Anheuser-Busch Inbev SA (BUD) 2016 Q1 法說會逐字稿

Welcome to the Anheuser-Busch InBev first-quarter 2016 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 Results and Filings Center in 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 14, 2016.

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

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

Sir you may begin.

Thank you, Jackie.

Good morning, good afternoon, everyone.

Welcome to our 2016 first-quarter results conference call.

The first quarter saw a strong performance in Mexico, as well as improving volume trends in the US and Europe.

However, Brazil faced one of its most challenging quarters in many years due to the weakening macroeconomic conditions in the country and a tough comparable.

The industry in China was also soft due to economic headwinds.

However, before we get into the detail of the results, I would like to give you an update on the proposed combination with SABMiller.

When we made the initial announcement in November last year, we said we would be proactive in addressing any potential regulatory conservations.

We have made good progress in all four of the markets where regulatory clearance is a pre-condition to making the formal offer to shareholders.

We have announced the sale of SABMiller's interest in MillerCoors in the US and in CRSnow in China, as well as the disposal of certain of SABMiller's premium brands and related businesses in Europe, including Peroni and Grolsch.

Also, last week, we announced our decision to divest of SABMiller's Central and Eastern Europe business and brands.

Of course, all of this disposal is subject to the closing of the main transaction.

In South Africa, we are pleased to have reached an agreement with the government on the public interest conditions to be presented to the Competition Commission and the Competition tribunal.

And have also completed a secondary listing of ABI on the Johannesburg Stock Exchange.

From a financing perspective, we have essentially completed the pre-funding of the transaction following a series of bond issuances in the first quarter allowing us to cancel as of today $55 billion of the committed senior acquisition facility put in place prior to the announcement of the transaction.

We continue to expect the transaction to close in the second half of this year.

We're working closely with SABMiller towards this goal.

With that, let's now turn to the first-quarter results in detail.

Federal revenue in the quarter grew by 3.1%, with revenue per hectoliter growing over 5% on a constant geographic basis, driven by our premiumization and revenue management initiatives.

Total volumes were down 1.7%, with our own beer volumes down 1.4%.

Volumes were significantly impacted by results in Brazil as expected, where our beer volumes fell by 10%: although, our volume trends in Brazil in April were significantly better than the first quarter.

Our global brands continued to perform well despite the macroeconomic challenges in Brazil and China, with revenues growing by 5.9%.

EBITDA grew by 2.5%, with a marginal decline in EBITDA margin, driven by top-line growth partially offset by the timing of our sales and marketing investments, which will be weighted towards the first half of this year, in line with our guidance.

Normalized earnings per share fell to $0.51, being adversely impacted by the swing in the mark-to-market adjustments related to our share-based payment programs and the net interest costs related to the pre-funding of the SABMiller transaction as well as the impact of currency translation.

However, despite the weak start to the year, there are a number of positive trends in our business.

Our global brands continued to deliver strong revenue growth, driving premiumization of our portfolio.

Our business in Mexico is doing great.

We're excited about the prospects going forward.

In the US, industry volumes returned to growth and received very good volume growth with our above premium brands.

Bud Light volume trends are also heading in the right direction.

In Brazil, our brands enjoy a high consumer preference and the premium category continues to grow.

In China, we are continuing to gain market share and our brands are well-positioned for the core plus and above segments, which we believe have the greatest long-term growth potential.

Our volumes in Europe are growing, driven by our premium brands.

We are gaining share in the majority of our markets.

We're delivering solid results in Canada, South Korea and many of our markets in Latin America South.

Let's now look deeper in the results of each of our top markets, starting with the US.

Industry volumes returned to growth in the first quarter with STRs up 0.7% based on our estimates.

Our own STRs were down 0.3% leading to an estimated market share decline of approximately 45 basis points, a 20 bps improvement compared to full-year 2015.

STWs were down 1.2%, slightly behind STRs, as a result of adjustments to inventory levels in the normal course of business.

We will continue to expect STWs and STRs to converge by year-end.

Total revenue was flat compared to the same period last year, with revenue per hectoliter up 1.3%, helped by our revenue management initiatives.

EBITDA grew by just over 2%, with margin expansion of 82 basis points, supported by a strong cost of sales performance and despite the timing of sales and market investments, which are weighted towards the first half of the year.

Turning to the performance of our brands in the US.

We believe Bud Light is heading in the right direction; although, there's still a lot of work to be done to return the brand growth.

Our volume, share and brand trends are improving and purchase intent is up since the launch of the new Bud Light Party campaign at the 2016 Super Bowl.

As a result, we saw good improvement in Bud Light volume trends in the quarter with STRs down just over 1%.

The new Bud Light visual brand identity, which was rolled out at the start of April should help build further momentum.

Our Budweiser marketing campaign built around the brand's quality and heritage credentials continues to resonate with consumers, further extending the brand's best trends in over a decade.

Budweiser STRs were down low single-digits in the quarter, while share was down 25 bps based on our estimates.

We have built a strong program for the summer in platforms such as Bud and Burgers are building on last year success, as we continue towards stabilizing Budweiser's market share.

Our above premium brands delivered strong growth in the quarter, gaining approximately 50 bps of market share based on our estimates.

This was led by Michelob Ultra, which continued it's double-digits growth and gained more share than any other beer brand for the fourth quarter in a row in the US.

Stella Artois and Goose Island also performed well and our craft partners and near beer products made good contributions to the segment's growth.

Returning industry volumes to growth and stabilizing our market share remain the top priorities for the US and our above premium brands are making significant contribution for this market share growth.

Moving on to Mexico.

Our Mexican business had a great quarter, driven by a favorable consumer environment and our own commercial initiatives.

Our volumes were up 13% in the quarter, benefiting from an earlier Easter holiday and an easy first-quarter 2016 comparable.

Revenue grew by over 16%, with revenue per hectoliter growing by 2.7%, due to favorable brand mix in our revenue management initiatives.

EBITDA grew by over 10%.

Our EBITDA margin declined by 237 bps to 43.4%, due to the timing of our sales and marketing investments.

All of our focus brands continue to perform well.

Corona activated campaigns around the brand's 90th birthday celebrations.

Victoria continued to drive preference with young adults through its Mexican heritage campaigns and Bud Light grew distribution throughout the country, especially in the north.

We will continue to drive category growth by supporting our brands and creating a new and exciting consumption occasions.

Turning to Brazil.

Brazil had a weak start to the year as anticipated.

Our own beer volumes declined by 10%, driven mainly by a challenging macroeconomic environment which saw our consumer disposable income under significant pressure.

Familiar Carnival holiday and price increases to mitigate state and federal tax increases also contributed to a weak volume performance.

Non-beer volumes declined by 3.8%, due to industry weakness.

Brazil top-line declined by 4%, with our revenue management initiatives helping to drive an increase in revenue per hectoliter of 6%.

Regional competitive dynamics led to some market share loss in the quarter, although, our brands remain healthy, we expect the share losses to be short-term in nature.

The decline in Brazil top-line led to an EBITDA decline of 5.8% and a margin contraction of 96 bps to 51.4%.

Despite the weak start of the year in Brazil, we remain focused on what we can impact and influence as always.

We have good momentum in many areas of the business and a focused set of commercial priorities.

Elevating our core brands, remains our top priority in Brazil.

Our brands, Skol, Brahma and Antarctica remain healthy, with consumer preference being driven by regional Carnival events and other campaigns and activations.

Accelerating premium is a great example of something we can impact and influence despite the weak economy.

Volumes of our premium brands, which include our global brands Budweiser, Corona and Stella Artois as well as our domestic specialty portfolio continued to grow double-digits.

We expect growth in the premium category to continue and we'll fuel this momentum through our own initiatives.

Near beer, the Skol Beats family is building volume and share, while Brahma 00 has built a strong market share position in the non-alcohol beer market.

In terms of occasions, we are working hard to shape in-home consumption increasing the penetration of returnable bottles as part of our strategy of driving affordability for our consumers.

Growth and enhancing the out-of-home experience by activating key selling occasions and moments, along with Carnival, we are activating numerous events throughout the country, bringing people together to drive demand and build our brands.

This includes activation around the Olympic Games in the second quarter focused on Skol Ultra, our new active lifestyle brand.

Just a few more words on our premium and near beer brands.

We hare seeing good growth in this category in the last few years, as you can see from slide 15.

Prior to 2011, our premium portfolio consisted mainly of our domestic specialty brands, such as Bohemia and original.

However, in 2011, we launched Budweiser into the market and the brand was an immediate success.

We followed up this launch with increased support for Stella Artois, which had been in the market for a number of years the launch of Brahma 00 in 2013 Skol Beats in 2014 and Corona in 2015.

In the last couple of years, we have also acquired two craft brewers, [Voss] and Colorado, to take advantage of growing consumer interest in the craft segment.

So to summarize the situation in Brazil, Brazil's facing a tough macroeconomic environment with continuing pressure on consumer disposable income; however, we remain focused on what we can impact and influence.

Our major brands are healthy with consumer preference ahead of their market share.

We have a clear set of commercial priorities to drive our business.

Affordability for consumers especially in today's challenging economy remains a key focus.

Our revenue management and cost efficient initiatives, we will continue to play an important role in driving financial results.

Our beer volumes in April were significantly better than the first quarter.

We're making no change for our full-year 2016 guidance for Brazil revenue growth of mid to high single-digits.

We have always been very positive about the long-term future of our business in Brazil and that has not changed.

Moving now to China.

China industry volumes declined by about 4% in the first quarter, due to economic headwinds.

Our overall volumes were down just over 1% in the quarter versus a tough first-quarter last year, when our volumes grew by 4.7%.

We estimate we gained approximately 45 bps of market share in the quarter reaching a level of 19% market share.

We believe the core plus premium and super-premium segments have the greatest long-term growth potential within the industry.

Our brands in this segment represent more than 50% of our total China volumes and are well-positioned with strong brand health metrics.

Total revenues in China grew just under 1% with revenue per hectoliter of growth of 2.1%, lower than we have reported in recent quarters.

This is due to positive brand mix partly offset by unfavorable regional mix, driven by poor weather and industry weakness particularly in the South and East of the country.

We expect these headwinds to be temporary in nature.

China EBITDA increased by 3.8%, with EBITDA margin expansion of 76 bps to 27%.

We believe our strategy of focusing on the winning segments winning channels and winning geographies, will enable us to continue to outperform the industry in terms of both volume and profitability.

We explain the strategy in detail during our Investor seminar in Guangzhou last September.

This included our focus on the fastest-growing segments namely the core plus and above segments, the fastest-growing channels including night life, high-end chinese restaurants, western bars, and e-commerce and the fastest-growing geographies particularly those urban centers with a growing middle to upper class.

Although the weak industry is likely to persist in the short-term, we believe we have built the right strategy for the long-term.

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

Felipe?

Thank you, Brito.

Brito has already covered our four top markets, but I would like to mention some highlights from our other relevant markets.

Canada continues to perform well, with volumes up almost 1% and a stable market share, based on our estimates.

Europe had a strong quarter, with own beer volumes up 2.5% and revenues up 4.6% driven by our premium brands.

One growth in France, Italy, the Netherlands, Russia, Ukraine, and the UK was partially offset by industry weaknesses and some share loss in Belgium and in Germany.

Latin America South delivered solid financial results, despite pressure on beer volumes mainly driven by a weak consumer environment.

Corona and Mixxtail saw good growth, especially in Argentina.

Finally, our business in South Korea performed well with low single-digit volume growth as well as gain in estimated market share.

Moving on to below EPS results, starting with our earnings per share performance.

Normalized earnings per share decreased to $0.51 per share from $1.40 per share in the first quarter of last year.

As you can see from Slide 20, the underlying first-quarter EPS result was flat with the same period of last year, excluding the market to market adjustment linking to the hatching of our share-based payment programs, the net cost of the pre-funding of the proposed combination with SABMiller, as well as the impact of considerable currency translation.

Net finance costs in the quarter were almost $1.3 billion compared to an income of $91 million in the first quarter of this year, a variance of nearly $1.4 billion.

This variance was driven primarily by an unfavorable $138 million mark-to-market adjustment linked to the hedging of our share-based payment programs compared to a gain of $757 million in the first quarter last year, a swing of close to $900 million, just there.

Net costs also includes an increase in net interest expenses of $273 million mainly driven by the net cost of the pre-funding of the SABMiller combination following the issuance of bonds in January and March 2016.

The net cost of these pre-funding is estimated at $450 million on a full quarterly basis, for which no tax deduction is expected to be reported at this point.

Non-recurring net finance costs were $684 million in the first quarter this year compared to an income of $395 million in the first quarter of last year.

These items do not impact normalized EPS that are included within reported profit.

This increase in expense was driven by a number of factors as shown in detail in Slide 22.

The main items are the mark-to-market adjustment resulting from the derivative instruments used to hedge the deferred instrument related to the combination with Grupo Modelo and the mark-to-market adjustments related to the FX hedging of the purchase price of the proposed combination with SABMiller.

As Brito mentioned earlier, we have made good progress with the pre-funding of the SABMiller transaction with three bond issuances in the first quarter.

Slide 23 contains a summary of these issuances, which resulted in net receipts of $61.6 billion at an average coupon of 3.2%.

These issuances allowed us to cancel $42.5 billion of the $75 billion Committed Senior Facilities by the end of the first quarter.

We also cancelled a further $12.5 billion in early April after the euro bond issuance, bringing the total cancellations to date to $55 billion.

Our normalized effective tax rate for the first quarter was 23.2%, up from 18% in the first quarter of 2015.

This increase is mainly due to the loss from the hedging of our share-based payment programs in the first quarter of 2016 as well as country mix.

Our guidance for the full year 2016 remains in the 22% to 24% range.

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.

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

Our first priority for the use of cash, we always will invest behind our brands and to take full advantage of the organic growth opportunities in our business.

Deleveraging to around 2 times will be a priority following the combination with SABMiller.

M&A remains a core competency.

We will always be ready to look at opportunities when and if they arise subject to our strict financial discipline.

Surplus cash flow should be returned to shareholders.

Our goal is for a dividend to be a growing flow consistent with the non-cyclical nature of our business.

Dividend yields, earnest payout, free cash flow payment payout, we always will need references in determining the amount of the appropriate dividend payment.

With that, I will hand back to Jackie to begin the Q&A session.

Thank you.

Jackie, we can start the Q&A session, please.

(Operator Instructions)

Trevor Stirling, Bernstein.

Two questions if I may, please.

What is it that gives you the confidence?

You have had a soft start to the quarter.

You mentioned that April is slightly better in Brazil, but what give you the confidence to maintain your full year guidance?

Brito, here.

We have to understand that the first quarter in Brazil, as anticipated, would be a tough one because of some tough comps given the Carnival timing, which in Brazil is a key date because it's -- for most people, it's when the summer ends and the holiday period.

So that's key for us.

This year was early, that's one.

The second one is that we have to implement price increases to mitigate taxes at the federal level and state level and of course, inflation.

So you have the macro, which is not helping consumers, you have the calendar, also not helping a lot.

It is true that Easter was earlier, but Carnival is way more important in Brazil that Easter and you had a price increase.

So you put all those together, we knew we were going to have a tough first quarter.

April, as you said, way better than the first quarter.

We have our strategy which is unchanged.

The reasons we have to believe and the reasons why we kept the full year guidance on Brazil is that the five pillars of our strategy remain unchanged.

First one is, elevate the core.

So continue to see our brands performing well.

We have great campaigns, innovation coming up and the affordability agenda on those brands.

We have the premium, growing double-digits.

It's already more than 10% of our volumes coming from five or six some years ago.

If you look at the platforms for those brands, it's still above its market share.

Again, with very good margins and very good top-line.

Near beer, again, very good margins, accretive, great top-line, great margins.

Skol Beats Senses plus Spirit, Brahma 00.

So very incremental and good for the mix.

In-home, the whole, again, affordability and, again here, a very important thing about the returnability.

So we're trying to take advantage -- there's one silver lining in the whole macro situation in Brazil and in the pressure on consumers and their disposable income is, the opportunity we were given to get returnables back into the off-trade big-time, especially the big off trade.

That's -- it's great because it's a very smart choice for consumers in terms of out-of-pocket.

It's a great -- it's a very good margin play for us.

So, that's in-home.

In the out-of-home, we continue to invest to improve the on trade experience building not only the global brands but all solutions like Skol draft and entertainment at the $1 at the point of sale.

So, of course on the cost side, we need some adjustments.

Our guys in Brazil are very used to tough environments every now and then.

They saw it early because the first quarter coming.

They adjusted the plans but not anything that would mortgage those five initiatives that I've just mentioned.

So that's why we are confident in keeping the full year guidance of top-line.

Okay.

My follow-up question, Brito, refers to US.

It looks as if the input cost savings in the US are more than offsetting increased A&P.

But your price mix is also slow down a little bit sequentially.

Are part of those savings in input costs being recycled into slightly higher promotional activity?

No.

Our promotional activity -- when you look at our net revenue per hectoliter growing at 1.3%, that's pretty much in line with what we had prior.

There has been some noise I know in terms of pricing and discounts in the marketplace, but I keep telling you is that despite the noise, our pricing strategy remains unchanged.

In other words, the level of discounts is in line with historical levels.

But, probably, every year we will always be looking for better ways to invest the same envelope of promotional dollars, right?

So, 1.3% is what our revenue management -- or our revenue -- net revenue if I have to look at growth -- grew.

The other thing is that Stella's shipments, we had a slight phasing on Stella shipments, a year plus ago, we had an issue with Stella being frozen because of weather patterns crossing the ocean.

This year it's on 15 or 16, who decides anticipates some shipments to avoid the harsher part of the winter, which never came by the way, but we didn't know.

So Stella STRs for the first quarter was ahead of STWs which of course impacts the overall number.

So those would be the comments on the US in years.

Thank you very much, Brito.

Thank you.

Andrea Pistacchi, Citi.

The first one is on Brazil.

Where you've historically wanted to stay in the 67% to 69% market share range.

Now you ended FY15 very close to that level and possibly you've dipped slightly, slightly below that in Q1, I'm not sure.

But the question is, first, what is driving, would you say, this market share loss?

Is it any region a particular, any brand in particular?

Secondly, about this 67% to 69% range, how important is this to you?

Weather in the current environment, how do you think of market share versus profit?

The second question, if I may, is on Europe, where you've seen a significant turnaround in volume growth since 2H last year.

What is driving that?

If it's Corona in your portfolio making a lot of the difference or is it also other things?

So let me start with Europe -- I mean on Europe, Andrea, what we did is in a strategic review some two years ago, we decided that given consumer trends given all our footprint in terms of brands in countries that we should really pivot more and more towards premium brands and global brands.

Okay.

That's what we did.

So we took money from countries and we reallocated money within segments, within countries, within channels, within brands and we're now harvesting some of that decision.

You know the consequence of it.

So very happy because Europe was always a place that we saw high margins but no growth even declining industry.

I said, okay, how can we make the best out of Europe?

As we started having more global brands, with Budweiser first, Corona second, even the recognition that Stella will go out in (inaudible) could play more of the Pan European role.

We look at our footprint in Europe, where money was being allocated.

We look at margins.

We look at consumer trends, segment by segment, region by region, brand by brand and decided to do a big reallocation of money.

That has proven to be the right thing.

So very happy with Europe.

We think it's something that's sustainable.

It's based on brands, on choices, about your choice of location and great people.

We also changed some people there.

So great leadership.

In Brazil, in terms of share, our commitment to our range that we work within remains 67% to 70% as measured by Nielsen.

It is true to say that as we said, our market share was pressured in the first quarter because we had to increase prices to compensate not only for an inflation, that on an annual basis reached more than 10% in March, but also federal and state taxes, that were implemented in the last few months.

So we had to pass it on surprise to split inflation.

So of course consumers felt that.

Because Brazil is a very competitive environment, it can imagine that there was some share repercussion given our decision to increase prices.

So that's the thing on share.

As you know, in Brazil, we've always said that.

That's why we have a range for share because we would always try to balance like in any other country, this equation of market share with profitability.

Both short and long run.

Some years will be one way some other years will be more the other way, depending on consumers, on the macro, on the competitive environment.

But you can be sure that's our range.

There's no change there.

Thank you.

Thank you.

Sanjeet Aujla, Credit Suisse.

Can you just elaborate on your craft acquisition strategy in the US?

You've made some further acquisitions there recently.

How big is craft as a percentage of your US business?

Do you see any further gaps in your portfolio there?

Well in terms of craft, we think we made a lot of progress.

The idea that have on craft is a simple one.

We are the market leader in the US.

Craft is a growing and very profitable segment.

It's one where we are underrepresented, so it's a twofold strategy.

First to have crafts of our own, like for example, Shock Top, just to give one example.

Second, we acquired some, very few, if you think that there are 4,000 craft brewers in the US, we acquired less than 10, if you put it all together.

But it's important to have some of those, because first you bring some amazing craft partners to join us and to continue to help our brewers to continue to create the very best beers and styles in the marketplace.

So that's what's been great.

We have had some -- connected some amazing craft people from these brands that we got associated with.

Plus, they have very strong brands in the regions.

So we're very happy to be able to offer our wholesalers options within our own portfolio of brands, also for crafts.

Shock Top, for example, which is one of our own crafts, are gaining shares -- gains share organically now since February.

We would put a effort in terms of going back to its positioning of living life unfiltered.

So, we're very happy with our craft development in the US.

Just a follow-up on Brazil there, just back to the market share point, you mentioned that you don't expect to continue to see market share losses.

Can you just elaborate on what will change there?

Well, again, in the first quarter because of the price increase that we had to implement, market share was disturbed because of that.

But as in any price increase, what you do afterwards is as in any competitive market, you adjust a little bit here and there.

Then you find the optimum point for your brands.

That's one of the reasons why April was way better than the first quarter.

So with the programs I just described on the five pillars in Brazil, be it to elevate the core premium near beer in-home location and out-of-home location.

We feel that we have the plans.

We have the necessary resources.

The brands are doing well.

Our guys are used to having to re-plan in tough situations.

So that's why we feel confident about keeping the top-line guidance for the year, despite the first quarter.

Many thanks.

Thank you.

Anthony Bucalo, HSBC.

The decision to offer up the European franchise this year for possible sale.

One thing that sticks out is when you sold the European business back in 2009, you kept Russia as a bit of a strategic piece to hold onto.

Poland sort of is a similar market in the sense that it's a strategic piece.

It's a big profit pool.

There's high levels of consumption.

There's a super-premium market there to be had.

Why would you have included Poland in that, with the other four markets that you're putting up for sale?

Well, Tony, as you know from day one, we said we'd be very proactive with the regulators, from day one.

That's what we've been doing.

So in the US, you know about the divestiture, in China, the same thing.

In Europe, we decided to offer day one to be proactive and come with the Peroni and Grolsch in meantime divesture and related business.

We followed that with the SABMiller assets in Central and Eastern Europe, including all five countries: Hungary, Romania, Czech, Slovakia and Poland for their vestments.

Those assets include a number of top brands, as you said, in those markets.

We expect to attract considerable interest from potential buyers.

In line with our ambition to close the overall transaction, during the second half of 2016, as I said before, we made this commitment in Phase I of the European Commission inquiry.

So now we expect the Commission to hear the proposed transaction including our proposal thoroughly.

We will maintain an ongoing dialogue with the case team to answer their questions and continue to work proactively to address any potential concerns.

So again, this is all in the same realm of us being very proactive.

This is exactly within that same context.

Is Poland a market that ideally you'd like to hang onto?

Again at this point, Tony, what I can say is that we offered those assets together with Peroni and Grolsch for disposal.

We expect now the Commission of course, to review our proposals and Poland, Phase I environment.

And again, we are trying to be very proactive in dealing with regulators and keep an open channel with them.

Okay.

Great.

Thank you, Brito.

Thank you.

Robert Ottenstein, Evercore ISI.

Brito, a couple of questions related to incentive compensation, please.

First question, as you look to set the targets for the various zone leaders and how that cascaded down this year, can you talk about any shifts or tweaking of the relative weights between top-line measures, whether it's volume, price, market share and more bottom-line measures?

Any sort of tweaking that you could give us some color on in terms of this year, please?

Robert, as we've said before, our targets always balance.

We have checks and balances in there.

So they are all in the realm of top-line, global brands, cash flow, EBITDA targets, so in market share.

So those are the targets that we believe are for the big -- in terms of big ideas for the Company, in terms of checks and balances.

We have some there that are more top-line driven, commercial driven.

We have some there that are more financially driven.

We believe that's how we've always managed the Company.

Top-line efficiencies, cash flow, market share, we believe that those are good checks and balances to have.

Then as you know, we have a three-tiered system.

So those are for the Company as a whole.

Then you have the BU targets, the business unit targets, which are pretty much a combination of those same targets.

Then you have the individual targets, which is what we expect from each individual in the Company to work towards those big umbrella targets.

So that's how we work.

That's the balance we try to achieve.

Understood, it's always a balance.

So no particular tweaking one direction or the other this year?

No, not this year, but it's fair to say that top-line has been growing in terms of importance, top-line growth, in the past few years.

Not this year in itself, but in the past few years.

Yes, it's fair to say that.

Great.

Then as a follow-up, there was an interesting long-term incentive program geared towards $100 billion target, revenue target for 65 top managers.

But those below the EVM level, is there anything analogous to that in terms of long-term revenue growth targets for you and the EVM level please?

Yes, again, we have different incentives in the Company, Robert, as you might know.

I mean they're all in the P&L, so you see that have different incentives.

This one is just one of them.

We decided to link it to a target that we have internally.

There's not a Company guidance or anything in terms of 2020 or anything.

We of all sorts of target and dreams that we have for different business units, for different lines on the P&L inside the Company.

From time to time, we connect some of those incentives to some of those dreams.

So it's something that, again, to your first question is in line with our increased waiting on top-line growth, on a profitable way, of course, not at any cost.

That's how we look at it.

Yes.

Is there any specific number -- long-term number that you and the EVM are going to be incented on?

Yes, we do have, but it's not public.

So again, in the way we do targets, I mean, target's internal, budget's internal.

That's the way we run our Company.

We like to dream big.

We have a kind of culture in which we are comfortable or not totally uncomfortable in living with dreams and targets that we don't know 100% how to get there.

There are cultures to put -- stretch targets always that we know 70%, 80% how to get there.

Some other companies wouldn't feel comfortable living with that kind of uncertain in terms of the gap for the target, year in year out.

We are -- that's how we built our Company and our lives.

We always put targets and dreams be it yearly or multi-year in which we know 70%, 80% how to get there.

We feel that's the way to build the Company, because then you get people to be creative.

It gets people to use their best, inside of their brain, to try to bridge gaps.

That's how we've always managed the Company.

The one we mentioned is just one more example of that stretched target.

Thank you very much.

Thank you.

Eddy Hargreaves, Canaccord.

This is really on the US, you mentioned in the statement about the continuation of the Winning Together initiative with your wholesalers.

Driving it to a different or new level in 2016, I wonder whether you could just briefly tell us what you see there's still left to do in that relationship?

What do you want to change this year?

What are your sort of specific deliverables, if you like, from that engagement with the wholesalers?

Well, since we've got to year 2008, 2009, we've always recognized and said that the wholesalers system is one of the biggest assets that the system, us and wholesalers, have in the marketplace.

Then they really are an easy operators.

They are very good at what they do.

If you give them a good idea, a good program, they'll really execute the hell out of it.

So when we say wholesaler relationship, Joao came here and branded this Winning Together.

Joao is very close to the panel.

A lot of things we're doing in the marketplace now have been also curated, let's put it this way, by the panel and with the panel.

So it's four hands doing it.

We feel that this has been really -- has gotten great acceptance and traction on the wholesaler community.

Again, we are partners.

The more aligned we are in terms of thinking that this program is better than this and this resource or location is better than that one, the more effective we are in the marketplace.

So that's the idea, Winning Together.

Okay.

Thank you.

Thank you, Eddy.

Caroline Levy, CLSA.

My question's on -- back to US price mix, because given that you've got the mix shift towards the high-end brands, which are growing rapidly while the lower price are declining, you got the craft acquisitions in there.

Maybe some wholesale acquisitions, I'm not sure.

But it's suggesting that price realization on your biggest brands could be negative.

Am I getting that wrong or is that what's happening?

No.

Caroline, what we said just some minutes ago is that Stella, which is a big brand for us in the high-end, a big driver for net revenue per hectoliter growth.

We had a shipment that differs from the STR.

So we shipped more Stella before the height of the winter, because the year before we had some frozen products.

That disrupted a little bit the supply for the US.

So we decided to anticipate in 2015 to avoid that peak January, December/January freezing period.

That's why now you see STR's of Stella ahead of STWs.

Okay?

Just because -- that of course has an impact on the net revenue per hectoliter growth.

Okay?

So but again 1.3% is in line.

It could be better if STWs and STR's were more in line, especially on Stella because that's a big driver.

But that's where we are right now.

So no -- nothing more than that.

Okay.

So no decline in pricing on your big brands?

No.

I mean as I said before, our -- in terms of our discount strategy, the envelope we use is pretty much inline with the envelope on the money we had before.

So our pricing strategy remains unchanged.

But of course every year, we look for a smarter ways to use the same promotional dollars.

That's what we're doing.

Okay.

Then just a question about activating volume growth in China when Asia overall -- I think Korea was pretty good.

But in China, you've got a very difficult environment.

What specific plans do you have in place over the summer?

In China, what we see is that this quarter was particularly different in terms of revenue per hectoliter growth because our brand mix was favorable.

But our regional mix was very unfavorable because the South and the East especially Guangzhou, it was a province, had very poor weather and very poor -- or very strong economic headwinds.

That is something that affected the region where Budweiser's very strong and that, of course, rippled throughout the China numbers.

But Budweiser continues to grow throughout China, with the exception of Guangzhou, where we gained share on a very weak industry.

So volumes are affected despite gaining share.

Having said that, Budweiser continues to be the number one brand in the premium segment in China.

We have now what we call super-premium Company with Corona, Stella, Hoegaarden, Leffe and Goose IPA that has margins that are 9 times more profitable than core in value and even double the profitability of Budweiser.

So that's where we see more and more -- 50% of our total China volume is in the core plus, premium and super-premium segments.

Those segments, we believe, are the ones that will continue to be the most interesting segments in terms of growth and profitability in China.

So I think we are poised as we were before for a bright business in China.

But we said in our outlook, that industry volumes in China would remain under pressure this year and the first quarter was in line with that.

Thanks so much.

Thanks, Caroline.

Brett Cooper, Consumer Edge Research.

When you purchased Modelo there were gaps for you to close in Mexico.

Can you talk about where those stand today in terms of execution, brand health, brand building?

Because I'm trying to understand the runway for performance there and see if there are gaps opening up with Mexico being better than your other regions, such as you can challenge other parts of your business with their performance?

Thanks.

I think -- it's a good point.

I mean Mexico did a very good job in terms of the integration from Grupo Modelo into our Company.

I think it was the best integration, every time we learn a bit more.

We're going to learn of course from their tool-kit that they added to the existing tool-kit that we had from AB.

I just said, we've had some very good performance there in that industry grew or the category grew.

We grew our market share.

We grew our margins by double-digits or double percentage points since the very beginning, like 17 percentage points.

Our brands there Corona, Victoria, Bud Light are performing very well.

Those are our main brands there.

We have also lots of activities in the market in terms of trade activation, in terms of new consumption locations.

The pillars of Mexico are basically four.

It's about growing our global brands.

It's about growing premium, which is still to come because premium in Mexico is like, almost nonexistent.

So there is everything to be done on global brands and premium.

We've been in the core where most of the business is today but going forward, we're going to be putting more assurances behind premiumization and global brands.

And developing the near beer segment, which is nascent, very accretive and very profitable.

So we have to keep those in Mexico, our brands are doing very well.

The country's doing very well as well.

We also had some craft acquisitions in Mexico, [cableone] and [cerartmex].

So we, of course, craft in Mexico is very small but like in any market, it's a segment that is growing, with very good market shares, very good macros, very good margins.

We'd like of course to be present and active in that segment as well.

So Mexico has a very focused team with very good momentum and after a great integration.

So, firing on all cylinders I would say.

Thank you.

Thank you, Brett.

Okay.

So thank you very much, everybody.

The first quarter was a challenging one with macroeconomic headwinds in Brazil as anticipated.

We are waiting on our overall group results; however, as said, we had very good momentum in many parts of our business and remained focused on the things that can impact and influence, as always.

We are also making good progress towards closing the proposed combination with SABMiller and look forward to providing you with further updates in due course.

So again thank you very much for joining the call today.

Thank you for your time.

Enjoy the rest of the day.

Thank you.

Thank you.

This does conclude today's teleconference and webcast.

Please disconnect your lines at this time.

Have a wonderful day.