Anheuser-Busch Inbev SA (BUD) 2014 Q1 法說會逐字稿

Welcome to the Anheuser-Busch InBev first quarter 2014 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.

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.

Thank you, Maria, and good morning, good afternoon, everyone, and welcome to our 2014 first quarter results conference call.

I have here with me today, Felipe Dutra, as well.

So, let's start with the highlights.

Our focus remains one of driving top line growth and so we are very pleased with the results of this quarter.

We delivered a good volume performance in all of top four markets, led by strong results from our focus on global brands.

This volume performance coupled with a robust revenue per hectoliter result led to strong top line growth.

Our cost of sales decreased on a per hectoliter basis which, together with the strong top line result, drove a double-digit growth in EBITDA as well EBITDA margin expansion.

Turning to the details of these results, our own beer volumes in the quarter grew by 4.5% with our focus brands growing by 6% and our three global brands growing by more than 8%.

Total revenue for the quarter grew by almost 9% driven by a strong revenue per hectoliter growth of 5.7% on the basis of this same geographic mix, solid performance in our top four markets as well.

We also increased investment behind our brands by more than 16% in the quarter to take advantage of growth opportunities in the market.

EBITDA in the first quarter grew by 10.8% with our EBITDA margin up 63 basis points to 36.6%.

Earnings per share declined from $1.16 per share to $0.87 per share due to an increase in other financial results within net finance costs.

Felipe will provide more detail on this line item later.

Our focus on global brands performed very well.

Volumes of our focus brands grew by 6%, led by the Bud Light family and Michelob Ultra in the U.S., Corona in Mexico, Skol and (inaudible) Brahma in Brazil, and Budweiser and Harbin in China.

Within our focus brands, all three of our global brands delivered good volume growth in the first quarter, growing collectively by 8.3%.

Global Budweiser, fueled by an excellent Chinese New Year campaign, grew by 7.8%.

Global Corona, driven by a very strong result in Mexico, grew by 10.5%, while Stella Artois grew by 5.2% due to good results in Argentina, Brazil, and the U.S.

We have a very strong portfolio of brands and will continue to invest behind them going forward.

Our sales and marketing investments increased by 16.7% in the quarter and we reiterate our previous guidance of a low- to mid-teens percentage increase in the full year.

Let's now look briefly at the results in our top markets, starting with the U.S. We estimate that the industry's sales to retailers, STRs, declined by 1.7% in the quarter driven by very challenging winter weather and the later time of Easter this year.

Our own STRs were down by 2.6% leading to a share decline of approximately 40 basis points.

This decline in the market share was due to the lapping of Budweiser Black Crown launch volumes as well as a segment mix shift to the high end where we under-indexed versus the industry.

We continue on growing our share of the high end with a particular emphasis on the on-trade.

Sales to wholesalers, STWs, were up 2.1% in the quarter driven by an increase in our wholesale inventories as part of our contingency planning ahead of labor negotiations for our 12 U.S. breweries.

Negotiations came to a successful close on April 30 when we announced that a new five-year agreement with the Teamsters had been reached.

We expect STWs to decline in the second quarter compared to the same period last year as we make adjustments to inventory levels.

We expect STWs and STRs to converge on a full-year basis.

U.S. beer-only revenue per hectoliter grew by 1.9% in the quarter.

This includes a brand mix contribution of approximately 50 basis points versus 150 basis points in the first quarter of last year as a result of the timing of our innovations in 2013.

The successful introduction of our new 25-ounce can is driving a negative package mix impact from the revenue per hectoliter line but is accretive on a gross profit per hectoliter basis.

Looking ahead, we expect a lower brand mix contribution and similar package mix impact for the next two quarters and more favorable comparables in the fourth quarter.

EBITDA in the U.S. grew 1.8% in the quarter with the margin contraction of approximately 90 basis points primarily due to the timing of our sales and marketing investments and admin expenses.

Turning to the performance of our brands in the U.S., the Bud Light family had a great quarter.

We estimate that market share for the family was marginally ahead with Bud Light gaining share in the premium light segment based on our estimates.

During the Super Bowl at the beginning of February, we launched a new position we created for Bud Light with the tag line, "The perfect beer for whatever happens." The Super Bowl execution was our best ever with our brands, Bud Light and Budweiser, generating nearly half of all social media traffic during the game across all categories.

The digital media response to the rollout of the new Bud Light campaign has been very positive and paves the way for an exciting Bud Light summer program which will be announced in the coming weeks.

Bud Light is also benefitting from the rollout of our new 16-ounce reclosable aluminum bottle and the 25-ounce can, both of which continue to gain share.

The Ritas family gained approximately 25 basis points of share in the first three months of the year, benefitting from the launch of our two new flavors, Mang-O-Rita and Raz-Ber-Rita.

As a family, the Ritas have reached almost a full percentage point of market share.

Turning now to Budweiser, we're very pleased with the progress we have made with Budweiser and are seeing consistently meaningful improvements in the brand's health.

Our 2014 Super Bowl execution was our best ever.

The "Hero's Welcome" and "Puppy Love" campaigns coupled with our music programs and the reinforcement of the brand's credentials are driving reappraisal with young adults.

Market share for the Budweiser brand was down approximately 25 basis points in the quarter, a marked improvement over historical trends.

We will be building on Budweiser's momentum and have a strong set of programs in place for the rest of the year.

This includes expansion of our Budweiser Made in America music platform from Philadelphia to a second location on the West Coast, Los Angeles.

The L.A. event will feature leading Hispanic artists and will help Budweiser further connect with the large Hispanic population in California.

We'll also be leveraging the brand's global sponsorship of the FIFA World Cup and building on our established Major League Baseball and Red, White, and Blue programs during the summer months.

We still have work to do to stabilize Budwesier's market share but we're heading in the right direction.

Michelob Ultra, in our high-end brands, continues to perform well, gaining 20 basis points total market share in the quarter.

We continue to invest behind our focus brands of Michelob Ultra, Shock Top, and Stella Artois with Goose Island continuing its national rollout.

The on-trade is a particular focus for us with programs and investment in place to increase the relevance of our brands in food and nightlife locations.

Cider continues to grow as a category and at the beginning of April we launched Johnny Appleseed, a new, refreshingly sweet, and intense hard apple cider.

Johnny Appleseed joins Stella Artois Cidre in our cider portfolio.

It's still early days but we're off to a good start with the new brand.

Summing up our U.S. performance, we have made good progress with our focus brands against the backdrop of a harsh winter.

All indications are that the industry performed better in April driven in part by the later time of Easter.

Moving on to Mexico.

Our Mexican delivered a strong quarter in terms of volume, revenue, and EBITDA.

The Mexican economy is still soft but showing signs of recovery, helping to deliver marginal growth in the beer industry in the first quarter.

Our volumes grew just under 1% despite the later timing of Easter, which is the most important holiday in the Mexican calendar, driven by a strong focus brand performance and leading to a small gain in market share.

The Corona family result was particularly good with volumes up 10% in the quarter.

Bud Light also performed well and we have now launched Stella Artois to kick start our development of the super-premium segment in that market.

Revenue per hectoliter grew by 2.2% against a tough comparable which included a March 2013 price increase.

Mexico EBITDA grew by 27% driven by the growth in revenue and the capture of cost synergies partially offset by an increase in sales and marketing investments.

EBITDA margin grew by over 800 basis points.

As I mentioned, our focus brands performance in Mexico was strong with volume growth of 5% in the quarter.

This was helped by the launch of the largest-ever consumer goods promotion in Mexico with the goal of sending more than 1,000 Mexican consumers to the World Cup in Brazil.

The campaign attracted a huge amount of attention and was a major contributor to the growth of Corona in the first quarter.

Over 2 million special on-package promotional codes were redeemed and nearly all of the consumer trips have now been awarded.

The ongoing renovation and refurbishment of our Modelorama stores will also be an important driver of future volume growth and we have an ambitious program in place.

Cost synergies resulting from the combination with Grupo Modelo continue to be delivered ahead of our original schedule.

We have now realized approximately $580 million of savings to date with approximately $120 million dollars being delivered in the first quarter this year.

We remain committed to delivering $1 billion of cost synergies before the end of 2016 with the majority of this savings coming by the end of next year.

Turning to Brazil.

Brazil had a great first quarter with the industry staging a strong recovery after a very challenging start last year.

We estimate that industry beer volumes grew by 12% with our own beer volumes up 10.9% leading to a flat market share sequentially and decline of 60 basis points compared to the first quarter of last year.

Our average market share for the quarter was 67.5%, within our historical range of 67% to 69%.

Beer revenue per hectoliter grew by approximately 9%, reflecting our revenue management initiatives, increased weight of own distribution, and premium brand mix improvements.

EBITDA in Brazil grew by over 15% in the quarter with a margin decline of 160 basis points.

The contraction in margin was driven by a one-time credit relating to government incentives of approximately $55 million reported in the first quarter last year and the timing of our sales and marketing investments driven by stronger volume performance and our World Cup activations.

The strong industry volume performance in the first quarter was driven by a number of factors.

Brazil enjoyed record-high temperatures in January and February in contrast to the poor weather at the start of last year.

The Carnival holiday, which traditionally marks the end of the summer vacation period, was also three weeks later this year, extending the summer selling season.

Finally, lower levels of food inflation compared to the first quarter last year eased the pressure on consumer disposable income.

Our own "summer without price increase" campaign, which focused on the affordability of beer at the consumer level, was also beneficial for both ourselves and the industry.

Just a few words on the cold beverage tax increase that was announced in Brazil.

A week ago the federal government announced adjustments to the reference price tables which are used to calculate beer and soft drink excise taxes with effect from June 1 this year.

While we're sensitive to the fact that the Brazilian government is under pressure to address their fiscal challenges, we believe that with no tax increase and a better industry volume growth, the government could achieve a similar level of tax revenues with a much better social impact.

It remains our policy to pass along any tax increases but we are not commenting on the timing of our price increase for competitive reasons.

Despite the volume impact that will result from the pass-through of the tax increase we continue to expect that Brazil beer industry volumes will resume growth in 2014 helped by the FIFA World Cup.

Moving now to China.

Our China business had another strong quarter on the back of a very successful Chinese New Year campaign.

Our beer volumes grew by 9.4% in the quarter driven by the industry growth and an estimated market share gain of approximately 70 basis points to 15.6%.

Our focus brands of Budweiser, Harbin, and Sedrin grew by 13%.

Revenue per hectoliter growth of 5.9% was mainly driven by improved premium brand mix led by Budweiser and Harbin Ice, as consumers continued to trade up to the core-plus and premium segments.

China EBITDA increased by over 47% with EBITDA margin growing by over 400 basis points to 20.4%.

Budweiser delivered a great result in the first quarter.

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.

To celebrate the Chinese Year of the Horse, we sent the Clydesdale horses to China and they were a huge success.

The campaign stretched into March with the Clydesdales appearing at iconic venues such as the Great Wall of China.

In summary, another great quarter in China.

Attention now turns to the FIFA World Cup in Brazil with the first game just five weeks away.

The World Cup begins on June 12 and will comprise a total of 64 matches which will be played in 12 cities across Brazil.

Of the 32 teams that are playing in the tournament, over half originate from countries where we have a major presence.

We'll be at the World Cup activating World Cup campaigns globally with a particular emphasis in these participating markets.

In many of our key markets, World Cup activations will have two distinct flavors.

There will be the local sponsorship activities for the brand champion but will vary by market and a global brand campaign which will be exclusively owned by Budweiser.

Local brand sponsorship activations will tap into feelings of national pride and will ignite fans to root for their teams.

By contrast, global Budweiser activations will promote the idea of bringing people together across borders, around the theme of "Rise as One".

Our campaigns will celebrate the world, not any particular country, and fans' passion for the beautiful game.

The gold aluminum trophy bottle is designed to reinforce the preeminence of Budweiser globally and will be available in over 40 markets.

Global Budweiser also participated in a six-part documentary series bringing "Rise as One" to life, featuring the likes of Ronaldo Zidane.

This series has been broadcast in 84 countries, reaching an estimated 600 million households.

At the end of every game, Budweiser will also present the FIFA Men of the Match with fans worldwide voting for their favorite player.

World Cup activations within Brazil will be significant with both the Budweiser and Brahma brands bringing the tournament to life for fans.

In Rio, the Budweiser Hotel will host guests from around the world and will be the centerpiece of Budweiser's international "Rise as One" campaign, capturing the greatest party on earth, and sharing it with football fans worldwide.

Programming at the Budweiser hotel will include performances by world-renowned music guests, appearances by FIFA World Cup legends, media announcements, and a series of exclusive partner events.

In addition to the Budweiser Hotel, we will host more than 14,000 events in more than 150 cities reaching a total of almost 2 million consumers.

We'll also be running widespread trademark initiatives throughout the 1 million points of sales in Brazil that will bring to life the concept of "World Cup for All".

This campaign is meant to bring the World Cup experience to all soccer fans around Brazil, not only those who will attend games in stadiums.

With that, I'd like now to hand over to Felipe, who will take us through some further detail in our first quarter results.

Felipe?

Thank you, Brito, and good morning, good afternoon, everyone.

Starting now from slide 20; that shows the EBITDA breakdown per zone.

As Brito mentioned, our total company EBITDA performance was very solid with organic growth of almost 11% and EBITDA margin expansion of over 60 basis points.

The timing of sales and marketing investments in our two largest zones, North America and Latin America North, drove margin contraction in the first quarter, although we had strong margin expansion in Mexico, Latin America South, and APAC.

Brito has covered our top markets in some detail and you'll find additional information about the other relevant markets in our press release as well as the appendix to today's presentation.

These results naturally do not include the position of Oriental Brewery in South Korea, which closed on April 1. OB is the leading brewer in South Korea and we are excited to welcome the OB team back to the AB InBev family.

OB was already enjoying good momentum prior to the sale in 2009 and the team has continued to build upon this platform, making Cass the number-one beer brand in the country supported by a healthy consumer brand preference.

I would now like to quickly review our EPS and the below EBIT results before we move to the Q&A section.

Normalized earnings per share in the first quarter declined to $0.87 per share from $1.16 in the first quarter of 2013.

The decrease is mainly due to a difficult comparable in net finance costs driven by the mark-to-market gain related to the hedging of our share-based programs and reported in the first quarter of last year.

EPS also includes a positive contribution of $0.11 per share from organic EBIT growth.

Net finance costs in the first quarter were $866 million compared to just $255 million in the same period of last year.

This increase of $611 million was mainly due to the negative non-cash impact of the mark-to-market adjustments linked to the hedging of our share-based payment programs which had a negative year-over-year swing of $454 million.

This results from the reported gain of $402 million in the first quarter of last year and the reported loss of $52 million this year.

In addition, our first quarter net finance costs include negative currency results including intercompany transactions and other hedging costs of approximately $200 million, of which about half are non-cash.

Finally, our normalized effective tax rate for the quarter was 18.8% up from 13.3% in the first quarter of 2013.

This increase is mainly due to the non-taxable nature of the gain from the hedging of our share-based payment program in the first quarter of last year.

At the same time, one should keep in mind the first quarter 2014 loss was non-deductible as well.

The increase in effective tax rate is also due to the changes in country profit mix including the mix impact resulting from the combination with Grupo Modelo.

Our guidance for the full year 2014, in terms of effective tax rates, remains in the range of 21% to 23%.

And with that, I will hand it back to Maria to begin the Q&A section.

Thank you.

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).

Andrea Pistacchi, Citi.

Good morning.

I have two questions please.

The first one about the U.S. about the market shares.

You were down 40 basis points in the quarter despite the significant step-up in marketing spend, the Bud Light bottle.

So, how optimistic are you that, with the progressing of the year, that you can improve this performance?

And then just, please, on Mexico, on the pricing environment there.

You commented on 2% price mix in the market which is well below what we've been used to in the past.

Is this an issue about phasing of price increases?

I mean your competitor there has been commenting on increased promotions in the market.

If you could talk about that a little bit, please.

Okay, Andrea, hi.

Brito here.

So in terms of U.S. market share, our commitment is really to stabilize the share equation.

We're not there yet.

But our strategy, in terms of brands and revenue management, is very straightforward.

So, as we got here five years ago, it has always been about growing Bud Light, which we did this quarter, in terms of family.

It's all about stabilizing Budweiser, which continued to decline but at a much lower rate, at 25 basis points compared to 80 basis points some years ago.

Growing the high end, continue to bring innovation to the market like the Ritas that are now a full percentage point.

This 40 basis points that we saw this quarter in terms of revenue decline has a lot to do with the lapping of the Budweiser Black Crown launch.

That's most of that 40 basis points.

But we're very encouraged by the fact that Bud Light's family gained ground in terms of total market.

So, slightly a share gain.

Budweiser, again, much better trend compared to historical levels.

We're gaining with Ultra in the high end.

And so the direction is pretty much what we said.

Invest in the premium and premium-plus and high end of the market.

In terms of Mexico, to your question about the pricing, last year our price increase in Mexico was in March 2013.

This year it was introduced, it's already in the market, in May.

So, because that fell in the second quarter compared to last year, that was the phasing of the price increase that's mainly responsible for this change.

And the only promotional activity that we had, or the main one in Mexico, is the one that we've announced last quarter, which is the biggest-ever, in terms of CPG companies in Mexico, which is the one around the World Cup in which we're bringing more than 1,000 Mexican consumers to Brazil to experience the World Cup.

So, that's what we implemented in Mexico.

And the price increase in March and May; that's also the one that answers your question.

That's clear.

Thank you.

Mark Swartzberg, Stifel Nicolaus.

Thank you.

Good morning, Brito.

Good morning, Felipe.

Good morning, Mark.

Good morning.

I guess two questions on Bud Light as we think about how it's performing and its outlook here in the U.S. One is, what does your research say about the opportunity for further innovation with the liquid, so to speak, beyond, perhaps, the Ritas we're seeing, something more like a Platinum to come or something like that?

And also on the research side of things, what is your research saying about "the perfect beer for whatever happens"?

How well is that sticking, if you will, with consumers?

So that's kind of question one, kind of research on those two counts.

And then, this announcement of plans for the summer seems relatively late with Memorial Day coming up.

Is that accurate or is this typical?

Hi, Mark.

Brito here.

So, in terms of Bud Light, we're very happy with the first quarter results.

I mean when you talk about the liquid innovation, we have to see that this quarter we had a lot of package innovation around Bud Light.

So, if you think about the 16-ounce reclosable aluminum bottle and the 25-ounce aluminum can, those are two big innovations for Bud Light; not on liquid, but on packaging.

This also is a very important year for Bud Light in terms of innovation.

In other years we have been innovating on the premium-plus side with the Ritas, of course, that's within the Bud Light family, but also other brands and more in the high end.

This year, we are more focused on Bud Light with the two packaging initiatives and continue to innovate with the Ritas.

So, that answers the first part of your first question.

The second part is about "the perfect beer for whatever happens".

We are seeing good signs since Super Bowl that this campaign has lots of mileage and is echoing very well with our LDA to 27, which is our main focus.

If you look, this campaign was really designed for the digital space.

So if you only look at what's happening on the TV, you're losing 80% of the action because the whole action is in the digital.

For example, during the Super Bowl game, the Super Bowl event, more than half of all social media traffic during the game was about both Bud Light and Budweiser.

So, I mean, the campaign's clearly designed to this new LDA-27 cohort that spends a lot of time on social media.

So we're very happy with it.

We see lots of mileage.

In the summer we'll continue to drive or to draw on that same idea.

That's the umbrella idea.

In the summer you'll see new executions connected to this idea.

We're very happy that we're able to add this summer campaign out for Budweiser, for Bud Light.

Summer has not been a part of the year in which Bud Light, in previous years, had good investments compared to the shoulder parts of the years because of all the sports events.

This year, again, we took a different approach and we're having more of a stable support behind Bud Light including the summer.

So, that's something new and maybe that's what caught your attention.

But, of course, it has been in preparation since the beginning of the year.

And your second question?

That was it.

Okay, great.

Alright, thank you, Mark.

Chris Pitcher, Redburn Partners.

Thanks very much.

A couple of questions.

I'm following up again on the market share story.

You highlight Black Crown as one of the difficult brands for comping.

Obviously you've got one of the bigger Ritas will be comping in the next quarter, its launch.

Do you think the launch of Johnny Appleseed and the other Ritas will be enough to keep that innovation group of your portfolio incremental to market share?

The second question was just a bit more color, whether you can give it, on the follow-up for the agreement with the Teamsters and what that means now in terms of costs.

And I assume that's built into your guidance.

Hi, Chris.

I'll start with the second question.

In terms of the agreement with the Teamsters; were they happy with agreement?

I mean we set out as a company, as a team, to create a contract that was good for all involved; our people our company, and our customers.

And while recognizing and addressing some of the business conditions and challenges.

So, we believe this contract accomplishes all of that and positions our company and our people, our employees, for future success.

So, again, very happy with it.

Of course, the detailed terms of this agreement are confidential so not much I can comment on that.

And on your first question about market share, I mean when you look at the innovation journey that we've been taking the last few years, I mean with the amazing innovations in the last three years.

If you look at 2012, we had the number one and two top innovations in the industry.

2013, number one and number two.

And for this first quarter, again, number one and number two, according IRI.

So, we're very glad with our innovation pipeline.

Of course, some become bigger innovations after one or two years.

Some become a bit smaller.

But the fact is that they are working in the sense of what we planned.

So, Black Crown is an innovation or line extension from Budweiser that had a very specific role to play and it played that role.

I mean you see it reflected on the mother brand and that's why Budweiser is doing so well in terms of brand health; not the only reason but one of the reasons, because it showed again and it called attention again to consumers about the artisanship and the craftsmanship that go in brewing Budweiser and the ability of brew masters to come up with different liquids and that's not going to be for sure the end of the story for Budweiser.

So, it played an important role.

Of course, it's smaller than a Platinum but, again, an important role in supporting the mother brand.

So, there's more to come for this year.

Again, this year we took a different approach in terms of only liquids.

We're doing big package innovations; the 16-ounce aluminum bottle, 25-ounce can.

Very important for Bud Light.

So, that's key.

It's a year where Bud Light will have lots of support in terms of a new campaign that started very well, some package innovation that's very important for a premium brand like Bud Light, and a summer that will be more intense than previous summers for the brand.

Melissa Earlam, UBS.

Good morning.

A couple of questions, please.

First of all, a question on Modelo.

Can you give a comment on whether you feel that sales and marketing spend in Mexico is at the appropriate level?

And also, tied into that, how significant the Modelorama renovation is?

And the second question was just on your CapEx guidance.

For the full year you're reiterating the $4 billion whereas AmBev is now commenting how its CapEx for the year will be down year on year.

Can you just explain where the offset is regionally to Brazil?

Thank you.

Hi, Melissa.

I mean sales and marketing in Mexico, Mexican zone increased by 5.5% quarter over quarter, year over year.

What you should not forget is in this first phase of integration there's a lot of non-working money that gets transferred to working money.

And that's not visible in this 5.5%.

So, you have more than that being channeled into working-money type activities that are clearly befitting the brands.

I mean, if you look at focus brand performance in the first quarter in Mexico, we're all very pleased with it.

So, we think it's the right thing to do.

It's the right amount, the right envelope, and this promotion, again, the World Cup promotion has proven to be very good for the Corona family of brands but also a great performance of Bud Light in Mexico.

So, that's very good news.

Modelorama, it's another big driver, we think, for the future.

It's a beer-centric type outlet.

We just now reinvest in terms of the consumer experience in those stores.

I mean it has been a very poor consumer experience and we're remodeling the stores, bringing standards, bringing training to our people, and really spending money in having the consumer experience, bringing that to a new level.

And that's going to be a very important driver for our top line growth going forward.

So, we're very excited about that.

And, as you see in the slides and now our website, or web presentation, you'll see there was one about the Corona-centric type remodeling for the storefront.

And your second question was --

On the CapEx side, in which AmBev will be revealing downwards the CapEx for Brazil but, nevertheless, our outlook is for a total CapEx of around $4 billion.

Brazil is one-third of that number and we are keeping our outlook of around $4 billion.

Alright, thank you.

Nick Oliver, Merrill Lynch.

Hey, good morning, guys.

Thanks for the question.

I have two on China, please; one short term and one longer term.

And short term, just looking at the margin progression in 1Q being very strong, could you help us think about a run rate for the rest of the year, if that's sustainable on an organic basis before thinking about OB?

And, secondly, longer term, I think in the past you've talked about the premium segment growing to maybe 10% to 15% of the Chinese market.

Is that still your aspiration and do you think ABI can hold share within that segment as it grows?

And perhaps what role do you see for the Corona brand within that segment?

Thank you.

Hi, Nick.

Brito here.

Yes, we're very pleased with the market expansion in China.

Our strategy in China has been pretty much the same, very consistent for the past five years since we got there and put the two companies together in 2008, 2009.

And that has been one of developing two national brands, Budweiser and Harbin, and more specifically, Harbin Ice, the core-plus line extension.

And those two national brands are performing and growing very well.

That, coupled with a Chinese industry or consumer that's trading up and that's great to have the brands up top waiting for them to come to you.

And that's why you'll see our net revenues per hectoliter growing in double digits the last few years and that's not rates.

Pretty much all of it, a big portion of it, better said, from brand mix.

And so we're very glad with that.

The strategy has been consistent.

It's working.

Margin has been expanding.

And I'm not going to give you a guidance in terms of this year or the next few years but we see potential for continuous margin expansion in China.

And the second question was about the premium segment in China.

Again, the premium segment in China is growing way ahead of the total industry.

We've always said 15% because that's what we see on the markets; they're comparable.

But we still have lots to do to get there.

So, that's going to be -- again, that's exciting because I mean we have all those results, all this growth over the last five years and the premium segment is still underdeveloped compared from other markets.

So, that's very good.

And Budweiser has more than 50% of this premium segment and growing.

So, that's very encouraging.

So, again, strategy is working.

We'll continue to support it.

And now, on top of that, Nick, we'll have Corona.

That will also be arriving in our hands at some point in China.

So, that's also very exciting.

Anthony Bucalo, Santander.

Good morning, Brito.

Quick question on Bud Light in Mexico.

I know that it's early days there but can you give us some color on how the brand is performing, where it's performing well, what channels, how it's priced, regionally where it may be strong?

Can you give us an update on that?

And the second question is on soft drinks in Brazil.

It looks like you're chipping away at some incremental market share with your soft drink portfolio.

Is that outperformance coming from the Pepsi brands or is it from the AmBev brands or is it a combination of both?

Hi, Tony.

I mean in terms of Bud Light, I mean we always knew that Bud Light had a very big potential that was really underexplored in Mexico.

I mean we did consumer research.

It was all there.

I mean the light segment is beginning to develop in Mexico, especially the northern part of the country; a lot of it because of the influence, we believe, from the U.S. but also the weather being much warmer.

So the light segment is developing.

We're underdeveloped big time.

So, since we got there, we said not only our focus Mexican brands but also Bud Light would deserve a lot of attention and support because growth was there to be taken.

So, we're very happy with Bud Light.

I'm not going to give you a lot of numbers on that because that could give away a little bit or all of our strategy around the brand.

But, again, early days but maybe in the next few quarters we'll talk more about Bud Light in Mexico.

But, again, we're very happy and getting ready for a brand that will be much bigger than what we see today.

In terms of soft drinks in Brazil, we've been very glad that we gained share.

I mean soft drinks remain a very important pillar in our Latin America North business.

CSD net revenue grew 8.8% and volume expanded 2.1%.

And that increased our market share by 20 basis points to 18.3%.

So, that's very good.

And we also are implementing the returnable bottles on the Pepsi brand after having done that with the Guarana Antarctica and we also have very exciting launches on the Pepsi line, including H2OH.

So, I mean, all in all, good business for us and one that continues to progress well including market share gains.

Do the Modelorama stores, will they be stocked with Bud Light, I imagine?

Yes, sure.

Okay.

It's a beer-centric store, yes, with all our portfolios.

Yes.

Okay, great.

Thank you, Tony.

Thank you.

Brett Cooper, Consumer Edge Research.

Good morning, guys.

Two questions.

When looking at innovation, can you speak to, I guess on a profit per hectoliter basis, the benefits from packaging versus a liquid?

So, a Bud Light aluminum bottle versus a Platinum?

Brett, yes, good question.

I mean Platinum, of course, was one that, because it was priced a premium-plus brand, it added both at the net revenue per hectoliter and at the gross profit per hectoliter.

Okay?

The contrast with the 25-ounce can, in the case of Bud Light, for example, or in the total portfolio I've got to say because it's applied for all brands, the 25-ounce aluminum can is one that has a different effect.

It's one that has a dilutive effect at the net revenues per hectoliter line but it's accretive at the gross profit per hectoliter.

So, I'm not saying that all liquids will behave like that or all packages will behave like that.

I just took two examples just to show how different pack innovations, depending on how they are positioned and the (inaudible) gross profit they bring in a per hectoliter basis can cause different effects.

And that's why this time around, because of the big pack, the 25-ounce can, because it's been a huge success, became our mix.

That's we decided to split hairs a little bit and say; okay, this pack is one that's dilutive at the net revenue per hectoliter line but it's accretive at the gross profit per hectoliter line.

And that's part of the explanation why the net revenue, total net revenue of $1.9 million was below last year's net revenue per hectoliter for total U.S. business.

Great.

And if I can follow up and push my luck.

You said you wouldn't speak to whether you were going to put through a price increase or when you were going to put it through in Brazil.

Can you talk about whether your results to date are ahead of expectations in Brazil?

Well, if you look at our guidance.

I mean we haven't changed our guidance even with the recent tax increase.

I mean we continue to say the same thing in terms of our overall business, and Brazil, in terms of industry.

So, of course, the tax increase will change a little bit the equation between price and volumes and we refer to that in our press release.

But we continue to say that.

And, of course, the summer, of course was very good.

We had record temperatures in January and February and we had a later Carnival time, which enlarges the summer vacation period in Brazil.

So, that was all in our favor.

And now we're going to have the World Cup in Brazil, which happened last time 60 years ago.

So, it's an important event and we've been preparing for that event for four years.

So, again, very excited about the second quarter and what it can bring to us.

Sanjeet Aujla, Credit Suisse.

Yes, hi.

A couple of questions, please.

Firstly on Brazil, slightly surprised you're not getting share in that marketplace, given the scale of investment going in.

Can you just talk a little bit around that?

And, secondly, just on Asia PAC and the Oriental Brewery business now you're consolidating that.

Can you just talk a little bit about the (inaudible) potential in that marketplace?

Thank you.

So, in terms of OB, the Oriental Brewers in Korea, we're very happy to have that business back.

It was a business that, when we sold it in 2009, was pointing in the right direction.

We were gaining market share.

Cass was growing as a brand.

And we are very happy to see that our colleagues, over the last five years, have taken that positive trend and make the best out of it and made Cass the number-one brand in the country and grew market share to a market share leadership position in that country.

And now we reacquired the brand and the business and we see that a lot of our colleagues are there so it's great to have them back in the family.

So, Sanjeet, we're not giving, at this point, many details on OB other than the fact that last five years have been great ones.

And, next quarter, we will have more details because that will be in our numbers.

In terms of market share in Brazil, your first question, market share was flat sequentially in the first quarter.

And, if you compare it to the first quarter of last year, so a year-on-year basis, it lost 60 basis points but it's still within our range.

So we're reaching 67.5% for the quarter but still in our historical range of 67% to 69%.

I mean this has been the range in Brazil for many years and it fluctuates from one side of the range to the other side depending on price increases and the lapping of those price increases and investments in the market and things like that.

So, I mean, it has always been within that range.

So, we're very glad to see that we had an amazing performance in terms of top line net revenue per hectoliter, that we were able to recover part of the share that we lost last year, and we're still within our range and now preparing for the World Cup that comes next quarter.

It's also fair to say that the results in Brazil for the first quarter, the sales and marketing were up and that's also in anticipation for the World Cup, which impact a little bit the margin and the EBITDA growth.

But, again, it's planting seeds for a quarter that we have high expectations on, which is the second quarter.

So, it's all within the plan.

Thank you.

Edward Mundy, Nomura.

Morning, gents.

Just a coming back to the revenue per hectoliter in the U.S. I appreciate your comments around the negative pack mix and the launch of the 25-ounce can.

I'm just trying to understand the weaker headline pricing evolution.

Do you feel the industry is less able to absorb the strong pricing that you've put through the last couple of years or is this an attempt to take your foot off the pedal to some extent to help stimulate volume demand?

And my second question is really around your expectations for an October tax increase in Brazil, whether you've got any further comments there?

Well, Edward, in terms of the price in the U.S., let me start by saying that our pricing strategy remains the same since 2009 when we got here.

Okay?

And so nothing has changed there.

The difference you saw this quarter compared to last quarter, let's say from 1.9% net revenue per hectoliter growth this quarter compared to the 4% you saw in the first quarter last year, can be explained in a very straightforward way.

The 1% point is because of brand mix that this quarter contributed 50 basis points versus 150 basis points last quarter.

And that's because of timing of our innovations last year and this year.

So, 1 percentage point is right there of, let's say, the 2 percentage point difference.

And the other percentage point has to do mostly with our mix impact from package, package mix impact, which has mostly to do with the 25-ounce can now that, as I said, is a great pack in terms of being accretive to share and gross profit on a per hectoliter basis but it does dilute the net revenue per hectoliter line.

At the end of the day, of course, what matters is the gross profit but, because we always have a look, of course, at the net revenue per hectoliter as well, that's why we are explaining this time that this pack has a dual effect in terms of being dilutive to net revenue per hectoliter, accretive to gross profit.

Different than from other innovations that were accretive on both lines.

Okay?

So, 1 percentage point explained by the mix contribution.

That has to do with the timing of our innovations last year and this year.

And most of the balance of the other point explained by the 25-ounce can which became a huge pack in terms of innovation for us and is one that has a different effect compared to other innovations.

In terms of taxing fees in Brazil, as I said, I mean we understand that the federal government is trying to balance their numbers.

They announced last week an adjustment to the reference price tables that are the base for the federal excise tax for both beer and soft drinks.

And this is to take effect on June 1.

We remain convinced that the government could achieve the same results with a different mix, which would not include the tax increase but would count and rely on better industry volume growth that would create a similar level of tax revenues with a much better social impact in terms of investments in job creation.

So, that's our strong belief.

But, of course, our policy is to pass along any tax increases to prices.

But, at this time, we're not commenting on the timing of our price increase related to this tax pass-through for competitive reason of course.

But again, our outlook remains one that the industry will resume growth in Brazil, mainly because of the World Cup, despite this tax increase.

Thank you.

Kris Kippers, Petercam.

Yes, good morning.

Thank you for taking my questions.

Regarding your marketing, which was quite increasing a lot in Q1 with the plus 17%.

Could you shed some light on the split between the three items that Brito mentioned in the Q1 conference call being growth, the World Cup, and innovation that could give some more flavor to what's the split after Q2 when the World cup is done?

And then the second, as a follow-up, regarding the Corona.

Are there any new markets where you're going to expand the brand after the announcement of Canada and, of course, can you give some comment on when you will launch it in Brazil?

Thank you.

Hi, Kris.

I mean in terms of the sales and marketing investments in the first quarter, it's all within our guidance for the year of low- to mid-teens growth.

And also, our guidance of that investment being more heavily skewed towards the first half of the year.

And that's because of, as you said, the World Cup, of some scale-up innovations and initiatives that we're taking and also because of innovations that we have in this first half of the year.

So, that's all consistent, very consistent with our previous guidance and we're maintaining that guidance.

So, no change, no new news there.

In terms of Corona, as you said, Canada, we got the brand on March 1. We're very excited about what that brand can do for that market.

I mean it changes our position big time in the high end of that market.

It's a full 2 percentage points share in that Canadian market.

So, very excited.

We also transitioned the brand in some smaller countries like Italy, France, Spain.

And the next big one we'll do in a very phased approach will be Brazil, after the World Cup.

So that's also already announced.

So those are the countries and there's more to come.

UK has also been confirmed for next year and we're in negotiation for other markets as we speak.

So, again, very excited about the Corona potential as a global brand.

If you think about it, Kris, Corona today, outside of the U.S. and outside of Mexico, so the rest of the world, it sells around 4 million hectoliters compared to 20 million hectoliters that Budweiser sells outside of the U.S. Of course, Corona is a far more premium brand than Budweiser but that gives you an idea of what we did with Budweiser when we got it in 2009; that we grew it every year since then, a brand that was declining on a global basis and after it joined our system we never looked back.

It went form a 1% growth the first year to 3% to 5% to 6% to more than that this time around.

And with Corona, we expect something similar in terms of growth.

We're very excited about this brand and what it can do for our global brand portfolio.

Thank you.

Robert Ottenstein, ISI.

Great.

Thank you very much.

I was very impressed by the focus brand growth in the U.S., I think with STRs being up 0.7%.

Can you give us a little bit more color on that?

Was the Bud Light core brand volumes up?

Yes.

Hi, Robert.

I mean Bud Light as a family grew share slightly.

So, that's great news.

Much better than last year.

And, within the family, the Ritas continue to perform very well and the Bud Light brand grew within the light segment.

So, again, that's a very good for Bud Light.

The campaign, as I said before, the new campaign, "the perfect beer for whatever happens" also is off to a very good start with the Super Bowl.

I mean it's a campaign that was always meant for digital and now, with the summer, we'll continue to have mileage off of that campaign, off of that good start.

So, very exciting news for Bud Light.

But did the volumes for Bud Light itself grow?

Well, we said in our press release, I think, low single-digits decrease.

Okay.

And then looking at the Mexican market, over the amount of time that you've been there, in terms of the top line opportunities, can you kind of summarize what you've learned and also, as you've looked at holes in the marketplace, where your brands are and the brand health of your brands?

What are kind of the key takeaways of the last six months or so of really having a chance to examine that market more closely?

Yes, I think first I mean the portfolio of brands in Mexico, that connects to top line of course, is one that's still not complete.

So, I mean, Bud Light for example, needs to have a much bigger role within that portfolio.

Corona, Corona Light, for example, also much bigger role.

We also need to be more active in the high end.

So, we just introduced Stella Artois in Mexico so that will give us that latitude that we're lacking today in our Mexican portfolio.

We also see many opportunities in terms of revenue management, pack prices, modern trade execution, many things that will relate to top line.

Modelorama also has a role to play.

So, many things to do in Mexico.

The package mix is also one that's still not what it should be.

So, again, I think portfolio revenue initiatives and trade initiatives and the Modelorama, all this will be conducive to top line opportunity.

Let's put it this way.

Lauren Torres, HSBC.

Good morning, everyone.

My question goes back to Mexico and, Brito, I know you noted that the environment is still soft there but you are seeing some signs of a recovery.

I was just curious if you could talk a little bit more about the environment.

It seems like other consumer products companies seem less enthusiastic about the second-half recovery.

So, I was curious to hear what you're seeing in beer.

And then, second, still on Mexico, you mentioned that the price increase will go through in May.

So, with consumers still a bit under pressure here and seeing more pricing coming through, why do you think you can take this pricing with the consumer pushing back a bit?

Thanks.

Well, Lauren, in terms of beer, we're seeing different scenarios because I mean we're more bullish about this year and we've told that in our outlook in terms of industry resuming growth in Mexico.

And what we saw in the first quarter, yes, so our volumes grew by 0.9% with a slight share gain.

But you have to remember that Easter was out this year of the first quarter.

So, even without Easter, which is the main holiday period in Mexico, we were still able to come with positive volumes, different than the performance last year.

The price is already in the markets.

It was introduced in the first days of May.

So now, for the second quarter, not only do we have the Easter holiday.

That's now going to help the second quarter.

But we also have the World Cup with everything I said about the promotions and everything.

And we believe from what we see from analysts and economists that the economy in Mexico will also be stronger this year.

And, given all the investments we're doing, because, Lauren, you have to remember this is going to be the first year that we're going to be managing the business in Mexico a full 12 months.

Last year we managed for six months and this year, we gathered, of course, some learnings last year and that was embedded in our plan for this year.

So, not only everything I said, but increased investments overall in terms of sales and marketing.

So, again, very excited about what Mexico can bring to our overall company mix this year.

Thank you.

We only have time for one more question.

Mitch Collett, Goldman Sachs.

Hi there.

On Mexico, I think if you take synergies out, ex synergies, EBITDA was down about 7% organically.

I just wondered if you could provide some color about that.

And then, secondly, your guidance for cost per hectoliter on a constant geographic basis I think is still a low single-digit increase?

It was flat in the quarter.

I'd just be interested to know why it was going to increase for the remainder of the year.

Thanks.

Well, I think, Mitch, we don't think it's a good comparison to predict just one quarter especially in a country that is still going through integration phase.

So, of course the synergies are there, very important, but we also, as I just said in the previous questions, we're seeing lots of opportunities on the top line.

Again, this quarter was heavily impacted by two things.

First, the Easter that moved from last year being in the first to the second quarter this year.

And the price increase that took place in March last year and is now taking place in May this year, by the way, already in the marketplace in Mexico.

So, those two things, of course, give pretty much an apples-to-oranges comparison when you compare first quarter last year, first quarter of this year.

So, I would tend to look on the more yearly basis.

And then, you have to split what's synergy and what's, let's say, organic growth outside of synergies.

But I think for one quarter, especially with those two huge impacts, which is the price increase and Easter, I think it's not a good basis for comparison.

So, given your comment from the previous question, we should probably expect great synergies and underlying organic to contribute to EBITDA growth for Mexico for the full year?

Well, again, we're not giving any guidance but you can expect that Mexico is all pointing in the right direction in terms brand share and synergy deliveries and the industry now in a better place this year, as we said in our outlook.

That's our belief.

So, I think, again, very glad with our performance in Mexico.

Don't take, please, the first quarter as a comparison because of the price and Easter.

I don't think it makes sense.

Look at a broader period.

And then on the input cost side of things.

In terms of cost of sales, I mean we continue to be within the guidance we gave, no change there.

Yes, this first quarter was better than the guidance but we continue to stick to our guidance for the full year.

Okay, thank you.

Okay.

Thank you very much.

So, I think that was the last question so let me tell this.

The IR team will follow up with some of the questions that didn't get the opportunity to be asked given the time constraints.

And, in terms of my closing remarks, I would like to thank you for your time.

We're very excited about the second quarter, World Cup in Brazil.

Most of our relevant countries participate in the World Cup.

We've been preparing this for four years.

Now it's time to execute.

So, talk to you next quarter.

Have a great day.

Bye, bye.

Thank you.

This does conclude today's teleconference and webcast.

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