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Edited Transcript of 2587.T earnings conference call or presentation 28-Apr-17 9:00am GMT

Thomson Reuters StreetEvents

Q1 2017 Suntory Beverage & Food Ltd Earnings Presentation

CHUO-KU TOKYO May 2, 2017 (Thomson StreetEvents) -- Edited Transcript of Suntory Beverage & Food Ltd earnings conference call or presentation Friday, April 28, 2017 at 9:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Haruhisa Inada

Suntory Beverage & Food Limited - Managing Executive Officer

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Presentation

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Haruhisa Inada, Suntory Beverage & Food Limited - Managing Executive Officer [1]

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This is Haruhisa Inada. I will explain the results for the first quarter of fiscal year 2017.

Please turn to Page 2. Net sales was JPY 310.5 billion. Operating income was JPY 16.1 billion, and net income was JPY 6.8 billion. Net sales declined slightly due to the impact of exchange rates, with the yen trending stronger than the same period of last year, but operating income and net income increased.

We feel that we were able to make a good start as we work on strengthening the business foundation of each area and aim to accomplish our goal for 2017, which is to achieve increase in both sales and profit for 5 consecutive years since our listing.

Please turn to Page 3. Here, we have the sales and segment profit by each area. Sales for Japan segment was down 1%, and segment profit was up 22.2%. Sales for overseas segment was up 1.1%, and segment profit was up 14.3%. On a currency-neutral basis, sales was up 4.9%, and segment profit was up 20.3%. Japan and Asia business drove segment profit growth.

I will go over each in detail from the next page. Please turn to Page 4.

First, Japan segment. Sales was JPY 189.6 billion, down 1%. Sales volume increased 1%. However, we saw growth in large-sized products, which have low unit prices, leading to a slight decline in sales. Segment profit was JPY 8.7 billion, up 22.2%. We were able to increase our profit through our cost-reduction efforts and efficient marketing execution.

Please turn to Page 5. I will explain the factors that impacted the increase and decrease of Japan segment profit for the first quarter.

Sales volume was similar to market levels with an increase of 1%, which contributed positively to profit by JPY 0.6 billion. Our core brands such as Suntory Tennensui, Boss and Iyemon achieved steady growth. Iyemon, which was renewed in March, set off according to plan and grew significantly in the first quarter by 10%.

Product mix had a negative impact on profit of JPY 0.6 billion. Product mix worsened, with the impact of Blood Orangina, which was launched last year and had a high unit price. By bottle size, 500-milliliter PET bottles increased slightly, and the larger-sized PET bottles had mid-single-digit growth.

Cost-reduction contributed positively to profit by JPY 2.1 billion. Cost improvement activities led to an improvement of JPY 2 billion. We made packaging materials lighter and made operation of our existing equipment more efficient. Also, currency and market conditions led to a net improvement of JPY 0.1 billion.

Sales promotion and advertising cost contributed positively to profit by JPY 0.5 billion. The volume of larger-sized PET bottles increased, but we were able to avoid excessive price competition and focused on efficient investment in marketing.

Other factors had negative impact on profit by JPY 1 billion. This is due to increase in personnel expense and enterprise tax.

Please turn to Page 6. I would like to take this opportunity to explain the 2017 brand strategy in detail, which were briefly covered in the February earnings announcement. This year, we will focus on 2 strategies: reinforce core brands and offer products with new value. As part of our activities to reinforce core brands, we are planning a renewal of Suntory Oolong Tea on May 9, following the renewals of Iyemon and Orangina in March.

In both brands, the flavor and packaging have been revitalized to enhance the values that each brand holds. We will also proactively engage in marketing activities to communicate those values to our consumers. As part of our activities to offer products with new value, we have introduced 2 new products. First is Craft BOSS, which was launched on April 4. We have developed a PET bottle version of Boss for contemporary office workers, who want to take more time enjoying coffee while they work and carry their coffee with them throughout the day. Another new product is the Suntory Tennensui PREMIUM MORNING TEA Lemon, which was launched on April 25. We aim to capture new demand by creating a new category of transparent lemon tea. We are planning more new product launches in the future.

We will further strengthen our activities towards the peak season to achieve our goal that we announced in the beginning of the year, which is to achieve sales growth that outperform the market.

Next, I will explain the overseas segment by each area. Please turn to Page 7. I will explain the overseas segment on a currency-neutral basis.

First, Europe. Sales was up 5.1%, and segment profit was up 0.8%. We struggled last year in France, but by focusing on small format products and implementing active promotional activities, we were able to grow Orangina and Oasis, which contributed positively to sales. In the U.K., good sales of Lucozade Sport contributed to sales growth. In Spain, Horeca market slowed down due to adverse weather, which caused sales of Schweppes to be lower than last year, resulting in sales decrease. Segment profit increased slightly due to sales decrease in Spain and investment to Africa and other emerging countries.

Next, Asia. Please turn to Page 8. Sales was up 7.4%. Segment profit was up 50.7%. Vietnam resulted in a slight decrease in sales, but the slowdown in the beverage market, which has continued from the end of last year, has bottomed out, and our business performance is recovering as well. The sales of Health Supplement business increased significantly. We have started working with a new distributor in Thailand and improved our route to market capabilities. In addition, shipments were moved forward for a Thai New Year's festival, leading to strong sales of BRAND'S Essence of Chicken.

Lastly, name Oceania and the Americas. Please turn to Page 9. In Oceania, sales was slightly lower year-on-year. But our core energy drink, V, and sports drink, Maximus, recorded steady sales performance. In the Americas, sales of noncarbonated beverage category grew, leading to an increase in sales. However, it resulted in a decrease in profit due to worsening of the raw materials market.

This concludes the results of each area. Overall, we feel that we have achieved a good start.

The operations in Suntory Kyushu Kumamoto Plant were suspended due to the earthquake in April 2016, but we are pleased to announce that the manufacturing of canned products has been restarted today. Manufacturing of PET bottled drinks is planned to restart in May as well.

As we enter our peak season, we will continue to implement activities based on our key strategies, which we announced in the beginning of the year, to aim to achieve an annual operating income of JPY 98 billion.

That is it for me.