Earnings Call: Q2 2018

Jul 26, 2018

Welcome to the Anheuser Busch InBev Second Quarter 2018 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 Technology Officer. To access the slides accompanying today's call, please visit AB InBev's website now at www.ab inbev. Com and click on the Investors tab and then the Reports and Filings page. Today's webcast will be available for on demand playback later today. At this time, all participants have been placed in a listen only mode and the floor will be open for your questions following the presentation. On management's current views and assumptions and involve known and unknown risks and uncertainties. It is possible that ABN'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 19th March 2018. 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. Good morning, good afternoon, everyone, and welcome to our 2nd quarter and half year twenty eighteen earnings call. Today, I would like to cover the results and highlights of our Q2 2018 performance. Next, I'll take you through the results of our global sponsorship of the FIFA World Cup, then spend a few minutes on how we'll organize ourselves for future growth before handing it over to Filipe to discuss our financials. Similar to our last few results conference calls, we will not go into the details of each region's performance. We therefore encourage you to refer to the earnings press release we published earlier this morning, and we'll be happy to answer any questions regarding our markets during the Q and A portion of today's call. So let's start with the highlights. This quarter, we saw beer volume growth of 0.9% with especially strong performances in Mexico, China and Western Europe and the benefits around the world of our global sponsorship of the FIFA World Cup. Budweiser, like the digital space, is a global beer sponsor of the tournament, coming in ahead of all other brands and becoming the most talked about brand globally. Budweiser's strength supported our global brand portfolio, which accelerated its gains and continues to grow faster than our total portfolio. Our brand building capabilities have been recognized at the Cannes Lions International Festival of Creativity, winning 23 awards, including 2 Grand Prix, the top prize. Healthy top line growth contributed to EBITDA acceleration, getting to 7% growth, and we continue to expand our margins despite an increase in marketing spend behind the FIFA World Cup. Let me now tell you more about the results of the quarter. Our revenue in the 2nd quarter grew by 4.7% with revenue per hectoliter growth of 4% and are 4.5% on a constant geographic basis. This growth was led by Brazil, China and Western Europe. In Brazil, we achieved healthy net revenue per hectoliter growth as a result of continued prioritization and the annualization of price increases from the Q3 of last year. Volume growth was further enhanced by the uplift from the FIFA World Cup, which on the other hand was negatively impacted by the truck drivers strike, which held back our volume growth in Brazil by 3 percentage points this quarter. In China, our team delivered one of our best top line quarterly performance in the last 3 years as our high end portfolio continues to accelerate and Budweiser resumed volume growth on the back of a strong FIFA World Cup activation. Our Western European markets also had a very strong volume and revenue performance this quarter, supported by share gains in the majority of our markets, a good contribution from the FIFA World Cup and a favorable weather. Our global and premium brands are leading the way across the continent, especially in the U. K, where we saw double digit volume and revenue growth despite a tough comparable. Our global volumes grew by 0.8% with on beer volumes, as said before, up plus 0.9% and non beer volumes up plus 0.5%. Volume growth was led by Mexico, which continued to show strong momentum across our portfolio, with growth coming from all brands and all regions. Premiumization is a growing trend in Mexico, and as a result, we have seen very strong growth from Michelob Ultra and Stella Artois. In Argentina, we continue to see volume growth, led by our core portfolio with Qumas Classica and Brahma as a result of the successful application of the category expansion framework. In the U. S, while sales to wholesalers were softer due to industry weakness in logistics optimization, continued progress in our commercial strategy resulted in our best market share performance in almost 4 years. Our above premium brand portfolio continues to accelerate, increasing share by 100 basis points in the 2nd quarter. Michelob Ultra once again led the way in our premiumization strategy as the top share gainer in the U. S. Market for the 13th consecutive quarter. We also saw a very good contribution from our recent innovations, especially Michelob Ultra Pure Gold, Budlife Orange and Budweiser Freedom Reserve. Additionally, Bud Light improved its share trends within the Freedom Light segment for the 4th straight quarter, while Budweiser maintained flat share of the segment for the Q2 in a row. Volume gains in many of our markets were partially offset by a tough quarter in South Africa, where we saw volume declines of mid single digits. This was a result of a difficult comparable as well as a challenging consumer environment. Nevertheless, we remain optimistic about our business and the outlook for the country as well as the growth opportunities for our global brand portfolio. Our global EBITDA increased by 7% with margin expansion of 85 basis points to 39.7%. This was driven by healthy top line growth, cost efficiencies and synergy capture, partially offset by increased marketing spend to leverage our global sponsorship of the FIFA World Cup. Our normalized EPS increased by almost 16% to $1.10 per share. Our global brands had a great quarter, with revenue growth accelerating to 10.1% and 16.7% outside of their home markets. Budweiser delivered more than 10% revenue growth outside of the U. S, with the brand resuming volume growth in China and benefiting from a global sponsorship of the FIFA World Cup, which I will discuss in more detail shortly. Stella Artois revenues were up by 9% as we launched a new brand campaign called joie de dier, inspiring consumers to bring enjoyment to every day. Our growth was driven by a variety of markets as Stella Artois increases penetration in new countries and gains relevance in the new occasion. Corona once again led the way, with revenues up by more than 20% total and by more than 40% outside of Mexico. Our creative content successfully generated 5x more impression this year compared to last year as we leverage platforms and occasions that are true to the brand, such as Earth Day and Oceans Week. Additionally, we launched Corona Ligiera in Australia, which is a mid strength beer and is off to a very good start, supporting our efforts to achieve 20% of our beer volume in the no and low alcohol space by 2025. An achievement I'm especially proud to highlight is our success at this year's Cannes Lion International Festival of Creativity, the largest gathering of an advertising and creative communications industry. We won 23 awards, including 2 Grand Prix Awards, the top prize. In total, our creative work from 5 markets, Brazil, South Africa, the U. S, Germany and Peru has been recognized. These recognitions are a testament to our relentless focus on brand building and creativity. We look forward to leveraging this momentum to further drive our brands. In the Q1 2018 results call, we took you through some of our plans to activate our global sponsorship of the FIFA World Cup, the world's largest sporting event that brings together more than 3,200,000,000 people around the world according to FIFA. We leverage the sponsorship asset to tap into consumer excitement around this unparalleled occasion, and I would now like to talk to you about the results. Budweiser's global sponsorship as the official beer of the FIFA World Cup was the biggest campaign our company has ever done. We activated in more than 40% of our global pox in over 50 countries. This translated into sales as our revenue for Budweiser outside the U. S. Was up by more than 10%, as said before. We're also successful in building brand awareness in many of our new markets where Budweiser has only recently been introduced and are using this awareness to propel the brand toward future growth. We overachieved on all of our media targets, with Budweiser leaving the digital space ahead of all other brands. We became the most talked about brand in all industries. We had 1,200,000,000 views of our online content and delivered ahead of our expectations on earned view rates and total earned views. We further maximize our sponsorship asset by activating more than 40 of our local brands in more than 40 markets. These activations enabled us to elevate and extend core Lager in more occasions to reach more consumers, resulting in solid revenue growth contribution from our core portfolio. We created content designed to keep up with the latest developments in the tournament and leverage key influencers to achieve scale. Our global portfolio of brands allowed us to produce creative content such as a lively dialogue between brands in different markets, many of which are synonyms with their home country's football teams. As an example, you'll see on Slide 11, the content we created between our leading brand in Panama and our leading brand in Belgium ahead of the game between the two countries. In line with our culture of sharing best practices, we also ensured that we were making the most of great ideas. If something works for one of our local brands in its home market, we quickly identified opportunities to do the same in other similar markets. We also executed global toolkits across similar brands in similar markets, such as a strategy to change the name of the sponsoring brand to its home country to resonate with consumers' national pride. In summary, the FIFA World Cup exceeded our expectations and enabled us to make the most of our global sponsorship by reaching more consumers and building awareness of our brands. We look forward to continuing this momentum. I'd now like to take a few moments to explain some changes to our organization before handing over to Felipe. Following our successful combination with SAB, we're taking the next step in organizing ourselves for the future. We've learned a lot since our integration and what it will take for our company to continue to be successful. Today, I'd like to share our plans to enhance our focus on top line growth and value creation. First, we're simplifying our geographic structure by moving from 9 to 6 management zones. When we first integrated with SAB, we increased our total number of management zones to support the integration. Now, 2 years later, it makes sense to simplify the structure to be more effective. Some of our current zones will retain the same structure, while others will evolve. North America, Europe and Africa will remain as is. The key changes for the other zones are as follows: the new Middle America zone will combine the current Middle America zone with the current Copac zone and the U. S. Central America and Caribbean. The new South America zone will combine the current Latin American North and Latin American South zones, Bellevue Central American Caribbean will move into our new Middle America zone. The new APAC zone will combine the current APAC North and APAC South Zones. All changes will be reflected in our financial statements as of January 1, 2019, and Europe and Africa will continue to be reported as the combined EMEA region. The next change is that we're bringing Martin ZX Ventures under a common global lead. In order to continue to grow, we have to anticipate the future. We believe a common global lead will help us achieve our objectives of anticipating market and consumer trends and adopting ZX Ventures' innovation approach more broadly. ZX Ventures will maintain its current independence in order to remain ahead of the curve, stay agile and invest in new products and experience to address emerging consumer needs. We know that when we take ownership of growth opportunities, results follow. This has been proven by our high end company and ZX Ventures. And that's why we're adding 2 new members to our leadership team as designated owners of future growth opportunities. The first is the Chief Non Alcohol Beverages Officer. This role will focus on supporting zone teams to accelerate growth in our existing non alcohol business, which represents more than 10% of our current volume. The 2nd year role is the Chief Own Retail Officer. This role will manage our existing own retail businesses, such as our brewpubs in several countries and the thousands of moto de la Ramos in Mexico. By shaping the strategy, coordinating cross market initiatives and sharing best practices. We believe these additions to our leadership team will effectively position us to capture additional growth in these key areas. We'll use the coming months to lead a smooth transition into the new structure. We remain focused on delivering top line growth, creating new occasions and expanding the beer category. We believe that by implementing these changes, we'll be better equipped to accelerate growth and be more responsive to our consumers and customers to bring them an even better experience. For more details, please refer to the press release we published earlier this morning. I'd now like to hand it over to Felipe, who will take you through the more details on our financial results for the quarter. Felipe? Thank you, Brito. Good morning, good afternoon, everyone. Let's start with an update on our synergies. In the Q2, we delivered $199,000,000,000 of synergies, bringing the total synergies captured today to almost $2,500,000,000 Our total synergy guidance remains at $3,200,000,000 to be delivered within the 4 year period following the close of the combination. As a reminder, the synergies do not include any top line or working capital synergies. We continue to expect a synergy capture to require approximately $1,000,000,000 of one off cash costs to be incurred in the first 3 years after closing and of which $717,000,000 has been spent to date. Net finance costs in the quarter were $1,272,000,000 compared to 1.628 $1,000,000,000 in the Q2 of last year. The increase was due to a positive swing of $249,000,000 from the mark to market losses linked to the hedging of our share based payment programs, which were $265,000,000 in the Q2 of last year compared to $16,000,000 in the Q2 of this year. We also saw year over year savings in our other financial results as well as our accretion expenses. Our normalized effective tax rate for the 2nd quarter was 24.8%, up from 21.3% in the Q2 of 2017 and bringing our year to date tax rate to 26.3%. This was mainly due to country mix as well as additional nondeductible mark to market losses and changes in legislation in some of the countries in which we operate. Our effective tax rate guidance for the full year 2018 remains in the range of 24% to 26%, which excludes the impact of any future gains and losses related to the hedging of our share based payment programs. Moving on now to earnings per share. Normalized earnings per share increased by 0 point 15 dollars 1 $0.10 this quarter from $0.95 in the Q2 of 2017. Gains from the mark to market adjustments linked to the hedging of our share based payment programs as well as higher normalized EBIT were partially offset by losses from the income tax expenses. I will now take a moment to update you on our debt. Our net debt increased from $104,400,000,000 as of December 31 to 2017 to $108,800,000,000 as of June 30, 2018. The increase in our net debt is consistent with prior increases in the first half of the year, given that the majority of our cash flow is generated in the second half of the year, as you will see on Slide 23. Our net debt to EBITDA ratio increased from 4.8 as of December 31, 2017 to 4.87 as of June 30, 2018, as a result of an increase in our net debt as well as adverse currency fluctuations in our EBITDA translation. We will continue to proactively manage our debt portfolio, of which 93% holds a fixed interest rate, 42% is eliminated in currencies other than the U. S. Dollar, and maturities are well distributed across the next several years. De leveraging around 2x remains our commitment. We remain on track in our deleveraging path, and we will prioritize debt repayment in order to meet this objective. As you can see on Slide 24, our capital allocation objectives remain unchanged. And with that, I will hand back to Maria to begin the Q and A section. Thank you. Thank you. The floor is now open for questions. Our first question comes from the line of Mitch Collett of Goldman Sachs. Hi, there. Two questions. Can you speak louder a bit? Sorry. Yes, is that better? Yes, sorry, can you talk us through the drivers the potential drivers, I guess, of EBITDA acceleration for the second half? You obviously had the step up in marketing for the World Cup. Can you perhaps quantify that? You've also had the gap between sales to wholesalers and sales to retailers, which you said should converge on a full year basis. And then the impact of the truckers strike in Brazil. Can you maybe help us understand how those moving parts fading away can help EBITDA growth in the second half of the year? And then secondly, your U. S. Performance has shown a meaningful improvement in recent months in the market data. Can you give us a bit more color on the drivers of that? Is it the new leadership? Is it your new category expansion framework? Is it the success of some of your advertising campaigns? Can you just give us a bit of color to help us understand that improvement? Thank you. Okay. Hi, this is Brento here. So in terms of our second half, as guided in previous quarters, we expect the second half to accelerate and the reasons are a couple. 1st, as I said before, there would be a concentration of more sales and marketing front loaded in the first half to support the FIFA World Cup sponsorship. And that is something we're very happy with the results. So it was a good call. 2nd one is that I just saw and that's her second question. There was a technical delay, I would call it a technical delay in shipments in the U. S. Given that, as you said, the STRs or the numbers in the marketplace in terms of sellouts are much better than the STWs. On the other hand, as we said in our guidance for the year, concerning the in reference to the U. S, we said, as we say every year, that STWs and STRs will converge for the full year. So of course, you can expect that, that will happen now in the second half. So it can converge for the full year, given that we're delayed in the first half. The other reason is that Brazil had the trucker strike, you also mentioned that. And the trucker strike for you to have an idea took 3 percentage points in the Q2 of our volume growth in Brazil. So beer volume growth in Brazil was 1.7% growth. The FIFA World Cup, of course, helped us. But without the trucker strike, volume growth in Brazil could have been 4.7. So that trucker strike, which is a one off, took 3 percentage points of that base. Also, we have some easier comps in some markets. For example, U. S. Hurricane season last year was very active in the second half. If it's normal this year, again, that will provide an uplift there. And moreover, we'll continue to leverage everything we've learned about category expansion framework like we did in Argentina in the results of there, like we're doing in other markets. So and the global brands continue to grow and accelerate their growth. So if you put all this together, that gives a lot of solid foundation. It's something we've been saying since beginning of the year that the second half will see results accelerating. In terms of your second question, you answered most of it yourself. So when you said that the numbers in the market for sellouts are much better than the shipment numbers. And the reason for that is that, as we all know, there is a very tight trade market in the U. S. These days. And what we try to do given that we have inventories along the system, every time we see an opportunity to optimize logistics to minimize the distribution costs, we do it. So but I think the important thing here is our guidance that SDRs and SNCWs will converge for the full year. In terms of SDRs, you're right, we had a very good quarter. I mean, SCRs improved, share improved. We had our best share reading in the last 4 years. The brands are in a better place, which for me tells me that the strategy is showing up and it's working, right? For example, this strategy was able to offset 50% of the segment mix shift in terms of share hit that we're taking in other quarters. This quarter is 50% offset by the growth, especially on the above core brands that grew a full percentage point. So Michelob Ultra are going very well. The line extensions, all the innovations we have this year, be it Pure Gold, Bud Light Orange and Budweiser line extensions with the Reserve series, all worked very well and were all rated and were all top. If you look at IRI as the top innovations in the U. S. Market in this first half. So again, very good news on the SDR front, some technical delay in the STWs given the freight market and how tight it is. But again, we'll converge for the full year and therefore, we'll catch up strongly in the second half. One quick follow-up on the first one, if I may. Can you give a dollar number to the amount of additional marketing spend made in the first half? Well, no, no, that would be competitive sensitive. But what we can say is that we're very happy with the volume progression. We expect, for example, the benefit of the World Cup in terms of annual volumes to be around 45 bps, which is a sizable volume when you think about global volumes on an annual basis. So that's very happy. It was the best World Cup we've done thus far because every World Cup we learned a bit more. And Budweiser is a brand. We use the World Cup as an opportunity to introduce Budweiser in many new markets like Nigeria, for example, South Africa, Colombia, Peru, Ecuador and also to grow in existing markets. If you look at our U. K. Performance, a lot of it was driven by Budweiser and Bud Light Performances Brazil Semtech. Thank you. Thank you. Our next question comes from the line of Trevor Sterling of Bernstein. Hi, Richard and Felipe. So two follow-up questions on sort of latest things we've already talked about. The first one concerning the debt, Felipe. My right understanding, this year, there was roughly a €4,000,000,000 increase. Last year, there was a €1,000,000,000 increase, but there was also €5,000,000,000 increase inflow from SAB disposals. And this year, there's a €1,000,000,000 hit from the tax time phasing. So actually, the debt performance this year is better on an underlying basis than last year. Am I right on the math on that? And the second question, Brito, coming back to this STW STRs, you also referred to an impact from the phasing of Easter and also the fact that 4th July fell midweek and that was actually a 1.3 percentage point headwind. Does that mean if I look at underlying STR trends in the U. S, it's more like 1.8 rather than 3.1? Well, if you what we said I'll start on the second question, then Philippe will answer the first one, Trevor. On the second question, you're right. When we spoke about the industry, we said that the industry in the U. S. Was impacted by the timing of the holidays, both the 4th July and Easter. So industry in the U. S. Was down by 3 point I mean 2.4. And if you take 1.3 from these 2 holiday shifts, you'd get to an industry of negative 1.1, which is pretty much in line with last year, for example. So yes, that's what we wanted to convey. On the first one, your math is hi, Trevor. Felipe here. On the first one, your math is right. For this year, out of the $4,000,000,000 increase that is coming from almost $7,800,000,000 of cash flow from operations. We had some M and A related outflows this year, being the partial settlement for the Dominican Republic and put option as well as some other M and A related activities accounted for about 0.5000000000 dollars And while last year, we had an inflow and proceeds from CE disposals of about 7 $900,000,000 Cash flow from operations was $7,300,000 slightly lower than the $7,800,000 of this year. And nevertheless, last year, there was a significant currency headwind of $3,600,000,000 or so, while this year, we had about DKK700 1,000,000 tailwind currency wise. But it's also true if you go back 1 year before, meaning 2015, December net debt position to 2016 June net debt position, you would also have seen an increase there, meaning you can go back in time from December to June. There is always this increase despite M and A related activities on the net debt position. So that is completely linked to the seasonality of our cash flow. Our next question comes from the line of Fernando Ferreira of Bank of America Merrill Lynch. Hi, everyone. Thanks for the questions. Two questions for me, please. Can you quantify on your growth numbers, what's the impact of the World Cup both on top line and EBITDA for Q2? Or if maybe not, maybe what's the spillover impact that you would expect for Q3 from the World Cup? And then second question related to China. Can you talk about your margins there? And how do you how should we think about the potential to continue to expand profitability there going forward, given the slowdown we've seen on the pace of margin expansion this year? Thank you. Hi, Fernando. Lucreto here. So in terms of the FIFA World Cup, we have most of the, let's say, 80% of the impact already accounted for in the second half, the balance coming in the second quarter, the balance coming in the 3rd quarter. And I've said before, it was around 25 bps in terms of global annual volume, which is very sizable impact given our base. So again, very happy with it and it's eighty-twenty between the Q2 and the Q3. In terms of China, it was a great quarter for China, delivering one of the best volume and share performance in the last 3 years. And the business delivered organic EBITDA growth of 6.2%. There was a 20 bps margin contraction off of the base of 35.6%, which is very high. And this was all associated to phasing of marketing spend associated again with the FIFA World Cup. So again, all normal. China is doing very well. Budweiser back to growth. Our high end company growing triple digits led by corona. We lead e commerce. We have a higher share in e commerce that is online than we have in the offline business in the traditional channels. And so very healthy business. Revenue grew by 6.8% in this quarter with a healthy mix between volume growth revenue growth, volume growing 3%, revenue back later growing 3.7%. So again, great quarter for China. Great. Thanks, Umerto. Thanks, Evan. Our next question comes from the line of Edward Mundy of Jefferies. Good morning, afternoon everyone. Two questions please. First is on the new organization structure for future growth. It appears to be a new relation towards a more decentralized model. Certainly my read of it with the commercial agenda owned at the zone level. Are you able at this stage to share some examples of what's going to change in terms of helping to drive the commercial agenda? And then a second question, just looking at Ad Age, Miguel Patricio, you made an analogy that when describing the marketing leadership changes that you change the roof of the house when it's sunny, not when it's raining. But I'd be interested in your comments or your perspectives on comment as to how you feel about your current marketing position. I agree. I agree with Miguel. I think you implement changes and things are going well, because that's the time to implement them, because you're trying to anticipate the future as opposed to react and be behind the curve, trying to be ahead of the curve. So in both marketing and total company, I think that applies. In marketing, I think if you look at our global brands, if you look at everything we learned in this combination, if you look at all the prices we've got for creativity, which is something we've been pushing the company in the last 4 years. And why are we pushing for more creativity? Because of the clutter and the fragmentation of media these days. So it's clear for us and everybody that the only way for you to stand out and really continue to be relevant is if you have content in a creative way, delivered in a creative way. Because today, as we all know, people are very distracted. They look at things in seconds. And if you don't capture the attention, you're gone. They swipe to the next one. So the fact that market is delivering global brands, 2 kits for our core Lager Brands, the fact that we are being recognized for our creativity and the fact that we're able to have more marketeers in our senior leadership team, that's all a testament of what Miguel has been pushing together with us in terms of the company being more consumer centric and more connected to our brands in everything we do. So that's a big testament for that. In terms of the new organization, same thing. We're 2 years into a combination that we planned very carefully for because of the geographic dispersion. That's why we increased the number of zones. We all knew internally at least that this would be temporary. Now 2 years into this, not only the synergies are coming at a faster pace, but also the learnings and the people retention is going well. So we decided to, again, take advantage of this momentum to implement the changes, go back to 6 managerial management zones and do the people moves in a quick way, so there's no anxiety on the table and being very transparent with you outside the world. So there's no misconception about what this represents. The zones going from 9 to 6 bring simplicity. Bigger zones will also enable more best practice sharing at the local level and more opportunities for people to grow within their zones even before they go to global. ZX and the market coming under one lead with ZX keeping its independence will help us infuse in the larger company what CX has been developing in terms of flexible teams, in terms of ways of work with innovation, in terms of testing portfolio of new disruptive brands into the bigger company and having more of a relevance because being more scalable and also adding 2 new positions in terms of new areas of growth. Be it upstream in terms of retail, on retail, be it going beyond beer in terms of non alcohol beers. So this restructuring is about growth, simplicity and top line. So we're very glad to be able to move at this point given that we have momentum and things are going well. Great. Thank you. Thank you, Edward. Our next question comes from the line of Sanjit Agile of Credit Suisse. Yes. Hi, Breta. Two questions from me, please. Firstly, on the U. S. And the improved share performance. You've done many line extensions over the years in the U. S. Many of them haven't stuck. What gives you the confidence that the new commercial initiatives will stick beyond this year and this time next year? We're not talking about a tough comp in the U. S. If you could take that one first, please. Well, Sanjiv, I think what gives me confidence is that the U. S. Since last year, under the new leadership, is tackling innovation in a different way. So there are many concepts. There's a portfolio of concepts being tested as we speak even last year. So we're not relying on 1 or 2 big ones. And then if we fail or if it succeeds, it's only 1 or 2. We rely on a portfolio of things that have been tested in different regions, in different channels, in different states. And only then we decide to scale up. And that's where but like orange came from, the reserve collection came from and pure gold came from. So I mean, all those things are coming from this new idea that we have to be more agile. We have to test many concepts at the same time and not rely on 1 or 2 ideas and have a broad portfolio of concepts knowing that most of them will fail in their test concept. But then, of course, because you have many, 1 or 2 will come. So I'm more confident because today, I feel we have a portfolio and ways of work and a modus operandi that's more in tune with how fast the world moves today. Got it. And just my follow-up is just coming back to the category expansion framework. You tend to hold up Argentina as a bit of an example of how best practice has been embedded into some of your legacy markets. Can you perhaps just talk about how that framework is being applied to Brazil in particular and what sort of successes or perhaps learnings you have from that in that particular market, please? Thanks. Yes. No, no, the same thing. In Brazil, we're doing the same thing. I mean, if you look at what's happening with Brahma and the way it has been repositioned to really be the classic lager, the national classic lager, It was before that, it was converging to an easy drinking that really didn't belong to the brands. So it's going back to the classic lager. World Cup and the whole soccer sponsorship is a big thing for classic lager brands. It's part of our toolkit. Is it drinking more the Skol, more about cold cues, about innovation, Skol Hops, for example, is part of that. And then you have also brands like Brahma Extra, Bohemia, things that are going very well, applying the tool kits we have for Ritual Reward, which is another one of the segments we have within the categories expansion framework. We're also applying those kits to our global brands, right? So I mean, Brazil is another example. Global Brands is another example. The U. S, we're trying to apply. So these 2 kits, as I said, I think, last quarter became company language. So today, everybody speaks language of the different partitions within the category framework, about the country cluster and their missions within each cluster and that became company language. And when people draw the 3 year plan, the 1 year plan, their resource allocation, they have that in mind. And the dialogue was made easier because now we're comparing things that are more similar to each other. For example, another best fact that we started last year was what we call growth champions, which is something that supply and procurement has been doing for a long time, which is getting global specialists on different themes and verticals within supply to exchange best practices and to continue to ride the road of more efficiency and more quality. We're doing the same now with Growth Champions, which is all about top line growth. But now with the common language and the country clusters, we're comparing clusters and markets within similar clusters and then the comparison is much more effective. Got it. Thank you. Thanks, Sanjeet. Our next question comes from the line of Caroline Levy of Macquarie. Thank you. Good morning. A couple of things. Could you just talk a little bit about Argentina, Felipe, please? And how much risk you see to going to hyperinflation? We've been through some bad experiences in Venezuela with a lot of multinationals where they've written that down to 0 over the period of like 3 or 4 years of trying to sort of salvage a business. How is this different? And what is your view on that? And then could you, Britto, please address whether you think the World Cup had much relevance in the U. S. And how much that could grow over time? Just how World Cup impacted the U. S? Sorry, a final one. You've appointed someone head of owned retail, which I thought was really interesting. If you can elaborate on why and how that could have a significant impact on AB, that would be great. So Caroline, let me take the first one. I think aside from hyperinflation or not, I believe it's very hard, if not unfair, to compare the political and economical situation between the two countries, Argentina and Venezuela. Honestly, inflation in Venezuela is one of the smallest problem the country is facing and that is much more driven by institution and democracy and all related to that. More specifically on the technical aspects, operating hyperinflation scenario, hyperinflation accounting requires that no monetary assets such as certain components of inventory and property, plant and equipment and non monetary liabilities we restated using an inflation index. That is what it is. And as a result, certain lines of both EBITDA and depreciation line may be impacted. And we have not finalized the quantification of moving to hyperinflation accounting. And if and when we apply hyperinflation accounting to our Argentina operations, then we will identify the impact separately in our financials, and we will report with the IFRS standards when appropriate. Caroline, in terms of your other two questions, on retail, it's something that we see as an opportunity because first, we already have today more than 10,000 on retail blocks and different formats in different countries. And these are all being managed on a global basis, doing very well. But again, at this point, the same way at some point we went upstream and we verticalized some operations like glass manufacturing just because we felt that some monopolies and duopolies and oligopolies needed to be challenged and that was good for us, malting facilities as well. We feel the same way about going downstream. We're not saying that at this point we have any view on that in the sense of expanding in this or that way. We just feel that we already have a critical mass that needs to be managed, and we would like to use our base and whatever comes out of that base in terms of expansion also to build our brands, not only to the points of sale, but also to build like other brands have done, to use own stores to build not only brands, but also brand experiences and also category. We feel it's a role we have as market leader and non retail could be a very important thing for that. In terms of World Cup in the U. S, it's growing every World Cup as people get more and more interested in soccer or football. Families have their kids playing soccer, so even adults are getting more and more connected. We also have people here from European heritage that appreciate soccer. And this time, of course, the U. S. Was not in the World Cup. And given the time of the games, that was not ideal, right? So but 2026, it's coming to the U. S. Again. And this time, what we did is we sponsored locally in where relevant with Bud Light and in the Southwest with Estrella Alesco. So it was very good for both brands. You see that our STRs were in a very good shape. Hard to say exactly what was the World Cup impact, but that was in the mix as well, knowing that this time the World Cup in the U. S. Was not as big as last time because again the U. S. Was not part of it. But again, it's growing every World Cup. So it's something that it's beginning to make more sense in the U. S. Market as well. We just hope next year the U. S. Is back. Thank you. Our next question comes from the line of Olivier Nicolari of Morgan Stanley. Hi, good morning, Britto, Felipe. Just a couple of questions, please. First of all, on Mexico, what's your view on the consumer environment? And should we expect your margins to recover going forward now that you have some extra capacity coming online? And just a follow-up on the cash flow. You expect an acceleration in EBITDA growth in H2. Assuming the Q1 spot rate, where should we expect net debt to EBITDA ratio to be at year end? Thank you. Olivier, in terms of I mean, we had another amazing quarter in Mexico. We had what was amazing this quarter is that not only we had double digit revenue growth, we had high single digit volume growth, but the amazing thing is that our portfolio worked on all cylinders, 5 on all cylinders. So we had growth on all brands, no exception, in all regions of the country, no exception. And that is to the previous question from Sanjeev, another one of those examples or category expansion framework was applied in terms of defining better the domains and the brands that are playing classic lagers, is he drinking and rich reward type profiles. So Mexico is another example of the application of this toolkit. In terms of the economy, for us, I mean, we're brewers, we're not economists, but what we can say is that the macro indicators show a moderate growth trend in this quarter. It was helped by consumer environment and consumer confidence. There was a little bit of a blip with the presidential elections. But now that the President is elected, President Marcos Obrador, We see that his first communications are very solid in terms of pursuing government that will be very responsible in terms of public finances and in terms of independence of the central bank. And that has been received, if you look at the currency, that has reacted well after he was elected and after his first speech on Election Day. So again, Mexico continues to be a country that continues to amaze us. It's also true that remittances are continued to be very high. So that also helps the economy and our business continues to fire in all cylinders in Mexico. And now that the election is over and the President has put a stake in the ground in terms of what he intends to do in terms of economic policies, I think everybody feels better about the future of the country and so do we. So great market for us. So let me pick up on the second one. We're not guiding at this point for net debt to EBITDA levels for year end. However, as EBITDA accelerates and as you have seen that historically, second half cash flow generation accounts for 65% to 75% of total full year cash flow generation. We do expect second half cash flow generation to be much stronger on the higher end of this range, also due to some technical issues that caused cash taxes in the first half of this year payments to be higher than prior years. That said, our optimal capital structure levels points to a net debt to EBITDA around 2x, and we remain on track to deliver to that point. And also, as we think about debt profile and currencies overall, you have also to account for the fact that we have a balanced mix of currencies that mitigates the FX risk. 42% of our debt is in currencies other than U. S. Dollars, and then you also have to account for the translation of the EBITDA figures into U. S. Dollars. Nevertheless, maturities are well distributed with an average duration of over 12 years and only $2,000,000,000 coming due in 20 18 2019, which is basically nothing in comparison to our numbers. And in terms of interest rates, again, 92% of that is fixed at a very favorable level, and liquidity levels also stay around $17,000,000,000 which is plenty of cash, more than we will actually need in the coming years. So we remain on track to deleveraging approximately 0.5 turn of net debt to EBITDA reduction per year through the combination of EBITDA growth, as I said, as well as debt pay down. And that is basically it. Thank you very much. Thank you. You're welcome. Our next question comes from the line of Robert Ottenstein of Evercore ISI. Great. Thank you very much. First of a clarification of a prior question and then a couple of follow ups. Brito, I think if I heard you right, I think you said if you in the U. S, if you adjusted for the timing of holidays, the U. S. Industry STRs would have been down more like 1.1%. Is that correct? That's correct. And therefore, is it also safe to say given that you lost about 35 basis points or so of market share that your STRs so adjusted would be down more like 80 basis points or so? Is that a fair Well, that could be yes, I mean, I didn't go that far because that would be too much speculation. But I mean, what I did is that given the industry numbers that are all public and the holidays that are also public and the way they moved and the base of the week that got moved here and there, it was easy for anybody to calculate that 1.3 percentage points was taken away in terms of growth away from the industry. So that was what we tried to explain. So the industry went down by 2.4%. If you take 1.3%, it could be more like 1.1%, which is even slightly better than what was the industry number from last year, which was 1.3%, right? So that was the comment, yes. Right. And I was just trying to make the additional connection that making the similar adjustments for you would bring you down something like 80 basis points? 80 basis points? No, because of the total no, because Right, because you lost 30, 35 basis points on market share. Yes, I know. But I mean, if the industry would be better, that 30 5 basis points from a better industry would mean more STRs, right? So it would benefit everybody if the holiday shift had not happened. Got it. Great. Can we talk a little bit about the Corona brand, which is obviously doing extremely well? You're doing a line extension in Australia. So I'd love to hear about the overall Corona strategy, the line extension. And then if you could remind us what percentage of Corona sales are now sold outside of Mexico? And do you think that Corona has the potential, like Budweiser over time to have more sales outside of Mexico than in Mexico? Well, Robert, Corona has been surprising as every time continues to be the growth leader among our global brands, especially outside of Mexico, but in Mexico as well continues to grow. Corona Liguera, we did in Australia, is recognition that First Australia is one of the biggest markets we have for Corona. Corona has close to 6% share of total market. It's an amazing brand. It's and the mid strength beers in Australia is a segment that's growing and having a Corona 3.2 ABV is something that will get Corona in that segment as well and allow consumers that are looking for that kind of ABV to choose for corona as opposed to what they have today in which they have no choice of that kind of ABV. So it was just a move to try to continue to expand Corona into new occasions, trying to get that frequency up and continue to build an amazing platform. If you look at Corona today, it has less than 1% share in most markets with only a few exceptions. And Australia being one of them, Chile being another one, Canada in a much lower level being another one. So and now Colombia being also a place where Corona is beginning in terms of share of total market to be more and more representative in Colombia, where Corona was hardly to be found. So that's how potent this brand is as it travels outside of Mexico. And we see that it can get to very interesting numbers with very good margins. So it continues to be a very strong premiumization opportunity for us. And the sales of Corona outside of Mexico would be, what, like 5% of Corona sales for your sales? At this point, yes, it's more. But at this point, we're not giving that number out, but it's more. Okay, great. And then just one last question. And I know you've touched on it, but I just I'd like to hear it again, how you're feeling about Brazil, both on the macroeconomic level, what you're seeing in terms of the economy, as well as your own brand and commercial momentum? Well, in Brazil, as you know, we've had some tough years last few years. This year, the Q1 was very tough, but then the Q2 is much better. And we continue to see opportunities in the second half. With regards to operations, we continue to believe that the country has much to offer and our ideas on premiumization on new occasions for beer on our core lager being strengthened with our category expansion framework. So there's a lot of opportunities in Brazil. There is volatility as well on the macro side. You've seen currency going the value a lot, not came back a lot as well. There is an important election this year in Brazil. And this will only start getting a bit more clear by the end of August when TV starts in Brazil. In Brazil, we have public funding for campaigns. So people candidates can go on TV and explain what their platforms are. And that starts only at the end of August and the elections are in October. So between the end of August beginning of October is when we'll have a better reading of who the lead candidate is because today 50% of the population when being polled are still undecided. So it's still too early to call, but this is bringing some volatility in terms of currency and consumer confidence. But again, always a great business in Brazil. We're used to volatility in Brazil as we are in Argentina. So our people are used to do plan Bs, plan Cs. We have a strong portfolio of brands, a strong team, and we'll continue to invest in returnable package, in capacity, in premium brands and in brand experiences. So nothing has changed in our long term view of Brazil. Thank you very much. Welcome. Our next question comes from the line of Tristan Van Strain of Redburn Partners. Hello, gentlemen. I just want to ask about your main stream brands in Africa. Maybe just starting off with Carling Bag Label. Obviously, it's got some well deserved big Grand Prix award at Ken's. I'm just wondering how the brand is doing in South Africa relative to the market. And related to that, it seems like the 1 liter bulk pack hasn't really taken off in South Africa. So I was wondering what the issue is. Is it a consumer issue? Is it a distribution issue? Is it a trade rejection? And then secondly, and perhaps related to that, can you maybe give some more color on your pricing strategy in Africa in general? There seems to be a lot of inconsistency with price list changes on a regular basis in places like South Africa and Botswana. You don't seem to be taking pricing in Nigeria in an inflationary environment. And smart affordability seems to be given a bit of a steroid injection. So I guess it all seems a bit extreme and short term. So any color would be helpful to help me understand that. Well, first, I mean, in terms of pricing strategy, I'm not going to comment because this is a local issue and of course, competitive sensitive. So I'm not going to comment on that. In terms of the Color and Black Label, it's our as you know, our biggest brand in South Africa. The 1 liter bottle was introduced not only for Color and Black Label, but also for to support our core lagers. The 1 liter bottle has helped us to continue to bring new news into the core lager space. It's just that it has been tough to read because with this price increase that we have to implement on March 1 this year, given that the excise was double the inflation, 10 percent, so double pretty much of CPI 5.5%. That was a lot of noise this quarter. When you think about this quarter, Tristan, we had many things that were one offs that made this quarter very tough comp as expected. First, we had a price increase in 2017 that was in July that brought volume to Q2 last year. 2nd, you had a price increase this year that was in March because of the tax excise increase that brought volume from Q2 this year to Q1. So already double hit right there. Then you had Easter in 2018 that went from Q2 to Q1. That was a global phenomenon, of course. But in South Africa, as you know, Easter is an important date for selling beer. And then you had the excise that was 2x CPI. It's always a bit higher than CPI. It is true, but this time was almost 2 times. And that, of course, put more pressure on the price increase on March 1. So and last year, because of that same phasing of price increase, volume grew double digits in South Africa. So when you put all this together, the Q2 for me, for us, it's not a fair reflection of what's happening in the marketplace because of all this double, triple, quadruple hits that hit the Q2. Having said that, there was price movement on Carlin Black Label ahead of other brands. And our guys are reexamining that price move. But having said that, the brand continues to be very healthy and continues to lead our market over there. We also introduced a 910 ML pack with sealable for Kelsolite, which is doing very well and in the more premium side of the market. And it's now available in 80% of the appropriate tox and growing significantly. So as we saw in other markets, we introduced a bigger pack in a maturity market like South Africa is, especially in some segments. This normally tends to increase industry and tends to help the core Lager Brands because it's new news we're bringing to an otherwise segment of the market where not many news come very often. So that's something that normally works very well. And with Castolet, the idea of the receivable bottle and continue to be a sharing model. So that's something also a new thing. We're also going to be introducing global brands are growing very fast in South Africa. If today, there is one disadvantage we have in South Africa is that the high end segment is growing like it is around the world. And we have, as you know, because of the brands we have to sell, even before we have to sell those brands, SAB had a very low share within that segment. With this segment growing, the mix shift is against us. But of course, we're recovering very fast now with all 3 global brands in South Africa and growing from almost 0 participation to now around 20% participation in that segment and growing every quarter. So we also have some actions that we'll take on Lion, which is at the bottom of the price ladder that also has a role to play. And then we have a full portfolio in South Africa, as you know, high end growing. We never had representation in the high end market. Global brands are now there. As we fix our share in the high end market, then things will add up in a different way. And we're keeping share within the core brands. But of course, the mix shifts because of the high end growth and our underrepresentation that is that in that segment, that's the thing we need to focus as well as continue to support the core brands. Thank you very much for that color, Britta. Thank you, Chris. Our next question comes from line of Andrea Pistacchi of Deutsche Bank. Yes. Hi. I have two questions, please. The first one is just a clarification again on the higher cash tax charge that held back cash generation in H1. To understand whether this is a phasing issue that penalized H1 will benefit H2 or whether it's a sort of one off increment this H1, which will therefore come out next year? And the second question is on the U. S. On Stellar. So a lot of your portfolio in the U. S. Seems to be moving in the right direction, but Stellar seems to have slowed a bit. So if you could talk about why you think this is and plans to address it? On the first one, it is both. At the same time, we had a one off tax credit in 2017 first half. We had a one off tax payment in 2018 first half. It's a kind of big swing in there, but both 2A U. S, you're right. On the other hand, one of the reasons why we reorganized the high end side of our business in the U. S. Was exactly because of this. This was one of the top reasons why. Because in the U. S, different than other countries, our high end business invests a lot of time in managing our craft business that's within the high end. Our craft business in the U. S. Is much more is much bigger and much more diversified than in other countries. We have 12 craft partners. Our craft business is doing very well, growing way ahead of the segment, growing double digits in a segment that this quarter was flat, craft segment. So we're doing very well. But because of that focus on the craft, Astellas sometimes was being left with not the attention it deserves. So Michel and his team decided to reorganize the high end into given the size of everything in the U. S. Into 3 high end subunits to bring focus. And that is the craft, which is what we've always had, which is a stellar in other import brands, and it's beyond beer with things like spiked seltzer and the ripas. So we believe that from now on, given that the brand health metrics are at an all time high and consumer preference and penetration and frequency is at an all time high. We are going to now with this new high end structure have more focus on Stellar group of people that will really live and breathe Stellar. And what we've seen, Stela, is that some markets like Florida, New York, Texas are experiencing very good growth, but some other markets need to also follow. And again, bringing more attention will allow us to have more of a national focus. Very clear. Thanks. Thank you. And ladies and gentlemen, we have time for one more question. Our final question will come from the line of Simon Hales of Citi. Thanks, Britoosh. Thanks, Felipe. Two quick final ones, if I can. First, if I look at the overall H1 EBITDA growth, it's 6.8%. There were lots of moving parts holding that back from the shipping phasing in the U. S, World Cup spend, higher freight costs, trucker strike, etcetera. Can you give us a broad view of what you think the real underlying growth rate was in EBITDA for the half when we sort of perhaps strip out some of those one offs? And then secondly, just going back to the U. S, Richard, I'd be interested in your general thoughts and comments around brand equity now for your premium, premium and light brands. And we talked around the full year about how the Dilly Dilly campaign had sort of got people talking about Bud Light again. What are your consumers saying to you now about the equity of those brands? Well, Sam, in terms of the first half EBITDA, you're right. I mean, we have the FCW difference in the U. S. We have the FIFA phasing investment phasing in the first half, Turkish strikes. So we had a couple of things that are for us clearly. The FCW is because our guidance is to converge, the FIFA because it's over and the Turkish strike because we think and we hope it's a one off, never to happen again in that sort of scale. And that took 3 percentage points of our growth in Brazil, one of our very profitable markets. So that, of course, is something that we don't expect to happen in the second half and that's why we also guided for second half where things would accelerate and that those are the reasons we gave at the beginning of the call, reasons to believe in that acceleration. The second part of your question was about Bud Light. Bud Light in the U. S. Yes, just brand equity. Yes, Bud Light in the U. S, you're right. I mean if you look at some of the brand metrics with the DailyVita campaign, you see that we've had growth in consideration for the first time since 2015, so growth in consideration. We've also seen, if you look at IRI, our share within the plan with the Premium Life segment is now for a 3rd quarter getting better, 2nd quarter side. The same with past 4 week consumption and now again, consideration for the first time since 2015 back to positive. EdvardLife continues to lead social conversations in the Q2 ahead of all brands in the U. S. So it's a very good space and having the benefit of having some line extensions like Orange that's like in many places out of stock already and Bud Light line being reintroduced with now all natural. So I mean all these things help the mother brand. And yes, so we're very excited about where Budweiser Bud Light is going. And if you look at Budweiser, it has kept a flat share now for the past two quarters within the premium segment, okay? It continues to lead with incredible content, winning also multiple lines at the Cannes Festival. And looking forward, the brand will continue to lean in America cultural calendar with the freedom reserves that we had in Q2 for the 2nd year, Freedom Reserve, but also now in Q3, connecting 2 iconic brands in the U. S. That is Budweiser and Jean Dean with co creation that will be available now in the Q3. So lots of good news for Budweiser, lots of new news for Bud Light. But again, the solution and what's happened in the U. S. And what's working best in the U. S. Is that we're playing a portfolio game, continues to be the biggest share gainer in the U. S. Now with the land extension, that's also one of the biggest share gainers in IRI. We have the high end that's now being split in different focus areas to drive Stella, for example, stronger. And we have our crafts that are growing double digits in the market that's now flat as a total U. S. Market for crafts. So the portfolio game is the one that will get us to win in the U. S, not only Button But Light, but of course, Button But Light being a better place will always be very important for our overall game in the U. S. So again, Simon, thank you for your questions. Thank you everybody for participating. In summary, the 2nd quarter delivered solid results and we saw improved trends in many of our key markets. We're pleased to see our global brand portfolio accelerating its growth, especially Budweiser as a result of a highly successful FIFA World Cup activation. Looking forward, the second half of the year, we continue to expect our growth to accelerate as we leverage the learnings of the category expansion framework and share best practice across our markets. However, we're never completely satisfied with our results. Thus, we're making organizational changes to accelerate growth and continue our strong track record of value creation. We remain excited about the long term prospects of our geographic footprint, our brand portfolio and our worldwide talent pool and we believe we're well positioned to continue growing the global beer category. So thank you very much. Enjoy the rest of your day. See you next quarter. Bye bye. Thank you, Maria. Thank you. This does conclude today's earnings conference call and webcast. Please disconnect your lines at this time and have a