Anheuser-Busch Inbev SA (BUD) 2015 Q2 法說會逐字稿

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  • Operator

  • Welcome to the Anheuser-Busch InBev second quarter 2015 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 24, 2015.

  • 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.

  • Carlos Brito - CEO

  • Well, thank you, Jackie, and good morning/good afternoon, everyone, and welcome to our 2015 second quarter results conference call.

  • I will start with the highlights.

  • The second quarter was challenging, with tough comps from the FIFA World Cup last year and weak economic conditions in a number of our markets.

  • Unfavorable weather, especially in the US and China, added to the pressure.

  • Nevertheless, our strong portfolio of brands and our geographic diversification enabled us to withstand these headwinds and deliver solid revenue growth.

  • We entered the second half with momentum behind our brands and commercial initiatives and have strong plans in place to accelerate revenue growth.

  • Total revenues grew by 4.1% in the quarter, with strong revenue per hectoliter growth of 7.1% on a constant geographic basis helping to offset the decline in total volumes of 2.2%.

  • Volumes of our focus brands were down 2%, but our three global brands grew by 6.4%.

  • EBITDA grew by 4.6%, with EBTIDA margin expanding by 17 bps, to 37.6%.

  • Normalized earnings per share decreased to $1.21, from $1.60, due to unfavorable currency translation, one-off items, and higher net finance costs, all of which Felipe will explain in more detail later.

  • Each of our three global brands performed well in the quarter, with combined volumes up more than 6%.

  • Corona volumes grew by 7.8%, driven by great performances in Brazil, Canada, UK, and our global export markets.

  • Corona is being rolled out globally, with a consistent position and execution.

  • We're very excited about the growth potential for this unique super-premium brand.

  • Global Budweiser grew by 6% this quarter, on top of 6.7% growth during the World Cup last year, led by China and a very encouraging performance in the US, which I'll talk some more later.

  • Finally, Stella Artois grew by 4.9%, with good results in the US, Argentina, Canada, and the UK, centered around the [Chalice Program] and the brand's association with the world's greatest events.

  • Global brand volumes are up 5.6% in the first half of the year.

  • More importantly, revenues are up 10.7% in the same period.

  • So, a great result.

  • All three brands have good momentum and will continue to fuel the fire.

  • Turning now to the results in the US.

  • The US economy continues to improve, but weather was a major negative factor for the industry in the quarter, with May being the wettest month in well over 100 years.

  • June weather was also poor.

  • We estimate that industry sales to retailers, STRs, were down approximately 1% in the quarter.

  • However, we continue to see improving trends in the industry for the full year 2015, despite the weak performance in May and June.

  • Our own STRs were down 2.2%, an estimated share loss of approximately 55 bps, nearly half of which is explained by a disappointing result by the Ritas.

  • Our above-premium brands continue to gain share, and we saw much improved share performance from Budweiser during the quarter.

  • Our premium-light and sub-premium brands lost share in the quarter, although after the first six months Bud Light's share within the premium-light segment is stable and we have gained share in the sub-premium segment.

  • Our sales to wholesalers were down 1.1% in the quarter, with total revenues essentially flat.

  • Revenue per hectoliter grew by 1.2% in the quarter, consistent with the first-quarter trend, although the contribution from brand mix was below our expectations due to the performance of the Ritas.

  • EBITDA for the US was down 6.9% in the quarter, with more than half of this decline due to a one-time benefit of $57 million recorded in cost of sales, which Felipe will explain later.

  • Turning to the performance of our brands in the US now.

  • Bud Light had a challenging quarter, as the brand faced a difficult comparable with the second quarter last year benefiting from the first-ever "Whatever, USA" activation, the launch of the aluminum bottle and the 25-ounce can, plus the World Cup last year.

  • Nevertheless, we know we can and must do better with Bud Light.

  • Brand health indicators are improving significantly year over year, and our programs are resonating with young adults.

  • The second edition of "Whatever, USA" held in late May, on Santa Catalina Island in California, for example, was a big success and is a major reason for the improvement in brand health.

  • Looking forward, we have strong programs in place for the second half of this year.

  • The aluminum bottle is performing very well, and we'll be increasing the investment behind this package, going forward.

  • We also have a very strong integrated NFL program lined up for the upcoming season.

  • Turning to Budweiser, Budweiser delivered one of its best volume and market share results in recent years.

  • We estimate market share was down around 15 bps in both the quarter and the half-year, amazing improvement from the declines of 80 bps we saw at the time of the combination back in 2008.

  • And according to IRI, the brand grew volume in the quarter, with share almost flat in recent weeks.

  • This result is being driven by strong campaigns which focus on the brand's quality and heritage credentials, messages that are resonating well with consumers of all ages.

  • The "Brewed the Hard Way" campaign, in particular, has struck a chord with many beer drinkers, and we have been very disciplined in continuing that message through the [Bubanbardus] summer campaign and our "Made in America" program.

  • The increased investment behind the brand is making a difference, and we will continue to put dollars behind initiatives that are working, like this one.

  • It's also important to note that wholesaler and retailer support for our Budweiser programs has been strong, with very good execution in the marketplace.

  • This is a critical component of the brand's success.

  • We still have a long way to go to stabilize Budweiser market share in the US, but we intend to keep this momentum going and have strong programs in place for the rest of the year which build on the quality and heritage messages.

  • Our portfolio of above-premium brands continued to perform very well, with market share growing by approximately 35 bps in the quarter.

  • These brands have also played an important role in driving our overall performance in the on-premise, where we estimate we have gained share in each of the last five months.

  • Growth in above-premium is being led by Michelob ULTRA, with STRs growing double digits in the quarter.

  • Michelob ULTRA is on fire and benefiting from the increased investments we're putting behind the brand this year.

  • It's the fastest-growing brand in the US overall in terms of absolute volume, with the growth being driven by the brand's unique positioning as an active lifestyle brand and with an amazing taste.

  • Stella Artois and Goose Island are also performing very well, with STRs increasing double digits and Goose Island IPA growing triple digits year to date.

  • In fact, volumes in all of our new craft partnerships -- Blue Point, 10 Barrel, and Illusion -- are showing good growth and making important contribution to ours and our wholesalers' portfolios.

  • Overall, the above-premium portfolio is performing well, although we have work to do on the Ritas, which are falling short of our expectations.

  • Moving on to Mexico.

  • We are very pleased with the results in our Mexican business, which delivered another solid results in terms of volume, revenue, and EBITDA growth.

  • Volumes grew by 4.1%, despite both an earlier Easter holiday this year which pulled volume into the first quarter, as well as the impact of the World Cup last year.

  • Revenues were up by 7.9%, supported by strong revenue per hectoliter growth of 3.5% driven by our revenue management initiatives and favorable brand mix from the growth of Bud Light.

  • This strong top line result and the delivery [of] $30 million of cost savings -- which brings the total to $770 million -- led to growth in EBITDA of over 14% and margin expansion of more than 300 bps, to 53.9%.

  • Volumes of our focus brands, which represent almost 90% of our Mexican volumes, grew by 6.1% in the quarter.

  • This growth was led by Bud Light, which is up double digits in both the quarter and the half-year, and a great performance by Victoria.

  • The Corona brand also performed well, despite cycling a tough World Cup comparable.

  • Turning to Brazil.

  • Beer industry volumes came under pressure in Brazil due to very difficult World Cup comps and a weak macroeconomic environment.

  • Our beer volumes declined by 8.6% in the quarter, although we estimate that 5.5 percentage points of this decline, or over 60% of the decline, can be explained by the tough comparable from the World Cup.

  • We estimate our market share reached a level of 67.6%, down versus the second quarter of last year when we delivered good share gains thanks to our World Cup activations.

  • Our beer revenue per hectoliter result was very solid, with growth of 15%, reflecting our revenue management initiatives, increased [on-distribution] volumes, and premium brand mix.

  • We also faced an easy comp versus last year, with beer revenue per hectoliter growing by only 3.8% due to promotion activity at the time of the World Cup.

  • The two-year compounded growth rate is around 9.2%, though.

  • We continued to gain share in soft drinks and reached an all-time high level of almost 20% during the quarter, driven by strong performances from Pepsi and Guarana Antarctica.

  • This balanced top line result and an easy comp for sales and marketing related to the World Cup helped to grow EBITDA in Brazil by 9.3%, with margin expansion of over 200 bps, to 46.5%.

  • The macroeconomic environment in Brazil remains challenging, and in this context our commercial focus is to maintain a healthy balance between volume and revenue per hectoliter growth, building on our affordability and pack-price strategies, supported by very strong disciplined field execution.

  • At the same time, we will continue to elevate our [core] brands -- Skol, Brahma, and Antarctica -- in the minds of our consumers, building on the strong consumer preference that these brands have built over many years.

  • We're still seeing significant increase in demand for premium brands in Brazil.

  • So, we're also accelerating investments behind the growth of our premium brands.

  • These include not only our three global brands -- Budweiser, Corona, and Stella Artois -- but also our domestic specialty brands and some of the brands in our recently acquired craft portfolio.

  • Finally, we're seeing near-beer occasions to gain share [of throats].

  • We are already enjoying good success with Skol Beats Senses and Brahma Zero Zero and have a strong pipeline of innovations to come.

  • Year to date, our revenues in Brazil are up 7.4%, and we are retaining our guidance for mid- to high-single-digit growth for the full year.

  • Moving now to China.

  • In China, cool weather across the country and economic headwinds led to a decline in industry volumes in the quarter.

  • We estimate industry volumes were down by over 6% in the quarter and over 4% year to date, with most of the impact being felt in the value and core segments.

  • Our own beer volumes were essentially flat in the quarter and up 1.7% year to date.

  • We estimate that our market share grew by 100 basis points, to 18%, in the quarter, led by our premium brands.

  • Budweiser, in particular, remains the engine of growth, with volumes up double digits in both the quarter and half-year.

  • China EBITDA increased by 12.1%, with EBITDA margin up 139 bps, to 26%.

  • Despite the headwinds in the economy, we continue to invest behind our three focus brands -- Budweiser, Harbin, and Sedrin -- which represent 72% of our volume in China and which grew by 3% in the quarter.

  • Budweiser delivered a great result in the quarter and continues to strengthen its leading position in the premium segment.

  • During the quarter, we stepped up support for our "Brewed the Hard Way since 1876" quality campaign, which included over 12,000 "Brewed the Hard Way" market activations.

  • In summary, our strong portfolio of brands and geographic diversification enabled us to deal with tough comps and difficult trading conditions in a number of our markets in the second quarter.

  • We started the second half of the year with good momentum and will continue to invest behind our brands.

  • We have strong plans in place to accelerate revenue growth in the second half of this year.

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

  • Felipe?

  • Felipe Dutra - Chief Financial and Technology Officer

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

  • Slide 15 shows the EBITDA breakdown by zone for both the second quarter and the half-year.

  • Total Company EBITDA grew by $207 million, or 4.6%, in the quarter.

  • However, as Brito mentioned earlier, the second quarter results last year included a one-time benefit of $57 million relating to the reversal of medical expense accruals in the US.

  • This one-off last year has the effect of reducing underlying EBITDA growth for the total Company in the second quarter this year by 1.3 percentage points.

  • Sales and marketing investments increased 1.3% in the first half, on top of a 13% increase in the same period of last year driven by the World Cup.

  • We are continuing to invest behind our brands, and we are maintaining our guidance for full-year growth in sales and marketing of mid to high single digits, implying double-digits growth in the second half in support of the total revenues acceleration.

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

  • Normalized earnings per share decreased to $1.21, from $1.60 in the second quarter last year.

  • This decrease was due to an improvement in EBIT of [$0.14] per share being more than offset by unfavorable currency translation -- particularly the Brazilian real, the Mexican peso, and the euro -- negative scope changes, and higher net finance costs.

  • The main item included in the scope changes relates to a one-time accounting adjustment of $223 million which was reported in the second quarter last year following an actuarial reassessment of future liabilities under our post-retirement healthcare benefit plans in the US.

  • This adjustment was included in the results of North America last year as a positive scope change in non-operating income and therefore excluded from organic growth.

  • Accordingly, second quarter results this year include a negative scope change of the same amount.

  • Net finance costs in the quarter were $554 million, compared to $382 million in the same period last year.

  • This increase of $172 million was due to the negative impact of mark-to-market adjustments linked to the hedging of our share-based payment programs which led to a negative year-over-year swing of $483 million.

  • This results from a reported loss of $139 million in the second quarter this year, compared to a reported gain of $344 million last year.

  • This negative swing in the mark-to-market adjustment was partially offset by positive currency results and other hedging costs of approximately $209 million and lower net interest expense of $90 million.

  • Our normalized effective tax rate for the second quarter was 17.2%, down from 18.1% in the second quarter of 2014.

  • This increase is mainly due to the favorable impact of country mix, partially offset by the negative impact from the mark-to-market adjustments related to the hedging of our share-based payment programs.

  • As a result of the year-to-date performance, we are amending our normalized effective tax rate guidance for the full year 2015 from a range of 22%-24% to a range of 20%-22%.

  • As a reminder, this guidance continues to exclude the impact of any future gains and losses related to the hedging of our share-based payment programs.

  • Slide 19 shows cash flow generations for the first half of the year.

  • Cash flow from operating activities was $4.7 billion in the first half, flat with last year despite considerable foreign exchange headwinds.

  • Free cash flow, which we define as cash flow from operating activities before interest but after net CapEx, decreased from $4.3 billion to $4 billion in the first half.

  • At the end of June 2015, our net debt to EBITDA ratio was 2.48 times on a reported basis, compared to 2.27 times at the end of December 2014.

  • The increase in the ratio during this period is due to the normal seasonality of our cash flows and the impact of currency translation on our reported EBITDA not fully offset by the currency impact in our outstanding net debt.

  • Our [cash allocation] objectives remain unchanged.

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

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

  • We do not feel any pressure to do deals, and there is no [predetermined] time table.

  • We recognize the [growth of growing] dividend over time, consistent with the low volatility of a non-cyclical business.

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

  • Our optimal capital structure remains a net debt to EBITDA ratio of around 2 times.

  • At this level, the return of cash to shareholders is expected to be consisting of both dividends and share buybacks.

  • And with that, I will hand back to Jackie to begin the Q&A session.

  • Thank you.

  • Operator

  • The floor is now open for questions.

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

  • (Operator Instructions)

  • Mark Swartzberg, Stifel Financial.

  • Mark Swartzberg - Analyst

  • Really, two questions.

  • One is pertaining to Brazil and one is pertaining to cash returns.

  • In the instance of Brazil, obviously you've been dealing in an inflationary environment for some time now and your experience dates to periods when today's inflation would be considered low compared to some of the things you've seen.

  • And you're adapting well.

  • But I wonder, as you think about the multiyear strategy for that market, if you could share a little bit more than we've heard so far about what the multiyear strategy there is, given that we are in this no-growth, increasingly inflationary environment?

  • And then, on cash return, I appreciate the reiteration of the targets here.

  • What I'm still scratching my head on is the choice not to have some additional share repurchase as a target, appreciating that a target is not the same as a commitment.

  • But you completed the $1 billion; I know that was for incentive purposes to reward people.

  • But I'm still not quite following why we haven't heard more about your share repurchase intentions from here.

  • Carlos Brito - CEO

  • Brito here.

  • In terms of Brazil, our team in Brazil at the beginning of this year decided once again, because we've been through tough macroeconomic situations before and the team has experience with that, that we would not be part of the crisis.

  • So, by that I mean that we would focus on our programs, try to out-execute competition in the marketplace, out-think in terms of strategy and how to adapt programs given the macro in terms of doing what we can control.

  • So, we've been in Brazil now operating for 26 years, and we know that in a market like Brazil or some others in Latin America every five years, or so, you'll have a period like this one, in that things kind of go sideways or even backwards.

  • But then again, the math is very positive.

  • It has always been.

  • And we say that because it's not going to be a year or two of turbulence that will change the fundamentals in Brazil that are very clear -- when you look at demographics; when you look at beer culture in Brazil; when you look at the core brands that we have that are very strong and that we can continue to grow; when you look at the premium that finally in the last two years have kind of woken up and now it's time to grow; when you look at the premium -- when you talk to consumers, 20% of the total preference of consumers (inaudible) all linked to premium brands.

  • And today, we're gaining share in the premium segment, but premium is only 8.5% of our mix.

  • So, you see lots of room to grow with better top line and macro.

  • When you think about, near beer is another big opportunity.

  • You look at Skol Beats Senses, you look at Brahma Zero Zero -- [so, non-alcohol] and near beer in terms of tapping volume from mixed drinks.

  • Skol Beats Senses is doing very well.

  • So, near beer, again, it's highly incremental, very profitable.

  • It's something we haven't done before, and we feel we have the brands to do it and now the knowledge because of all the things we've done in other markets.

  • And you look at the in-home location.

  • The whole thing about the returnables, that's where the experience of our guys and the scale and the strength of the brands play an amazing role.

  • For example, in the off-trade, affordability is a big component of our strategy.

  • But in the off-trade, for example, up until last year when you took the whole of off-trade, returnables, which offers a very good price for consumers because of the packaging that come and go, was only 3% of the mix.

  • Today, in just a year, it's now 15% of the mix of the off-trade, and it's growing, continues to grow.

  • So, that's an amazing opportunity that we have, that our brands and scale can afford us to do and that talks to the in-home location.

  • When you talk about out-of-home, we have initiatives like Skol Draft, which is extending the draft -- it has been only for Brahma -- now to Skol in a different proposition in the Skol [cube], which is getting that consumer experience of cold beer to a whole different level again in the on-trade.

  • So, I think those are the things that lead us to believe that even in a tough economic environment we can have affordability, our core brands.

  • Premium will continue to grow, because a lot of people are not as affected in this tough economic times.

  • Near beer, again, highly incremental.

  • And the in-home, with returnables strategy.

  • So, again, in summary, a team that's experienced in terms of tough economic times.

  • A decision made early on to not whine about things but focus on the things we can influence and execute, and execute better than competition.

  • And the things I just told you in terms of (inaudible) and fundamentals that are not going to change because of one year of turbulence in the macro environment.

  • So, those are the things that make us feel good about Brazil in the mid and long run, as we've always felt.

  • Mark Swartzberg - Analyst

  • That's great.

  • That's great.

  • Very helpful.

  • Felipe Dutra - Chief Financial and Technology Officer

  • Felipe here to address your second question on cash returns.

  • Our capital allocation priorities remain unchanged.

  • When we announced the $1 billion buyback program, we made it clear that it would be driven by our share delivery commitments, more than capital structure allocation.

  • And as the first $1 billion was completed, the shares acquired fulfill our immediate commitment under the stock ownership plan.

  • There will be future commitments, and the Board will be constantly evaluating capital structure and taking into account these delivery commitments which will drive decisions going forward.

  • But at this point we didn't feel necessary to launch a new program.

  • Mark Swartzberg - Analyst

  • So, is it reasonable to think that come the October release or early November release when you have a Board meeting that that's a more reasonable time to get an update on the amount of dividend and repo from that point forward?

  • Incremental to what's already been put out there?

  • Felipe Dutra - Chief Financial and Technology Officer

  • We will see.

  • We manage it very closely.

  • We monitor it very closely.

  • And if the Board concludes that makes sense to do anything, a decision will be made.

  • But I cannot speculate on whether or not the decision will be made at that point.

  • Mark Swartzberg - Analyst

  • Fair enough.

  • Okay.

  • Operator

  • Edward Mundy, Nomura.

  • Edward Mundy - Analyst

  • From recollection, about 40% of your COGS in Brazil, I think, are hard currency denominated.

  • I was wondering whether you could provide some color on the various levers, both on the commercial side and cost side, you can pull in Brazil to offset the negative transactional risk on this hard-currency-generated input costs into 2016, given the recent devaluation of the Brazilian real?

  • Carlos Brito - CEO

  • Well, I guess, we have --.

  • As you said, part of our cost of sales is dollar-denominated, 40%.

  • We've had a longstanding policy of hedging the transactional piece of the business, not the translation.

  • So, for this year --.

  • Why do you do a hedge?

  • Not to second guess the market, but to give us time to react in case of a devaluation or a commodity movement or volatility.

  • And that's the whole idea.

  • So, we continue to do that.

  • And what we try to do is we try to look at the inflation and we try to be realistic when we balance the way we go to market in terms of share, volume, and price to reflect in the marketplace the kind of pressures we have on the cost side.

  • That has been --.

  • Again, we've been in Brazil for 26 years.

  • It's not the first time that we have currency impacts or commodity impacts.

  • And that's why we have the hedge program in place, to give us time to reshift gears, adjust plans, and go to market in a way that makes sense and that we pass -- not overnight, but in a period of time -- that to consumers in a rational way.

  • But also give us time to give more support to returnable bottle growth, for example, so we don't need to burden consumers too much, because we have a much better margin on the returnables.

  • So, that's the mix of things that we trigger every time we have this thing.

  • The other things we do is that we constant review our cost efficiencies.

  • So, every time we have this kind of pressure or volatility, we go back to our [value engineering] files, to our footprint analysis of where we have brewers, and all that.

  • And so, that's another driver.

  • And the other thing add, to have in mind, is that some of the costs that you are seeing -- our cost of sales going up -- is the result of our premium mix going up, because the premium mix is mostly sold on one-way packs with very good margins.

  • But when you look at the costs only, as opposed to the total business, you'll see the cost going up, because if you sell Budweiser, Corona, and Stella mostly in one-way packs but with very good margins, you see the top line will go up, costs will go up, but the net in terms of macro will be very good.

  • But having said all that, we expect cost of sales per hectoliter to increase organically for the full year, by low single digits.

  • In other words, we're keeping our outlook, based of course on constant geographic mix.

  • Edward Mundy - Analyst

  • Great.

  • And just as a follow-up, I was wondering -- your outlook statement implies that you expect the Chinese beer market, Chinese industry volumes, to [go back into grace] in the second half.

  • I was wondering whether you could provide some color that gives you optimism around that?

  • And as a second part to that question, the number one leader, China Resources Snow, reported some very strong revenue per hectoliter in the last quarter, plus 9%.

  • Are you seeing a more rational industry in China at the moment?

  • Carlos Brito - CEO

  • Our numbers for China continues to be very exciting.

  • When you think about the half-year in which industry declined, by our estimates, by 4.5%, our volume increased by 1.7%; so, a six-percentage-points difference between what the market is doing and what our volumes are doing.

  • And more importantly, our revenue per hectoliter increased by 6.5% at the same time.

  • So, very good balance there.

  • And we feel good about the balance of the year for two reasons.

  • First, because the summer has not yet arrived in China, and that's a reality.

  • You look at the numbers that are public, and you see the temperatures and precipitation and all that.

  • It's not the typical summer that we normally have.

  • So, that's one thing.

  • We believe that that's going to get better now in the third quarter.

  • And second, because in a market like this, when you look at the industry decline, what's really declining more than anything else is the core and value segments.

  • And because we have an amazing leadership position in the premium segment, we will just put more fuel on the fire in China, and there are many programs to do that.

  • And on top of that, the super-premium segment, that's new to our business in China.

  • So, our business used to be a lot about premium in China, with Budweiser mainly.

  • Now, we have Corona.

  • We have Stella.

  • And those brands are growing at a price point above Budweiser which, again, provides amazing growth opportunities and amazing profit opportunities.

  • And by the way, in a month from now we're going to have a China trip in the first week of September with some of our investors, and it will be an amazing opportunity for us to showcase what and the way we built our business and the momentum our business has in China, not only in the premium segment but now in the super-premium segment, as well.

  • Edward Mundy - Analyst

  • Great.

  • Operator

  • Olivier Nicolai, Morgan Stanley.

  • Olivier Nicolai - Analyst

  • Just two questions, please.

  • First of all, on the US, [revenue per hectoliter] growth in the US is definitely below historical trends.

  • Do you expect a negative mix (inaudible) to last for the rest of the year?

  • And secondly, in Mexico, volume growth accelerated in Q2.

  • Is it fair to assume that you are getting share?

  • Carlos Brito - CEO

  • I'll start with Mexico.

  • In Mexico, our volumes grew by 4.1% and (inaudible) did particularly well, growing 6.1%.

  • We don't have share numbers, Olivier, because we only get share numbers at the end of the year.

  • So, we have some estimates that we do internally.

  • We try from other competitors as they announce numbers.

  • But we don't make it public.

  • So, it's a yearly share communication that we do to the markets, given that we don't have other sources.

  • But we're very happy with the development in Mexico, in terms of volume, the way the portfolio is evolving, the way our pricing is evolving, and also with Bud Light that's growing in a very healthy way.

  • Your first question on the US, can you repeat it, please?

  • Olivier Nicolai - Analyst

  • Well, basically you have this negative mix effect from the fact that the retails are declining and that's creating some negative mix on your revenue per hectoliter.

  • Could we expect this to continue?

  • And do we basically expect still around 1%, 1.5% of revenue per hectoliter growth in the US, compared to --?

  • Carlos Brito - CEO

  • Okay.

  • Okay.

  • Got it.

  • We're not giving guidance on that specific metric, but one thing you can infer from what we've said this quarter is that brand mix will play a key role.

  • So, this quarter a lot of the 1.2% was influenced down by the underperformance of the Ritas.

  • So, had Ritas performed better, that number would be higher.

  • So, there was a big impact there in terms of what we get net revenue per hectoliter in our brand mix.

  • Olivier Nicolai - Analyst

  • Perfect.

  • Operator

  • Robert Ottenstein, Evercore ISI.

  • Robert Ottenstein - Analyst

  • Two questions.

  • First, can you give us any more sense of some of the potentially timing issues that are affecting your COGS line and your distribution costs, such that you'll be able to maintain guidance for the year despite what was reported this quarter?

  • So, that's the first question.

  • And then, the second question, you've now had a chance to see a little bit more firsthand the kind of potential that Corona has globally.

  • Perhaps you could maybe revisit with us your assumptions on the potential of that brand long term outside of Mexico?

  • Felipe Dutra - Chief Financial and Technology Officer

  • It's Felipe here, taking the cost of sales and also distribution expenses first.

  • If you recollect last year, cost of sales per hectoliter growth was essentially a 2.2% decline in the first quarter, essentially flat in the second quarter, then 5.6% growth in the third, 6.7% growth in the fourth quarter.

  • So, net-net, we are getting to easier comps as we recycle the third and fourth quarter.

  • The first half of the year was negatively impacted by the $57 million, both in the cost of goods sold.

  • Moreover, we also said Corona or Modelo synergies were back-loaded in the year, and a lot of the synergies at this point are kicking in the cost of goods sold line rather than admin expenses.

  • There is a component of freight rates that also impacts positively cost of goods sold, but also distribution expenses.

  • On the distribution expenses, you basically saw the same trend last year: an increase of 1.7% in the first quarter, 7.6% in the second, 11.9% in the third, 12.7% in the fourth, which means, again, as we enter to the second half of the year, we are getting easier comps and we feel comfortable in keeping the current guidance for both cost of sales and distribution expenses.

  • Robert Ottenstein - Analyst

  • Is there anything else going on, Felipe, besides easier comps?

  • Felipe Dutra - Chief Financial and Technology Officer

  • No -- well, there is the Modelo synergies, as I said, that are more back-loaded.

  • There is the thing on the fuel prices that is positively impacting not only cost of sales freight overall, but also distribution expenses.

  • And there is the $57 million that was a kind of headwind in the first half, will not be there on the second half.

  • Robert Ottenstein - Analyst

  • Okay.

  • Carlos Brito - CEO

  • Robert, Brito here.

  • When you talk about Corona, this is an amazing positive news on our side.

  • Global Corona, as you saw in the release, is up by 7.8% this quarter.

  • But if you look at global export markets, it's up by 9.1% in the second quarter.

  • And more importantly than that, revenue is growing even ahead of that, because as we got the brand back in main markets, we repriced it up to really reflect the fact that we want to position it as the most super-premium brands in all markets where we operate, and that's what the brand deserves.

  • So, very early to say what the potential is, but it has been only surprises to us.

  • Even in market where we have a high share, it's adding to our share.

  • And in China, it's showing us a new, different world of super-premium brands.

  • It's giving us access to channels in China.

  • For example, you see [a month from now] in China that we had very little access to, like, the western bars.

  • It's growing rapidly in China.

  • And just redefining what the price of super-premium brand is or should be in any markets.

  • Redefining what a high-priced beer is.

  • So, great to our overall business.

  • Robert Ottenstein - Analyst

  • Thank you very much.

  • Operator

  • Chris Pitcher, Rebdurn.

  • Chris Pitcher - Analyst

  • My two questions.

  • The first one -- [I'd like to go to a different market].

  • Korea looks to have had a very tough second quarter, indeed a tough year.

  • Are you still suffering from the production problems around Cass last year and the brand perception there?

  • And margins do look to be a lot weaker in Korea than certainly I was looking for.

  • Now that you've got the business back from private equity, does it need more money than perhaps you originally thought?

  • And then, my follow-up question is on US inventory levels.

  • You talk about shipments and depletions matching each other for the full year.

  • Is there still short 1 million hectoliters to go through the shipment line in the second half, just to check I've got my numbers broadly right there?

  • Carlos Brito - CEO

  • In terms of Korea, in a way it's a new market for us.

  • We have been absence of that market for five years.

  • Now we're back for one year.

  • And you're right.

  • Total volumes declined by high single digits in this second quarter.

  • I would say half of that is industry decline, mid single digits, and half of that is market share loss in a very competitive environment.

  • I can also say that we're still transitioning the business.

  • It came from a private equity type environment, with some of the ways of work are very different.

  • So, we're going back to basics and going back to our culture, and we're building our plans for the future.

  • So, that has lagged a little bit because of some of the things that have to change.

  • On the other hand, we have a very motivated team.

  • They now are back to a brewer.

  • We're in this business forever, not for five years or six years.

  • I think the other guys, the private equity, did an amazing job, but of course their scenario in terms of years to hold the business is different than ours.

  • So, we're having to readjust as we transition the business.

  • The new thing in Korea from five years ago when we sold the business is that Cass is now the number one brand in the country.

  • Yes, it suffered a little bit with production issues last year, but share is stable now, but down from last year, for sure.

  • And there is another big difference from five years ago, is that the imported brands are just booming.

  • And that's great news for us.

  • We're still underrepresented because, again, it was not so much high on the agenda of the last administration, imported brands.

  • But now, with our global brands we have a big opportunity there to make an impact and with our leadership position.

  • So, again, we're very happy to have that business back.

  • A very motivated team.

  • But we're transitioning the business and we have some issues, as you mentioned, last year that we're cycling through.

  • Chris Pitcher - Analyst

  • And just, while we're on Korea, in terms of when you acquired the business and you talked about the potential to take synergies out, do you think some of the quality assurance issues perhaps mean that there are dis-synergies now in Korea, that actually you net need to put more money in than perhaps when you [brought] it in?

  • Or, is it tracking according to (multiple speakers)?

  • Carlos Brito - CEO

  • No, no, no, no.

  • We never really justified Korean reacquisition based on synergies.

  • The multiple we bought was an amazing multiple.

  • So, it made sense by itself.

  • So, we're very happy.

  • We know the business.

  • It has changed a bit.

  • We have to transition a couple of things because the other administration did some great things, but how they did it and some of the cultural aspects we're transitioning back.

  • We're back to basics, investing in people again, rebuilding some of the teams, going back to some of the basics in market execution.

  • And looking a lot at import brands, import segment, and we're trying to get Cass back -- again, number one brand in the country -- back to the momentum it had last year.

  • That got affected a little bit by some production issues; you're right.

  • Chris Pitcher - Analyst

  • Okay.

  • Just on US shipment levels?

  • Carlos Brito - CEO

  • US shipment levels.

  • Felipe Dutra - Chief Financial and Technology Officer

  • The first half of this year, STRs were down 1.9%, while STWs were down 3.5%.

  • Like in previous years, we believe STRs and STWs should converge, which suggests that STWs -- meaning shipments to wholesalers -- in the second half should perform better than the STRs.

  • Chris Pitcher - Analyst

  • And is there anything you can comment around -- I know you won't directly mention it -- but the whole SEC investigation that's going on around your major competitor in the spirits side?

  • Have you been approached by the SEC around the whole stock level issue in the United States?

  • Carlos Brito - CEO

  • We have no information on SEC, the active investigation, apart from we've read in the papers.

  • Felipe Dutra - Chief Financial and Technology Officer

  • We have not been approached.

  • Carlos Brito - CEO

  • No, we have not been approached.

  • And again, more than that, we believe our sales practice and reporting are compliant with any applicable regulations.

  • So, that's all we have to say at this point.

  • Chris Pitcher - Analyst

  • Very clear.

  • Operator

  • Sanjeet Aujla, Credit Suisse.

  • Sanjeet Aujla - Analyst

  • Most of mine have been asked, but can you just give us a bit of color on how many more shares do you need to acquire to fulfill future commitments on the stock ownership plan?

  • Felipe Dutra - Chief Financial and Technology Officer

  • I don't have the number in front of me.

  • But over time, it's fair for you to assume that what we report as share forward-swap agreements outstanding, which is part of our hedging, should at some point be converted into shares being acquired as a way to fully fulfill the share delivery commitments.

  • But that is over time.

  • So, that number is likely to be around 55 million shares for the period in total.

  • Sanjeet Aujla - Analyst

  • Got it.

  • Felipe Dutra - Chief Financial and Technology Officer

  • The biggest chunk of it is the Modelo -- the shares to be delivered to former Modelo shareholders, which was a five-year commitment since the closing of the transaction in 2013.

  • It's coming in 2018.

  • Of course also, the Board reserves the right of issuing new shares because economically that would have been neutral.

  • Sanjeet Aujla - Analyst

  • Got it.

  • Operator

  • Trevor Stirling, Bernstein.

  • Trevor Stirling - Analyst

  • One question from my side.

  • US gross margins were down 300 basis points in the quarter, and it roughly seems about 160 of that was the non-recurral of the medical expense.

  • But that still leaves about 140 basis points of underlying gross margin pressure.

  • What areas are you going to look at, Brito, to try and address that?

  • Carlos Brito - CEO

  • First, you should look, as we said before, in terms of brand mix.

  • We expected a brand mix that is start increasing in terms of the Ritas, for example, in [fact].

  • So, we lost representation of Ritas within the portfolio, and that was a very good gross profit enhancer.

  • And in terms of operational leverage, we're also investing more in terms of marketing because we see some good opportunities in terms of ULTRA, high-end brands, some of the craft brands we acquired.

  • So, all these things are going well, and we're putting more fuel to the fire.

  • We're trying to rebalance our portfolio in the US, in that Bud and Bud Light remain priorities but the high end needs to step up and grow faster.

  • We're also investing in the Mexican segment.

  • So, all those things are part of this remaking of our portfolio, given the new market and consumers.

  • And this is all good news, because this remaking of the portfolio, as we said in 2008 when we got here, we like the share position not the share composition, and we thought we had too much reliance on value brands, or sub-premium brands.

  • And we wanted our people to look up and get things like the Ritas and the Stella to grow faster and the ULTRA to grow faster and all those things that are more accretive and in terms of future, more promising.

  • Trevor Stirling - Analyst

  • Thank you, Brito.

  • Operator

  • Mitch Collett, Goldman Sachs.

  • Mitch Collett - Analyst

  • I wanted to ask about innovation in the US.

  • You've obviously had some innovations over the last two or three years that have been very successful initially but then have tended to be less successful in the second or third year.

  • I wondered how you were thinking about innovation, going forward?

  • Is it worth the investment to push these innovations out for what is a relatively temporary gain?

  • Carlos Brito - CEO

  • I think innovation is part of it.

  • The other part is really focus on the things that are working.

  • So, we don't need innovation only, to grow the business, but that's part of the growth equation.

  • When you think about Bud Light Platinum or the Ritas, they went up, then down a bit.

  • But they have a very good residual.

  • Platinum have a 0.5% share; come up from nothing.

  • Rita is 0.9%, (inaudible).

  • Bud Light Lime glass bottle was relaunched in terms of a new bottle this April and has been very successful, reverses some negative trends.

  • So, it has had the best trend since 2009.

  • On the other hand, [Bud Light Black Crown] has failed.

  • And again, when you innovate you have things that are success and failure, and that's important for the learning.

  • You only learn if you --.

  • it's like learning to ride a bike; you have to fail to learn it.

  • On the other hand, we also have some package innovation that have been very successful -- the 25-ounce can, the aluminum bottle, recloseable aluminum bottle.

  • All these [packs] have been very successful.

  • We also have different flavor variants for the Ritas, and here we need to do a better job.

  • We came with lemonade already, for example.

  • That's doing well, but not as well as some of the others.

  • We also have Mixx Tail in the [F&B] category.

  • And Oculto.

  • So, in F&B, it's something that when you think about it, Mitch, is we had zero share in that category three years ago.

  • They were the number one player.

  • And the Ritas this year are not performing well, disappointing.

  • But that doesn't mean that the equity behind it, it's gone; quite the opposite.

  • It means that this segment attract a lot of new players, and we need to up our game to compete and to continue to grow and keep the leadership position in the [F&B].

  • But it's very profitable at the [F&B] and highly accretive to the beer business, with most of the volume coming from outside of beer.

  • So, extending the price.

  • So, we're very committed to it.

  • Mitch Collett - Analyst

  • So, you say you're happy that the level of investment you're making is generating an adequate return, even though sometimes they tail off a bit after a year or two?

  • Carlos Brito - CEO

  • Well, innovation is like this.

  • But again, if the residual of a brand is 0.5% share, 0.9% share, and profitable, I think those are good returns residuals.

  • And yes, we'll have some failures, but I think it's part of the equation.

  • Another part of the equation is continuing to invest behind the big brands that make up most of our business, like Bud, Bud Light, ULTRA, Stella, Goose Island more and more.

  • So, these are important brands for the make-up.

  • And this year, we're very bullish about the second half of the year in terms of total Company, because if you look at our guidance in terms of sales and marketing investments, we kept the guidance for the year -- mid to high single digits.

  • But in the first half, because of some calendarization and FIFA World Cup last year, we "only" grew our sales and marketing by 1.3%, on top of a 13% growth last year.

  • So, if you do the math, you get to a double-digits sales and marketing growth spend, or investment spend, in the second half of the year, and that will be great to support what we said in the press release about the revenue accelerating in the second half.

  • And I'm talking about the global Company, not the US, necessarily; the US being part of it.

  • Mitch Collett - Analyst

  • Okay.

  • And if I can ask one, unrelated follow-up?

  • In Brazil, your market share is -- I think you said -- 67.6%.

  • That's at the bottom end of your historic range.

  • Normally, it's somewhere between 67% and 70%.

  • Would we be right therefore to assume that you're likely to perhaps push a bit more on volume on market share in the second half, to restore that back towards the upper end of the range?

  • Carlos Brito - CEO

  • Well, Mitch, our range has been from 67% to 69%.

  • It's down this year quarter over quarter because, if you remember, last year with all the FIFA World Cup sponsorship and activation, we had an amazing market share during that period.

  • So, it's a very tough comp.

  • But 67.6% with the kind of pricing we're having this year, I think again in a year like this you have to balance very carefully how you get your volume, share, and price going, or revenue initiatives going.

  • And I think our guys in Brazil have been able to navigate that really well.

  • You look at their results.

  • Despite the comps of the World Cup and the macro, I think it's a very good balance.

  • So, we'll continue to try to strive for that right balance.

  • Mitch Collett - Analyst

  • Great.

  • Operator

  • Ian Wood, Bank of America Merrill Lynch.

  • Andrew Scott - Analyst

  • It's actually Andrew Scott.

  • Going back to China again, if I do the maths on Q2, your core three brands have grown by 3.5%.

  • Your volume overall was flattish, slightly down.

  • So, that tail -- I think you said about 30% of it is the tail -- is obviously down, with the market broadly.

  • You mentioned yourselves, 6.5%.

  • Two questions, really.

  • What do you see for the second half in that tail of the brands you have in China?

  • And what is the longer-term plan, not to preempt what you may say in September?

  • Carlos Brito - CEO

  • Well, our strategy in China has been the same for the past five, six years, in that especially after the Sedrin acquisition in 2006 and after the Budweiser combination in 2008.

  • We wanted to develop our brands in the premium and super-premium segment.

  • Of course, we have a lot of brands -- still 30% of the business -- in core and value, less than 30% and less and less every quarter.

  • And the market is not growing this year.

  • It's negative, as I said -- 4.5% for the first half of this year.

  • But our volume grew by 1.7%.

  • So, a six-percentage-point difference between what the market is doing overall on average and what our portfolio is doing, because it's skewed more towards premium and super-premium.

  • So, our strategy will remain the same: to try to increase the importance of those premium brands or our focus brands, which today sits at 72%, try to continue to increase that because they're more profitable and because the dynamics of the industry is more favorable to them, even in tough times.

  • And that's our game plan and has been for many years.

  • The other good thing to know in China is that, different from some years ago, today more than 90% of our business is in our hands.

  • So, the whole thing about joint ventures is going down fast and because they're mostly based on core and value.

  • And when you talk about profitability, it's around 96% to 98%, around 100%, controlled by ourselves.

  • So, you put a portfolio that's right-positioned, you put the momentum we have, the fact that we have 90%-plus now in our hands, I think that builds for a great future.

  • And that's why on top of that if you put Corona, Stella, I think that it's even more exciting, because up until some months ago, Budweiser was the top in terms of pricing.

  • Now, you put Stella and Corona on top of that, and you again raise that ceiling and you start building that super-premium segment in which there was a pent-up demand there that now is being [outcare] because now we have products to offer.

  • And because our route to market is a premium route to market, it's great to put those brands on top of that premium route to market which we have established there throughout the years.

  • So, very excited about China, as we've been in the past few years.

  • We remain excited.

  • Andrew Scott - Analyst

  • Can I just follow up on that?

  • Because you mentioned an SG&A acceleration in the second half.

  • If I think about that regionally, I'm guessing a lot of that is to China?

  • But I just wondered what other regions are going to see a big push on SG&A?

  • Carlos Brito - CEO

  • Say it again?

  • It's really bad, the connection.

  • If you could talk a little louder, please?

  • Andrew Scott - Analyst

  • I'm sorry.

  • The question was around the second half, the comments you made about picking up on SG&A investment, a double-digit increase in the second half.

  • And whether most of that, or the majority of that, is going to China?

  • Just give me an idea of where that investment is going regionally?

  • Carlos Brito - CEO

  • No, no, no, no.

  • What I said, again, is this.

  • Because we're keeping the guidance on sales and marketing for mid to high single digits for the year and in the first half it was only 1.3% -- on top of a very high base last year for the World Cup; but that's a fact -- the math tells us that there will be double-digits, year-on-year growth in sales and marketing for the third and fourth quarter.

  • So, that's great news for [rapid] acceleration, which we said.

  • But we said that on a Company-wide basis,; we didn't split by region or anything.

  • But because there is so many initiatives that are very promising that we're working, we want to put more fuel on that fire so we have an acceleration of revenue moving towards year-end.

  • Andrew Scott - Analyst

  • Okay.

  • Got it.

  • Operator

  • Tristan Van Strien, Deutsche Bank.

  • Tristan Van Strien - Analyst

  • Tristan here.

  • Two questions.

  • A bit more on China, if you don't mind?

  • The first one, just can you give a bit of color on your provincial market share gains, if you had any, particularly northeast versus the greater Guangdong area?

  • And then, second, I saw that you intend to increase your shareholding in the Po River Breweries to 30%.

  • But my understanding that you guys were always restricted from doing that according to the 2008 [Moskong] decision.

  • So, I was wondering what has changed that allows you to do that?

  • Carlos Brito - CEO

  • Felipe will take the second one.

  • I'll go back to the first one.

  • Felipe Dutra - Chief Financial and Technology Officer

  • Well, the second one, it basically depends on the [Moskong] approval for us to get there.

  • And we are going to work together with the Zhujiang Brewery and the province in order to enhance our already very strong strategic partnership into that business, which is a partnership that's been there for 30 years.

  • But the increase is subject to [Moskong] approval.

  • Tristan Van Strien - Analyst

  • Okay.

  • Carlos Brito - CEO

  • And Tristan, on your first question about China regional market shares, we don't give those out.

  • But we're very happy with our share performance in China, going to 18%, 100 bps improvement.

  • And that talks again to the strength of the portfolio and the momentum of the brands.

  • Tristan Van Strien - Analyst

  • Okay.

  • Just to follow up on that, your EBITDA margin is obviously increasing on a very good clip.

  • Is that happening at the same pace on your EBIT margins, as well?

  • Or, is your D&A expense, because you're investing quite a bit, is that increasing faster?

  • Carlos Brito - CEO

  • Well, that, I'll have to get back to you.

  • Graham will get back to you, because I don't have it here in front of me.

  • I know that our EBITDA margin went to 26%, which is a very good development, 26%.

  • Tristan Van Strien - Analyst

  • Thank you.

  • Operator

  • Ladies and gentlemen, we have time for one final question.

  • Our final question comes from the line of Andrea Pistacchi, Citi.

  • Andrea Pistacchi - Analyst

  • It's actually on Vietnam and your greenfield initiative, because you recently opened a brewery in Vietnam.

  • If you could just say a few words on that?

  • And in terms of ramping up the brewery, if you expect this to be a pretty fast process of getting to the 500,000 hectoliters you have there?

  • And should we expect more greenfield brewery initiatives like Vietnam in other markets?

  • Or, will your expansion to new markets be mainly asset-light?

  • And again on this asset-light aspect, you said it would be a focus for you a few quarters ago.

  • Are you --?

  • I imagine you're looking at situations.

  • Have you gone into new markets, yet, with sales people on the ground where you weren't present before?

  • Carlos Brito - CEO

  • Sure.

  • In Vietnam, we're very happy with the way our business is going.

  • As you know, we [used to have] -- we've had imports in Vietnam, especially Budweiser, for many years.

  • It's a very promising market: demographics, the scale of the market, the beer culture.

  • So, we decided to have more of a presence.

  • We built -- we just opened our 500,000-hectoliters brewery, phase I; can expand to another million hectoliters -- up to 1 million.

  • The products we have there is really our global brands and some of our international brands.

  • So, we have Budweiser, Corona, Stella -- focus on Budweiser.

  • And we also have Leffe, Hoegaarden, and Becks.

  • So, it's a very promising market and we're very excited about it.

  • I was there last year.

  • We have a great team in place that really wants to make a Vietnam a second China for us in the region.

  • So, that's great.

  • And a lot of the best practices that we developed in China in terms of brand building are being copied in Vietnam, and that provides a faster growth we believe.

  • So, we're experiencing very fast growth of our brands in Vietnam.

  • Andrea Pistacchi - Analyst

  • And should this lead to maybe other greenfield projects in other countries maybe in the region?

  • Carlos Brito - CEO

  • Well, it depends --.

  • Sorry.

  • That was your follow-up question.

  • It depends on the market.

  • In China, we have greenfields.

  • If you take the last three years plus what's been under construction with that, 11 greenfields.

  • And in India, because we're at capacity -- at some point brownfield, maybe -- but we'll have to expand capacity.

  • But then, in other markets we're adding people to the field in an asset-light model.

  • For example, Australia.

  • For example, Japan.

  • Just to give two examples.

  • And you start seeing some results because you have people, ideas, young people.

  • We're sending trainees to those markets, millennials.

  • So, that's good.

  • Andrea Pistacchi - Analyst

  • Thanks.

  • Operator

  • That was our final question.

  • And I would now like to turn the floor back over to Carlos Brito for any additional or closing remarks.

  • Carlos Brito - CEO

  • Thank you, Jackie.

  • In summary, the second quarter was challenging, but despite tough comparables, some economic headwinds in a number of our markets, we were able to deliver revenue growth of over 4%.

  • We started the second half with momentum behind our brands and commercial initiatives and expect to accelerate revenue growth for the remainder of the year, remembering that double-digit sales and marketing growth, given our guidance, for the second half.

  • So, we look forward to speaking to you again on October 30, when we report third quarter results.

  • And thank you for your time today.

  • Have a nice day.

  • Operator

  • Thank you.

  • This does conclude today's teleconference and webcast.

  • Please disconnect your lines at this time.

  • And have a wonderful day.