Earnings Call: Q1 2017

May 4, 2017

Welcome to the Anheuser Busch InBev First Quarter 2017 Earnings Conference Call and Webcast. Hosting the call today from AB InBev are Mr. Carlos Brito, Chief Executive Officer and Mr. Felipe Buchra, Chief Finance and Technology Officer. To access the slides accompanying today's call, please visit AB InBev's website now at www.ab inbev dotcom 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 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 20152016 segment reporting. 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 Q1 results conference call. The Q1 saw a strong performance in many of our markets, especially in China, Mexico, Western Europe and Australia. In Brazil, while the market remains challenging, our volumes returned to growth this quarter, and we continue to see solid results from our premium brands. Premiumization also contributed to solid revenue per hectoliter growth in markets such as the U. S. And South Africa. Our 3 global brands Budweiser, Stella Artois and Corona accelerated their growth with combined revenue growing by more than 12%. Additionally, it has now been more than 6 months since we completed our combination with SAB and our integration is well underway. Let's now take a look at the Q1 results in more detail. Total revenue in the quarter grew by 3.7% with revenue calculator growing by 4.5% on a constant geographic basis, driven by revenue management initiatives and continued premiumization efforts. Total volumes were down 0.5% with our own beer volumes down 0.2% and non beer volumes down 2.7%. EBITDA grew by 5.8% with margin expansion of 76 basis points. This quarter's performance was driven by top line growth and the realization of synergies, offsetting an anticipated weak performance in Brazil, where EBITDA was down by 23.3%. This is due to the combined impact of the significant cost of sales per hectoliter increase and a decline in revenue per hectoliter as expected. Excluding Brazil, our business delivered solid results with revenue up 4.2% and EBITDA growing by 12.3%. We remain optimistic about Brazil in the long run. And more specifically regarding 2017, we will soon begin cycling more favorable net revenue per hectoliter costs, while cost of sales per hectoliter will bridge to between a flattish and a low single digit increase in the second half of 2017. Normalized earnings per share increased by $0.23 to $0.74 predominantly due to higher profit. We continue to deliver synergies resulting from the combination with SAB. This quarter, we delivered $252,000,000 with a large portion of the synergies coming from best practice sharing as we strive to progress with the best of both approach. We continue to expect the delivery of $2,800,000,000 worth of recurring synergies and cost savings on a constant geographic 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 $318,000,000 has been spent to date. Now turning to our Global Brands, which delivered a great result this quarter, which with revenues up more than 12%. Budweiser continued to perform very well this quarter, supported by a powerful Chinese New Year campaign as well as Super Bowl activations introduced for the first time in international markets such as UK and Brazil. Stella Quad grew revenues by more than 20% with good volume led performances coming from the U. S. And Argentina. This quarter was especially exciting for the brand as its violated drink partnership with water.org, which is aimed at ending the global water crisis, was scaled out to 7 markets and generated 12,000,000,000 PR impressions. Corona continued its impressive track record of growth with revenues up by over 18% and by almost 50% outside of Mexico, driven by China, the UK and Colombia. Will continue fueling the growth of our global brands by leveraging their global commercial assets with consistent communication and execution around the world, while expanding to new markets such as Australia, Peru, Colombia and South Africa. Let's now have a closer look at the results of each of our regions. Our volumes in North America declined by 4.4% this quarter, due to industry softness and some inventory adjustment in the normal course of business. This decline was partially offset by revenue factor improvement of 2.4%, driven by revenue management initiatives and continued premiumization of our portfolio, resulting in a revenue decline of 2.1%. EBITDA declined by 1.2% with margin expansion of 34 basis points to 39%. In the U. S, we estimated industry sales to retailers, STRs, declined by 1.6% in the first quarter, facing strong comparable from the prior year quarter that had the benefit of an earlier Easter. Our own SDRs were down 2.9 percent, resulting in market share loss of approximately 60 bps based on our estimates. Our revenue in the U. S. Declined by 2.6%. However, we saw revenue per hectoliter growth of 2.2% due to strong pricing discipline and the premiumization of our portfolio. EBITDA declined by 1.6% with margin expansion of 41 basis points to 40.2%. We also saw improvement in our gross margin, which was up by 68 basis points to 60.6%, building upon 7 consecutive years of margin expansion. We continue to invest efficiently in the U. S. Behind proven initiatives and new partnerships to drive long term growth of revenue and EBITDA. While this was an overall challenging quarter for the U. S, certain segments of our business performed very well. In the high end space, Stella Artois continued to be one of the top 5 share gainers in the U. S. Our regional craft portfolio once again grew ahead of the segment and thus contributed to growth and elevated our revenue per hectoliter results. In the Corporal segment, Michelob Ultra remains on fire with 8 straight quarters as the number one share gainer in the U. S. Market. It is now the market leader in the above premium space according to IRI and continues to leverage its position as the active lifestyle beer brand. While the brand's performance has been excellent, it still has room to grow in terms of awareness and penetration. And therefore, we believe there's plenty of opportunity for further acceleration. Our core loggers remain under pressure, driven primarily by Bud Light and Budweiser. Bud Light lost approximately 65 basis points of share, while SDRs declined by mid single digits. Although we continue to see pockets of success, including share gains in some states, it remains challenged in a few key markets. This quarter, we launched our new Famous Among the Friends platform, which we believe will help improve the brand's volume and share trends in 2017. The platform has already received positive feedback, and our Super Bowl ad was the number 2 most viewed ad with over 21,000,000 views. We'll continue to tap into cultural trends for the remainder of 2017, particularly in sports and music through the lens of our friendship platform. Budweiser's share declined by approximately 35 bps this quarter, with SDRs down by mid single digits. Our marketing campaigns focus on the brand's quality and heritage credentials, and our Born the Hard Way Super Bowl ad was the number one most watched Super Bowl ad with over 34,000,000 views. This summer, the brand will leverage the culture moments of Memorial Day and Labor Day to bring back our America media campaign and packaging, building on the success of last year. Vaden remains an important segment within our portfolio given its very loyal consumer base. We have strong brands in this category led by Busch, whose Super Bowl appearance this year successfully drove increases in the key brand health metrics of affinity and penetration. Moving now to Latin America West. Is the Latin America West declined by 0.5% this year with the good performance in Mexico offset by declines in Colombia and Ecuador. Revenue grew by 3% with revenue per hectoliter increasing by 3.5%. Our EBITDA increased by 8.1% with margin expansion of 2 16 basis points to 46.6%. Mexico recorded a solid performance this quarter with volumes up low single digits and revenue growing by high single digits. Our EBITDA grew in the teens with margin expansion of over 300 basis points to 42.1 percent. While the industry in Mexico has grown rapidly in the past several years, we believe there are still many opportunities further grow the category. First, the premium segment in Mexico is still underdeveloped. We have initiatives in place to drive premiumization through the expansion of brands such as Budweiser, Michelob Ultra, Stella Artois and the Modelo family. 2nd, there are many occasions in which beer has a larger role to play. Therefore, we're focusing on programs to grow beer occasions throughout the country, including weekday consumption occasions such as Mirco is the Foot led by Corona and Guedes de Amigos led by Victoria. Additionally, we're connecting the Modelo family with new occasions to drive various associations with food as well as building the celebration occasion through Stella Artois in the high end. 3rd, we see opportunities to expand our distribution through new brands, regions and channels. Bud Light is an example of a brand that has the potential to be leveraged in new regions and we are therefore taking our distribution beyond the North region. We're committed to growing the beer category in Mexico and believe we have the right plans in place to achieve it. The other key market in Latin American West is Colombia, which had a challenging quarter due to a countrywide VAT increase at the beginning of this year, which put pressure on consumers. This negative impact on results was exacerbated by the shift of the Easter holiday period from March into April this year. Volumes are down almost 8% with revenue declining by more than 5%. Lower top line together with the difficult comparable and the relocation of regional functions to Colombia led to an EBITDA decline of over 10%. However, our global brand expansion got off to a good start with revenues up well into the double digits. The primary focus has been on Corona, which in February became Colombia's biggest international premium brand. More than 300 Corona sunset activations executed so far this year have resulted in significant uplifts in both consumption and brand equity. Budweiser has also been gaining momentum with its presence at high energy events such as Colombia's largest music festival. Meanwhile, Stella Artois is targeting influencer events and expanding premium trade executions. We're very excited about the opportunities in Colombia and are looking forward to growing both the high end and the whole beer category. Moving now to Latin American North. Our performance in Latin American North rebounded this quarter from an extremely difficult 2016. Volumes in the region improved by 2.3% with revenue growing by 2%. Our revenue per hectoliter declined by 0.3% as large state tax increases during the course of 2016 have yet to be fully passed on to consumers. EBITDA declined 19% with margin contraction of 996 basis points to 38.6%. In Brazil specifically, we saw the beer industry decline by low single digits this quarter in a continued challenging consumer environment. We outperformed the industry with beer volumes up 3.4%, while our non beer volumes declined 0.3%. Our revenues increased by 0.6 percent, although revenue per hectoliter decreased by 1.8% due to a tough comparable as large state tax increases during the course of 2016 have yet to be fully passed on to consumers. Cost of sales tax later was affected as anticipated by the valuation of the Brazilian real of close to 40% versus the U. S. Dollar embedded in our cost of sales. Currently, approximately half of our cost of sales in Brazil is denominated in U. S. Dollars. Cost of sales per hectoliter is expected to grow double digits in the first half of the year and to be flattish to up low single digits in the second half of this year. The combined impact of a significant cost of sales per hectoliter increase, which explains more than 75% of our EBITDA decline and the decline in revenue per hectoliter led to a 23.3% reduction in EBITDA, with EBITDA margin contraction of approximately 1200 basis points to 38.8%. Despite the difficult macroeconomic environment, we remain cautiously optimistic for the year and we'll continue to leverage our platforms and focus on our commercial strategy. In 2017, cargo season ended 10 days later than it did in 2016, which had the positive which has a positive effect of extending the summer in Brazil. This year, we had the biggest activation in our history, leveraging many of our brands and assets. Skol sponsored the country's largest festival in Salvador and Antarctica sponsored the celebration in Rio. In all, we were present in over 40 cities and in fact, that's 43,000,000 people through our campaigns. Let's now move to Latin American South. We had a solid performance this quarter in Latin American South, with volumes improving by 3.1 percent with Argentina returning to growth. Revenues grew by 27.4% as a result of pricing in line with inflation as well as growth of our premium brands, especially our global brands. EBITDA grew by 16.4 percent with margin contraction of 433 basis points to 45.7 percent as top line growth was partially offset by cost of sales increases as a result of adverse foreign exchange impact. Turning now to EMEA. Our volumes declined by 2.7% in EMEA this quarter. Our revenues grew by 4.9% with revenue per hectoliter increasing by 7.8%, largely driven by the growth of our premium brands in Western Europe as well as our revenue management initiatives. EBITDA grew by 18.6 percent with margin expansion of 3.58 basis points to 28 point 4%. Our beer volumes in South Africa declined by 1.6% in the Q1, mostly as a result of the adverse timing of this year. However, total revenue per hectoliter increased by 4.4%, benefiting from the annualization of the July 2016 price increase and a good performance of our premium brands, especially Castle Light. Our performance in the quarter was assisted by several innovations. We introduced package innovations to drive growth in the in home consumption occasion, such as the upsized packs, for which demand was well ahead of our expectations. We also introduced the first of its kind beer bonanza campaign with promotional messaging directly on the packaging. Moving now to Asia Pacific region. Our volume in the region improved by 1.9% with revenue growth of 8%, driven mostly by brand mix. This was led by the strength of Budweiser in China and our enhanced portfolio in Australia, which now includes Corona. EBITDA grew by 25.2% with margin expansion of 4.97 bps to 36.3%, partially due to synergy capture In China, we estimate that the industry volumes declined by approximately 0.5% this quarter. Our own beer volumes performed well ahead of the industry, up 5% with growth coming from Budweiser as well as our super premium brands and innovations. Revenues grew by 11.3%, driven by continued premiumization initiatives. EBITDA grew 39.6 percent with margin expansion of 681 basis points to 33.6%. The strong result in China benefited from the timing of the Chinese New Year as well as brand activations focused on Budweiser, leading the brand to achieve all time high brand health. We continue to believe we have the right portfolio in China, focused on the core plus and above segments to grow our business in a sustainable way for the long term. With that, I would like to hand over to Felipe, who will take you through some further detail in our Q1 results. Filipe? Thank you, Brito, and good morning, good afternoon, everyone. Let's start with our net finance costs on Slide 21. Net finance costs in the quarter were almost $1,500,000,000 compared to just over $1,200,000,000 in the Q1 of 20 16. This variance was driven primarily by the interest expense now reflecting the full quarterly interest costs associated with the bonds issued throughout 2016. This increase was partially offset by a favorable $130,000,000 mark to market gains linked to the hedging of our share based payment programs compared to a loss of $138,000,000 in the Q1 of last year, a swing of $268,000,000 Non recurring net finance income was $99,000,000 in the Q1 this year compared to a cost of $684,000,000 in the Q1 last year. These items do not impact normalized earnings normalized EPS but are included within reported profit. The swing was driven by a number of factors shown in detail on Slide 22, of which the main item is almost $600,000,000 mark to market adjustment related to the FX hedging of the purchase price of SAB, which is no longer applicable. Our normalized effective tax rate for the Q1 was 20.4%, down from 23.2% in the Q1 of 2016. This increase is mainly due to the nontaxable nature of the gains and losses of the hedging of our share based payment programs as well as a change in cash free profit mix following the combination with SAB. Our guidance for the full year 2017 remains in the 24% to 26% range, which excludes the impact of any future gains and losses related to the hedging of our share based payment programs as we have said before. Normalized earnings per share increased 45% to $0.74 from $0.51 in the Q1 of last year. This was largely driven by a $0.63 increase in normalized EBIT due to organic growth and benefiting from the earnings generated by the retained SAP businesses. There was also a $0.06 year over year change in the mark to market adjustments linked to the hedging of our share based payment program, which had a $268,000,000 swing as previously mentioned. In addition, last year's results were impacted by the prefunding costs related to the SEB transaction not yet matched by earnings at the time. These favorable impacts were partially offset by higher net finance costs as well as dilution due to the increased number of shares. Our capital allocation objectives remain unchanged. Our optimum capital structure remains a net debt to EBITDA ratio of around 2x. Our first priority is to use cash. We will always be to invest behind our brands and to take full advantage of the organic growth opportunities in our business. De leveraging to around 2x remains our commitment and we will prioritize debt repayment in order to meet this objective. M and A remains a core competency and we will always be ready to look at opportunities when and if they arise, subject to our strict financial discipline and deleveraging commitments. 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, given our emphasis on deleveraging, dividend 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. In the interest of time, we will limit participants to one question and one follow-up. Our first question comes from the line of Edward Mundy of Jefferies. Hi, morning, afternoon everyone. Two questions please or one question and one follow-up. The first question is on Brazil. You've seen a very good response on volumes in the Q1. But do you expect revenue per hectoliter to move more positive this year, in particular, as you lap easier comparatives? And the follow-up is really around interest expense. Within the other financial results line, if you back out the positive impact of share based payments, there's a negative of $340,000,000 I appreciate this is an inherently volatile line, but given its materiality, could you provide any guidance or any rules of thumb as to how to model this? And is it noncash? Hi, Albert. I'll take the first one and Jacob will take the second one. So good morning. On the first one, what I would say in terms of Brazil and volume is that, first, it's great to see Brazil back to growth. 2nd, it's also very good to see that we did much better than the industry. So industry was down in our estimates by low single digits, and we were up by 3.4%. So I think that's a very good result. It's also good to see that our premium brands continue to be very healthy. Budweiser growing more than 30%. So we're not giving guidance here in terms of volumes. Of course, you know that the Brazil consumer remains in the pressure. Political stability is a bit better, but there's still reforms to be approved. But having said that, what we saw in the Q1 was an industry that was still slightly negative, but our program's working better than the industry and that's encouraging. I think we had a very strong start and I'm very confident on our commercial plans for the rest of the year. Yes. So on the net finance costs in, let's call it, in a normal quarter, right? So we have essentially 5 buckets. First one, the interest expense without the impact of the proposal combination with the SABMiller. And for that, we have the guidance on the coupon range. So then you can add to that the interest expense impact of the proposal combination with the SABMiller and essentially merge the 2. So we're moving to accretion expenses, where we expect to be approximately $85,000,000 per quarter. Pension interest expense, we estimate approximately $30,000,000 per quarter or $120,000,000 for the full year. And then we come to the other financial results, which we have items that can cause volatility between quarters. And they are essentially, 1st, the equity swap as the hedge for the share based payment program. We have approximately 30 €8,000,000 equivalents of shares. In that, in every €1 a share price movement between the quarters leads to about €38,000,000 gain or loss, right? So that's a kind of easy to model, although you have to track the share price the beginning of the quarter, at the end of the quarter, so on and so forth. So we are also required to report in our P and L any noncash unrealized foreign exchange transaction losses on intercompany balances and loans and cost of currency and commodity hedges. But we have to deal with it. We had last year in Mexico, for example, the cash held in U. S. Dollars. There was the devaluation of pesos that translated into a noncash gain in Mexico as reported. And this line also includes bank fees and transaction taxes and the number of cost of business, which were $170,000,000 Well, but that is a kind of in the past. So going forward, it's more the ordinary course of business. There is only one comment on the accretion. I mentioned $85,000,000 $85,000,000 was actually last year. This year, the number is $150,000,000 Thanks, Nicolas. So within that other financial results line, the largest majority of that is non cash other than the bank fees and transaction taxes, which seem one off in nature. That's a fair way to characterize it. Very good. And then Britta, just a follow-up. My question was less on the volume outlook for 2017 and more on the revenue per hectoliter outlook as you lap easier comparatives for the rest of the year. Are you able to comment at all on whether you think your revenue per hectoliter in Brazil will improve sequentially as you get through the year? Yes, that's a good point because let me say a couple of things about net revenue per hectoliter. First, I mean, as I said before, during last year, VAT state tax increases were running ahead of our pricing, right? So that's one thing. It was a year there was a lot of activity in terms of VAT increase. So that's the first step. And we're trying to recover that as we go along, but it's still ahead of price. 2nd, we've had negative because of that, we've had negative net revenue per equity year on year in the last three quarters, Q3, Q4 last year and Q1 this year. But as you said, there is a cyclone element that's going on here and so I'll stay there. And the third point is that the Q4 any year, given the current way taxes work and the way we increase prices, is always a little bit of a tough reference point because you have the full price that normally kicks in September, October for the full year because we only increase normally once a year. But you don't have the taxes being updated. So you have new price old taxes in Q4. Taxes are updated in January. So it's better to compare Q3 with Q1 because Q3, you have old price, old taxes. In Q1, you have new prices, new taxes. So if you go from Q3 last year to Q1 this year, you have net revenue per hectoliter increasing by 7.8%. So I think that gives you a little bit of an idea and the inflation, of course, is way above inflation, the current inflation. So I think this is some of the things we see. So VAT running ahead of price still, some negatives last 3 quarters of net revenue year on year, which again gives the rise to the cycling idea. And the third one is that from Q3 to Q1 this year, price increased by net revenue actually increased by 7.8%. Very good. Thank you. Thank you. Our next question comes from the line of Olivier Nicolai of Morgan Stanley. Hi, good morning, Roberto Felipe. I've got one question and one follow-up please. First of all, in Colombia, you've seen margin contraction in Q1 of about 266 bps. And one of the reasons I mentioned in the press release was the reversal of certain provision that the previous order took in Q1 2016. Now how much of this margin decline is linked to that? And should we expect further of this one off in the next coming quarter? Or do we have a clean base now for the rest of the year? And second question is, well, a follow-up on the U. S. You said that your sales to wholesalers, they were obviously worse, but your sales to retailers. That's been the case now 2 quarters in a row. Do you see wholesalers structurally reducing their level of inventories? Or is this just temporary implying that technically STR should be better than STW for the rest of the year? Okay. So your first question, I mean, you're right. I mean, the comparison with Colombia this Q1 is a bit of an apples and oranges comparison because of basically a couple of reasons. First, there were some phases in the normal course of business during under our management in terms of SG and A. In that, we put more money at the beginning of the year because we have an agla light strong campaign that we chose to do at the beginning of the year. We have the corona push that now in a new distribution system that responded very well. And we also have a renewal of a soccer sponsorship for the national team that hit that SG and A. So that's the first reason. 2nd reason is that there was some reversal of certain provisions in the Q1 of last year under the old management that, of course, gave rise to a tough comp for this year. And the third one, which is also very important, is that Colombia, because it became the center, the zone, as we call it, the zone headquarters for Colombia, Peru and Ecuador, a lot of the costs that used to be seen in Peru and Ecuador and also in the Miami, Latin American hub from SAB is now in Colombia. So shared service centers and some service that were provided from Miami and service that was concentrated on Colombia are now being displayed as a Colombia cost. So these three things will make it for an apple no orange comparison and this will tend to normalize as we cycle on the new menu. In terms of the U. S. SKWs and SDRs, we continue to say the same thing that over time they will converge. But because of the weak end of last year, there was a need to correct inventories, and that's normal course of business. And then what you do is you tend to raise your inventories for the summer season. You also have some inventories going for the end of the year, for the season. But when those don't materialize as per your assumptions, it needs to start correcting in the months to follow. So total normal course of business happens from time to time. But over the long run, SCWs and STRs, of course, converge. Thank you, Vamed, Pratil. Thank you. Our next question comes from the line of Chris Pitcher of Redburn. Thanks very much. A couple of questions on your beer portfolio. I mean, firstly, in Brazil, you've obviously put a lot of effort behind the reposition or relaunch of Skol and more recently Brahma. And that's kept sales and marketing investment reasonably high. What are the plans for Antarctica? And should we expect sales and marketing investment to fall as a percentage of sales for the balance of the year, particularly as we recycle Rio? And then as a sort of a follow on, what is your plans for the South Africa portfolio positioning, particularly the 3 big mainstream brands in South Africa? Were the big price increases in South Africa consistent across the portfolio? Or are you starting to rethink the positioning of brands there? Thank you. Hi, Chris. In terms of Brazil, what we did, we didn't relaunch. I don't know exactly what you said, I don't remember, but we didn't relaunch Skol, but I don't know what we did, and you're right. We redressed some of it. So from time to time, any brand has a visual identity modernization, And we changed a little bit things in terms of label, some iconic branding signage that we put more permanent. So I mean, all those things, yes, it did happen. But also investing in the last we did invest the last few years in the global brands. They're performing really well in Brazil. And as a company, we have for SG and A, we have our guidance for the year to be flattish, right? That's our guidance for the year. In terms of South Africa, we have a great portfolio. I mean, Castor Light working very well. We have some very strong core brands. And as we said in our release, despite of the negative volumes gained I mean, Castle Light and very strong brands. The other thing that was missing that's what I want to say. The other thing that was missing in South Africa was Global Brands, right? So now we have a portfolio of Global Brands. They were already present in South Africa, but at very minimum scale because we had no access to distribution or scale. So now we have that. And Corona, in particular, has a very strong had a very strong early trajectory. Brand awareness is growing, supported by a lot of experiential events. And just in the month of February, we had a 5 percentage point in brand awareness increase from 7% to 12%. So again, a brand that's entering the market in 1 month, almost doubling its brand awareness. So Stella will follow and then Budweiser local production will follow as well this year, preparing for the World Cup next year, the FIFA World Cup. So we're very excited because in South Africa, we have a very solid portfolio that has been premiumizing with local brands like Casto Light, which is already a very important part of the portfolio, continues to grow. And now we have the global brands on top of it. So it's going to be a very interesting portfolio to watch. Our next question comes from line of Fernando Ferreira of Bank of America Merrill Lynch. Thank you. Hi, Brito and Felipe. Two questions, please. First one on the synergy number on the $250,000,000 If you can give us some more granularity on where that came from? And also, when we look forward, should we expect a substantial portion of the synergies coming from the global export holding? And then a follow-up on Brazil on the price mix. I mean, if on the revenue per hectoliter, right? If we're right here in our calculations, I mean, your market share was already up back to the high end of the historical range, right? Historically, that has allowed you to be a little bit more flexible on pricing. So on your prepared remarks, Urito, you mentioned that you're still trying to recover, right, the state taxes that were you're not able to pass through last year. So going back to the high end of the market share, is that enabling you to be a little bit more flexible on the pricing going forward? Thank you. Okay, Fernando. Thank you. So I'll go first and second question. So in terms of Brazil, and then I explained a little bit why the net revenue is in negative position, right? The VAT had a price some negative last few quarters that will now start recycling and the fact that you have a 7.8% increase from Q3 to Q1 this year. Having said that, our long term view on most of our markets continue to be that we want to have price in line with inflation as much as possible and therefore compensating for any taxes. So yes, our long term view is unchanged. So if VAT is ahead of price, we'll continue to try to balance that out. And in terms of market share, Fernando, we have the policy of only commenting now on a yearly basis. But to what you're right is that we're building options. You're totally right. As we grow ahead of the industry, our market share, of course, responds. And because of what you just said, then you start building options to kind of catch up the VATM price at some point in the future. So you're right in terms of building options. And the pricing normally we do once a year. So again, we don't correct every month, but taxes can change every month as it did last year. So again, net net, there is some cycle to be done. VAT is still ahead of price. Market share, If we grew ahead of the industry, it should be building those options for us. And so that's why we're cautiously optimistic about our business in Brazil. We had a very strong start. In terms of synergies, we're very excited about the beginning of the synergies. I mean, we already started under new management last quarter. But this quarter, we had a very good delivery. And large part of it comes really from best practice sharing. I mean, one thing we've said about this combination with SAB is that for the first time compared to the other combinations, we have not only the cost synergy potential, the growth potential, but also we have a lot of intellectual synergies that were exchanged, not only in the supply procurement logistics, but also in terms of category knowledge and top line ways of work. So and including some reverse synergies. So we learned stuff that we also brought back to the old ABI company. So I mean, synergies are flowing both ways. And that's why you see this very strong number coming in the Q1. Thank you. Great. Thanks, Brito. Our next question comes from the line of Richard Lifeson of Kepler. So two questions, please. First of all, if I look at your revenue per hectoliter in the U. S, it's pretty stable over the last few quarters. But when I look at your competitor, MillerCoors, it's actually coming down. Is there any reason to believe that those 2 should be more in line with each other? And therefore, is there any risk to your revenue per hectoliter in the course of 2017? And the second question is on China. We see what appears to be quite an acceleration in your business in the Q1. You talk a bit about what's driving that? Well, thank you, Richard. In terms of revenue factor in the U. S, we've said now I think for more than a year, when there was talk in the market about us discounting more or less or being more aggressive, we said loud and clear every quarter, we said what we're doing is that we're using the same discount envelope just in a different way because we're trying to target it and get more efficiencies out of the out of our discount dollars. And we said, continue to check our net revenue per hectoliter because we are pretty confident that what we're saying is what we're doing, right? And again, this quarter, 2.2% growth per hectoliter. It attests to our price discipline. It attests to the efficiency of our discount dollars and also to revenue management and mix improvement within our portfolio. Let's remind ourselves that our gross margin this quarter in the U. S. Went up by 68 basis points to 60.6 percent. And this is after 7 consecutive years of gross margin expansion. So our strategy since we got here in the U. S. Has always been one off, let's try to get this portfolio to be more premium. Let's try to get our consumers to trade up, give them reasons to trade up. And I think we're delivering on that. Of course, we need to balance share equation. That's still to be done. In terms of China, we're very happy with our business there. I think last year, our business was very affected by one big province in the South, Guangdong, because of some weather, mostly weather and some economy as well. I mean, this year, we see that things are more back to normal. And we have strong plans for our Budweiser brand, which is the leading premium brand in China, but also now very important to us, our super premium side of the business with corona whole garden lefard. So this brand is very strong and they are compounding with Budweiser, a very nice growth. And again, in China, the industry was down by 0.5% in our estimates in this Q1, and we outperformed big time by growing our volumes by 5% and revenue per hectoliter grew at 6% to a revenue growth of 11%. So again, very strong, not only top line in China, but also the cost side, very efficient. What's happening in China, as we shared with investors in our China Investor Day some years ago is that the super premium segment and the premium segment in which we have and the core plus which we have most of our brands, core plus with urban ice are the ones that are growing. And the core value is the client. And we have more than half of our business and almost the majority of our margin and investments in those 3 top segments, which are growing between 5% in our estimates to all the way to 54% in the Super Premium segment. So this is a very way ahead and core embedded declining around 8% to 10% so this quarter. So we're very blessed to be in the right segments. We have brands that are waiting for consumers as they trade up. So very interesting what's happening there. Thank you. Thank you. Our next question comes from the line of Trevor Stirling of Bernstein. Hi, Brito and Felipe. Two questions from my side, please, as well. First one is, are you seeing any impact yet on bud light depletions from the new campaign, or is it too early yet? Yes, you're right. I mean, of course, we've reached that campaign the next day, Bud Light response. But of course, it doesn't work like that. But you're right. I mean, we're transitioning from a campaign that we had in the past to this new campaign from the Bud Light party to now famous among friends. We think this campaign has legs because it goes back to what made Bud Light the great brand that it is today. I mean, almost 25 years in the U. S. Of Bud Light. But there's still that transition phase where things are happening. There are some positive signs in brand health, but again, not yet strong enough to translate to sales. The good thing also is that this new platform has been developed in partnership with our wholesaler network, and they are very excited about it. And now we have Andy Goler, who's a long time maybe, Mark here that had dealt with Bud Light in the 1990s. It's now back to the brand after being the high end, which is a very successful part of our business in the U. S. He was very focused on our craft brands and our craft partners. So he did an amazing job there, learned a lot of things about the high end, helped us a lot develop that. Now he's bringing all that to Bud Light with the new agency you can pay. So I mean, I think we're on to something that could start making sense. But so far, we're still in that transition period. And my follow-up question, Brito. You mentioned in the press release about the excitement you have about the top line opportunities. Is that mainly the opportunities for international premium brands in the former SAB territories that you referenced before? Or is there something beyond that? Very good point. First, it's the global brands for sure. And I just mentioned what the global brands are doing in South Africa, Colombia, I mean, amazing 1st few months. And of course, the sky is the limit there because we see that every market in the world where we go with our global brands, they perform well. So it's a no brainer. And now we have these huge countries that for us were pretty much wide territories, very hard for us to get distribution, quality distribution, and now we have that. So that's very exciting. The second thing, Trevor, is that SEB developed a lot of knowledge around category and category expansion, be a category and be a category expansion. Why? Because they had very high market shares in their main markets. And for them to grow, share of beer was not enough. They have to think about share of total alcohol. And they developed for many years, many frameworks that we now adopted because we have this our culture is all about that's about. So if you see a good idea, we just copy a dot. We don't have any problems with that. So when we did our global meeting with our leaders in March, as we do every March this year, we did it by the way in South Africa. And pretty much the whole meeting was around these new frameworks about category expansion and how to look at portfolio in the sense of where my portfolio is today, where it should be in the future and how to cascade that to resource allocation. So very exciting times and that's why we mentioned top line opportunities. Thank you very much, Peter. Thank you, Trevor. Our next question comes from the line of Andrea Pistacchi of Citi. Yes. Good morning. Two questions, please. The first one on your interest expense. You've given guidance on the coupon for the full year, 3.5% to 4%, which is quite a wide range on €100,000,000,000 of debt you have. Now in this quarter, the net interest expense was higher, I think, than some people were expecting at least than consensus. Now besides the disposal of the Eastern Europe assets, which took place at the end of the quarter, which will reduce your net debt, are there other reasons possibly why this the interest charge in the next quarters could or should come down? And then the second question on your Mexican margin, which you said increased 300 basis points organically. Top line trends were solid in Mexico, but didn't seem to they weren't really stronger than previous quarters. The peso devaluation, I assume, is unhelpful. So what is really driving that margin expansion in Mexico? Thanks. Okay. I'll take the second question and then Philippe will tackle the first question. In terms of Mexican margin, what's happening is that our revenues grow by high single digits. And because we have operational leverage in Mexico and we had invested in sales and marketing in prior years, which with very good results. That's now the magic of operational margins on top of very healthy high single digit revenue growth. We also had some SG and A savings that confounded to that and also other operating income because of the sale of some PPE that also impacted the EBITDA growth. So again, very happy with our business in Mexico. If you look at our Mexican business in the last few years, what happened is that the industry in terms of beer or the category expanded within alcohol beverage, per capita beer consumption expanded. So our investments, I think, as a market leader was had a very good payback. And now I think we're enjoying that payback plus very healthy top line that continues to be there. So operational leverage is the answer. On the first one, we appreciate the fact that the guidance on coupon, 3.45 to 4 is kind of a bit wide, but this has been there and we are essentially keeping as is. The important piece is that this quarterly interest charges reflects the full quarterly charges that should decline over time as we issuances throughout the quarter and issuances throughout the quarter and throughout the year. So making the 2016 reference not a good reference, 17 reference is a much better one going forward. And can I just follow-up, I mean, recently, you've been doing there's been a bit of activity on your bonds? You've been some exchange offers and things. Will this have any impact on your coupon? Have you been will you get some efficiencies effectively on your coupon from this? Yes. There was a recent exchange of high coupon that has any impact on that. Economically, You should assume that to be somehow neutral. It's more an accounting impact. There was also the debt pay down as you flagged as we closed the disposals of the CE assets. And we report balance sheet and cash flow twice a year, next month at the end of the Q2. But given that deleveraging commitments, you should expect this 5.5 to be a kind of in decline towards December 2017. Although when you take the first half and second half, it tends to be more geared towards the second half, giving than the second half dividend. But than the second half dividend. But we remain on track with our commitments, and we'll continue to work on it. Great. Thank you. You're welcome. Thank you. Our next question comes from the line of Robert Einstein of Evercore ISI. Great. Two questions. One, could you please remind us what percentage of your sales now are coming from the global brands? And a little bit how you're thinking about the pricing architecture between mainstream and the different global brands and maybe even throw Goose Island into that? And I know it's different country by country, but maybe a general broad conception of that. So that would be the first question. And then the second question, if you could talk a little bit about there was a Bloomberg article that mentioned the possibility or thinking around expanding capacity perhaps at Greenfield in Nigeria. And I was wondering if that is in fact going forward, if you could talk a little bit about your strategy in Nigeria. So two questions, please. Thank you. Okay, Robert. I'll start from the second one. So Nigeria, very exciting market in Africa. Together with South Africa, of course, big engines for us of growth going forward. And we're growing Nigeria double digits. And I think it's not new news that we have capacity issues in Nigeria. So we're pretty much selling everything we can produce. So then it follows that, yes, we need more capacity in Nigeria. But at this point, we're still in the planning phase where we're still trying to get the permits. So we're not yet committed to a final number on this project. When the right time come, we'll talk about it. But for sure, we need capacity there. We're very excited about our business there. Our brands are strong, growing. And of course, we still have the global brands put on top of all that. So but for that, we need capacity. And that's the next big thing in Nigeria. But for that to get approvals and other things and we're not there yet. In terms of global brands, I mean, I think last time we referred to it and you can do the math, but last time we referred to it, they were slightly above 20% of our total volume. But if you look at our net revenue growth, they were more like 30 plus, 40%. So they have a very they make a huge difference because not only they have great margins above of our average, but they have double digit type growth. And they do well, so it's a very low risk to invest in our global brands as you go to a new market or as you scale up and grow in existing markets because they still have very low awareness compared to some of the brands. And as you grow awareness, they respond. And so it's one of those low risk moves and no brainer. So you're right, right on. I mean it's something that's still at 20% plus but already 40% of our net revenue growth. And the pricing architecture, could you talk on average? I know it's different country by country, but if you've got mainstream at 100, how are you differentiating between Bud, Stella Corona and Goose Island when you bring that in? Yes. That, no, it's public because you can go to market and see what the prices are. But normally, what we try to do and there are exceptions because sometimes global brand is a local brand in its whole market. So of course, there are exceptions. But what we try to do is have Corona price. In terms of our 3 global brands, we have priced Corona above the other 2, then Stella in the middle and then Budweiser in a 3rd tier pricing. But having said that, all that in the premium segment and super premium. But again, depending on the country, we have some legacy issues. Some of those brands are local in their markets. Sometimes they are at 110, 120. But in most markets, they are 130, 140 and above, going to 200, 200 plus. And where would Goose Island be priced in international markets? I mean, do you try to price that above corona or below corona? At the very high end, normally paired with corona at the very high end of the range I just gave you. Okay. And then just to follow-up on Nigeria. Is there in your CapEx guidance, is there something in there for Nigeria? Or what if you decided to go with that, would that have to change that or would that more 2018? It's accounted for, Robert, because as you know, I mean, being present in 50 countries, you always have countries that you just finished a project and then you're on to the next project. So in a portfolio of these countries, there are always things to compensate for each other. So that's the amount, the ballpark number that we see for our business. And would this be a greenfield? Well, it depends. I mean, in Nigeria, we have some brewers already in place. So some of this capacity will come as additional lines, some could be in Great Fuse. But again, too early to comment on that. But you're right, it could be both, a combination of But strategically, your my understanding is you're very much a regional player in Nigeria. So I guess the question is strategically, are you looking to put in perhaps a greenfield in another geography in Nigeria? Well, in Nigeria, you cannot import beer. I mean, the taxes are prohibitively, so we have to produce locally. And what we have today in Nigeria is that we only have, as you said, local brands. And that's what's exciting about it because it's a huge beer market and we don't have yet our global brands because you cannot import them, so you have to produce locally. So capacity will also be used for that, not only to continue to support the growth of the local brands, but also to enable our global brands to be present in that market as well. Great. Thank you very much. Thank you, Robert. Ladies and gentlemen, we have time for one more question. Our final question will come from the line of Anthony Macholow of HSBC. Hi, Brito. How are you? Quick question. You had just spoken about meeting in South Africa and the influence of category management or sorry, category development in beer as an SAB strength that you will be applying. Is that purely in Africa or do you see applications for that around your global footprint? And a related Okay. Go ahead. Go ahead. Well, just on a related question, Bria, your main competitor in South Africa appears to be having some success mostly in the high end. My other question is, is there enough room in the South African market now to bring in your best global brands and to compete sort of toe to toe with the high end and the development that we've seen there from your competitor over the last 20, 30 years? Well, we love a good competition. And I mean, our colleagues in South Africa could never compete in that high end international premium. Now we can. And yes, the market will grow in our view because now we have more it will be more clearly for consumers. And so it's very exciting now to have our global brands in South Africa because that segment of the market was one that we were not competing and now we're going to be competing big time. So yes, there is space for more brands there and we're very excited because it's where the growth and the margins are in most markets. In terms of category expansion, I mean, Tony, the fact that we did the meeting in South Africa, just because every year we do it in a different place. But the category expansion that was developed by SAB was developed looking at Australia, Colombia, South Africa, some in multiple markets in different maturity levels. So it applies to all markets really. Okay. And in terms of South Africa, do you have any sort of residual or any sense of what kind of brand awareness your big brands have in the market already judging from we had the World Cup a few years ago and FUD was big then and is there anything in the market that you think you have an initial advantage? Yes. I just mentioned Corona just started supporting more this year. I was present in the market, but very, very small and possible to find. It went from 7 to almost 16 brand awareness in just 3 months. And Stella also has already around 15, but again, we're just starting now to work on Stella because so far, we didn't have local production. So this is all going to be very exciting. And Budweiser, I mean, FIFA next year, 2018, it's going to be amazing to see what we can do around the world with Budweiser because we're going to be preparing in South Africa as everywhere to get Budweiser in place for to get advantage of this big global property we have that's so peer centric as Yes, Maria, that was the last question. Thank you, Maria. In summary, our performance in the Q1 of 2017 was solid, and we're very pleased to see our business turning the corner from a very difficult 2016. While our EBITDA was negatively impacted by the cost of sales in Brazil, we expect this effect to dissipate throughout the year. Our integration is progressing very well and we'll continue to update you on the progress. Thank you for joining the call. Have a great day and enjoy the rest of your day. Thank you. Bye bye. Thank you. This does conclude today's teleconference and webcast. Please disconnect your lines at this time and have a wonderful day.