Anheuser-Busch Inbev SA (BUD) 2014 Q2 法說會逐字稿

Presentation

Welcome to the Anheuser-Busch InBev second 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 on March 25, 2014. 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, Jackie, and good morning, good afternoon, everyone, and welcome to our second quarter 2014 results conference call.

Let's start with the highlights of the quarter. The strong momentum built in the first three months of the year continued into the second quarter with volumes benefiting from FIFA World Cup. The World Cup provides us with a great opportunity to build equity for our brand as well, not only in the whole country of Brazil, but in many other circuit loving markets around the world.

Beer volumes in our top four markets of the US, Mexico, Brazil and China, were all in line or ahead of our expectations, supported by a strong focus on global brands performance. Solid revenue growth and good cost management led to healthy EBITDA growth and margin expansion, in spite of the timing of the sales and marketing investments to support our top line initiatives.

Turning now to the details of these results. Total volumes grew by 1% in the quarter, with own beer volumes up 0.5% and non-beer volumes up nearly 6%. Our focus brands grew over 3% and our three global brands grew 6%.

Total revenue for the quarter grew by 5%, driven by the strong revenue management, the strong revenue (inaudible) growth of 4.6% on a constant geographic basis. As planned, we increased sales and marketing investments by almost 10% in the quarter in support of our top line initiatives and by 13% year to date, driven mainly by World Cup activations.

EBITDA grew by 9.5% in the quarter with EBITDA margin expanding by 157 basis points to 39.8%. Normalized net profit grew by 74% in the quarter to $2.6 billion and earnings per share grew by 72% to $1.60 per share.

Our global brands delivered another strong result with volumes growing by 6% in the quarter, well ahead of the growth of our other focus brands. This growth was led by Budweiser, the global beer sponsor of the World Cup, which grew by 6.7%, driven by strong results from Brazil, China, Canada and the UK. In fact, Budweiser grew 10% in the month of June alone.

The Corona family grew by 5.3% with good growth in Mexico and Canada, despite significant glass shortages. This summer, Corona is celebrating the world's beaches with the Corona Sunsets Festival and music experience focused on electronic music culture. Corona Sunsets Festivals are in full swing, traveling to some of the best known beaches in the world. It is our first major global initiative for Corona and we're very excited about it.

Stella Artois grew by 4.6%, led by results in Brazil, Canada, the UK and the US. During the second quarter, we launched a new brand, building platform for Stella Artois, which celebrates the world's greatest events. This platform highlights artistry and perfection at events such as Wimbledon, the Cannes Film Festival and the Kentucky Derby.

With the World Cup final almost three weeks behind us, we have had time and chance to reflect on many of the great activations from Budweiser in our local soccer brands during the tournament. This World Cup drew record high television audiences, driving fantastic exposure for our brands, which were featured throughout the stadiums. The final game drew over 27 million TV viewers in the US alone, setting a record for the highest viewership ever for a soccer match.

There was also a new record set of over 600,000 tweets per minute after the final whistle on the final game, underscoring the importance of social media as a channel to engage consumers globally. And in June, Budweiser celebrated an all-time record sales month with over 4.1 billion hectoliters being sold globally. This includes a nearly 25% increase in China, over 25% growth in the UK, almost 90% growth in Brazil and good growth in other top markets, such as Canada, Russia and France.

The iconic gold Budweiser bottle became the center connection point for fans' celebrations around the world. This helped Budweiser to record over 20 vision total impressions before, during and after the World Cup, a huge increase over the 3.5 billion impressions recorded in the 2010 World Cup tournament.

FIFA's Man of the Match, sponsored by Budweiser, was also a big success, attracting almost 4 million votes across all platforms from consumers around the world. It was a truly unique opportunity to engage with millions of fans.

We're also very pleased with our activations in the host country of Brazil and the effort put in by our global local teams, as well as our customers, to make the World Cup a big success.

We estimate the impact of the tournament and our beer volumes was around 1.4 million hectoliters with 80% of this impact falling in the second quarter and the remainder in the first two weeks of July. And this impact again is for Brazil only.

During the tournament, we ran more than 80,000 events in 700 cities across Brazil, reaching more than 15 million people and in the stadiums the Brahma and Budweiser cups were a huge success with consumers clamoring to take them home as a souvenir.

Our activations resulted in a solid gain in beer market share in Brazil during the quarter, a record market share in soft drinks, a doubling of the normal cold beer segment with Brahma 00 leading the category and Budweiser taking over the number one position in the international premium beer segment.

The Budweiser Hotel in Rio was the place to be during the World Cup and was the centerpiece of our Rise as One campaign. Our team delivered in a big way in Brazil. Congratulations to our team.

There were also major World Cup activations in many of our other markets around the world involving our local brands. In Germany, Hasseroder World Cup activations featured sponsored public viewing events, limited edition World Cup glasses and in-store activations during the matches. The World Cup helped own beer volumes grow by 3.2% in the second quarter.

In Argentina, Quilmes activations included limited edition cans in multi-packs and strong social media campaigns across all relevant channels. In Mexico, our Corona promotion led to the redemption of 3.4 million special promotional codes and over 100 million digital connections. The Mexico volume result was good with Corona, improving its position as the consumer's favorite brand in Mexico.

In Belgium, where Jupiler is the number one brand, we sponsored public viewings and fan trips to Brazil, as well as off trade activations with all major retailers. Own beer volumes grew by 9.3% in Belgium during the second quarter.

In the UK, Budweiser was the lead brand. Total own volumes in the UK grew by 13.5% in the quarter with estimated market share gains for both Budweiser and Stella Artois.

We also ran also major World Cup campaigns in the US with Bud Light and Budweiser, in Russia with Bud and Siberian Crown, in Italy with Becks and in South Korea with Cass. This was a truly global effort and we're very proud of what our teams have accomplished.

Let's now turn to the other highlights of our second quarter performance in our top four markets, starting with the US. US industry volumes continue to improve with industry STRs up 0.4% in the quarter according to our estimates, compared to a decline of 1.7% in the first quarter, finishing the half year down just 0.5%.

The trend of our STRs also improved, down 1% in the quarter compared to a decline of 2.6% in the first quarter and finishing the half year down 1.7%. Our STW sales to wholesalers declined 3.4% as anticipated as we reduced inventories following the build-up during the first quarter as part of our contingency planning in advance of labor negotiations. Our total estimated market share was down approximately 65 basis points in the quarter, driven mainly by Budweiser, which faced a tough comparable, but with good results from Bud Light, Michelob Ultra, our high end brands, as well as our value brands.

US beer only revenue per hectoliter grew by 1.5% in the quarter and by 1.7% year to date. As anticipated, the second quarter result was impacted by a lower brand mix contribution and a negative package mix impact from the 25 ounce can which continues to be accretive at the gross margin level.

US EBITDA was flat in the quarter and included a mid-teens percentage increase in sales and marketing investments to support our top line initiatives. EBITDA margin expanded by 69 basis points.

Turning now to performance of our US brands. Bud Light is our most important brand and had a good quarter where trends continued to improve. Bud Light STRs were down only 0.5% with the brand gaining share of premium light segment based on our estimates. As I said before, big focus for this year are our packaging innovations, in particular the 16 ounce reclosable aluminum bottle and the 25 ounce can, which are helping to drive share gains for Bud Light.

The summer's on the way for Bud Light with Up for Whatever, a major campaign, which has already generated tremendous consumer interest with digital activations playing a major role in building engagement. Excitement and anticipation continue to build so stay tuned.

The Ritas, which now hold a full 1 percentage share of total market in the US are performing well and are being supported by new a new campaign, Fiesta Forever, which was launched in June. We'll also be introducing a new flavor, Apple-Ahh-Rita, which we expect to be in the market in the third quarter. This is an exciting category and we believe that it has a lot of untapped growth potential, given especially the still low level of penetrations for the Rita families.

Turning now to Budweiser, the total estimated market share of the Budweiser family was down approximately 50 basis points in the quarter, driven by a tough comparable in the second quarter last year, in which share for the family, was marginally down by 15 basis points. However, we have a strong product for the rest of the summer, centered on Budweiser Made in America, which this year will involve two major music festivals in Philadelphia and Los Angeles. We also expect the brand to benefit from the 16 [ounce] aluminum bottle, which will be extended to include Budweiser in the third quarter.

Michelob Ultra had another strong quarter with an estimated share gain of 15 basis points. The brand's active lifestyle messaging continues to resonate with consumers and is helping to drive share growth.

Our other high end brands also performed very well, benefiting from our high end focus on the (inaudible) and delivering an estimated share gain of 20 basis points.

Moving on to Mexico. The Mexican business had another strong quarter in terms of volume revenue and impact growth. In June, we celebrated the first anniversary of the closing of the Grupo Modelo combination. It has been a great first 12 months in which we have over delivered on the cost synergies, while at the same time delivering top line growth. The team has done a great job.

A very strong World Cup activation behind the Corona brand family and the later timing of the Easter holiday helped our own volumes to grow by 1.5% in the quarter with the industry also growing by low single digits, according to our estimates. This growth was constrained by the significant glass shortages, which impacted sales of Corona in the quarter. These shortages are being addressed and the supply situation is improving.

The revenue per hectoliter in Mexico grew by 2.1% in the quarter, which includes the benefit of our revenue measurement initiatives and a May 1st price increase in line with inflation. As a reminder, our price increase last year was taken on March 1st.

Mexico EBITDA grew by almost 35% in the quarter to $631 million, with EBITDA margin growing over 1,000 basis points to nearly 49%. Our focus brands in Mexico grew collectively by 5.5%, led by the Corona family, which grew by almost 9% in the quarter, despite the glass shortages, largely due to the brand's World Cup activations. We're also pleased with the performance of Bud Light and Victoria, both of which had good volume growth.

Turning now to Brazil. The second quarter in Brazil was all about the World Cup. Our total volumes grew by 7.5% in the quarter, with our own beer volumes up 7.2% and our soft drinks volumes up 8.8%. We estimate that the beer industry volumes grew by approximately 6.8% in the quarter and by 9.5% in the half year.

We estimate that our beer market share increased by 90 basis points sequentially, with a year over year market share gain of 30 basis points to 68.4%.

Brazil beer revenue per hectoliter grew by 3.8% in the quarter and includes the carryover of our 2013 revenue management initiatives, increased on distribution volumes and premium brand mix improvements. These increases were partially offset by our World Cup activations, which included no price increases during the tournament in spite of higher taxes. For the half year, beer revenue per hectoliter growth was 6.6%, in line with inflation.

Brazil EBITDA grew by 8.1% in the quarter with an EBITDA margin decline of 128 basis points to 44.6%, driven mainly by the one time impact of our FIFA World Cup special packaging and a high mix of cans. With the World Cup over, our attention now turns to finalizing our plans for the coming summer and the larger Corona towards the end of the year.

Moving on to China. Our China beer volumes grew by 4.6% in the quarter and by 6.5% in the half year. We estimate that in the half year we have gained approximately 80 basis points of market share, reaching estimated market share of 15.4%. This includes the benefit of (inaudible) beer since the beginning of April. In recent months, there has been some slowdown in the economy, but so far this has not affected our business. The slowdown has mainly affected local value brands, which are losing share to national core and premium brands, such as Hardin and Budweiser.

Revenue per hectoliter grew by 8.5% in the quarter and continues to benefit from improved brand mix. China EBITDA grew by 65.7% in the second quarter, driven by solid top line growth, lower cost of sales per hectoliter, improved operating leverage and the timing of our sales and marketing initiatives.

Our volume growth and market share performance in China is being driven by our focus brands and by Budweiser and Hardin in particular. Our focus brands grew by 9.6% in the quarter, with Budweiser and Hardin both benefiting from successful World Cup containers and Hardin Beer preference reaching a record high level in the second quarter.

Finally, I am pleased to say that we have reached an agreement with Carlsberg to take back the Corona brand in China as of tomorrow and are looking forward to including it in our premium brand portfolio. So this is very exciting for our business in China.

As I mentioned earlier, the acquisition of Oriental Brewery was completed at the beginning of April and the integration is going very well. The business delivered another strong quarter with beer volumes growing by more than 10%, helped by a strong Cass brand performance during the World Cup. Revenues increased by nearly 12% and EBITDA by more than 20% in the quarter, driven by strong volume growth. During the quarter, we also launched Aleston a new ale brand as part of our premiumization strategy.

With that, I would like to hand over to Felipe who will take you through some further detail in our second quarter results. Felipe.

Thank you, Brito and good morning, good afternoon, everyone. Brito has covered our top markets in some detail and you will find additional information about the other relevant markets in the appendix to today's presentation as well as the press release.

Slide 21, for those following the webcast, shows the EBITDA breakdown by zone for both the second quarter and the half year. As Brito mentioned, our total Company EBITDA performance was very solid in the second quarter with EBITDA growing by 9.5%, an organic increase of more than $400 million. EBITDA margin grew by over 150 basis points.

The results in long term (inaudible) were significantly impacted by the challenging macroeconomic environment in Argentina. Our own beer volumes declined by 8.9% in the quarter, driven mainly by industry performance, although volumes in July are much improved. Our beer volumes in the half year declined by 0.8%.

The crisis in Ukraine continues to cause us concern and our focus is on keeping our people safe. Volumes in Europe overall fell by 4.7% in the quarter, although if we exclude impact of the crisis, the decline would have been only 0.7%. In fact, our former Western Europe markets implemented very strong (inaudible) programs and saw combined points grow for 6.8% in the quarter.

Let me give you an update on the cost synergies resulting from the combination with Grupo Modelo. During the quarter we realized synergies of approximately $135 million, bringing the total cost savings to date to approximately $750 million. We still expect to deliver against our commitment of $1 billion of savings by the end of 2016 with the majority of this coming by the end of 2015.

I would now like to quickly review our EPS and below EBIT results before we move to the Q&A. Normalized earnings per share in the second quarter increased to $1.60 per share from $0.93 in the second quarter of last year. This increase is primarily due to lower net finance costs, driven by the market to market gain related to the hedging of our share based payment programs while the second quarter last year included ours. EPS also includes a positive contribution of $0.10 per share from organic EBIT growth.

Net finance costs in the quarter were $382 million compared to $1 billion in the same period of last year. And this decrease of $618 million was mainly due to the positive impact of the market to market adjustments linked to the hedging of our share based payment programs, which have a positive year over year swing of $642 million. And this results from our reported gain, as I said before, of $344 million in the second quarter this year compared to a reported loss of $298 million last year.

In addition, our second quarter net finance costs include negative currency results and other hedging costs of approximately $58 million.

Our normalized effective tax rate for the second quarter was 18.1%, slightly below the 18.7% in the second quarter of 2013. The normalized tax rate in the quarter was favorably impacted by the non-taxable nature of the $344 million gain from the hedging of our share based payment programs, partially offset by the unfavorable impact of changes in country profit mix included the impact resulting from the combination with Grupo Modelo. Our guidance for the full year 2014 remains in the 21% to 23% range.

Cash flow in the first half of the year was robust with cash flow from operating activities increasing by over $1 billion from $7.4 billion in the first half of 2013 to $8.5 billion this year. Free cash flow, which we define as cash flow from operating activities after interest and CapEx, increased from $4 billion to $4.5 billion in the first half.

At the end of June 2014, our net debt to EBITDA ratio was 2.49 times on a reported basis or 2.44 times when including 12 months of EBITDA from OB.

Our capital allocation objectives remained 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 if and when they arise, provided that the target, deal structure and price make sense.

We recognize the value of growing dividends over time consistent with the low volatility of a non-cyclical business and our goal is to reach a dividend yield between 3% to 4% in line with other large cap consumer goods companies.

Our optimal capital structure remains a net debt to EBITDA ratio of approximately 2 times and around this level the return of cash to shareholders is expected to be comprised of both dividends and share buybacks.

And with that, I will hand back to Jackie to begin the Q&A section. Thank you.

(Operator Instructions) Melissa Earlam, UBS.

Just a question on sales and marketing costs. Your guidance is for low teens growth for the year and you did 13% organically in the first half. So I'm just wondering whether we should assume that the spread of growth is actually more even H1-H2 than perhaps people had anticipated?

And then a follow-up question is regarding distribution costs. You've increased guidance a little bit in terms of the increase we should expect for the full year. Could you just comment on which additional opportunities you saw specifically to drive that increase?

Brito here. So first in terms of sales and marketing, we'll stick to our guidance in terms of what was said before. And I think we should look at this more on a yearly basis as opposed to quarter -- on a quarterly basis or half year basis. So again, our guidance isn't changed.

In terms of distribution expenses, we -- Felipe would like to comment on that.

Well, we updated the guidance of low single digits growth to mid single digits. And in there we do see some cost increases in relevant markets like Brazil, US and Mexico, however particularly in Brazil this increase is linked to the increase of direct distribution volumes from approximately 67% to 70%, which is more than offset by higher revenues and which is accretive at the bottom line and therefore not a reason for concern.

And specifically in Mexico is this related to increase in your direct distribution footprint as well?

No, direct distribution level in Mexico is already very high, much higher than Brazil and it has been reasonably stable. That is, in Mexico it's really more linked to the costs overall.

Anthony Bucalo, Santander.

The market share issues in the US, the US strategy has been in place for about five years now and we've just seen this sort of gradual ticking down of market share in the US sort of quarter after quarter. And one of your main competitors in liquor this morning said that they would probably get more promotional with their lead vodka brand. Are you concerned that the pricing strategy and the premiumization strategy may have run its course? And what is your concern about market share going forward? Where do you see the sort of critical point where you need to sort of turn that around?

Brito here. First as you said, I mean our revenue management strategy in the US has been very consistent over the last five years. We're doing pretty much what we said we would do when we got here five years ago. We also said back then that we anticipated some issues in getting our mix to be a better mix, in getting value to be less relevant and above premium to be more relevant and that we felt beer was very affordable.

So we acted on those things, we created a lot of value and we also said that we're very committed to share stabilization. We didn't put a date to this, but if you know us in other markets, we like to create issues in the short term for the benefit of the long term, but of course as long as we close the gap in the short term.

So we're very committed to that. Unfortunately, we haven't been able yet to balance all sorts of different initiatives in the US, so this quarter, for example, we're very excited about Bud Light. I think it's one thing that you come back all the time is that your main brand has to be your focus all the time and Bud Light has 20% share of the US market. It's an amazing seat and performed very well this quarter, it's performing very well this year. And within the quarter performed better every month, including flat STRs during the month of June. So this shows that the investments that we're making behind our biggest brand are working. It's gaining share within the premium light segment. And again, last month for the quarter flat overall.

Aluminum bottle has been a very important feature for Bud Light as the Up for Whatever platform for the summer. But Light has been a brand and has not been well supported during the summer in the past and this year we decided to take a different view and said this brand of course deserves to be supported throughout the year. And the results are showing and we've very excited about the Up for Whatever summer program.

Michelob Ultra doing very well, high end gaining share, value stabilized share, so flat share. So Budweiser remains an issue, especially this quarter where we had a very tough comp. So the Budweiser family this quarter year on year was 52 basis points. And second quarter last year it lost only 15 basis points of the family. So that is the source of the difference.

But we remain optimistic about our programs. We think we are creating the right issues and the right conversations with our team. We provoked our team to look upward to the market, to trade up as opposed to rely on old methods to get share back, like value brands like in the past, and creating value.

So we remain optimistic, especially like things like the Ritas. I mean if you at the Ritas giving still low penetration, we believe that has a huge untapped potential, continues to be a big brand for us now, 1 percentage share of total market and with still big potential. And that's why we're also putting more money behind it with Fiesta Forever and new flavors. So again, this is going to be the growth engines and will get us to a better portfolio that's more in tune with today's consumers in the marketplace.

So you're comfortable with the strategy going forward here.

Yes.

Simon Hales, Barclays.

Quick one on Brazil if I can. I'm interested in your thoughts, Brito, around the consumer dynamics in Brazil at the moment. And we see clearly in the quarter you benefited from obviously in the World Cup, but I think if you stripped out that benefit underlying volumes were probably growing near the 1% level for you in the quarter. And certainly listening to some of your consumer staples peers over the last sort of couple of weeks they've been talking pretty bearishly about recent consumer uptake trends in Brazil. I'm just wondering what your thoughts are as we look into the second half even ahead of you, perhaps taking price increases on beer to offset some of the tax riders we've got coming down the pipes.

And just secondly, just a quick follow-up. Felipe, you mentioned the Ukraine in the quarter being weak. I don't think you put a volume number on it. I'd just be interested in what the volume decline was.

In terms of the 1% that you mentioned without the World Cup volume, I would correct that to 2.6% because if you take the (inaudible) cup -- I mean if you decide to take the World Cup from this year, it's only natural that you take also from the base of last year the (inaudible) Cup. And then volume is 2.6% growth without the World Cup. So that would be the number to look at.

In terms of the consumer dynamic in Brazil, unemployment rate continues to be a very low historical rate of around 5%. Disposable income growth has accelerated during this quarter and that's because food inflation, among other things -- is because food inflation also remains stable during this quarter while beer inflation is currently even below general inflation.

So it is true that consumer confidence is a bit down from previous periods. On the other hand, we have the macros that have not changed. I mean if you look at the LDA growth until the year 2030, it's projected to grow 1.5% every year, Real income growth is still positive and we have incremental benefit from the premiumization of the market share throughout. So consumers are trading up; middle class continues to grow.

So the focus on Brazil going forward, I believe that was part of your question, or let us say for this year, has improved by four-fold. First, increased demand and expand consumption occasions. So in terms of pack price strategies, expand the 300 ml returnable and the 1 liter returnable packages, introduce other packaging in liquid innovations to stimulate demand. So that's a big driver we think for that per capita consumption that still lags in parts of Brazil or in the country as a whole compared to other countries.

So the second one is grow premium volumes. So I mean we've seen in the last few years finally the premium segment is growing. Budweiser had an amazing World Cup, Stella Artois has had an amazing set of years. So that has been very good for the business and industry in general.

The third one is your graphic opportunities. I mean we had programs for targeted areas where we see volume and market share opportunities and that's not the first time we mentioned this.

And the fourth and final is the World Cup legacy. We don't think the investments that we put in the World Cup were only for a five week period. We understand that this will be there for many years in terms of applicable brands and the learnings of this big event.

So again, the challenge we're putting out to our team is how can we package the learnings from this year's Super Bowl, from this year's World Cup into something that can be used more often? Super Bowl's once a year, World Cup is once every four years. We sponsor things, everything that moves, from sports to watch to entertainment. And how can you use that learning in a toolbox -- package that in a toolbox so we can use it much more frequently?

So I think in terms of Brazil, we continue to be very optimistic, as we've always been. Of course, in a year of election there is some volatility. After the World Cup there is a tough comp. That's all true, but the basics in terms of macro population and growth and real income, they haven't changed. And those are the same basics that provided the growth in the past few years.

So plus everything I just mentioned in terms of priorities. So again, continue to be very bullish about the country in the mid term and long run.

And specifically, Brito, just in terms of at the end of Q2 there's no excess stock in the trade channels that have got to be sort of completed out before we start to see your shipments (multiple speakers).

No, nothing to really mention because luckily, I mean Brazil went far enough in the tournament to get those volumes going. And everybody was very involved up until the end. And the weather proved also to help. So in a way I think there was good turn, good velocity and yes. So the answer to your question is no.

On the second question linked to Ukraine, as you would imagine, the crisis continues to cause us concern and our focus remains the one of keeping our people safe. However, in the second quarter we've seen volumes decline of 27% versus same quarter of last year, and we believe that the trade environment will remain challenging in light of the political instability.

Sanjeet Aujla, Credit Suisse.

A couple of questions please. Firstly on Mexico, are you able to quantify the impact of the glass shortage on volumes? How significant was that really?

And on oriental, are you able to talk a bit about that now that you've integrated the business, what the margin opportunity and top line opportunities are for you guys?

In terms of Mexico, we haven't quantified, but the glass shortage is really, and this is public, I mean has really caused us issues in the second quarter. Not only the Mexican domestic market, but also markets outside of Mexico. So on a global scale the glass shortage -- and that was mainly due to the fact that demand across a variety of markets came way ahead of expectations and part of the glass supply constraints.

So Corona has shown a strong performance in the first half of the year with 7.6% volume growth globally, excluding the US. And we're currently working with our customers around the globe to manage inventories and minimize disruption of supply, which is improving as we continue to work hard to resolve the situation, including July it's already much improved.

So we're very excited about Corona. It has a global potential. In Mexico it proved again that it's healthy, the World Cup was a big proof point of that, growing 10%. It's number one in terms of preference. So again, great platform to grow there and also great platform to grow especially as we bring Corona back to our system. And if you look in Western Europe, we added back in all markets but the UK. In the UK it's coming next January. In Canada it's back and doing very well. Again in share in Canada, by the way. In APAC, we took the rights over on August 1st, so tomorrow we'll start having it. In Korea it's already with us. We're going to launch in Brazil before the end of the year. And then last, we reached an agreement with CCU to repatriate the brand back to us in Argentina.

So I mean in our main countries the brand's back with us and we see -- if you look at Budweiser as a global brand and what happened the last five years, we see some of the same could happen to Corona and are working towards it.

In terms of OB, your second question, I mean we're very happy with the integration. As we said, volumes for this quarter 10% up, EBITDA more than 20% up. So the momentum is there. Our colleagues are really top notch, they understand the business, they are great performers and the integration is going very well. So in the next few quarters we're going to provide more details, but at this point that's what I can share with you.

Trevor Stirling, Sanford C. Bernstein.

Could you tell us what the latest news is on the taxation in Brazil, the tax that was deferred? Are there still negotiations going on? Is there possibly a little bit further deferral or not?

Well, Trevor, what we know it's what's public and in the last statement from the government was the postponement of the reference base price update. That was originally announced for April; that was postponed. And also in that announcement they said that when implemented that they would do it on a gradual way. So we as an industry of course welcome this decision and are working together with the sector alongside with the government to discuss this next step.

But at this point there's no confirmation yet of how this gradual schedule will be implemented. But we continue to work with the government and what we call the cold beverage sector in Brazil. We'll continue to work with the federal government. And the main intent here is to show once again to the authorities that tax revenues can grow the same way but based on a lower tax burden on the industry, enabling a greater volume growth and for the investments with no pressure on inflation. So that has been the focus of the discussion.

My follow-up question, Brito, you talked about the weakness of Budweiser in the United States. Is that just a matter of the tough comps on (inaudible) or is there weakness inside the core brand franchise as well?

No, the brand health for Budweiser and my other brands is doing very well, especially with young consumers. It is true that some of the consumers that are leaving the category by means of age or demographics and the guys that are coming in, this balance is not there yet. So we continue to work and to accelerate the connection with young adults to be able to bridge that gap and get the brand to be healthier going forward.

What happened this quarter, as I said, is that the comp was a very tough comp, so 50 basis points decline for the family compared to 15 in the same quarter last year. But again, we continue to have many programs for the brand going forward.

So for example, for the second half of the year, we have the Budweiser Made in America Festival now in the West Coast as well. That is proving to be an amazing instrument to connect with the (inaudible) to 27 cohort. We have the Major League Baseball activations. We have the launch of Budweiser in the 16 ounce aluminum bottles, so we're taking the aluminum bottle that has been a big driver for Bud Light, now also to Budweiser. And we're going to have a big holiday activation this year for the first time in many years for Budweiser. Budweiser used to do that activation around Christmas and the year end in the past. For many years did not do it. And this year we're coming back with that tradition.

So again, I think the brand is pointed in the right direction in terms of brand health. I think there is enough support behind the brand, but we're going through that phase in that we're bridging consumer profile that's changing within the brand franchise. So that's what you have to go through when you're trying to bridge these two different situations.

Andrea Pistacchi, Citi.

I have a couple of questions on China, please. The first one is you're clearly doing a -- I mean in terms of profit this was another excellent quarter in China. I think about $100 million of organic EBITDA growth there. Now besides very good mix, what's driving this? And what really has changed since the end of 2012 is when you started delivering consistent and very good margin expansion every quarter. So has something changed since then?

And then a follow-up on Corona, which you said you're taking back tomorrow in China. How do you plan to position it versus Budweiser? Obviously Budweiser's doing incredibly well there, so is there a risk of cannibalizing some of its success?

No, two very good points about China. I mean China, first we're very happy with the development in terms of profitability in China. And that's a direct consequence of our strategy that has been very stable and consistent since 2009 when we joined with AB and had the Budweiser and Hardin brand.

EBITDA grew this quarter by almost 66% and that is because of our revenue growth initiatives, our mix that's growing the right direction so we're trading up. So Bud and Hardin being more and more important in the overall mix.

And also some improved operating leverage. So as you grow the business, of course you not only grow, but you also optimize the business. So as you do a greenfield, for example, and the beer is now available in that region, you have to travel less compared to what you were doing before that greenfield was there, so your logistics is optimized.

As Budweiser is produced also in more breweries, again the logistics is optimized. As you become more of a bigger company there, scale starts benefiting you so the same people doing more. So I think it's a whole bunch of a virtual circle taking place in China.

So this quarter of course the timing of sales and marketing benefited the EBITDA growth, so let's not forget that. But you're right. I mean if you forget the quarter on quarter comparisons and if you look at the yearly developments, you're right to say that margin has appreciated and China has grown. And we believe we still has room to continue to do the same because the fundamentals are in place and better than that, they're working.

In terms of Corona, I think it's amazing because if you think that our whole idea in China is to become -- not to become, because we already are, but the leading Company in premium, but to extend our leadership and to grow the segment even further, as we bring, together with Budweiser, Corona and the Belgium trio, as we call it, Stella, Hoegaarden and Leffe, I mean the potential is really amazing.

So Corona is going to be positioned and priced above Budweiser to continue to extend the definition of super premium in China. So if Budweiser today is the super premium brand, we're going to now do a super super premium brand in China with Corona. And Corona will also afford us access to some channels that today Budweiser not necessarily is in. So for example, western bars, it's growing a lot in China where Corona has more of a positioning that fits with that kind of channel.

So that's going to be very important to complement our premium strategy in China. So we're very excited about it and of course we're going to do it in the gradual way like you have to do it with any super premium brand. It's not going to be any big bang. But it's great to have the brand back in the biggest market in the world and in a market where we lead the premium side, which is really where the profits are and the growth is.

Edward Mundy, Nomura.

In the US your revenue per hectoliter of 1.5% in Q2. Are you able to split out the difference in price and mix? And how do you see revenue per hectoliter progressing into next year? Do you feel you need a more liquid centric innovation pipeline for 2015?

Well, in the US, I mean we had said last quarter that we should expect for the next two quarters, second quarter and third quarter, with the fourth quarter being better, that revenue per hectoliter would be impacted by brand and package mix in a way that would lower the overall net revenue per hectoliter growth. And that's what we anticipated and that's what we see this quarter and we should see again next quarter. And the fourth quarter being better.

And that's a direct consequence of some of the innovations that we did this year that are doing very well show wise. doing very well margin wise. But the 16 ounce reclosable aluminum bottle, for example, is one that is, together with the 25 ounce can, is one that's dilutive at top line, but accretive at gross profit.

So what we said last quarter is valid for this quarter and for the next quarter because we're cycling those two launches. In fourth quarter we should be, let's say back to normal again.

And briefly for next year?

Well for next year, again we're not giving any guidance, but we'll continue to invest behind our base and big brands like Bud Light, Budweiser, the high end brands and Michelob Ultra. Those are the key brands that make up our business, along with the value brands as well, not to be forgotten. And we'll continue to invest behind innovations as well.

So I mean unchanged, but again, the only different thing about these three quarters is the lapping of package innovation. That again is accretive for margin and share, but not at top line of selling. So that's what dilutive. So fourth quarter onwards we should see a more normal picture.

And as a follow-up on a separate point, there was an article on Reuters on the 11th of July that seemed to imply that your business is focused on Latin America and Asia and ABI is slightly more lukewarm towards Africa. Could I just clarify the context of that is really from an organic as opposed to inorganic perspective.

Oh, no I think that came from a conference we had in Rio in which when asked about new markets or growth markets we said that our focus in terms of investment CapEx these days are really in Latin America and Asia, mostly of course Brazil and China. That's what I answered.

And I also said that I saw in Asia, because the question continued more specifically in Asia, I said that I saw and we continue to see huge opportunity for growth in Asia. When you think about our footprint today, I mean not only our business is doing very well in China, but now we have Korea, the leading brand, OB, the leading brand in Korea.

We have Corona and our Beligan brands and Budweiser doing very well in Australia. We have Vietnam in which we have a presence, a growing presence and we're going to start a brewery next year to have even more of a portfolio there. And we have in a very small scale India also doing very well. So I mean when I look at India and the opportunities and offer together with Latin America and its growth that we've known forever, I mean those are the two growth platforms for the Company today. That's what I said at the summit.

Caroline Levy, CLSA.

If you could clarify why you think July improved in Argentina and whether that seems like a sustainable improvement, if that's actually positive? And the second question is how are you improving the supply of glass? And is that something that will get you to where you need to be to be fully supplied for next summer? If you could just size that up for us, please.

In terms of your question, how can we say that July is better, well because we have the numbers and --

No, sorry. The question is why is July better. Like what changed in Argentina?

Sorry, I misunderstood your question. Sorry about that. So let me step back and give you the full picture. The second quarter volume performance was very impacted of course as we know by the macro environment in Argentina, which led to an industry driven volume decline in the country. So we had double digits drop in April, okay, followed by a lower mid single digit decline in May and June. So April is really when the crisis hit at its worst, at least so far. And then May and June you already saw a better picture. And in July, a much improved picture.

A couple of things there. First, the inflation of course was really higher than anybody could have anticipated and that hit consumers hard. But most of the seller negotiations only kicked in in the month of June. So in April-May, the consumer was -- they were really pressured in between having inflation growing every month and salary not yet there.

So now salaries are corrected and I think that's beginning to flow into the economy, so we (inaudible) has decreased, but now, at least nominally, is back up to a much better place than April-May. So I think that's one big portion there that is impacting positively the end of the second quarter and July. And we believe it will also -- July is a good sign for, if you compare to the second quarter, that the second quarter was really a bad time of this year, year to date.

And then on the glass side. I mean what are you -- how are you addressing that shortage? And does it sort of disappear over the winter or --?

That's a supply chain classic problem. I mean if you have a plan and you -- supply can always within certain boundaries deal with pluses or minus within a certain tolerance. But the fact is that all markets demanded more than the plan and away from that tolerance. So and then what was really the issue was glass supply.

So now that the summer in terms of inventories are being rebuilt again and July shows a much better picture, now supply of course is tapping out different sources of glass and so glass supply is in a better place. And now after the summer, as in North America and Europe, as demands -- and in Mexico, as demands go down a little bit because of seasonality, supply will have this opportunity to really refuel the inventories and pipelines.

So that's the story about glass supply. And a demand that was way higher than plan, supply not being able to react overnight. But now with too much being able to react and therefore better numbers now for July.

Eric Serotta, ISI Group.

I'm wondering if you could go into the US business in a little bit more detail? Can you give us a sense of what happened on the on premise initiatives that you talked about last year? Some of the initiatives in terms of improving distributor execution? And then your craft initiatives, specifically Goose Island, Blue Point, as well as cider.

Well, let me touch on -- it's a broad question, so let me touch on many of the points. So on premise, we're very happy with performance. I think I mentioned that on Bud Light one of the drivers for that share performance has been the on premise, as well as the aluminum bottle, as well as the summer campaign we have here. So that has been good.

But of course it's a long term proposition. Today we have more than 330 brand activation managers in the marketplace. We didn't have that a year ago. So these people are trained to develop and to deal with you on trade and that has to do mainly, but not only, with drafts, but also packaging. And also is going to benefit a lot our main brands and the high end brands. So that's something that we lost room in the on trade in years past and now we're here to regain what's ours, given our share and our brands. So that's the on premise.

The other parts of your question, wholesaler. Yes, wholesale execution we continue to improve. I mean our wholesaler system is a big asset that we have in the US. Our AOE or excellence program is a big thing today in our relationship. We have a whole ritual and process in terms of sharing best practices, awarding the best performers, having two conventions a year to again award a performance, exchange best practice, talking in a line on what's to come.

So I think it's very important that we have also to find two, three years ago what anchor wholesalers means. It's very clear today what we see as an anchor wholesaler and that's clear for the system. So again, the wholesalers have been a big partner in our innovations and executions in the marketplace, a big asset. And we continue to be very close to them through the panel and through the excellence program. So that's on a positive side.

The third one is craft strategy. So we're growing on the high end, as I said. I mean we grew 20 basis points with our high end brands. And Michelob Ultra also grew by 15 basis points if not mistaken. Right? Those are the numbers? And so the high end we have Goose Island doing very well. We have Shock Top doing very well. We have Blue Point now also doing very well. We're not giving numbers for everything, but this is all part of the high end strategy.

And we also have the import brands led by Stellar also having a very good year. So I think the high end is a mix of all these things. Yes, it's the so-called craft, but also with our 600 years of history in Europe, there's a lot to be said about our European brands and its potential in markets like the US. So that's also part of our end strategy. So very committed to it and it's where a lot of the growth is and it's where a lot of the profits are. So that's very good, together with of course our main business that brings us the scale and the share in the marketplace. So that's pretty much our strategy going forward.

Can you give us any kind of numbers or metrics around Goose Island and around your ciders?

I don't think those are public numbers at this point, but again, this is part of our high end strategy, which is gaining share as I just said. So that's, yes. That's what I would say at this point.

Andrew Holland, Societe Generale.

Can I just ask on your China margin, obviously up very strongly in the quarter. It was up I think 440 basis points in Q1, 620 in Q2. I'm guessing you don't want us to get sort of carried away thinking that this is an accelerating margin performance. Can you give us an idea maybe with reference to those two numbers what your expectation is for the full year when we take account of the timing of your sales and marketing expenditure? That would be a first question.

I'm not going to give a guidance, Andrew, but I'm very glad you asked this question because what I would like to say is that I don't see in China -- because again, let me step back. The margin has been -- EBITDA margin has been increasing in China in the last many years. So this is not a new thing.

I wouldn't call what we've seen in the last two quarters any inflection point of any sort. So what I would say is that those were great quarters for different reasons, but I'm not saying that these are quarters that should be taken into consideration to project the next two, for example. But what I would say is that margin expansion in China is a reality that's based in fundamentals that are working and therefore should continue along the same, let's say, trend that we've had in the last few years.

And just a question on OB. I guess you were asked earlier about that. Can I specifically ask whether you were able to quantify the synergies and also whether you're able to say what the base EBITDA was? Because when you originally announced the deal you said that the EBITDA was $500 million but that was not prepared on your basis. Now you've had a chance to look at it, can you say what the base EBITDA was?

Yes, in terms of EBITDA there was no major difference. I mean so you can take that as the true base for the business. And first part of the question was --?

Synergies. Any chance of quantification?

Andrew, this was a different kind of combination because when you think about it, this business was ours just five years ago and what (inaudible) did is that they really continued to grow the business on the same basis. Did a very good job.

So it's not a business that we go in and our systems are not present, that the culture is totally different. I mean no, I mean you got there in our systems and the way we run the business we're there. So it's not a business that we would -- the other thing on the other hand is that I would say that the multiple at which we were able to reintegrate the business was a very good multiple and I think that's where a lot of the value creation for sure was as opposed to announcing synergy in that.

One thing I could say (multiple speakers) is that of course there'll be synergies because now the Company is back to being part of a larger organization and therefore procurement is the first thing that comes to mind. Back office support, analytical global brands and then toolkits, like the World Cup. I mean Cass, for example, was the local sponsor for the World Cup and then that would not have happened hadn't we merged.

So I mean I think those are all things that will contribute to the business but we decided not to quantify at this time because again, this is not a new business for us, it's a business that had a five year leave of absence, let's put it this way, and now it's back with the same systems and pretty much, with a few exceptions, the same colleagues that we had and that have performed very well. Great colleagues to be back. So that's Korea.

Lauren Torres, HSBC.

My question is on Mexico. And Brito, you've done a great job integrating that business and taking margins into the mid to high 40s. Just curious if you view that as a sustainable margin, if there's room for upside from there. It seems quite high, but it seems like the right number.

And then obviously we're a year in now and the cost synergy number is maintained. Any color on revenue synergies? It seems like once again being a year in, you have better visibility on the brand, whether it be domestically or globally and plans for further expansion of the portfolio.

Good point. I mean our guys in Mexico deserve the credit for this last full year and the preparation for this integration. I mean our Mexican colleagues have delivered an amazing job.

The Mexican margin is a proof of that and as in all other business that we have, we like to think about margin expansion. We think it's interesting, it's exciting, it's about being more efficient and we continue to see opportunities in Mexico as well as in the other zones.

In terms of revenue synergies in Mexico, we didn't put a number to it as we normally only talk about cost synergies. But if you think about the Corona potential in Mexico, again just look at the World Cup, proof point is that. If you look at Bud Light in the northern part of Mexico, but also in the whole country. If you look at Stellar being launched in Mexico where the premium segment is way under developed. Then you look at own businesses, like the Modelo (inaudible), where we see a huge opportunity to grow as a trade format.

And direct distribution best practices because in Mexico we have 85% as direct distribution and that's one thing our Company, our people have lots of toolkits to implement. So and again, our colleagues in Mexico have been very open to exchange best practice and that has been the key secret why the synergies have kicked in so quickly and so in a sustainable fashion, and now including even with the whole synergy integration taking place that top line grew. So that was -- we could have the one and the other. So that's Mexico.

And can I just ask as a follow-up, are there other markets like you mentioned with Corona and China from Carlsberg that you're potentially going to regain the brand? Is there anything imminent on that front?

Yes, I mean in Europe we just regained a brand in many markets this year. And in the UK, there's a big market for the brand where we're going to regain it in January of next year 2015. In Canada, we regained in March this year. So I mean -- and in Brazil it's a wide territory for the brand. We're going to launch it before the end of this year. Of course, as you launch a premium brand in a very seeding type way. And in Argentina we also just got the brand back from CCU. So I mean in our many markets we have the brands back and that's good news for me.

Thank you.

Thank you, Lauren. And thank you everybody for all your questions and your time. Again, just three points to sum it up. I mean we had a strong momentum going from the first quarter into the second quarter and we're going to continue to work very hard to get it in the second half of the year as well.

World Cup was a great opportunity not only for the five week period, but also we're sure we'll have lasting positive effects on our brands. Global brand and local brands that were connected to the tournament. And the summer is in full swing. That's very important for a lot of our markets and we're very excited about the programs we have and the activations.

And thank you very much again and I'll see you on October 31st. Have a great day. Bye-bye. Thank you.

Thank you. This does conclude today's teleconference and webcast. Please disconnect your lines at this time and have a wonderful day.