Main Q&As at Asahi IR Day 2022 - Europe and Oceania business Briefing

A.This year, we expect sales volume for the on-premise channel to increase in the mid-20% range, and for the off-premise channel to remain flat, for a total growth of 3% year on year. We plan to increase unit price through the channel mix improvement by recovering on-premise sales and Revenue Growth Management initiatives in line with our premium strategy. We have a strong portfolio that meets customer needs and believe that we can achieve a strong recovery in the on-premise channel. In terms of Core Operating Profit, we will strive for cost efficiency in addition to sales growth, mainly in the on-premise channel, despite the rising raw materials and logistics costs.

A.While competitors are also focusing on this category, we have a 17-18% market share in this category. In this category, we have strong brands such as "4 PINES," "Mountain Goat," and "Balter," and have been able to improve profitability as well as volume. It is important to expand craft beer sales, taking into account regional characteristics. We will further improve profitability by promoting cost efficiency in SCM based on our strong business foundation in addition to setting premium prices.

A.We aim to grow revenue and Core Operating Profit through continued brand investment in premiumization. We will take advantage of our strong multi-beverage portfolio to create new demand, particularly in the restaurant/cafe channel, and create integration synergies with the former CUB.

A."Great Northern" is an easy-drinking lager-type beer with a low alcohol content, and is an innovative product that focuses on consumers and customers, promoting the image of enjoying outdoor activities. The brand has achieved volume growth while strengthening profitability and brand power. The "Great Northern Zero" has also been well accepted by consumers as it leverages the strength of the "Great Northern" brand. However, we will not be overly dependent on "Great Northern" in the future, but will seek to grow our portfolio as a whole, including premium brands and health and well-being products.

A.So far, the system has been phased in state by state and is being considered for introduction in Victoria and New Zealand. Even if Victoria introduces the system, the industry as a whole will add an amount equivalent to the container deposit to the price, so we do not think it will have a significant negative impact on our business performance.

A.One of the main risks is the rising prices of raw materials such as aluminum, sugar, and packaging-related materials. We are working to build long-term partnerships with suppliers to mitigate the impact of these factors. We are also working to reduce costs by reviewing the raw materials we use. In the medium- to long-term, consumer demand and preferences are likely to change, and it will be important for us to build a product portfolio that responds to changes in demand.

A.There are multiple drivers of premiumization, and the drivers in 5 or 10 years may change from what they are today. Increasing health consciousness and well-being awareness will drive demand for non- and low-alcohol beverages and functional and health beverages, and these may drive premiumization in the future. We already have strong brands in these categories. In addition, channel mix may be another driver, and we will further enhance our efforts in the on-premise channel in the future.

A.The on-premise market has shown a solid recovery over the past few months, and we expect this trend to continue, with a recovery this year to the mid-single-digit down compared to 2019. We will aim for a strong recovery by building superior partnerships with our customers while also taking advantage of our strong brand portfolio in beer. In the off-premise channel, we will continue to build superior relationships with our customers, and we will also leverage our sales network of Non-alcohol Beverages Business to strengthen sales of non-alcohol beer.

A.We have a supply chain infrastructure that spans the entire country of Australia, and have created significant benefits by optimizing it through the integration. In addition to RTD production at our plants of Non-alcohol Beverages Business, we are also strengthening domestic production of global brands such as "Asahi Super Dry" and "Peroni Nastro Azzurro," which not only enables us to respond quickly to demand, but also to improve cost efficiency.

A.The risk of inflation in Europe is increasing, but at this point, beer consumption has not been affected. There is also no negative impact on premiumization, and we will continue to leverage our strong portfolio to drive premiumization. If down-trading were to occur, we believe we would be able to take advantage of the mainstream category, as we have a strong business base, especially in Central and Eastern Europe. The risk going forward could be a deterioration in the channel mix due to a shift in demand from on-premise to off-premise because of differences in selling prices, but at this point we have not seen any signs of this happening. By investing aggressively in premium beer, which consumers have become accustomed to, we believe that premiumization can continue in the future.

A.It is possible that volatility in procurement costs and supply chain disruptions due to the invasion of Ukraine could have an impact on our performance. At this stage, however, it is difficult to foresee those possibilities. However, we are operating a hedging strategy to rebalance risks. For example, in the Czech Republic, we are promoting local initiatives, such as procuring 100% of our barley locally. Also, aluminum is expected to continue to face high volatility, but we have hedged more than 80% of it this year and are increasing our hedge ratio over 2025. On the other hand, the time frame for hedging grains (malt) and other commodities is short and could have a negative impact on our performance. At this point, it is difficult to quantify the annual risk impact, but we have been working to increase unit sales prices on a sustained basis and will strive for maximum mitigation in conjunction with cost management.

A.In Europe, there are many countries in which we operate, and we are unable to specify specific price increases due to various complex factors, but we are raising prices in consideration of the CPI in each country. Although the range varies depending on the competitive environment and other factors, our pricing strategy is formulated and implemented in consideration of all the factors of "Occasion," "Brand," "Price," "Channel," and "Region" to maintain our competitive advantage.

A.If it is difficult to achieve the revenue plan, we will control various costs, including marketing investments, but it is still hard to foresee how much we can control given the current impact of the invasion of Ukraine and the volatility of market conditions, which are uncertain how long they will continue. As a risk to future profit planning, we believe it is necessary to keep a close eye on rising raw material costs.

A.It is possible that the period over which hedging can be done will vary depending on the raw material, and thus the expected volatility may be different. Also, while we cannot hedge 100%, as the outlook cannot be accurately predicted, we are constantly reassessing our cost structure in an effort to mitigate higher costs. In addition, there is a possibility that additional price increases may be necessary due to further market price hikes, but we will closely monitor the situation and take action as necessary. Regarding fixed costs, we will continue our efforts this year to improve efficiency on a larger scale than ever before by utilizing value engineering methods.

A.We, AEI, joined the Asahi Group in 2016-17 and have steadily expanded our performance in this context. Although we were affected by the COVID two years ago, we were able to achieve our Core Operating Profit plan last year. We are confident in our experience of having gone through the difficult and uncertain situation we have been going through. We have an unshakable foundation for the long term, including competent human resources and a strong brand. Our organization has a spirit of adventure, reliability, responsibility, and aspirations for growth, and we hope to overcome crises such as the COVID pandemic and the invasion of Ukraine.