Budweiser Brewing Company APAC Limited (1876) Earnings Call Transcript & Summary

Welcome to the Budweiser Brewing Company APAC 9 Months of 2020 Results Call. Hosting the call today from Budweiser APAC are Mr. Jan Craps, Co-Chair of the Board and Chief Executive Officer; and Mr. Gui Castellan, Chief Financial Officer. Results of the first 9 months of 2020 can be found in the press release published earlier today and available on the Hong Kong Stock Exchanges and Budweiser APAC's website. [Operator Instructions] Please be advised that today's conference is being recorded. Before proceeding, let me remind you that some of the information provided during this result call, including our answers to your questions on this call may contain statements of future expectations and other forward-looking statements. These expectations are based on management's current views and assumptions and involve known and unknown risks, uncertainties and other factors beyond our control. It is possible that Budweiser APAC's actual results and financial condition may differ, possibly materially, from the anticipated results and financial condition indicated in these forward-looking statements. Budweiser APAC is under no obligation to and expressly disclaims any such obligations to update the forward-looking statements as a result of new information, future events or otherwise. For discussions of some of the risks and important factors that could affect Budweiser APAC's future results, see risk factors in the company's prospectus filed with the Hong Kong Stock Exchange on the 18th of September 2019, and the 2019 annual report published on the 17th of March 2020. I would also like to remind everyone that financial figures discussed today are provided in U.S. dollars, unless stated otherwise. The percentage changes that will be discussed during today's call are both organic and normalized in nature and unless otherwise stated, percentage changes refer to comparisons with the same period in 2019. Normalized figures refer to performance measures before exceptional items, which are either income or expenses that do not occur regularly as part of Budweiser APAC's normal activities. As normalized figures are non-GAAP measures, the company discloses the consolidated profit, EPS, EBIT and EBITDA on a fully reported basis in the press release. Further details of the 9 months 2020 results can be found in the press release published earlier today. It is now my pleasure to turn the conference over to Mr. Jan Craps. Sir, you may begin.

Thank you, Desmond. Good morning, good afternoon, everyone. Thank you for joining our earnings call. I hope you are safe and well. I'll talk about our commercial and ESG updates first and then turn it over to Gui to go over our financial results. Our business has been consistently improving quarter-over-quarter during the first 9 months of 2020. In the third quarter, we delivered top line growth in both China and South Korea, while maintaining a healthy level of inventories in the trades. Despite the impact from the COVID-19 restrictions in South Korea and India, our overall group EBITDA performance in Q3 this year significantly improved from the previous quarter and returned to a similar level as Q3 last year. As we continue to operate in uncertain environments, our colleagues embraced the new normal with resilience and agility. We focus on our consumers, customers and communities to understand, anticipate and address their evolving needs at different phases of the COVID-19 pandemic across markets. We believe that our unparalleled brand portfolio and exceptional route-to-market capabilities, supported by a strong innovation pipeline, position us well to overcome short-term challenges and capture long-term opportunities. Now let me spend some time on the commercial highlights of our key markets in the most recent quarter. In China, we delivered volume growth of 3.1% in Q3, supported by the ongoing market recovery, particularly in the on-premise channel, while maintaining a healthy level of inventories in the trades. Our revenue grew by 4.8% and revenue per hectoliter grew by 1.6% in spite of a challenging comparable in Q3 '19, driven by improving channel mix and continued premiumization. Normalized EBITDA grew by 7.3%, with normalized EBITDA margin expansion of 86 bps even with a significantly higher comparable of the other operating income in the same quarter last year. Our Premium portfolio, led by Budweiser, achieved high single-digit growth, primarily driven by the strong performance of the in-home channel, including e-commerce, coupled with continued recovery of the on-premise channel throughout the quarter and a favorable comp in Q3 '19. We estimate that the reopening rates at the point of connection level was over 90% for the nightlife channel and had normalized for other sales channels by the end of September this year. Our Super Premium portfolio continued to perform well and grew by double digits. This was a result of our continued investment in channel and geographic expansion as well as product innovations to address evolving consumer trends. Our market-leading craft portfolio also grew by double digits, mainly driven by a strong performance in the in-home channel, such as key accounts, e-commerce and western on-premise channels. In the important in-home channel, we grew volumes once again in the third quarter and gained the most market share by volume among brewers according to Nielsen. In e-commerce specifically, we continue to lead the beer category with more than twice the market share of the next brewer and grew our volumes by strong double digits. We remain confident about our growth momentum in China and our commercial plans. Therefore, we continue to invest in our brewing footprint and capabilities. We're excited to announce that earlier this month, our latest greenfield brewery in Wenzhou, China commenced its first matching, marking the start of production. This brewery is managed by our supply management talents, trained within our supply organization throughout the country with a dream of being a leading brewery in terms of safety, quality, digitization and efficiency worldwide. In South Korea, we faced a challenging environment in the third quarter due to another COVID-19 outbreak that severely impacted consumer confidence and resulting in restrictions in the on-premise channel. Our volumes grew slightly in light of a favorable comp last year, while we maintained the healthy level of inventories in the trades. We estimate our total market share declines year-on-year and quarter-over-quarter. However, in the in-home channel specifically, which was the most relevant channel during the recent outbreak, we again grew market share year-on-year according to Nielsen. Our revenue and revenue per hectoliter also grew in Q3, primarily driven by channel mix and benefits from the tax reform implemented at the beginning of this year. We continue to focus on our commercial strategy and leverage our full portfolio to connect with consumers. We increased commercial investments to support our brands and route to market in Korea. For Cass, we launched a new visual image and hosted the ON:TACT music festival to further energize the brand. In addition, we have recently launched Cass 0.0 to provide consumers with a non-alcohol alternative in different occasions while keeping the fresh taste of Cass. In the Premium segments, we grew volumes once again this quarter, with 3 of the top 5 premium beer brands in the country. During our most recent campaigns for Budweiser, Stella Artois and Hoegaarden, we collaborated with multitalented celebrities, such as Henry Lau, to invite consumers to create new occasions to reward themselves and stay connected with family and friends, while enjoying our products under the new normal. In the growing Happoshu segments, we launched a new variant, Filgood 7, and further accelerated volume and market share growth of the Filgood family. We have observed an encouraging trend of recovery in South Korea since mid-September. We remain agile and committed to delivering our commercial plans and creating long-term value for our business and the community. In India, our business continued to be impacted by the COVID-19 pandemic. Although restrictions have been gradually eased in the in-home channel, restrictions on the on-premise channel remain effective in many states. Consumer demand was also impacted by the temporary COVID-19 cess imposed in some states. We have been actively advocating to end this change, that is always intended to be temporary, and are seeing encouraging outcomes. Some states have reversed their COVID cess completely, while others reduced them significantly. Amid a challenging operating environment, we estimate that we continue to lead and grow market share in the Premium segments. We've also been investing in the non-alcohol beer category where we have a leadership. Most recently we launched Hoegaarden 0.0 and expanded distribution of Bud 0.0 in additional retail channels. We remain optimistic about the long-term potential of the India Markets while we continue to evaluate our operating model with strict financial discipline. Now I would like to take a moment to give you an update on ESG before turning it over to Gui for the financial results. As you may have seen in our ESG webcast recently, we have integrated ESG-related topics into our daily operations for many years. Our commitments and efforts in these topics are ever more relevant now in light of the COVID-19 pandemic. As part of the ABI network, we share the same 2025 sustainability goals in smart agriculture, water stewardship, circular packaging and climate action. We have also been actively empowering and supporting communities in which we operate through many ongoing projects such as Budweiser Emergency Drinking Water Program, Budweiser China Hope Schools and Cass Forest for Hope. During the third quarter, we held the Annual Responsible Drinking campaign across our key markets, either physically or online. For water stewardship, we are partnering with local organizations in India, such as LetsEndorse and Jaldhaara Foundation to build water storage facilities to improve water availability in local communities. In addition, or Suqian and Putian breweries in China were recognized as Leading Water Efficiency Enterprises in 2020 by the China Ministry of Industry and Information Technology and the Ministry of Water Resources. Budweiser China Hope School and education-related projects were also awarded with the Best Annual CSR Brand and Volunteer Service Honor Awards. We are deeply connected to communities across the region and want to be part of the solution where it matters, so we all thrive. Our strong reputation is the outcome of doing the right things in a consistent way. That's how we build the company to last. I'll now pass to Gui to take you through our financial results for the third quarter and year-to-date for the first 9 months. Over to you, Gui.

Thank you, Jan, and good morning, good afternoon, everyone. As Jan mentioned earlier, our results have been consistently improving quarter-over-quarter this year. Our volumes returned to growth in the third quarter of 2020 as our healthy performance in China was able to offset the continuing impact from the COVID-19 pandemic in India, alleviating the year-to-date volume decline to 14% for the first 9 months of the year. Our revenue also did well in the quarter, it grew 2.2% year-on-year as revenue per hectoliter grew by 1.2%, primarily driven by improving channel mix and ongoing premiumization in China. For year-to-date 9 months, revenue declined by 14.8%, mainly driven by the COVID impact during the first half of the year. In Q3 2020, cost of sales increased by 3.2% and 2.2% on a hectoliter basis, primarily driven by packaging mix in South Korea and loss of operational efficiencies in India. For the first 9 months of the year, our cost of sales decreased by 11.9%, but increased by 2.4% on a hectoliter basis, mainly due to loss of operational efficiencies related to the COVID-19 pandemic across the region. SG&A returned to similar levels as last year in Q3, as savings in distribution expenses were offset by increased admin expenses and additional commercial investments in our key markets, such as China and South Korea. Year-to-date, SG&A decreased by 4.7%, mainly driven by ongoing cost initiatives. Other operating income decreased significantly throughout the year versus the same period in 2019 with a reduction of 30.6% in Q3 and 40.1% in the first 9 months as we have received less incentives and less attractive opportunities for asset divestments. Nevertheless, even with a significantly higher comparable of other operating income in Q3 '19, our normalized EBITDA returned to growth last quarter, with a normalized EBITDA margin of 33.3%. Normalized EBITDA for the first 9 months decreased by 26.7%, with a normalized EBITDA margin of 29.6%. Once again, showing significant improvement from those of the first half of 2020. Even though we're not closing our balance sheet or cash flow on a quarterly basis, we continue to proactively manage our working capital and maintain a strong balance sheet. With our healthy performance in China, ongoing recovery in South Korea and access to various internal and external funding sources, we are confident about our ability to fund the ongoing business operations, while maintaining a healthy capital structure. So with that, Jan and I are here to answer any questions you may have.

[Operator Instructions] The first question comes from the line of Mark Yuan of Jefferies.

My question is on the product mix in China. You mentioned that your Premium products volume up by single-digit and Super Premium up by double-digit in Q3. Do you expect this to get a sustainment of growth in near to midterm? And what is your outlook for next year? And also relevant to this question, what is your volume contribution from Premium and Super Premium products to your channel sales currently?

Thank you, Mark. Thanks for your question. You're right, we have seen a strong premiumization trend in the third quarter. And we believe that underlying these results is the strength of our company, which we continue to think is really a key tool for us to continue to build our leading position in China. Behind that, we have a diverse portfolio of brands. And as you know, to be successful in premiumization, it's really about a portfolio of brands, not one single brand can carry the whole Super Premium growth. And our portfolio has different styles and different origins, and we really target to be the #1 in every single style and every single country of origin with our brand portfolio. Behind that, we have developed targeted go to markets and also specialized sales team that really drives the growth of this Premium and Super Premium portfolio. In the third quarter, we've also been very strong in innovation. We launched several new brands and supported the expansion of recent innovations. Our craft portfolio grew double digits and continues to lead the market, and we believe is set up for big future growth. And we continue to support also Bud Light's distribution expansion in Guangdong. And -- but Pulse, Budweiser Pulse is a new variant that is only available on e-commerce and actually continued to do very well on the e-commerce platforms. Despite our leading position in Premium and Super Premium, we believe there is still ample room for growth both on a geographic level and the channel expansion level. And we actually have plans to continue to expand significantly in the future. And we're already preparing kind of the next wave of premiumization when we get to full-scale in Premium and Super Premium. We are piloting, as we speak several solutions and adjacencies that are non-beer kind of propositions at premium price points to respond to the new consumer trends, the new consumer needs, especially in the urban centers in China. And then, of course, we have the luxury of having the parent company access to more than 500 brands. But also recipes and propositions that are successful in other markets around the world that we can pilot and test in different cities in China. And when we see success, we will ramp up and go to scale in the next coming years. And of course, we remain excited by the long-term growth potential of premiumization. From memory, in China, our Premium and Super Premium weight is about 16% in the total industry. In South Korea, it's 25%. And that, of course, is a neighboring market. And when we look at more Western and more developed markets, Premium and Super Premium is more than 40%. So we already see markets in China, where we are well above 16% Premium and Super Premium, but the average is only 16%. So we believe there is significant growth opportunity as consumers continue to have more disposable income and the industry continues to premiumize.

Next question comes from the line of [ Melody Cho ] of CICC.

Okay. It's [ Melody Cho ] from CICC. And my question is about the Budweiser strategy. So why is the strategy of Budweiser to expand into lower-tier cities? And does the number of distributors increase or decrease in lower-tier cities and is the expansion in low-tier cities in line with your expectation? So that's my question.

Thank you, [ Melody ]. Thanks for your question. You're right that Budweiser still a significant expansion opportunity. So we are today a market leader in both Premium and Super Premium, like I explained just before this question. But we believe that there is still significant expansion potential. So we actually have a market expansion model that we map at a city level. We actually track 250 cities based on our relative market share, the industry size of that specific city, but also the Premium weight in the city. And then we map our position in each of these cities, and that's how we determine Budweiser extension strategy is for any given geography. We believe that there is still significant opportunity for premiumization as disposable income increases. And so we target specific cities based on the market potential, especially for Premium and Super Premium brands. To achieve that, we increased our distribution levels in these target cities. And you're right that the lower-tier cities are also premiumizing and increasing the premium mix. And so we continue to add wholesalers, both Tier 1 and Tier 2 wholesalers to increase our coverage, to support the expansion both in a geographic level, but also in the channel level, right? Historically, we've always been strong in nightlife and we have been very strong in e-commerce, and we are expanding quite significantly in the in-home channel because that is where the consumer trends are going for more in-home occasions. But also at the lower-tier cities, we see the in-home channel expanding. And we continue to invest in that channel quite successfully from a market share growth perspective. Thanks for your question, [ Melody ].

Next question comes from the line of Xiaopo Wei of Citi.

My question is about the ASP. The company has had a very good track record of raising ASP in China for the past few years before listing. But this year, there was a lot of moving parts due to COVID impact, due to the high comp base, due to the sales mix, et cetera. We didn't see a lot of meaningful ASP increase this year. But with all the ongoing premiumization, as you've discussed in the presentation, with normalization of the nightlife channel, as you put in your presentation, will we expect the return to mid-single digit of the ASP increase in the APAC west region next year, with all efforts you have already put in place?

Thank you, Xiaopo. Thanks for your question. You're right that Q3, we continue to see strong premiumization trends. But indeed, the ASP hectoliter evolution remains at a lower level, though positive -- returned positive in the third quarter. Behind that, the key driver is a difficult comp in the third quarter last year. You might remember that last year, the net revenue per hectoliter increased by 5.9% in the third quarter, and at a time that was supported by not only an even faster Super Premium growth in the double digits, but also the VAT benefits that, from memory last year, on the 1st of April, the government reduced the VAT rates, which was passed through -- which was actually retained in our ASP performance. And so now we are lapping that. We basically retained the VAT benefits till today, but it is now in our base and doesn't continue to increase that. And so -- and that was, by the way, for the whole industry, the same case. So we continue to see premiumization as a key driver of ASP increases for the future. We don't see any reason for that to slow down, right? We are back to double-digit growth in Super Premium, high single-digit growth for the Premium segments and actually beyond the premiumization at the brand level, we also see opportunities for pack mix growth. We don't talk about it a lot, but the pack mix is actually -- can be quite interesting as well for the future as we see consumers in in-home shifting more to cans versus returnable bottles. And as nightlife comes back as well, with the aluminum bottles we actually see an interesting opportunity for pack mix as well in the future to continue to support the ASP developments in the future. So thanks for your question, Xiaopo.

Next question comes from the line of Lillian Lou of Morgan Stanley.

My question is also on China. It's more on the recent trend. So we had a good recovery in the quarter, but how the recovery trend looks like right now running into the rest of the year especially the on-premise channels such as restaurant and nightlife channel, how the run rate looks like in volume compared to the normal level?

Thanks for your question. You're right, nightlife has always been an important channel for us, right, especially for premiumization and brand building. So we were happy to see that by the end of September, the nightlife reopening rate was over 90% for total China. Remember in the end of June, we reported more than 80%. We continue to see that increase at the end of the third quarter above 90%. And of course, it will be very different by city, depending on the COVID-19 situation. So some cities, when there is a second wave, there is a temporary kind of restriction on social distancing, and of course, impacts the different channels. But on average, in China, it was more than 90%. When we look at the restaurant and the in-home channels, we really see that these channels have normalized to pre-COVID levels. So we kind of stopped reporting on that because we see them more or less normalized in terms of the reopening rates for these two channels. When we look at nightlife, of course, we continue to see these changes of the trends in terms of what types of nightlife exists. We continue to see also after the COVID reopening, a reduction in the traditional KTVs and an increase in the western bars, the pubs and the lounges. And that's where we have been allocating a lot of our resources is in a new nightlife channel. Of course, next to the in-home, which is a key priority. But within nightlife, we invest more now in the newer nightlife channels because that's where the Super Premium portfolio does very well. The brands like Corona, Hoegaarden and also Blue Girl. And our craft brands are actually doing very well in these newer nightlife channels, and we believe there's a very significant future opportunity even in the next 5 to 10 years in the Super Premium segments, and that's really a very strong portfolio performing very well in these newer nightlife channels. So of course, we continue to support our business partners in the various existing nightlife channels. And we see consumers going back to nightlife, continuing to look for entertainment and also socializing more and more in normal levels. So we are preparing for the business recovery. But of course, it will be still at a slower pace than the other channels, just because of the nature of the social distancing, which is still somewhat remaining in different parts of China. Thank you for your question.

Next question comes from the line of Chen Luo of Bank of America.

The previous questions were all about China, so my question is about South Korea. We have seen year-on-year and Q-on-Q market share loss in Q3 for South Korea. It seems that the problems still lie in the on-premise channel and the domestic brands, such as Cass. Meanwhile, we are also increasing the commercial investment leading to margin erosion. As we have been trying to turn around the Korean business for about 1 year, what are we going to do to address the issues that we are facing at the moment to regain the market share from our competitors? And also, how are we going to balance growth and commercial investment? If the second wave of COVID-19 lasts throughout the whole winter in Korea, are we going to apply any changes to our current strategy?

Thank you, Luo Chen. Thanks for your question. Good afternoon. So in South Korea, we are, in the first quarter, encouraged by the return to growth by the -- at the volume level. And you're right, we gained share quarter-on-quarter in the last 2 quarters, but we did not do that again in the third quarter. However, in in-home, which of course is an important channel, we did gain market share again. And of course, in the in-home channel that is supported by the full portfolio that we can play in in-home, including the Premium segment and the Happoshu segments, while we continue to suffer a little bit more in the core segments. The on-trade channel was severely impacted by COVID-19. There was a second wave in the third quarter, and there was significant restrictions on social distancing. As so as a consequence, there was quite a strong channel mix happening with in-home increasing, but the on-premise reducing. And that, of course, translated in a market share impact in the third quarter versus the trends we were seeing before. If we look at the Premium segment, we continue to lead the Premium segment in market share. We have 3 of the top 5 brands there, and they're doing well in the Premium segment. And also in a Happoshu, we continue to grow significantly in volume and market share in that segment, also supported by new innovations. If we look at Cass, which, of course, remains our most important brand in Korea, we have increased our commercial investments not only in new image but also in the cost campaigns, and these have been very well received. However, of course, these commercial investments, as they were also partially in the on-premise channel, the second wave of COVID would have impacted the ROI or the kind of impact that we would expect with the investments that we have made. So we continue to see several opportunities in the future to support our market share in Korea. We are quite ambitious there. And we continue to believe that we can improve our performance in South Korea quite significantly. And I'll hand it over to Gui as well to jump in here.

Yes. Luo Chen, thanks for the question. Just to add a little bit more on the margins, right, of South Korea. You're right, we saw our margin erosion in APAC East in the third quarter of the year. And as Jan mentioned, of course, we were still optimistic about the recovery of Korea. And of course, we will invest behind our brands, where we have a very strong brand there at Cass. We will continue to invest in the route to market and the brands, of course, to recover market share. But just to be clear, the main reason for the margin erosion in Q3 was actually the cost of sales per hectoliter, right? If you look at the Q3 of last year, APAC East had a significant volume decline, while the cost per hectoliter was very solid, right? So we saw this, of course, as a one-off this quarter. And that, combined with the additional investments as we disclosed in the press release, that was the main reason for the margin erosion in the third quarter.

Our next question comes from the line of Euan Mcleish of Bernstein.

Can we maybe talk a little bit about the India business because obviously, that's been kind of punching above its weight and being quite a drag on your APAC West results? So it's obviously a nice long-term opportunity to have in your back pocket when it's neutral to earnings, but it looks like it's been a pretty big drag on the West division and it's hard to see that improving a lot soon. So what -- you referred to restructuring a bit earlier, what are you thinking about in terms of restructuring the India business? Which parts of that business would you fight to save and recover and which parts do you think are less strategic? So really, where to from here in India, given that it is kind of a long-term bet rather than a shorter-term strategic opportunity? Great if you can comment.

Thank you, Euan. Thanks for your question. You're right. I mean first, on India, of course, this is one of the countries that has been harder impacted by COVID. And of course, health and safety of our colleagues is still our top priority there, right? They been very resilient and agile in the midst of the whole situation, and I mean, longer term when we talk about India, let's remember, there's only 2 countries in the world with a population of over 1 billion, positive prospects for GDP in the future and disposable income. So we remain quite optimistic about the long-term potential in India. When we look at the third quarter, there was a significant impact on our business by the COVID-19 pandemic. So even if restrictions have been gradually released in the in-home channel since the national lockdown, which for memory, happened in the last week of March this year and went to the first week of May. So we had a very significant impact in the second quarter, restrictions on the on-premise channel actually remained effective in many states. And even in the states where on-premise have reopened, there were still restrictions with, for example, not being more than 50% of the customers allowed in the venue. So we continue to see quite an impact on the on-premise specifically. Next to that, unfortunately, some states have decided to impose a temporary COVID cess. And even if it's temporary, of course, this cess may lead to unintended consequences, such as increased consumption of lower quality or even illicit liquor that would have a lasting impact on public health, right, in a negative way. So we've been actively advocating in India with different states for a more sustainable alternative. And we start seeing encouraging outcomes, right? So for your information, of course, it's quite complex in India. But actually, some states have already reversed that COVID cess completely, for example Delhi, West Bengal, which are quite some important states, but also reduced them significantly in other cases like Odisha or Andhra Pradesh. And of course, we continue to lobby and to engage with governments to discuss with them what we see as the right path forward. On the commercial front, we continue to invest significantly in the Premium segments, which we are leading, and we are actually growing market share in Premium. And in the third quarter, next to that, as an example of what we are doing, right, we launched the first brew up in collaboration with the Taj Hotels in Bangalore, as we announced earlier in one of the previous quarterly calls. So we believe that we can offer a very specific and very unique craft beer experience in India with our 7 Rivers brands in the partnership with the Taj Hotels. Next to that, we also invested in the nonalcoholic segment, which promotes responsible drinking, moderate consumption. But of course, next to that, we are leading the 0 segment now and we launched Hoegaarden 0.0, and we expanded distribution of Bud 0.0, which of course allows us to go into sales channels where alcohol sales is not allowed and has actually been quite successful in India, and we see future growth very well possible there in different occasions. To your point, of course, given it is a challenging operating environment, we are evaluating our operating model with strict financial discipline. So we did adjust production levels quite dynamically. We have reduced inventory levels significantly across India. And we have terminated some of our third-party brewing contracts. As you remember, we have a number of our own breweries, but we also have some third-party contract -- brewing contracts and several of them we have terminated. We have reshifted our resources from the on-premise to off-premise to support the volume growth there because that is where the consumer demand is going to. So again, we are making some choices there. The Premium segment, for sure, is the most strategic segment for us. We are investing in the non-alcoholic category. And we are very optimistic for India as a long-term bet for us, while we apply our financial discipline in that country in the shorter term.

Our final question will come from the line of Lincoln Kong of Goldman Sachs.

I have a question actually for more for 2021. Because in 2020, we got hit quite hard due to the pandemic. So if we -- as we enter the year-end, we are making budgets for 2021. What should we think are the key priorities for next year in terms of how we again more incentivize our team and set up those KPI, and in terms of how we are thinking of the commercial strategy? And more quantitatively, are we confident that, for next year, we can make up what we lost in 2020, i.e., recover our profits or even our profit margin back to, say, 2019 level?

Thank you, Lincoln. Thanks for your question. You're right. I mean we are encouraged by the recovery trends. But when we look at the data, actually in every single geography, we have improving trends quarter-on-quarter, both on volume and top line Q3 versus Q2. So when we look at the bigger markets, China and Korea, we are back to growth in both of them. And really, the underlying elements for that growth are premiumization, digitization and channel expansion. So China, double-digit growth in Super Premium, single digits in Premium. And also, we are growing in both e-commerce and in the in-home channel, faster than any other brewer. And when we look at India, even if there are some short-term challenges, we continue again to gain in the Premium share, and we believe there is a longer-term potential in that country where we have a strong option and a strong position to capture that future growth. We are continuing to invest in our brands, our route to markets. We have a strong pipeline of innovations. And of course, as Gui can comment a little bit after this, we continue with a very strong financial discipline in ZBB, nonworking money, moving that to the working money to support our growth. So I will let Gui talk a little bit about the volume recovery and our incentive system because, as you know, that is really core to our business and the way we operate.

Yes. Thank you, Jan. Thank you, Lincoln, for your question. I think as Jan mentioned, we are very encouraged by the trends of our key markets, right? So when we think about the future, when we think about the main levers for margin expansion in China, premiumization, of course, is in the way that we see the market right now is intact. And we believe, of course, that given the trend that we saw in the last quarter, right, with high single-digit growth in Premium, double single digit -- double-digit growth in Super Premium, right, we believe that, that by itself should be one of the key reasons to think about margin recovery in China. On top of that, of course, our margins this year have been significantly impacted given the operational deleverage. And of course, the fixed cost and expenses that we have in our P&L, right? So with the significant volume decrease due to the pandemic, especially in the first half of the year basically, we suffer from the operational deleverage. And that was one of the main reasons, of course, for the big margin erosion that we saw in the first half of the year. It's important to notice as well, Lincoln, and probably you already see it, but just to reinforce that one of the toughest comparables that we have this year shifting of other operating income, right? So basically, for the first 9 months of the year, we have almost $60 million of difference of other operating income versus last year, right? We treat that income as normalized and organic, right? because we believe that again, incentives, disposal of assets are part of our business. But of course, that could vary quarter-over-quarter and year-over-year, right? So we see the Q3 as the biggest comparable in terms of other operating income when compared to last year, followed by Q4 of this year, right? So we believe that this year, in general, we have a tough comparable in that line specifically, which should also, again, bring overall margins down in 2020, right? If we shift gears and talk a little bit about South Korea as well, again, we expect mainly margin recovery there coming from the better operational leverage with volumes normalizing, right? So we already saw volumes flat in Q3, right? And again, the trends, the way that we see that is positive, even though in some areas, consumer confidence can be an impact. But of course, with the recovery in volumes, given the nature of South Korea, we believe the operational leverage to come naturally when we think about margin expansion as well. So finally, of course, right, talking about your questions on budget, incentives and KPIs, but I think it's important to say, as we always say, we are owners, right? And we treat this company basically with ownership, right, on everything that we do. As Jan mentioned, of course, on the way that we spend money given our GDP culture and the way that we shift money from non-working money initiatives, right? obviously the consumer business sees what the consumer sees, which we call working money, right? So that is basically embedded in our blood and work basically we do on a daily basis, right? It's not only in the management, but that is, of course, distributed throughout the whole company, right? And we believe that our teams and colleagues are extremely engaged. And of course, very motivated to deliver good results in the upcoming years, right? We have no significant changes in our incentive scheme, right? As a company of owners, of course, we are results-driven and our KPIs are not focused on the short term, but they are mainly built to drive and create sustainable and long-term shareholder value, right? So again, not expecting any significant changes in KPIs for the management. While, of course, with talent, of course, in the owners that we have in this company to continue to drive shareholder value in the mid and long term.

Thank you. This concludes our Q&A session today, I would like to turn the conference back to Mr. Jan Craps for the closing remarks.

Thank you, Desmond. So we continue to operate with uncertainties in the region. We are confident about our growth momentum in China, encouraged by the ongoing recovery in South Korea and optimistic about the long-term potential of India. We see the continued premiumization trends, especially in China, as a key driver for our top and bottom line growth. We continue to invest in our brands, our people, route to market and ESG initiatives to grow our business in a healthy and sustainable way. Thank you very much. Stay safe and well. See you next time.

This concludes today's results call. Please disconnect your lines. Thank you.