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

Welcome to the Full Year 2023 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 of the full year ended 31st December 2023 can be found in the press release published earlier today and available on the Hong Kong Stock Exchanges and Budweiser APAC websites. 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. 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 and important factors that could affect Budweiser APAC's future results, see risk factors in the company's prospectus dated 18th of September 2019, the 2022 Annual 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 2022 full year. Normalized figures refer to performance measures before exceptional items, which are either income or expenses that do not occur regularly as part of Budweiser APAC's normal activities. As normalized figures are non-GAAP measures, the company disclosed the consolidated profit, EPS, EBIT and EBITDA on a fully reported basis in the press release published earlier today. Further details of the full year 2023 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, Ray, and good morning, everyone. Thank you for joining our earnings call. I hope you're all doing well. In 2023, we outperformed the markets in China and India, driven by double-digit growth in our Premium and Super Premium revenue in both countries. We delivered double-digit top and bottom line growth in APAC as premiumization continues within the resilient beer category despite transient challenges in South Korea. In the fourth quarter, we grew revenue per hectoliter by double digits, primarily driven by double-digit growth in our Premium and Super Premium revenues in China as well as revenue management initiatives in East Asia. This, combined with operating efficiency and cost management initiatives led to a strong EBITDA margin expansion in the fourth quarter. Let me provide some additional color on each of our key markets. In China, we delivered volume growth, which was supported by both channel recovery and ongoing premiumization. Our Premium and Super Premium revenues both grew by double digits, with beer continuing to gain share of throats and Premium beer remaining an accessible luxury. This led to double-digit top and bottom line growth. And Budweiser innovations, including Bud Supreme and Magnum, grew by strong double digits with their combined volumes now exceeding 1 million hectoliters. We continue to outperform the market, driving market share gains across China, including Guangdong and Fujian which are 2 of our more developed provinces. Expansion continues to be a key driver of growth as we consistently implement our strategy. As of the end of the year, the distribution of Budweiser had expanded from 201 cities in 2022 to 220 cities last year and our Super Premium portfolio had expanded from 51 cities to 63 cities in the same time frame. On the digitization front, BEES was in use in around 260 cities, covering approximately 70% of our China revenue in December. To celebrate the Chinese New Year, we launched the Cheers with Bud, Connect Good Luck marketing campaign for Budweiser. We also introduced our limited edition Brewmaster Dragon Year offering, which was designed by the famous Dragon Artist Sun Xun to convey the auspicious blessing of "As the Dragon Head Rises, Fortunes Rise" to Chinese consumers. In South Korea, our volumes were mostly flat against the tough comp, new product launches by competitors and the return of Japanese brands to the market. Our EBITDA for the full year was impacted by increased commercial investments. However, we drove sequential quarter-over-quarter improvement in South Korea with strong EBITDA margin expansion in the fourth quarter last year. We estimate that our total market share in South Korea declined by approximately 150 bps, mainly due to the return of Japanese brands. However, we maintained our market share within the core segment amidst high competitor investments as we continue to grow the brand power of and Cass and HANMAC. In India, we continue to outperform the markets. In '23, the combined revenue of our Premium and Super Premium portfolio grew by double digits, leading to a strong double-digit growth in overall revenue in the full year. Before I pass it over to Iggy, let me share some of the additional progress we have made in our sustainability initiatives. Key outcomes included reducing our carbon emissions, both within our operations and across the value chain and increasing the number of carbon-neutral breweries in China to 3 with Jiamusi brewery in Heilongjiang province as the most recent addition. We also further improved our water efficiency in APAC to 2.03 liters per liter of beer and securing a place on the "A List" for Water Security issued by CDP. And last but not least, we received the Top Employer '24 award, marking the third consecutive year in China, India and South Korea, where we are recognized for delivering an outstanding employee experience. 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 full year 2023, our revenue grew by 11.1%, driven by both volume growth of 4.6% and revenue per hectoliter increased by 6.2%. Our normalized EBITDA increased by 10.8%, while our normalized EBITDA margin decreased by 7 basis points. Cost of sales on a per hectoliter increased by 5%, mainly driven by premiumization as well as commodity cost escalations, which were partially offset by efficiency initiatives. In China, revenue grew by 12.8% over the full year as volumes grew by 4.3% and revenue per hectoliter increased by 8.1%. Normalized EBITDA increased by 17.4%, with a margin expansion of 132 bps. In the quarter, revenue grew by 11.1%. Our revenue per hectoliter increased by 14.7%, driven predominantly by brand mix and channel recovery, which was partially offset by a volume decline of 3.1% amidst the softer industry, especially in the core and value segments. In APAC East, revenue increased by 7.7% in the fourth quarter as revenue per hectoliter growth of 11.4% was partially offset by a volume decline of 3.4%. In South Korea, specifically, our revenue per hectoliter growth in the quarter was in line with our core segment price increase announcement of 6.9% in October of '23. And we have seen sequential quarter-over-quarter improvement in the business, with normalized EBITDA increasing by 23.2%, landing at 363 basis points of margin expansion in the final quarter of the year. On a full year basis, revenue for APAC East grew by 1.2%, more than fully driven by revenue per hectoliter growth of 5% and a slight decline in volume of 0.3%. Normalized EBITDA declined by 10.1%, mainly due to increased commercial investments. Finally, we ended the year maintaining a solid balance sheet, confirming our financial discipline and reaffirming our capital allocation priorities. Our net cash position increased by USD 683 million as compared to 2022 to USD 3.1 billion. As such, we are pleased to announce that the Board has recommended a dividend increase of 40% from USD 0.0378 per share in 2022 to USD 0.0529 per share in 2023, representing an 82% payout ratio. And with that, Jan and I are here to answer any questions you may have.

Thank you. Ladies and gentlemen, the floor is now open for questions. [Operator Instructions] Our first question is from Xiaopo Wei from Citi.

[ Two ] questions, one for China, the other for South Korea, your key markets. The first one about China. The capital market expectation on China consumption and premiumization have been very low, as we all know. As we just passed the CNY period, which is very key for the start of the year for premiumization, what's management's key observations that surprised you the most, either on the upside or downside? Do you observe any changes in consumer behavior this year during the CNY versus previous years? I will stop here first.

Xiaopo, thank you for joining the call. Thanks for your question. I hope you're doing well. So, for the China CNY, of course, this year is kind of a first quasi-normal CNY because there were no COVID disruptions first time since 2019. So, when we look at China in the CNY period, so kind of a January-February combined period, we see that the overall traveling has rebounded. So, more consumers actually even choosing to have 2 trips, typically one with a family gathering and then one either with friends or the smaller family and since this CNY was 1 day longer than the last couple of years. Consumption was also more typical because the channels have normalized this year. And as I was traveling through China at several occasions, I could also observe many signals of a normalized CNY with people having normal family gatherings, celebrations with friends for CNY over dinner, going out into nightlife, et cetera. So, my observations for the beer category specifically is that I would say that we see the Beer segment trends the same as we saw in the second half of last year. Beer continues to premiumize, gaining share of throats versus other categories. When we look at the consumer side, if we simplify, right, in 2 income groups kind of the middle and higher income group, we see regular consumption patterns and we see continued demand for Premium and Super Premium beer. When we look at the lower income groups, we do see a more cautious spending. People shopping more smartly and putting the Core and Value segments, so, the lower end of the range in the industry under more pressure. So in summary, for beer, I would say, continued premiumization, channel normalization, beer gaining share of throats and in the lower income group putting some pressure on the total beer industry driven by the lower end of the range. I hope that answers your question, Xiaopo.

And my follow-up question on South Korea. In your prepared remarks, you mentioned that the return of Japanese brand had more competition pressure? And do you expect competition in South Korea this year will slow down your premiumization process in '24. If it does, any margin implications?

I think on South Korea, let me start on the margin point maybe. And just to remind that for South Korea, really the key margin drivers are first rates, then operational efficiency and then mix. And actually interesting when you look within the mix, if you would look within the mix in China, brand mix will be the first driver. But if you look in South Korea, actually, the pack mix is the first driver within mix, then channel mix, only then brand mix. And really, the reason for that is that even if South Korea today is still underdeveloped in terms of the Premium segments, if we compare it to other mature markets, and as you know, South Korea is one of the more mature markets in Asia, the price ladder and as a consequence, also the margin ladder in South Korea is much more compressed than in China for the Premium segments, which means that the impact on margin is actually smaller of the Premium segment evolution versus what it would be in China. I think you know that we are the market leader in the Premium segment and we remain the market leader there. And we actually took price in South Korea 2x in the last 2 years. To the point that in the in-home channel today, the price difference with the Core segment has actually increased. This did impact the Premium segment evolution in the last year. We see that as kind of a temporary impact because actually, the price difference has increased between the Core segment and the Premium segment because of the disproportionate price increase. And if you look at our portfolio, we actually had some price gaps during the second quarter, given we took price in April and then competition took price later towards the summer, which would have impacted as well our performance. When you look in the in-home channel because the Japanese brands are mostly in-home channel, right, we actually see that the Japanese brands have been coming back to more or less full distribution comparable to 2018. Also, the market share of the Japanese brands, if you would look into Nielsen, you would see that the share is pretty much back in line with the 2018 market share before this mini trade war started between Korea and Japan and the Japanese brands were essentially delisted from several store chains in South Korea. If you look at our high-end portfolio market share or the Premium, Super Premium market share in South Korea within the segment, we are basically also back to the 2018 level. So, if you would kind of look at our Premium portfolio, Japanese brand's Premium portfolio, pretty much back in line with pre the events of the Japan kind of anti-Japan movement, that was kind of end of '18, early '19. If you look at the on-premise channel, specifically Korean restaurants, Premium segment is completely underdeveloped. And we actually have quite an interesting initiative with the team, introducing the Stella Artois brand in small chalices, kind of the mini chalice glassware, really to offer a Premium experience to consumers in the Korean restaurant channel and also offering price points that are significantly higher than the mainstream brands that are typically most available in South Korea in the Korean restaurant channel so that we can drive, again, the Premium segment at more premium price points, more differentiated from the mainstream segments. As you know, we are the only local brewer that has a Premium portfolio with our own kind of global brands, right. Stella, Hoegaarden and Budweiser, so we do believe we have the right portfolio. Now we are really focused on offering differentiated experiences at higher price points. So, the brand mix can become a healthier margin driver in South Korea that we can stimulate the growth of this segment in the future. So, I hope that answers your question, Xiaopo.

And we are looking forward to your Investor Day in 2024. Happy New Year.

I keep reminding Mandy. Thanks so much. Happy New Year to you.

Our next question is from Christine Peng from UBS.

Two questions. The first question is about China. Second question is about South Korea. So, I'll start with the question for China. So, in the press release, you mentioned that in 2023, Bud has outperformed the other competitors in China. But we think there is a bit of help of lower base in 2022. So, if we compare the market share in the Premium segment for Bud APAC with the level in 2019 pre-COVID, what's the trend? How does that compare with the other competitors, both from China and also globally like Carlsberg? So, can you provide us some colors in terms of the competition landscape in 2023 compared with 2019 for the China Premium segment?

Christine, thank you for your question. I think in terms of competition, obviously, we respect all of our competitors and we typically don't comment too much on their specific commercial actions. If you look at our portfolio versus, so '23 versus '22, you would have noticed that we did outperform the markets with our volumes growing by mid-single digits. Total portfolio and our market share also, total portfolio expanding by 69 bps, so almost 70 basis points. We also grew market share in our strong provinces, right, like Guangdong and Fujian essentially across the board, but also in the strong provinces and they are more -- they are 2 of our more developed areas, as you know, in China. And our Premium and Super Premium portfolio continued to deliver strong double-digit growth versus last year. We also see and continue to see that as Premium reaches critical mass, consumers continue to trade up to Super Premium, which we call our blue ocean. We actually do have quite a good evolution in the differentiation of our offerings with a wider portfolio of brands and not only in Super Premium, but also when you look at Budweiser, for the areas with different maturity levels, we continue to drive innovations and we're quite happy with the performance of our Budweiser innovations as well, which, as I mentioned, are in strong double-digit growth and are more than 1 million hectoliter combined between Supreme and Magnum now. And as we see more industry shift towards Premium, clearly, there is a broader industry investment in the Premium segment, which is driving the segment to grow, which we see as very healthy for the industry. We continue to believe that we are well positioned to continue to lead and also lead the growth in the Premium industry. And as you know, it's not only about our brand portfolio, which continues to be the strongest in the Premium segments. But also our Premium go-to-market, we have very strong wholesalers and continue to have 100% loyalty over wholesalers in the B, C group, and we actually continue to expand our B, C group without losing any wholesalers in there. And we continue also to be in a very good position to lead the Premium and Super Premium growth and capture an outsized portion of the growth, right? And I'm sure when you listen to the different comments of my peers in other companies, some of them would also be in double-digit growth. Some others will be more flattish or even declining in the Premium and Super Premium segment. But as you would have seen, we continue to drive double-digit growth in our portfolio, and we are quite well positioned to continue that. Did you have a second question, Christine?

Yes. Sorry, I just muted. So, the second question is about Korea. So, can management comment on the 2024 margin outlook for Korea and also in a longer term, what's going to be the margin profile for the Korean business?

Sure. Let me pass this one to Iggy. Maybe Iggy, go ahead.

Sure, Jan. Thanks for the question, Christine. So, I think maybe I'll start here. In 2023, particularly in the first 9 months, we were significantly impacted by, of course, tax increase without a price increase in Korea, increased competition, which Jan already mentioned and the corresponding commercial investments, which we noted. And then, of course, commodity headwinds, right? We still have remaining commodity headwinds then. If we look at the fourth quarter alone, it was already kind of a break-in trend, right? Our prices caught up with taxes. We saw sequential quarter-over-quarter improvement and landed, of course, with very strong EBITDA margin expansion as a result. While we don't explicitly provide guidance on EBITDA margin, we do expect to have a more robust business in '24 than we did in '23. And if we look at the main drivers for growth in APAC East, which Jan mentioned earlier, right, rate first and foremost, then operational efficiencies and then mix is kind of a third driver that gives you kind of a good view on how we're looking at the business. So, on rates specifically, we took the 6.9% price increase in the Core brands, right, in both in-home and the out-of-home channels in October of '23. We took 9% on our Premium brands in the in-home channels starting in April '23. So there's, of course, carry over on both those price increases into 2024. If you look at operational efficiencies, we see commodities normalizing from a headwind, not only to flat, but maybe to a mild tailwind in 2024. And we also continue, of course, to do what we do every year. We implement cost management initiatives across the business, which generally tend to drive future EBITDA margin growth improvement, right? And then lastly, even though it's more modest, as Jan mentioned, we do anticipate industry will continue to premiumize given it's under-indexed in Korea versus other mature markets. And so here, of course, we're well poised to capture an outsized portion of that growth and Jan shared some of the initiatives, right, that we already have in place, including Stella Artois, which we think will help us over time, right, to increase the contribution or the relevance of mix towards margin expansion. So from that perspective, longer term, we don't really see any barriers to margin expansion. We're confident we have the right strategy in place and the right commercial capabilities right to position us well for sustainable growth in the future. And if anything, this can probably accelerate as the headwinds further ease moving forward. So, thanks for the question, Christine. I hope that answers it clearly for you.

Our next question is from Anne Ling from Jefferies.

Can you hear me?

Yes, we can.

I'm calling from Tokyo. I have 2 questions for management team as well. Let me start with the first one is on South Korea. Our one-off provisions, so which is regarding government claim, right, so this one-off tariff charge should the company -- say, should the company lose the appeal, and we pay additional tax for the quantity outside of the allocated quota, how would it impact our cost of goods sold and GP margin moving forward? Or will there be any alternative to offset that? That's my first question.

Let me maybe pass this on to Iggy as well. Go ahead, Iggy.

Sure. Thanks, Jan. So as we mentioned, right, in 2023, Oriental Brewery Company received in South Korea this tax audit claim, which was related to customs duties covering transactions from 2018 onwards, right? So, under South Korean law, the assessment needs to be prepaid prior to appealing it. So therefore, we made a relevant provision, right, which was included in the non-underlying items and disclosed as such. And the tax assessment was paid in January of 2024. OBC has appealed. And on that note, right, they remain very confident in the legal position that we have in place. So, to give you maybe some sense of the size, right, of the item in question, what I could probably add there in color is the potential additional tax, right, were this to be an issue would impact our gross margin in Korea by less than 50 basis points. So, I hope it gives you a sense of roughly the size of this on an annualized basis.

And my second question is on your collaboration with Swire in 2 provinces in China. So, the announcement was made end of last year. So, your collaboration with Swire in Hubei and Anhui, which will start from 1st of December. I mean, would you share with us a bit more details about this collaboration? Like, for example, what is the strength of Swire in these 2 markets? Like what is the benefit from this agreement? And what will be the structure and the contributions from both sides?

I mean we are quite excited with the potential of this partnership. As you know, we always look very carefully at our expansion and strategic priority and we have different approaches to drive our expansion agenda. And so we always look at different geographies, different channels, how can we accelerate our expansion as the opportunity is still big, right? As I always say, Budweiser even with the size of the brand is only distributing 1 out of 3 stores and our Super Premium brand only 1 out of 10 stores. So, we look for different ways how to accelerate it and offer our brands to more consumers. So, when we looked at our Premium and Super Premium portfolio, actually in Anhui and Hubei, they have quite a good brand power, but we don't necessarily have in these provinces a strong scale of our route-to-market yet. So, when we look at Anhui and Hubei, we decided to partner with Swire Coca-Cola in these provinces because they have a very well-established route-to-market there. It's actually 2 of their bigger provinces, and they have a very strong position there. And our collaboration with Swire actually brings the 2 elements together, which should accelerate our growth of our portfolio, the brand portfolio, combined with the route-to-market of Swire there. So, we will actually work together. Swire is quite well known, I would say, in general, for their strong execution capabilities, especially in the in-home channel and also in select Chinese restaurant channels. Of course, we keep working with our existing wholesalers in these provinces, especially in the nightlife channel. They keep developing our brands and growing our brands in nightlife. However, in the in-home channel and in the Chinese restaurant channel, Swire will essentially take the leads in distributing our brands in the sales channel. So we see a lot of synergy potential, both for Budweiser APAC, also for Swire and for our existing wholesalers because they now get access to a combined portfolio of both leading Premium beer brands, but also the leading position of Swire soft drinks brands in these 2 different provinces. So, more to come, right, we are relatively early days. We are like 3 months in, in the collaboration, but we see really good results and we are quite excited with the potential for the future. So thank you, Anne, for your questions. I hope that answers it.

Our next question is from Leaf Liu from Goldman Sachs.

This is Leaf Liu from Goldman Sachs. Can you hear me?

Leaf, we can.

I've got 2 questions. And firstly, on the group level cost outlook. So, how do we look into the cost trend in 2024, given our 12-month rolling hedging policy? I think Iggy, just touched upon Korea a little bit. Also, are we going to see more cost benefits in China region in 2024, given the tariff removal of Australian barley?

Liu, let me pass this question to Iggy.

Thanks, Jan. Thanks for the question, Leaf. Yes. So look, if we look at full year '23, right, our COGS per hectoliter increased by 5%. And we estimate that this was roughly 2/3, call it, driven by continued premiumization and roughly 1/3 driven by commodity cost escalations, which, of course, were partially offset by operational efficiency initiatives, right, as is usually the case. And if you recall, we would have shared previously that the impact of the commodity cost escalations on the P&L, we expect it would taper off across the second half of '23, which actually held true, right? We had lower escalation in the second half. As we turn the page now into 2024, commodities are expected to actually be a slight tailwind. In fact, if you take a look at aluminum, it's now been stable for 5 or 6 months, right, since roughly October 2023 in this kind of $2,000 to $2,200 per ton range. Barley likewise, is still tracking below kind of the Q1 2023 average, right? So, if you think on a 12-month basis, it would be lower impact now than you would have had at the beginning of last year. Then on top of that, of course, as in normal years, we'll continue to execute those efficiency improvements and cost management initiatives I mentioned. And this should leave us, right? The equation technically should leave us with premiumization is really the only meaningful driver, right, of COGS per hectoliter escalation in 2024. So it applies across the entire APAC.

And then my second question is also on Korea. So, would you please share a little bit color on the pricing strategy for 2024? And also in terms of policy risks, it's their election year. So, is there any color on beer excess tax in Korea in 2024? Or any other like policy risks that we are working out right now?

Let me let Iggy continue with you, Leaf. Keeping Iggy busy today.

So look, we always make pricing decisions in kind of the context of the macroeconomic environment, right? They're not really made in a vacuum. So in '23, we announced a price increase for our core brands effective October 11. We've discussed obviously in previous calls, the timing of that, right, and how we landed there. The rate benefit actually only started to kick in as of the fourth quarter of '23. And so it will therefore be mostly felt in 2024. With it, our rate has now caught up, right, with the excise tax increase, which happened earlier in the year, right, earlier in 2023 as well as the accumulated impact of inflation and commodity cost escalations over that period. At this moment, there is no announcement, right, on any specific excise tax adjustment and we have nothing to share really from a pricing perspective. But we remain cautiously optimistic about our opportunities for margin improvement, driven by, of course, the carryover of the price increases we discussed before, not only our Core but also on the Premium and above segments. And the main drivers in APAC East should be expected to continue to be in the same order as in the past, right? Still rate is the primary driver. Operational efficiency is the second one and mix is the third one. So, no change in that regard.

Our next question is from Lynn Wu from Bank of America.

I've got 2 questions. The first one on China regarding regional expansion. So, 2023 is a year that we continue to proactively implement our expansion strategy, which is a key driver for our Premium growth. In your opening remarks, I think, Jan also mentioned that the distribution of Budweiser brand and the Super Premium brands have both expanded quite nicely. I wonder if you might be able to share with us more color in terms of the progress of regional penetration? And how should we think about the headroom for further expansion?

I think we prioritize the expansion by city cluster really with our market maturity model. And we have the expansion playbook, which gives us different strategies and toolkits that are tailored by city cluster. So, when we look at last year, we -- as you know, we measure the number of cities that are distributed. We kind of count a city when we get above 1 million liters or 10,000 hectoliters for Budweiser or for Super Premium brands. And as I mentioned, for 2023, we went from 201 cities with Budweiser distribution more than 1 million liters to 220. And for Super Premium, the number went from 51 to 63. When we look forward to this year, we target to expand our Budweiser distribution to 235 cities and then our Super Premium to 70. Now what is interesting, when you look at the Budweiser cities grow above 1 million liters, we see a high growth rates. And of course, there we invest in line with the growth opportunity. Maybe interesting for you to know that when we look at kind of the composition of the cities and the profile of the cities, the 220 for Budweiser, about 1/3 of the Budweiser's distribution cities are already today bigger than 5 million liters, so more than 50,000 hectoliters. And in these cities, you can imagine there is additional economies of scale on the commercial investment, so they become more efficient. And on top of that, we leverage the scale of Budweiser and the strength of our Super Premium portfolio to really drive this blue ocean of Super Premium in the 5 million liter Budweiser cities. If you look at our Super Premium cities, actually, half of them are already generating more than 3 million liters. So, half of the cities or the Super Premium are already more than 30,000 hectoliter today. So, just to give you a bit of a sense how not only we go into the number of cities from 220 to 235, from 63 to 70 targeted this year. But also the quality of the city, we drive once they pass 1 million liter, of course, the strategy doesn't stop. We continue to invest and expand. And so 1/3 of our Budweiser city is more than 5 million liters and that's where we focus more and more on the Super Premium growth and about half of our Super Premium cities already more than 3 million liters. So, I just wanted to share this additional color with you.

My second question is on India. So, India has become increasingly important for our portfolio. We have also seen consistent delivery of results. And then we also discussed about this previously that India has already become the fourth largest market for Budweiser brand. Wondering if you can maybe share with us some more color on India. What can we expect in terms of growth outlook as well as profitability?

India continues to do very well. The beer industry there, so not our volume but the beer industry grew by double digits in volume in India last year. And we actually continue to outperform the industry that is growing already at double digits. So, we are clearly #1 brewer in the Premium segment. We have about 2/3 of the segment share in Premium. And when you look at our total revenue in India, about 2/3 of that revenue is coming from the Premium and Super Premium brands. So, this Premium and Super Premium revenue, brand's revenue is growing double digits versus last year. And indeed, as you mentioned, India is now the fourth largest market globally for the Budweiser brand. So, our strategy continues to focus on premiumization, not only for Budweiser and Budweiser Magnum. Budweiser Magnum is even bigger than Budweiser in India today. And then Hoegaarden and Corona is a Super Premium brands, which we also brew already domestically in India for India, which allows us for the right price points at a Super Premium price point but accessible to trade up. The second priority, I would say, is driving moderation. Beer is a drink of moderation. We're also seeking with the different state governments to recognize beer as such and to drive a differentiation in the route-to-market and the excise levels versus other alcoholic categories. And then in terms of productivity, we continue to see opportunities to improve profitability through our brewery productivity and also improvements in our returnable packaging and our footprint. And we are actually benchmarking between our breweries. For example, the smaller breweries in China versus the bigger breweries in India actually give very interesting benchmarks for the teams to continue to drive efficiencies and productivity gains in India, which again will then drive the EBITDA margin continuously growing and the cash flow growing in India. I hope this answers it.

In the interest of time, our final question will come from Lillian Lou from Morgan Stanley.

And that's on China, with all this premiumization and the channel shifts as well as we all see some competition in the current consumption environment in China. So, what kind of channel investment strategy you're going to put out this year, together with this regional expansion strategy that Jan just talked about? And also maybe how we actually look at this commercial investment putting into the impact to margin? So, how much we can save from investment kind of efficiency improvement or actually we're going to invest a little bit more this year to drive the premiumization? That's my first question.

I think on the commercial investment and the link with margin, if you look at our 2023 sales and marketing investments, if you would express it as a percent of net revenue, it actually remained at a similar level as 2022. Actually, even a touch lower than 2022 as a percent of net revenue. For this year, we will continue to invest in our business. And as you know, we invest at the pace of the opportunity -- of the growth of the opportunity and we believe this should go hand in hand. We did learn a lot in the last 3 years, right, in terms of agile resource management and allocation. And also, of course, we made very big progress on the digitization front with BEES. BEES is now in more than 260 cities, it's representing about 70% of our total net revenue in China, which makes it a very large market even for ABI globally in terms of digitization. And all of these tools, they help us achieve more with the same or with less money, right? So, we believe if we look at this year, that last year's investment is at about the right level as a percent of net revenue, we'll keep looking for more efficiencies. We don't believe we need to increase because we are competitive. We are gaining market share and we believe we are at about the right level as a percent of net revenue. Of course, this allows us as we continue to premiumize given the revenue of the Premium and Super Premium brands is higher than the Core and Core+ brands. In absolute terms, it gives us more resources to invest in these differentiated experiences. And to continue improving the margins not only for ourselves but also for our wholesalers and our folks, the stores, while keeping the same investment as a percent of net revenue. So given the margin ladder of Premium and Super Premium, of course, this investment tends to continue to be margin accretive for us as well. And then on the broader lens, of course, we continue to apply our Cost-Connect-Win mindset. So, we continue to drive savings in the total overheads so that we can reinvest and source more funds from the Cost-Connect-Win approach, so we can continue to connect with our consumers and drive long-term value for our shareholders. So, I hope that answers your question, Lillian.

My second question is about capital allocation overall. So obviously, 2023, we have increased our dividend payout. So with going forward, like the continued better cash flow situation, what's your plan for the CapEx and dividend, all this like a holistic capital allocation for 2024, 2025, maybe?

Thank you, Lillian. Let me ask Iggy to take this one.

So, we remain committed to our capital allocation priorities. Those haven't changed. It's first and foremost, still investing in organic growth initiatives, given, of course, the runway we see for those. Second of all, pursuing strategic inorganic growth opportunities as they present themselves and 3, sharing profit, of course, with our shareholders as well. And the great news is our cash generation is sufficient to fund all 3 priorities, right? So, we don't need to make unfortunate trade-offs in between. Maybe to answer your question on capital expenditures, we're generally finding efficiencies each year, similar to sales and marketing investment, as Jan mentioned and then driving as a result, similar outcomes with a higher return on invested capital, right? So, it's great that we're getting more out of our CapEx investments. This has been resulting in an improved CapEx as a percent of net revenue as well. So, we look at that ratio very closely. And we've shared, of course, that evolution in our recent Capital Markets Day as well. And then, of course, depending on our growth trajectory, there may be future capacity increases as well, particularly in India, but that's to be seen, of course, given the strong growth we're seeing in many of our markets. We also remain open for the right M&A opportunities. So that part hasn't changed. And then when we look at dividend specifically, right, or sharing profit with our shareholders, we're also committed to maximizing value they're in and doing so via a competitive dividend, right? So in this case, the Board recommended a dividend of $701 million or USD 0.0529 per share for the full year '23 represented a significant increase rate of 40% versus last year and an 82% dividend payout ratio. But if you kind of look at the track record on dividend, we've actually been increasing our dividend steadily year-over-year. This year, actually, we doubled the increase rate in absolute dollars versus kind of our historical increase. We did $200 million versus $100 million in the previous year. And actually, the absolute dollar value stands as the highest full year return right since the IPO and effectively doubling, right, our dividend since the first post-IPO dividend that we offered. So to your point, we're very confident about our future cash flow generation capabilities. We still see the ability to invest behind all 3 capital allocation priorities, including, of course, delivering a competitive dividend and doing so while maintaining, of course, a solid balance sheet that sets us up for future growth. So, thank you so much for the question, Lillian, and I hope that answers it clearly.

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, Ray. As we highlighted on the call today, we remain committed to our strategic pillars and we are well placed to continue driving high-quality growth and value creation across all of our key markets. Thank you all for joining us today. I look forward to speaking to you soon. Thank you.

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