward revision, we are enhancing shareholder returns in line with our shareholder value enhancement policy outlined in Vision 2030.

Further details will be provided later, but as part of the initiatives, we will implement the cancellation of treasury shares equivalent to 6.5% of the total share issues and increase the year-on-year dividend by 10% compared to the initial plan. Additionally, as previously announced, we will continue to share buyback program starting in November, targeting JPY 30 billion to further enhance shareholder value.

Now, our CFO, Bjorn Ulgenes, will walk you through our financial results in more details.

Thank you, Calin. Good evening, everyone.

This is Bjorn. Slide 7 shows the P&L statement for the third quarter year-to-date.

Revenue continued to grow and business income gained momentum, resulting in a larger profit increase. Revenue increased by 1% year-on-year.

This was driven by higher wholesale revenue per case of the price revisions despite lower sales volume and weaker channel mix. Gross profit increased by JPY 2.4 billion year-on-year, driven by the benefit of price revisions despite being affected by deteriorating channel mix and rising costs due to external factors.

Business income rose by JPY 9.8 billion year-on-year, driven by higher revenues and cost savings from our transformation initiatives. The third quarter profit increase was the largest among the year's quarters, accelerating the trend of quarterly profit growth.

The next slide explains the main factors behind this change in business income. Operating income and net income decreased year-on-year due to the recording of an impairment loss of JPY 88.1 billion in the vending business during the second quarter, as previously explained.

Now please turn to Slide 8 for factors behind the change in business income. Starting from the left, we can see the impact of volume, price and mix.

These reflect changes in marginal profit from our commercial activities, contributing a positive JPY 6.9 billion year-on-year. The main factors were a negative impact of JPY 6.3 billion from volume, including channel mix and a positive impact of JPY 15.1 billion from unit price and a negative impact of JPY 1.9 billion from other factors.

Although, lower volume and an unfavorable channel mix affected results due to changing consumption trends, improved wholesale revenue per case from price revisions made a strong positive contribution. Transformation benefits totaled JPY 4.6 billion.

This is mainly driven by strong results from vending transformation and improved efficiency in our supply chain network. In particular, the vending transformation is progressing ahead of our original plan.

Marketing expenses increased by JPY 1.2 billion compared to the previous year. This increase reflected strengthening activities in the third quarter to capture peak season demand and secure shelf space ahead of price revisions in October.

However, spending remained below the initial plan, thanks to careful investments based on return on investments and market conditions. Manufacturing costs fell by JPY 1.7 billion compared to the previous year.

This was the result of cost-saving measures implemented at our production sites and through more efficient procurement processes. Other costs increased by JPY 700 million year-on-year.

This was mainly due to higher outsource fees, logistics costs and vehicle and facility expenses despite reduced personnel costs. This figure also reflects special factors, including lower depreciation expenses following the impairment loss of the vending business.

Commodity and utility costs increased by JPY 1.5 billion. Market conditions and exchange rate impacts accounted for JPY 1.4 billion of this increase, while higher energy costs added a further JPY 100 million.

Next is Slide 9, outlining sales volume performance by channel and category. Third quarter year-to-date sales volume was impacted by past price revisions.

The cycling impact of last year's strong Ayataka renewal and the temporary surge in demand following the Nankai Trough emergency notice. However, contributions from strengthening core categories, expanded sales force base and effective marketing helped limit the decline to 1%, outperforming the overall market.

Wholesale revenue per case achieved a double-digit yen improvement year-on-year across all channels, reflecting the impact of price revisions. Supermarket sales volume decreased by 4%, primarily due to lower volumes of tea beverages and large PET water bottles, influenced by price changes and the cycling of last year's performance.

At drugstores and discounters, growth in medium-sized PET coffee bottles helped limit the volume decline to 1%. At convenience stores, volume decreased by 5%, but profit rose, thanks to a profit-focused strategy that included optimization of promotions.

In vending, market conditions remain tough with volume down 5%. However, price revisions continue to have a positive impact, improving wholesale revenue per case by JPY 98.

In Retail and Foodservice, volume increased by 6%, supporting by new customer acquisitions and stronger sales in the sparkling category. Online volume grew by 17%, driven by growth in the tea category and the launch of channel exclusive products.

By category, Sparkling grew 3%, driven by contributions from Coca-Cola and Coca-Cola Zero. Tea volume held was flat year-on-year, supported by Ayataka's solid sales after last year's successful renewal and the strong performance of KochaKaden.

Sports drinks and water saw a decline due to factors, including price revisions and cycling of the Nankai Trough emergency notice. Coffee volume remained at last year's levels, supported by contributions from medium-sized PET bottles despite tough competition.

Slide 10 shows market share and retail price trends. Profitability focused sales activities helped us grow our value share and maintain price premiums.

Market share increased by 0.1 points in the total channel value share and by 0.4 points in volume share. We are very pleased that we achieved both higher volume share and positive value share growth even while implementing price revisions.

Vending volume share increased by 0.3 points even as the overall market continued to shrink. The strong growth in volume share compared to value share reflects the impact of product mix, while our wholesale revenue per case showing solid improvement, as mentioned earlier.

In the OTC channel, share declined due to lower volume and changes in channel and package mix. However, profitability is improving steadily here as well, supported by higher wholesale revenue per case.

Our retail prices maintained a premium relative to the industry average. We have applied price revisions with discipline and retail prices for both small and large PET bottles have improved compared to last year.

Now on the next slide, Alex will explain the status of our commercial activities. Alex, over to you.

Good evening. This is Alex.

Slide 12 covers the status of our commercial activities. In the third quarter, we continued to execute our profitability-focused commercial strategy while also building a stronger foundation for future growth.

We are proud that our sales volume outperformed the overall market growth rate during the third quarter peak demand period while focusing on profitability. Our targeted summer sales initiatives helped boost volume.

By focusing on our core categories and leveraging marketing that connected with drinking occasions, along with effective digital promotions, we maximize in-store exposure. We also offset last year's cycling effect of the Ayataka renewal by introducing new products like Ayataka Koi Ryokucha was a key point.

In addition, we expanded sales opportunities by rolling out packaging tailored to consumer needs and by executing growth strategies aligned with each channel, supported volumes. Our efforts to build a foundation for further profit growth also moved forward steadily.

Price revisions, which are key to profit growth are progressing smoothly. We're maintaining improved shipment prices achieved through previous revisions, and these are contributing to improved profitability as planned.

We have also been preparing for the price revisions that began in October. Looking ahead, we aim to implement further price revisions for our green cheese products, market suggested retail price by up to JPY 20 per bottle by the first quarter of next year.

Tea leaf prices have continued to rise since the second half of this year and expected to reach a level of 3 to 5x from last year. We expect this trend to significantly impact the entire industry.

We see this action as a necessary response to cost increases within the Coca-Cola system. From the perspective of both growth investment and cost control, we made appropriate marketing investments during the third quarter peak season while keeping annual sales promotions expenses below plan.

We also focus on strengthening our growth foundation through customer engagement and vending transformation, further reinforcing the foundation for future expansion. As Calin explained earlier, our commercial capabilities are highly valued by our customers and represent a key strength of our company.

Moving forward, we will continue to enhance our market execution capabilities on this solid foundation of engagement and pursue further growth. Slide 13 covers our third quarter marketing activities.

To strengthen our core brand, we launched the CoChiLu campaign, encouraging consumers to enjoy Coca-Cola wood chicken through joint promotions that lever our strong partnership with McDonald's. We also partnered with Star Wars, releasing limited edition products and boosting in-store visibility using the campaign as a hook to successfully attract a wide range of consumers.

As for new products, we introduced FANTA Amazuppai Lemon and brought FANTA Fruit Punch, an iconic FANTA flavor from the 1980s and 1990s for a limited time to strengthen the sparkling beverage category. As part of our experiential marketing, we ran a campaign where customers could enter a code found inside their bottle cap for a chance to win tickets to Coca-Cola X Fes 2025.

We also rolled out vending machines across Japan set 2 degrees colder than usual to capture demand during the intense summer heat. Next is highlights of our fourth quarter marketing activities.

Coca-Cola launched its winter campaign in October, featuring promotions with exclusive Coca-Cola gifts to boost brand engagement. Georgia will also run gift campaigns, including invitations to live concerts by our brand ambassador, Adam.

As for new products, this month, we have launched Kochakaden CRAFTEA Grape mix tea from the popular Kochakaden series. In November, we will release FANTA Golden Apple, a flavor loved across generations and highly requested by consumers.

As part of our experiential marketing, we will partner with Japan's national baseball team, Samurai Japan for a campaign on the Coke ON app. Users will have the chance to win tickets to the WBSC Premier 12 tournament as well as original Samurai Japan merchandise.

Additionally, for the consistently strong Ayataka brand, we will also launch a winter campaign to further boost engagement and sales. Now for the further future outlook, I'll hand back to Bjorn.

Thank you, Alex. This is Bjorn again.

From here, we will cover the revised full year earnings forecast for 2025 and the expansion of shareholder returns. So please turn to slide 16.

This is our second upward revision of the full year earnings forecast this year. Business income has been revised upward once again, showing robust progress in our core performance.

This revision reflects the fact that year-to-date business income exceeded the plan, supported by profitability-focused commercial activities and transformation benefits. As a result, we are raising the full year business income target to JPY 24 billion, which is 20% above the initial plan and double the previous year's figure.

Regarding sales volume and revenue, the previous revision was made prior to the peak demand period, and so detailed updates were not provided. This time, we are revising our plans based on the latest market conditions.

In the fourth quarter, we will focus on achieving the revised full year business income target of JPY 24 billion, while continuing to strengthen our foundation for profit growth beyond 2026. This includes implementing price revisions in October, making mid- to long-term marketing investments and driving further transformation.

As Alex mentioned, we are also preparing additional price revision for green tea products in the first quarter of 2026. Our October sales volume showed mid-single-digit growth, maintaining a strong trend.

We will leverage this momentum to achieve our full year business income target of JPY 24 billion. Slide 17 shows the revised full year 2025 profit and loss plan following the upward revision.

Full year revenue is now projected at JPY 887.9 billion, a 0.5% decrease year-on-year. While we expect the positive effects of price revisions as planned, revenue will be impacted by volume declines and channel mix.

Reflecting the current market environment, sales volumes is expected to decrease by 1.4% year-on-year. Full year business income is targeted at JPY 24 billion, double the previous year's figures, driven by profitability-focused commercial activities and transformation benefits.

This represents an even more ambitious target and is a JPY 4 billion upward revision from the initial plan. Key factors affecting business income will be explained on the next slide.

The main factors contributing to lower operating income and net income remain largely the same as in the previous revision, such as the impairment loss of the vending business recorded in the second quarter. However, this time, we have newly factored in the additional impact from the revised timing on fixed asset sales.

Slide 18 explains the factors behind the change in business income under the revised plan. For the fiscal year 2025, we are targeting a significant increase of JPY 12 billion in business income compared to last year.

This growth will be driven by profitability-focused commercial activities and cost savings from transformation. On the left side, under volume price/mix, we expect a positive impact of JPY 8.7 billion, driven by increased profit from improved wholesale revenue per case following price revisions.

This also reflects the impact of volume declines and channel mix trends in the current market environment. Transformation-led cost savings aim to contribute JPY 6.7 billion to profit.

Transformation benefits have exceeded expectations and initiatives in other areas are also progressing smoothly. This represents an additional JPY 1.5 billion benefit compared to the initial plan.

Marketing expenses are expected to rise by JPY 800 million as we optimize spending in line with marketing market conditions. However, this still represents an improvement of JPY 3.7 billion compared to the initial plan.

Manufacturing efficiency has progressed beyond expectations. Cost-saving measures at our manufacturing sites and in procurement are delivering results, contributing JPY 1.3 billion in profit.

Other costs are projected to increase by JPY 2.6 billion as we continue to make strategic investments for future profit growth. This figure also includes factors such as the approximate JPY 5 billion reduction in depreciation expenses from the vending business impairment in the second quarter and the profit impact associated with changes in Coca-Cola Japan's marketing methods.

Commodity and utility costs are expected to worsen by JPY 1.3 billion due to the impact of higher raw material prices. These are the main factors affecting business income in the revised plan.

On the next slide, Maki will explain the expansion of shareholder returns. Maki?

Hello. This is Maki Kado.

Please turn to Slide 19. From here, I will provide the explanations.

Along with the upward revision of our full year earnings forecast, we have also decided to enhance shareholder returns in line with the shareholder value enhancement policy outlined in Vision 2030. As new additional measures, we are announcing the cancellation of treasury shares and an upward revision of the dividend forecast.

First, regarding the cancellation of treasury shares, we will cancel 12 million shares in November, equivalent to 6.5% of total shares outstanding. This represents nearly all of the treasury stock acquired over the past year.

We believe that appropriately canceling treasury shares is an important action that enhances shareholder value. While our Vision 2030 plan calls for cumulative share buyback totaling JPY 150 billion, we will continue to cancel acquired treasury shares at appropriate times going forward.

Next, regarding the upward revision of dividend forecast, we have raised the year-end dividend per share by 10% from the initial plan, revising the full year dividend forecast for 2025 to JPY 60 per share, representing a JPY 7 increase from last year. We will also continue our share buyback program.

The JPY 30 billion share buyback announced last November was completed yesterday as planned and another JPY 30 billion buyback will begin this November. By implementing this comprehensive shareholder return program, we aim to further enhance shareholder value.

Regarding shareholder returns, over the past 2 years, we have significantly accelerated efforts to strengthen shareholder returns. This includes our comprehensive shareholder returns announced in November last year and our largest ever shareholder return program included in Vision 2030 this August.

We see it as a major achievement that improved performance and has enabled us to expand shareholder returns, creating a positive cycle. We will continue to build on this positive momentum going forward.

Finally, let me summarize today's presentation. Please turn to Slide 20.

This year, we have pursued both profit growth and strengthening foundations for sustainable profit growth, positioning the year as a year to achieve both profit growth and strengthening foundation. I am very pleased to share this strong update with you today.

We have achieved business income growth that exceeded the upward revision announced in August. As a result, we are announcing our second upward revision of the business income plan this year.

Furthermore, we have decided to enhance shareholder returns based on these improved results. I firmly believe this success reflects our ongoing profit focused activities even in a challenging environment and our commitment to the shareholder value enhancement policy outlined in Vision 2030.

We will maintain this positive momentum through the fourth quarter and beyond, working to achieve our full year business income target of JPY 24 billion, double of last year's result. At the same time, we will diligently strengthen our foundation for future growth, including preparations for further price revisions on green tea products to ensure a strong start in 2026.

Next year marks the launch of our ambitious Vision 2030. Building on our solid business momentum and strong track record, we will continue to commit to further improvement performance and expand shareholder returns.

We will also keep driving our key initiatives with a mid- to long-term perspective. This concludes today's presentation.

Thank you very much for your attention. With that, I will hand it over to Gomi-san for the Q&A session.

Thank you, Kado-san. This Q&A session is for analysts and investors.

For members of the media, please refrain from asking questions as this time as we will have a separate session later today. Due to interpretation please ask only 1 question at a time.

Now, I would like to start the Q&A session. Operator, please begin.

[Interpreted] This is Ihara from UBS Securities. I have 2 questions I would like to ask.

First question is about the third quarter performance. I want to know more details.

So, I thought the profitability, you might be struggling a bit more -- a little bit more. So, I was really surprised for the really strong performance.

Looking at the third quarter, it seems that the volume is negative for the third quarter actually. And if you go into the details, the manufacturing cost, maybe that is really showing a strong impact.

So, what is the background of seeing a drop in the manufacturing cost because it seems that, that is one of the drivers for the good Q3 performance.

Thank you Ihara-san. So, the third quarter profit, you thought that it will be very tough, but it actually seems that we're enjoying lots of profit in the manufacturing side.

And what is the background? So Bjorn-san, would you like to answer this question?

Thank you, Ihara-san, for the question. We are, as you heard from the prepared remarks, extremely pleased with the Q3 performance, where we are, as we also heard, outperforming the market.

And when it comes to the details behind it, I think it's very important to see we had -- if you look at the waterfall that we provided, we have a very balanced and I think very strong performance delivery across all the levers of the business. First and foremost, we're growing commercial profits, which is important.

We continue to drive transformation savings in the business, again, pushing -- changing how we work and investing in future digitization. You also mentioned the manufacturing cost, which, of course, helps, which also includes procurement benefits that we have implemented in the quarter, and also how we utilize utilities, for instance, inside manufacturing.

So overall, very pleased with the quarter and the overall performance of our profit delivery.

[Interpreted] And I want to focus on the manufacturing cost actually. More details there will be helpful.

So looking at the full year number, the manufacturing cost reduction, there was a certain number. But is this like a onetime thing?

Or are you going to expect more savings in the manufacturing area next fiscal year?

So Ihara-san, thank you very much for the additional question. So, you are wondering about Q4.

And if you calculate backwards from the full year number, it seems that Q4 will be a little bit shy in the numbers. So, you're wondering about the background for that.

Bjorn-san, do you want to answer again?

Thank you, Ihara-san. Bjorn again.

Manufacturing cost, remember, is a function of several things. One is the volume that supply chain is producing and putting through our network.

And secondly, you have the impacts of how they utilize the resources, as I said earlier, for instance, water and energy. And then you have the procurement part.

So you always see variations in manufacturing costs going up and down basically daily, weekly, monthly and quarterly. However, when it comes to transformations, the supply chain is really pushing forward.

And as you heard in my earlier parts of the prepared remarks, supply chain is the second driver of our transformation savings year-to-date, and it will continue to be so as we go into the future. So we're very pleased, as we said earlier, with the transformation efforts, you will see these continue to flow through into the P&L, including manufacturing, but also vending and back office as we have talked about earlier.

So, thank you for that.

[Interpreted] So, if I could move on to my second question. So, the price revision from October, I want to know more details.

So, in the third quarter, looking at the revenue per case compared to the second quarter, I think the impact is smaller. In the fourth quarter, looking at your plan, the revenue per case, it seems that it's getting deteriorated by like 3% or so.

You mentioned that you have mid-single-digit growth in October, but I'm not really sure if that is the case. So, I'm just wondering what is going to be the situation after October after you fully kick in the price revision?

Well, thank you very much. So, we have revised the price from October.

So, I would like Alex-san to provide a little bit more detail on that.

This is Alex. First and foremost, I think it's clear, we evaluate the series of price revisions positively overall contributing to profitability.

The price revisions are being implemented as scheduled starting October 1. It's too early to evaluate as they have been implemented.

I think it's important we're strategically raising the shipment prices in consideration of the market conditions with implementation expected to be mostly completed within this year. I think also just want to reiterate what I also said in the prepared remarks, looking ahead, we aim to implement additional price increases of up to JPY 20 per bottle for green tea as by the first quarter of 2026.

The increasing costs are putting pressure on the beverage industry, make it urgently for the industry to secure profitability. And this decision to implement additional price revisions proves again that we at CCBI, we walk the talk, and we lead the industry towards more rational pricing in order to shape healthier industry dynamics.

Operator, we would like to move on to the next question.

[Interpreted] This is Morita from Nomura Securities. I have 2 questions.

First is about the tea leaves costs. So, with regard to this cost increase, is this more to do with the lower cost that CCJC should bear?

Am I understanding it right? Because if the inflation happens for the tea leaves, it means that the cost is going up as in like you are going to pay more to the CCJC -- or are you paying more to the outsiders?

Thank you, Morita-san, for your question. If we see further increase in tea leaves cost, I would like to ask Bjorn-san to take this question.

Thank you, Morita-san. So first and foremost, yes, we're seeing market movements in the cost of green tea leaves, which are quite significant.

And you also heard Alex and Maki in the prepared remarks underscoring the opportunity for the industry to take price across as we have done now in October, and also for specifically the green tea business. So we believe this is something that's going to hit the industry overall.

And again, it's a great opportunity to again look at pricing. we're not seeing any changes in the incidence model you're referring to with CCJC.

But as, of course, we take up price in the market, a percentage of that will naturally go to CCJC. But overall, very confident with the price increases we're pulling through and looking forward to see it happening in the marketplace.

[Interpreted] So going forward, do you -- are you -- is there any potential that you will see this incidence-based model will change over time?

Thank you for your question. Your question is, is there any possibility that the CCJC will revise the pricing for the incidence pricing model?

So Bjorn-san, would you like to answer this question?

Thank you, Morita-san. There is no indications of anything like that happening.

We are on an incidence-based pricing model with the Coca-Cola Company as we have spoken about many times, and we do not expect any changes to that. So, the answer is no.

[Interpreted] So, my second question is, so you are going to stock up JPY 1 billion on the BI, so it's wonderful. So, I was just understanding that SG&A is going to be reduced by JPY 18.1 billion.

So, when it comes to this reduction of JPY 18.1 billion in SG&A, what is the factors behind it?

Thank you, Morita-san, for your question. So, within our revision on the BI, your question is how we reduce the SG&A to the tune of 18.8%.

Bjorn-san, would you like to answer this question, please?

Thank you, Morita-san. In our P&L management, first and foremost, very happy again to report the second increase in our profit target for this year.

When you look at the overall SG&A for our business, I think it's very important to look at it from many angles. One, we continue the transformation efforts across the board in our business.

I mentioned that both in the prepared remarks and in the prior question from Ihara-san. That is impacting everything that we do in this business, as we said, across the 3 business units and in the functions that I referred to.

Secondly, we are also doing heavy cost control, again, across the business units and the different functions. And overall, by doing that, we are able to deliver good cost trajectories while we improve the commercial profit in our business.

Therefore, we're able to deliver the strong results you saw in Q3. and we continue or plan to continue that into the full year.

Thank you.

[Interpreted] So what are the breakdown? Is this going to be a marketing or any other item?

So, what are the plan? And what are the planned items inside that reduction plan?

Thank you, Morita-san, for your follow-up question. So, your question is about the specific items that we are looking to reduce the cost.

So Bjorn-san, would you like to follow up, please?

Thank you, Morita-san. There's many elements coming into it.

And I think you will appreciate that I can't give you all of the details there in our management accounts. But think of it as overall in the enterprise, as I said earlier, we're cutting back and using return on investments, as we said earlier, as a measure for all our spend.

Secondly, as I said, we're focusing on optimization. That includes people costs, for instance, and other budgetary elements.

We also have the effect of the depreciation that is reduced from the vending impairment. You remember, we posted in Q2 and overall, a very, very strong budget and cost control regime that we have in the company.

So overall, that gives us a very good trajectory on the cost management side.

Thank you very much, Morita-san. Operator, proceed with the next question.

[Interpreted] This is Miyake from Morgan Stanley. And may be overlapping with the previous questions, but let me ask my question.

Up to Q3, BI progress Q3 YTD versus your initial plan, how you can compare? How much is the upside compared to the initial plan?

And when you announced your first half results, -- from the initial plan, you said that most of the items in your financial reporting are almost in line with the initial plan. That's what you said at the end of Q2.

But you mentioned the effect from vending transformations and so on. So from Q2 to Q3, why you were able to accelerate the performance or how did you accelerate outperformance versus in Japan?

Thank you very much, Miyake-san, for your question. So as for the upward revision you announced this time from Q2 to Q3, how you were able to accelerate the change -- positive change?

That was the question. That led to the -- another upward revision.

Bjorn-san, please take this question.

Thank you, Miyake-san. So we are, as we said in the prepared remarks, extremely pleased with our Q3 performance.

And when we announced back, as you said, in Q2, our performance, we were still ahead of the -- or entering into our peak season, which is the summer period. During the summer period, as you can see from the Q3 performance and then as I also said earlier, we delivered a very, very balanced and strong profit improvement across all the levers that we can control in the business.

We had good commercial growth in the period, even though at certain points, there were some weather challenges, et cetera, and cycling of the Nankai Trough as of last year that you all remember. We continued the transformation.

We managed our marketing spend, and we also start flowing through, as you know, the impact of the depreciation of the vending and all the other cost measures we are doing. So therefore, we accelerated into Q3, which, as I said, we're very pleased with.

Thank you.

[Interpreted] And you mentioned the depreciation of lending business and the payment to the Coca-Cola Japan company are included in others. And you also mentioned the DME or depreciation.

So, what are the major changes from Q2 to Q3 that led to the upward revision this time?

Thank you for your additional questions. From Q2 to Q3, transformation, DME, what exactly have changed from Q2 to Q3?

Bjorn-san, please take this question.

Miyake-san, I'll probably repeat some of the items that I answered to your first question because they're very, very much linked. So, inside the cost part that I mentioned, leading to the excellent performance in Q3, we continued the transformation and accelerated it.

You saw that also flowing through very nicely in Q3 and the full year. We are also seeing other cost measures that I referenced earlier, both to Ihara-san, Morita-san and yourself, therefore, coming out of the strong cost control.

And overall, we're also seeing the benefits then, as I said, of the depreciation flowing through. So overall, that delivers very, very strong performance for the quarter.

I'm sorry -- if I may continue with a little bit of stressing a little bit more, if I may, on the tones of the questions today. I am Calin Dragan trying to add here, just a bit of nuance.

My colleagues here are trying to answer about almost any questions since the beginning of the call, all related to our performance. And I cannot say anything else other than we are extremely pleased with our performance over the quarter 3 and as well year-to-date.

But I'm -- as I said earlier, I'm a bit surprised about the tone of the questions that are coming. And it's referring to the start of -- and the reason why I put it at the beginning of the deck today, the first 2 slides and primarily the first slide, which reminds everyone the transformation and the swing in performance of this company.

By now, I was expecting that it is going to drive way more confidence in what we are doing. We are coming out of 9 or 10 quarters, successive quarters of overdelivering our performance.

we are producing a swing of almost JPY 40 billion in performance over 36 months or 40 months or so in total. And pretty much we were discussing in this -- in the meetings in the same forum here with all of us, meaning after 3 or 4 years of overdelivering quarter-over-quarter, meaning I'm a little bit surprised about the tone of the question and the misbelief in the performance.

So -- and I'm sorry to say that bluntly at this moment in time. I was thinking that by now, after we led about 8 wave of price increases and every time they were concerned, so is it going to be able to do another one?

Well, I always answer, I don't know, but we are going to drive it, and we drove it 8 times so far. and we always overdelivered.

What I'm trying to say here, I think it is a moment of a reset in evaluation of Coca-Cola Bottlers Japan performance. It is quarter-after-quarter delivery, leading industry in initiatives like digitalization, like transformation, cost savings, if you measure our cost savings in one company compared with the entire beverage industry, I think you would be really surprised about the outcomes that will come there.

If you measure our performance in terms of pricing in the market over the last years and the moments when we took price, I think you understand as well that we are leading the industry. And of course, in the circumstances on which we are operating exclusively in Japan, and we are not an integrated company like all the other players in the Japan industry.

I think the performance needs to be evaluated in a way more positive way and should be less surprised when Coca-Cola Bottlers Japan deliver performance, especially in a very big quarter like quarter 3. So the numbers that you are seeing are significant because we are generating a lot of our profitability in quarter 3 every year historically.

So that's why probably JPY 1 billion up or down shouldn't be that much of a surprise. I hope that I'm not going to shock you with my very bold statements today.

Apologize if I do that. And I'm very happy to take questions if something of what I said is not clear.

If everything is okay, I'm happy to continue to take questions and answers on topics that you might be interested in. Thank you so much.

[Interpreted] So as Coca-Cola Bottlers Japan, so you said that you were able to deliver a very strong result by Q3 YTD and you were able to deliver very strong profits even after price revision. So, I'd like to understand why or exactly why that is why we are repeating the similar question.

So, my second question is also referring to the price revisions. And you said that, you are thinking about the ninth wave by the end of Q1.

That why are you considering another price increase? And of course, other beverage companies are increasing their prices as well.

But -- when we look at other channels except from CVS or vending, I've observed your Ayataka prices are relatively lower priced than your suggested price. So, I understand that price revisions, if there is a justification is a good thing for the industry.

But it seems -- so I'd like to understand what is the right approach because when I look at the actual selling prices in the market, it may not be fully reflected. And what are the premises needed for another price hike?

As for the green tea price division, that was mentioned in the prepared remarks. So, what is the situation now?

Miyake-san, Alex here. Just probably repeating myself, price revisions, we see it as one of the key levers in driving overall contribution to profitable growth.

I think when you step back and look why price increases, the fact is the cost of doing business, the cost of commodities is -- we need to see the Japanese yen to the dollar exchange rate depreciation and with U.S. dollar-denominated commodities, it's natural that the cost, not only for CCBJI but for the industry in general is pressed for price increases to help offset commodities.

So, what we're doing here is we are essentially driving price increases to capture the value from the market and creating that value to consumers and customers. And that's what we will continue to be doing.

We are growing our consumer base -- we are delivering on our profitability targets sustained quarter-over-quarter. And we are working to continue to earn the right to price by creating and adding that value to consumers.

So that is at the essence of what we need to do to win in the long term in Japan.

[Interpreted] So, you continue to observe how the October Wave 8 will be responded or reacted in the market. So, you continue to look at the market reaction of Wave X and make the final decision about Wave 9, understood.

And our scheduled time has already passed, but we still have some people waiting in the queue. So, I'd like to put through the next question.

[Interpreted] So I would like to ask a question about the gross profit. For the third quarter, July to September, it's almost flat.

And accumulative is minus 0.3% drop and the gross profit rate is about JPY 200 billion increase. So mostly is the S&GA drop.

and the channel mix decline, I think this will continue for the future. But this gross profit improvement, how are you planning to improve the gross profit?

Cost inflation is continuing and the price hike or price revision is continuing, but the gross profit rate estimate for the future, I would like to ask your estimate for the gross profit.

Saji-san, thank you for your question. The plans for the future for the gross profit.

Bjorn-san like to answer this question.

Thank you for the question. Overall, remember for the Q3 that we delivered a very strong profit overall, including the commercial profit, which is, of course, heavily impacted by the gross profit.

Inside gross profit, there's many parts that we can influence directly when it comes to improvement. One is the element you heard us talking about at [ OCM ], which is pricing.

We are now executing our eighth price increase and the gross margins, of course, include the effects of the prior 7 ones. That is the major determinant.

The other parts that we are also impacting, again, the controllable elements is how we execute in the marketplace. And you have seen us running the business in 3 business units or 3 segments, which is a major ability to focus and deliver targeted activities to our customers and our consumers.

So therefore, how we balance the mix between the business units and the subchannels is also an important way to improve gross margin. Overall, you also have what we call revenue growth management, which is a very, very important part for any consumer goods company.

It includes pure pricing increases, but it's also about how you manage, for instance, terms and conditions with your customers. So overall, going forward, we will continue, just as you heard Calin mentioned earlier, we are continuing to drive price in the industry.

We are continuing to execute revenue growth management. We are continuing to have BU and channel-focused execution and brand programs, and we will continue the transformation.

So hopefully, that gives you some comfort how we will work on it. Thank you.

[Interpreted] So the mix improvement, you are going to -- the gross profit margin is going to be improved, and that is how we are paying attention to. And in the future, if you -- if we can confirm that in some of the opportunities, I'd like to know that.

Thank you for your question. Operator, please move on to the next question.

[Interpreted] This is Igarashi from Daiwa Securities. So, I would like to ask about the sales trend from October on.

I want to check once again actually. And from October, you have revised the price is executed.

And on the other hand, the sales has gone up as a downward revision. So, I'm just wondering about the sales like volume, et cetera, from October on.

So, the upside potential downside risk, which is going to be stronger in the fourth quarter? And are you going to invest strongly for the following year as well?

This is another question.

Well, thank you very much for the question. So, the sales trend after October is one of the questions.

So, I would like to ask Alex-san to answer, please.

Alex here, the October, although it's preliminary sales figures, October volumes is in the mid-single digits, although it's very preliminary, we have preliminary indications that we're outpacing the market, but we will continue to observe and monitor the trends as the retail prices in the market are materialized and we continue to increase our wholesale price in an agile and monitor and flex all the muscles behind our revenue growth management algorithm.

[Interpreted] In November and December, is it going to be negative? Is that your plan?

Well, thank you for the additional question. So, November and December, our volume, is it negative or not?

Alex-san, please?

At this point, the numbers that we have reflected in the guidance is our best estimate of what the quarter 4 figures will do, and we will continue to monitor the situation as it progresses.

And we would like to move on to the next question. Next question will be the last question.

[Interpreted] This is Sumoge speaking. I hope I'm audible.

Yes, you are. So please go ahead with your question.

[Interpreted] So, I would like to look into more to the midterm vision. So, you mentioned about like JPY 50 billion to JPY 55 billion as a target for 2028.

Sorry, you are very intermittent and sound. Can you repeat that?

[Interpreted] I would like to question about how your vision about the midterm plan. So, in 2028 target, you mentioned about like JPY 50 billion to JPY 55 billion, right?

So, every year, you have to stock up like JPY 10 billion and above. So, in the previous quarter, you mentioned about the business unit separation, right?

So, you have a vending, OTC and food service. And you mentioned about how you're going to execute separately in this segment.

But what is your vision in each segment? For example, OTC and foodservice, they have a high profitability.

So, are you going to hike the pricing there? Or are you going to improve the profitability in the vending because they have a lower profitability?

So, what would be the approach going forward in each segment in midterm? And maybe the projection of each profitability in 3 segments?

Thank you, Sumoge-san, for your question. Your question is about the growth trajectory and the forecast of our 3 segments going forward.

So, Bjorn, would you like to take this question, please?

Thank you, Sumoge-san. Very good, a more long-term question.

Very happy to answer that. First and foremost, we are very confident that we can deliver these targets, whether it's the 2028 that we revised up or the 2030.

And you can see that confidence coming through in the revisions we have done for this year. Going into more specifics of your question, yes, overall, the performance will be driven by, first, the 3 business units or segments as we also call them.

And secondly, they will be supported by transformation initiatives in supply chain and back office. If we take or step back, if you remember what we spoke about in our update in August, sorry, late July.

We said the different business units have different job tickets. So, OTC clearly will be delivering top line growth and profit growth, and that is by far our biggest channel and segment.

And the pricing you heard about in the prepared remarks and the comments by Alex earlier are paramount inside that. Foodservice remains a growth engine, both for top line and for profitability.

And you also heard in the prepared remarks that we're doing exceedingly well in this business unit, capturing new customers while driving profitability and pricing. Vending, the higher focus will be on profitability because as you also mentioned, the profitability or relative profitability there is lower than the other segments.

And overall, all of them coming back to my question about supply chain and back office will support through efficiency programs, digital programs, et cetera, to improve the overall profitability for the company. So that's why we're saying with confidence, we believe in our plan, and we're executing it right on the mark on how we envision it.

Thank you.

[Interpreted] With regard to the vending business, I would like to dig a little bit deeper here. I know the marginal profit is really high in here, but the -- I know the volumes are kind of struggling in here in this business segment, and you don't really expect it to jump so easily.

So, if the volume goes down, maybe you can think about the price hike or reducing the fixed costs to secure the profitability. But is that the kind of idea that you have with the vending business right now?

Thank you for the follow-up question. So, your question is about more detail about the vending business.

So, we have a high GP in vending business, but what are our forecast on how we are going to generate the profit in vending business. So Bjorn, would you like to take this question, please?

Love to take it. Thank you, Sumoge-san.

You kind of answered your question. So, I'll try to just say it a little bit different words.

Yes, the marginal profit is the highest in vending, but also it has the highest operating cost given the nature of this retail business. So, when it comes to balancing volume and profitable growth, we will balance definitely how we execute in vending, which you have heard about in earlier investment calls, we have said we're getting more and more data-driven.

It's a key element on how we're going to improve vending performance overall and by machine. We are also focusing a lot on operating efficiencies in vending, again, with the nature of the retail business.

And pricing, as you also mentioned, will, of course, play a part in that retail landscape. So, in the end, you summarized it well.

It's a balance of initiatives that we are in control of that we will execute across the board for vending. So, looking forward to the next steps.

Thank you.

Thank you , Sumoge-san for your question. Sorry for running over time.

I would like to now close the Q&A session for today. So, today's materials will be posted on our website.

So, if there is any follow-up question that you would like to ask, please get in touch with the IR team. 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.]