Earnings Call: Q2 2017

Jul 27, 2017

Welcome to the Anheuser Busch InBev Second Quarter 20 17 Earnings Conference Call and Webcast. Hosting the call today from AB InBev are Mr. Carlos Brito, Chief Executive Officer and Mr. Felipe Dutra, Chief Finance 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. 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. Some of the information provided during the conference call may contain statements of future expectations and other forward looking statements. These expectations are based on the management's current views and assumptions and involve known and unknown risks and uncertainties. It is possible that the company's actual results and financial condition may differ possibly materially from the anticipated results and financial condition indicated in these forward looking statements. For a discussion of some of the risks and important factors that could affect the firm's future results, see Risk Factors in the company's latest annual report on Form 20 F filed with the Securities and Exchange Commission on the 22nd March, 2017. 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. Please refer to the reference based press release dated January 6, 2017, available on the company's website for important information about the company's updated 2015 2016 segment reporting. 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, and welcome to our 2017 Q2 results conference call. The Q2 saw a great performance in any of our markets, especially in South Africa, Western Europe, China and Argentina. Our 3 global brands, Budweiser, Stella Artois and Corona, continue to perform very well, with combined revenues growing by almost 9%. Additionally, our integration with SAB continues as planned, with good synergy capture coming from all of our new markets. Let's now take a look at the 2nd quarter results in more detail. Total revenue in the quarter grew by 5%, with revenue per hectoliter growing by 3.6% on a constant geographic basis, driven by revenue management initiatives and continued premiumization efforts. Total volumes were up 1% with our own beer volumes up 2.1% and non beer volumes down 5.7%. EBITDA grew by 11.8 percent with margin expansion of 2 38 basis points. This quarter's performance was driven by the strong top line result and the realization of synergies, offsetting an anticipated weak performance in Brazil, where EBITDA was down 15.4%. This was due to the impact of a significant cost of sales per hectoliter increase as expected. Excluding Brazil, our business delivered even better results with revenue up 6.2% and EBITDA growing by 16.5%. Normalized earnings per share decreased by $0.11 to $0.95 in the quarter. Normalized earnings per share increased from $1.57 in the first half of twenty sixteen to $1.69 in the first half of twenty seventeen. Now turning to our Global Brands, which delivered another strong result this quarter with revenues up by almost 9%. Budweiser continued to perform very well, supported by a strong performance in China as well as good growth in Brazil and the UK. We also executed our global Tomorrowland campaign in 9 countries, leveraging our global scale. Stella Artois grew revenues by 6.6 percent with good volume led performance coming from Argentina, South Korea, Canada and Australia. We also launched our full scale hosting campaign in North America with exceptional with experiential and trade platform. Corona continued its impressive track record of growth with revenues up by over 16% and by more than 25% outside of Mexico, driven by China, UK, Australia and Colombia. We also launched a Better World campaign partnership with Parley, setting the goal of protecting 100 islands from ocean plastic pollution by 2020. We believe in the ability of our 3 global brands to continue their strong growth by leveraging their global commercial assets with consistent communication and execution around the world, while increasing their scale through further distribution, especially in our new markets. Let's now have a closer look at the results of each of our regions. Our revenue in North America was flat in the 2nd quarter as a 1% improvement in revenue per hectoliter was offset by a volume decline of 1%. EBITDA grew by 3.2 percent with margin expansion of 129 bps to 41.6%. In the U. S, we estimate industry sales to retailers, or STRs, declined by 0.7% in the 2nd quarter and by 1.1% in the first half, in line with last year's trends. Our home SDRs were down 3%, resulting in market share loss of approximately 105 bps in the quarter 85 bps in the first half based on our estimates as we cycled a strong comparable versus the Q2 of 2016. Our revenue in the U. S. Declined by 0.2% with revenue per hectoliter growth of 0.9% negatively impacted by brand shipment mix. In the first half of twenty seventeen, our revenue per hectoliter increased by 1.5%. Despite the soft top line result, EBITDA improved by 3.9% with margin expansion of 168 bps to 42.2 percent as a result of disciplined cost management. We also saw improvement in our gross margin, which was up by 45 bps to 62.2 percent, leading to more than 7 consecutive years of margin expansion. While this was a challenging quarter for the U. S, we saw continued growth from the above premium segment. The Club Ultra maintains its impressive growth trajectory with 9 straight quarters as the number one share gainer in the U. S. This quarter also marked the highest quarterly share gain in the past 5 years, affirming our belief that further acceleration is possible through increased awareness and penetration. Celletois also continued to gain share in the U. S. As the fastest growing European imported beer, according to IRI. Our regional craft portfolio continued to grow ahead of the slowing craft segment, led by our local and regional craft brands. However, our U. S. Premium lagers remain under pressure, driven primarily by Bud Light and Budweiser. Bud Light lost approximately 9 bps of share, while last year has declined by mid single digits. While we are surely while we are surely not satisfied with this result, we did see bright spots for Bud Light, such as our music influencer program, dive bar tour, which led the category's digital conversation in June. Additionally, we have developed local programs for key Hispanic markets and initial performance is showing positive results. In the second half of the year, we look forward to new creative content as we bring the France platform to life for drinkers of America's most popular light lager. Budweiser's share declined by approximately 40 bps, with SDRs down by mid single digits. This quarter, we saw the return of the successful Budweiser America campaign, giving back to those who protect the ability to pursue the American dream. The content continues to drive improvement in brand equity measures. We will evolve the campaign this year, rolling out unique state packaging in the locations of our 12 breweries, further reinforcing Budweiser's status as an American icon. In summary, we are not pleased with our U. S. Market share performance, and we'll continue to work to balance the share and profitability equation while fine tuning our regional tech price strategy and leveraging our strong wholesaler system. Moving now to Latin American West. In Latin American West, revenue grew by 8.5% with revenue per hectoliter increasing by 5.2%. Volumes were up 3.1% with good performances in Mexico, Peru and Ecuador. Our EBITDA increased by 16.4 percent with margin expansion of 3 19 bps to 47.2% with strong top line growth supported by synergies captured. Mexico recorded a solid performance this quarter with revenue growing by low double digits and volumes up mid single digits, helped in part by the timing of Easter. Our EBITDA increased by 4.6 percent with margin contraction of 242 bps to 43.2%. Top line growth was partially offset by the combined impacts of currency devaluation on our cost of sales as well as an energy price increase at the beginning of the year. Our big brands in Mexico all performed well this quarter, resulting in a strong top line result. Bud Light outperformed through its successful sports and music activations, with volumes up double digits and expansion continuing beyond the north region of the country. Corona's brand health continues to improve, and the brand aims to grow the beer category in Mexico through leveraging new consumption occasions. Victoria continues to increase its relevance with Mexico's LDA consumers through consistent messaging center around the brand's Mexican heritage, while stepping up its digital activity to generate positive attention in an authentic and efficient way. We remain excited about the Mexican business and believe we have the brands and plans in place to advance further category expansion. In Colombia, we saw sequential improvement from a tough first quarter with revenues up by 3.1% and volumes declining by 1.4%. Our EBITDA grew by almost 20%, with margin expanding by more than 700 basis points as a result of synergy capture cost discipline in the growth of our premium brand portfolio. Premiumization in Colombia is one of the ways we believe we can achieve category expansion. And by establishing a high end distribution network and rolling out our global brands, we're now in a better position to make the most of this opportunity. On the other hand of the spectrum, through smart affordability initiatives, we believe we can increase per capita consumption in Colombia, which is relatively low at 48 liters per capita. By offering consumers economical options, such as returnable glass bottles and large format packaging, we can bring more people into the beer category and position ourselves for long term sustainable growth. Moving now to Latin American North. Our business in Latin American North was under pressure this quarter. Revenue was down by 1.8% and our revenue per hectoliter improved by 2.2% with revenue management initiatives partially offset by packaging mix due to the growth of returnable glass bottles. Volumes in the region declined by 3.8%. EBITDA declined 9.5%, primarily driven by the performance in Brazil with margin contraction of 334 bps to 39.3%. In Brazil specifically, the political macroeconomic environments remain challenging. Our beer business outperformed the industry for the 2nd consecutive quarter in terms of volumes, with our volumes declining by 1.3% versus an industry that declined 2.7%. Our non beer volumes were down by 14.1% as the soft drink industry continues to be pressured by the economy, leading to the total leading to total volume decline of 4.6%. Our total revenues declined by 3.8%. Brazil EBITDA remained weak this quarter, declining by 15.4%, with margin contraction of over 500 bps to 39.2%. The Brazilian economy is recovering at a slow pace, still representing challenging for the beer industry in the short term. We acknowledge the difficult reality, but we believe in our strategy, and we remain cautiously optimistic for the year. Further, we'll now begin cycling more favorable net revenue perforated comparables. For example, in the Q3 of 2016, our beer revenue per hectoliter was BRL242, while in the Q2 of this year, it was almost BRL 261. So if nothing else changes, this would result in a 7.6% increase year over year next quarter. Additionally, cost of sales per hectoliter will bridge to between a flattish and low single digit increase. Therefore, we expect to resume EBITDA growth in Brazil in the second half of twenty seventeen. With that in mind, we'll continue to put efforts in our plan, focusing on our commercial platforms in Brazil and pursuing cost savings and efficiency gains to positively impact our profitability. In terms of our commercial platforms, we continue to see growth in the premium space, especially in our global brand portfolio, which grew by double digits this quarter. Our Budweiser campaigns featuring Brazilian basketball legend Oscar Schmidt received the Golden Lion in the Cannes Festival in France, supporting further growth through strong brand equity. We're also committed to elevating our core portfolio brands, making them more aspirational through initiatives such as our new visual brand identity for Brahma, our classic lager. Moving now to Latin American South. We had another great performance this quarter in Latin American South. Revenues grew by 35.4% as a result of pricing in line with inflation as well as growth of our premium brands, especially our global brands. Volumes improved by 12.2%, and beer volumes in Argentina, the largest market in this region, were up by more than 20%. EBITDA grew by 30.5 percent with margin expansion margin contraction of 154 bps to 41.1 percent as top line growth was partially offset by the cost of sales increase as a result of adverse foreign exchange impacts as expected. Turning now to EMEA. In EMEA, our revenues grew by 10% this quarter with revenue per hectoliter increasing by 5.7%, largely driven by the continued growth of our premium brands in Europe as well as our revenue management initiatives. Our volumes grew by 4.1% with broad based growth across Africa. EBITDA grew by 17.1% with margin expansion of 192 bps to 29.4%. Our business in South Africa had a very strong quarter. Our beer revenues grew by 13.4 percent with revenue particularly increasing by 2.4%, benefiting from the annualization of the July 20 16 price increase and a good performance of our proven brands, especially Castle Light. Our beer volumes grew by 10.8%, helped in part by the timing of Easter. Beer's strong top line growth, combined with synergy delivery, drove total EBITDA in South Africa up by almost 30%. Our strong performance this quarter was enhanced by growth in the near beer segment with an especially strong performance of flying fish, which grew volumes by more than 100%. This segment has the potential to further expand the beer category by recruiting female LDA consumers and by targeting occasions outside those typical of beer. Moving now to the Asia Pacific region. Asia Pacific delivered revenue growth of 5.9%, driven mostly by brand mix as volumes in the region were roughly flat. This was led by the strength of Budweiser in China and our enhanced portfolio in Australia. EBITDA grew by 22.1 percent with margin expansion of more than 500 basis points to 36.9%, partially due to synergy capture in our new markets. In China, revenues grew by 7.2% in the 2nd quarter, while volumes were up 1%. The top line growth was driven by continued premiumization initiatives led by Budweiser as well as our super premium brands and innovations. EBITDA in China grew 20.9% this quarter with margin expansion of more than 400 basis points to 35.7%. We continue to believe that the growth potential in China lies in the core plus and above segments in which we over index. Budweiser continues to lead the premium segment and is aiming to own the fast growing in home consumption occasion. Have also seen impressive results from our high end portfolio, especially Corona and Rue Garden, which we believe is to have much more potential given their low brand awareness. With that, I would like to hand over to Felipe, who will take you through some further detail on our second quarter results. Letis? Thank you, Grito. Let's start with the synergy capture. We have continued to deliver synergies resulting from the combination with SAB. This quarter, we delivered $333,000,000 coming from all of our new markets. We continue to expect the delivery of $2,800,000,000 worth of recurring costs, saving synergies on a constant currency basis as of August 2016 to be realized in the next 3 to 4 years. As we have previously said, this will require estimated one off cash costs of approximately $900,000,000 to be incurred in the 1st 3 years after closing and of which $382,000,000 has been spent to date. And of course, does not include any top line or working capital synergies. Net finance costs in the quarter were over $1,600,000,000 compared to more than $700,000,000 in the Q2 of 2016. This increase was primarily driven by an unfavorable $265,000,000 mark to market loss linked to the hedging of our share based payment programs compared to a gain of $444,000,000 in the Q1 last year, a swing of over $700,000,000 Our normalized effective tax rate for the Q1 was 21.3%, up from 20.5% in the Q2 2016. We have amended our guidance for the full year 2017 from the range of 24% to 26% down to the range of 22% to 24%, which excludes the impact of any future gain and losses related to the hedging of our share based payment programs. Normalized earnings per share decreased to $0.95 from $1.06 in the Q2 of last year. A $0.68 increase in normalized EBIT due to the organic growth was more than offset by a $0.43 year over year change in the mark to market adjustments linked to the hedging of our share based payment program and $0.37 change due to an increase in net finance costs. In addition, FEA's results were impacted by the prefunding costs related to the SAB transaction not yet matched by earnings. These favorable impacts were partially offset by dilution due to the increased number of shares. Our capital allocation objectives have not changed. Our optimal capital structure remains at the net debt to EBITDA rate of around 2x. And at the end of the first half of this year, our net debt to EBITDA ratio was 3.5.3x. It is worth mentioning that our operational cash flow has historically been much stronger in the second half of the year as a result of the seasonality of our business. In addition, the second half cash flow should be enhanced by the proceeds resulting from the sale of our stake in CCBA, which we expect to close before the end of this year. We are tracking in line with our internal deleveraging targets. Our first priority for the use of cash will always be to invest behind our brands and to take full advantage of the organic growth opportunities in our business. The leverage into around 2x remains our commitment, and we will prioritize debt repayment in order to meet this objective. M and A remains our core competency, and we will always be ready to look at opportunities when and if they arise, subject to our strict financial discipline and the leveraging committee. Our goal is for dividends to be a growing flow over time, consistent with the non cyclical nature of our business. However, as we have said before, giving our emphasis on deleveraging, business growth is expected to be modest in the short term. And with that, I will hand back to Maria to begin the Q and A section. Thank you. The floor is now open for questions. Our first question comes from the line of Simon Hales of Barclays. Thank you. Good afternoon and good morning, everybody. Hi, Bruce. Hi, Felipe. Two questions, please, if I can. I wonder if perhaps firstly on the synergy capture in the period. You could talk about maybe what drove the step up in the rate of synergy capture in Q2 versus what we were seeing perhaps in Q1 and Q4? And whether or not there's any more information you can share with us in regard to the future phasing of those synergies? Is there any reason we shouldn't extrapolate that Q2 rate of capture into Q3, for instance? And then secondly, maybe for Brito, I don't know if you could just talk a little bit more about maybe the subsector performance in U. S. Beer through Q2 and the first half, particularly maybe what you've been doing in craft at one end and maybe in the value segment at the other, which I think often gets lost? Yes. Well, thanks for the question, Simon. Well, on the synergies side, I mean, I think it is not uncommon in the transactions that we do in combinations that you see that there is a learning curve as you go through the process and synergies tend to accelerate sometimes in the 1st quarters because you do put more things in place. So at the end of June, we have already delivered 50% of our $2,800,000,000 commitment, right? So I think we're very happy with the integration. We think things are on track. Our new colleagues have really embraced our culture and are now part of 1 company, 1 culture, 1 dream. So that's very encouraging. So we're very happy. And we're seeing better than that, we're seeing synergies coming from all new markets. So it's not something that's concentrated here or there. It's something that's across the board. And I think that's a testament for good planning that our teams, joint teams did between signing and closing. Terms of U. S. Beer, you have a good point. I mean, in terms of we talk a lot about the premium brands, bottom of the light, but sometimes we don't see what's happening above the premium side, which is developing very nicely. Our craft brands growing ahead of the craft segment. Brands like Stella growing being the number one brand growth in terms of European imports and Michelob Ultra has been the fastest share gainer in the U. S. Now for 7 quarters. And I mean, they're having the highest market share position in terms of overall market in many years. So that's very encouraging. And on the value segment, what people tend to miss as well sometimes is that the value segment is still a very important segment within the overall beer mix in terms of total market and also very important for us is 25% of our business. And it's a segment that in which profitability came up quite a ways because of the decrease we did in the last 8 years in the discount in which they were sold at in terms of price points. So the price points are less of a discount to the 100% index of the market. And so these brands have a better margin because of that, and you don't invest much in terms of marketing support. So when you put these two together, the profitability is quite interesting and it's a segment in which we have a big presence. So you're right, those two segments are important. Our focus continues to be on the premium and above segments, but the value segment is part of our business and it has quite a value profitability. Our next question comes from the line of Pablo Solanaque of SIG. Good morning, everyone. Luca, just two very quick questions. I was looking at your acquisition of Hibo in the Energy Drilling segment. And I was wondering why such a large company like Heserbusch would bother with such a small little brand when you have Red Bull and other brands out there. So the question, Brito, is really, if the idea is to give more volume and scale to your distributors in the U. S, are you going to start looking at more individual brands outside of beer? And why not look at bigger brands? Buy was just sold, Pizza, Coke, which is out there. Why bother with High Point? And the second question, if you can just give us a reminder about this incentive plan for the top management team of $350,000,000 if the company reaches $100,000,000,000 in revenues by 2020. How strict is that? Is that a policy by 2020? If you deliver by 2021, that reward would not be there? If you can explain that. Thank you. Yes. Okay. So Pablo, in terms of the HIBOR, I mean HIBOR is an opportunity we saw in terms of our DGO type approach to markets in terms of disruptive initiatives. We saw somebody who is still small, but we believe has a high potential. It's a company that's taking a different approach on energy drinks in the sense of being natural and organic, which is something that consumers are looking for. It has momentum. It's been in the market now since 2005. And we believe that our wholesale system has proven with Monster their capacity to develop products outside of the ALCO segment. So we believe that it's not only a good play for us in terms of trying to look for an angle, a disruptive angle on a category that's the growth category, high margins and with the wholesale system that is very knowledgeable about this kind of product. So it's just disruptive play on a category that's established and still growing very fast with very good margins. So it's a complementary product. And again, we're in this business for the long term. So the fact that we're buying something small but with big potential, it doesn't scare us because we're owners, we're here for the long term, and it is going to take 5, 10 years to take scale. For us, that's fine. In terms of incentives, some of our incentives have partial achievement. Not most of them do not, but this one do. There is a partial achievement for this one for the years 2021 2022. So you're right. I mean, there is a range of payouts on this incentive depending if it's 100% in 2020 or partial 2021 and 2022. Understood. Thank you. Thank you. Our next question comes from the line of Trevor Stirling of Bernstein. Hi, Brigitte and Felipe. Two questions from my side, please. So the first one, Felipe, the tax rate, the lowered tax rate for 20 17, does that also mean that possibly there's an opportunity to lower tax rates going further and we could see guidance fall in the out years as well? And the second question maybe for you, Brito. Your Brazilian margins have clearly been under a lot of pressure. Currency hedges start to turn positive as we enter Q3 and Q4, and we would expect to see margin expansion coming through. And you highlighted the opportunity in price mix. But if you look at peak margins in Brazil in 2013, 2014, at that stage, it was based on a real at $2 and the level of incentives is much higher. So is it realistic to be able to get back to those peak margins? Or should we be looking slightly lower in terms of where we think we can get back to? Well, let me tackle the second one. Shailesh will tackle the first one. In terms of the Brazilian market, Trevor, as we said in our comments just some minutes ago, and we had already anticipated that in previous quarters. The second half of this year, we'll see easier comps on the cost of sales side because of the currency that we mentioned in the past. And also, we'll face easy comps in terms of net revenue per quarter. And we just put two numbers here that are public just to make the point. So I mean, if there's nothing done in the Q3 of this year in terms of pricing, Just by taking the pricing that we had already in the Q2 of this year on average in local currency versus the price we had last year in Q3. That would be, if nothing changes, a 7.6% increase in net revenue per hectoliter. You know that our price policy in Brazil normally is to increase prices in the second half of the year, normally in the Q3. Last year, by exception, we did in the Q4. But this year, I can tell you, and it's already in the market, that we're going to do our price increase in the Q3 this year in Brazil. So that's why we said that EBITDA will resume growth in the second half because of the two components, top line and cost. And in terms of margins, the only thing I can tell is this. The margins we used to have of 50% 50% plus in the Brazil business. These margins are for us in our culture high watermarks. So we won't forget them. And this continues to be a reference for our people operating in Brazil. That I can tell you. Felipe? Hi, Trevor. On the effective tax rate, yes, we are updating the guidance at this point. It is valid for 2017. It's just too early to talk about 2018 at this point. Okay. Thank you very much, Felipe and Rachel. Welcome. Thanks, Sven. Our next question comes from the line of Christian von Strain of Redburn. Good morning, gentlemen. Two questions, if I may. Just the first one, in the U. S, you have a very good EBITDA margin expansion of 168 basis points and over 100 that seems to be from savings and and A. Can you maybe break that down what bucket that sits in? Is it an admin or marketing and what drove that? And then secondly, in South Africa, you've relaunched Lion Lager in what appears to be about a 20% discount to mainstream. As you currently own 100% of the mainstream segment. How are you ensuring that Lion does not cannibalize from Kosovo and Hansa in that market? And how should we think of the Lion margins relative to mainstream in South Africa? Yes. That's a very good point. Going to start with the Lion brand. So in South Africa, there are some cheap spirits that we have to deal with in terms of category. And Lion is exactly supposed to do that, was designed to do that. What we're trying to do, of course, is trying to get Lion in the blocks where it should be, where the prevalence of those cheap liquors are more the case. And package wise, we're also trying to signal that, that's the value brand as opposed to try to avoid cannibalization as much as possible. So we're doing that in a very controlled fashion. But the objective is not, of course, to cannibalize our own brands, but to really expand via affordability the category play. It's being done, I can guarantee you, in a very controlled fashion. It's not something that's across the board. Our guys, for all the reasons you said, are being very careful in where to implement this brand, okay? No rush in implementing it. In terms of U. S. Margin, we're very happy with the financial performance we had last year, financial performance we had this year so far. We're not happy with the share. That's a different story. But the financial performance has been driven only by having our net revenue per hectoliter growing. If you look at the first half of this year, our net revenue per hectoliter grew by 1.5%, which is pretty much in line with what we want to do with price in general, which is to have it in line with inflation when you look at a broader period. And in terms of SG and A, we'll continue to operate SG and A as efficiently as we can. You can be assured that we're looking at non working dollars type opportunity. When you look at the U. S. Base of SG and A, it's big enough to afford us to be able to look for that. But the other important thing to notice is that our gross margin now for 7 or 8 years once again grew. And if you look at the quarter, it grew 45 bps to 62.2%, which for me tells me that the whole premiumization and the whole focus that we have on the premium and above premium is continuously paying off because we've had years years of gross margin expansion and last year and this year EBITDA expansion as well. Thank you, Biren. Just a follow-up on that gross margin. Historically, that has not seemed to drop down that benefit the last 7 years because all expenditure you've had in marketing. Can we just then say that actually that amount of marketing you spend to support your brand, we don't expect that to increase as a result. You actually take you basically let some of it drop down the bottom line at the moment. No. What you can expect is that because we increased the base of SG and A in the last 3 years because of this focus on the high end, that now we have a base that's big enough to afford us to start optimizing. And when you have a big base, optimization is always a big opportunity. So that's what we're doing. Got it. Thank you. Thank you. Our next question comes from the line of Robert Ottenstein of Evercore ISI. Great. Thank you very much. I was wondering, Brito, if you could I know it's early days, but obviously the global brands are doing well and a lot of the SAB territories. Can you talk about what you've learned so far about how well Bud, Stella, Corona resonate in those different territories, maybe a little bit about your strategy with those brands and any surprises that you've seen in the marketplace, good or bad, in terms of how those have worked commercially? Robert, thanks for the question because global brands is one of those things that's a no brainer. I think so far, all markets in which we have implemented those brands, they've done well. They have appeal that's universal appeal. Each of them has their own position, has its own position. So they complement each other. They don't they're not sitting on top of each other. And their values are pretty much universal values. So they appeal to a wide range of consumers. And we've seen these brands performing really well in our new territories. The other thing for you to think about, Robert, is that when you go to Africa, even in Africa, when you go to, for example, I'll give 2 examples, South Africa, Nigeria, even segments are present in those markets. It's just that the SAB colleagues of ours didn't have brands to compete in those segments. But if you look at Heineken and Diageo, they had healthy businesses in the premium segment in those two markets, for example. So now we're coming with our brands in a market that already exists, just trying to get our fair share and enlarge that side of the market. So when our global brands go into these new markets, it's not that they are there to initiate the category, they are there finally to compete in a category that others have already introduced in the market. But now we have brands that we believe, given the portfolio player we have, that can do better than some of these other brands because some of these companies are 1 branded and we have a portfolio of brands for different occasions. So I mean, that's the bet we have. We have now to deliver, but the initial signs are very positive. And then as a follow-up to that, it appears that your strategy in China is evolving a little bit. Can you talk a little bit about that and how you're kind of looking to continue to have a commanding lead and spread that lead at the very high end using the global brands? Well, in China, Robert, we are the leaders in everything that's premium and super premium. And because of that, we need to continue to elevate the bar to raise the bar. So let me give you a couple of examples. Budweiser, leading brand in the premium segment. At some point, our guys in China said 3, 4 years ago, well, at some point, there will be a super premium segment and we need to lead that as well. So we separated the route to market. We did everything that we had to do in order to create the infrastructure. We got the brands. And now you look at Stella, Corona and New Garden, mainly Corona and New Garden in China, they're growing at triple digits and with very high margins. Then you look at e commerce. We lead e commerce in China, which is in China for beer, at least it's a very high end type occasion. Then you look at Budweiser. We tried to get Budweiser to be less dependent on 2 regions. So we're broadening, expanding Budweiser to other regions. That has been the case for many years and also through different channels. Chinese consumers are evolving and the nightlife is getting more segmented. That's where Budweiser has a very strong hold. And we are together with a super premium company in China going through Western Bars and different white table cloth restaurants, Chinese restaurants and trying to get more of a balanced base for our premium and super premium brands in China as opposed to depending on the one channel or 2 regions. That's what we're trying to do to continue to be the leader in reference in the Chinese market for proven super proven beer brands. Thank you very much. Thank you. Our next question comes from the line of Edward Mundy of Jefferies. Hello, Edward. Hi, can you hear me? Yes, yes. Good morning, afternoon everyone. Just on Page 3, in your management comments, you made the point that the second half of the year looks promising. Is that from a revenue perspective or from a cost perspective? What excites you most about the second half? Is it top line or margins? I mean, well, we said second half looks promising in terms of Brazil because of top line and cost. We also said that in Mexico, we had a second quarter that was a little bit of a one off, but the first half of the year was more what you should expect of the Mexican performance. But we feel good about our business, Edward, because when you look at Brazil, I just mentioned, when you look at LAS, Latin American South is accelerating. Mexico had a one off this quarter, second quarter in terms of financials, should be better going forward. Copac, when you look at Colombia, if you look at the Q3, all public numbers, Q3 last year, you see that Colombia came from the El Nino type 15 month spread that was very good for volumes. So we're lapping that. But if you look at the Q3 when they are last year when the El Nino effect finished, there was some negative volumes in Colombia that were now going to be lapping in the Q3. Europe has a 3rd year in which top line is growing. China continues to grow share. Now we have after 3 years, industry in China back to positive territory, slightly positive territory year to date. Australia, 2 quarters now going ahead of industry. In Africa, we're going to have some capacity that is going to come online in the second half of this year because in some places, we have capacity constraints and we have momentum. So, Amit, when I look at this, I mean, I think we are optimistic about the second half, I could say. Great. And then just as a follow-up, I appreciate you're not changing your cost synergy targets at this stage. But I think, Felipe, you alluded to in your presentation working capital synergies. Are you able to talk a little bit more around those at this stage? So the way we describe core working capital defined as receivables, inventories and payables that are really connected to the business and excluding things such as payroll and commodities mark to market adjustments. ABI reached around 15% in the negative territory by the end of last year. SAB is coming from low single digits in the negative territory, so the gap is there. And our 15% is average. We have zones that are doing much better than that, zones that are below that average and we are always raising the bar. So when we compare the two footprints, there is no reason why the former SAB footprint could not get to current ABI levels on average. And that is the journey that we started as we started integration. And working capital should continue to be a very strong component of the overall cash flow generation and we are working on it. Things are progressing well. We just didn't put a public number out there, not for working capital, not for revenue synergies, just the cost related ones. Great. Thank you. You're welcome. Our next question comes from the line of Mitch Collett of Goldman Sachs. Hi there. Just returning to your comment about promising, I guess your formal guidance is that revenue growth should accelerate. The comps are much tougher for the first half. Is there any reason we shouldn't expect your second half performance in terms of top line growth to accelerate from the 2Q or 1H performance? And then Mitch, can you talk a bit louder or closer to the mic? It's kind of hard to understand. If you could repeat the question, please. Yes. Sorry. Is that better? Yes, much better. Sorry. So I just wanted come back to your comment about the second half looking promising. And obviously, you've seen a sequential acceleration in 2Q versus 1Q. The comps are much easier in the second half. Is there any reason we shouldn't expect 3Q and 4Q to continue to accelerate from the 2Q performance? And then secondly, I think you said that cost of sales should be flat or up low single digits in Brazil given the FX benefits. I guess the hedges, I would have thought, would have meant cost of sales would be down year on year. But I appreciate not all of your cost of sales are hedged. Is that partly why it would be flat or small up? Or is that potentially the impact of an increased exposure to returnable glass bottles? Thank you. Well, Mitch, on Brazil and cost of sales, there are many other impacts. I mean, as premium brands grow, for example, cost of sales go up because those premium brands are normally more expensive packaging. They have better margins, of course. They are normally one way bottles or more with non returnable bottles. They're pretty much all one way bottles and cans. So I mean, there are other things that take into account. That's why we said flattish to slightly up, which is much better than we had in the first half. What I said about the second half is pretty much what's in the release is that for Brazil, we guided for better revenue per hectoliter, right, because of the comps and better cost of sales. Plus, I'm saying, last is also accelerated, so from 1st to 2nd quarter. So that is in a good place. For Mexico, in terms of financials, we said that the Q2, because of some phasings and one offs, it's not necessarily the best representation for margins and EBITDA growth for Mexico. The first half would be better. For Colpac, I said that there will be a 3rd quarter. But if you look at the numbers and the weather that was exceptional well 2 years later, you see that July, August, September, Q3, there should be some easier comps on volumes in Colombia, which is a top five market for us. In Europe, there's good momentum. In Africa, there's good momentum with some capacity coming online, which is already public. In China, industry is back to slightly positive and we have also momentum. In Australia, for 2 quarters now, we've been growing ahead of industry. So I'm just saying that other than the U. S, in terms of share in the U. S, the other markets, main markets seem to have some good things going for them. Never perfect, but on that net net, some good things going for them. Our next question comes from the line of Mark Swartzberg of Stifel Nicolaus. Nicholas. One for you, Brito, one for you, Felipe. In the U. S, Brito, there seems to be some silver linings here with all the challenges that are obviously facing your largest brands. And you've touched on them, but I'm curious if you could elaborate when you think about the craft space specifically, whether it's you or others in the brewing space, private equity, whether you think there's an opportunity for a quickening in the pace of M and A in Craft? And then Felipe, as we think about currency hedging, you're dealing with a much larger basket of currencies than you were prior to the Sab transaction. So, I'm sure we could go at length in what's different in the way you're approaching currency. But is there something you can tell us in brief that would help us get comfortable that you're actually able to minimize volatility even more than you have historically and minimize the top, so to speak, so that you can't obviously eliminate what happened in Brazil, but something to give us some sense about how you're managing that risk on a go forward basis. Mark, in terms of craft, I mean, we're growing our craft portfolio is growing ahead of the craft industry. So we're very happy with that. When we look for craft or potential craft partners, we look much more at the founder, the personality, the culture, the fit because what we've seen is that with our partners today or to date, we've been able to create a very strong sense of team. They work together. We're able to call the craft panel and they exchange ideas, best practices, development of new styles. So and they're very connected to the business and very committed to growing the business the right way. So we pick our partners because of the fit, because of their vision, the capacity to dream big, the cultural fit as well and their love for their business and willingness to stay with us to continue to develop brands. So that's our main criteria and we're very happy with the craft partners we have today. And do you believe the 11, assuming Wicked Weed closes or perhaps it's closed, do you think the 11 is about right? Or do you think there's an opportunity? Do you see that the 11 validating, so to speak, the approach where you have given craft brewers serving a particular region? Yes. I mean, I wouldn't speculate at this point, but I mean, all I can say is that our guys did an amazing job of finding these founders, connecting with them and creating this camaraderie and this partnership and this panel and this exchange of ideas and best facts that's really been magic for us. Great. Thank you. So, Mark, on the hedging piece, there has been no material change to our hedging approach. What essentially happened given the enlarged footprint is that now we benefit from a larger risk diversification as our approach to hedging has always been the one of understanding the basket of risks we are running, not only from the FX, but also the commodity standpoint and often relying on the cross correlation of different exposures and assets that we may have. The biggest bucket is always the one on the outstanding debt breakdown. And we have been very clear in the sense that 1 third of our on the overall net debt, but on the euro appreciation versus dollars, that is putting a weight on the overall net debt. But on the other hand, given the correlation between euro and other emerging market currencies, we also benefit from the translation of local results, local EBITDA into U. S. Dollars. In summary, that has been the approach. The approach has not changed it, just a better risk of diversification at this point. Fair enough. Great. Thank you, gentlemen. You're welcome. Our next question comes from the line of Kamal Dhillon of JPMorgan. Hi, good morning, Rita and Felipe. Just two questions for me please. First one on the U. S, obviously you've got volume share loss of 105 bps in the quarter. And I know you've had a tougher comp in Q2. But can you outline the plans to stem this loss? And then how should we be thinking about the volume share situation going forward? Then the second one really, we had news this week that the Head of Carlsberg at United Brewies in Australia, saying you are interested in the privatization of the breweries in Vietnam. Any more comments on that, please? Well, Vietnam is a market that we're very committed to. I mean, we like the profile of the market. It's a growth market. It's a scale market, but we cannot comment on market rumors. But it's a market that we have our global brands there that we're very excited about growing that market. And China is a great inspiration for us on how to grow those brands in Vietnam. That's all I could say about Vietnam. In terms of your first question in terms of share, what we're doing, Komal, is really trying to first understand a little bit of the tough comp, but also trying to continue to get to a better position in terms of supporting Bud Light, that's important. So Bud Light, there'll be some new campaign executions hitting the market pretty soon. We also have the dive bar tour that dominated the whole social scene in chatter in the month of June and pretty much also very strong in May. The same with Budweiser with the America Campaign and Folds of Honor. So these 2 brands are doing well in social media. They have campaigns that have mileage, especially Budweiser Bud Lights A New campaign with Friends, the Friends platform. We continue to put a lot of focus on the execution of the marketplace. Those things have not translated yet in better market share sales, but we continue to be very focused on those. In terms of above premium, again, you've heard me talking about Michelob Ultra, 9 consecutive quarters of being the biggest share gainer. We'll continue to put a lot of effort and money behind it. It has its best quarterly share gain in the past 5 years. Craft doing well ahead of the segment, value stabilizing, important for us given that the margin, given the lower investment has also an interesting financial component to it. And so I think that's what we'll continue to do. Bud Light is the focus because the rest of the portfolio is doing well. Our next question comes from the line of Eddie Hargreaves of Investec. Yes. Hi, Brito and Felipe. I think you said, Brito, just now that China had returned to growth, I assume you mean in volume terms with that comment. Clearly, sort of that profit there, your margins were up 500 bps at the EBITDA level in the half year. Could you say how much of that is sort of mix and how much is cost savings? You mentioned both factors in that paragraph. I assume it's mainly mix. So that's question 1. And then the second one is that you're committed to ensuring that 20% of your beer volume globally will be no and low alcohol product by the end of 2025. Can you say what level you're at the moment in looking at how demanding that 20% target is? Thank you. Yes. Hi, Eri. So I'll start with the second question. We're very committed to the non alcohol and low alcohol beers because we think not only there are consumer trends out there, but it's also very profitable. So we put a target to ourselves of getting to 20% of our mix in terms of volume. Today, we are at 7, percent and we're 7% plus to be precise. And what happened is that with the SCB new markets, we evolved a lot in terms of learnings. If you go to markets like Australia, Colombia, Ecuador, our China market, we're already above and beyond that 20% in terms of especially low alcohol beers, below 3.5%. So the reasons to believe for other markets of ours and the amount of best practice we have now, especially on the low alcohol beer, increased big time compared to a year ago. And now we're trying to get those best practice from Australia, Colombia, Ecuador and China to travel faster because there is an opportunity there, especially in the low alcohol beer. So that's on the NAB lab, as we call it. Your first question was on APAC on China. On China, as you will remember for sure, brand mix has always been a very important component of our profitability growth in China. Why? Because Budweiser is growing together with the Heinz segment, way ahead of the average of our portfolio. So just to give you a number, let me get to the number here. In terms of the Chinese beer market, let me see if I can find the page here. Well, I don't have a page here. But what I wanted to say is that in terms of the core plus premium and super premium segment, we're way above. Oh, I found the page. So for example, the industry in China has 57% of its volume, 57.5% of its volume in the half year of this year in the core and value segment, we only have 36%. 36.9%. So I mean, our business is much more skewed towards core plus premium and super premium. And the momentum is there, and we continue to grow disproportionately on those segments where the money is and the growth is. So a lot of this margin enhancement in China is caused by this mix shift, but there's also because China now has a big marketplace, also lots of initiatives and efficiencies as we always do. But as the base grows bigger, then those initiatives are more relevant. But most of it comes from premiumization of our mix. Sure. Sorry, was that number 57% or 67%, Chris, over there? Yes, 57% for the half year this year is what the industry has in terms of its volume on the segment core and value. Ours is 36.9%, so 37%. So 57% for the market in core and value, we have 37 Yes, understood. And the figure for the Chinese beer market volume overall in the period? Volume overall for the half year increased by 0.2% in our estimates. So after 3 years of being negative, this half year, year to date, plus 0.2% growth for the total industry in China. Of course, the segments in which we over index are growing way ahead of that, but that's the total industry. Industry. Understood. Thank you. Thank you. Ladies and gentlemen, we have time for one more question. Final question today comes from the line of Fernando Ferreira of BMML. Thank you. Brito, two questions, please. When you look at your sales today globally, what percentage of those sales are premium and the super premium brands? And where do you see that going into the next 5 or 7 years? Like do you have any target like non low alcohol? And then second question on Brazil. I understand the effect on your revenue per hectoliter driven by the RGBs and easy comparisons as you mentioned. Can you talk about the pricing environment ahead now that competition appears to be a bit more rational and also have recovered a lot of your market share that you had lost last year? Thank you. Well, Fernando, I'll start with the second question. The environment in Brazil has always been very competitive. Price is very local. As you said, our guys in Brazil signaled to us that they'll implement the price in the Q3 of this year as compared to the Q4 last year. So that's all I can say about price in Brazil, which is a very competitive market. In terms of our global brands, I think the only figure we have out there is that our global brands, in terms of our total portfolio, is ahead of 20%, north of 20%. That doesn't include all premium brands of ours, but just the global brands. More than that, of course, in terms of revenue and margins, but in terms of volume, it's 20 plus percent are global brands. We have some targets of our own, but they're not public. Okay, great. Thanks, Brito. Okay. Well, if there are no further questions, I would like to thank you, Maria. Thank you, everybody. So in summary, our performance at the half year market of 2017 is promising. While we are not satisfied with our market share performance in the U. S. Nor our financials in Brazil, we have delivered strong top line results in almost every other market and are pleased to see the company's growth accelerating. Our integration continues to progress very well with excellent synergy captured to date. We remain excited about the long term prospects of our global business and the opportunity to expand and develop the beer category. Thanks for joining the call today, and enjoy the rest of your day. Thanks so much. Bye bye. Thank you. This does conclude today's teleconference and webcast. Please disconnect your lines at this time, and have a wonderful day.