Earnings Call: Q1 2019

May 7, 2019

Welcome to the Anheuser Busch InBev's First Quarter 2019 Earnings Conference Call and Webcast. Hosting the call today from AB InBev are Mr. Carlos Brito, Chief Executive Officer and Mr. Felipe Dutra, Chief Financial and Solutions Officer. To access the slides accompanying today's call, please visit AB InBev's website now at www dotab inbev.com and click on the Investors tab and the Results Center page. Today's webcast will be available for on demand playback later today. 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 InVev'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 20 F filed with the Securities and Exchange Commission on the 22nd March 2019. AB InBev assumes no obligation to update or revise any forward looking 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 2019 earnings call. Today, I'll be taking you through the highlights of the Q1, especially those of our 2 largest markets, the U. S. And Brazil. I'll then discuss the exploration of a potential listing of our minority stake of our Asia Pacific business before handing over to Felipe, who will discuss our financials. We'll then be happy to take your questions. Let's start with the highlights. 2019 is off to a strong start as we accelerate our momentum from the Q4 last year into a solid Q1 performance. We delivered healthy broad based top and bottom line growth with particularly good results from Brazil, Colombia, Europe, Nigeria and the U. S. These results were delivered despite the unfavorable timing of a late Easter holiday, which is an important consumption occasion in markets such as the U. S, Mexico, Colombia, South Africa and Australia. The benefits of this holiday will fall in the Q2 of this year and as such, we expect this effect to normalize on a half year basis. Additionally, some of our main markets, especially Argentina and South Africa, continue to suffer from difficult macroeconomic conditions that subdue consumers' confidence and spending patterns. We also face some commodity and currency headwinds as expected, mainly due to higher aluminum and barley prices. With that being said, we have a lot to be proud of this quarter. We're very pleased with our results from Brazil, both in beer and non beer. We have outperformed the market with double digit volume growth. We also grew volume across all segments of our beer portfolio. This strong performance was supported by the later timing of Carnival, resulting in a favorable comparable. In the U. S, our top line performance continues to improve as a result of our evolved commercial strategy, with an emphasis on premiumization and innovation. This quarter, we had our best market share trend performance in the past 25 quarters with an estimated market share decrease of just 10 bps. Premiumization remains the key focus for our global business, fueling top and bottom line growth with strong results from our high end company and global brand portfolio. The ad company grew revenue by almost 20%, while our global brands Budweiser, Stella Toy and Corona grew revenue by 14% outside of their respective home markets. As we have stated previously, sustainability is our business and it's good business. We're proud to progress toward our 2025 sustainability goals, reducing carbon emissions across our value chain by 4.5% over the past year. Let me now take you through some of the numbers from the quarter. In the Q1, our revenues grew by 5.9 percent with revenue per hectoliter growth of 4.6%. Total volumes grew by 1.3%. Own beer volumes grew by 1%, with especially strong contributions from markets such as Brazil, Nigeria, Europe, Peru and Colombia, partially offset by South Africa, Argentina and the later timing of the Easter holiday in many of our markets. Non beer volumes increased by 4.9%, predominantly driven by Brazil. Solid top line performance coupled with operating leverage, favorable brand mix and continued cost discipline resulted in EBITDA growth of 8.2 percent and margin expansion of nearly 90 bps. Our underlying EPS decreased by 0 point 06 dollars to $0.79 as our strong performance was more than offset by the negative impact of unfavorable currency translation effects. Our global brands continue to lead our growth, with global revenue up by 8.5% and by 14% outside of the brand's home markets, where they typically command a premium price point. Budweiser's role in our premium portfolio is to offer consumers a trade off from core beer. It had great results in the Q1 with revenue growing by more than 15% outside of the U. S. The success was driven by especially strong performances in China, Brazil, the UK and Colombia. Stella Artois also delivered a solid performance with revenue growing by nearly 8% in the quarter. The growth was from a broad group of markets as the brand experienced double digit revenue growth in more than 30 countries, including Brazil, South Korea and Mexico. Corona, our most premium global brand sustained its strong momentum from last year with revenue up 15.7% outside of its home country of Mexico. This growth was led by Brazil, Colombia, the UK, China and Canada. I'd also like to update you on our 2025 sustainability goals. We announced these goals in the Q1 of 2018 and have come a long way in the past year. In only 12 months, we've made strong progress against these commitments. We reduced our carbon footprint by 4.5% across our value chain, reached an average water usage of under 3 hectoliters per hectoliter beer we brew and contracted approximately 50% of our purchase electricity from renewable sources. Moreover, we continue to put strong programs and partnerships in place. We launched the 100 plus Accelerator, piloting 21 companies across the world to help solve our biggest sustainability challenges and have already received multiple industry awards and recognitions. We're also leveraging technology to accelerate our progress. We have successfully tested electric vehicles to be added to our fleets in Mexico, Colombia and the U. S. We recognize there's a long way to go to reach these ambitious goals, but we're very excited about the progress we've made to date in close alignment with the United Nations Sustainable Development Goals, SDGs. Now I'd like to highlight the performance of some of our major markets. Further details can be found in our Q1 2019 results press release published earlier today. Additionally, I'll provide more detail on the performance of the U. S. And Brazil in the quarter shortly, given their improved commercial results as well as their relevance to our total company's performance. In Mexico, revenue and EBITDA increased as a result of growth in our revenue per hectoliter and enhanced by meaningful contribution from our premium portfolio led by Michelob Ultra and Stella Artois. Our volumes were lower versus last year, purely driven by the later timing of Easter, an effect which we expect to normalize on a half year basis. Despite this phasing impact, we estimate we outperformed the industry in the 1st 3 months of the year. We're also very excited to have signed a contract with OXXO, the largest retailer in Mexico to offer superior portfolio of beers in over 17,000 stores across the country. The rollout is underway and will cover OXXO's entire Mexican footprint by the end of 2022. This important commercial alliance enables us to reach more consumers in more occasions and further grows the beer category in Mexico. In Colombia, we grew volumes by low single digits despite the negative impact from Easter timing. Revenue product literally increased by high single digits, fueled by positive brand mix as our global brand portfolio grew over 60%. Solid top line growth together with continued synergy capture resulted in double digit EBITDA growth. South Africa had another challenging quarter, with the later Easter result in a tough comparable and further exacerbated by a persistently challenging macroeconomic environment. This environment is impacting consumer demand and driving the continued segment mix shift out of the core, which is more elastic and where we over index. While we're still under index in the growing premium segment, we gained more than 6 percentage points of market share in the segment versus the Q1 of last year. In China, we continue to drive premiumization, which resulted in healthy brand mix and a solid financial performance. Although the overall volume performance was affected by the earlier timing of the Chinese New Year, Budweiser continued to grow across China by mid single digits. And our super premium portfolio led by Corona, Francescana and full portfolio, especially through premiumization and innovation. Our market share trend performance is heading in the right direction as we invest behind the sustained momentum of our above core portfolio and the stabilization of our core and value brands. We have improved our share trend from losing 70 bps in full year 2017 to 45 bps in the first half of last year and 35 bps in the second half of last year. During the Q1 of this year, we continue to improve the trend getting to minus 10 bps. 9 of our brands were among the top 15 market share gainers in the country in the Q1 according to ROI, reinforcing our commitment to our portfolio strategy. This was led by Michelob Ultra as the top share gain in the U. S. Once again, now holding that position for more than 4 consecutive years. We're fully committed to strengthening the beer category in the U. S. In leading future growth. In order to do so, it's vital that we listen closely to our consumers and we use the insights that we gain to power our portfolio of brands. It's clear that consumers are demanding more transparency in the food and beverage they purchase. Thus, the beer industry needs to provide such transparency to evolve with consumer preferences. As a category leader, we're spearheading this effort by clearly labeling the ingredients on the packaging of the number one selling beer in the United States, Bud Light. This is a long term play for the benefit of not just the brand, but the entire beer category. Bud Light will continue providing consumers with the transparency they demand, and you can expect to see this approach with our other brands down the line. Furthermore, taking a regional approach is a key component of our U. S. Strategy. The deal market in the U. S. Is large and diverse and the consumer environment differs quite a bit from one region to the next. Therefore, the closer we get to the consumer, the more we can leverage the effectiveness of our wholesaler network to better meet consumer needs. Digging powerful brands are still very relevant in the lives of our consumers as long as they remain close and speak to them. Examples of successful executions at a local level include the Bud Light Philadelphia NFL campaign, Philadelphia, the Bud Light Cleveland Browns, Victoria, Victory Fridges and the Michelob Ultra New York City Marathon. We'll continue to invest behind local community relevant campaigns, which go beyond traditional media by leveraging social conversations and delivering best in class brand experiences. Innovation is another major driver of our improved performance in the U. S. We have revamped our approach to innovation by bringing consumers to the forefront and placing an emphasis on rapid test and learn pilots. This enables us to adapt ahead of national rollout testing in a fast and small way. Once the concept is validated, we can then scale it up quickly and efficiently. With our new more nimble approach, we can speed up time to market to less than 100 days. Last year alone, we launched several new products such as Bud Light Orange, Budweiser Freedom Reserve and Michelob Ultra Pure Gold Organic. These new products contributed to half of the innovation volume for the entire U. S. Beer category in 2018. In the Q1 of this year, we continue to lead the category. We have ventured into new segments such as with Michelob Ultra Pure Gold as the first beer brand at scale to gain organic certification from the USDA and into new occasions such as with Stella Arclis Spritzer, which offers a refreshing alternative to wine. Furthermore, we're leveraging our global footprint such as through the U. S. Launch of Patagonia, a premium local brand from our portfolio in Argentina. We identified an opportunity for this brand to meet consumer needs in the U. S. And acted with speed, getting the brand on the shelves in selected markets only 60 days after identifying the opportunity. In line with our culture, we're never completely satisfied with our results, and we acknowledge there's still work to be done in the U. S. However, we're seeing many encouraging signs that our evolved commercial strategy is delivering results. We firmly believe that we have the right people, portfolio plans and strategy in place to shape and lead future growth of the U. S. Beer category. Now I'd like to discuss our business in Brazil in a bit more detail. Brazil was the leader amongst all of our markets this quarter in both volume and revenue growth. We achieved double digit growth in both beer and non beer, outperforming their respective categories. We're very pleased with the strong start of the year in which we grew volume across all segments of the industry. Favorable result was supported by the later timing of Carnival as well as the lower industry weight of the value segment, even though we have not yet seen an increase in consumer disposable income. We continue to gain share in the growing premium segment with our global brand portfolio growing by more than 50% and corona more than doubling its volume since the Q1 of 2018. Our local premium brands also contributed meaningfully to our results with volumes up by double digits. We firmly believe that premiumization is achieved through a portfolio of brands and are confident that our expanded portfolio is best positioned to continue winning in this segment. We're very pleased with the growth of our core portfolio, which benefited from recent innovations in line extensions, including Skol Puro Malte, which offers consumers a pure malt choice in the core segment. The category expansion framework has given us the tools to better differentiate our core brands, firmly positions Skol as an easy drinking lager and Brahma as a classic lager. This is driving improved performance of the entire core portfolio. Furthermore, we saw the ongoing decline of the value segment in Brazil as consumers are trading up. However, the value segment remains very relevant in certain regions of the country. And for this reason, we have launched affordable brands brewed with ingredients grown by local farmers to profitably compete in this segment. We currently have 2 regional brands brewed with local cassava, Nossa in the state of Pernambuco and Magnifica in the state of Maranhao, both of which have achieved very positive results to date. We continue to explore additional opportunities to expand our affordability initiatives throughout relevant states, while achieving margins comparable to those commanded by our core brands. In summary, we're confident in our commercial strategy, superior portfolio brands and most importantly, our committed and talented people. The transformation investments undertaken in our business even during the times of extreme volatility and a challenging macroeconomic environment have put us in a stronger position to win in the Brazilian beer market going forward. Moving on. As we announced in our press release this morning, we're actively exploring a potential initial public offering or IPO of a minority interest in our Asia Pacific business on the Hong Kong Stock Exchange. Proceeding with the listing will depend on a number of factors, including but not limited to valuation and prevailing market conditions. The merits of this initiative are based upon the creation of an APAC champion in the consumer goods space. Furthermore, our superior portfolio brands and leadership position in the B industry provide an attractive platform for potential M and A in the region. We appreciate that minority stake listening would accelerate our deleveraging path. Nonetheless, our commitment to reach a net debt to EBITDA ratio below 4x by the end of 2020 is not dependent on the completion of such a transaction. I'd now like to hand it over to Felipe, who will take you through our Q1 2019 financials. Felipe? Thank you, Brito. Let's start with an update on our synergies. In the Q1 of the year, we delivered $100,000,000 of synergies, bringing the total synergies captured from the SAP combination to more than $3,000,000,000 Our total synergy guidance remains at $3,200,000,000 which will be delivered by the end of 2019. As a reminder, these synergies do not include any top line or working capital synergies. Net finance costs in the quarter were $363,000,000 compared to nearly $1,600,000,000 in the Q1 2018. This increase was primarily due to mark to market gains linked to the hedging of our share based payment programs of more than $950,000,000 compared to a loss of $242,000,000 last year. Excluding the impact of the gains and losses related to the hedging of our share based payment programs, our effective tax rate this quarter was 27.7%. This increase is primarily driven by cat remix in the quarter and we remain fully committed to deliver our 2019 guidance of ETR between 25% to 27%, excluding any gains and losses relating to the hedging of our share based payment programs. Our underlying EPS, defined as our normalized EPS, excluding the impact of mark to market related to our share based programs and hyperinflation adjustments in Argentina, decreased by $0.06 from $0.85 to $0.79 as our strong organic performance was more than offset by the negative impact of unfavorable currency translations in the quarter. On Slide 21, you'll see that our debt maturity profile is well distributed across the several years and we maintained roughly $16,000,000,000 of liquidity at the end of 2018. In the Q1, we completed both U. S. And euro notes offering and subsequent tender offer for notes maturing between 2020 2026, allowing us to significantly extend our debt maturity profile and eliminate refinancing pressure for the foreseeable future. These transactions enable us to repay our debt with free cash flow while facilitating deleverage. As a reminder, our debt portfolio remains isolated from interest rates volatility as 94% of our debt holds a fixed rate. Furthermore, the portfolio is comprised of a diverse mix of currencies with 56% of our debt denominated in U. S. Dollars, roughly 35% in Europe. We use the euro currency as a proxy for the emerging market basket of currencies that are relevant to our EBITDA and cash flow generation. The euro has a strong correlation with our main emerging market currencies has the advantage of providing access to bond markets with significantly higher liquidity and lower costs. Following the recent notes offering, the tender offer, we have extended our weighted average maturity to roughly 14 years and our debt maturity in any given year is considerably lower than our annual cash flow generation. Finally, we continue to expect the average pre tax gross debt coupon in the full year 2019 to be between 3.75% percent 4%. As you can see on the Slide 24, our capital allocation objectives remain unchanged. Deleveraging to around 2x remain our commitment and we will prioritize debt prepayment in order to meet these objectives. We expect our net debt to EBITDA ratio to be below 4x by the end of 2020. And as Britt said earlier, this commitment is not dependent on the completion of a potential IPO of a minority interest in our APAC businesses. Before we move to the Q and A section, we want to acknowledge that you may be interested in learning more about the potential leasing of our minority stake of the APAC business. However, given regulatory restrictions, we will not be able to provide any information that is materially different from what we have disclosed in our press release from this morning and earlier in this call. We'll share more information if and when there is news to share. Thank you for your understanding. And with that, I will hand back to Maria to begin the Q and A session. Thank you. Thank you. Our first question is coming from Olivier Nicolai of Morgan Stanley. Just one question and one follow-up. First on the U. S, you were almost in line with the market this quarter and you flagged that it was your best performance since end of 2012. Now could you please give us an update on your portfolio strategy and why this time it is different and that this improvement is more sustainable than the one we will have seen at the end of 2012? And just a follow-up on Mexico. I think your margin increased strongly in Q1. I was just wondering if there was any one off here? Or is it going to be kind of the new run rate since you have new capacity coming up online? Thank you. Olivier, hi, good morning. So on your first point, we're very excited about the U. S. Business. I mean, we have this evolved commercial strategy, and that is not one core alone. If you look at the last few quarters, you've seen a trend in market share getting better. It's still negative for sure, but it's getting better, close to stabilization. So that's very encouraging. And this strategy is based on a portfolio approach as opposed to 1 or 2 brand approach. So that's very important. They have the core plus with Michelob Ultra, which remains very solid and remains the top share again in the U. S. Now for 4 years, more than 24 quarters. In super premium, our craft portfolio continues to gain overall share and this is also growing double digits. So this is a big potential for us, great margins there. Innovation also doing very well. So we led the industry last year in terms of innovation. And again, this quarter, the same thing. And also in the mainstream, if you consider mainstream core and value, business got a bit better, mostly because of the value segment performance. And that altogether has enabled us to get from a minus 70 bps in 'seventeen market share loss to first half of last year of a net loss of minus 40 and minus 20 for the last quarter and then minus 10 bps for this quarter 2019. So you see a trend there and we're able to get the momentum. So let me give you the numbers again. So for 'seventeen, minus 70 bps, First half of last year, minus 45 bps. Second half of last year, minus 35 bps and then coming to minus 10 bps this quarter. So in your second question about what was the second question again? Mexico. Mexico, yes. So I wouldn't try to analyze margins on a per quarter basis because there are so many moving pieces. But what you said about capacity, of course, is something that will optimize our logistics and supply chain for sure. But again, I wouldn't take 1 quarter to get any kind of reference in terms of margins. I think we have to take the full year or at least half year. Perfect. Thank you very much. Our next question comes from the line of Trevor Stirling of Bernstein. Hi, Brito and Felipe. Two questions from my side, please, Victor. Two contrasting countries, I guess. Colombia, up low single digits despite the timing of Easter. It definitely appears that your new competitor in Colombia is having pretty low significant impact so far. And in contrast, South Africa, where volumes down, revenue per hectoliter flat, margins contracting 600 basis points. Could you talk a little bit about the reasons for the success in Colombia and why South Africa is so weak at the moment? Well, thank you. So first, I mean, for Colombia, we have a solid position in Colombia for sure, which is strong portfolio in core in the premium segment. We continue to invest in Colombia, not only for the global brands that are new to that market, but very strong already, but also revamping some of our core propositions like Agua, for example, new VBI, new packaging on the easy drinking side. So I think Colombia has shown that our brands are very strong. The country is going through also some much better time in terms of macro compared to South Africa. So that, of course, benefits everybody in the market. And we've been also investing in trade tools like coolers, merchandisers and sample for new brands and stuff. So I mean, we had a very robust program in Colombia. The difference in South Africa, where we also have very strong brands and a very strong market position is that the macros are much worse in South Africa. If you look at unemployment, inflation, ground outs and then elections tomorrow and then lots of things going on in South Africa. And Eastern South Africa, of course, plays a role. But I think what's happening in South Africa is that consumers are under pressure. And given our very strong position in the core segment, the core segment and the core consumer tends to be more elastic more subject to those pressures on the micro side. So there's also premiumization trend going on in South Africa and the premium segment going fast, while we now have brands to compete before we didn't. And those brands are doing very well, but we under index, under share in the high end compared to the core. So there's a mix effect at this point that's against us in South Africa plus the whole macro. So I think those two things are very different from the Colombia case. And Brigitte, the 0 revenue or flat revenue per hectoliter in the quarter, which presumably had a component of the 600 basis points of margin expansion, Is there no underlying pricing in the mainstream product at the moment? Which market are you talking about? You're talking about South Africa. South Africa, sorry. Okay. So in South Africa, well, not only you have the price increase that was in the Q1 of last year, so there's a phasing issue there. And you have, of course, the excise tax that went up by 7% plus also in the Q1 of this year. So when you put those 2 together, you have, let's say, a tough comp there right there. Okay. Thanks very much, Vijay. Thank you. Thank you, Travis. Our next question comes from the line of Fernando Ferreira of Bank of America Merrill Lynch. Can you hear me? Yes, yes. Can you hear me now? Yes. Sorry. Thanks for the questions. I have 2, please. First one on M and A. Historically, ABI has been focused on controlling the assets that you invested in. But I'm wondering if that's still the case or if going forward, you could perhaps be more flexible than you were historically like the JV in Russia, for example. And then second question, a follow-up on your Brazil presentation. I mean, can you Britto, can you mention how relevant the value brands were in terms of your growth our Well, on M and A, I mean, as you know, most of our people in the company are focused on the organic business. That's what we do every day. 99% of the people in the time are focused on the organic business. We do M and A from time to time. We recognize that's a strength as well of the company as well with on the organic side as on the inorganic side. Its situation is different. The joint venture in Russia is different. But normally, of course, we like to have control, because then we can implement our priorities, our global brands and our strategy. So that's the key element. But again, its situation is different. But again, if you're referring to the potential Asia IPO, it's a minority stake that we could at some point, when we decide to do it float. But of course, we remain with the control. In terms of value brands in Brazil, it's interesting that the value segment grew the last two quarters of last year, but now it's kind of retrenched again. It's shrunk again. We think it's because consumers are feeling better and they tend to upgrade. But given that the value segment in Brazil was north of 20% at this point, we decided to participate in a more intense way. But of course, initiatives that can create the price point we need to compete in that segment, but with the kind of margins very close to the core business, which are the margins that we feel would justify such investment. That's where Magnifica and Nossa come into play. It's a brewed with local cassava. So there's a very strong appeal to the local population. It also supports local farmers. And because of all that, we're able to have a lower competitive price point, but with margins that are very close to our core business. So we'll remain now we feel that we can be more competitive, not only with these 2 brands, but also some pack price initiatives that we have, mostly on returnable bottles, the 3.40 returnable bottle, the mini and also the big 1 liter bottle that provide people more for less or an attractive price point in the case of the minis. So it's a strategy of not only new liquids, but also tech price points. Thanks, Brito. Would you say that this trade up is sustainable at this point? Or is it still early to say? Well, what we can say for another is that consumers in terms of confidence, they feel better about the future. If you compare consumer confidence compared to 6 months ago, for example, it's been going up every month pretty much, especially after the elections. I think the elections was an important turning point in that the last 3 years that have been very tough in Brazil in the macro, political, and so many bad news every day in the paper. I think consumers are willing to leap of faith that this new government will be able to pass the reforms. We are cautiously optimistic that these reforms will be passed. But of course, that will be very important so consumers continue with this frame of mind. It's also true to say that this new optimism has not yet translated in more consumer disposable income. So that's also true. This is a fact. But confidence is up, which is also normally it's a predictor of good things to come. So again, we're cautiously optimistic and we saw a very strong quarter, helped of course a bit by the incredible timing. But we outperformed the industry. We grew across all segments. So it's great to start thinking like this. Thanks, Brito. Thanks, Ram. Our next question comes from the line of Simon Hales of Citi. Thank you. Hi, Brito. Hi, Felipe. Just following on, Brito, on Brazil. Obviously, you've clearly a strong performance in the quarter, but obviously, lots of moving parts, as you referenced, in terms of the timing of Carnival, the easy comp, etcetera. What do you think the underlying run rate is for volume growth that you're seeing at the moment with all those factors taken into account? And then secondly, wonder if you could just talk a little bit about your low or no alcohol portfolio and maybe update us as to the trends you're seeing there and where you are now in terms of your 2025 targets as a percentage of revenue from that portfolio? Yes. Thank you, Sam. So in Brazil, again, very strong volumes, 11.3% growth, and that was both in beer and non beer. And I mean, it's very hard to give guidance at this point, but what we can say again, growth was broad based, outperforming the industry for us and across all segments. So these are all very positive news. I think a lot of this growth also came from investments that we did in transformational initiatives in the last 3 years when the country is in a tough macro situation, when consumers are not feeling that constant about the future. But because we know Brazil now for 3 years, and we know that the fundamentals are very strong. In the last 3 years, we had invested in transformational things like global brands, new packs. So we have really enlarged the offerings we have in global brands. We have invested in the new VBIs or visual identity to our core brands. Also sleek cans came to market. The Brahma family continued to expand. Skol family expanded with pure malt and Skol Hops. The value brands, we have new liquids that are taking advantage of local grain production to be able to compete better and more effectively in the value segment. We inaugurated a new R and D center in Rio, and we continue to make strides in route to market reaching more blocks as we go more and more granular in the western side of the country and the north part of the country. So all these things are investments that are not new. I've been there now for 3 years because again, we've always believed Brazil that the potential and the fundamentals have not changed. In our think, we're in the best position of all companies in that market to take advantage of when consumers feel better about life and about the future in general. We have a superior portfolio and we have an amazing route to market and amazing people. So and we're cautiously optimistic that this year could be with the reforms passed, very positive for our consumers in Brazil. In terms of NAV Lab, your second question, today we are at 8% in terms of our volume. So we make some progress. So we continue to be very committed to it. We have more than 76 brands today around the world in the NABLAB space. We believe it's going to be a portfolio game, not 1 or 2 brand type game. We have already 6 of our countries that are above the 20% threshold, be it emergent and developed markets. So we have role models for countries and what NABLAB role can play in both markets developing and developed. So I mean, we feel that we have the toolkit and we now have to get to our target and we're very committed to do it. And those are very interesting propositions because first it goes along trends we see in the consumer space in terms of moderation, health and wellness and also premium products because normally these products are sold at a premium price. Our next question comes from the line of Chris Pitcher of Redburn. Good afternoon. Thanks very much. A couple of questions. Firstly, your increased confidence on the United States in terms of market share improvement is happening without any change in your mainstream brands, Budweiser and Bud Light. And given the success you're seeing at the super premium end and core plus also at the value end, is this changing the role that Budweiser and Bud Light is essentially playing within the portfolio? And then secondly, can you give us an update on the Zinsale scheme in South Africa? Because we believe you're due to deliver shares next year and how that's going to affect your share count and where they'll be sourced from? Thank you. Okay, Chris. So in terms of the U. S, yes, we are confident that our evolved strategy that our evolved strategy is working. And this strategy is a strategy of a portfolio game as opposed to 1 or 2 brands. So yes, it's true that when we got here 10 years ago, everything was about Bud and Bud Light. But today, Bud and Bud Light, of course, remain the 2 most important brands in our portfolio. But if you look at Michelob Ultra, it's already 10% of our portfolio and growing, the biggest share gain in the U. S. For now 4 years. And if you look at Craft, if you look at Stella Artois, if you look at the new line extensions we've had like Pure Gold for Michelob Ultra, the Bud Light series, I mean, the Budweiser series and the Bud Light Orange and Lime. I mean, all these things are getting consumers to trade up. It is true that there's some cannibalization because Michelob Ultra, of course, is growing. But like being the biggest brand in the U. S, it's being cannibalized by Michelob Ultra as well for sure, but at a much better margin. So in a way, it's accretive to the business and it's in line with consumer trends. So Bud and Bud Light will remain key brands for us in our portfolio, but maybe they'll be smaller in size going forward and other brands will be bigger. But because we're trading up, those that is a move that's accretive in nature. So again, it's a portfolio play and some brands will be smaller, some brands will be bigger for sure. In terms of Zenzele, the current Zenzele scheme matures next year 2020, and we have already engaged with government authorities and other stakeholders on an outline for our plans to be adopted upon maturity. So as engagements are still ongoing, it could be premature to provide details at this time. But we'll continue to update you as we have new news on the scheme. But again, this scheme is will mature only next year. Thank you. Thank you. Our next question comes from the line of Carlos Laboy of HSBC. Yes. Good morning, everyone. Brito, can you speak to how you determine whether a line extension is successful or not as it's rolling along? And what criteria guides you to make sure that you're doing it right and optimizing it? Then on an unrelated basis, if you can just give us an update on your thinking, how it's evolving regarding brewing capacity rationalization? Is there room for improvement here in the U. S, Canada and Mexico? Thanks. Okay. So in terms of your second question, I mean, brewery capacity in Mexico, we continue to invest. I mean, we have just opened officially opened in the Q1 our central brewery in Hidalgo. That's going to be very important to rationalize the current footprint we have in Mexico in which we're still import quite a sizable volume from the U. S. So being more self contained in Mexico is very important. We also added significant capacity to our grid by enabling 2 new lines in our Yucatan plant brewery, which we also invested some years ago. So I mean, those is new capacity in Mexico. In the U. S, of course, we have enough capacity, but we continue to invest in the U. S. Capacity because we have craft brewers or craft beers that are expanding. We have more premium beers, premium packaging. We have more assortment. In the U. S, we continue to transfer lines, shift this line, adapt a new line to new package assortment. So this thing of brewery footprint is very dynamic and it's always happened, same in Canada. So but in Mexico, clearly, we're adding capacity in the U. S. We're managing the existing footprint, but we continue to invest because of package assortment and new brands. In terms of line extension, I mean, of course, we try to do a line extension on things that will make the mother brand stronger, things that connect to the mother brand, connects with the brand positioning of the mother brand. So this is key. So whenever we do something in Bud Light, it has to do with the easy drinking, the refreshment, the young side of the brand, same we do with Skol in Brazil as we did Pure Malt. And of course, we have a plan in terms of volume, in terms of distribution, in terms of consumer takeout. And we also have social listening that today is very active in our company. So that's a very current way to look at what consumers are saying, behaving, talking about the brand, sharing with their friends about brand new. So I mean, all those things are things that are there for us to judge if line extension is doing well or not, but not forgetting the mother brand. So line extension should always not bow, but also add to the mother brand franchise. Thank you. Thank you. Our next question comes from the line of Edward Hargreaves of Investec. Hi, thanks for the questions. Good morning. First one, just briefly going back to South Africa. You've obviously gone through the macro and portfolio positioning issues there. And portfolio positioning issues there. In addition, you have been experiencing some distribution broader one. I know you're constrained with what you can partial IPO, but it was striking in your the the main merit of this. Can you explain how that would be advantageous for you? And surely you're a beer and soft drinks company, you're not thinking of expanding into infant milk or noodles, are you? Yes. I think on your second question, you got it right. I mean, it's more about the pursuing of the IPO at this point and why we're doing it, the platform. I wouldn't get hung up on the consumer goods. I mean, it's I just said, we're not going to go into milk or anything like that. So I think the important thing is the platform. And if you compare it to MBev as another platform that has championed our growth and expansion in Latin America, that's the kind of parallel we'll try to drive, not in terms of the percentage that we owe or anything like that, but just the idea of having something that we have a lot of experience with, which is the MDAP platform, replicating that in a new exciting growth market like APAC. So that's the main idea and that's why we use the word platform. On your first question about South Africa, in terms of out of stocks, it's pretty much resolved. Of course, when you look at things like Flying Fish, which is a growing brand we have in South Africa, we still have some issues there. We're expanding capacity because we still have some cap. So yes, there's still a few brands that are capped, but I mean the bulk of our brands, the other stocks are resolved. They were resolved by the end of last year. Thank you. Thank you. Our next question comes from the line of Andrea Pistacchi of Deutsche Bank. Yes. Good morning. So I have two questions, please. The first one is on Argentina, where you had a difficult quarter unsurprisingly, but mid teens or teens volume decline. If you can talk a bit about whether the worst is behind there in your opinion? And then the second question is on Nigeria, please. If you could you gave us a lot of color on Nigeria at the Investor Day in South Africa in August, where you said that you had about a 22% market share. Could you just give us an update please on Nigeria, what you're seeing in the market? Maybe where your share is now and the progress you've made in the past 6, 9 months? Well, first, I mean, Andrea, let's go to Argentina. So you're right. I mean, consumers are in a tough spot in Argentina, very high inflation, 50% or more on a yearly basis. Elections coming up in October, a lot of uncertainty in terms of the future in the political side. Currency also devalued. So I mean, lots of pressure on the consumer. So yes, there is consumption contraction in Argentina as a result of all these things I just described. We believe in our commercial strategy. The premium portfolio, amazingly enough, continues to show very strong performance with Stella Artois, Corona and local brand of ours, Patagonia. We're very excited also to have Budweiser back. But of course, it's true that overall volume is suffering. We also have now some price controls that would not affect our business. We have 2 SKUs in the price control, 1 in soft drinks, 1 in beer, but those represent a small percentage of our volumes. So but just it's hard to predict what Argentina will look like. Consumers will remain under pressure, we think, this year. But we'll try to it's not the first time where people in a way, our people are used to deal with kind of situation. And we have a great team in Argentina that's of course always looking at ways to adapt our strategy, because we're there to service consumers and they are under a tough spot right now. So again, hard to predict, but we'll it's not the first time we see that in Argentina. In terms of Nigeria, we had a very strong Q1, continued volume and revenue growth double digits. So Nigeria remains a very successful story for us. Now with the capacity that we haven't had for some years in which we're capped, now we can sell Trophy and Hero, our big brands alongside with Budweiser in a more freely way in Nigeria. So that's why growth continues and growth can be seen across all regions in Nigeria. So doing very well, very excited now with a portfolio that's also has core, but also global premium brand with Budweiser. Budweiser was launched last year during the FIFA World Cup and Nigerians consumers in Nigeria, they're very connected to soccer and very connected also to American brands. So that dual did very well and Budweiser is off to a very strong start in Nigeria. Thank you. Thank you. Thank you. Ladies and gentlemen, we have time for one more question. Our final question will come from the line of Robert Ottenstein of Evercore. Great. Thank you very much. You're clearly getting some nice progress on the top line and on the margins. And I'm wondering if you could tie that into some of the initiatives that you talked about in South Africa, particularly Felipe Dutra went into some good length on what you're doing with big data, artificial intelligence, machine learning. And I'd love to hear how that's helping you both connect to the consumer and be more of a consumer centric company giving consumers what they want as well as driving productivity? Thank you. Great question. Well, thank you. I mean, let's talk about the 2 fronts, consumer and customer. I think the most important one is that technology is all about business transformation first. So in business transformation, 70% of it is around people and ways of work and 20% or 30% is around technology per se. That's what we've learned as we did it ourselves and benchmarked with other companies that are ahead of us. So in terms of customer, as we showed in South Africa, there's a big effort. We showed many things, but I'll focus on content strategy. There was a big effort on evolving our content strategy. Our content strategy with the POX retailers used to be all based on the sales rep. Today, it's much more of a hybrid strategy in which we're evolving from that model of the sales rep. They're becoming more of a business development rep to 1 where we have the business development rep plus a sales support plus we have our B2B strategy. So today, we have 40% of our sales are digital sales and we want to get that to 70%. So 40% digital today, 60% still analog with the sales rep. So connected park is also something we showed in South Africa. That's the means by which we connect the point of sale equipment of the park and we not only deliver an app in which the park can manage its business, but we also in return get access to data and consumer sites to better service our parks, but also understand consumers on more real time basis. So that's getting closer to the consumer via the customer. On the consumer front, we, of course, are trying to get closer to consumers and have a more to one to one contact with consumers. That's what we show in South Africa. And there were some verticals connected to that. So first, trying to get more insights as you get more consumers and get better consumer records. 2nd, that can help us in many fronts, including media efficiency, because it can be more tailored and more customized. We also have a big B2C effort, business to consumer, and that's expressed in many ways. But I would say that our e commerce platforms that today are in 20 countries, we're going to continue to expand that in those countries plus some new countries. We also have brand building by tailored content. So our earned media today is 8% of our total media. We won't get that to 30%. And all that should benefit top line growth because that's in the products we have, that's what we see. So again, many things happen also on supply chain, on logistics in general, production, brewing of beer and all that. But on customer and consumers, that's how I would summarize the efforts. And those are 3 important things, context strategy on the customer level and consumers one to on the consumer level. Well, thank you. And in summary, in the Q1, we delivered strong results and saw improved performance in many of our key markets, especially Brazil and the U. S. We remain focused on driving the organic growth of our business, while deleveraging towards our optimal capital structure and have taken significant steps to improve our debt maturity profile through our refinancing initiatives. We believe that our commercial plans, superior portfolio of brands, diverse geographic footprint, unparalleled operating efficiency and strong pipeline of committed and talented people position us to continue delivering strong results in 2019 and beyond. So again, thank you very much for joining the call today. Thanks for your time and enjoy the rest of your day. Thank you. Bye bye. Thank you. This concludes today's earnings conference call and webcast. Please disconnect your lines at this time and have a wonderful day.