Budweiser Brewing Company APAC Ltd
HKEX:1876
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Budweiser Brewing Company APAC Ltd
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Welcome to the 2023 First Quarter 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 3 months ended 31st March 2023 can be found in the press release published earlier today and available on the Hong Kong Stock Exchange 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.
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 for 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 September 2019. The 2022 annual report published and other documents that Budweiser APAC has made public.
I would 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 stated otherwise. Percentage changes refer to comparisons with the same period in 2022.
Normalized figures refer to the performance measures before exceptional items, which are either income or expenses that do not occur regularly as part of Budweiser APAC's normal activities.
As normalized figures are non-GAAP measures, the company discloses the consolidated profit, EPS, EBIT and EBITDA on a fully reported basis in the press release.
Further details of the 2023 first quarter 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, Anna, and good morning, everyone. Thank you for joining our earnings call. Our first quarter results represent a promising start to 2023, which is shaping up to be an exciting year.
China is back. During Q1, we saw a business rebound that supported a double-digit increase in revenue and EBITDA with market share gains compared to Q1 '22. Volume, net revenue and EBITDA were all above pre-pandemic levels.
Our Premium and Super Premium revenues grew by double digits, confirming the premiumization trends. South Korea and India continued to deliver double-digit revenue growth and market share gains.
Company-wide, we delivered double-digit top and bottom line growth with revenue per hectoliter growing in all 3 of our major markets, led by revenue management initiatives and ongoing premiumization.
Now let me provide you with more color on each of our key markets. In China, our performance in January was affected by the CNY phasing 10 days earlier than last year and a progressive on-premise recovery from the start of Q1.
In February and March, we saw a strong recovery of volumes in all channels and in all city tiers well above pre-pandemic levels, expanding our market share during the quarter.
Our premiumization strategy continues to prove effective with our Premium and Super Premium segments increasing volume weight and Budweiser and Super premium revenue is increasing by double digits compared to last year.
Our Budweiser Innovations, Supreme and Magnum, grew by strong double digits in the first quarter. We also launched Harbin Icy Genuine Draft, a core+ beer that brings instant icy refreshment to our consumers, demonstrating once again how we are catering to rising demand for new product offerings and differentiated drinking experiences.
Our B2B platform, BEES has been expanded to more than 180 cities and accounted for approximately 40% of our revenue in China in March. In South Korea, our volumes expanded by double digits in the first quarter, alongside market share gains in both the on-premise and in-home channels.
Revenue grew by double digits, supported by mid-single-digit revenue per hectoliter growth. EBITDA grew by mid-single digits with a positive impact from top line growth, partially offset by commodity cost escalation and increased commercial investments, including in well-received marketing campaigns for Cass and HANMAC.
In India, volume grew by strong double digits as we continue to win more market share. Revenue expanded by strong double digits with our Premium and Super Premium segments also seeing strong double-digit growth.
Before I pass it over to Iggy, let me walk you through some of our recent ESG progress. On the environmental side, our early 100 coverage now reaches about 50% in APAC. We accelerated our progress by connecting solar energy generated at our breweries to the state grid in China with our Nanchang and Nantong breweries being the latest to do so in the first quarter.
Three of our breweries in China have also received National Water Efficiency Awards from the Chinese government, further demonstrating our water management leadership in the beer industry.
On the social side, we leverage our iconic brand Corona to get a novel closed-loop model of rural revitalization, supporting local farmers in Anyue district in Sichuan province to grow limes with over 235,000 kilograms harvested for the Corona Extra Lime initiative, while also providing Chinese consumers with the Corona, Drink with Lime experience.
This initiative has won multiple social impact and brand influence awards, including most recently, the Creative Commerce Grand Prix at the 2023 Spikes Asia Awards.
On the governance side, in February, we evolved our Board Audit Committee to an Audit and Risk Committee and launched the management level risk committee to further enhance our cross-functional and proactive management of internal and external risks.
Finally, we welcome all of you to join our ESG webcast, which will be held at 3:00 p.m. Hong Kong time on the 15th of May. Please refer to the Bud APAC website for more details.
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 quarter, volumes grew by 9.1% as they have been in China recovered, further supported by our strong performance in South Korea and India.
Revenue increased by 12.9%, with revenue management initiatives and premiumization jointly driving a 3.5% increase in our revenues on a per hectoliter basis. Normalized EBITDA grew by 10.4%, driven by the business recovery in China, while our normalized EBITDA margin declined to 34.1%.
Cost of sales per hectoliter increased by 5.2%, driven by remaining commodities escalation headwinds that were partially offset by continued cost management initiatives and optimized sourcing.
Now let's take a look at our performance in key markets. In China, volumes grew 7.4% with revenue growing by 10.9% and revenue per hectoliter increasing by 3.3%. This top line recovery enabled a 12.6% increase in normalized EBITDA, mainly driven by business recovery, lower sales and marketing investments due to Chinese New Year phasing 10 days earlier, and ongoing premiumization.
In East Asia, volumes grew by 10%, thanks to our continued market share gains and industry recovery. Revenue management initiatives continue to contribute to revenue per hectoliter growth, which increased by 3.5%, and revenue grew by 13.8% as a result.
Normalized EBITDA increased by 2.6%, mainly due to cost escalations and increased sales and marketing investments to continue to support volume growth. Overall, normalized profit attributable to equity holders was USD 300 million.
That's it for me today. And with that, Jan and I are here to answer any questions you may have.
[Operator Instructions] Your first question is from Lee Liu from Goldman Sachs.
This is Lee from Goldman Sachs. So my 2 questions are both about China. I will ask one by one. The first one is on China recovery. There has been a lot of concern regarding China consumption recovery trend recently. So could you please share with us the recovery momentum that you have observed year-to-date, especially for premium and above and also the on-trade channels.
Thank you for your question. Good to hear from you. So as you know, last year, the industry was quite disrupted by the COVID restrictions throughout the whole year, really and that was really driven by a combination of both channel closures on the one hand and also consumer traffic reduction.
When we look at Q1, you remember, we always call it a transitional quarter, and we talked about it last quarter, and we see that the industry continues to recover throughout the quarter.
So in January, the on-premise opening rates began to improve. But consumer mobility was -- and the willingness just to go out, was still impacted by the COVID recovery, which was really during December and January, as you remember, plus CNY was 10 days earlier than last year. So both these kind of events had quite an impact on mobility.
So we saw the channel reopening rates increase. To give you an idea, in January, we said it was about 76%, 77% for nightlife and Chinese restaurants. When we looked at end of March, we consider 100% of the sales channels reopened.
When you look at consumer traffic, in-store traffic has really normalized since February. When you talk about premiumization, we see premiumization ongoing. You would have seen in our release and in our talk that premium and above volume grew double digits, since the normalization of the channels and in-store traffic.
Also, we signed more contracts than last year, so we are quite optimistic as well about the year. So we're really excited. We see it as a big opportunity to capture a disproportionate benefit from the China reopening in 2023. Thank you for your questions, Lee.
So my second question is about the China commercial investment. We have noticed the trend with some peers giving [indiscernible] increasing marketing investment potentially this year. So how you think about APAC's marketing strategy and the commercial investment level for 2023?
Yes. I think when you look at Q1, sales and marketing as a percent of net revenue you would probably see that is lower than last year, which is mostly impacted by the 10 days earlier CNY. Because together with some of the premium, super premium volume going earlier to December, there's also some of the expenses that moved with it earlier in last year.
So I would say probably Q1 is lower than normal based on the earlier CNY. When you look at full year '23, we will continue to invest in our business. But you also see that we've learned a lot in the past couple of years, really since the COVID outbreak. And we have a much more agile resource allocation system now than ever before.
Secondly, as you know, our digitization efforts really allow us to be more efficient than ever as well. So when you look at the investment level, we believe our full year commercial investment last year, if you look at the full year of '22, was about the right level as a percent of net revenue.
Obviously, net revenue will increase significantly this year. But as a percent of net revenue, we think probably roughly the '22 level is a good level of commercial investment for us to have a healthy business combined with the efficiencies and resource allocation that we can drive.
And of course, looking beyond CSR marketing, you know that we are constantly applying our [indiscernible] approach. So any reduction we can do with indirect overhead cost, we will also reinvest the savings into our commercial plans to connect with our consumers so that we can drive long-term value for our shareholders. So I hope that answers your question, Lee.
Your next question is from Euan McLeish from Bernstein.
Just carrying on in China, can you maybe help us understand a bit about the relative importance of channel recovery versus footprint expansion in driving your Q1 premium and super premium growth? And can you talk a bit about how you expect that to evolve going forward?
Sure. Thank you and good to hear you. So in the first quarter, you would have seen the channel reopening quite significantly in what we consider full reopening by the end of March. So as a result, Premier, Super Premium revenue grew by double digits versus last year, even including or despite the 10 days earlier CNY.
So the most important driver of the Q1 premium, super premium growth was really the channel reopening in the first quarter, and it highlights how strong the underlying premiumization trend is and how critical the channel recovery has been for the trends to really come to full kind of impacts.
Of course, on top of the disproportional benefit from the China reopening expansion continues to play a very important role for the premiumization growth, and it will continue to be a very relevant part of the strategy.
And actually, both geo and channel expansion play an important role. When you look at geo, as you would remember from the Investor Day, we disclosed there that we have actually less than 1 out of 10 stores in China carries a super premium brand of ours.
And for Budweiser, even despite the scale that Budweiser has in China, it's about 1 out of every 3 stores that carries Budweiser as a brand. So that's why we see significant runway for further geo expansion.
We have developed new wholesalers in the last 3 to 6 months, both for Budweiser and Super Premium to again help us expand distribution in these target cities. And we delivered in the first quarter double-digit revenue growth in these expansion cities, and we are well on track to deliver on the Budweiser Super Premium distribution cities expansion as per plan.
When we look at channels, our on-premise channels, especially nightlife, they were last year disproportionately impacted by the COVID restrictions. We saw virtually all fully reopened by March. So the churn has really been fairly contained.
And on that note, we saw nightlife channel mix. The ratio increased in the first quarter as the nightlife business normalized. And we do expect this to unwind the disproportionate negative impact it had in the business last year. So do we continue to expect some significant channel recovery in the coming quarters. So I hope that answers your question, Euan.
Yes, that's helpful. Is it possible to kind of put some numbers to that? Are you able to give us a rough kind of quantification of how you see these drivers going forward and their relative importance?
Yes. I think if you look at our -- if you look at the footprint of our business, the recovery, of course, in the incremental revenue would have been the primary driver in the first quarter. And it really becomes noticeable.
When we look at the differences between January as a month and then Feb-March as a combined kind of period where we really saw the normalization happening. So when we look at the normalization of the operating conditions, in January was still negative net revenue versus the prior year.
When we combined Feb-March, we were in double digits, net revenue growth and double-digit growth for the full quarter as a result as well, driven really by strong Feb-March, where we saw the full recovery. So volume growth was about 7.4% there. But also net revenue per hectoliter improved significantly versus the fourth quarter of last year.
Net revenue per hectoliter increased single digits. So you would have seen the 3.3% versus last year. That was despite the earlier CNY, mostly benefiting from revenue management and premiumization.
When we look at revenue management, in March, we took the prices up on the core and value segments above CPI. And then as we do normally Premium, Super premium, we took price in November '22 on both the Premium, Super Premium segment in line with the CPI.
When we looked at premiumization for Feb-March, we saw the full channel recovery. Net revenue per hectoliter there was already directionally in line with a more normalized historical mid-single-digit net revenue per hectoliter we would have seen before.
And we do expect premiumization to continue to be a primary driver of top line growth, which is really driving our financial performance, and we're quite optimistic obviously, for this year, the business recovery and us being able to take a disproportionate shareholder recovery in China. So thank you for your questions, Euan.
Your next question is from Luo Chen from Bank of America.
I've got 2 questions. Both are related to premiumization in China. So first of all, with regard to the growth rate of Premium and Super Premium in China, can we actually achieve the level that we saw before the 2019?
So basically, during those few years 2017, '18, we actually done extremely well. So are we actually able to achieve back to that level? Or because of a low base during the past few years, actually, the growth rate could be even higher?
And in fact, in our view, what are also the key risks to the Premium, Super Premium growth this year? Is it because of new waves of potential COVID upgrade again? Or we could [ now ] expect a macro or competition from here? This is my first question.
Sure. Thank you, Luo Chen, good to hear you. I think when we look at last year, obviously, there was both a channel restriction impacts on the premiumization and a geographic mix impact and was actually much more important than any -- like we didn't really see any structural consumer trade down.
So as a result, in Q1, as I was saying, we saw Premium, Super Premium revenue growing about double digit versus last year despite the CNY being earlier. And actually, when you compare to pre-pandemic level, Premium, Super Premium volumes already grew around 20% in the first quarter versus pre-pandemic level, if you look at our premium, super premium brands.
So in some ways, you could say the growth rate is normalizing to pre-pandemic levels. But of course, on a higher base each year as it continues to grow.
And longer term, medium, long term, we also [indiscernible] about our business prospects, and that's really linked to the middle-class household expansion that we expect to quadruple in the next 10 years, which should continue to drive the business momentum given the portfolio we have to take an outsize share of that growth as the middle income households increase.
If you look at the changes over time, we really see Super Premium as a blue ocean because the consumers continue to trade up. And we also see the demand spaces evolve where the consumers look for more differentiated offerings and a portfolio of brands and innovations that continue to play an increasingly relevant role.
And when you look at our Innovations, that's why -- we're also very focused on Budweiser, Supreme Budweiser, Magnum and other innovations even below Premium like Harbin Icy GD because they play very complementary roles to build this consumer portfolio of premium experiences.
When you look at Premium Magnum combined, we grew very strong double digits in the first quarter. So these innovations are really very solid and drive a lot of the momentum.
If you look at the risk factors to your question, I think anything that results in channel closure, of course, would give risks to consumer confidence and also to the business. But in terms of COVID, we really hope that we are on the other side, and we believe we are on the other side of that topic.
So we don't expect anything there, and there's really nothing on the radar that makes us think that there could be difference. If you look at consumer behavior, we have seen the premiumization trend recover and really speaks to beer being a very resilient category.
And also, when we talk about Premium, Super Premium, I mean, this still remains an affordable luxury. So we really see Premium, Super Premium beer performing, and we expect it to continue to perform very well.
If you look at the risk factors of competition, I would say industry-wide focus on premiumization is positive, both to the trend and the industry and the industry dynamics. And we don't need to carry the weight alone of premiumization.
However, I mean, we do see -- I mean, we are very confident in our brand portfolio, the combination of our mega brands and the -- also the seeding of the brands for the future for Super premium and above, combined with a very strong route to market with our BC wholesalers and ambassadors and our people capabilities, which will continue to drive and to lead the Premium, Super Premium segment growth from our perspective. So we're quite optimistic there, and I hope this answers your question, Luo Chen.
Yes. That's very helpful. And my next question -- question is actually regarding a specific price segment within the Premium portfolio. So basically, it's between CNY 8 and CNY 12. Of course, different companies may call that range in different ways, maybe Core++ or subpremium.
And we think this is actually the largest segment within the Premium portfolio by volume terms. But this is also the most competitive segment as a lot of our peers trying to expand very aggressively within that price range. And given all this setup and dynamics, what is our strategy for that price range?
Thank you. Good question, Luo Chen. Really, strategically, it goes back to almost the different profit pools that we described when we had the Investor Day together in Korea 6 months ago. Because when you look at volume on the one hand, of course, the answer can be very different from profit contribution, on the other hand, at the segment level.
And as you probably remember, we actually would predict based on trends, both in China, but also in other countries, that roughly 50% of the future profit growth will be driven by the Super Premium segments, which is actually above RMB 12 where the portfolio is really important. That's what we call the blue ocean of the profit growth in China, and we're very well positioned there.
To your question of the RMB 8 to RMB 12 kind of price range, I think most brewers actually differentiate between the RMB 10 and above, which we call the premium segments. And then below RMB 10, which is a core, core+ and core++ segment.
So we would call the RMB 8 to RMB 10, so below RMB 10, I should say, we call it core++ typically RMB 8, RMB 6 we would call core+ and then below RMB 6 is core value, right?
So that's kind of the definitions we use and I believe most kind of agencies and people who look at the beer industry in China would typically use that. There are some exceptions by other players. But in the end, that's kind of how different players look at the industry.
RMB 10, Budweiser is typically a brand that plays in Premium and Premium Plus.
So when you look at Budweiser, typically has a price point of RMB 10 to RMB 12, really depending on the city. And Supreme and Magnum are priced above Budweiser, so above this RMB 10 to RMB 12 price points. When you look at -- and obviously, Budweiser is a very big brand in that segment of RMB 10 to RMB 12.
When you look at the RMB 8 price point, which we call core++, some other players call it a premium, there is indeed a nice opportunity there of trading up from core to core+ to core++, whatever you choose to call it, and really Harbin Icy plays a big role for us there.
As you know, Harbin Icy is our second biggest brand in China. And we actually launched a Harbin Icy variant, which we call Icy GD, Icy Genuine Draft, to seize an opportunity in this price segment.
So it's an ultra icy liquid with an innovative packaging with a pool cap and really is positioned on what Harbin Icy is known for being the iciest beer in China coming from Harbin, and we launched this innovation really with a focus on Chinese restaurants and in-home channels where the opportunity for the RMB 8 price point is the largest.
So it's been very well received by the younger generations. We have a brand ambassador, [indiscernible], who has announced the pre-summer kickoff campaign. We have several KOLs who are driving content on the different social media like [indiscernible] to drive this Harbin Icy refreshment content.
So there's really a transitional product for the consumer trade-up from core+ -- between core+ and premium really. And we believe these in between offerings can indeed take significant volume and trading up opportunity.
But of course, according to our estimates, Premium, Super Premium continue to be the big growth opportunity from a margin pool perspective without any doubt. If you look at just the multiples of gross margin and profitable margin that they contribute for these different brands. Well, thank you for the question there, Luo Chen.
Yes. We are also very excited with the upcoming Investor Day in Wenzhou at the end of this month. So we look forward for more discussions on our business development and premium license strategy.
Thank you, Luo Chen. And we look forward to that as well. It'll be nice to be physically together in Mainland China this time. I'll share a little bit more in the next couple of minutes on that as well.
Your next question is from Lillian Lou, who's from Morgan Stanley.
I also have 2 questions. One is a follow-up one on China. So basically, Jan, you just mentioned the major biggest price range products. Could you share us about the recent performance trends among 6 mega brands? How did they perform so far? So that's my first question. I will ask the second one after that.
Sure. Thank you, Lillian. Great to hear from you. So yes, a pleasure to update you on the 6 mega brands in China. Really, our biggest one, of course, is Budweiser. It's the biggest premium brand in China. From memory, it's about half of our total revenue. In the first quarter, Budweiser brand net revenue was in double-digit growth versus last year and roughly 20% above pre-pandemic levels. So quite strong recovery. So we're happy to see the momentum and the recovery there.
If you look at the Budweiser Supreme and combined with Magnum, maybe the volume grew strong double digits versus last year. So we're very happy with the momentum there. And really, these are incremental innovations targeting different consumer groups and different drinking occasions at more premium price points than Budweiser. So it's really a premium plus or a premium above price points. And really, consumers have very strong reaction to these innovations. And so we're very happy to continue the expansion both in channels but also in geographies in more and more cities.
If we look at Core+, Harbin is our second-largest brand by volume in our portfolio. And as I was just mentioning to Luo Chen, we just did a significant launch with Harbin Icy GD to take the opportunity in the RMB 8 price points. We have high expectations there. We have a great celebrity, good reactions from consumers. And with its ample consumer testing before the launch, we believe this GD offering in the Core++ price point with the iciness of a brand like Harbin Ice targeting the LDA consumer, the young adult consumer, really has a big chance of being very successful for us in this trading up opportunity to the subpremium segments.
When we look at super premium, of course, Corona star brand together with Blue Girl and Hoegaarden, Corona will have very extensive 360 support around the lime ritual going into the summer campaign. We've seen very significant brand equity improvements and continued increase in brand equity for Corona, and we look forward to continue to drive very strong business growth quarter.
Blue Girl, if you look at the strategy there, it's really around identifying the key expansion cities. We have found a strong campaign on being -- Blue Girl being the top 1 beer in Hong Kong for a continuous 16 years, which resonates very well with our Chinese consumers, and the superior quality super premium beer also to accelerate growth. So that combination of being the #1 beer in Hong Kong for continuous 16 years within super quality super premium beer is really resonating very well with our consumers. And we're planning to do more concerts with Blue Girl and G.E.M., the celebrity that we use for Mainland China, in more key cities in the second quarter.
If we look at Hoegaarden, we launched the spring garden events in several cities, including Shanghai. And actually quite interesting, we turned the PCR pavilions to become beautiful beer kiosks, attracting more consumers, also female consumers, in unwind moments. And also the fruity flavors are doing very well on Hoegaarden and very incremental to our beer portfolio.
So I would say our different brands are very healthy, both from volume growth, revenue growth and brand power perspective and very strong plans to start the summer early. So we're quite excited with what is to come in the next couple of quarters, Lillian. Thank you for your question.
So very detailed explanation. My second question is related to Korea. Obviously, I think some -- there has been some competition there. So what's our overall product and channel strategy in the market? And have you seen any impact from our competitors' newly launched new product Kelly so far?
Thank you, Lillian. I was actually in South Korea last week. So it was a quite -- it was very great energy and commitment from the team there with our national sales convention, what we call the Growth workshop. It was actually very nice to see the whole team together, and a lot of energy in the room, I can tell you that.
So on competitors, as you know, we typically don't comment too much. But our own actions, you would have seen a very strong first quarter in South Korea. We've been able to expand our market share in both channels, supported by both the strong performance of All New Cass and also a continued on-premise channel recovery. The on-premise market share in Korean restaurants actually achieved the highest market share since 2019. So we see very strong business momentum there.
If you look at our investments in the market, we are committed to continue to invest and to continue to win in South Korea. As you can imagine, we learned a lot from 2019, right, the year that we had another launch of a significant innovation of a competitor. And we have a very strong commercial plan, including the learnings of 2019, to be quite effective. And the team is very excited behind the summer plans that we have.
So for example, we have just launched a new equity campaign for Cass, reinforcing the purpose and the reasons to exist for the brand, which is really about bringing the real people together in a very authentic manner and with some witty and well-received tone targeting that young adult audience.
If we look at HANMAC, HANMAC has rolled out a further enhanced liquid and a visual brand identity in recent weeks. We see the liquid now boasting an even more dense foam. So there's a lot of communication around the strong foam density, which is retained for a longer period, really staying true to owning the smooth imagery. And the new packaging is even more sleek and simplified, resulting in a more sophisticated look and feel very well received by our consumers.
If you look at premium, super premium, we have very strong execution there. Some new pack options as well and new variants in the market or soon to come, both from Stella Artois and Hoegaarden. So really, we have a very solid summer plan, a very strong commercial plan with momentum with a team that is more experienced than in 2019 with a lot of learnings there, and to honest, a lot of energy and excitement for the plans on really making this a good year for South Korea. I hope that answers your question, Lillian.
Your next question is from Anne Ling, who's from Jefferies.
I have 2 questions also from South Korea. Let me start with the first one. It's about the margin outlook. So it seems that our peers are also not keen on like raising price as the government is targeting like brewery as well as other beverage with the anti-inflation measures. So given the fact that we have this 3% excise tax starting from April, are we going to absorb this excise tax? Do you think that this will impact our margin? Or we should be able to offset it from premiumization and all that? So that's my first question.
Thank you, Anne. Good to hear from you. Let me maybe ask Iggy to cover this question.
Sounds good. Thanks, Jan. We'll give you a break there. Thanks for the question, Anne. I think -- I mean in South Korea, if we look at the first quarter of this year, our top line increased by double digits, right? And that growth has really been driven by continued top line growth, right, to offset both raw and packaging material cost escalations, which we mentioned are still an item, and also to manage increased commercial investments, right, to support our volume growth.
And so volumes grew by double digits in Q1, driven by that on-premise channel recovery. And of course, we had continued market share expansion in both on-premise and in-home, which is very important, as well as a strong performance of both All New Cass and HANMAC, right, as Jan mentioned earlier. And revenue grew by mid-teens, right, in the quarter, benefiting also from the carryover of some of the revenue management initiatives we would have implemented last year, right, in 2022. So if you recall, we took price last year, right, in March 8 of 2022 in the Core segment.
Now I think if we take a look at kind of the dynamics for this year, well, COVID restrictions are now fully lifted, right, except, of course, in medical facilities and other such cases. But the on-premise channel continues to recover versus last year now that the COVID restrictions have waned. And just as a reminder, right, the industry has not yet recovered back fully to pre-pandemic levels, right? So it's one of the reasons we still see further room for recovery in this year and beyond.
We don't give a specific guidance on EBITDA margin, but we're still cautiously optimistic about margin improvements over time. At the end of the day, and we shared this, I think, during the Investor Day back in Korea, there are really no structural issues in our business that prevent us from having both the margin recovery and improvement. Now of course, I mean, in the short term, EBITDA margin is lower than pre-pandemic levels if you look at the first quarter of '23. But this is really mainly due to the continued commodities escalation.
And then as we look forward, in APAC East and in Korea specifically, the kind of main drivers for growth continue to be in the following order: rates as the #1, operational efficiencies as #2 and mix as #3. So at this moment, we have nothing to announce regarding a price increase. So that explains number one. In terms of operational efficiencies, we still continue to implement cost and operational efficiencies across our business with the same discipline that you count us on using. And we continue to apply the cost, connect and win approach that Jan mentioned earlier as well. So anything we can reduce in direct overhead cost to drive EBITDA margin recovery, that happens naturally as part of the way we run the business. And then, of course, we'll benefit further in this aspect once commodities normalize.
And then finally, in terms of premiumization, we'll continue to be reminded, Korea is still significantly under-indexed versus other mature markets. So we know there's a big opportunity here. And I think what's important there is being in the right position to capture an outsized portion of that growth. And we should be able to do that with the comprehensive portfolio of both premiums, subpremium brands that we have available. So thank you for the question, Anne. I hope that answers it for you.
Yes. Actually, regarding the premiumization, I just wondered for -- I remember that during the IPO, GlobalData actually talked about like expect premium volume to account for 40% of the total volume maturity, i.e., year 2023. And I understand that we have this past 3 years of COVID outbreak, but based on your knowledge, how far away from there for this market? And how long do you take think that it would -- for us to take it to that level for Korean market?
Thank you, Anne. Yes, really, there are 2 key drivers for a slower premiumization in Korea than we would have heard from GlobalData 3, 4 years ago. And one is COVID. You mentioned it. Obviously, consumer confidence has been impacted at a time with a slower trade-up or slower premiumization but also because on-premise was impacted. And typically, in the on-premise channel is where we can build the premium brand experiences, which then translate into more off-premise sales momentum.
The second big event was the no Japan movement in 2019, which you might remember. A significant portion actually of the premium segment was based on Japan-based brands. So this also set back the segment trends as these brands were significantly impacted and not everything was basically replaced within the premium segment. We are seeing signs recently of a return to growth of Japanese brands.
And also the on-premise recovery allows for more differentiated experiences. So more recently, we do actually see double-digit growth for our premium brands in South Korea in the first quarter. So we do see that with these kind of headwinds solved and behind us now, we do see the double-digit growth as well in our premium portfolio in South Korea.
As you know, we are the market leader in the segment. We have 3 of the top 6 premium beer brands with Budweiser, Stella Artois and Hoegaarden in South Korea. We do see the growth there, and we see brand health quite healthy as well in terms of brand power measurements. So to your question, we believe that South Korea will continue to premiumize. Today, it's still under-indexed. It's about half of the weight of a fully mature market.
So for reference, normally, you know as a reference it's more than 40% [ leadership in ] premium weight in the beer industry. South Korea is probably at roughly half plus about of that, right, let's say, 50%, 60% of that. So we do expect South Korea to accelerate the premiumization in the next number of years with all the key drivers coming back into play. Thank you for your question on South Korea, Anne.
Your next question comes from the line of Ethan Wang from CLSA.
So I have 2 questions, and allow me to ask them one by one. My first question is on the brand innovation at Budweiser. Jan has mentioned that the Budweiser Supreme, Budweiser Magnum have done pretty well. Actually, they've done pretty well in developed countries. So just -- and things are just being started in China. So just wondering, what is our branding and pricing strategy for Budweiser Supreme and Magnum in China? And in terms of numbers, how much do these extended Budweiser brands contribute to our total Budweiser sales or volume in China right now?
Thank you, Ethan, for your question. Good to hear from you, too. So yes, like you said, right, we continue to expand Budweiser Supreme, Budweiser Magnum. We also have Bud Light in Guangdong, right, which is more young adults targeted in one of our biggest strongholds and leading markets. So really, the role of these innovations for especially Supreme and Magnum is to target new drinking occasions to be incremental to the Budweiser consumer needs and also to bring further premiumization and high standards with these innovations to the brands, right? So it's really there as well to continue to premiumize the brand image of Budweiser.
So if you look at Budweiser Supreme, it's really focused on premium dining occasion. There are 360 quality campaigns that we launched actually this month, leveraging a celebrity, Nicholas Tse, who is really a large celebrity, right, who is helping us to further build brand awareness and sales growth potential across new markets. To your point, Budweiser Supreme is very strong in some key markets but still with potential to really become a national proposition. So there is both a big growth potential within the key markets but also a big expansion potential across China.
Budweiser Magnum is a more recent innovation over the last 1 or 2 years. That's a very different liquid, right, different beer. It's a strong full-bodied beer, very premium look and feel, gold and black color coding. We are expanding it nationally to most of the key markets. With the learnings we have recently, we have optimized the product profile to bring the best experience for consumers, especially in Chinese restaurants and in-home channel.
So the combination of these innovations for Budweiser, they are around mid-single digits in the net revenue of the Budweiser family. We are targeting for this to be, let's say, double digits in the next 2 or 3 years. It would be at least our expectation because these brands are really high growth and very complementary to the Budweiser brands.
Got it. My second question is on raw material price. We all know that China and Australia has finally resolved that dispute regarding barley. This is good news for the beer sector overall in China. But we also understand different companies, due to their different sourcing strategy and their hedging strategies, the impact can be different. So just wondering how this resolution of the barley dispute is going to benefit our raw material price going forward.
Thank you, Ethan. Let me ask Iggy to answer this one.
Yes, Jan. Thanks for the question, Ethan. Yes. I mean we've heard the news on this potential lifting of the tariffs on Australian barley. It's not yet been confirmed rather, but if it is lifted, of course, the global barley price could or should further stabilize. It's already actually been declining from a peak for a period of time. But of course, this would only continue to help, and we would expect it to be very beneficial to the Chinese beer industry as well.
But I think it's important to keep in mind a couple of things. We apply a 12-month visible rolling horizon hedging policy for a reason. We do so to reduce volatility in our input costs but also to give us more visibility to manage them as well as supply security. And of course, we have some flexibility in exceptional circumstances.
But if you think of this hedging policy in the context of any changes here in kind of tariffs, we would expect that for 2023 raw material costs, the majority of items, and in this case, barley, of course, are mostly locked, right? So in that sense, this is more really of a 2024 potential impact to raw material prices than a 2023 impact. I mean, of course, we'll continue to closely monitor the Australian barley situation. And if any opportunity presents itself, we'll ensure we're ready to capture it. Thanks so much for the question, Ethan.
We have time for 2 more questions. Our final questions will come from the line of Melody Zhou from CICC.
It's Melody Zhou from CICC Food & Beverage team. And my first question is about cost of goods sold. So what is -- what are your cost expectations this year? And is it possible for packaging material costs to decrease in the second half of this year? This is my first question.
Great to hear from you. Let me ask Iggy to cover this one.
Thanks, Jan. Thanks for the question, Melody. I mean while we don't give an outlook on cost of goods sold per hectoliter, I think maybe if I take you to a couple of the key elements. I think it might help to give you a sense of how they're evolving. So I mean in the first quarter of '23, our COGS on a per hectoliter basis increased by 5.2%. And as you could expect, this is mainly driven by the commodity escalation headwinds, the continuing ones, with cost initiatives still partially offsetting, right, as would have been the case in previous quarters.
And then as we shared previously, for 2023, we're actually expecting [ a bit of an ] increase year-over-year but more modest than it would have been in 2022. So we previously shared actually that the 2023 increase, we expect it would be less than half of the 2022 increase, right? So on a relative basis, it's still going up but more modestly than last year.
And the big change really on a year-over-year basis is this kind of lower aluminum costs, right? We had peaked aluminum at more than 4,000 per metric ton. We've been now normalized for several months, right, in aluminum. We had temporarily higher barley costs, which also seem a bit more stable. And then, of course, the cost initiative element, that continues as kind of part of due course, right, standard business.
Then I think maybe the second important thing is from a phasing perspective, the cost escalation impact was always expected to be more pronounced in the first half of the year. So if you think about spot price kind of peaked, right, they would have been last year first half. So we're already expecting a tapering off of cost in the second half of this year given that by midyear last year, things had already begun to normalize.
Maybe beyond the commodity fluctuations, the other thing to keep in mind always is premiumization has an impact on COGS per hectoliter as well as it would have in any normal year, right? And of course, we welcome this as it benefits us from a gross margin perspective. And Jan, of course, mentioned the gross margin ladder for premium, super premium earlier.
And then as always, we continue to look for other opportunities to minimize costs. So whether it's efficiency improvements, cost management initiatives, anything we can do to mitigate raw and packaging material escalations, we'll continue to do, and this helps us to ensure kind of a healthy COGS per hectoliter growth moving forward. So thank you for the question, Melody.
Thank you for so much detailed information about cost of goods sold. And my second question is about Indian market. So could you please give us an update on India and its outlook for this year?
Sure. Thank you, Melody. Actually, India, we've seen a very strong industry recovery. And the industry in India is already above pre-pandemic levels, and we've been outperforming the industry growth again in the first quarter of this year. We're the largest brewer in the premium segment in India, about 67% share of segments. And about 2/3 of our net revenue in India is coming from premium, super premium brands.
In the first quarter, we achieved strong double-digit growth, both in volume and revenue, which is really driven by premiumization and other profitability improvement measures. And we are quite optimistic with the momentum to continue, driven by our commercial executions and the industry growth that we expect to continue to see in the markets.
Premiumization, we've been able to lead the segment growth in premium and above in the industry, which has been impacting positively our brand mix. But we also continue to expect progress on the moderation front, right? So as you probably know, we do have an agenda to engage with several state-level governments to equalize the distorted tax structures between beer and spirits. And we believe beer as a drink of moderation has opportunity to have an improved tax allowance and route to market versus the current situation if you compare it to hard liquor.
And then thirdly, productivity continues to be important for us to continue to improve the profitability levels driven by brewery productivity but also investing in returnable packaging at scale, which can continue to improve our profitability in India as well and to translate a lot of this top line growth into bottom line growth that we expect to be able to drive in the future as well.
So all in all, very excited with our business in India. We see it as a big opportunity with a lot of momentum. So thanks for your question highlighting that country as well, Melody.
Looking forward to meeting you in Guangzhou as well.
This concludes our Q&A session for today. I would like to turn the conference back over to Mr. Jan Craps for the closing remarks. Please go ahead.
Thank you, Anna. All the science points to '23 being an exciting year. We're optimistic about our business and excited about the opportunity to capture disproportionate benefits from the ongoing recovery.
In closing, like several analysts have mentioned, right, I would also like to invite you formally here to attend our upcoming Investor Day in China, which will take place physically on the 1st and the 2nd of June in Wenzhou in Zhejiang province. Wenzhou is a great place to visit and witness China's premiumization trends first hand. We will also showcase our state-of-the-art brewery, which is our newest brewery in China with a highly automated warehouse, and we will also share our advanced levels of digitization because Wenzhou was one of our pioneer cities for BEES. So please contact our IR team or visit the Budweiser APAC website to register. And I thank you again for joining us today, and I look forward to speaking to you again soon, hopefully, in Wenzhou at the Investor Day.
Thank you. Ladies and gentlemen, this concludes today's results call. Thank you all for your participation. You may all now disconnect your lines.