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

Welcome to the 2023 9-month Results Announcement Conference Call for Budweiser Brewing Company APAC Limited. Hosting the call today from Budweiser APAC is Mr. Jan Craps, Chief Executive Officer and Co-Chair of the Board; and Mr. Ignacio Lares, Chief Financial Officer. The results for the 9 months ended 30th September 2023 can be found in the press release published earlier today and available on the Hong Kong Stock Exchanges and Budweiser APAC's website. Before proceeding, let me remind you that some of the information provided during this results call, including our answers to your questions on this call may contain statements of future expectations and other forward-looking statements. And these expectations are based on the 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 obligation to update the forward-looking statements as a result of new information, future events or otherwise. For a discussion of some of the risks, important factors that could affect Budweiser APAC's future results, the risk factors in the company's prospectus dated 18th September 2019 -- 2023 interim results report published. And any other documents that Budweiser APAC has made public. I would also like to remind everyone that the 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 2022. Normalized figures refer to performance measures before exceptional items, which are either income or expenses that do not occur regularly as a part of Budweiser APAC's normal activities. As normalized figures are non-GAAP measures, the company disclosed the consolidated profit, EPS, EBIT and EBITDA on a fully reported basis in the press release published earlier today. Further details of our 2023 9 months results can also be found in the press release. It is now my pleasure to pass the time to Mr. Jan Craps. Sir, you may begin.

Thank you, Reid, and good morning, everyone. Thank you for joining our earnings call. I hope you're all doing well. In the first 9 months of '23, our China business demonstrated continued premiumization with double-digit Premium and Super Premium revenue growth, leading to double-digit top and bottom line growth and EBITDA margin expansion. This was complemented by India, where we continue to drive strong double-digit top line growth and EBITDA margin expansion as well. In South Korea, we experienced a challenging operating environment while seeing sequential improvement quarter-over-quarter, followed by a recent price increase. Let me provide some more color on each of our key markets. In China, we outperformed the industry and grew net revenue by 8.7% in the third quarter. Despite a softer industry and short-term weather-related headwinds, the beer category demonstrated its resilience and Premium and above beer continue to outperform the category overall, given its standing as an accessible luxury. Budweiser revenue grew by double digits, with Budweiser innovations like Bud Supreme and Magnum growing by strong double digits. Super Premium revenue also grew by double digits, driven by both geo and channel expansion. We also delivered double-digit growth in EBITDA with margin expansion driven by the underlying performance of our Premium portfolio and supported by the lapping of channel restrictions last year. On the digitization front, BEES has been expanded to more than 230 cities and represented more than 65% of our China revenue in September. We continue to lead and grow the category by introducing new innovations. In the third quarter, we launched Budweiser Brewmaster Organic, our first organic beer in China, piloting new drinking experiences. Each bottle features a unique code, enabling consumers to trace the beer's production journey from farm to table. We also recently opened our first BrewDog taproom in Hong Kong to enrich the local craft beer scene. Situated in the heart of Hong Kong Central area, the taproom is set to elevate the city's legendary nightlife scene, contributing to boost Hong Kong's night-time economy. In South Korea, we faced a challenging operating environment in the third quarter as well as a tough comp in the corresponding quarter of last year, leading to a mid-single-digit volume decline. Revenue per hectoliter declined by low single digits, with the impact of the recent excise tax increase only partially offset by revenue management initiatives. Despite the prevailing headwinds, our portfolio has demonstrated resilience with the brand power of Cass and HANMAC growing as we continue to invest behind our leading brands, innovations and capabilities. We had another strong quarter in India, where we continue to outperform the industry based on our estimates, with strong double-digit growth in our Premium and Super Premium portfolios, driving strong double-digit revenue growth and further EBITDA margin expansion. Before I pass it over to Iggy, let me share some additional progress on our sustainability initiatives. Our Jinzhou brewery in China became the first in the APAC beer industry to pilot a carbon capture utilization and storage technology. By capturing CO2, generated during the fermentation process, we have been able to transfer CO2 at a high purity level to facilitate natural energy resource recovery at a nearby partner sites. We also continue to be proactive in supporting communities, providing disaster relief to victims of recent flooding events across various regions of China, having cumulatively donated over 2.5 million cans of emergency drinking water since 2015. I will now pass it over to Iggy to take you through our financial results. Over to you, Iggy.

Thank you, Jan. Good morning, everyone. In the first 9 months of 2023, Bud APAC volumes increased by 6%, with revenue growing by 11.5%, supported by continued growth in both China and India. Revenue per hectoliter increased by 5.2%, driven by ongoing premiumization with our normalized EBITDA increasing by 8.5% and our normalized EBITDA margin landing at 31.6%. Cost of sales per hectoliter increased by 4.9%, driven mainly by premiumization as well as commodity price escalation, partially offset by our ongoing cost management initiatives. In China, volumes grew by 5.7% with revenue and revenue per hectoliter increasing by 13.1% and 6.9%, respectively. Normalized EBITDA increased by 15% with a 61 basis point margin expansion supported by cost management initiatives and continued enhancements in the return on our commercial investments. In APAC East, volumes increased by 0.6%, with revenue and revenue per hectoliter declining by 0.6% to 1.2%, respectively. Normalized EBITDA declined by 17.9%. At the same time, we're encouraged by the quarter-over-quarter sequential improvement in our business performance. And with that, Jan and I are here to answer any questions that you may have.

[Operator Instructions] Our first question is from Xiaopo Wei from Citi.

This is Xiaopo from Citigroup. I have 2 questions, one on China, the other on Korea. I will ask one by one. And the first one is about China. When I see your result, actually, we were impressed by the ongoing and continued premiumization. As we all know that both premiumization and trade don't happen in China consumption as we are seeing from a lot of the Chinese companies. So my question is, do we have any plan to rule out any sub-brands in the mass market or mainstream segment in the future? And are you also optimizing for adding more Chinese brand in the brand portfolio? I pause here first.

I think on this question, let me start by maybe just saying that when we do our beer profit pool analysis, we're really -- like our strategy is more focused on Premium and Super Premium because that is where, if you combine these 2 segments, we expect to see more than 80% of the future profitable growth. And actually, within the total profitable growth in the next 5 to 10 years, we expect to have more than half of that to come from the Super Premium segment, which is, let's say, RMB 12 above. So that's really what we focus on in terms of brand portfolio, building our investments, et cetera. At the same time, you're right that in this, let's call it, RMB 8 or RMB 8 to RMB 10 space, which we call core plus-plus, there is an opportunity for brands to do well because this segment is really trading up from core to core plus to core plus-plus. And as such, it's basically preparing consumers to get ready for more Premium experiences and enter into our portfolio of Budweiser and the brands that are in our Super Premium portfolio. So we did actually launch at the beginning of the year a new brand variant on Harbin. You know that Harbin Ice is our biggest brand -- is our second biggest brand in our portfolio after Budweiser. And so at the RMB 8 to RMB 10 price point, we launched Harbin Icy GD, which is actually a new GD genuine draft innovation. The packaging is quite interesting. It brings a pull cap with it. It's positioned to be the [ Ice City beer ] because, as you know, Harbin comes from Harbin City in the Northeast, Heilongjiang province. So it's where the Ice City beer comes from. And the launch campaign is really targeted on Chinese restaurants and in-home channels. So it's been very well received in the last 6 months, especially with the young adult consumers. Our campaign is driven by the KOLs and the influencers. And so we're quite happy with the launch. At the same time, when you look like strategically portfolio-wise, the Premium -- Super Premium segment remains the biggest growth opportunity, both for the industry, but especially for us as leaders in these segments. So thank you for your question, Xiaopo.

The second question is on Korea. We agree with you the long-term trend of premiumization. We were also impressed by the Korea Investor Day last December in Seoul. And -- but as we know that, as we see so the channel check that is -- the Korean market has been very competitive. My question is, do we see the company's major competitors' pricing and investment activity would disrupt our premiumization strategy plan on the road? And if any, do you have any mitigating matters? And what's your view in the midterm for the South Korea market.

Yes, I think in South Korea, we are quite certain that premiumization will continue in the market. The reason I say that is that the beer category has been growing. If you take a longer-term perspective, actually it's been gaining share of throat longer term, and that's driven both by moderation and by premiumization. So moderation has been quite an interesting influence of female participation increasing and females, generally in South Korea, prefer lower ABV beverages. So actually, beer has been performing quite well as the female participation increases. And then premiumization being driven by -- in the last 10 years, at least the increase of disposable income. And per capita consumption of beer in South Korea in general is still relatively low versus the market development, so that we do see further potential there. If you look at the last 3 years, let's say, 3 to 4 years, there has been some short-term impacts on the premiumization trend, first COVID, because consumer confidence has been impacted by the COVID circumstances, combined with some channel impacts in the on-premise channel, which we've seen generally across Asia, but also in South Korea. So given these are the channels that the Premium experiences get built, that has slowed down a little bit of premiumization trends. And then very specific to South Korea, this new Japan movement that started in 2019 with kind of the country relationships at a low point that at the moment, actually, there was a significant delisting of the Japanese brands that happened in 2019 as it actually only recently have started relisting in the last year into the market and that actually have increased our market share in the last, let's say, 12 to 18 months in South Korea. We as a brewer in South Korea, we're actually the only brewer who owns a Premium portfolio with global brands. We sell both Stella world-wide and Hoegaarden, we are leading the Premium segment in South Korea with our brand portfolio. And we also continue to lead and shape the category, right? So as COVID has been put behind us, we've seen the channel reopening, the on-premise channels quite rebounding in a quite healthy way. Of course, the Japanese brands have come back and are stimulating the Premium category or segments. And you would have noticed in the beginning of the year that we took price increase on the Premium segment as well as we are leading that segment. If you look at our brand portfolio and the experiences, Premium segment is still underdeveloped in the on-premise, which typically is a mainstream game in Korean restaurants. And so we have launched recently our Stella Artois 500 ml bottle in the chalice in Korean restaurants, and we are supporting it with the mini-chalice source small glass, Stella glass exclusively for the Korean restaurants to really bring these Premium experiences and differentiated rituals in the Korean restaurant channel, and we believe this can be both a growth driver for the Premium segment but also a margin driver for the Korean restaurants, complementing Cass and HANMAC in the Korean restaurant channel. So in summary, we are quite committed to the premiumization of South Korea. We believe that post-COVID this segment will continue to increase. We are playing our role as a segment leader, both from an innovation perspective, but also revenue initiatives. And we are continuing to invest behind our brands with which we are leading the Premium segment in Korea. So thank you for your question, Xiaopo. I hope that answer them.

Our next question is from Anne Ling from Jefferies.

I have 2 questions as well. The first one is regarding the consumer trading down. So we believe that definitely, premiumization will continue longer term. But like now that, particularly in China, where we have a slower economic growth, right, the new normal. So how would consumer behaved during this kind of slower economic growth? Is there a risk that consumer would trade down short term or consumer will consume less volume in the Premium, Super Premium segment itself trading down. So love to hear what you're seeing in the market.

Good to hear from you. Thanks for your question. Yes, I think generally, when you look at our China performance, I think you can see that the beer category remains quite resilient. And yes, there has been softer industry. There have been some weather events as well that have impacted the market and different regions, for sure. But you do see that beer is quite resilient as a category. And then you also see that premiumization continues, right? And I mean, when consumers kind of trade up and premiumize within beer, you notice that Premium, Super Premium beer are still very accessible luxury. So trading up within beer is not the same kind of ticket item as trading up in different categories. So that's why you continue to see quite strong premiumization numbers, double digits in our portfolio. We do recognize that we do quite some consumer research actually on seeing how the consumers evolve, how do they react to the new environment and what to expect and what does it mean for our investments in our resource allocation. And we do actually see Chinese consumers keep very top of mind this need to live a quality life and still pursue happy movements, right? In the current context, people are still ready to spend, but they want to spend smartly, right? They want to make smart choices. They want to choose brands that are giving more Premium experiences. Actually, 30% of the mid-to-high income consumers, they say that they want to spend more on beer based on consumer research, but they look for experiences. They look for emotional value. They want to have rich rules. All these things are getting more important. They want to pay extra, but they want to have a more emotional value offered by brands. So that when they decide to trade up, that they get something in return for the smart choice that they make. So obviously, we do have a compelling portfolio in these segments, as you know, Anne. We do have brands that offer differentiated rituals that are targeting different occasions in different need states. And we continue to see the industry premiumizing. Of course, there is also this part of channel recovery post-COVID that we saw supporting these trends. But the premiumization is ongoing, and we've seen that translating our Premium and above volumes growing double digits, both in the year-to-date and the third quarter.

Maybe just a follow-up question regarding like the investment in the Premium segment under a slower economic growth. So would that be a way -- what will be the way or if there's any change in terms of the way you conduct your commercial investment, for example, like any particular focus in channel or a particular promotion?

Yes. I think when you look at our investments, we really focused on these kind of 3 strategies that we are very consistent on, right -- premiumization, expansion and digitization. And I think when you think about the investments, they really follow these priorities. So in premiumization, we continue to invest behind our brand power, especially for our Premium, Super Premium brands because they're really critical to offer more differentiation and to offer value on these rituals that I mentioned previously, which we expect even more from Premium brands in terms of different experiences. So we are building long-lasting impact brands, and we see this growth both in the year-to-date but also in the third quarter, which was a little bit more of a challenging context quarter, but we see the premiumization strategy continue to work quite well. If you think about expansion, right, I always mentioned for our Premium brands like Budweiser, even with the size of the brand, we're still below 35% distribution. So that's when -- in the beginning of the year we communicated we would go for 201 cities in the base where we sell more than 1 million liters of Budweiser. We want to grow that to 220 cities by the end of this year. Happy to report, we are quite on track to that. We see in our expansion region, strong double-digit growth of Budweiser. And if you think about examples like Ziyang or Nantong, you see bigger cities where we see strong double-digit growth for Budweiser solid strategy of expansion is working very well. We continue to track our ambition to significantly expand our distribution footprint this year as the consumers continues to look for more Premium solutions or offerings. When you look at digitization, I mentioned in the integral rights, this digitization continues to be a big priority for us. And so from an investment perspective, we actually see more and more ways of leveraging technology to do very precise investment allocations. And we anticipate that as the role of digitization technology in our investment and execution and resource allocation behind specific initiatives will help us more and more in controlling our investment level. As we mentioned last quarter, right, is that, we are quite happy with the investment level we're at, which is relatively close to last year's investment level. Of course, we increased with net revenue. But if you press it as a percentage of net revenue, we're pretty close to the investment level of last year. And leveraging technology to make is more effective and more efficient actually helps us quite well to continue to increase our brand strength and optimize our commercial investments and execution. So I hope that gives you some color behind our commercial investment.

Our next question is from Lillian Lou from Morgan Stanley.

It's about China Premium and Super Premium growth outlook. How is the trend going into fourth quarter and on the top of a very strong performance in the third quarter and also as well as how the [indiscernible], the trend in 2024. Because recently, from our channel check, there are a few high-end restaurants feedback, seeing that there has been some slowing down in the Premium on-trade channel, whether there will be impact our performance across different channels for the Super Premium, Premium category. That's my first question.

Lillian, thank you for your questions. I think on the -- if you look at a 9-month basis, we outperformed the industry in China, and we grew mid-single-digit volume growth on the year-to-date basis. And as I mentioned, right, this premiumization continues to happen in our portfolio with double-digit growth both from year-to-date and in the quarter. And we actually remain quite optimistic about our business prospects in China because we continue to see very big room for premiumization even in the current environment because of this resilience of the beer category. And because of this accessible luxury that we see our brands capture in here. If you think about this continued premiumization above Premium, we do see that Premium is getting to real scale and continues to see more opportunity. And we are very focused on developing the next kind of wave of premiumization, which is Super Premium, right, which we call internally the blue ocean. And we see their consumers looking for a lot of differentiated offerings and actually having a portfolio and playing innovations in there is quite important, and it's supporting us in the mix to continue to increase our revenue per hectoliter. And when you think about -- we do that both within the Budweiser brand because when you look at our innovations like Budweiser Supreme or Budweiser Magnum, they offer higher revenue per hectoliter than average Budweiser. And these offerings have been growing strong double digits in the third quarter. And their wage in the total Budweiser brand is increasing quarter after quarter. And when you look at the Super Premium, we continue to see the Super Premium revenue also grew by double digits, supported by the expansion on top of this channel recovery that I mentioned earlier. We continue to see Q4 as a good quarter because obviously, in Q4 last year, we have a relatively easy comp in terms of channel closures. And I remember in December last year, the channels we opened, but there was the first wave of COVID Omicron really growing at scale through the economy in China. As you know, both the underlying drivers, in our view, remains solid because of the beer resilience because of this accessible luxury. But will be combined in Q4 with reopening support versus the comps of the closures of last year in the fourth quarter. So both actually, we believe, will continue to support us into the fourth quarter. And for 2024, we also remain optimistic about our business in the current environment.

My second question is for the Korea price increase recently. So how is the initial feedback from market post the price hike in October last -- earlier this month? And how long normally it takes to -- the time take to fully checking factors? And also, would there be some growth recovery for Korea in next year?

Thank you for the question. I think our pricing decisions in South Korea, we always take based on the macroeconomic environment and what we believe the right timing and the right decisions. And as you have seen, right, in the beginning of the year, the government did put through the excise increase, which was in line with the CPI of last year, minus 30% because this band of plus and minus 30% versus the previous year, CPI that they can take. And at that time, we decided not to take price, given the macroeconomic environment, the consumer confidence and the level of inflation in the market at a time. But of course, that has impacted our margins and our financial results in the second and the third quarter, as I'm sure you have noticed in our results announcement because we consider the macro environment was not there to reflect it in our prices. Recently, we announced a price increase on our core brands. As you remember, we did take the Premium brands earlier in the year, but now we also took the price increase on our core brands, effective since the 11th of October, you don't actually see any impact in our third quarter results. But in the fourth quarter, you will see this fully coming through. In terms of pass-through to our customers, as of the October 11, the prices are basically charged in our shipment prices. If you look at when stores change the pricing, we are basically in line with our expectations. So typically, not all the stores take price and not everybody takes it immediately, it can take 1 month more or less before you see prices change in the market. But we are basically fully in line with our expectations for the past, true. I think in terms of other players reactions, it's a bit early for us to say. I'm sure you will be able to follow that in the market as well. But we remain cautiously optimistic if you look at our business from a margin improvement perspective because, as you know, price increases are important in South Korea because the rate is the #1 driver from our EBITDA margin perspective before operational efficiencies and mix. So we are cautiously optimistic, I would say, about our margin increases to come. And as I mentioned, the price increase is effective since essentially a couple of weeks ago, October 11.

Our next question is from Ms. Leaf Liu from Goldman Sachs.

Also congratulations on the solid Premium growth in China and also sequential improvement in Korea. I've got 2 questions. I will ask one by one. So first is about China. Super Premium segment in China has seen robust growth of YTD, driven by geo and channel expansion, and now become more and more important as a profit driver. So would you please elaborate a bit more specifically on the Super Premium segment expansion strategy and also has to think about its growth outlook for the following years, especially with the reopen impact gradually normalizes for entree channels.

Thank you for your question. Yes. On the Super Premium front, as you look at expansion, we really follow our market maturity model in terms of deciding what the playbook is for each city, combined with our market share position in any given market. So they kind of visually would give you 9, kind of a 3 x 3 matrix. And so for each city cluster in there, we would have a different expansion playbook. And in some of these clusters, Super Premium would play an important role in terms of the premiumization strategy and the expansion strategy. So really, our strategies and tool kits are tailored city by city. You would have seen that both geo expansion and channel expansion are actually important for Super Premium. On the geography part, remember that for -- I mean, for Budweiser, as I mentioned earlier, we are less than 35% distribution. If you look at all our Super Premium portfolio combined, we're actually less than 10% distribution today in China. So expansion is really an important driver of our growth, and we have a lot of runway to continue to expand as the disposable income increases across the different markets. So one way that is important is to develop our wholesalers with Super Premium capabilities. Sometimes that means new wholesalers in new regions or new cities. Sometimes it is existing wholesalers and expanding their portfolio and their kind of market execution capabilities to offer differentiated experiences and rich roles in the stores. If you look at our Super Premium expansion cities, we are on track to deliver the 60 cities where we want to sell more than 1 million liters of Super Premium beer in these cities. So we are on track to deliver that by the end of the year. We actually see strong double-digit growth in these expansion cities for the Super Premium brands. And when you think about cities like Chengdu or Hangzhou, Changsha, these are all cities in these 60 where we are expanding with strong double-digit Super Premium growth, and we're quite excited with the potential that we continue to see for our brands there. When you look at the channel expansion, on the one hand, nightlife, of course, rebounded versus the channel restrictions we had last year. And so the mix of nightlife continues to increase in the third quarter as this business gets more and more normalized versus prior year. And so we've been also premiumizing the nightlife channel moving more and more from -- not only from Core+ to Premium, but especially from Premium to Super Premium brands in continuing to improve our mix in the channel. But also going beyond nightlife, many years ago, Budweiser was like more than 2/3 of the revenue was in nightlife and then we were able to expand it with the right toolkits to in-home and Chinese restaurant channels. We are doing a very similar movement with our Super Premium brands where we go into more channels, especially the in-home channel, where we develop more first-tier wholesalers to support our Super Premium brands growth. And we've seen quite some success expanding our route to markets in existing cities across new channels to bring our Super Premium brands to more consumers. So I hope that answers your question, Leaf.

That's super clear. And my second question is about Korea competition. I understand that we have seen sequential improvement in Korea market quarter-on-quarter. And I guess also competitors is considering to follow our price hike. But just looking at more like a midterm outlook, what's our competitive strategy for Korea core segment, assuming that the competitor will remain quite aggressive to gain volume share. So do we value like volume share in Korea market more? Or will value margin more when we consider the competitive strategy for Korea?

I think, as you know, we are a company that goes for the end and not for the [ all right ], so our teams are striving for both the volume share growth and the EBITDA growth. Obviously, this year, I mean, as I mentioned earlier, also in the press release, I mean, this is a more difficult year for Korea, no doubt. And in the third quarter, volumes declined by mid-single digits. And of course, we did have a tough comp last year in the third quarter of '22. There was significant volume growth after the kind of secondary recovery in South Korea. But still, also the operating environment in Korea was quite challenging in the third quarter. Competitive brand launches in the core segment. As I mentioned earlier, Japanese brands coming back into the markets, the delayed price increase, which we decided on, but still put some pressure on the P&L in the second and the third quarter. So these are all elements that made it a more difficult operating environment in South Korea. Of course, I mean, we have a very strong business in South Korea. If you take a step back, and we continue to invest behind our brands, and we continue to invest behind our innovations, we have, I mean, quite amazing innovation pipeline actually in South Korea. So we're quite optimistic there as well, very close to our consumers with a lot of deep insights, and we continue to invest behind our team's capabilities. So we have a strong brand portfolio leadership in South Korea, both in core and in Premium. Our share of segment is continuing to improve quarter-on-quarter also in the core share of segments despite all these competitor launches. And really thanks to our commercial investments, which we decided to ramp up -- to remain very competitive. And so in Cass, we did an amazing campaign with Cass cool. During the summer, we launched an innovation on Cass lemon squeeze also with the nonalcoholic version. We offer new packaging options in the in-home channel, which offer more value for our consumers. So Cass really performed very well. HANMAC is our classic lager launch in South Korea with a double smooth campaign, launching our draft beer as well so. And also offering new packaging options in the market behind HANMAC. And as I mentioned earlier, with Stella, we have this 500 ml bottle with the mini chalice, but also a lot of innovation behind our Hoegaarden brand in the Premium segment with Pomelo and Green Apple really supporting the consumer trend to new flavors. And so this flavor trends we are capturing with Hoegaarden with a different kind of food variance there. So we're actually quite confident in our strategy in South Korea. Our team is also quite engaged and very confident. The price increase will help in terms of margin support. And the momentum of our brand is quite healthy quarter-over-quarter. We do see improvements in the trends and we're quite optimistic for next year as well.

Our next question is from Ethan Wang from CLSA.

I have 2 questions. The first one on raw material price and the second one on e-system. I'm going to have them one by one. On raw material price, just wondering, as we have seen a decreasing trend in barley, and other than that because barley accounts for a smaller part, smaller percentage with the entire [indiscernible] wonder how about aluminum and other packaging costs. I remember, Iggy, when you answered this question several months earlier, he said we have more clarity coming to the end of this year because this is the purchasing period for next year. So just wondering if we have more color on the trend on our raw material prices.

Thank you, Ethan. Let me give this question to Iggy.

Thanks for the question. I think maybe the short answer to your question is, yes, we've seen some decreasing trend, in both raw and packaging material costs. Going back to our previous discussions, as we shared in the last few calls, commodity price escalation, we always expect it would be lower in the second half of this year. So it will start to taper off in the second half of this year. And that made sense given by mid- to late 2022. Most of the commodity prices have already begun to normalize from some of those peak positions, particularly in the case of aluminum, but it held for barley as well. When we look at barley pricing, it's continued to move lower since the start of the year. Specifically, the French crop had a good harvest driven by weather. And then on top of that, there was a lot of speculation early on during the war between Russia and Ukraine. So of course, the speculation started to unwind so did the pressure on barley pricing. Of course, there's more opportunity for improvement as the Australia and China kind of trade resumes on barley as well. But to be honest, I mean, the time line for that is still to be determined, right? The impact of that is still to be determined. So maybe the remaining piece, I think, on the barley side is, if you think about it from a timing perspective, the Southern Hemisphere harvest deals will also be important. And so over the next few months, we'll get a view kind of on the back half of 2024, right? But I think overall, if you look at barely pricing year-on-year already by early to mid-2023, we were already flattish to better than it would have been in the previous year. In the case of aluminum, already by the second half of last year, the second half of 2022, we were at $2,400 per metric ton, if I recall correctly. I think it was a small blip right to start '23 when prices surged to $2,600 or so per metric ton. But I mean, they've further improved since then. They're now holding closer to 21% -- to $2,200 per metric ton. I think [indiscernible] last week was 21.5% or so. So directionally, you could see they're about 5% better than they would have been last year, right? So of course, again, if you assume a 12-month hedging policy, you would expect in 2024 to have better commodity pass-through right of the aluminum pricing. So overall, I think the contribution of raw packaging materials to our COGS per hectoliter is looking better day by day. Of course, it's not the only driver of our COGS. Beyond that, of course, premiumization plays a role. So I mean the good news there, the healthy news there is, it's becoming a more meaningful driver of our COGS per hectoliter, so that's becoming more relevant. And then the commodity escalation year-over-year is normalizing or diminishing. And we welcome that because we know it's beneficial to us. And then finally, I mean, at the end of the day, the cost initiatives and the efficiency improvements that we carry out, those continue. We're using to mitigate what we can in packaging material escalations and noncommodity escalations as well. And so we're, of course, more optimistic now for kind of Q4 of this year and 2024, when you look at the commodity picture put together. So thanks for the question, Ethan. I hope that answers it in some level of color.

Second question on BEES, because it's something that's very special, very special tool we have compared to our keys. So with the implementation of the BEES system in China, we're just wondering -- has management seeing any evidence from the distributor side? Is there any improvement in the channel inventory management? Have they been like more active or more sensitive to change in consumer behavior. So their communication with us can go smoother. And Jan has mentioned earlier that in September, 65% of China revenue is connected to BEES. So if we categorize like these cities that adopt BEES by provinces, just wondering which provinces had the highest adoption. And with business, which provinces we would target next?

Thank you, Ethan. And I mean I'm quite excited about BEES and what it can do to our business, right? So I think BEES in the first step was about going wide where we said internally, right? And it's about getting to scale so that we can actually train algorithms and have scale to realize more potential from this tool. And going wide, as you said right, we -- more than 230 cities now in China, and more than 65% of our revenue. So really, to your question of which provinces are more, really, it's across China. Like from the starts, we wanted to go -- every sales director in China needed to pick at least one wholesaler and one city that it would start digitization. And so literally every sales director in China has multiple wholesalers and cities on the system because we wanted to get exchange management going from day 1. So the going wide was really going wide across all of our kind of sales regions. Once we achieve this going wide, rather we get significant scale, now we are in the phase of going deep, right? We want to develop algorithms, creates added value not only for ourselves, but also for the wholesalers on the store level. And the reason we do that is that we are in a multi-tier distribution system in China different than some other countries of our parent company with ABI, where it's a direct distribution system. So we actually want to make sure that our wholesalers also to see the added value of the tool just like the store level. And so that's why your question is very relevant to say what are the wholesalers getting out of this essentially, right? So I think that's why from the start we positioned this tool not that much specifically as a cost management tool or an optimization tool. It's always been more about driving the whole business, including the top line growth. So we always set a strategic intent of BEES to sell more in more stores with a better ROI and better service. And so each of these elements actually creates value for Bud APAC, but also for the wholesale and also for the store. So when you think about the wholesaler specifically to your question, selling more means that with our wider portfolio as we premiumize the algorithms are helping our wholesalers to offer the right portfolio to the right store based on algorithmic selling. More stores means that, for example, we are matching our store database with [ Dianping ], for example, as an external database to see which are the new stores that opened, which are the stores where we don't sell beer yet, but according to Dianping, they have a high score in Premium mix, et cetera. So how can we prioritize prospection of our sales reps and our wholesalers to discover and convert these stores. But when you go to your question on ROI and service, our wholesalers use tool to improve their Net Promoter Score, the NPS score with their customers, which they have full visibility on using the BEES system. Our wholesalers reported they are improving their cash turns by using the system because the information flows are seamless in the system and no longer any manual intervention. And last but not least, many of our wholesalers, our Tier 1 wholesalers are reporting that the tool allows them to manage the NPS to wholesalers, which makes our go-to-market stronger because we can organize our Tier 2 wholesalers by territory with the whole visibility we have and we share with our Tier 1 wholesalers as to how we can organize the markets more effectively. So you hear different examples right across these 4 strategic intents, selling more to more stores with a better ROI and better service, and they literally are not only for Bud APAC, but also for our wholesaler partners in a real win-win partnership.

Our final question will be from Christine Peng from UBS.

So I would like to ask a question regarding the balance sheet management. So if you look at the first half result, I think Bud APAC has roughly USD 2.2 billion net cash on the balance sheet. So can I ask management your future capital allocation plan in terms of both M&A strategy as well as potential dividend payout increase.

Thank you, Christine. Let me hand this one to Iggy. Over to you.

Thanks for the question, Christine. I think maybe the first point, our capital allocation priorities haven't changed, right? We still see investing in organic growth initiatives as the #1 priority, followed by pursuing strategic and organic growth opportunities. So I mean, to your point, and sharing profit with our shareholders. And I think Jan alluded to a good point, right? We like the magic of the AND versus the OR. And we think given the strong balance sheet position we have in the first half of the year, $2.4 billion in cash and cash equivalents, but we're in a good position to do all 3. So long story short, organic growth remains the #1 priority because, of course, the long runway we have in all of our key markets across our strategic pillars is very convincing, very exciting. I think Jan shared some great examples of that today. So we'll continue to invest for growth across Bud APAC. In terms of M&A, it is a key capital allocation priority as well. I mean, of course, we mentioned before that one of the main reasons for the IPO was to create this local champion, right? That could serve as a catalyst for further regional consolidation in Asia Pacific. We continue to consider suitable opportunities. And in fact, if anything, the investment thesis for these is as relevant today or more relevant today than it was even at the time of the IPO. So we still see it as a way to accelerate growth in some of the sizable white space markets we have in Asia Pacific. We see a great opportunity to drive value through the combination of our unique global Premium portfolio with the existing established go-to-markets in many of the local players. And of course, I mean, the procurement scale and best practice sharing that we can carry across regions can be quite meaningful as well, even on the cost side. So M&A continues to be top of mind and a priority for our teams as well. Of course, at any point if we ever were to get there, a potential deal would always be subject to a strict financial discipline. So we'll continue to evaluate in the same way, but of course, no news to announce at this moment or on this call. And then, of course, in terms of shareholder return, well, our dividend policy was built with this idea that we would pay out no less than 25% from a dividend perspective. If you take a look of our track record over the last 3 years, you'll notice we've continued to increase your dividend payout every year since the IPO. And in fact, actually, this year, dividend payout was just over $500 million, which represented a 58% dividend payout ratio. The increase in absolute dollars was significant where it was a 25% increase versus the previous year. And of course that demonstrates our confidence in future cash flow generation capabilities, right? So we're very confident on the ability to keep generating cash. And that's a bit of the reason why we don't see this as kind of a trade-off discussion, AND/OR. But I think we have an ability to be a growth company, and that translates into the inorganic and organic growth opportunities. But also provides a compelling and competitive dividend yield as well. So we're confident moving forward. I think the capital allocation priorities will remain as they are, and we'll update you if anything were to change in that front. So thank you so much for the question, Christine.

So I have a second question. I think a very important strategic market for Bud APAC is India. Although the current profit contribution is quite small. But can management share with us some updates in terms of the India performance, both within market share, revenue growth as well as profit.

I was actually just in India last week, I was in Delhi, Haryana, and Mumbai with the team. It was great to be back. I'm very happy with the energy, the passion the team brings there, and all the momentum that they built for the business. So we continue to outperform the industry, both in the third quarter and on a year-to-date basis. We have a very strong growth momentum in India. So we are the #1 brewer in the Premium segment, as you know, about 67% segment share. For our business, more than 2/3 of our total net revenue is coming from that segment, premiums of a Premium brands. And actually, this segment or the premiums of the Premium revenue is growing strong double digits. So -- and is supporting margin expansion at EBITDA level. Our strategy in India is about premiumization, moderation and productivity. So premiumization, our focus is on Budweiser, Budweiser Magnum, Hoegaarden and Corona. So these are the 4 kind of key brands that the team is focused on. I mean happy to say that last year India was the fifth largest market for Budweiser brands globally within ABI. In the first half of this year, became the fourth largest market, which is quite impressive given the size of the India business. So Budweiser very strong growth brand there. Moderation, because moderation is very important for us in India. We do believe that beer as an alcoholic beverage of moderation should get a more differentiated treatment from an excise perspective but also from a distribution perspective. So we are working hard and working with different state governments to see if we can improve that. And we are making progress in different states to get more favorable excise policies for -- they recognize the moderation that beer brings to the table. And then on the productivity front, as you know, India is already at the same revenue per hectoliter as China, but the profitability obviously is still lower. So we are working with our supply chain teams to continue to improve our productivity and our cost base, both at the brewery productivity level, also by investing in our packaging harmonization and different footprint initiatives that we're working on. So very kind of happy to be back there in India last week. So a lot of the momentum that I'm mentioning here and a very clear path as well to continue to make our business stronger and more profitable for the future. So thank you for your questions, Christine. I hope that answer them.

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, Reid. So despite the headwinds we encountered over the last few months, our business performance is resilient, and our people demonstrated strong agility. We are confident that our strategies and commercial capabilities position us well for future sustainable growth. Thank you all for joining us today, and I look forward to speaking to you soon. Thank you.

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