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

Welcome to the 2021 First Half Results Call of Budweiser Brewing Company APAC Limited. Hosting the call today from Budweiser APAC, Mr. Jan Craps, Chief Executive Officer and Co-Chair of the Board; and Mr. Ignacio Lares, Chief Financial Officer. Results of the first half of 2021 can be found in the press release published earlier today and available on the Hong Kong Stock Exchange and Budweiser APAC website. Before proceeding, let me remind you that some of the information provided during this results call, including our answer 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 [Technical Difficulty] [ Budweiser APAC ] 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 obligation to, update the forward-looking statements as a result of new information, future events or otherwise. For a discussion of some of these risks and important factors that could affect Budweiser APAC 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 2020 annual report published on the 26th of March 2021. I would also like to remind everyone that financial figures discussed today are provided in U.S. dollar unless stated otherwise. The percentage changes that will be discussed during today's call are both organic and normalized in neutral and unless otherwise stated. Percentage changes refer to comparisons with the same period in 2020. Normalized figures refer to performance measures before expectation (sic) [ exceptional ] items, which are either income or expense that do not occur regularly as part of Budweiser APAC normal activities. And 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 financial year 2021 interim results can be found in the press release published earlier today. It is now my pleasure to pass the time to Mr. Jan Craps. Sir, you may begin.

Thank you, [ Aaron ], and good morning, everyone. Thank you for joining our earnings call. I hope you are all safe and well. I'm pleased to present another encouraging set of interim results, which demonstrates the fundamental strength of our company and the resilience of our people. With their efforts, we continue to drive high-quality growth, delivering double-digit increases in volume, net revenue and EBITDA during the first half of 2021. In addition, net revenue per hectoliter grew in all key markets, driven by our effective premiumization strategy. As I'm sure many of you are already aware, we recently announced a green financing loan, which links our financial metrics with the achievement of ESG targets. This will further incentivize us to accelerate our sustainability efforts, which have advanced significantly to date in '21. Before I hand it over to Iggy to take you through our financial performance, I would like to share some highlights for our key markets during the first half of the year. In China, we achieved profitable high-quality growth on the back of the successful execution of our premiumization, digitization and expansion strategy. Our first half volumes, revenue and EBITDA all increased by double digits year-on-year. In the second quarter, revenue grew mid-single digits. A volume decline of 4.5% due to a high base last year was more than offset by strong net revenue per hectoliter growth of 9.5%. Budweiser, the leading brand in the premium segment, achieved double-digit growth in revenue and in volumes despite the COVID-19 outbreak in London. And in addition, our super premium brands also grew by double digits this quarter. In the regions with the highest consumer demand where our brands have a particularly strong market presence, such as Fujian and Guangdong, we also focused our efforts on Budweiser innovations to connect with more consumers. The strong uptake of Budweiser Supreme in premium Chinese restaurants and into new channels, further reinforced our growth momentum. We also saw promising initial results for Budweiser Magnum, which was launched in the second quarter to offer a sophisticated and stronger flavor profile for special occasions. Other innovations launched year-to-date, such as Budweiser ME-3 and Corona Sea Salt Guava, allow us to connect with female consumers and begin to capitalize on the growing sheconomy with fruit-flavored options that serve additional drinking occasions. In the e-commerce channel specifically, we launched Budweiser ME-X, which has 3x the higher net revenue per hectoliter than Budweiser Classic. This product has ranked as #1 in the food and beverage category during this year's 618 e-commerce shopping festival. Our proactive efforts to shape the category accelerated our growth in the premium and super premium segments. To support our continued premium, super premium growth, we have announced plans to build a new craft brewery in Putian, Fujian province and further expand our existing brewery in the city. We expect that our Putian brewery will remain as the largest brewery in Asia upon completion. The momentum of our super premium and premium segments reinforces our determination to continue investing in the high-end beer segment in China. In parallel, we continue to enhance our digital capabilities. In the first half of this year, we reached 29 million first-party consumer records. This was led by Bud Space but extends across a series of brand assets and consumer digital products, allowing us to identify unique consumer insights to drive further growth. From a sustainability perspective, our Wuhan brewery is poised to become our parent company AB InBev's first brewery globally to achieve carbon neutrality by the end of this year. Moving on to India. The country was impacted significantly by a new wave of COVID. The health and safety of our colleagues and the community remains our #1 priority. As India battles with COVID, we have donated over 300 oxygen concentrators, distributed over 8,000 essential aid kits. We procured 500,000 surgical masks and added COVID hospital bed capacity. In addition, we have leveraged Budweiser's reach to facilitate locating and deploying medical resources to individuals in need through the Budweiser Stronger Together social media campaign. Despite the difficult situation, we managed to achieve double-digit growth in volume and revenue in both the first half and the second quarter of 2021, but remain below 2019 levels. We continue to expand our non-alcohol offerings to reinforce our Premium and Super Premium portfolio. In South Korea, led by the success of our recent innovations, including All New Cass and our new classic lager, HANMAC, we estimate our volumes outperformed the industry. Volumes declined by low single digits in Q2, impacted by ongoing COVID restrictions. Revenue per hectoliter grew low single digits, driven by positive brand and pack mix. We also achieved double-digit growth in the premium segments, led by Budweiser and Hoegaarden. In the second quarter, we launched Hoegaarden Botanic and Hoegaarden Pomelo to capture new drinking occasions and further attend to the rising demand for new products and experiences from female consumers. I will now pass to Iggy to take you through our financial results for the first half. Over to you, Iggy.

Thank you, Jan. Good morning, everyone. I am delighted to join you all at this results call today. As Jan mentioned earlier, we delivered another encouraging set of results in the first half. Despite the headwinds resulting from the ongoing pandemic, our total volumes were 18.4% higher than in the first half of last year. This result is attributable to remarkable efforts in premiumization and continued recovery in China. We recorded a year-over-year volume growth of 21.8% in China, while maintaining healthy inventory levels. This strong performance was partially offset by South Korea, which is still affected by ongoing COVID restrictions. Revenues grew 26% in the first half, driven by double-digit growth from our Premium and Super Premium portfolio and supplemented by favorable brand and pack mix. Revenue per hectoliter increased across all our key markets. In China, our largest market in APAC, both net revenue and EBITDA increased substantially by 33.5% and 60.3%, respectively. Our premiumization efforts resulted in a 9.7% increase in revenue per hectoliter, benefiting from a lower net revenue per hectoliter base in the first half of 2020. The overall cost of sales improved by 0.4% on a per hectoliter basis as we continue to drive operational efficiencies and leverage volume recovery to further dilute costs. Normalized EBITDA increased by 53%, driven by a 60.3% increase in China versus the same period last year. Normalized EBITDA margin increased from 27% in the first half of 2020 to 33.2% in the first half of 2021 as top line growth significantly outpaced inflation and cost escalations in the period. Normalized profit attributable to equity holders reached USD 520 million, which is USD 298 million higher than the first half of 2020. The normalized earnings per share was USD 0.0393. As we move into the second half of 2021, our strong first half of the year allows us to continue to invest in our business to accelerate our momentum and lead future high-quality growth. With that, Jan and I are here to answer any questions you may have. [ Aaron ], back to you.

Thank you, management. The floor is now open for questions. [Operator Instructions] Our first question is Euan Mcleish from Bernstein.

I've got 2 questions. One about Bud brand in China and the second one about price competition in Korea, and I'll ask them one by one, if you don't mind. So in China, good to see the Budweiser brand momentum running at double digits again. And Bud is clearly the most important driver of your earnings in China. I presume there's obviously quite a benefit of the recovery from COVID and organized crime-related outlet closures before that. And you talked about kind of distribution growth opportunities as premium channels expand. But what I'm interested in is what is the kind of -- if you look at the core Bud brand, excluding channel reopening, excluding geographic expansion, kind of what does the underlying growth momentum of the brand looks like? It's a big brand so I presume it's slowing over time. But I just really want to understand kind of what's the medium-term sustainable trajectory? And what are the big threats that you see to that Bud brand growth in the medium and the short term?

Sure. Thank you, Euan. Thank you for your question. So you're right, Budweiser is the -- I mean the #1 brand in premium segments in China, and we achieved a double-digit growth in volume and revenue compared to last year. I mean despite -- and by the way, we also grew versus 2 years ago. And that's despite the COVID restrictions we had in Guangdong in the month of June. I think to answer your question, probably 2 parts of the answer. We always split our markets in China between the mature markets in which Budweiser already has a strong market position. And then the expansion markets where we see opportunity to continue to increase distribution in our route-to-market. In the first ones, in the mature markets, we typically focus not only on Budweiser Classic, but also on the new line extensions. And we focused a lot this year on Budweiser Supreme, especially in the small bottle format, which is focused on the premium dining occasions. So it's a variant of Budweiser that's specifically brewed to pair very well with meals. That one is doing very, very well, very strong double-digit growth. And we see Bud Supreme expanding nationally to become a very strong second proposition of Budweiser next to Bud Classic. In Guangdong, we have Bud Light. You know Guangdong is our biggest selling region for Budweiser. And that Bud Light is offering a lighter profile for even more refreshments. And then you probably remember that we launched Budweiser Magnum in the second quarter, right, in the month of April, May, we launched Budweiser Magnum. And Budweiser Magnum is really there to provide kind of a stronger flavor profile variant of Budweiser with higher EBV targeted to meal drinking occasions. And we see very good early signs of Budweiser Magnum in the market. And then a very special one, right, with the ME series with Budweiser ME. We have ME-3. We launched ME-X this year, really focused on more of the fruit-flavored options that we want to offer. And of course, a lot of female drinkers, but also some male drinkers who really appreciate a very innovative format of Budweiser in the market. So really, when you look at our mature markets, it's all about occasion expansion, and it's driving distribution of these innovations to complement the occasions of Budweiser and continue to increase the price points because most of these variants would be at premium prices, some of them even significantly premium to the Classic Budweiser. If you go to the distribution expansion, they're really -- in some markets, Budweiser still has a very limited distribution level, and it really correlates typically with the disposable income in the different markets and the maturity level. Last call, I think I shared that we have Budweiser distribution at less than 50% numeric distribution. It's actually well below 50% at a national level. And so we do see significant opportunity for Budweiser to continue growing because we have a strong brand awareness and love for the brand across the country. So -- and actually, when you look at Budweiser sales to retailer volumes outside of the strong presence markets like Fujian and Guangdong, we actually see strong double-digit growth for Budweiser in the first half, even if we compare to 2019 first half. So we see a very solid continued growth, especially also outside of the strong presence markets. So maybe an interesting information for you. I mean you know about our maturity model, right? And how we cluster all the cities in China, right, between the different maturity levels and market share kind of clusters that we have to cluster the cities together. We actually currently have a list of more than 50 cities, 5-0, where we specifically focus to expand Budweiser as a brand. So that's the focus on Budweiser Classic, right, Budweiser Red. And typically, what these cities have in common is that they would be middle market maturity and lower market shares. And these are actually the cities that we have a very fast growth of Budweiser, and it comes down to the expansion playbook that we have in finding the right wholesalers, building the route-to-markets and increasing our coverage of the stores in these 50 cities, just over 50 cities in which we focus on the Budweiser expansion. So we see a lot of growth opportunity for Budweiser even if it is a big brand. We see strong double digit growth, which kind of confirms that, but when you dive deeper in the nature of the growth, it's actually very encouraging because in the more mature markets, we see growth in new occasions at higher price points. And in the markets where Budweiser has low distribution levels, we're actually quite targeted in more than 50 cities in expanding the playbook that we have for markets with a lower maturity.

Okay. Great. Thanks very much, Jan. So moving on to Korea. Obviously, continuing these results that margin pressure doesn't seem to be abating. And it looks like the success of HANMAC is driving a bit of a competitive response from Hite. I see that they cut the wholesale price of 500 ml cans of Terra in the -- which is obviously focused on the [ CVS ] channel. Can you maybe tell us -- contextualize this move for us? Is this kind of material price reduction something that you see typically in the off-trade in Korea? Is this normal competition? Or is this a change in the nature of competition? And then how has this kind of dynamic played out in the past? So I'm interested in your reaction and just contextualization around how different is this? Is this a change in the nature of the Korean market that we need to think about as something going forward.

Thank you, Euan. I think very good question, right? I think South Korea is a market. I'm sure we'll talk a little bit more about in this call. And there are quite some changes in South Korea. When you look at our commercial agenda, and we're actually quite happy with the progress the team has been making in South Korea, and we're very encouraged with the results for the first half outside of industry, I should say. When I look at the price movements, I mean, I'm sure you won't expect me to comment on every competitor move in detail. But when I look a little bit broader, I think an important move we did in the beginning of the year that is maybe a little bit less feasible because it gets quite detailed. But we essentially applied a framework that we call OBPPC, which is occasion -- it's basically occasion, brand, pack, price and channels. So it's looking at what are the right packagings of our price points within each channel, depending on the occasion we try to serve. And we actually -- the team in Korea did a very detailed work on that and decided in the first half of the year to launch a number of packaging innovations on the Cass brand, which, as you know, is by far the biggest brand in South Korea. And these launches have been very successful. Actually, if I give you an example, Cass used to be sold in single can and then in the 4x 500 ml can, for example. And the team launched in the second quarter, packaging which is an 8x 473 ml can. So it is a slightly smaller can, but you can only buy it if you buy it by 8 cans. And these 473 ml can would be at a lower average price point, but shoppers need to buy more cans to basically get access to the price point. So it's kind of a pack price approach but targeting specific occasions. And when we communicate about the pack through the line, we also link the packaging to specific occasions. And this has worked quite well and has kind of opened a new way for South Korea to position packs in specific occasions with access to new price points. Now obviously, this launch was focused on the in-home channel. And due to the COVID restrictions, you can imagine that the weight of the in-home channel has increased quite a bit in the last 12 to 18 months due to the COVID restrictions. And you imagine that some of the other players have also wanted to increase kind of their weight in this channel. And we've seen a lot of our competitors go more into lower price points and placing more discounts. Now to your question on the 500 ml can, actually, most of the 500 ml cans are sold in the CVS channel. Most of the other channels in retail are focused more on the smaller cans at 355 ml cans. But when you look at the CVS channel, actually, more than 80% of the 500 ml cans are sold by 4. So typically, the promotion shoppers get is 4 cans for KRW 10,000. That's kind of a typical promotion in CVS. So the average can price is KRW 2,500, right? So 10,000 divided by 4 -- while if you buy a single can, it's typically KRW 2,700. But given -- even if some competitors would decide to reduce the price of their cans to 2,500 from 2,700, in reality, most shoppers already buy -- get access to the price point by buying the cans by 4, which is by far the biggest format or way of buying the total cans in the Korean CVS channel. So even if some players give some discounts to get there, we don't really see any significant impact on our volumes in the channel. And we believe that our strategy of differentiating the packs to target specific consumer consumption occasions and activating price curves in a sustainable way will help us more from a medium to long term to really drive the right category growth in South Korea, which is really our role as a market leader.

Your next question is Chen Luo, Bank of America.

I've got 2 questions. The first one is on China. So we notice both our premium and super premium portfolio have grown pretty nicely in first half. However, given our high base, I think it's not that easy for us to achieve super strong growth for our premium portfolio as compared with our competitors who have got lower base in the category. However it seems that Bud APAC still enjoys very clear advantages in the super premium portfolio. We understand that super premium is a small part of our total China volume. Based on our estimate, it could be roughly around mid-single-digit percentage of total volume. But can we get any color on the revenue and earnings contribution from the super premium portfolio? And any color on our future strategy in this category will be also very helpful. I will start here for this question first. And later, I will talk about the question on Korea.

Sure. Thank you, Luo Chen. So maybe let me focus on super premium, but before I do that, I would like to say that we're actually quite excited as well on our premium portfolio and on the growth potential of Budweiser. I know there is a lot of competitors focusing on the premium segment since 1 or 2 years and launching a lot of initiatives there. We're actually quite excited with the momentum behind Budweiser. We see a lot of opportunity to continue with our kind of line extensions, focusing on different occasions. And the pure expansion is actually, if anything, an even bigger opportunity than before because we see the Chinese consumer premiumizing quite quickly, and we believe we can accelerate our geographic expansion quite effectively because our playbook basically works, right? So we remain very, very excited by the premium segment growth. But you're right. I think the super premium part of the business is typically a little bit less understood, and I will try to share a couple of numbers with you that I think you will find interesting. So maybe for context, right, we started focusing big time on the high-end company, really about 5, 6 years ago when we launched a special team to essentially have a dedicated team developing our portfolio of super premium brands, launching them with differentiated drinking rituals and then developing also [Audio Gap] focuses on the smaller brands at the time that took special care and special attention to grow, right. And as you probably know, in this part of the portfolio, really having multiple offerings and a rich portfolio is really the critical advantage. And as you know, we are very fortunate that with our parent company, ABI, we have more than 600 brands that we can basically leverage, which many of them have an amazing heritage and differentiated positioning and different flavor profile, taste profile styles that we can bring in from different countries, not only the products but also the experience into China. When you -- when we did it, this segment was very small, right? Super premium at that time, 5, 6 years ago was really small. And already a number of years ago, we decided to continue to expand our portfolio with partnerships as well, for example, with Guinness in the stout segment or Sapporo in the Japanese beer segment. We continue to build a very strong portfolio in the last 5, 6 years in China. And some of these brands really got to scale in the meantime. If we think about Corona, Blue Girl, Hoegaarden, they're all brands that really came from a very small base to a significant base. And actually, this part of the portfolio is very difficult to copy by any competitor. And if you think about it more strategically, what we did with Budweiser 10 years ago was betting on a segment that at that time was very small, which was a premium segment and became very sizable. If anything, there is a parallel to make with the super premium segment 5 years ago, which was very small. But if anything, we believe the super premium segment from a profit pool perspective can be as big 5 to 10 years from now or even bigger than what the premium segment became in the last 10 years. So some numbers to share. I think last time we shared some numbers with the analyst community was at the Investor Day in 2017. And I think -- I'm quite excited to share that if you compare the super premium segments as a percentage of our contribution to our total revenue, today, the segment has quadrupled versus 2017, so in the last 4 years. Actually, when you look at the share of our volume, about mid-single digits of our volume is today the super premium segment. If you look at the net revenue, it is in the mid-teens of our net revenue if you look at the first half of 2021. And actually, more than half, if you look at the last 4 years of our business, more than half of our net revenue growth contribution in China came from the super premium segment. So if you think about it, a mid-single-digit volume, mid-teens revenue contribution to our total business and more than half of the revenue growth, you can see that actually, from a growth perspective, super premium is a segment that is maybe less discussed, when you look at our competitor moves, but it is very strategic in the beer industry in China and is a very big part of our strategy. And that is why we have actually in our expansion strategy, like I mentioned to Euan earlier, we have just over 50 cities where we focus big time on Budweiser Classic geographic expansion. We actually have a list of 31 cities in China where we have a big focus on the super premium portfolio expansion. These cities where I said, I was talking with Euan earlier, saying that the 50-plus cities are typically middle maturity, low-market share. The list of 31 cities is typically late maturities, so high maturity levels where logically, on average, we would have higher market shares because that's -- there is, of course, Budweiser would be better developed there and our go to market would be typically stronger than these markets already. So -- and then within that segment, I mentioned the brands that are already at scale with Corona, with Blue Girl, with Hoegaarden, but they're growing very strongly because from a market share perspective, we believe these brands can get much bigger in China if we compare it to other markets in the world. But then on top of that, we have what we call the craft and specialty portfolio. And if you look at the craft and specialty portfolio, it's one of the future growth drivers, right? Actually, the craft and specialty segment in our portfolio has doubled its size if you compare this year versus last year. And we keep adding new brands in there, right? Of course, we have Goose Island in there. We have Boxing Cat in craft. We have brands like Guinness, Sapporo, Stella Artois in there -- in specialties. We continue bringing more and more brands in there that are very differentiating, right? If you think about the Belgium portfolio with Belle-Vue Kriek or we have Tripel Karmeliet, we have Leffe. We have a lot of brands that we can bring into the country to expand our craft and specialties portfolio, where the assortment is really critical to differentiate and offer choice to our consumers at these higher price points. So I think -- thanks for the question, Luo Chen, because it's quite an exciting part of our portfolio where we see a lot of the future growth happening. And more difficult, I would say, for competitors to build such a wide rich portfolio that we can offer in the marketplace.

Thanks a lot, Jan, for sharing a lot of useful information on the super premium segment. And then moving on to Korea. We understand that currently, the country is seeing the worst ever wave of COVID outbreak, fueled by the more contagious Delta variant. And the restrictions on activities are even tighter now than before. Are there any changes to the overall consumption sentiment that we have observed so far in South Korea? And what is our outlook for the South Korean business in second half?

Yes. Thank you, Luo Chen. I think South Korea, you touched on the point of COVID restrictions, right? And it's probably the most important point to mention in this call that has influenced our results, right? Because essentially in South Korea, our volumes declined by low single digits because of these restrictions. But if you look at the underlying performance, commercially, we are quite happy with the performance in South Korea. We grow significant market share despite the channel headwinds, right? Because, as you know, the first thing that happens when the COVID restrictions come in, typically, the on-premise channel is much more impacted than the retail channel. And in the on-premise channel, we have a higher-than-average market share. So we are disproportionately impacted as a brewer in South Korea. And despite this quite negative channel mix in the second quarter, we gained significant market share in South Korea. So we're quite encouraged by the success of our innovations. If you look at the industry, which is the essence of your question, the COVID situation continues to be very fluid in South Korea. Actually, the government initially announced that they would ease all the social distancing restrictions on the 1st of July, which was quite exciting for us because that kind of followed a long period with restrictions, which were higher in Seoul, the capital, Seoul and surroundings than in the rest of the country. But then as we approached the 1st of July, towards the end of June, actually, the number of cases had been quite stable between 400 and 500 in the last weeks and months before the 1st of July. And then suddenly, with the Delta variant, it reached peaks of 1,600 per day and even higher in these days, right? So the government kind of changed their decision and they decided on the contrary instead of relaxing the restrictions, they decided to reinforce the restrictions to the highest level, which is level 4 in the Seoul area, and increase it as well in the rest of the country. So practically speaking, basically, private gatherings are only allowed up to 4 people. And if you're in Seoul and surroundings after 6:00 p.m., you can only be with 2 people in a group. So essentially putting significant restrictions on the on-premise. And most bars and night life venues would simply be closed. So on the positive side, the government announced that they are quite ambitious with their vaccination program. They have an official target of more than 70% full vaccinated by September this year. They're making progress towards their target. So I would say, commercially, we are very confident with our plans in South Korea, very much encouraged by the consumer reactions to our portfolio and our innovations that we launched in the last 6 months. COVID-wise, it remains fluid, and we hope that the vaccinations and the social distancing restrictions that the government put in place will help to reduce the restrictions and the impact on the industry.

Our next question is Lincoln Kong from Goldman Sachs.

I have 2 questions on China. Ask one by one. First one is in terms of the latest volume trend that we are seeing, say, in June and July because we start to see the COVID resurge in East China as far as the Henan flood, do we have any sign of volume impact from that? And in terms of the ASP, the first half, we are about mid-single digit higher versus 2019 level. So how -- looking forward, how should we think about this ASP trend into the second half? We know we have some moderate price hike in early this year. So do we see any chances for further price hike by end of the year? That's the first one.

Sure. Thank you, Lincoln. If I look at the short term, right, like the last 2 months kind of period, I think there were a couple of main events, right? I think the first one was the Henan rains in [ Dor Xinxiang ] regions that were impacted by serious floodings. Obviously, I mean, our first priority there was our colleagues, our wholesaler partners and the communities, right? So happy to say that our teams and partners are all safe. And for the communities, we actually were able, with the help of our wholesaler partners from a distribution perspective, to provide almost 0.5 million cans of emergency drinking water to the people who were affected in the province. The second event is really the COVID cases rise. I think in June, most in Guangdong. In July, recently, Jiangsu Province, right, centered in Nanjing, but then also the Liaoning, Sichuan provinces where there is a number of new cases. And the good thing there is that we've seen local governments reacting very quickly in terms of identifying the issues and screening the populations at mass scale and actually very quickly identifying the cases there. From a business perspective, if I look back at June, Guangdong, of course, that would have impacted our business. But by the end of June, all the impacts would be in our Q2 numbers that we reported, right? So anything that happened in Guangdong is in the numbers of H1 and Q2. And despite that, we grew double digits for Budweiser and Super Premium. And as you know, Guangdong is quite a big province for us. So you can imagine the underlying momentum of our premiumization trends. Next to that, we don't really see any significant impact on our business, especially in the premium segment, in the other provinces, so the more recent outbreaks in July, because of our more limited market position in these provinces. There will be some impact in the core and value segments, core plus maybe but premium, super premium, relatively limited impact of these COVID cases just because of the geographic kind of position for the moment. Of course, it's -- I'm very kind of cautious to predict anything on COVID, right? We monitor the situation all the time. As you know, we adapt our commercial plans in a very agile way to adapt to the business environment. But essentially, that is kind of the situation here. And when we look at the segment trends, right, I think in the second quarter, you would have seen that there was an overall volume decline of 4.5%. That's really due to the high base in 2020. And of course, there was because last year, this time, the COVID restrictions eased and we had very high comps, especially in the month of May and June. Remember that June was the biggest month ever in our history, right, and still stands to date. So the -- but the volume decline was basically fully driven by the core and the value segments, which is why you see our revenue per hectoliter grew by 9.5%. And actually, to your question on future looking, right, I think when you look -- when you compare our revenue per hectoliter to last year, of course you would have, like we have the difficult base in 2020 second quarter because of the big core and value kind of recovery in Q2 last year that would have given easy comps from the revenue per hectoliter point of view to last year. So probably comparing to 2019 would be a better comparison from a revenue per hectoliter point of view. And there, we are more in the mid-single digits, which goes back to our continuous strength in the last number of years. I think that would be roughly in line with what we would have seen in the last 3 years as well. And the time that we talked in the IPO period, right? I think revenue per hectoliter-wise, we are typically in this mid-single-digit range. So you see the continued success of our premiumization strategy. And we don't really see any slowing down of that. So also for the future, we see continued premium, super premium success in our portfolio. And as I mentioned earlier, super premium, I think, will be -- continue to be a big growth driver as well to support that.

Okay. The second question is more about key strategic focus. Because I think this year, earlier this year, we had some management change for the China team. So in terms of promotional intensity and the key priority change during the summer season. Are we doing anything different or new this year versus past? And in terms of how do we have a focus in terms of the expenses allocation, especially, say, in some certain premise channel, high-end channel, how are we thinking for this year in terms of the spending?

Yes. Thank you, Lincoln. I think when you look at our management team, right, we see a lot of continuity and proven talents that are basically offered a chance to step up in our organization, right? When you look at our Chief Sales, Chief Marketing and the President for the high-end ventures, they're all very seasoned colleagues of ours, more than 10 years in the company. And they all have a background in our business in the sales and the marketing fronts, either running big business units, running the high-end company or running our biggest brands in marketing. So I think you will see a lot of continuity in our strategy because we believe with this team, we will continue to deliver very strong results in the future. When you look at our strategic priorities, it is really about premiumization, digitization and expansion. I think premiumization, I covered in Euan's and Lincoln's -- sorry, Chen Luo's question before. I think you see our excitement behind Budweiser. You see our excitement behind the super premium portfolio. And we put more and more focus on our beyond beer company kind of portfolio, which is very small today still, but we are really planting the seeds for the next 5 to 10 years to complement our super premium portfolio in the future. On digitization, we also have very big initiatives on the consumer front, on the customer front. So we believe we continue to invest in the right kind of initiatives there. And then thirdly, in expansion, we continue to see very big expansion opportunities, right? Maybe to give you an idea, from last year, we expanded significantly at a country level, maybe back to the provinces where we have high market shares like Guangdong, Fujian and some other provinces in the country, right? Our teams there, obviously, as you probably know, as we premiumize when we get into a new province, we start typically from the city centers, right, in the night life, CR, Chinese restaurants, and we build the business into the in-home channel over time. What these teams are very focused on is not only innovations to drive more consumer occasions, but they also go for more counties in the same province because it's kind of the approach that we can expand the strength of our brands into more counties outside of the city center. So it's really a matter of building the right route-to markets. And in the last year, to give you an idea, we invested in more than 500 counties out of the 3,000 counties in China with a full portfolio approach. So we actually do quite some expansion at the country level in China to continue to build our distribution successfully. And then the other one is what I mentioned earlier, right, in the cities where or the provinces that we have lower market shares, there we go more for the Tier 2 and below cities with a focus on Budweiser. There's a 50-plus city list that I mentioned earlier, because there, we see a lot of middle maturity markets that we can continue to expand in, right? So that's really the essence of our strategy. That continues to be our focus. And from a resource allocation point of view, I think we continue to invest behind these three strategies. And of course, as there are some changes with COVID restrictions, et cetera, we are quite nimble in adapting our resource allocation, but I think we've been quite effective at doing that in an agile way.

Next question is Melody Zhou from CICC.

It's Melody from CICC. And I have 2 questions about our e-commerce channel and category expansion. The first question is, how you see our June 18 online shopping festival and the second quarter performance in the e-commerce channel? And what will be the strategy going forward in this channel, for example, in B2B and B2C? This is my first question.

Sure. Thank you, Melody. Good afternoon. So I think when we look at the e-commerce channel, we really leverage this channel for brand building. So as you know, we are leading the e-commerce channel, right? And it's a channel that is growing quite healthily. But if you look at the role of the channel for us, just like Nightlife is a brand-building channel for us. We also consider e-commerce as a brand-building channel. So we execute specific marketing campaigns in this channel because we can reach different consumers and the media we can use to reach them is very rich and the better we know our consumers with our first-party consumer data, the better we can also segment them and target our messages in a relevant way. So it's a very different strategy than a pure price promotion strategy, which can also exist in this channel, but we don't take part in that, and we clearly have a differentiated price approach, right? So really, when you look at our approach and the bulk of the volume that we sell in the channel would be in differentiated packaging assortments. We offer experiences they can only find online, not offline. And actually, a significant part of our revenues is sourced from innovations. As an example, in June, we launched Budweiser ME-X. ME-X was a new variant of ME-3, right, the ME series of Budweiser. To give you an idea, right? This actually sells at 3x the net revenue per hectoliter than the regular Budweiser in the e-commerce channel. So it's quite a high price point, right? 3x. So -- and when you look at the commercial success of that we partner with our brand ambassador, Xiao Zhan who in China is very, very famous. And we actually codeveloped for this ME-X variant to be launched with his support, and he became the #1 ranked brand in food and beverage during the 618 e-commerce shopping festival. It actually got to RMB 50 million GMV. So not just in beer, not just in beverage, but in the -- all total food and beverage category in China in the 618 shopping festival became the best-selling article online. So it was quite a good example, I think, of showing what role the channel plays for us. Next to that, we have the O2O channel, which is also growing very rapidly, accelerated since COVID and continues to be a fast growth driver. And we're also leading the O2O channels with our premium and super premium brands, especially. And beyond that, I would say, as you know, right, digitization is an important strategy for us. We invest in first-party consumer data. We now have more than 29 million first-party consumer data in our database, and we can segment them and target these consumers individually. We have that space and other kind of consumer products, digital products. And then next to that, we continue with our B2B application, which is really digitizing our O2O market and future-proofing the O2O markets. We started at 6 months ago, right, and we continue to expand to more cities and more channels as we digitize the O2O market and the different channels together with our wholesaler partners, and we're quite excited by that as well for the future, and I'm sure we'll share more data on that in the quarters to come.

Okay. Thank you so for such a detailed answer and congratulations on such a great performance on e-commerce channel. And my second question is about the category expansion. So will Budweiser APAC continue to expand the category? Because I know that in the first half of this year, whiskey and RTD were the expanded one. So I want to know what is the next one? And is there any planning to expand the sales volume of whiskey and RTD in the future? This is my second question.

Thank you, Melody. So I think within beer, I mentioned a lot of innovations that we launched, right? And we continue to be very innovative, especially in premium, super premium segments, but also for the full portfolio. But you're right, we also have our eyes outside of the beer category. And I think probably the biggest deal that we announced earlier was our partnership with both Red Bull and then Fireball, which officially started on the 1st of June. So we started distributing our products in the 1st of June. It was kind of a transition month, of course. So the numbers are still relatively small in our numbers on the scale of things, but these are really strategic launches for us because we believe famous spirits and energy drinks will continue to grow. They're growing segments or growing categories, but also we have a route to market that can re-facilitate the expansion, and we can add to the growth of these segments and become a relevant player in these different new categories, and especially in a premium way. When we look at Fireball, clearly, we see an opportunity to penetrate the channels where we already sell our premium, super premium products and capture different drinking occasions, right, it's more about mixing and shots, which is very complementary to beer. In the future, we'd also develop the wider portfolio of Sazerac, which is a company, the partner company behind Fireball. They're very beautiful brands like Buffalo Trace, like Southern Comfort, very premium and super premium spirits in which we will invest in the future to develop a more specialized route to market to offer more choice in our most premium sales channels. If you look at Red Bull, of course, the energy market is already big. But we believe that there is room to premiumize that market like we did in beer as well. And actually, Red Bull is, of course, a globally leading premium energy drink. And we believe we can bring new drinking occasions in the channels where we are strong. And so we have integrated Red Bull in our O2O markets, especially Nightlife and some other like [ CVS ] channels where we're pretty strong. We believe we can build the distribution and strength of Red Bull as one of our key beyond beer brands for the future. Interesting to know is that both portfolios are more profitable for us than the average of the group on a per hectoliter basis. So they continue to build on our premiumization strategy. And of course, in addition to these partner brands in the future, we'd announce more and more launches because it's actually too small to mention today, but we have an approach that we launched new innovations in a seeding way. So we launch them typically online or in 1 or 2 cities in specific channels. Then we fine tune the liquids, the taste profile, the packaging with the consumer feedback because these days, it's very easy to get feedback from which consumer segments you reach, what is the repurchase rate, what is the feedback we see from consumers online or in our consumer groups. And then we fine tune the proposition to then quickly scale it in the market. So we'll bring more news on that. And actually, we also have a beverage front, which is kind of an initiative in more of a VC approach, where we can also launch smaller initiatives or partner with other companies to build a richer portfolio for the future. So we have different ways of building this beyond beer company approach. Some of them are bigger and proven like Fireball, Red Bull, Mike's Hard Lemonades in the ready-to-drink space. Some of them are being launched and seeded in a small scale, but will be bigger in the future as they prove their success. And some of them are in the works from the kind of beverage front approach to find the right partners to expand our footprint there. So thank you for your question, Melody.

Next question is Lillian Lou from Morgan Stanley.

So I -- my 2 question, one is on China. So in particular, what's the margin outlook, maybe really because we don't have the breakdown on country level for gross margin, but I noticed on the group level, the gross margin actually narrowed despite the premiumization trend. So what kind of reason behind that and how we look at the margin trend in the next quarters? And probably that's also related to China, I think it's a similar situation, if I'm right? And the second question is short, so I just ask together. What's the situation in India when we look at the second half? And what kind of impact of India situation to the total profit on the profit side?

Thank you, Lillian. I'll ask Iggy to take the first question, and I'll take the second one.

Perfect. Thanks, Jan. Thanks for the question, Lillian. So let's start then maybe with the margin view. So in the first half of '21, we had very, very strong performance actually in China, right, not only at a volume level, but also net revenue and EBITDA. So top line actually went all the way down to bottom line. They all grew double digits on a year-on-year basis. Obviously, in the second quarter, as Jan mentioned, we had a tougher base last year, given the strong May and the record June. But even so, we were able to grow net revenue, 4.6 percentage points organically, more so on a reported basis and EBITDA grew ahead of that. So in fact, both net revenue and EBITDA returned to second quarter 2019 levels, even despite the strong comparables in that year as well. When we look at it from an operating leverage perspective, we actually have a favorable operating leverage in China. So we're actually growing EBITDA ahead of net revenue in all those comparables, right, in the first half and the second quarter, et cetera. We don't disclose the EBITDA margin at that level. You can obviously assume, given the size of China, that a significant portion of the 589 bps advancement in EBITDA margin from 27 percentage points last year to 33.2 percentage points came from China. And if we look at the business, right, you could argue that Q3 and Q4 performance was already largely returned to normal business. So we're operating what you would call now back to similar to steady state conditions, and an EBITDA margin perspective in China, specifically. Beyond that, of course, as we look forward, but we don't give an outlook, we do know that commodity prices have increased in several categories: aluminum, paper and steel, among others. But at the end of the day, we have a hedging policy that allows us to plan for this up to 12 months in advance to some of these categories. This allows the teams internally to actually build out plans to offset a significant portion of commodity increases. Using our cost connect win approach, we can then apply that for growth purposes. And then in terms of price increases, I mean, we mentioned in the last call, if I recall correctly, that we had executed a price increase on Budweiser at half of CPI. And we had also executed actually in April a national price increase on our core and value brands. So those 2 are there already. But we continue to evaluate pricing opportunities in a more tactical way, right, in terms of region and channel using the OBPPC methodology as well, again mentioned earlier. So that's always part of the process. But premiumization will remain as the main driver of [ HD never impact leader ] growth moving forward.

Yes. Lillian, maybe on India, right. I mean second quarter, India was all about the COVID second wave that hit India very hard, right, in the second quarter. So we really looked at how do we take care of our colleagues, our business partners, our communities. So you would have seen in our press release as well, we actually had quite a big community support program. So we did a lot of things, right, from oxygen concentrators to aid kits to surgical masks and testing kits and even hospital beds. So I think the team really put a priority on the health and safety of our communities. And we've supported our colleagues as well with the vaccination. So more than 70% of our colleagues are vaccinated now in India to support them and their families and partners as well. If you look at the consumer, the consumer recovery is there in India as compared to last year, right? We actually -- even despite these big challenges, we grew high double digits in premium, super premium portfolios, and we grew the overall business on a double-digit basis as well. But we are still below the 2019 levels. And on the EBITDA level, not a lot of impact. I would say it's not a big contributor positively or negatively to the results because of double-digit growth to last year and relatively lower margins than the other countries. So not really a big impact from the EBITDA perspective, Lillian. Thank you for your question.

So our final question is from Anne Ling from Jefferies.

Two questions from my side. First one, I'm going back to Korea. I understand that you mentioned earlier about the market share increase for this first half. But would you like share with us a bit more by [ retinol ] brand like for Cass and HANMAC, how the performance has been doing in the first half and what you expect it moving forward? And how did it help in terms of your market share improvement? The second question I have is on the green financing loan, which was announced in July with a $500 million loan facilities. And there was some, like, like for example, the interest expense is tied with like some KPI regarding like how you achieve in terms of some ESG target. Would you help us elaborate a little bit more on that. Is that like something that you plan to focus a bit more on moving forward?

Thank you, Anne. Thanks for your questions. Let me take the first one. I'll let Iggy come back on the refinancing loan. So on South Korea, you're right, we gained market share in the second quarter. And actually, it's really driven by these innovations that I mentioned, right? Actually, both HANMAC and then the all-new Cass. And then also, of course, the double-digit growth of our premium portfolio, which is also very encouraging there. If you look at the channels, really most of the share growth was in the on premise. I would say in-home was probably flattish in the first half. But in the on-premise, we saw significant share gains and especially in Korean restaurants where really you see the strength of the momentum of all new Cass, which is gaining significant share and actually was very, very nice to see. I mean we talked last quarter that we tested these innovations quite extensively, and we launched HANMAC before the national rollout and we actually saw the same results as we saw in the pilot phase and even better since we launched. So when you look at Cass, it's really the all-new Cass campaign that we launched in April install and then we ran national soon after. The market share in Korean restaurant channel has increased significantly after national rollouts. We also see on the brand health, a very strong reaction of consumers on our new campaign and the new bottle. So our brand perception is very positive. We are #1 in first choice beer. We are #1 in -- for young people, right? So the young people is very important for a brand like us, and we are #1 as well there. And I think people really see the differentiation of the new proposition with the cold brewing technology, the transparent bottle, but also the new campaign, which is all about being true and being real, right, as a consumer. So we gained market share in Korean restaurants, and we also see significant momentum in general. If you look at HANMAC, HANMAC has seen continued momentum since the launch. We see increased brand awareness. We see good conversion rates 6 months into the launch. HANMAC is really complementary to Cass, right? Where Cass an easy drinking brand. HANMAC is a classic lager brands. It became the third biggest brand in Korean restaurants now, and we are about 1.5% market share in in-home according to Nielsen. So we're on track with what we wanted to achieve and what we expected since the launch. And really, HANMAC's ambition is to be a key lager, right, like there is [ cape up ], we -- there is no KB or Korean specific lager. And HANMAC really uses the domestic rise from Korea and communicates very strongly on the K lager front. So we're actually quite excited with our commercial plan in South Korea. Premiumization working well, but then Cass and HANMAC, which were the 2 big bets from a kind of a portfolio perspective, really delivering the results we were anticipating. And of course, the industry is not helping us and is disappointing in our results, of course, from a total volume perspective and industry perspective. And of course, I remind everybody, right, we did support these innovations with the marketing support in the first and especially the second quarter. They will normalize as we go through the year. But we are very excited with the momentum that the team builds from a market share and just a brand health perspective on this important portfolio. So for the last question, let me hand it over to Iggy.

Thanks, Jan. Thank you for the question. And so in the case of the green financing loan, we've been doing sustainability for a long time. It's not new in the business. What's started to change is we are integrating sustainability into every aspect of our business, including actually linking financial performance to sustainability KPIs. So as we continue to make great strides towards our 2025 sustainability goals, one of the next steps was to sign the sustainability-linked revolving credit facility, where the loan's interest is actually -- or the interest rate is linked to the achievement of these predetermined ESG targets. And the great news here is that the market rewards companies that value sustainability and execute sustainability, because the rates are as a result better than they would be for a non sustainability-linked loan. So we believe this initiative will aid us in delivering a measurable and positive impact to the environment and in the communities in which we operate. And these KPIs, which incentivize improvement actually relate to climate action, water stewardship, circular packaging and smart agriculture, where now there will be an additional incentive obviously for us to accelerate those efforts. So it's very exciting. We have this aspiration to be a leader in ESG as much as we are a leader in the beverage category here in APAC. And by doing this, we can hopefully lead that wave towards green financing becoming a significant portion of the industry. Thank you for the question.

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

Thank you, Aaron. Our strategic strengths have enabled us for accelerated recovery and growth in 2021. Therefore, we are optimistic about our business outlook, evidenced by the ongoing growth momentum. For since the pandemic is not over yet and full recovery is subject to a nonlinear trajectory. There could still be volatility and some headwinds. For the remainder of '21, we will focus on our 3 strategic pillars: premiumization, digitization and expansion. We further broadened our premium and super premium portfolio to deliver sustainable, high-quality growth for both our shareholders and our stakeholders. So thank you very much for joining the call. Stay safe and well, and see you next time. Thank you.

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