Anheuser-Busch Inbev SA (BUD) 2014 Q3 法說會逐字稿

Welcome to the Anheuser-Busch InBev third 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.

Hi. Thank you, Jackie. And good morning, good afternoon, everyone, and welcome to our third quarter 2014 results conference call.

Let's start with the highlights of the quarter. This quarter was marked by solid underlying commercial performance in our top markets with good revenue and revenue per hectoliter growth. However, EBITDA growth was only 1.3% as a result primarily of three factors: one, the difference between STWs and STRs in the US; two, the phasing of our revenue measurement initiatives in Brazil; and three, a very tough comparable in Mexico cost synergies, which represents approximately 4 percentage points of organic EBITDA growth at the consolidated level.

We believe that the third quarter was a one-off in terms of EBITDA performance and is not reflective of expected future trends for the business. We have a clear strategy built around long-term, sustainable top-line growth and we are pleased with the direction in which we are headed.

We gained market share at the consolidated company level, both in the quarter and the year to date, with strong performances in Brazil, where we gained 100 basis points of share; China, where our market share increased organically by 70 basis points; and improved share trends in the US where share declined by 30 basis points. Much better performance than the second quarter.

We continue to invest behind our brands with our global and focus brands performing ahead of our total portfolio. Our global brands performed well, led by Corona and Budweiser, and we are continuing to invest behind our focus brands to drive future top-line growth.

Turning now to the details of these results. Total volumes declined by 2.6% in the quarter, with beer volumes down 2.7% and non-beer volumes down 0.9%. Volumes of our three global brands grew by 3.1% with our total focus brands volumes declining by 1%.

Total revenue for the quarter grew by 2.3%, driven by strong revenue per hectoliter growth of 4.9% on a constant geographic basis.

Sales and marketing investments increased by 7.2% in the quarter and 11.1% year to date as we invest behind our brands to drive future top-line growth. We continue to expect a low to mid-teens percentage increase in sales and marketing investments for the full year.

Normalized earnings per share increased to $1.42 per share from $1.36 in the third quarter last year. Finally, the Board has declared an interim dividend of EUR 1 per share.

Our global brands of Corona, Budweiser and Stella Artois grew collectively by just over 3% in the quarter, well ahead of the growth of our total portfolio. The growth in the third quarter was led by Corona which grew by 6.7%, driven by strong growth in Mexico and many of our export markets. The glass shortages faced by the brand earlier in the year have been addressed and we are working hard with our business partners around the world to rebuild inventories.

Global Budweiser grew by 2.8%, driven by double-digit growth in China and a strong result in Brazil where, based on our estimates, the brand expanded its position as the country's largest international premium brand and, for the first time, became the largest brand in our portfolio of domestic and international premium brands.

Stella Artois volumes were down in the quarter, with good growth in Canada, US, Brazil more than offset by weaknesses in the UK where we faced a tough comp following a very good summer last year.

The third quarter saw the FIFA World Cup come to a close and we have now had the chance to stand back and reflect on the significant impact World Cup activations had on our business. First a reminder of the sheer scale of the tournament, with nearly 3.5 million fans attending games and around 1 billion watching the final game on TV. These activations paved the way for the World Cup to create new milestones across the globe in fan participation on line and through social media, kept the event top of mind for the entire month of the tournament. In fact, FIFA created a content hub which attracted 1 billion fans over a 3-month period.

With 28 million downloads, the FIFA app was also the most downloaded app for any sporting event in history. The Budweiser Man of the Match voting platform was integrated into this app, creating a huge advantage for our program. We received nearly 4 million votes for the Man of the Match with fans connecting with Budweiser brand in a very meaningful way.

The field boards, which you may recall showed different content in different markets around the world, were an integral part of our sponsorship. Several of our brands were showcased during the tournament, including Budweiser, Brahma, Quilmes, Hasseroder, Jupiler, Beck's, Cass, Harbin and Siberian Crown, helping to connect local fans with local brands.

In local markets our teams did a great job. Harbin engaged fans with impressive interactive displays. Mexico engaged consumers with value-added promotions in our [motoramas]. Our glasswares and cans in Belgium differentiated us big time with the Jupiler brand unifying the country with a We Are Ready campaign. And Argentina built huge in-store stadium displays.

In Brazil we rolled out a multidimensional experiential platform for the World Cup that touched all corners of the country with our three brands Budweiser, Brahma and Skol. We had 16 major programs across three brands with over 9,000 unique activation points. All in all, we reached over 23 million Brazilians through social media. We also sold over 5 million special edition Budweiser and Brahma cups customized for specific matches. These quickly became collectable items.

In summary, we invested heavily behind the World Cup and feel that the insights we gained, the brand equity we built will be invaluable in helping to drive future top-line growth.

Let's now turn to the highlights of the third in our top four markets, starting with the US. US industry volumes were softer than we had expected with industry sales to retailers, STRs, down 1.3% in the quarter based on our estimates. However, year to date we estimate industry STRs were down only 0.8%, which compares favorably with a decline of 2.2% in the same period last year.

Our own STRs were down 1.9% in the quarter and down by a similar amount in the first 9 months. Our STWs declined by 3.7% in the quarter as a result of our planned final adjustments to wholesale inventories following the resolution of labor negotiations earlier in the year.

Our market share performance improved significantly in the quarter, declining by just 30 basis points compared to a decline of 65 basis points in the second quarter and 55 basis points in the first half of the year. This improvement in trends was driven mainly by good performance from Bud Light, Michelob Ultra and our high-end brands. We also saw good results in the on-premise channel.

US beer only revenue per hectoliter grew by 1.2% in the quarter and by 1.5% year to date. As anticipated, the third quarter result was impacted by a negative package mix impact from the 25-ounce can although the package continues to be accretive at the gross margin level. As we have mentioned before, we expect a recovery in the fourth quarter as we cycle the introduction of this package.

US EBITDA was down 7.1% in the quarter with a margin contraction of 197 basis points. This result was driven by the difference between STWs and STRs, higher distribution expenses due to increased freight rates and increased investment behind our brands. Again, we do not view the third quarter result as a proxy for the future US performance.

Turning to performance of our brands in the US, Bud Light remains our number one priority in the US and I'm pleased to say that the brand is making good progress after a great summer activation around Whatever USA. Bud Light's share continues to improve and, according to IRI data, has gained share of premium lights every single week this year. The chart on this page shows Bud Light's share evolution within the premium light segment over the past 7 quarters, including a full 1 percentage point share gain of the segment during the third quarter this year based on IRI data.

Bud Light has also contributed to our success in the on-premises quarter and we saw great results from our package innovations, in particular the aluminum bottle. The Whatever USA program, in which Bud Light took over a town in Colorado for a long weekend, was a major success. The campaign was very well received by Millennials reaching nearly 90% of the 21 to 27-year-old population in the US. Engaging Millennials in the on-premises is key to the brand's growth and we had almost 2 million on-premises interactions between Bud Light and this important demographic. (Inaudible) individuals submitted videos to audition for a role in this program. The Whatever USA program created almost 40,000 pieces of content which resulted in an engagement rate that was nearly 40% higher than the engagement rate we saw in this year's Super Bowl. These are just amazing figures.

One of the biggest takeaways from the summer campaign is that Millennials are highly experiential. They value experiences from Bud Light that are unexpected and spontaneous. Our content factory strategy keeps our brand top of mind. All in all, Bud Light had a great summer and we're looking forward to the next phase of the Up for Whatever campaign next year, not to mention of course the NFL season which is off to a great start with increased viewership.

Turning now to the Ritas, the Ritas returned to share growth this quarter with share up around 10 basis points based on our estimates. The new apple flavor has been well received with the degree of cannibalization of the other flavors remaining low. As you can see from this slide 10, we remained -- we retained a good balance between the five flavors in the third quarter. The popular Cran-Brr-Rita will return in the fourth quarter as a seasonal. We continue to see a lot of untapped growth potential in this category.

Now turning to Budweiser, the total estimated market share of the Budweiser family was down approximately 40 bps in the quarter, a small improvement over last quarter with trends improving in recent weeks. Budweiser performance is not where we would like it to be, but we are encouraged by the engagement that we're building with young adults. Our Made in America music platform, which this year included a major Hispanic-themed festival in LA, is playing a key role in encouraging trial and building connections with this important target group.

Starting in September Budweiser is now available in the new aluminum bottle. The new package looks great and should help the brand in the coming months. Budweiser will also be introducing an iconic holiday campaign in the coming weeks so stay tuned.

As mentioned earlier, we have seen significant improvement in our on-premise market share this year, held by our Bud Light Whatever USA campaign, Michelob Ultra and our high-end brands. Michelob Ultra continues to deliver strong volume growth with an estimated share gain of 20 bps in the quarter and 20 bps year to date, consolidating its position as one of the top 10 brands in the US beer market. Our other high-end brands also performed well, delivering and estimated share gain of 20 bps in the quarter, led by good results from Stella Artois.

And finally, in the US a few comments on Montejo, our first ever foray into the Mexican category in the US, an important growth segment in the US market. Montejo, an authentic Mexican brand with a history dating back over 100 years, was introduced in 4 US markets in September. It's early days, but the brand is off to a great start. Hispanic consumers appreciate the brand's authentic Mexican heritage and our US team will continue to benefit from the consumer knowledge and insights we have gained as Mexico's leading brewer.

And so switching to Mexico now. Mexico delivered its strongest volume performance since the combination closed in June last year. We estimate that the industry had its best quarter of the year, growing by low single digits, driven by an improving economy and a strong performance from our focus brands. The quarter also benefited from a favorable weather comparable.

Our own volumes grew by 2.9% in the quarter with a strong contribution from our focus brands, which grew by almost 7% despite significant Corona glass shortages early in the quarter. Beer revenue per hectoliter grew by 4.4% in the quarter, which includes the benefit of our revenue management initiatives and the positive brand mix result from a strong Bud Light performance.

Mexico EBITDA grew by 16.5% in the third quarter with an EBITDA margin enhancement of 357 basis points, despite a tough cost synergy comparable. The increase in EBITDA was driven by the strong volume in revenue per hectoliter performance, partially offset by additional packaging costs related to higher-than-expected demand for Corona in Mexico and overseas market.

As I mentioned, our Mexico focus brands performance was very strong this quarter, driven by growth of 4.6% in the Corona family and a doubling of the Bud Light volumes. Victoria also saw double-digit volume growth with a strong campaign focus on new packaging and unique brand positioning connected with celebrations of Mexican heritage and pride.

Turning to Brazil, we estimate that the industry volumes in Brazil declined by just over 1% in the quarter with the benefit of the World Cup in early July being more than offset by a soft consumer environment. We estimate industry volumes are up almost 6% after 9 months. A strong market share performance led us to gain 100 basis points in the quarter year over year. Year to date, our beer volumes are up 6.1%.

Brazil beer revenue per hectoliter increased by only 1.2% in the quarter due to the phasing of our revenue management initiatives. Sequentially, beer revenue per hectoliter increased by 3%, reflecting the end of price promotions put in place during the FIFA World Cup.

Brazil EBITDA performance was abnormally low, declining by 5.3% in the quarter with margin contraction of approximately 350 basis points. This result was due to the combined impact of flat volumes and the low revenue per hectoliter growth. We also faced difficult comps in other operating income following the reporting of a gain in third quarter last year related to the favorable outcome of a legal proceeding.

Our market share performance has been strong all year, driven by our World Cup programs and the strong consumer preference for our brands. We estimate that our beer market share increased to 69% in the quarter and 100 bps compared to the third quarter of last year.

Although our EBITDA result for the quarter was not where we wanted it to be, our 2014 commercial plans are strong and we have created options for the future. Our market share is at the top end of our target range of 67% to 69%. Are brands are enjoying even higher consumer preference and our innovations are performing well with, for example, Brahma 0.0% achieving over 60% share of the non-alcohol segment.

Speaking of innovations, let me say a few words on Skol Beats Senses. Skol Beats Senses, recently introduced in Brazil, is a new citrus-flavored product designed to meet consumer needs for a sweeter, high-alcohol liquid in an attractive modern package. It is targeted at the night-out occasion, is premium priced and has benefited from some of the insights that we have gained in other markets from products like Bud Light Platinum and the Ritas. The brand has only been in the market for a few weeks but it's already gaining traction. I look forward to sharing more about Skol Beats Senses with you in the months ahead.

Moving now to China, the beer industry in China was impacted significantly by cold weather in the third quarter, as well as tough-won comparables after a strong summer last year. Our own beer volumes declined by 4.9% in the quarter, but increased by 1.7% year to date. Despite the weak third quarter, our market share performance continues to be very strong. We estimate we gained about -- approximately 70 bps of market share organically year to date reaching a level of 15.7%, and 16.5% when including our recent acquisitions.

Our revenue per hectoliter performance remains robust with a growth of 8.3% in the quarter and 8.5% year to date with improved brand mix contributions being a major driver. China EBITDA grew by 20% in the quarter, with margin expansion of over 300 bps to a margin of 22.7%.

Our volume growth and market share performance continues to be driven by our focus brands, and by Budweiser and Harbin in particular. Our focus brands volume represented nearly 75% of our portfolio and grew by 3.7% in the quarter and by more than 8% in the first 9 months of the year. Budweiser continued to perform very well and grew by double digits in both the quarter and the year to date. Budweiser further consolidated its leadership position as the market's favorite international premium brand while Harbin Ice continues to grow double digits. In August we also added Corona to our premium brand portfolio in China. Brand volumes are very small today, but we expect significant growth in the medium to long term.

With that I would like now to hand over to Felipe who will take you through some further details on our results. Felipe.

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

Slide 21 shows the EBITDA breakdown by zone for both the third quarter and year to date. As you can see on the slide, our footprint offers a very good balance between developed and developing markets. North America continues to be the largest contributor to our EBITDA with over $5 billion year to date, with Latin America North and Mexico contributing approximately $3.5 billion and $1.5 billion of EBITDA year to date, respectively.

We are pleased with our footprint. And although we have seen some volatility in developing countries in recent months, we remain optimistic about the growth potential in these markets. We see meaningful opportunities for increased per capita beer consumption, driven by both growth in disposable income and our own commercial plans.

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

Normalized earnings per share in the third quarter increased to $1.42 from $1.36 in the same period of last year. This increase is primarily due to lower net finance costs driven by lower interest expenses and currency gains reported in other financial results, while the third quarter last year included a negative currency result.

Net finance costs in the quarter were $366 million compared to $562 million in the same period last year. This decrease of almost $200 million was mainly due to lower interest expenses and a positive currency impact reported in other financial results, compared to a negative currency impact in the third quarter of last year.

Our normalized effective tax rate for the third quarter was 19.7% compared with 21.3% in the same period of last year. This result was largely driven by higher interest on capital paid in Brazil and differences in country profit mix.

As a result of the third quarter performance, we are amending our guidance for the normalized effective tax rate for the full-year 2014. We now expect the full-year rate to be at the lower end of our previous range of 21% to 23%. As usual, this assumes zero gains or losses on the hedging of our share-based payment programs for the fourth quarter.

As was mentioned, the Board has declared an interim dividend for fiscal year 2014 of EUR 1 per share, which compares to an interim dividend for fiscal 2013 of EUR 0.60.

As you may recall, when we announced the first semi-annual dividend last October, one of our goals with the November dividend was to better balance our dividend payout with our cash flow generation. We also stated last year that over time we expected that the November interim dividend would grow in relevance when compared to the one usually paid in May. This year's interim dividend increase is a reflection of that strategy.

Our capital allocation objectives remain unchanged. Our first priority will always be to invest behind our brands and to take full advantage of the organic growth opportunities in our business. M&A remains a core competency and we will always be ready to look at opportunities 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 our non-cyclical business and our goal remains the one 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 of around 2 times and, as we approach 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) Andrea Pistacchi, Citi.

Hi. Good morning, everyone. I have a question and a follow up, please. The first one is on pricing in the US. Now, if you strip out mix I think your pricing in the US has been trending at around 1%, 1.5% in the past few quarters, which seems to be less than previous years and also a bit less than your main competitor in the US. So should we interpret this as a fact that you're using the pricing tool a bit more proactively this year to stimulate volumes? And also, if there's anything you could say, please, about this year's price increase, the October price increase, in terms of magnitude, timing, if it all went through at the beginning of the month?

And then the follow up, please, is on Montejo. If you could talk a bit about what the ambition is for the brand, how big you think this could really [cyclically] become in the medium and long term? Yes, that's it. Thank you.

Andrew, it's Brito here. So in terms of price, I mean as we said in the last two quarters, with the launch of the 25-ounce can, which as I alluded that net revenue per hectoliter line but accretive at the gross profit line, we would face up until this quarter, third quarter, a negative package mix that would influence the net revenue by a quarter. That's why it's lower than what you used to see, but that has been the case for the past three quarters. Now for the fourth quarter, this thing is lapped and what you see is a more normal net revenue per hectoliter in the US because the 25-ounce is now in the base. So fourth quarter, we'll be back to what we can call normal.

On your second question of Montejo, we're very excited about it. When you think about it, the Mexican import segment is around 8% or 9% of the total US market. We had no presence up to the Montejo introduction in the four states within the Southwest part of the country. It's an amazing brand. It's a jewel coming from Mexico. It has a lot of heritage, since 1900. It talks a lot to the Mexicans in terms of traditions and that's how we're positioning the brand. And we have a great program for sampling and introduction in those four states. Early days, but if you look at the repurchase and retrial the numbers are very encouraging. The liquid is really spot on to what consumers want. And again, it's totally connected to the Mexican heritage.

There's more to come from where Montejo is coming. Let's remember that we are the top brewer in the Mexico and there are more brands to come, but at this point we're not going to be detailing which brands.

Also, going back to your first question, we have also recently taken a price increase in the US that's broadly in line with inflation and that, together with the package mix I explained will get you to the fourth quarter on a more normal basis, as we used to say.

Okay, thank you.

Thank you, Andrea.

Nick Oliver, Bank of America Merrill Lynch.

Hi. Thanks for the question, guys. A question on Brazil. I mean, just given the softer macro backdrop, could you perhaps talk about some of the tools you've got to help manage profitability in 4Q and into next year, both on sort of top-line thinking, maybe new distribution points; and then maybe a little bit on the P&L, perhaps lower marketing spend. And on that note, also the transactional FX exposure for next year. Is that fully hedged in there in Brazil or is there still some spot exposure left? Thank you.

Hi, Nick. Felipe here. We keep our 12-months rolling hedging policy in place to cover the transactional exposure [through the CM]. Although we may deviate a bit here and there, you should assume probably that most of next year is already covered.

Okay, thanks.

And Nick, on your first question about Brazil, I think you put it very well. I mean, you have the soft economy. With that, we can't do much about it but, as you said, what are the tools that we can control and implement in the marketplace and that -- this year, 2014, has shown a lot of those tools. So the whole thing about trying to bring prices more in line with general CPI, after two years, 2012 and 2013, of doubled inflation because of taxes and so I think consumers had a little bit of a break this year.

Also, what we do in terms of returnable package introduction, the 300 ml together with the 1 liter, giving consumers different price points and given them a great price for the brands they love because -- as compared to the one-way package. Also the pack price strategy that we've used with the one-way packages in terms of trying to give consumers a better buy in supermarkets, varying 12, 18s, 24s, 2-for-3 buy packs, always with good margins for us, but also a good price for consumers.

Also with innovations. We see lots of innovations that we have in the pipeline, like Braham 0.0% that has an amazing result, 60% of the NA category. And also Skol Beats that's coming and the Skol Beats Sense that's coming on top of that. And that's all on the top of a premiumization that's taking place in Brazil. I mean we see that premium brands have grown 20% year to date. Budweiser is the clear number one now, be it among international premium or domestic premium brands, and that was not the case a year go. So the World Cup was a big help and the marketing investments, with Stella and Original also growing nicely and Corona now in the fourth quarter being intruded. So I think consumers in Brazil are also trading up, like in many other markets and we have the brands to offer and, again, 20% growth this year.

So, I think there are many ways for us to tackle this soft economy in the sense of giving consumers affordability, alternative price points and premium -- and brands that they love and that they keep coming back to. And this year was an amazing year of trying to rebalance this price share and preference in marketing investments equation. So we're very happy with what our team has accomplished in Brazil this year.

Okay, that's very clear. Thanks for all the color.

Thanks, Nick.

James Edwardes Jones, RBC.

Yes. Hello, Brito, and hello, Felipe. Your volume growth in 9 months was up less than 1% despite a 100 basis point increase in marketing and sales expenditure. How disappointed are you with this?

Hi, James. It's Brito here. I think we made a decision to increase, as we said last year in our outlook for this year, our sales and marketing investments for this year, 2014. Because first we want to continue to support our top line, a sustainable top-line growth for the future. Second, because we continue to see our brands with great opportunities for them to be bigger than they are today because we see programs behind these brands that deserve the support.

And third, because we saw this year a couple of opportunities that are unique for this year. So for example, we saw the FIFA World Cup as an amazing opportunity to -- in all markets around the world, including the US to our surprise, to get our brands -- to increase brand health and our volumes also to increase. And also to prop up big time Budweiser as a global brand. That was really very important for Budweiser as a global brand. And we do believe that there's global brand opportunities, one that deserves investment because there is a big net present value that can be associated with that as an opportunity.

Second, in the US we invested heavily behind Bud Light in the summer. And this is the first time we do it in many, many years because Bud Light has always been very associated with sports, and continues to be associated with sports, mainly the NFL, and those investments are not during the summer. So we saw for Whatever an amazing opportunity this year to break this trend and invest, as most brands do in the US during the summer, which is a peak consumption season, with the number one brand in the US and we did it and the results were amazing. Bud Light increased a full percentage point within the premium light segment over the summer. And by the way, has been up versus last year within the premium light segment every week year to date this year. So we're very happy with that and that builds an amazing platform going forward. And now we discover that, yes, summer Bud Light, number one brand in the US needs support. So, that's also one of the reasons.

We also took a decision to increase significantly our investments in the on-premise business in the US. The aluminum bottle was a key enabler for Bud Light for example in the on-premise. And our high-end brands are growing nicely back to growth, including the Ritas and the F&B categories. So that was nice to see the on-premise responding to our increased investments.

And last but not least, the whole thing about our digital strategies, that we've learned a lot in the last two years with the two Super Bowls and now the World Cup, breaking lots of paradigms in terms of numbers that were considered records. We're breaking all those records in terms of engagement and people we're reaching. And we see an amazing opportunity given all the content that we have, given our sponsorships and the millennials that we want to get closer to with brands like Bud Light. So again, we're very pleased with the results of the World Cup, with the Bud Light share and our on-premise and digital activations.

So, I think that answers your question on the reasons why we increased our sales and marketing spend a little for this year.

Is it fair to say then, Brito, that we should not expect a significant reduction in marketing expenditure next year?

Well, we're not giving you an guidance but it's fair to assume that the rebase that we did this year in sales and marketing is a one-timer and this is the new base. So of course you should not expect that same kind of rebasing every year, for sure.

That sounds quite good and thank you very much.

You're welcome.

Edward Mundy, Nomura.

Morning, gents. A couple of -- well, a first question really on US pricing mix. Just following up from Andrea's question as to what is a normal level of pricing mix. I think CPI's running at about 1.7%. And if you take out the discount from the first-time impact of the 25-ounce can, does that imply that revenue per hectoliter is running at about 2%? The first question.

Well, if I understood correctly the question, again, what we've said for the last two quarters, and this is true also for this quarter, is that the 25-ounce can is an amazing package that has been very important for the brands, but you had the effect of it being dilutive to top line but accretive to gross profit. And this would produce a negative package mix in the overall net revenue mix by quarter and that this thing would be cycled by the fourth quarter of this year.

With the price increase that was implemented in the US and the now cycling, full cycling of the 25-ounce can, we said we expect now fourth quarter more in line with quarters that we've seen before the 25-ounce can -- introduction, let's put it this way. So that's the total picture that we can give at this point. For example, the 25-ounce can had an impact of approximately 0.8 percentage point in our total mix. So as you cycle that impact, that will float to the net revenue per hectoliter, for example.

Thanks, Brito. That's very clear. So if I take that all together, if you take let's say CPI of 1.7% and then the 25-ounce can impact of 0.8%, that gets to a range of about 2.5%, which is still slightly lower than the 2013 revenue per hectoliter of 3.1%; 2012, 4.9%. I mean are we looking at a range of between 2% and 3% as opposed to the 3% to 4% range going forward?

Yes, yes. We're not giving guidance. And then just remember that there are many other impacts in the net revenue. I just mentioned one package, but there's also brand channel, many other impacts, region; many other impacts to get to a total number. But again, no guidance at this point.

Okay, thanks. And just as a quick follow up on Brazil, you mentioned that your market share's at the top end of the range after a pretty successful execution during a World Cup year. What risk do you see of competition pushing the pricing lever to regain some market share?

Well, it's impossible to talk about competition. We never talk too much about pricing. That's a regional decision of our guys in each country. But what you can see is that -- of course and then the net revenue per hectoliter in Brazil being this low and this share being this size in terms of our range to 67% to 69%, that is pointing to some options that we have to -- for (inaudible) management going forward. And more importantly, I would stick to the guidance that our colleagues from Ambev gave in terms of top line for the year, which is at the upper end of the high single to low double-digit growth for the year. So that guidance remains. And if you put all that together and calculate for the fourth quarter, you can come to some conclusions there.

Thank you.

Thank you, Ed.

Trevor Stirling, Bernstein.

Hi, Brito. Hi, Felipe. Two questions from my side, please. The first one, in OB the revenue was higher in this quarter, I presume seasonal effects playing there, but margins were quite a lot lower and I was wonder whether a one-off impact had either increased the Q2 margins or decreased depressed Q3 margins.

Well, Trevor, OB is a new business for us in the sense that we [haven't] been absent from that market for five years. It's (inaudible) organic figures so we're still not giving a lot of details on there. But what you can see in terms of our Korea business is that our market share is flat year on year, okay, in terms of third quarter. We have very strong brands in Korea. That was an issue there in terms of some of our flavors that we had during the third quarter. That was dealt with. That impacted a little bit the financials because of some product changes that we had to do but this is all over and Cass is back to growth and that's what matters. So again -- but that still would be true to the scope and the same way M&A in China as we include that scope. So you shouldn't read too much into the scope line at this point because there is also M&A in China in there.

Okay, thank you. And my follow-up question, Brito, Constellation had a problem with glass supply and I presume that was mainly coming from Modelo or former Modelo factories. Is there a possibility of a charge in the future in terms of compensation to Constellation?

Hi, Trevor. Felipe here. We are -- today we have been in talks with Constellation and working together. The focus was first to get the issue addressed and it was properly addressed and we confirm we are currently under discussions with them to resolve this matter. But we cannot anticipate the outcome of that discussion at this point.

Understood, Felipe. Thank you very much.

You're welcome.

Chris Pitcher, Redburn.

Good afternoon, gentlemen. A couple of questions from me. I mean first on Brazil. Brito you mentioned back to Ambev's guidance. In terms of the change between Q3 and Q4, you talk about innovations. You've sort of hinted with your market share up where it is at the moment, perhaps there's a price increase. Can you give us a bit more color on how that fourth quarter is expected to improve on the third quarter within the context of the soft consumer backdrop?

And then, secondly, a question for Felipe. You talk about the optimum capital structure for the group, but could you give us a feel for what the optimum capital structure is between Ambev and ABI because there was the cash file that Ambev sold quite a bit in this period and whether it's -- we go back to the old days of 1 times net debt to EBITDA at Ambev. Thanks very much.

Hi, Chris. Felipe here. Let me address your second question. Given the fact that in Brazil there is this notion of interest on all capital in which equity is treated as debt for tax purposes. That is the reason why the optimum capital structure for Ambev in Brazil is significantly lower in terms of leverage, net debt to EBITDA, as compared to ABI consolidated. In fact, ABI consolidated is also impacted by that as you would assume that the regular leverage level should have been, under normal circumstances, well above 2 times, perhaps between 2.5 and 3, that if we were to isolate the impact of this benefit that is currently in Brazil. So Ambev is managing its capital structure within what is best for that business and the same we are doing here at the ABI level.

But specifically, I mean when you talk in terms of dividend increases and buyback, we should be assuming the same at the Ambev level as well? I mean the scope to buy back shares and increase dividends there.

Well, is for the Board to decide. The best way to return the cash to shareholders is being buybacks of dividends and what kind of leverage each company is going to have. We feel comfortable around 2 times. The ABI (inaudible) and Ambev feel comfortable with the levels they are currently in. As you pay attention on what is being paid out in terms of (inaudible) capital as a way to maximize the tax benefit there is a significant increase year over year and that's been the most effective way to return cash to shareholders at this point.

Okay. Thank you.

And Chris, on your first question about fourth quarter in Brazil, I mean we reiterate that guidance. It's a pretty detailed guidance, but we're not talking adding anything to it at this point.

Okay. Thank you.

Anthony Bucalo, Santander.

Good afternoon, everyone. This quarter it looked like the value brands in the US had a very positive impact on your market share, your overall market share in the industry. The last five years or so you've deemphasized the value brands but it looks like they may be one of the most constructive part of your market share formula here. Are you going to allow the value brands to maybe breathe a little bit more in the market share side and could you see yourself investing in those, or do you think it will be steady as she goes, as we've been the last few years?

I think, Tony, the value brands were helped as well by the 25-ounce can introduction. And of course it's still an important part of our business, so of course we want to have our fair share there. We're not going to be doing investments as we do in the other segments, but we need to do a minimum to maintain a business that's a very good business overall; not the kind of business we want to grow, but we have great brands. We have the three top brands in that segment and this segment will continue to have our fair share in that segment. So not a focus, but something we need to maintain, of course.

Okay. Do you need that value volume as a way to meet your fixed costs and to make yourself efficient from an industrial standpoint?

Sure. I mean that's 25% of our volume, so I mean of course that helps pay the bills, especially because we don't invest much in terms of marketing. So despite having a lower consumer price which we don't like, and that's why in the last few years we have narrowed that gap, the margins are better than you would expect because we don't investment much marketing in sales.

One quick follow up. What do you expect Joao to focus on when he gets up and running in North America?

Well, Joao will focus on what Luiz is focusing and that is Bud Light growth, Budweiser stabilization, high end growth and the on trade focus. Those are pretty much the -- and of course now we have the Montejo brand and other brands that will come in Mexican import segment. So those five are key for him to focus, as they were for (inaudible).

This quarter and this year we're really very happy with Bud Light. I mean it's amazing to see a brand that has close to 20% share of total market in the US, in a very fragmented market; being able to grow within its segment like Budweiser did, every week this year up to September, to which we have data. And that has proven to us that every time advance your base brands consumer come. And the aluminum bottle is a great thing. The Up for Whatever was an amazing campaign with lots of mileage.

And the summer; again, the biggest brand in the US was never supported in the summer, (inaudible) August. But this year we decided to support it in the summer and guess what? The results are there. We gained 1 full percentage point within the share of segment -- within the premium light segment. So I mean that's focus number one. Bud Light has to work and when Bud Light is healthy everything is in a much better place. Look at what happened to our share this quarter. It went from a very negative 65 bps loss to a 30 bps loss with the way we think is a sustainable way. So I think Bud Light, high end, on trade, and Budweiser and now the Mexican segment. Those are the five top priorities.

Okay. Thank you, Brito.

Thank you.

Sanjeet Aujla, Credit Suisse.

Hey, guys. Can you just talk a little bit about the recent decision to outsource your media buying in the US? Should we expect that to lead to incremental efficiencies? And by way of a follow up, can you just clarify whether you actually gained share in the US at on-premise and, if so, by how much did you gain? Thanks.

Well, Sanjeet, in terms of media buying, as you know, we've been buying media with the Busch Media Group for many years and (inaudible) company. But as the media landscape changed, what we see is that the Busch Media Group that was very, very good at buying at sports and traditional media on TV was not as well equipped -- because of the volume they buy and not because of anything else, but because of the sheer scale of these other new medias.

So we decided to look around and we found, of course -- we did a benchmark and we found other media companies that their sole purpose in life is to plan and buy media. And when you look at [AWPT], the biggest in the world, of course they buy media at a better price, especially the new digital and alternative medias, compared to Busch Media Group that only buy to ourselves. So that was a clear decision that maybe five years ago, when the media landscape was a different one, the decision was not that clear, but today is very clear. And that will be great because a lot of the savings will be pumped back from non-working money to working money and will increase media pressure for the same amount of money. So with the same amount of money we're going to have more media pressure next year, for example, and that's great for the business. So we're very happy with this change. Busch Media Group did an amazing job for many years and now it was time to change.

Thanks. And then just the clarification on the US on-premise. Did you gain share in that channel and, if so, by how much?

Our trends are much enhanced; much enhanced, but we're not giving any numbers at this point. But the trends are much enhanced. We're very happy with it. And again, Bud Light, the aluminum bottle, the high end, the [dance] that people got -- we hired at the beginning of the year to be more focused on the on-premise. And we'll remain focused because that's a very important place for you to come with innovation, to create high-end brands, to get consumers to experience those brands. And today's millennials, it's all about experiential and the (inaudible) is the place to give them what they're looking for.

Great. Thanks.

Simon Hales, Barclays.

Thanks for taking the question. Good morning, Brito. Good morning, Felipe. A couple of questions if I can just around Mexico. Brito, I wonder if you could talk a little bit more about the volume performance in the quarter, where you really were seeing share gain, perhaps regional differences in the performance there.

Secondly, around just the cost saving delivery for Mexico. How should we really think about this in future quarters now? I appreciate that, obviously, you had a tough comparative in the most recent quarter from a cost saving delivery point of view, but should we be thinking about single, tens of millions of delivery per quarter going forward, a much slower rate than we have done historically?

And then just finally, just a clarification on Mexico. Could you just tell us what the scope change was in Q3?

Okay. So, let's start with Mexico. I mean very happy with the progress in Mexico. And this has been the best quarter in terms of top-line performance in Mexico in the industry. Our volumes are up 2.9% in the third quarter. Our focus brands, Corona, Corona Light, Bud Light, Victoria growing ahead of that. The Corona family, for example, growing by 4.6% in the quarter, 8.3% in the 9 months. Bud Light doubling the volumes compared to the third quarter last year. And Victoria responded very well with the package innovation and a new refresh of it's campaign, talking a lot about Mexican heritage and pride. So, I'm very happy with that. And also, with our (inaudible) revenue per hectoliter. That grew 4.4%, which is (inaudible) inflation of 4%. And that has a lot to do with brand mix as well, especially driven by the strong performance of Bud Light.

So that, all in all, got EBITDA to grow by 16.5% on top of a 46% growth in the third quarter last year, with more [expansion] this year of 350 basis points getting to 50.2%. So I mean very happy. And year to date EBITDA is up 25.8% with 775 bps of margin expansion for a 47% margin.

In terms of your second question--.

Yes, the scope change one, and that is primarily linked to the disposal of our convenience chain in Mexico called Extra. So as the deal has closed, we moved that into the scope column.

And your other question, Simon, about the synergies, I mean our guidance is to deliver $1 billion of cost synergies by the end of 2016, with the majority coming by the end of 2015, so therefore next year. So we remain committed to that target. And just to put all the numbers together, with this quarter we have already delivered $725 million in less than 18 months since the closing. That is more than 70% of the overall synergies in less than 50% of the time. And the cost changes, as I said at the very beginning, will be a combination of cost of sales and overhead; approximately 45% comes from cost of sales, the remaining 55% from overhead.

And again, some of the synergies are quick wins, so they came very fast and ahead of plan in the first few quarters. Other ones that you have to invest in CapEx, that you have to train people and even change some people so they're far more complex and will come in the next few quarters. But again, synergies. We remain committed to $1 billion, most of them by the end of next year. It's not going to be the same number every quarter. Just remember that in the first few quarters we blew out of the park in terms of synergies being way ahead of plan. Now we are in-between low hanging fruits and more tougher to get ones that require CapEx and training and change of people and technology. So, that's why you have this in between quarter like this one.

Perfect. Thank you.

You're welcome.

Caroline Levy, CLSA.

Good afternoon, everyone. Good morning or afternoon, wherever you are. My question is also around margins. There seem to be a number of different moving parts as you look ahead, be it the US, Brazil, Mexico, China. One thing that appears to be under pressure in the US, for example, is transport cars, even though fuel is coming down. So I'm just wondering if you look at the big puts and takes on the margin outlook, for let's just take your major markets, US and Brazil, do you see significant upside from current levels over the next several years or do you think it's more about maintaining margins at current levels?

No, no, no, no, Caroline. Hi, Brito here. We continue to see margin upside as we've always said. Not every quarter, not in every zone, not every year, but that has been the trend. We've been in the business now for 25 years. That has been a consistent trend of margin improvement.

And if you talk about transportation costs in North America, you had a couple of things that made the market tight this quarter for us. I mean we had -- first we had to buy some spot lanes outside of our contracts because of some short supply in some lanes that were important to us, so something that's a one-off. You're right about the fuel going down; that should benefit. We're also implementing some new ways of looking at our overall production capacity in the US and warehousing to make transportation more flexible so we don't -- we're not forced sometimes to go to the spot market and we can stay within the contract lanes. So that's something that is kicking in is a software that gives us the overall picture of the US and allow us to play a little bit more with inventories than we do today. Today we do a lot from the line straight to the truck and that sometimes puts some pressure on us having to hire from spot if the contracted transportation company is not available on that specific slot.

So in Brazil, also remember that transportation is up also because of -- as increasing our direct distribution. That increased from 67% to 70%. And we also have the annualization from what it increased this year over last year. So transportation in Brazil we have to look in conjunction with the net revenue because it just changes line with the benefit to us overall net/net. That's why we do it and we've been doing it for many years.

In the US there was also the Montejo launch that impacted this quarter because we brought inventories ahead of the launch. So the sales are maybe spread out through other months, but the inventory was brought all in one month. And because of the tight supply in Mexico with the Corona and the exports we had to bring from breweries that were not exactly the closest ones to the border. So I mean a lot of things that happen with you launch products. And also retain your flavors. So I mean all those things, again, a perfect storm in terms of transportation costs for the US this quarter. We don't expect that going forward by any means.

Thank you. And just to follow up on someone else, they asked about what might change under new leadership. There have been -- you've shifted some people around. And nobody operates the same way as somebody else exactly, so just any sense of what you could see changing in the US and Brazil over the next couple of years?

Well, I think -- I mean this kind of leadership rotation that we do is part of our culture. We believe that for you to create leaders or better leaders you have to give them exposure to new markets, new situations, take them out of their comfort zone and that's what we're doing. So every five, six years that's what we do. This strategy is a long-term one so. So it's not because of a people change that we're going to change strategies. But of course, when you get a new set of eyes coming from different markets people come with new ideas and they challenge things that maybe haven't been challenged and that's always the case so that's always healthy.

Thank you.

You're welcome.

Alice Longley, Buckingham Research.

Hi. Thank you for taking my call. My question is about the volume for the US industry. It was I think negative 1.3% and you pointed out that it was worse than year to date. And that's a little different from what we've been getting from other staples companies talking about their sectors getting a little better here in the US in the third quarter. And could you comment on that? And if it had something to do with the World Cup then -- boosting numbers earlier in the year, then the follow up would be what is the sustainable volume for the industry here in the US? Is it negative 1% to 2% do you think it's more closer to zero for the industry? Thank you.

Well, Alice, it's Brito here. I mean just to recap on the numbers, so STRs down -- for the industry -- down 1.3% in the third quarter and 0.8% for the 9 months. But what we said is that year to date it's better than what it was the same year to date last year. So last year the decline for the first 9 months of the year was 2.2% decline and this year is a 0.8% decline, so way better. So that's why we said -- and that was the outlook we had at the beginning of the year, that we expected the US industry to get to a better place. It's too negative, but getting better. So that's what the numbers will tell us.

Do you think the norm is negative 1% to 2% or closer to zero?

Well again, we're not giving guidance at this point, but what we see is encouraging because, again, as the economy gets better, of course that will help us. The economy of course could get better -- could be getting better to our consumers at a faster pace because our consumer base is not necessarily the ones that are taking all the advantage of the overall economy getting better, but they are taking some and I think that's reflected in an industry 9 months year to date from last year negative 2.2% to this year negative 0.8%.

Well was that negative 0.8% maybe helped by the World Cup and will worsen next year without the World Cup?

No. Again, we're not giving guidance to next year. The World Cup in the US, as you know had an effect, but it's nowhere near the effect it has in all other markets in the world. I mean in the US the World Cup is growing as something that people care but, still, I mean it cannot compare to Latin America, Europe, Asia.

Thank you.

You're welcome.

Robert Ottenstein, ISI Group.

Thank you very much. Two questions. Brito, the market share trend in the US was very impressive and you mentioned that you thought you had done it in a sustainable way, which is also very important. Do you have the sense that perhaps you're close to a tipping point in terms of at least getting to on kind of a forward basis close to kind of maintaining market share now?

Well, Robert, our -- the place where we're headed is market share stability, for sure; doing it the right way. And what we see time and again is that, whenever Bud Light does well, that is a great step in that direction. And I think what we saw this quarter is, with the investments we did and the aluminum bottle, during the summer, and the campaign that's very healthy and doing well, the Up for Whatever, we saw that Bud Light performed well. Again, gain share every week this year, year to date September; every week according to IRI. And that, of course, has a big impact on the overall share equation; that together with Ultra, high end and value in terms of our fair share. So that's what I meant by getting there the right way.

Alright. But do you feel that you've reached some kind of tipping point in this sense in terms of your brand momentum now?

No, we're not giving that kind of guidance, but we feel that the on-premise now is reacting to our investments and that's an important piece in the whole equation. And Bud Light also much better than previous years and that's also important.

Terrific. And then, Felipe, on the CapEx you lowered the guidance a little bit. Is that because of weak volumes or you think you can do it for less, or are you pushing out to next year or anything else?

No, no. As I've said, we reduce that a little bit. Is less than 10%. And that is the combined impact of procurement efficiencies by securing same projects as -- while spending less than originally expected, as well as the timing of certain investments. So no change in the amount of investment. It's just a fine tuning from around $4 billion to around $3.7 billion. It's just to be precise, but is not relevant in the big scheme of things.

Terrific. Thank you very much.

You're welcome.

Well, that concludes our call. Thank you very much for your time. Next call is on February 25th next year and I speak to all in New York (inaudible) days, but have a great day and see you next quarter. Thank you. Bye-bye.

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

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