Anheuser-Busch Inbev SA (BUD) 2013 Q4 法說會逐字稿

Welcome to the Anheuser-Busch InBev fourth quarter 2013 earnings conference call and webcast.

Hosting the call today from AB InBev is Mr. Carlos Brito, Chief Executive Officer.

To access the slides accompanying today's call, please visit AB InBev's website now at www.ab-inbev.com and click on the Investors tab.

Today's webcast will be available for on-demand playback later today.

(Operator instructions).

Some of the information provided during the conference 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 and uncertainties.

It is possible that the Company's actual results and financial condition may differ, possibly materially, from the anticipated results and financial condition indicated in these forward-looking statements.

For a discussion of some of the risks and important factors that could affect the firm's future results, see "Risk Factors" in the Company's latest Annual Report on Form 20-F filed with the Securities and Exchange Commission on March 25, 2013.

AB InBev assumes no obligation to update or revise any forward-looking information provided during the conference call and shall not be liable for any action taken in reliance upon such information.

It is now my pleasure to turn the floor over to Mr. Carlos Brito.

Sir, you may begin.

Well, thank you, operator, and good morning, good afternoon, everyone.

And welcome to our 2013 full-year results conference call.

Let's start with the highlights.

We had solid revenue-per-hectoliter growth.

We experienced strong global volume growth from Budweiser and Corona.

Integration of Grupo Modelo is going very well with cost synergies ahead of schedule.

We had EBITDA margin expansion in most of our markets and normalized profit growth of more than 10% despite macroeconomic headwinds.

The board proposes a final dividend of EUR1.45 giving a total dividend of EUR2.05 in fiscal 2013, a 21% increase over 2012.

And, recently, we announced the re-acquisition of Oriental Breweries in South Korea, a transaction which we expect to close in the first half of this year.

Let's now turn to the detailed business results.

Total revenue for the year grew by 3.3%, driven by strong revenue-per-hectoliter growth of 5.8% on the basis of the same geographic mix.

As you can see from the slide, there were solid performances in all of our four key markets.

Total and own beer volumes were down 2% and our focus brands were down .9%, driven by the challenging macroeconomic conditions in a number of our markets.

However, our three global brands, Budweiser, Corona, and Stella Artois performed very well, growing collectively by 4.7%.

EBITDA for the year grew 8.1% with our EBITDA margin up 179 basis points, finishing the year at almost 40%.

Finally, earnings per share for the year was up 9.1% to $4.91, despite significant macro and currency headwinds.

Slide 4 shows the contribution of each of our zones to the total EBITDA performance in 2013.

The majority of our EBITDA growth last year came from our developing-market footprint, driven by Brazil, Mexico, and Latin American South.

China also made a solid contribution, delivering over $0.5 billion dollars of EBITDA in the year and organic growth of over 30%.

The North American zone remains our largest zone in terms of volume, revenue, EBITDA, and cash flow generation with EBITDA increasing to over $6.7 billion.

Our total company EBITDA margin performance was strong with margin expansion in most of our markets last year.

Our strategy continues to be one of focus on key markets and the right brands.

The U.S., Brazil, Mexico, and China accounts for almost 50% of both global beer industry volume and profit pool.

We hold the number-one market share position in all of those markets, except China, where we're hold an approximate 50% share in the fastest-growing and most profitable segment, the premium segment.

We also have a healthy balance between developed and developing markets.

Developing markets now account for almost 64% of our volume and over 50% of our revenues and EBITDA.

Although we have seen some volatility in developing countries in the last 12 months, we remain optimistic about the growth potential in those markets.

We see meaningful opportunities for increased per-capita beer consumption, driven by both growth in disposable incomes and our own commercial plans which are creating new consumption occasions.

As well as being focused on the right markets, we're also focused on the right brands.

We have successfully followed a focus brand strategy for many years, devoting a majority of our resources to those brands which we believe have the greatest growth potential.

Last year, our 20 focus brands accounted for over two-thirds of our total volume and revenue.

Our focus brands include our three global brands, Budweiser, Corona, and Stella Artois, which accounted for around 13% of our volume and revenue in 2013.

Global Budweiser had a particularly good year, growing by 6.4%.

In recent weeks, Budweiser has been the focal point for our Chinese New Year celebrations.

2014 is the Year of the Horse and so what better way to celebrate than to take the Clydesdales to China, helping to make 2014 our best-ever Chinese New Year execution.

Four weeks ago, the brand also took first and third places in the USA Today Ad Meter rankings conducted after the Super Bowl, when its "Puppy Love" and "Heroes' Welcome" spots with over 60 million views on social media channels, generating excitement before, during, and after the game.

And in 2014, Budweiser will take center stage as the global beer sponsor of the FIFA World Cup in Brazil.

We remain committed to investing behind our brands and are planning a step-up in investment in 2014 to accelerate our top line growth and take full advantage of a World Cup year in the host country of Brazil as well as in other markets around the world.

As a result, we expect a low- to mid-teens percentage increase in global sales and marketing investments in 2014.

This increase will be weighted towards the first half of the year, given the timing of our activations.

This additional investment will also support the roll-out of existing and new innovations in 2014.

Last year, our innovations accounted for almost 8% of our total volume, up from 7% in 2012, and included major products such as Straw-Ber-Rita and Cran-Brr-Rita in the U.S., Brahma 0.0, and Skol Beats Extreme in Brazil, and Budweiser Supreme in China.

In 2014, we'll also be supporting major packaging innovations, such as our new re-closeable aluminum bottle in the U.S. and our multi-country World Cup limited edition packaging.

The combination with Grupo Modelo has given us an unparalleled portfolio of premium brands.

We own four of the top-ten brands which compete on the global stage; our three global brands, Budweiser, Corona, and Stella Artois and our international brand, Beck's.

We estimate that the volume of these four brands is larger than the combined volume of the other six competitors' brands in the top ten.

As I have mentioned in the previous calls, a premium portfolio of this quality gives us the potential to expand into new markets without necessarily having to invest in a brewery or a distribution network.

Let's now look briefly at the 2013 results in our top markets, starting with the U.S. We estimate that the industry selling day adjusted sales to retailers, STRs, declined by 1.8% in the full year and 0.7% in the quarter with industry trends improving after a tough start to the year.

Our own selling day adjusted STRs were down 2.9% in the full year and by 1.4% in the fourth quarter.

As we announced in our third quarter call, in certain parts of the country our price increase was delayed until the start of November.

This led to some of the retail buy-in ahead of the price increase being moved into October and November, benefitting our STRs in the fourth quarter.

We estimate our total market share declined by approximately 50 basis points in the full year and by approximately 40 basis points in the quarter, with an average share for the year of just over 47%.

The decline in market share during the year was driven by segment-mix shift to the high end where we under-indexed versus the industry.

Although we estimate that we gained share in the value segment, we're flat in premium regular and premium light segments in gained share in the above premium segments.

U.S. revenue per hectoliter remained strong, growing by 3.1% in the full year, including approximately 90 basis points of favorable brand mix.

Revenue per hectoliter grew by 1.3% in the quarter, being adversely impacted by the delays in the timing of our price increase, which I mentioned earlier.

We also faced a tough shipment-mix comparable in the fourth quarter due to the preparation for the launch of our above premium innovations in early 2013.

EBITDA margin in the U.S. expanded by approximately 20 basis points in the full year, mainly due to savings in distribution expenses from an improved production footprint for our innovations, as well as strong revenue-per-hectoliter results.

Turning to the performance of our brands in the U.S., we estimate that market share for the Bud Light family was down approximately 15 basis points in the year with Bud Light holding share in the premium light segment based on our estimates.

The premium light segment as a whole remains under pressure but we're working hard to make Bud Light even more relevant to today's consumer without losing any of its core attributes of spontaneity, fun, and humor.

During the Super Bowl, in the beginning of February, we launched the new positioning created for Bud Light with the tag line "The perfect beer for whatever happens".

We believe the 2014 Super Bowl execution was our best ever with our brand generating nearly half -- and I say, again, half -- of all social media traffic during the game across all categories, giving us great insights into how to best connect with millenials.

Bud Light is also benefitting from the roll-out of our new 16-ounce re-closeable aluminum bottle, with consumers already responding with comments such as, "more refreshing" "more modern design" or "more innovative" than competition.

The Ritas family gained over 50 basis points of share in the year with Straw-Ber-Rita and Cran-Brr-Rita joining Lime-A-Rita.

And we have just launched two new flavors; Mang-O-Rita and Raz-Ber-Rita.

The Budweiser family in the U.S. is enjoying its best share performance in almost a decade, losing just 15 basis points of market share last year in a challenging environment for premium regular beer.

The model brands saw improved trends on the back of a consistent communication message supported by Budweiser Black Crown, which grew share by 20 basis points during the year.

Once again, the Super Bowl was a great success for the brand in terms of field execution and the massive buzz we created through social media.

Michelob Ultra and our high-end brands continue to perform well, gaining 20 basis points of share in the year.

We have a taken a very-focused approach to the high end with our efforts concentrated on Shock Top, Stella Artois, and Goose Island.

Goose Island, in particular, continues to grow quickly, as a result of the national roll-out, with volumes up more than 70% last year.

As part of our commitment to growing the high end, we recently announced a proposed acquisition of Blue Point in Long Island and look forward to welcoming the Blue Point team and brands to AB InBev family in the coming months.

Summing up, the U.S. remains a great market and we expect an improvement in the industry volume trend in 2014, driven by a stronger economy.

The first two months of the year have not been easy with tough winter weather in many parts of the country dampening consumer demand especially in the on-premise.

However, where weather has been good, for example on the West Coast, volumes have been fine.

Moving now to Mexico; Mexican beer industry volumes in 2013 were impacted by a soft economy throughout the year, coupled with severe weather in September.

Our own volumes were down by 2% in the full calendar year with an estimated market share of 58.4%, an improvement over our estimated historic level of around 58% share.

Revenue per hectoliter grew by 6.6% in the year, driven by our revenue management initiatives and some one-time benefits from improvements in brand segmentation.

EBITDA grew by 54%, driven by a strong revenue-per-hectoliter result and cost synergies, leading to an expansion in EBITDA margin of almost 15 percentage points since the combination.

Integration of Grupo Modelo continues to go very well with the level of engagement being the highest we've seen in any integration process.

Everyone is working together as a single team and sharing best practices in both directions.

This has allowed us to capture cost synergies much quicker than planned.

We have now realized approximately $460 million of savings with roughly $385 million being delivered since closing.

Another $75 million of savings were delivered prior to closing by the Grupo Modelo management as a result of best practice sharing.

We remain committed to deliver $1 billion of cost synergies before the end of 2016 with the majority of these savings coming by the end of 2015.

We also remain on track to deliver $500 million of working capital improvements in the first two years.

By the end of 2013, we had delivered approximately $400 million of improvements.

We're also pleased with the progress we're making on the commercial front.

Best practice sharing is again playing an important role in everything from routine sales execution to brand segmentation and trademarking programs.

The Corona brand family and Bud Light are performing very well.

In fact, this month Corona launched the largest Mexican consumer goods promotion ever.

In a national campaign, we announced that we would be taking 1,000 Mexican consumers to experience the World Cup in Brazil during the months of June and July.

This promotion has really captured the imagination of Mexican beer drinkers and soccer fans and we're confident it will help to build brand health, drive sales, and expand the beer category.

Growing the beer category in Mexico is a top priority for us.

We expect a return to growth this year, driven by a stronger economy and our own commercial programs.

Although, it's worth remembering that Easter will be three weeks later this year and that will push some volumes into the second quarter compared to last year.

Moving to Brazil; we estimate that industry volumes were down 3.5% in the full year and 2.8% in the quarter with our own beer volumes down 4.3% in the full year and 3.4% in the quarter.

This result reflects a challenging year for the country and the beer industry with poor weather and high food inflation putting pressure on consumer disposable income.

Despite these headwinds, we stayed focused on our strategy of making beer more affordable for our consumers through our packaging and pack-price strategies, expanding beer-drinking occasions, and delivering a strong financial performance.

We estimate our market share for the year declined by approximately 60 basis points to 67.9%, in the middle of our historical range of 67% to 69%.

Year revenue per hectoliter grew by 9.3% with a strong result in the fourth quarter of 11.7%, being driven by our revenue management initiatives, improved premium brand mix, and increased weight of own distribution.

Our premium brands delivered good growth with Budweiser, Stella Artois, and Original all growing by double digits.

Premium accounted for almost 7% of our volumes in 2013, up from 5% in 2012, with plenty of growth potential going forward.

Finally, we delivered EBITDA growth of 9.8% in the year with margin expansion of 270 basis points.

We have turned page on a challenging 2013 and are looking forward to a much better year in 2014, in which we expect the industry volumes to resume growth in Brazil.

The World Cup is coming to Brazil and we're significantly stepping up our sales and marketing investment to leverage this once-in-a-lifetime beer-centric sports occasion to build our brands, drive consumption, and expand the beer category.

Moving now to China; 2013 was a great year for our business in China.

Our beer volumes grew 8.9% in the full year and 9.8% in the quarter, driven by industry growth and an estimated market share gain of approximately 70 basis points to 14.1%.

This number excludes the benefit of the combination with Asia Breweries, which we estimate would have added a further 90 basis points of market share in the full year.

Revenue-per-hectoliter growth of 8.2% was mainly driven by improved premium brand mix, led by Budweiser and Harbin Ice.

EBITDA for the APAC region increased by 31.5% in 2013, reaching almost $550 million with a margin expansion of 169 basis points.

Our China focus brands of Budweiser, Harbin, and Sedrin grew by almost 15% in 2013 and have grown by 11% on an annual basis since 2009.

Those three brands accounted for over 73% of our China volume in 2013 and growing.

Budweiser leads in the super-premium segment with an estimated share of over 50% and took center stage in our recent 2014 Chinese New Year campaign.

2014 is the Chinese Year of the Horse and so we sent the Clydesdales to China to help celebrate the New Year.

As expected, they were a huge success.

Initiatives started with the departure ceremony in St.

Louis and will stretch into March with the Clydesdales appearing at such iconic venues as the Great Wall of China.

The campaign included TV and cinema commercials, impactful out-of-home advertisements, digital screens at major airports, and over 100,000 themed in-restaurant diners.

We're very pleased with the execution and believe this was our most successful Chinese New Year campaign ever.

For 2014, we're expecting another year of solid industry growth in China.

So, looking forward, we have clear priorities in place for 2014 for all of our largest markets.

In the U.S. we'll continue to concentrate on investing behind our focus brands.

We'll continue to roll out the new positioning for Bud Light, continue to work on stabilizing the market share of Budweiser, and grow our share of the high end.

We'll also work with our partners to drive wholesaler and retailer sales performance, scale up proven trade marketing initiatives and continue to strengthen our revenue management initiatives.

In Mexico, 2014 will be a year in which we drive growth in the beer category by fully investing behind our focus brands, improving the overall shopping experience, and leveraging the World Cup to deliver great moments to our consumers.

Premium represents a big opportunity in Mexico and we'll start to leverage our global portfolio while delivering on our cost saving and working capital improvement commitments.

In Brazil, the World Cup will obviously play a central role in increasing demand and consumption occasions.

We'll continue to roll out our packaging innovations to improve affordability for our consumers and build on our leadership position in premium.

We'll also take advantage of geographic opportunities by implementing tailored plans designed to grow volume and share in specific areas and regions of the country.

And in China, we'll invest behind Budweiser, Harbin, and Sedrin to drive consumer preference and our top line.

We'll continue to expand our geographic footprint, both organically and through selected acquisitions and greenfields, while growing our business in our established geographies of the Northeast and the Southeast.

With that, I'd like to hand over to Felipe who will take you through some further detail in our 2013 results.

Felipe?

Thank you, Brito.

And, as Brito has covered our four key markets in some detail and you will find additional information about the other relevant markets in the appendix, I'd like to quickly review our 2013 financials to save more time for the Q&A.

Starting with our earnings per share performance, normalized earnings per share in the full year 2013 grew by 9.1% to $4.91 per share.

The increase is due to the profit growth in the underlying business and the combination with Grupo Modelo including the capture of cost synergies.

Our net finance costs decreased by approximately $138 million for the full year.

Our net interest expense included within that finance cost declined year-over-year by $83 million, mainly due to our lower average coupon on net debt of 4.6%.

Moving to 2014, we expect the average coupon on net debt to be in the range of 4.0% to 4.5%.

Other financial results also included within net finance costs were negative $251 million in 2013 and includes $186 million of net gains linked to the hedging of our share-based payment programs in the year offset by negative currency results and the payment of bank fees and taxes in the normal course of business.

Our normalized effective tax rate for the fourth quarter declined to 13.3% from 17.4% in 2012.

The normalized effective tax rate for the year was reasonably stable at 16.6%.

The full year and the fourth quarter results were better than our expectations for two main reasons.

First, incremental interest on all capital payments in Brazil after the successful completion of the corporate reorganization and, second, as we cannot forecast gains and losses in respect of the hedging of our share-based payment programs which resulted in a non-taxable gain of $451 million in the fourth quarter.

Our normalized effective tax rate is expected to be in the range of 21% to 23% in 2014, between 22% and 25% from 2015 to 2017, and in the range of 25% to 27% thereafter.

We continue to drive incremental improvements in core working capital, reaching a negative 10% level, on average, for the full year 2013 excluding Grupo Modelo.

In the five years since the combination with Anheuser-Busch we have improved this key performance indicator by more than 12 percentage points, generating almost $4.8 billion dollars of incremental cash for the business.

In addition, as Brito mentioned earlier, we have also started our journey in Mexico by delivering $400 million of working capital improvements since closing.

2013 was another year of robust cash flow generation in nominal terms, despite significant currency headwinds, with cash flow from operating activities increasing to just under $14 billion.

In fact, we have generated over $56 billion of free cash flow since the combination with Anheuser-Busch back in 2009.

Our year-end net debt increased by $8.7 billion to $38.8 billion, mainly due to the combination with Grupo Modelo.

As a result, our net debt to EBITDA rate increased from 1.94-times to 2.16-times when including 12 months of Grupo Modelo EBITDA.

Our capital allocation objectives remain unchanged.

Our first priority will always be to invest behind our brands and to take full advantage of the organic growth opportunities in our business.

M&A remains a core competency and we will always be ready to look at opportunities when and if they arise, provided that the target, the deal structure, and price make sense.

We recognize the value of growing dividends over time consistent with the low volatility of a known cyclical business.

Our goal is to reach a dividend yield between 3% to 4%, in line with other consumer goods companies.

Our optimum capital structure remains a net debt to EBITDA rate of approximately 2-times and, around this level, the return of cash to shareholders is expected to be comprised of both dividend and share buybacks.

Finally, the board is proposing, subject to shareholder approval, a final dividend of EUR1.45 which, combined with the interim dividend of EUR0.60 paid in November of last year, would give a total dividend for the fiscal year 2013 of EUR2.05.

This represents an increase of almost 21% over the dividend for 2012 of EUR1.70 and a payout of 58%, up from 49% last year.

If approved, the dividend will be payable as from May 8. Over time, we expect that the November interim dividend will grow in relevance when compared to the one usually paid in May.

With that, I will hand it back to the operator to begin the Q&A section.

Thank you.

The floor is now open for questions.

In the interest of time we will limit participants to one question and one follow-up.

(Operator instructions).

Chris Pitcher, Redburn.

Good afternoon.

A couple of questions.

The first one is on the core brands in the United States.

You gave us the market share losses of both the Budweiser and the Bud Light family and Ritas and the Crown and, from that, we can see that, I think, Budweiser is down 30 basis points to 40 basis points and Bud Light is actually losing more market share.

Could you give us a quick update on where you see the outlook, particularly for Bud Light?

Do you think the Super Bowl execution is enough to stabilize Bud Light share this year?

And then, secondly, on the cash returns, you've talked about a buyback.

Would that both of the ABI and AmBev level?

And it looks like in the period AmBev saw a good tax benefit from interest on owned capital.

Are you able to give us some sort of guidance on interest on owned capital distribution going forward now that the capital structure has changed?

Thanks very much.

Hi, Chris.

Brito here.

I mean in terms of Budweiser, I mean we've seen the best results in the last decade.

Of course, it's still not as stable as we would like.

But I should take Bud Light as a family or as a mother brand; those results are very good compared to the trends that we've observed in the last ten years or so.

So, the job's not done yet.

I think it's in the right direction.

Budweiser has been very consistent in its messaging and the campaign is working, when you look at brand health, especially among LDA to 27.

The metrics are all up.

So that, for us, it's a predictor of what's to come.

And part of it is beginning to materialize.

So, very happy and we have a few programs for Budweiser.

And the response to the Super Bowl ads and everything has been amazing.

Our guys learned how to deal with social media more effectively this time in terms of, not only using the Super Bowl day or event, but leading to the Super Bowl and that generated 60 million -- six-zero million -- views, breaking any records in social media.

And between Bud and Bud Light, we dominated half of all brands in the U.S. in terms of social conversation in the days prior and during the Super Bowl.

In terms of Bud Light, a new campaign that talks to the DNA of the brand; spontaneity, fun, young.

So, that's very genuine.

Reception was good also generated a lot of traffic.

It was a campaign that was done much more to social media than the traditional commercial TV ads.

I think it's a beginning of a journey.

Again, very good when you look at Bud Light, I mean family, the results you know.

When you look at Bud Light as a brand, it kept share within the light segment, which is better than previous years.

Performance at the Light segment for the first time this year, 2013, was under pressure.

So there's not a long term trend or anything.

It's just, in 2013, the premium light segment lost ground but Bud Light held ground within that segment.

So, I think good news for both Bud Light and Budweiser.

Not yet where it should be but getting there in our view.

In terms of cash returns, Felipe?

Yes.

Hi, Chris.

Well, the 2-times net debt to EBITDA optimum capital structure is the ABI one.

And I was specifically referring to ABI when I said taking dividends and buybacks when we get around that number.

The optimum capital structure for AmBev is much lower than that, given the fact that there is a tax benefit of paying interest on owned capital in replacement of dividend and, therefore, leading to a much lower leverage level.

And, again, the payout decisions at the AmBev level is independent from ABI and the AmBev board should be considering all alternatives, among them being the buyback as well.

Okay.

Thank you.

Thank you, Chris.

Andrea Pistacchi, Citi.

Yes, hi.

So, my first question is on your marketing spend.

You're guiding to a huge increase in spend this year of about $800 million, I think.

A part of this will be the World Cup in Brazil but you're also saying there will be a big step-up in other markets.

So the question is; what is different this year to drive such a material increase in spend?

You've clearly got some innovation but you've also had a lot of innovation in that past couple of years, particularly in the U.S. So why have you decided this year to really back it with heavier spend?

And then if I could just also add a quick question on the Modelo brands, on Corona in particular, internationally.

Where are you in terms of taking back distribution of the brand?

I believe now you're taking back Canada, possibly France, Italy.

If you could give us an update on that, please.

Yes.

Hi, Andrea.

It's Brito here.

In terms of marketing spend, I mean you have to understand that sales and marketing investments are going up because of many reasons.

First, they go up every year in dollar terms because they tend to go up with top line.

And, because top line has been growing, it grows.

Second, every four years you have the World Cup and being big sponsors of the World Cup and being the World Cup is a beer-centric event, especially this time in Brazil -- last time was in 1950 -- so we decided to make this really a huge event, especially based on the learnings and great results we had last year in the Confederations Cup in Brazil.

So, the World Cup is also part of this delta investment, not only because of Brazil, around the world, but also mainly in Brazil.

Third, we have a pipeline of innovation that gets better every year and that gets supported.

So that's the third.

And the fourth is we're just scaling up some proven initiatives in terms of trade programs that worked and that's also part of that.

So, it's a year where we have lots of things happening and it should be seen in that context.

In terms of Corona transition, I mean, again, we inherited contracts.

Of course, we respect those contracts.

It's a case-by-case situation.

As you all said, Canada is the first major market where the transition will be done on March 1 and that will be great for our Canadian business.

That will change a lot our share of segment within the high end in Canada.

And that is going to give us a great inroads in the own trade, high-end trade, or high end on trade globally where Corona really has a lot of its footprint.

So that's going to benefit a lot of our other brands, having Corona as the door opener for a lot of other brands.

So that's the way we're looking at it.

Other countries will follow.

Brazil, for example, we want to do the seeding of Corona after the World Cup.

We can do it any time because Brazil has no formal importer but we feel that doing it now, given everything that we have planned for the World Cup, it wouldn't really make justice to the brand in terms of attention and share of mind and heart.

So we're going to do it after the World Cup.

So, again, we're taking very careful steps.

It's an amazing brand.

It's a brand that really complements, that's the beauty of it, it complements our other global brands.

It doesn't sit on top of any of them.

It has a unique position that's strong, relevant, and it's above beer.

I mean you ask consumers around the world; it's almost a category by itself.

Iconic, borrow the ritual of the lime, and the price point.

So, it's something we want to do carefully.

We want to learn from it, on trade and great margins that we have ahead of us.

So, it's all good in terms of Corona.

If you look at what happened with Budweiser once it joined our system in 2009, Budweiser before we combined with AB, Budweiser globally was in negative territory in terms of volume.

Once it combined, the first year, 2009, it went already to plus 1, the second year plus 3, then plus 6 and plus 7 and things like that.

So, we believe that Corona, which is in positive territory by the way, it's in a better a place, will also follow a similar pattern or path as it joins our system Because you have to remember that Corona, so far, has been developed by importers who had a short-term contract, three- or four-year contract, with no certainty of being renewed.

Now, it's our brand.

So, as it becomes part of our system, it's a brand that we're going to invest behind because we know we'll have it for the long term.

Thank you.

Thank you.

Anthony Bucalo, Santander.

A main competitor in the U.S. has been talking about placing some media effort behind its value brands as a defensive maneuver against encroaching spirits here.

Do you have any thoughts on what you may do with your value brand portfolio in terms of protecting it maybe from a competitor or maybe helping guard beer a little bit from the encroachment of spirits?

Yes.

You raise an interesting question because, if you look at vodka for example in the U.S., it portrays a very up image.

But most of the volume is sold, when you look at per serving, is sold at, what we would call in beer, a value brand type price point.

So there is an opportunity there.

It's not our focus but, you're right, there is something to be said about at least keeping your fair share in that segment.

This year, we had a stronger share performance, 2013, than the previous year.

We're committed to that segment in the sense of we want to gain share within the segment.

We don't want the segment to grow because we want the other segments to grow because that's where the margins are.

(inaudible) competitive so we have our fair share and, who knows, even a bigger share within a segment that does exist and it comprises 25% to 30% of total beer in the U.S.

But you're not thinking about maybe stepping up any sort of investment in those brands just to maybe protect them from --

No, no.

I'm not going to give you details in terms of what we intend to do by brand or by segment.

But it's a segment that we want to have our fair share.

Okay.

One quick question on the Extra stores, Brito.

Just with selling them to Circle K, I would imagine you keep the exclusive distribution for the Modelo brands in those convenience stores?

Yes, yes.

That was part of the deal, yes.

Okay, that's part of the deal.

Great, thanks.

You're welcome.

Caroline Levy, CLSA.

Good morning.

Thank you.

I'd like to just ask about margins in Latin America North and even in the South.

You seem to have an amazing ability to be able to get price and deliver strong margin growth even in the toughest consumer environments.

So, just to understand the kind of improvement we saw in both North and South of Latin America in the fourth quarter, were there any one-time items there?

I understand that you're not going to have that in the first half in Latin America North because of World Cup.

But is there anything that we should know that stands out or is that something you think can continue to go up over time?

No.

I mean I think you should look at the full year and not at the fourth quarter because in the fourth quarter, as we said in the press release, especially in Latin America North, we had some one-off organic items that, of course, impacted margins.

I think you should look also there was the fact that taxes did not increase in October, which was very good for margins as well.

But I think you should look at the full year not at any quarter specifically.

And even then the 47% for the full year was incredibly impressive but do you see upside to that level in Latin America North over time?

I mean, as we say, margin expansion is something that is part of our DNA.

Of course, we would like to have margin expansion together with top line growth.

It's not "or", it's "and".

But, yes, we like to be, every year, more efficient as long as the business is being well supported and top line is growing as well.

So our objective is really to have top line growing and that includes a (inaudible) between share, price, brand health, everything that pertains to top line and, of course, margin expansion.

So, it's both.

Thank you.

And then I just have a follow-up on the state of the consumer in Latin America.

If you could just update us.

I mean do you feel like things are getting any worse in Argentina, for example?

Any better in Brazil?

Just an update would be very valuable.

Thank you.

Well, in Brazil in 2013, as we've said a couple times, I mean food inflation was a problem because that was in double digits.

That put pressure on disposable income for consumers and disposable income, therefore, didn't grow as in years before.

So that was a problem.

We also had some poor weather conditions that also impacted.

So affordability and some tough weather were problematic.

That's one of the reasons why we say that we see industry resuming growth in Brazil because we see those conditions, of course, changing.

We're confident that the Brazilian industry will resume growth because we see a lot of headwinds from last year dissipating.

For example, the poor weather in the first quarter of last year, 2013, to look at the weather this year; it's much better.

Food inflation, which was a problem last year, has decelerated throughout last year.

So, better this year.

And the fact that October, the government, with a very good understanding of the industry and the potential that the beverage industry has in terms of job creation and CapEx and investments in general in the economy, decided to forego the tax increase and that, of course, will benefit again this year.

So, because of all this, we're able to have for the first time in all the years I remember, and I've been in the Company now for 25 years, a summer without price increase.

So if you put all those elements together, that's why we say we're very confident that the industry should resume growth in Brazil.

Different than the headwinds we had in 2013 that were against the industry.

In Argentina, it's still a very confusing place.

Readings are still tough because things are changing every day.

But, again, we're focused on what we can control and we have a very strong management team in place.

I was there a couple weeks ago and we already have a plan that takes into account the new macroeconomic situation in 2014 with the currency devaluation and the higher inflation, potentially.

And we have shifted gears in order to be able to deal with that.

It's also right to say that our guys in Brazil and Argentina are used to these kinds of situations from time to time so the team is used to shift gears and to focus on what we can control and have a plan B ready to go.

So, that's the update in Argentina and Brazil.

Thank you so much.

Trevor Stirling, Sanford C. Bernstein.

The first one, there was a big drop in cost of goods sold for the soft drinks business in Latin America, which I think was due to commodities.

Can you give some color whether that was sugar or PET or concentrate?

Yes.

That is driven by sugar, Trevor.

It's sugar.

Okay.

And could you give us a little color, Felipe, on the BRL300 million gain on the recovery of restricted funds?

What actually lies behind that and how did it split between beer and soft drinks?

Well, this is essentially the following.

We have a defined benefit plan in Brazil that is closed for new entrants at this stage and contributions made over years have proven to be excessive, leading to a surplus.

And a recent legislation allowed that surplus to be returned back to the sponsor if shared with the participants.

And at the end of last year we got the final sign-off from the local authorities to split on a 90%-10% basis and the reflected amount here is the one that accounts for the Company piece.

So this has no immediate cash impact.

The cash impact is going to come in 36 monthly installments.

But we are pleased to get that asset being returned to the Company.

Great.

Thanks very much, Felipe.

Melissa Earlam, UBS.

Good morning, Brito and Felipe.

Two questions please.

Firstly, on your step-up in CapEx, is that largely driven by Asia or are you expecting CapEx in the U.S. to increase again, year on year?

And then my follow-up would be on Mexico.

You mentioned a one-time benefit, which supported the revenue-per-hectoliter growth.

Can you give us an idea what the revenue-per-hectoliter growth would have been without that one-off benefit?

Thank you.

Well CapEx, Melissa, has been pretty much in line.

I mean there was a -- I mean what was the --

Yes.

Full year last year was like $3.6 billion and we are guiding to around $4 billion.

Yes.

So, I mean, okay, 10%.

But I mean --

There's a lot of consumer-driven investments in there.

Yes.

So, okay 10% difference but around $4 billion.

There is China capacity.

There is Brazil capacity.

And there's consumer in our investments like coolers and draft lines and things of that sort that will, not only be able to expand the beer and occasions, but our share and industry.

Those are proven initiatives that we're going to be placing in the marketplace.

And just to follow up on the U.S. CapEx, which did step up year on year, was that a peak that we should view 2013 as?

We normally do not disclose CapEx per zone on a going-forward basis.

Okay.

Thank you.

Thanks.

Sanjeet Aujla, Credit Suisse.

Hi, guys.

A couple of question, please.

Firstly, on working capital savings from Modelo.

You've delivered $400 million.

You're targeted to $500 million.

As you're going through that process, are you identifying potentially more savings there?

And, secondly, on the tax rate, the normalized effective tax rate was 400 basis points lower in Q4.

Looking out, you're guiding to an increase.

However, I would imagine you should be able to capture some benefits from the interest on capital following the AmBev restructuring.

So can you just reconcile that tax rate guidance for us, please, as well?

Thanks.

So, on the working capital piece, this is a journey for us.

We got to the 10% negative core working capital level, on average, for the Company.

Modelo is coming from a positive territory.

We are committed to deliver the $500 million, as announced, as part of the synergies but there is no cap in there.

Meaning, after that, it's business as usual and we should continue to improve as we benchmark across the different zones.

On the tax piece, last year we had a big impact for the gains in our hedging activities related to the equity payments.

Just in the fourth quarter was $180 million-plus.

But for the full year, that amount was $456 million, which is a non-taxable gain.

That helped to bring the effective tax rate down on the full year basis as well as the fourth quarter.

And in the fourth quarter, specifically, we had the benefit of incremental (inaudible) on all capital being paid out of Brazil.

So that should go or should continue going forward.

But, on the other hand, we are losing significant benefits as goodwill amortization as this is coming to an end.

And that is why we're flagging the expected increase for 2014.

Again, take into account that we cannot forecast potential gains or losses in the hedging of the equity-related instruments.

We had a gain 2013 which was not taxable.

When and if we have a loss, that will not the deductible as well.

So that component is not embedded into our outlook.

Thanks.

Just a follow-up on the Corona launch in Canada, are you able to tell us what sort of price point that will be relative to mainstream segment?

No, Sanjeet.

Not at this point.

This is competitive information that's -- first let's get the brand and then we'll move on.

Okay, understood.

Thanks.

Lauren Torres, HSBC.

Brito, I'm not sure if you want to talk about that $1 billion synergy target but it seems like, being well ahead of expectations or ahead of schedule with respect to realization, I was just curious if, now that you've been running the business for a bit now, if you feel there is upside on the cost side.

And also we've seen notable margin improvement in Mexico so also curious what you think the expectation for margins in Mexico could be, maybe even thinking if it could be comparable to what we see in Brazil.

Thank you.

Hi, Lauren.

No.

I mean the $1 billion, that's our target, has been from day one.

As I said, the integration in Mexico has been better than any other integration we've done.

We just got the engagement surveys that we do every year per zone and it's common in any zone that we integrate that the first two years the engagement goes down and then comes up.

And, really, in Mexico, for the first time, it came way up.

I mean like it has been integrated forever.

So it's amazing to see how all open our colleagues in Mexico were and everything.

So I think the $1 billion is coming faster because of that but we remain committed to $1 billion in cost synergies.

That's on the cost.

And $500 million in working capital synergies.

In terms of how high the margin could be, of course we're not going to give a guidance but Mexico is the kind of market we like.

It's a market where you have -- it's a big market, big profit pool.

You have brands that are national.

You have 85% of distribution in your hands, national distribution system.

So, you have scale.

So, it's one of those markets that our toolkit works best.

So, I'll stop there.

Okay.

Thank you.

Thank you.

Simon Hales, Barclays.

Hi there.

A couple questions, if I can please, gentlemen.

Just, firstly, with regards to Mexico.

Obviously you're talking with increased confidence about a return to volume growth this year there.

I wonder if you could just flesh out the reasons for that.

Clearly, you had a tough macro backdrop last year, some weather issues in Q3, but, obviously, the tax changes only came in the beginning of this year so I would imagine that consumer confidence would remain a little bit low certainly through the first half.

I'm interested in your thoughts there.

And just with regards to the U.S., you're talking about, obviously, improving volumes there overall.

I mean do you believe that you're going to see overall full year 2014 volumes in positive territory this year?

Well, we didn't say that.

In our outlook what we said about the U.S. is that we see an improving industry.

That's what we said, compared to 2013, because of the economy being stronger.

So that's what I'm repeating here.

In terms of the first question, Mexico, we see that a lot of the reforms have been digested.

They're in the base now.

We see that Mexico has a lot going for it.

First, the economy will likely be stronger next year.

It has cheap energy coming from Texas and also energy reforms.

It has a very good market inside the country.

It has, as a country, very competitive labor markets; a lot of industries going back to Mexico.

And, as a neighbor to the U.S. that's been growing strongly every year and importing more from Mexico.

So that's all good for Mexico.

In terms of the beer industry, of course the economy affects the beer industry.

But, more than that, we're investing in enhancing shopping experience, especially in our own stores.

We're going to be investing a lot in our own businesses.

We think it's important.

We're going to try to leverage the World Cup by running the biggest-ever promotion run in Mexico, by taking 1,000 Mexican consumers and beer lovers to Brazil to watch the games.

And premium also represents a big opportunity in Mexico and Grupo Modelo had no presence in the premium segment, only our competitors.

And now we're going to start sharing that opportunity as well, while delivering on the cost commitments that we have, the synergies.

So, we think it's going to be a much better year.

Also, because some of the comps will get easier as the year goes by.

First quarter is the toughest comp and then it should get easier.

And then, again, plus the World Cup plus a better economy and investments.

Now, being there for six months, we have a better budget than we had last year in terms of trying to use the levers that we understand can get volume to grow.

Brilliant.

That's very clear, Brito.

Thank you.

Thank you.

Javier Gonzales Lastra, Exane BNP Paribas.

Yes.

Good afternoon.

Thank you for taking my questions.

I've got two quick ones.

On Brazil, you've reported other operating income in 2013 of almost $1.2 billion and I think you mentioned in the release that some of that or a great part of that was related to Brazilian government incentives linked to investments.

I wonder whether you could give us some indications as to the size of those incentives and also whether we should expect them to continue to go on for long.

Yes.

Hi, Javier.

It's Felipe here.

The investments are the, let's say, the incentives linked to the investments and the government incentives are by far the biggest component inside that bucket.

And these are kind of usually multi-year incentives, long term.

And it's also linked to the amount of volume that was produced and tax collected and so on and so forth.

So, it's a kind of rolling basis because we are permanently running investments and that should continue in the long run.

I think you're going to (inaudible) of that on the page 27.

Yes.

And this should continue roughly on that same size, or?

Excuse me?

They should continue forward on that same size?

Should we expect similar numbers going forward?

Well, in terms of materiality, these are kind of recurring events.

It has been there for quite some time and we continue to expect that to be there but I appreciate it being hard to forecast.

Okay.

You mentioned it's linked to the tax collection and the ongoing investments that you make.

Around investments and the government is seeking for incremental revenues as a result of incremental production and, based on that, the whole system is calculated.

However, this is a kind of state-level grant and is different by state.

But what is common across all of them is the long-term component of those.

Okay, great.

And second question is on Mexico.

I just wonder whether you could give us an indication of how material might be the margin boost that you might get in the business there from the disposal of the convenience store Extra that you announced early February and whether that margin, if there is a margin --

Sorry, Javier.

That is not relevant.

It is completely immaterial given the size of the Company.

Meaning, you should not expect any impact as a result of that.

Okay.

Thank you.

Rob Ottenstein, ISI.

Hey, guys.

You gave us guidance, overall guidance, for the Company on revenue per hectoliter, cost of sales per hectoliter, sales and marketing investments.

Can you give us a sense in terms of the U.S.?

Would the U.S. be in line on each of those or higher or lower?

No.

This is our guidance.

Hi, Robert.

It's Brito here.

This is the guidance for total Company.

We're not giving per country.

Okay.

What about in terms of sales and marketing for the U.S.?

No, no, no, no.

We're giving for total Company.

Oh, okay.

This is very sensitive information.

We would not give it for country.

Understood.

In terms of looking at your CapEx spend, the $4 billion, which now has Modelo in it, can you, Felipe, maybe give us a rough breakout of that $4 billion?

How much is maintenance capital, how much is increased capacity, and how much is commercial programs?

Well, let's see how I can help you to understand.

We have production-related and packaging being about $2.5 billion out of that number.

And then the next big bucket is consumer commercial and route to market.

So that is over $1 billion.

And then you have IT and others and you can run the percentages.

Okay.

And then just out of the $2.5 billion production and packaging, how much of that would be maintenance and how much would that be growth?

We do not provide that breakdown, Robert.

Okay.

And then just one last question.

Can you give us any sense of how things are going with the Teamsters?

Well, in terms of labor negotiations in the U.S., AB and the Teamsters continue to work towards a new labor agreement for all 12 U.S. breweries.

Both parties have been working diligently and making significant progress.

There are still, of course, some complex issues to work through, which will take some time.

In order to resolve those issues, both parties have agreed to an extension of the current contract for another 30 days through March 31.

And both parties will continue to meet regularly and have every expectation an agreement can be reached in a timely fashion.

Thank you very much.

You're welcome.

Edward Mundy, Nomura.

First of all, on Brazil, I think in your opening slides, the effects in trying to make beer more affordable, you managed to drive very strong revenue per hectoliter, 9% for the full year.

I was wondering whether you're able to break out the contribution from revenue management initiatives, (inaudible), and then the increased distribution?

No, we don't provide that breakdown.

Okay.

Well, maybe another way of looking at it; what do you think, on average, was the step-up in the retail selling price for your products relative to that 9% revenue per hectoliter?

Say it again.

What was what?

What do you think, on average, the retail selling price for your products went up by, relative to that 9% revenue per hectoliter?

What we did this year, I mentioned that in another question, is that we for, the first time in many years, we proposed on our side and we put in the media and everything that we would not increase prices for our products during the summer and, therefore, consumers should expect a summer without price increase on our products.

So, to your question then, there would be no price increase at the consumer level or at the retailer level in the fourth quarter, leading to the summer.

Because that's what we decided to do to attack the problem of affordability.

As a follow-up, I think on your slide 5 in your introductory slides you made the point you're pretty happy with your existing portfolio of assets.

You've got strong market positions in the world's most profitable beer markets.

As you think about M&A, given this attractive portfolio, can you comment on whether the scope of future M&A is going to be limited solely to the beer space?

I mean, we don't comment on M&A.

I mean we focus on the organic business.

I mean that slide 5 shows that we have an amazing portfolio of markets and brands and that we have tons to do with that and create lots of value with it.

Of course, we do have a capability in M&A and, every time, if there is an opportunity, we'll look at it.

But we don't carry it.

95% of the people, 99% of the people work to grow the organic business and more and more looking at occasions within total alcohol, in terms of how beer can access those pockets of opportunity that are being accessed by hard liquor and wine but with beer and line extensions of beer, or cider, which we consider near beer.

Okay, thanks.

Thank you.

Alice Longley, Buckingham.

Good morning.

Glad I squeaked in.

Good morning.

Hi.

Can you tell us what it's going to take to get the EBITDA margin growing in the U.S.?

That's my first question.

And then a sort of housekeeping question.

You told us the marketing ratio, marketing will be up more than a lot of the other costs.

Will that be in the first quarter or really just in the second and third quarter when the World Cup is happening?

Thanks.

Well, we said, Alice, we said that a lot of the marketing investments, the delta investments should be seen in the first half of the year because of the World Cup --

Is that closer to first quarter?

And a lot of the initiatives that we have in place.

So, first half.

Okay, answering your question.

And the second question on margins, I mean we never give guidance on any specific region or anything.

We just say that, as a company, we like to grow margins because that's a measure of efficiency.

But it doesn't mean that's going to be every year, that it's going to be every quarter, every zone, every country.

And we also look at revenue, EBITDA, cash flow, and other things.

Margin is just a component of the whole equation.

We don't just look at margins.

Thank you.

Alright.

Well, thank you very much and with this we will close our 2013 conference call.

We're very excited about 2014 to see a lot of our major markets in a better place in terms of industry and that's very exciting, together with the World Cup and increased marketing investments.

So, we have a great team in place and ready to go and we'll see you on May 7 on our next call.

Have a great day.

Thank you very much.

Goodbye.

Thank you.

This does conclude today's teleconference and webcast.

Please disconnect your lines at this time and have a wonderful day.