Earnings Call: Q1 2020

May 7, 2020

Mr. Carlos Brito, Chief Executive Officer and Mr. Fernando Tennenbaum, Chief Financial Officer. To access the slides accompanying today's call, please visit AB InBev's website at www dotab imbev.com and click on the Investors tab in the Reports and Results Center page. Today's webcast will be available for on demand playback later today. At this time, all participants have been placed in listen only mode and the floor will be open for your questions following the presentation. 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 management's current views and assumptions and involve known and unknown risks and uncertainties. It is possible that AB InBev'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 AB InBev'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 the 23rd March 2020. AB InBev assumes no obligation to update or revise any forward looking information provided during the conference call and shall not be liable for any action taken in reliance upon such information. It is now my pleasure to turn the floor over to Mr. Carlos Brito. Sir, you may begin. Thank you, Maria, and good morning, good afternoon, everyone. Welcome to our Q1 2020 earnings call. I hope you and your families are all safe and well in this unprecedented times. 1st and foremost, I'd like to extend our deepest sympathies to everyone who has been affected by the COVID-nineteen virus. I want to express our sincere gratitude to those on the front lines for their commitment to keeping us safe, particularly to the healthcare workers around the world. I'd also like to personally thank our colleagues for the work they're doing to ensure business continuity during these volatile times. The global COVID-nineteen pandemic has altered life as we know it. However, it has not changed our purpose at AB InBev to bring people together for a better world, even if being together looks much different now. Today, I'll briefly discuss the results of the Q1, but I'll spend more time providing an update on our business in light of the COVID-nineteen pandemic. I'll then hand it over to our new CFO, Felipe Reynaldo Tannenbaum, who will address our financial results and the measures we have taken to exercise financial discipline in a time of significant uncertainty and volatility. We'll then be happy to answer your questions. Our business started the year with good momentum. We delivered volume growth of 1.9% in the 1st 2 months of the year, excluding our business in China, where the COVID-nineteen outbreak began in late January. The impact of the pandemic on our global results increased significantly toward the end of the quarter, leading to a volume decline of 3.6%, excluding China, and a total volume decline of 9.3%. Beer volumes declined by 10.5%, while non beer volumes declined by 0.2%. Revenue declined by 5.8% in the Q1 as the volume decline was partially offset by revenue per hectoliter growth of 3.9%. Our global brands grew revenue across the majority of our markets, but their total performance was significantly impacted by declines in China, which is the largest market for both Budweiser and Corona outside of their home markets. EBITDA declined by 13.7 percent with margin contraction of 3 31 bps to 35.9%, primarily due to the top line decline and higher cost of sales per hectoliter, resulting from operational deleverage and transactional currency headwinds. Our normalized EPS decreased to negative $0.42 while underlying EPS decreased to 0 point 5 $1 Let me take you through let me take you through the key takeaways for some of our main markets in the Q1. In the U. S, the continued implementation of our commercial strategy led to top and bottom line growth. Our above core portfolio continued to outperform the industry, supported by the successful launch of Bud Light Seltzer, the Michelob Ultra family in our regional craft portfolio. Our business in Mexico had a very strong Q1 as it had not yet been meaningfully impacted by the restrictions to contain the COVID-nineteen pandemic. Revenue grew by double digits and EBITDA grew by more than 20% with margin expansion of more than 500 basis points. We saw healthy growth across the portfolio and continued our expansion into OXXO, the largest C store chain in Mexico. We're now present in more than 6,000 OXXO stores. Following a strong 2019 performance in Colombia, we entered this year with continued momentum. In the 1st 2 months, we grew volumes by high single digits and regained share of total alcohol in the quarter, while continuing to expand the premium segment, we are the market leader. However, our business was significantly impacted by the COVID-nineteen pandemic in March, leading to a quarterly volume decline of mid single digits. In Brazil, we had a challenging quarter. Our top line performance was impacted by soft industry and unfavorable mix shift as the premium segment where we under index considerably outperformed the industry. We're taking a portfolio approach in this segment with a strong base of our global brands and regional craft brands, further enhanced through initiatives in the pure malt space, such as the recent launches of DAX and Brahma Duplamote. South Africa had a strong start of the year and delivered balanced top line growth supported by continued share gains in the premium segment. Restrictions on the sale of alcohol in all channels and social distancing measures were implemented in mid March, with a complete shutdown beginning on March 27, significantly impacting our volumes. Our business in China was severely impacted by the outbreak of COVID-nineteen in late January, with most provinces implementing significant lockdown measures through at least the end of February. We observed virtually no activity in the nightlife channel, very limited activity in the restaurant channel and a meaningful decline in the in home channel. However, the e commerce channel accelerated significantly where we are in the market and grew by strong double digits. Since the beginning of March, we have observed a steady recovery in the in home and restaurant channels, so the nightlife channel is recovering at a slower pace. In Europe, our top line declined by mid single digits as our business was impacted by COVID-nineteen restricted measures throughout March. We continue to gain market share across all of our markets, supported by our global brands. We expect that the impact on our 2nd quarter results would be materially worse than in the Q1, as evidenced by a total volume decline in April of approximately 32%. This decline was driven by 2 main factors. 1st, during the month of April, the on premise channel was closed across the vast majority of our markets. In 2019, this channel accounted for approximately 1 third of our global volume. 2nd, in some of our very relevant markets such as Mexico, South Africa and Peru, we face a complete shutdown of our beer operations in April. I'd now like to discuss how we're living our purpose in new ways, coming together with the shared determination to prioritize each other's health and safety, build resiliency in our local communities and find innovative ways to connect with our customers and consumers. Our teams in China and South Korea were the first to be impacted by this crisis. Their experiences and insights have provided best practices that are benefiting our operations around the world, helping position us for a strong recovery. The health and safety of our people is our top priority. We pay close attention to the guidelines of the World Health Organization and comply with local government requirements. Moreover, we have implemented additional safety measures to protect our colleagues. We continue to build upon the resources available to support the physical and mental well-being of our colleagues around the world. The strength of our global business comes from our local presence. Because the vast majority of our products are sourced, brewed, distributed and enjoyed locally, we're deeply connected to our communities. Together with local governments and our partners, we're leveraging our scale, capabilities and resources to support the fight against the pandemic through initiatives such as producing and donating more than 3,000,000 bottles of hand sanitizer in over 25 countries, Packaging and donating water. Mobilize our trucks to deliver food, water and medical supplies. Donating medical supplies, including more than 3,000,000 face shields that we are manufacturing building public health care facilities in Mexico, Colombia, Brazil and Peru and collaborating with our sports partners and the American Red Cross in the U. S. To convert stadiums in our own tour facilities into temporary blood drive centers. We also launched a series of tailored initiatives across 20 countries to support our on premise partners, including local pubs, bars and restaurants, such as subsidizing consumer purchases of vouchers for future use and creating platforms to advertise local delivery options. We continue to look for new ways to support our partners so they can weather this crisis and prepare for a strong recovery. Prior to the pandemic, the on premise channel represented approximately 1 third of our global volume. But as you can see on Slide 11, all markets vary widely by our exposure to the on premise and by market and by maturity level. The impact of the COVID-nineteen pandemic on our business in each market is highly correlated to our exposure to the on premise, as this channel is heavily impacted by social distancing restrictions. Mature markets with higher disposable income levels, we have seen an initial uplift in off premise sales, which I'll now discuss in more detail. Our diverse geographic footprint is a major advantage as it allows for best practice sharing across our markets as they move through different stages of the crisis and into eventual recovery. In order to understand the impact of our business of the COVID-nineteen pandemic and take proactive measures to adapt our operations, we have grouped our markets into 4 clusters based on three factors: the stage of the pandemic the maturity level of the market, including the exposure to the on and off premise channels and thirdly, the extent of the social distancing restrictions. The first cluster includes markets like China and South Korea that are in early stages of recovery, where we're seeing customers begin to reopen and volume trends improving sequentially. To put this into context, our volumes in China declined by 17% in April as compared to 46.5% in the Q1. Our priority in this cluster is to support our partners as the recovery progresses. The next cluster is less restrictive developed markets, such as the U. S, Canada and Western Europe, where the majority of our sales are in the off premise channel. In this market, the on premise channel is basically closed, but we have seen initial volume uplift in the off premise channel as consumers prepare to enjoy our products at home, although it's too early to determine the sustainability of this trend. In those markets, our priority is to ensure we're effectively servicing the off premise channel, while supporting the on premise using our learnings from recovering markets cluster. The 3rd cluster is less restrictive developing markets, such as Brazil and Colombia. In these markets, the on premise is effectively shut down, which comprises a larger portion of our volumes. Our priority for this cluster is to develop programs to support both the on premise channel and traditional trade partners, for example, by providing them with resources and technology to facilitate home delivery services. The 4th cluster is more restrictive developing markets such as Mexico, South Africa and Peru. In those markets, our brewery and distribution operations have been severely restricted. We continue to work with governments in this fast changing environment and are doing our part in the fight against COVID-nineteen. We look forward to resuming our operations when appropriate. For additional context, you can see the current status of our operations in our top 10 markets in the chart on the right side of Slide 12. Please keep in mind that the current situation is very fluid and as a result, the status of our operations can evolve quickly. Our culture is one of ownership and resilience, even in the face of extreme adversity. I'm inspired and humbled by my colleagues around the world who are coming together displaying tremendous agility and working tirelessly to position us for a strong recovery. We quickly implemented a cross functional COVID-nineteen task force that connects every day in order to maintain an open dialogue and act with agility and speed. The key priorities of our task force are providing for the safety of our people, supporting our communities and partners and safeguarding our business continuity. This structure facilitates the efficient sharing of best practice across our markets to amplify the impact of new ideas as quickly as possible. As I mentioned before, our colleagues in recovering market cluster generated many of the best practice that have been shared and implemented around the world. They immediately took steps to protect the health and safety of our people and leverage technology to keep our teams connected even from afar. Support our communities and partners has been and remains paramount. Our local teams with the help of our global procurement team quickly facilitated donations of masks, disinfectants and hand sanitizers to local hospitals. We also focus on providing excellent customer service to our wholesalers and retailers with proactive communication. Our commercial teams also acted quickly to allocate resources where they would be most effective, including to the off premise and e commerce channels. Our team in China also led the way in finding innovative ways to connect with consumers who are staying home. They launched the Budweiser e Clubbing program in collaboration with Tmall, where consumers can enjoy performance from local electronic dance music DJs while being able to simultaneously order Budweiser online. This inspired our teams around the world to leverage consumer passion points in creative new ways such as Sercuto Brahma in Brazil, a virtual country music concert series that generated 3,000,000 live views at its first show and has accumulated over 40,000,000 views to date. In the U. S, Michelob Ultra continues to promote an active lifestyle through live stream home workouts that support local fitness studios, which have been impacted by social distancing restrictions. For the past several years, we have been investing in new capabilities to better connect with our customers and consumers. Growing trends such as digital sales, e commerce and online marketing are more relevant now than ever before and have rapidly accelerated in recent months. In many of our markets, our customers can place orders online through our B2B and marketplace platforms, which we established and significantly invested in enhancing over the past few years. This offers them the flexibility to order when and where it's more convenient, while providing visibility into our full set of offerings and their past transactions. Additionally, in 2018, we created a function dedicated to our direct to consumer business, which includes several e commerce platforms across our markets. This allows us to better understand and connect with our consumers in the direct way and these learnings are providing incredibly useful today. We believe the significant progress we have made in areas such as B2B sales and e commerce put us in an advantage position to capture growth from these trends. While we're rapidly adapting our business to best meet the needs of our customers and consumers in the current environment, the fundamental strengths of our company remain unchanged. We have a clear commercial strategy, the world's most valuable portfolio of beer brands, diverse geographic footprint, industry leading profitability and an incredibly deep talent pool and confident that this invaluable assets position us well for a strong recovery. Now I'd like to hand it over to Fernando, who will take you through our Q1 earnings and elaborate on the steps we have taken consistent with our long standing financial discipline. Fernando? Thank you, Brito. Good morning, good afternoon, everyone. It is a pleasure to be with you in my first AT and T Bank earnings call as CFO. I hope you are all safe and well. Let's start with an update on our net finance costs. Net finance costs in the quarter were $3,160,000,000 compared to 366 $1,000,000 in the Q1 of 2019. This increase was predominantly driven by market to market losses linked to the hedging of our share based payment programs of nearly $1,900,000,000 compared to a gain of nearly $1,000,000,000 in the Q1 of 2019. Interest expenses were lower by nearly $80,000,000 Our normalized effective tax rate or ETR was minus 109.3% this quarter as it was heavily impacted by the non deductible market to market losses linked to the hedging of our share based payment programs. Excluding the impact of the gains and losses linked to the hedging of our share based payment programs, our ETR in the Q1 was 25.9% as compared to 27.5% in the Q1 of 2019. The decrease is primarily driven by lower property and country mix. Moving on to earnings per share. Our underlying EPS decreased to $0.51 per share in the quarter as the decline in normalized EBIT was only partially offset by lower tax expense and lower profit attributable to non controlling interests. Let me now spend a few minutes on the measures we are taking to exercise our financial discipline. Our commitment to financial discipline is unwavering, especially in the context of the current volatility. We are proactively managing those factors upon which we can have impact and influence. Efficient utilization of our resources is part of our DNA and an important driver of our industry leading profitability. We have implemented several measures to reduce or eliminate discretionary spending that may not prove effective in the current environment. This includes non committed capital expenditures, valuable administrative expenses such as travel and events and sales and marketing investments, including sponsorships. Additionally, our senior leadership team has volunteered to reduce their base salaries by 20% for the remainder of the year. We also revised our proposal to pay a final 2019 dividend from €1 per share to €0.50 per share. We determined that this decision was prudent and in the best interest of the company as it was consistent with our financial discipline, deleveraging commitments and other actions taken to navigate this environment. We have also taken proactive measures to maintain our strong liquidity position, including drawing down our $9,000,000,000 revolving credit facility in full and successfully issuing approximately $11,000,000,000 of bonds. In addition, the Australian Foreign Investment Review Board has granted regulatory clearance in relation to the sale of our Australian operations. The transaction will close on June 1. As I mentioned, in April, we successfully completed 2 investment grade bond issuance to further strengthen our liquidity position, EUR 1,000,000,000 of EUR 4,500,000,000 and EUR 1,000,000,000 As you see on Slide 24, our bond maturity profile is well distributed across the next several years and these issuance further extended our weighted average maturity by approximately 5 months. As a reminder, we do not have any financial covenants on our entire debt portfolio, including our revolving credit facility. Our bond portfolio remains largely insulated from interest rate volatility as approximately 95% holds a fixed rate. Furthermore, the portfolio is comprised of a diverse mix of currencies with around 60% denominated in U. S. Dollars and 33% in Europe. Our weighted average maturity is now roughly 15 years. Finally, we have a weighted average coupon rate of approximately 4%. I will now take you through our capital allocation priorities. The first priority for the use of cash is to invest behind our brands and to take full advantage of the organic growth opportunities in our business. 2nd, the leverage to around a 2 times net debt to EBITDA ratio remains our commitment and we will prioritize debt repayment in order to meet this objective. 3rd, with respect to M and A, we will always be ready to look at opportunities when and if they arise, subject to our strict financial discipline and deleveraging commitment. Our 4th priority is returning excess cash to shareholders in the form of dividends and or share buybacks. With this being said, we must exercise prudent measures during times of uncertainty and volatility, including efficient management of discretionary expenses, especially those which may not prove effective in the current environment. And with that, I'll hand back to Maria to begin the Q and A session. Thank you. The floor is now open for questions. In the interest of time, we will limit participants to one question and one follow-up question. Our first question is coming from Trevor Stirling of Bernstein. Hi, Brito and Fernando. One question, a follow-up from me, please. The 2 are firstly, in the U. S, Brito, you alluded to the off trades strength that we've seen in March and also extending into April. I was wondering if you could give us any thoughts around the sustainability of that off trade strength and the extent to which it's actually offsetting the on trade weakness? And the second question, in Brazil, you mentioned that you underperformed in premium this quarter. I think the Brazilian premium volumes actually declined in 1Q according to the Ambev release. And I wonder if you can give us a bit more color on why you're doing a lot of activity in premium, but it doesn't seem to be quite delivering yet. Hi, Trevor. Thanks for the question. So first on the U. S. Off trade, because of the stay at home orders, social distancing and everything, the on trade was brought to a shutdown and consumers had to come up with more activities at home. So meals at home became something that was more important than before. Everybody was having their meals at home, restaurants were closed and lots of other things started happening in the home. So with that, the off trade saw a pickup in volumes and that the onset of the crisis. So we observed that uplift in beer sales, especially on bigger packs and also known brands. So it's proportionally benefiting established brands. It's too early now to determine if this trend will demonstrate a longer term shift in consumer behavior. But at this time, that's what we saw. So it's good to just make an observation here about the performance in Q1 in the U. S, in which net revenue grew by 1.9%, EBITDA 2.7% and net revenue per hectoliter 3%. So there was a very strong quarter And so that's for the U. S. Upgrade. In terms of Brazil premium, a couple of things. First, our premium segment posted double digit growth in January February. March then with all the restrictions, it was a different story. 2nd, our premium brand portfolio has grown every year for more than a decade, and we continue to believe that the best way to position yourself to win in the long term in the premium segment is with the portfolio of brands to which we're adding back as an import style international premium pure malt brand. And it's also good to remember that we have more than 50% of that segment. I wouldn't take 1 quarter as a signal, but it is true that we under share. We're under share in that segment, and that's something that's still have to solve. So we believe the portfolio approach and we have very strong brands. Thank you. Thank you very much, Priscilla. Thank you. Our next question comes from the line of Edward Mundy of Jefferies. Hi, Brito. Hi, Fernando. Two questions as well, please. First question is, how do you weigh up your strong liquidity situation and extend the debt maturity schedule versus potential for accelerated deleveraging program as we saw back in 2,008? And then my follow-up question is around COGS per hectoliter. Coming into fiscal 2019, you have been guiding for COGS per hectoliter to increase by about mid single digit. It feels like spot prices are probably starting to come down, but transaction hedging is probably worse than next year. Should we think about COGS per hectoliter in 2021 to be better or worse at this stage relative to fiscal 2020? Okay, Matt. So let's start with the first one. So in terms of liquidity, we feel very good about our position. I mean, that's the first thing we did when we saw the crisis hitting. We added 2019 with $7,000,000,000 in cash. Then we went for bond issuances in April, euros 4,500,000,000 $6,000,000,000 so $11,000,000,000 approximately in total. We also withdrew the totality of our revolver, dollars 9,000,000,000 and this morning we just got confirmation that we got the FIRB approved in Australia, so all conditions for closing are checked and the transaction will close on June 1. When you put all this together, the liquidity, we are in a very comfortable position. In terms of leverage, our capital allocation priorities are the following. The first priority is the use of cash behind growing our brands on our organic business. The second one is to deleverage to around the 2x net debt to EBITDA. This remains our commitment and we'll continue to prioritize debt repayment in order to meet this objective. The third one is about M and A and the 4th one is to return excess cash to shareholders. With this being said, we must we exercised we were very prudent and continue to be prudent and including the efficient management of discretionary expenditures. So I want to try to say if we looked at everything that was discretionary and could be phased out and we took that decision along with the dividend revision from €0.01 to €0.50 So the leverage continues to be high on our agenda. And this morning, the CUB Australia announcement and the certainty of closing on June 1 was very good. In terms of the cost of sales, we had 2 impacts in this Q1. First, I mean, if you look at commodities and foreign exchange, this is a quarter this year that will continue to have that hit. And second, because of the operational deleverage. So if you look at our 10.3 COGS or cost of sales specular escalation in the Q1, 33% of that came from the operational deleverage. We're having less volume to dilute fixed costs and 25% of it came from commodities and FX commodities and FX. The balance would be inflation and brand and package mix. That's always part of the equation. So again, more than half, slightly more than half coming from FX commodity and FX commodity and the volume deleverage. For 2021, very hard to predict. It is true that we have our hedges in places. So we're always trying to hedge 12 months on a rolling basis. But at this point, things are very fluid. What we can say for this year is that on the transactional piece, we are hedged for this year. But for next year, we're in the process of doing that. And of course, we'll have to continue to follow the situation in terms of currencies and commodities in general. Thank you. Thank you. Our next question comes from the line of Sanjay Aujla of Credit Suisse. Hi. A couple of questions from me also. Firstly, Brito, can you just go into a bit more detail as to what you're seeing in the off premise channel in those less restrictive developing market clusters, so Brazil, Colombia? Are you seeing any growth in the off premise there? Or is that channel also declining? And then my follow-up is just coming back to the smart affordability strategy that you started really talking more about last year. Is there any changes to that just in light of the material FX headwinds that we've seen, which will clearly impact from a transactional standpoint going into next year? Does that make you think any differently about that and the associated margin impact? Thanks. Well, first of all, freight on less restrictive markets like Brazil and Colombia, for example. What we see in terms of trends on how consumers are behaving during COVID is that there is an increase in home consumption. People are buying more in the local store in the neighborhood because they cannot freely move in many places. Core brands are showing more resilience because people are going for bigger packs of non established brands. A lot of things going digital in terms of order and entertainment and also cans increase in terms of the pack mix. So yes, it is true that our trade is more resilient and stronger compensating a little bit. But in countries like Brazil and Colombia, the on trade is so significantly that the off trade uplift is not nearly enough to compensate. This is from the first cluster of markets where the on trade is very small like Brazil like the U. S, U. S. And U. S. And U. S. And where the off trade can in large part compensate for the on trade shortfall. In terms of smart affordability, we I would like to step back and go to the category expansion framework. In the category expansion framework, what we learned is that you should have a portfolio to cater all sorts of price points and all sorts of consumers. So smart affordability is a key part of our portfolio. So there's no change there. And let's remember that with local crops, because of the excise tax break we have, the margins are very comparable to the core brands. So they're very profitable compared to the average of the company. So that's what I yes, that's it. Thank you. Just a quick follow-up, if I can quickly, Brito, on China. You talked about an impact also in the off trade channel in Q1. I'm just curious as you're going into April, I appreciate the on trade channel isn't quite back to normal, but are you seeing any pickup in the off trade channel within China yet? Yes. In China, what's happening, Sanjay, is that different channels are reopening at different speeds. So the ing home, of course, was mostly open during the whole time because people needed to have access to food. So that remains true. Then the Chinese restaurants reopened faster than the nightlife for example. And so channels are beginning to attract customers back to old habits, to old ways of consuming beer, but in home and especially the e commerce and delivery remains very strong. So that's what we see. Also going back to your first question on Brazil and Colombia, we have developed some ways to get beer to consumers' homes. You saw in the presentation about Tiena's Thera in Colombia, Zelle delivery in Brazil. So these things we have developed in the last 5 years and they've proven to be very handy in markets like Brazil and Colombia, where the on trade is very important and where home delivery is going very fast. So the things have been developed in the last 5 years came handy now with the e commerce and direct delivery being much more relevant. Thank you. Our next question comes from the line of Celine Panuti of JPM. Yes. Good afternoon. My first question is on a bit technical maybe on the Mexico and Peru. Can you confirm where you will be if you know whether you will be able to brew again from June? And how much inventory do you need to replenish the trade with? And how long would it take for you to do that on top of your normal production? And then my second, just as well staying on Latin America, a follow-up. We've seen a lot of FX pressure for many of the Latin American countries, and we are going to see recession hitting those economies almost all at once. What kind of environment are you preparing in terms of the second half and next year? And would it be fair you will have limited ability for price recovery and hence whether we should how you think about this on a mid term basis for your profitability? Thank you. Thank you. In terms of Mexico and Peru, yes, our beer operations are restricted, so we cannot operate. Peru in the last few weeks gives permission to sell the existing inventory. What is true in both countries is that we have enough inventory for when the recovery comes that we're able to supply our customers in a very fast way. In Mexico, for example, the box are able to sell existing inventory that they have with them. But after the Easter vacation, which in Mexico is a very strong consumption period, there's pretty much no inventory left in the marketplace. So there's a lot of pent up demand in the market. So the moment we can use our inventory that sits in our breweries and our warehouses, distribution centers, it's going to be very fast to replenish the inventory to the trade, same in Peru. In terms of LatAm, FX, as you know, LatAm is a place where our people are very used to crisis from time to time and they know exactly what to do terms of being ready for a tough few months or few years. We've done that many times in the past. So we're going to do it again by looking at structure, by looking at discretionary spend, by trying to reallocate resources to channels that are growing, taking it from channels that are more under pressure, by using our portfolio to our advantage and also by using technology. Now we have B2B that even without the presence of our sales rep, POX can get their orders to us. We have direct delivery to customers' home, consumers' homes, all these things. And on top of that, all these things will come handy. And on top of that, the hedge policy that we have in place for transactional cost exposure that are dollar denominated, they pretty much this year is hedged for those exposures. So that would give us time to plan for price increases that will be necessary going forward. So that's why we do hedge, so we have time to plan and we can read the market, try to understand tax, brands, regions, channels and plan a price increase accordingly. Thank you. Our next question comes from the line of Olivier Nicolai of Goldman Sachs. Just one question and one follow-up please. Could you give us a few examples in the U. S. Market I mean I mean, ABI clearly has no liquidity issues as we've seen from your presentation and new refinancing and then the medium term? You reduced the dividend already. Can we expect a CapEx reduction? Can we expect more non core disposals? Or should we just assume that the bulk of that net debt to EBITDA reduction will come through EBITDA growth? Obviously, for the medium term, not asking for guidance on this year or next year. Thank you. Well, in terms of the U. S. In terms of measures to protect our margins, we're doing everything we I just mentioned in Brazil. So we are looking at this question there is spend where we're taking a hard look at sales and marketing at CapEx, the OpEx and CapEx and trying to put the money in channels and products that consumers are demanding more. So try and put more money behind e commerce initiatives, direct to consumer initiatives, more money for sure the off trade, more money behind bigger packs, try to promote less because today there's no need for that. Trying to phase out some product new introductions, innovations because at this point doesn't make sense to do introductions. I also took up some needed spend and put more online. So trying to be more in tune with consumers and trends. So we allocate resources in a more effective way. So this is a big time something we're doing. In terms of capital structure, again, our capital allocation priorities are clear. So the first priority will continue to be to invest money behind our business. U. S. Business is doing very well. You saw the Q1, Olivia. 2nd is to deleverage. We have a target of getting to 2 times net debt to EBITDA, which just remains our commitment and we'll continue to prioritize that repayment in order to meet this objective. And third is M and A and 4th, giving money back to shareholders. So with this being said, we must exercise prudent measures during the times of uncertain volatility, including efficient management of discretionary expenditures that may prove not effective in this current environment. So we continue to be very prudent, continue to be making decisions that are consistent with our financial discipline and deleveraging commitments to navigate this environment. So we'll always take our asset base. We've always reviewed every year. To identify non core assets that can be divested as part of our normal business operations. So at this stage, there are no major divestments plans to highlight, but this is the kind of review we do every year. And Just to add here, in the short term, we are likely to maintain a large cash position, which is prudent given the current volatility. And as we see the crisis passing away, then the idea is to deploy this cash to redeem short term maturities. So all the near term maturities, we're going to be tackling that. Thank you very much. The other thing, Olivier, just on the U. S, our industry leading margins also provides us with more flexibility in times like this. So our industry leading margins is also very important component on how to weather storms like this. That's great. Thanks a lot. Thank you. Our next question comes from the line of Simon Hales of Citi. Thank you. Hi, Brito. Hi, Fernando. 2 for me as well, please. Brito, can I just sort of come back on those cost mitigation points you were talking about there? Clearly, as a business, you've been at the forefront of driving efficiency out of the organization over many, many years. When we look at really where you're targeting these short term savings, should we really be thinking about the variable marketing spend really taking up the lion's share of those possible synergies. I imagine the fixed cost elements of your SG and A expenses, excluding marketing, are very high and probably difficult to address at this stage. Is that right? Is there any more color you can give me to help me think about the opportunity that you've got to address the cost base there? And maybe secondly, just going back to China and just particularly the Budweiser brand, could you talk a little bit more about the performance of Budweiser outside the U. S, but particularly in regards to China through the quarter, perhaps how things have developed as we've been through March and into April? Thank you. Okay, Sam. So in terms of cost mitigations, I mean, if there's one thing that's very an integral part of our DNA, This is idea of doing a very efficient resource allocation. And you're right, during times like this, you look at everything that is discretionary, sales and marketing CapEx, travel, meetings, trainings, you do have a hard look. It's not that we're not investing in sales and marketing, but for sure we're investing channels that make sense and not investing in others that are like the on premise. We're also looking at structure in the sense that we are redeploying people to activities that are more needed. So if there's more activity in the off trade, we're getting people from the on trade, putting them in the off trade. If there's more activity in the commerce, we're trying to staff accordingly. So this is a very dynamic process, one that we're very used to. So these are times when our culture really rides to the challenge because resource allocation is something that we believe and we're very agile in doing it. In terms of Budweiser in China, Budweiser remains the number one brand for the premium segment in China. It's a very strong franchise, Suffered, of course, as all brands suffered with the shutdown, complete shutdown of China in February and is coming back now to life, has a little bit of a lag compared to other parts of our portfolio because the nightlife is recovering, yes, but at a slower pace. Those are more sophisticated box where the social distancing is harder to manage. So they are reopening, but not at the same pace as the in home channels or the Chinese restaurant channel. But as they reopen Budweiser benefit big time. The other thing we can see in China is that our super proven segment is with all those restriction continues to grow in every channel and continue to outperform other segments and continue to grow its contribution across our portfolio. So again, Brandweiser, the brand Budweiser continues to be the number one position in the premium segment in China continues to be very strong. In the nightlife, of course, is a very important channel for Budweiser and that's coming back as well with a little bit of a lag compared to other channels. That's very helpful. Can I just sort of ask, are you able to give us some idea of how big that sort of addressable variable cost base is that you're sort of targeting at the moment, please? No. At this point, we don't have an external number to mention, but it can be assured that we're doing everything we can to turn variable fixed costs into variable costs and to relocate costs where they are more effective given the current circumstances and given current consumer trends. Got it. Thanks, Bridget. Thank you. Our next question comes from the line of Tristan Van Strien of Redburn. Good afternoon, guys. Just 2. 1, just on South Africa. This is you've now had actually, I think, the 7th consecutive quarter of very strong margin compression that we have seen. And even if we look beyond COVID, I mean, have we started bottoming at this point? And what is the path to recovery of that margin? So I think on my numbers is the lowest in 15 years in South Africa. The second question is one thing that's become very clear on your statements. You guys are quite an agile organization, so a lot of quick changes that you did. Are there any management routines, behaviors, systems Well, just in terms of margin, I mean, first, let's say we're very happy with our performance in South Africa. I mean, if you look at our Q1, our volume grew by low single digits and that's already many quarters that went back to volume growth, strong volume growth, same with net revenue. Net revenue per hectoliter also grew by low single digits. So in terms of margins in South Africa, this has a lot to do with our higher cost of sales per hectoliter due to the premium mix, premium brand portfolio and on trade programs. So we're here for the long term, so we're investing for the long term. And we also implemented some price moderation strategy on one of our brands, the biggest brand, Carlin Black Label in March 2019, which drove double digit volume growth. So we think those are important metrics with some pain in the short term, but we believe those are very, very good for the long term and we're in this business for the long term. I would not take this as a sign that margins in South Africa are permanently under pressure. I think we did some adjustments and we also have some commodity and FX pressure. But in our view, this will be conducive to a better future in terms of portfolio rebalancing and more of a balanced top line growth. In terms of management routine, what became clear to us is that consumer trends that were already there are being accelerated in a big way, be it e commerce being more activities at home, larger packs, super premium continues to grow, premium continues to grow, e commerce becoming more important. So lots of things that we were investing already luckily for the past 5 years like direct to consumers, like e commerce, like you were able to see South African Investor Day are proven to be good decisions, great decisions. And what we thought we would be seeing in terms of volume for this initiative 3, 5 years from now, we're seeing now. If you look at our Z delivery in Brazil, we had in 1 month the number of orders we had for the full of last year, for the whole of last year and 1 month this year. And then luckily, we had all these things in place as well as B2D because of social distancing and difficulty in mobility is the case in many countries. Our B2B has provided our app based B2B has provided to be an amazing competitive advantage. And actually in some markets we see some other consumer product companies coming to us trying to join our B2B platform in our marketplace feature because they see that the time is right for this kind of B2B application. We're very happy that we started investing that in our ZX and our solutions 5 years ago and that we're now reaping the benefit. Thank you. Thank you, Britta. And ladies and gentlemen, we have time for one more question. Our final question will come from the line of Robert Ottenstein of Evercore ISI. Great. Thank you very much. Burrito, my understanding is that you're a very target driven organization. The targets are developed the prior year, I don't know, November, December, and cascade down from you right to the organization, and they're generally full year targets. Given the incredible changes that have happened, I mean, it's a whole new world today. And it's not only a whole new world today, but it could be a whole new world 3 months from now, 6 months from now, and tremendous and tremendous volatility, changes from governments that have huge impacts that are very different, country by country and hard to predict. In that environment, given your target driven structure, how do you empower local flexibility and agility to best execute? Thank you. That's very good point, Robert, because you're right, targets are important, but even more important than targets is common sense and priority setting. So when this whole crisis started, we set out priorities to our people that were very clear from day 1. We said priority number 1, safety of our people. 2nd, we have to be part of the solution for communities. We have to help communities deal with the kind of pandemic they are dealing with. 3rd, we have to keep our business operating as long as we have the permits and we operate in a safe manner, so business continuity. 4th, we have to prepare as we learn more through the crisis for a strong recovery. 5, we need to understand consumer trends and what the future will look like, so we can adjust our strategy and company and structure to what's to come. And on top of all that, we need to keep a very strong liquidity. So people are very clear from the very beginning of this pandemic on where our priorities were And because we have an LE system that we do every month, the last estimate for the next few months, that became more the North Star than the original targets. And now in June, July, after we see countries reopen in May June, from what governments are saying and that can change, we're going to do a review of targets in light of more information we'll have then. But for now, the priorities are very clear and DLE is our North Star. Thank you very much. Thank you, Robert. Any more questions, Maria? No, that was our final question. Okay. So thank you, Maria. And let me just say a couple of things to finish the call here. So in this uncertain times, it's important to focus on what we can influence and impact. We're committed to protecting the health and safety of our people, supporting local communities and connecting with our customers and consumers in innovative ways. We're in this together and we'll continue doing our part. Our culture is as strong as ever and our people are stepping up with a passion and commitment of 2 owners. We're privileged to lead the global beer category, a category that has existed for centuries through many crisis, it will continue to thrive long after the current crisis is behind us. In closing, I'd like to say thank you. Thank you to those in the front lines, their commitments to keeping us safe, especially the healthcare workers around the world And thank you to our teams for working with tremendous agility, resilience and dedication, especially those on the ground, the frontline, ensuring business continuity in this challenging times. I'm so proud to be your colleague. Thank you for joining the call today. I hope you and your family stay safe and healthy. We hope to celebrate the strong recovery over Abeer soon. Thank you very much. Have a great day. Bye bye. Thank you. This does conclude today's earnings conference call and webcast. Please disconnect your lines and have a wonderful day.