Earnings Call: Q3 2015

Oct 30, 2015

Welcome to the Anheuser Busch InBev Third Quarter 2015 Earnings Conference Call and Webcast. Hosting the call today from AB InBev is Mr. Carlos Brito, Chief Executive Officer. To access the slides accompanying today's call, please visit AB InBev's website now at www.ab inbev dot 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 March 24, 2015. AB InBev assumes no obligation to update or revise any forward looking information provided during the conference call and shall not be liable for any action taken in reliance upon such information. It is now my pleasure to turn the floor over to Mr. Carlos Brito. Sir, you may begin. Thank you, Jackie, and good morning, good afternoon, everybody. As you know, on October 13, the boards of AB InBev and SABMiller announced that they had reached an agreement in principle on the key terms of a possible recommended offer to be made by AB InBev for SABMiller. Both companies are now working hard together towards the announcement of a formal offer under the UK Takeover Panel Rule 2.7. While the proposed combination with SABMiller is an exciting next step in our story, the focus on today's call is on the organic growth of our business and our Q3 results. So let's start with the highlights. First, let me say we're very pleased with the strong revenue and EBITDA growth results in the Q3. Our 3 global brands delivered an outstanding volume and revenue performance. In the U. S, while market share remains a challenge, the industry continues to show improvement and our incremental investments are driving good results. Our team in Mexico delivered a great result with a strong performance from our focus brands. Brazil also delivered solid revenue growth, driven by our core brands and premiumization initiatives. In China, we're outperforming in the industry and gaining share based on our strategy of focusing on the winning segments and channels. In Europe, our team delivered a very good performance, especially in Western Europe, despite the overall decline in the beer market by focusing on the growing segments and geographies. Looking at the results in more detail now. Total revenues grew by 7.9% in the quarter, with strong revenue per hectoliter growth of 7.8% on a constant geographic basis, helped by growth in total volumes of 1.5% and on beer volumes up 2.3%. Volumes of our focus brands grew by 2.9%, and our 3 global brands delivered their best quarter ever, with volumes growing by 11.5% and revenues growing by 15.9%. EBITDA grew by 9.6% with EBITDA margin expanding by 58 bps to 38.7%. This result was driven by a very strong top line performance as well as the benefit of a favorable comparable following a very challenging Q3 last year when our results were affected by several one offs in the U. S, Brazil and Mexico. Normalized earnings per share decreased $1.02 from $1.42 with good organic growth in EBITDA being more than offset by unfavorable currency translation and higher net finance costs. Felipe will explain this in more detail later. Finally, the Board has approved an interim dividend of €1.60 per share for the fiscal year 2015, with a dividend payable as from November 16. As I said, the 3rd quarter was the best ever for our Global Ramps, with double digit volume and revenue growth. Each of our 3 global brands grew double digits in the quarter with combined volumes up 11.5%. This is a great result and shows the benefit of making the right brand choices leading to consistent global messaging and market activation. Stella Artois had a great quarter and delivered volume growth of 12.9%, with good results in the UK, U. S, Canada and Argentina. Global Budweiser grew 11.5%, led by China, Russia and the U. K, and a continuing recovery of the brand in the U. S. Finally, corona volumes grew by 11.1%, driven by strong performances in Mexico and most of our global export markets. We remain very excited about the growth potential of this unique super premium brand. Global Brands volumes were up 11.5% in the quarter, but more importantly, revenues were up 15.9% and 12.5 percent to date. The success of our 3 global rents and our premiumization initiatives in general has led to an amendment of our full year 2015 guidance for revenue per hectoliter growth from in line with inflation to ahead of inflation on a constant geographic basis. The higher than expected premium brand volumes also drives us a change in our guidance for the growth in cost of sales by Clarity, from low single digits previously to low to mid single digits, again, on a constant geographic basis. Of course, this increasing cost of sales, which is driven by the higher production and packaging costs associated with our premium brands, is more than offset by the increased revenue per hectoliter. Turning now to the results in the U. S. The U. S. Industry continues to improve on the back of an improved macro situation. We estimated that industry sales to retailers, STRs, were essentially flat in the quarter and down only 50 bps year to date. This compares to decline of approximately 80 bps in the 1st 9 months of last year. We continue to expect industry volumes to improve in the full year 2015 compared to last year. Our own SDRs were down 2.1% in the quarter, while our STWs, sales to wholesalers grew by 1.2%, benefiting from an easy comparable versus the Q3 last year. We still expect our STRs and STWs to converge on a full year basis. Our market share performance in the quarter was disappointing, declining by approximately 90 bps due to difficult to comparable. In the Q3 last year, we had a very strong share performance from Bud Light and our value brands, which led to a total market share loss of only 30 bps compared to the Q3 of 2013, creating a tough comparable for the Q3 this year. We estimate that our total market share declined by approximately 65 bps year to date. Revenue per hectoliter grew by 1.5% in the quarter, an improvement over the 2nd quarter trend, helped by positive brand mix contribution from our above premium brands. EBITDA for the U. S. Was up 3.1% in the quarter on an organic basis, with EBITDA margin growing by approximately 14 bps to 40.4%. Although our share performance in the US remains a challenge, there are many things that were working well. Industry FCRs are improving, an encouraging trend as we work towards returning the industry to growth. We have also stepped up our investments in the U. S. Over the past 2 years and are pleased to see that investments behind our brands are delivering results. Budweiser is having its best year in decades, and Bud Light Line is growing again, helped by the new glass bottle. Michelob Ultra continues to be the fastest growing brand in the country by absolute volume so far this year, and Stella Artois growing double digits. Our craft strategy is also working. We're seeing good results from Goose Island and all 4 of our recent craft acquisitions are performing well and gaining share. Our craft and other high end brands are doing especially well in the on premise channel, where brands are built, and we have gained share in this channel every quarter this year. Our value brands are also gaining share in the value segment. So although our market share in the U. S. Is not where we want it to be, many things are working well and driving us in the right direction. But we have gaps. Bud Light is at the top of the list. The brand faced a tough market share comparable this quarter after a great quarter last year. We're working hard to identify the right positioning and messaging for the brand and new creative for 2016. We're also facing significant competitive pressure in the near peer segment, which is impacting the performance of the Repus family. We're committed to continued leadership in this segment and have plans in place to address the gaps. Finally, we need to build a more substantial presence in the Mexican import segment. We have made a start with Montero, but there's a lot more to be done. Turning now to the performance of our brands in the U. S. Bud Light faced a difficult comparable, as said before, with the Q3 last year benefiting from the first whatever you are saying activation and the rollout of the aluminum bottle, resulting in a gain of nearly a full share point in the premium light segment last year. In 2015, Bud Light STRs are down low single digits during both the quarter year to date, with some share loss in the premium light segment. The 3rd quarter saw the introduction of the NFL team cans, which have been very well received by consumers. These cans, which are available for the 2018 we sponsor, have resonated with fans and have helped Bud Light's brand health. Many of our other brands in the U. S. Are performing well, and this inevitably puts pressure on Bud Light. Nevertheless, we still have more work to do on the brand and are excited about our new agency partnership with Whiting and Kennedy. The initial work is very promising and we're looking forward to introducing revolutionary new creative early next year. Turning now to Budweiser. Budweiser continues to deliver one of its best volume and market share results in recent years, driven by successful campaigns, emphasizing the brand's quality and heritage credentials. SDRs declined by low single digits in the quarter, with the brand's share of total market down by only 15 bps in both the quarter year to date. The brutal hard way campaign has struck a chord with many beer drinkers, and we have been very disciplined in continuing that message through the Bonbon Burgers summer campaign and our made in America program. The increased investment behind the brand is making a difference for sure. Our portfolio of above premium brands are performing well, gaining approximately 30 bps of share in both the quarter year to date. Ricola Ultra is having an amazing year and is an important driver of the above premium segment's performance. Ultra continues to be the fastest growing brand in the country with a great share result and a healthy margin contribution. Stella Cloud delivered double digit volume growth in the quarter and Goose Island IPA is on fire, up nearly 150% year to date. As I said earlier, I'm very pleased with our craft strategy overall. All 4 of our recent craft partnerships, Blue Point, 10 Barrel, Elision and now Golden Road are showing good growth this year and making important contribution to our wholesalers portfolio. This performance has been boosted by investments we're making in the on premise, where we have gained share every quarter this year. These strong performances have been partially offset by disappointing results from the retail channel in the increasingly competitive near beer segment. We have plans in place to address our performance gap, including the introduction of retail splash, a low alcohol line extension available in glass. Moving now to Mexico. We continue to be very pleased with the results from our Mexican business, which delivered particularly strong volume, revenue and EBITDA growth in the quarter. Beer continues to be a very healthy category in Mexico, with good volume growth in all regions of the country and gaining share of total alcohol. Our volumes grew by 11.5% in the quarter, driven by the favorable macroeconomic environment in our own commercial initiatives. We saw especially good performances from Corona, Bud Light and Victoria. Revenues were up 14.2%, supported by revenue backorder growth of 2.3%, driven by our revenue management initiatives and positive brand mix from the growth of Bud Light. The strong top line results and the delivery of a further $60,000,000 of cost synergies, bringing the total to $830,000,000 led to growth in EBITDA of over 20% and margin expansion of more than 2 50 bps to 51.7%. Volumes of our focus brands, which represent over 90% of our Mexico volumes, grew by 12.2% in the quarter. The strong performance in the quarter was driven by successful activations with Corona, Bud Light and Victoria, including a great Corona summer soccer campaign, which contributed to a particularly strong quarter for Corona Extra. Budeline's Music For Today campaign and Victoria's 150th anniversary campaign supported by regional activations drove strong double digit volume growth for both brands in the quarter. Turning to Brazil. Beer volumes benefited from favorable weather and an easy comparable versus the Q3 last year, when we experienced some slowdown following the FIFA World Cup. Our beer volumes were up 3.5% in the quarter, helped by the growth of our premium and year beer brands, which reached nearly 9% of our total volumes. We estimate that our beer market share was up sequentially, but down year over year, reaching a level of 67.8%. Our beer revenue per accrual result was solid, with growth of 10%, reflecting our revenue management initiatives, increased own distribution volumes and premium brand mix. This balanced top line result helped to grow EBITDA in Brazil by 9.2% in the quarter, with revenue growth partially offset by higher cost of sales driven by inflation, foreign exchange and product mix, higher distribution costs, mainly due to increased weight on distribution and the timing of variable compensation accruals. EBITDA margin declined by 59 bps to 50.2% during the quarter, but it's up 174 bps to 49.9% year to date. The macroeconomic environment in Brazil remains challenging. And in this context, our commercial focus is to maintain a healthy balance between volume and revenue per hectoliter growth, building on our affordability and back price strategies, supported by strong disciplined field execution. At the same time, we'll continue to elevate our core brands, Skol, Brahma and Antarctica, in the minds of the consumer, building on the strong consumer preference that these brands have built over the years. Affordability remains very high on our agenda for core brands and our packaging mix strategy, including a deepened focus on returnable glass packages is a key initiative in offering more affordable products to consumers while retaining profitability. Innovation is also key in elevating the core. And during the Q3, we introduced the Skol Ultra, a low carb, low calorie beer. Skol Ultra has been able to capture consumer interest in active lifestyle brands and has contributed to Skol's already high brand health scores. Skol is an official supporter of the Rio 2016 Olympic Games, and we anticipate that Skol Ultra will be an important component of our Olympic activations. Despite the challenging macro situation in Brazil, premium continues to grow with plenty of opportunities for further growth. Corona and our recent Craft brand acquisitions have been great additions to our premium portfolio. Finally, we're sitting near to dear occasions to gain share of alcohol. Skull Beach Sensus has had a great performance since its start in 2014, with approximately 70% of its volume coming from outside of beer or from competitor brands. We're confident that Skol beats senses and our strong innovation pipeline in beer will help us to gain share of total alcohol in Brazil. Moving now to China. In China, economic headwinds and poor weather led to decline in industry volumes in the quarter. We estimate industry volumes were down almost 7% in the quarter and down over 5% year to date, with most of the impact being felt in the value and core segments. Our O and B volumes declined by 1.3% in the quarter and were up 0.5% year to date, with our focus on the faster growing core plus and premium segments leading to an estimated market share gain of 104 bps to 18.7% in the quarter. Budweiser remains the engine of growth with volumes up double digits in both the quarter year to date. Our revenue per hectoliter performance remains robust with a growth of 7.9% in the quarter, with improved brand mix continuing to be the major driver. China EBITDA increased by 7.9 percent with EBITDA margin up 29 bps to 23.3%. As we highlighted during investor seminar in Guangzhou in September, China is too big and too complex to use averages. We must look beyond the averages and focus on the right geographies, right channels and the right segments. Those geographies, channels and segments that are growing. Instead of looking at the Chinese beer industry in total, we break it down in different segments. The chart on Page 17 shows that future growth is expected to come from the core plus premium and super premium segments, exactly where we have been chose where we have chosen to compete. Our strong portfolio brands, Harmonize, Budweiser, Stella Artois, HUGGARDEN and Corona means that we're very well positioned to win in this winning segments. Our 3 focused brands represent 71% of our volume in China. Budweiser delivered great results and continues to strengthen its leading position in the international premium segment. During the quarter, we had a specific focus on music, including collaborations with leading artists and a strong execution of electronic dance music festivals. Harbin also continues to strengthen its position among young Chinese adults. The new music video released by Harbin S in August became a hit song on all Chinese music charts and very popular with young adults and KTVs. With that, I'd like to hand over to Felipe, who will take you through some further detail in our Q3 results. Felipe? Thank you, Pedro, and hello, everyone. Slide 20 shows the EBITDA breakdown by zone for both the Q3 year to date. Total company EBITDA grew organically by just under $450,000,000 or 9.6% in the quarter, driven mainly by the strong top line result and good cost of sales performance. This was partially offset by increased sales and marketing investments. We are continuing to invest behind our brands, and we see a further step up of investments in the 4th quarter, consistent with our guidance for full year growth in sales and marketing investments of mid to high single digits. Turning to our EPS and below EBIT results. Normalized earnings per share decreased to $1.02 from $1.42 in the Q3 last year. This variance was due to an improvement of $0.21 per share, driven by organic growth in EBIT, which was more than offset by higher net finance results and unfavorable currency translation, particularly the Brazilian Real, the Mexican peso and the Europe. Net finance costs in the quarter were $810,000,000 compared to $366,000,000 in the same period of last year. This increase of $444,000,000 was due to the negative impact of the mark to market adjustments linked to the hedging of our share based payment programs, which led to a negative year over year swing of $729,000,000 This resulted from a reported loss of $585,000,000 in the Q3 this year compared to a reported gain of $144,000,000 last year. This negative swing in the mark to market adjustment was partially offset by positive currency results and other hedging costs of approximately $268,000,000 and lower net interest expense of $39,000,000 Our normalized effective tax rate for the 3rd quarter was 26.8%, up from 19.7% in the Q3 of 2014. This increase is mainly due to the negative impact from the mark to market adjustments related to the hedging of our share based payment programs, which is nondeductible. Our normalized effective tax rate guidance for the full year 2015 remains in the range of 20% to 22%. As a reminder, this guidance continues to exclude impact of any future gains and losses related to the hedging of our share based payment problems. Moving on to the interim dividend. The Board has approved an interim dividend of €1.60 that will be payable as from November 16. As I have said on previous occasions, it is our intention to move towards a more benefit split between the interim dividend paid in November and the final dividend for the fiscal year, which is paid the following May. Finally, before closing, I would like to stress that our capital objectives remains unchanged in terms of allocation. Our first priority will always be to invest behind our brands and to take full advantage of our organic growth opportunities in our business. M and A remains our core competencies and we will always be ready to look at opportunities when and if they arise provided that the target deal structure and price makes sense. We recognize the value of growing dividends over time, consistent with the low volatility of a non cyclical business, and our goal is to reach a dividend yield between 3% to 4% in line with other consumer goods companies. Our optimal capital structure remains a net debt to EBITDA ratio of around 2x. And at this level, the return of cash to shareholders is expected to consist of both dividends and share buybacks. And with that, I will hand back to Jackie 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. Thank you. Our first question is coming from Trevor Stirling with Bernstein. Good morning, Felipe and Brito. Two questions from my side, please. But I wonder if you could give us a little bit more color on what you're doing to address Bud Light and the weakness on Bud Light. And the second question is, you obviously benefited, as you mentioned, from the World Cup phasing last year and the weather this year in Brazil. Could you give us an estimate of what you think the underlying beer volume trends are in Brazil at the moment, excluding those two factors? Hi, Trevor. So in terms of Bud Light, I mean, again, an amazing brand, number 1 brand by far in the U. S, close between 18% 19% share. So we're very happy to have this brand in our portfolio. On the other hand, there are gaps in terms of maybe packaging and some position of the brand that we need to refresh. We did change the agency. We think Whiting and Kennedy is an agency with an amazing track record of being very creative, very independent. And I think that's the kind of agency and business partner, more importantly, that we need to deal with such a huge brand in such a fragmented market. So when you think about it, in a market that's as fragmented as the U. S. Is, to have a brand that commands that kind of market share, it's something amazing. So the brand is very strong. But of course, given the more options you have in the marketplace, the way the planograms are being divided by all the other brands that are being implemented, brands as big as Bud Light tend to suffer more because that's where most of the share is. So $1,000,000,000 or less than Bud Light. So again, we're very excited. At the beginning of next year, we're going to have what we think is going to be revolutionary in terms of trying to understand where the brand came from and trying to learn from its amazing 20 plus years history from 0 to market leading in the U. S. And playing that back in a more contemporary way, going back to some of its roots. So I mean, very exciting. There'll be also some packaging refresh and visual identity. So I mean lots of things that's only fair for brands of this size. So we think we've been unfair to the brand. So our fault, not the brand's fault. We don't believe in anything about brands having a cycle. We believe in brands that are well managed and brands that could be better managed. And Bud Light is one of those that could be better managed, and that's what we have for next year. In terms of World Cup phasing, I mean, I don't have any specific numbers to give you. But again, in terms of Brazil, for the full year, we expect our net revenues to grow by mid- to high single digits, helped by continuing growth in premium, among other things. So that's all we can say to have a total picture for the year in Brazil. Thank you, appreciate it. Thank you. Our next question comes from the line of Edward Mundy with Nomura. Hi, morning everyone. Two questions please. You had obviously a very strong result with the global brands in this quarter. I mean how do you think about the opportunity for these global brands in parts of Africa and Latin America where you don't currently have operations? And secondly, for the Rita's, you mentioned Rita's Splash. Can you comment on whether you think a hard root beer variant would work for the Rita's family? Yes. In terms of global brands, I mean, that has been a topic that we've been very excited for a long time. I mean, we believe that the 3 global brands we have are complementary to each other in terms of occasions in which they have most of their volume in terms of their positioning. And we believe there's a great portfolio to go and conquer the world, Golden Frog in terms of beer brands. We believe beer has been a very local brand local bag business, different than any other consumer goods you look out there. So I think there is an amazing opportunity for us to drive the 3 global brands and really capture what consumers in all markets today want in some occasions, which is more of a global citizen type brand. And those are the things we offer. So we have amazing brands, amazing sponsorships. And as we continue to increase our footprint within ABI up to date with these brands, that offers amazing opportunities. So and great margins, and that's the best of all, great margins. In terms of retailers, it's we've had a tough year for sure. But again, think about this. 5 years ago, our F and B participation or share within that segment was 0, and we came to market leadership within that segment. Having said that, the gaps we have is that we wrongly, now it's easy to say, but wrongly, we stayed in one part of the market, the higher alcohol segment. And there was a lot of activity in both the higher and the lower alcohol segment, and we didn't capture any of the activity in the lower alcohol segment. So now with Splash, we're coming with the competitive solution for that segment. Again, very high margins, very incremental, and retail splash should not only play on that lower alcohol segment, but also offer a glass SKU or glass package that was also not present in the higher ABV retail presentation. So not only lower ABV, but also the glass package. And that's again towards the SDRs will start mid December. So we'll see. But again, it's a segment that's out there. It's going in the market. We want to have a piece of that. And do you think that the flavor profile of hard root beer would work for the Reese's? Well, again, we're not going to comment a lot on the competitive sensitive pipeline that involves an introduction of a new product. But again, we think it addresses some of the gaps we have in the F and B, in the repos, which is low alcohol and glass. Okay. Thank you. Thank you. Our next question comes from the line of Robert Ottenstein with Evercore ISI. Great. Thank you very much. Brito, I've got some other questions that are related to Bud Light coming back coming at it from a couple of different angles. 1, could you talk a little bit about your the strategy for Bud Light in Mexico, where it's positioned, price versus mainstream and how your efforts in Mexico may impact the brand in the U. S. With Mexican American consumers? And then second also on Bud Light is how much interaction is there with Michelob Ultra? How much of that how much cannibalization do you think is going on there? Yes, two good questions, Robert. So Bud Light in Mexico, we're very excited. The brand is on fire. Price wise, it's a 15% premium to our core brands. We still have some issues in terms of logistics because we're bringing some of it from the U. S, some of it being produced in Mexico. So we're still tightening capacity. That's why we're among other things, that's why we're building a new brewery in the Yucatan Peninsula. And again, the brand continues to grow, especially in the northern part of the country, but it's also true everywhere throughout the country. So good margins. And I think you're right. I think at some point, we do expect it to start influencing Mexican consumers or Hispanic consumers back in the U. S. Because, of course, they do travel back and forth. So that's a very good point. In terms of Bud Light, for sure, I mean, as Ultra grows the superior light beer, there was some cannibalization. The good news is that the margins are better. So cannibalize at a better margin. So that's all part of having a big brand like Bud Light. I mean, our portfolio of brands and some of the brands are growing, some of it will be incremental, some of it will be cannibalistic. But having said that, this quarter Bud Light suffered a lot because it had a Q3 last year, which was an amazing quarter, given the promotion activity we have around Bud Light and also the aluminum can and the aluminum bottle and the 25 ounce can all gave Bud Light last quarter a 1 percentage point gain within the Light segment. So that's something that's a tough comp. Great. And just as a last follow-up, this is related to Bud Light, but also marketing in general. You've spent a lot of money on the NFL. What does your data tell you in terms of the kind of return on investment you're getting for that with Bud Light? And do these big mainstream properties have the same kind of impact in the current generation of drinkers as they did in the past? Yes, big time. I mean, we're very happy with the NFL's agreement that we have in sponsorship. Of course, as consumer change their media viewing habits and the way they interact with sports and the NFL, we're also changing together with the league on properties and things we can activate. And the NFL has been a very good partner in agreeing with us on changes that we need to do to continue to be relevant with that consumer base. So again, a great partnership. We respect them a lot. They have a great business. And again, the number one sports in the country could only be associated with the number one beer in the country. So that makes total sense. Thank you. Thank you. Our next question comes from the line of James Edward Jones with RBC. Yes. Good morning. Two quick ones, please. Your comment the 60% dividend increase was fairly notable. Do I take it from your comments, Felipe, that there's no change to your previously stated dividend policy and there won't be following a successful acquisition of SAB? And also on Mexico, should we regard the strength of the sales performance in Q3 as indicative of the underlying trend of this business? Or were there some one offs in there? Yes. Well, on the dividend, we had an increase on the May dividend that was about 40%. And as we are looking towards a more balanced payment between May November naturally, the November on this case increase was more relevant than the one we implemented in May. Our capital allocation strategy remains unchanged as we stated, and it's too early to speculate on the May dividend for next year. In terms of Mexico, James, the macro environment was very positive. And also we had our brands all flying all cylinders. 90% of our business there in Mexico is all based on focused brands, brands that we invest heavily behind. Corona had an amazing summer soccer campaign during the Q3. Bud Light campaign called Music for Today and some regional activations, especially in the North, very important. And Victoria celebrated its 150th anniversary with special edition packs and a lot based on traditions and Mexican heritage. So all those sort of 3 brands fired in all cylinders, and they have very good momentum. Thank you. Our next question comes from the line of Nick Oliver with UBS. Hey, good morning. Can I just come back to the improving trends for Budweiser in the U? S? Can you talk a little bit about how that differs between consumer segments and if you're seeing a similar improvement with millennial consumers as you are for the overall brand? Thank you. Well, yes, we're both very excited. I mean, it's not this quarter. It's been now a couple of quarters, couple of years. I mean, since we hit the market with our new campaign, Brew the Hard Way, a lot of consumers that are Budweiser consumers felt supported in their choice. And that was important that the brand speaks, it was time that the brand spoke out, given everything else that's happened in the marketplace in terms of fragmentation. And that the brand went back to talk about its heritage and quality messaging. So that was very important. Had it been some time that the brand had not really focused on heritage and quality, and that made a difference in a very strong, bold statement. Macro withstands, that's Budweiser. And that has also an appeal to LDAs because LBAs, as it happens in many industries, like this more vintage and more iconic brands as soon as they are presented in a contemporary way. So we're seeing LEAs that have never been touched so much with Budweiser being now able to sample it. And again, the platforms are very millennial when you think about it, Budden burgers, music. So a lot of things that will really provide opportunity for sampling for these young LDAs. So that has been very good for the brand and the results are showing. Great. Thanks very much. Our next question comes from the line of Anthony Bucchiaolo with HSBC. Good morning, everyone. Just two quick ones. The first one is in the release it says that 9% of your volumes in the quarter in Brazil were premium or near beer. What can we compare that to? And where do you see that going in the medium term? And the second is from the Ambev release this morning, it looks like Corona is having a lot of success across South America. Can you speak to how the brand is interacting with your existing portfolio? Are you seeing any cannibalization? And are you bringing new consumers? Are you building market share? It looks like Chile in particular was successful. Thanks. Yes. Two very good questions on premium. I mean, in Brazil, you remember that premium was stuck in terms of industry in our own portfolio at 6%, so now going to 9%. When you look at the preference of premium brands in Brazil, they're more like around 20%. So we foresee that this growth could continue if you put these two numbers together. And we have an amazing portfolio of premium brands, be it international premium or local domestic premium. And this interaction is working really well. Corona in Latin America, I think it was your second question, doing very well or more specifically, South America, doing very well. And then it's a brand that has a very high price point in those geographies. And so, yes, it does cannibalize a little bit, but it's mostly incremental we see today because some of the parts are different because we're going for more quality distribution. And given the price is way over indexed compared to our average portfolio, It's something that really captures a different location, different consumer. So very happy with it. I think it's an amazing brand that really complements our business there. How is it generally priced against, say, Budweiser or Stella Artois? Way above. I mean, it depends on the country. But if you look at Argentina, the price index is more like 300% or even more than that. In Brazil, if you buy the regular beer at 2, it's priced at north of 4. So I mean, it's really a very, very interesting brand, very the most premium brand we have in our portfolio. Great. Thank you. Our next question comes from the line of Andrew Holland with Societe Generale. Yes. Just a sort of procedural one, if I may. Can you just remind us what the major scope changes were in the quarter, in particular in North America, Mexico and LatAm South? Because obviously, that had something of a bearing on the overall figures. Andrew, I'm going to ask Graham to follow-up with you on some business days. Okay. Thank you. You're welcome. Our next question comes from the line of Andrea Pistacchi with Citi. Yes, I have two questions, please. The first one is a follow-up on Mexico. You say that the industry, the category is healthy there. Is it fair to say that with you and Heineken now in the market both investing there, possibly the underlying growth rate of the beer category there has sustainably or structurally maybe increased from the 2%, 3% historical level. And the second question is on costs. I think at Ambev, you've reduced the COGS per hectoliter guidance for Brazil. And also in North America, I think your COGS per hectoliter declined about 3% in the quarter. So in North America, is this also driven by, which is what you're saying about Brazil, more focus on cost management. You've stepped up your efforts there. And whether broadly across the company, is there an increased focus at this stage on cost management efforts? And then John, in terms of the first question, Mexico, I mean, we're not giving guidance in terms of what we think that the industry will be given what the players are doing there. We're not in a position to do that. But what we see is that the macros are very good. Our brands are performing very well. And Bud Light, Corona, Victoria. And that's proven to be interesting not only for I mean, for the beer category, quite frankly, I mean, to capture share from total alcohol. So that's what we have at this point set. Well, on the cost side, in Brazil, the change or slightly change in cost of sales per liter is more driven by package mix. While in our case, from the global perspective, the slightly increase from low single digit guidance for the full year to lowtomidsingledigit guidance is very much driven by higher growth of global and premium brands, which naturally lead to higher revenues, which also triggered the review of the net revenues per kiliter growth guidance from in line to inflation to above inflation. Net net, all of this is all accretive at the margin level. So I think in the U. S, if I've done the numbers correctly, your COGS per hectoliter decreased. Is that a function of is that the case? And is what is driving that? Well, you should see the quarterly numbers very carefully because this is shipment and depending on the shipment part and the packages and so on and so forth, more aluminum, less aluminum that may have visavis the previous quarter that may have an impact. We highlighted the fact that last year aluminum was big introduction of several packages and therefore on a year over year comparison you may have an impact. Okay, thanks. You're welcome. Our next question comes from the line of Pablo Zwaneck with SIG. Hello, everyone. Look, just two quick questions. 1, in the U. S. Business, we've heard from Boston Beer and other companies talking about a more competitive off premise, the retail environment. My question there is for you. Over the last year, do you have more space there? You have bought these craft brands. You have launched new products, new extensions. What's the competitive landscape at retail? But do you have more space or is it the same space and you're having to swap brands for brands? That's one. And the second one, when we see other companies developing the root beer category or the cider category, And you follow that with Johnny Appleseed. Do you really make any impact? Are you going to do anything in root beer? And why I would I mean, I would call these half hearted efforts. With your distribution network and power, you would think that you would have done better in CYRTR? If you can answer those two questions, please. Thanks. Yes. It seems on our off premise, you're right. I mean, there have been more brands listed. And the planogram, as I said before, to answer another question, has been more fragmented. On the other hand, what you see from IRI data, and these are all public numbers, is that retailers that went too broad and wild in terms of assortment ended up losing share of total business, total beer. And retailers that increase its assortment for sure to go along consumer trends for more choice, but did it in a more rational way in trying to look at rate of sales and share of space performed better. And those are the numbers we're playing back to our clients because customers, because some of them increased their assortment a lot thinking that that's what consumers wanted and at the end they lost share of business. So it's the guy that's doing it in a rational way that's really gaining share within the category. And the explanation is very simple. I mean, if you replace a face of Bud Light for a local brand that will sell a 6 pack per month as opposed to Bud Light selling, I don't know, 4, 5, 6 packs for that front, that one front per day. I mean, of course, it's bad for business, bad for customers because customers will get there, the light will be warm, just replenished, or we'll be out of stock because now we have less space, it's not a product that turns a lot and so on. So I think there is much to be done here, but I think retailers are kind of going back some of them and trying to understand how come even with more complexity, more assortment, more working capital being tied up and much more hard and much harder to manage all that. So they did all this investment and they're losing share category. And others are being more realistic and more using more common sense. In terms of rugby and cider, I think you're right. I think we're late to the cider game. On the other hand, it's not only Johnny Appleseed. We have Stella Artois Figre that's doing well in its segment of high priced ciders and especially on trade in draft. So no excuses here, just a fact. In Root Beer, we have our best beer company, and that is something that will start churning new products. And that's a category where consumers like to try different products, where brand loyalty is much lower than in the overall beer category. And people like to try new things all the time. So that's the DNA of that segment. Brito, can I just follow-up on China? I mean, to me, long term, that's the most strategic market for you, not Brazil, not the U. S. And two quick questions there. At the one show seminar, we didn't hear much about Cedrine. I know you said that your top 3 focus brands there are up, but on my math, 60% of portfolio, Balan and Harbin are doing well, but Cedrin is down 10% as bad as the rest of the portfolio. So question is, 40% of your business in China does not seem to be doing well. And then follow-up to that, just provide some color on Cedrine. We didn't hear much about that, and it doesn't seem to be doing too well. Thanks. On Cedrine, well, if you go to, I think, Page I can't remember the page, but to Page 17, I think, on our presentation that we just did. What you see in China is that the super premium segment, the premium segment are growing way ahead and the core plus are growing way ahead of the core value. And you saw that in our presentation in China. And what's also true is that super premium, where Corona, Whole Garden, Laffer sits, where they sit and the premium segment where Budweiser sits, the profitability is 5x to 9x the profitability of core value. And just to go back to your question, Cedric sells most of its portfolio on the core and core plus So what's happening in the two provinces where Saturn has a big market share is that we are cannibalizing ourselves with brands that have 5 times the kind of margins that we have in certain products. And that's why our mix in China continues to grow and our volume continues to be totally detached from the industry. Look at this. The industry decreased by 6.9% in the 3rd quarter. Our volume was down 1.3%. So a 5 percentage point detached, more than 5%. Then for the year, the industry declined 5.4 percent of volume 0.5 percent up, so 6 percentage points. So I would look at our margins, our detachment from the overall industry and our portfolio that continues to grow and our top line that's doing very well. And 7 is part of that, and that's going to replace some lower macro products in Fujian, for example, for much higher macro products like Budweiser, Arbenize and Corona. That's the way to look at it. It's us cannibalizing ourselves in those two provinces. Okay, thanks. Thank you. Our next question comes from the line of Caroline Levy with CLSA. Thanks. I was actually going to ask about China because the declining per caps on beer just for the industry seem a little bit inconsistent with rising per capita wealth. Do you think that continues for a long time just as people trade up, they're also going to drink less? Caroline, I think what's happening in China at this point is that there is a big change from an economy that was all led by exports and heavy investments in fixed assets, okay, that generates a lot of blue collar work or jobs to now an economy that's much more service and domestic oriented economy. So more consumption, more consumer spending. So that, of course, in the midst of this change, we see that in the Southeast where some years ago, there was lack of blue collar workers and now there is too many of them. So there is a shift in there. And I think that's what the segments are showing us, that the segments that are more high priced are growing ahead of the ones that are lower priced. And that's exactly where we have most of our business and most of our brands positioned. So I think this change, while maybe bad for the industry, is not bad for us. Of course, if we could have an industry and this trend, it would be even better. But what we've showed in China, and now it's totally true is that when you look at the profitability of the BA industry in China, today we have most of it in terms of having the highest EBITDA take of the EBITDA pool in China. So that attests to the fact that we decided early on to bet on the segments that 10 or plus years ago were not that obvious were the winning segments, but now they're very clear the winning segment, especially given the view where the economy is going. That makes a lot of sense. Thank you. And just because you're so strong in Brazil, could you talk about whether you think the economy stays this bad, gets tougher, like what and whether there could be more tax increases coming? I guess one state, Sao Paulo, I think, is talking about higher taxes. Well, it has been a tough year. I think the good thing is that given the environment, our guys have really done a good job of shoring up our business and really getting that volume, getting that net revenue to grow and the EBITDA to grow, so on a, of course, organic local currency basis. So that has been very good. The brands are also doing very well, premium and all that, as we said before. I think in terms of taxes, the federal tax code has just been reviewed. It's an enhancement vis a vis the old one. It provides greater simplicity, predictability and will ensure government tax collection will continue to grow. So it's just been changed. In terms of states, you're right, we have 26 states for the federal district in Brazil, and they all have different tax laws. And yes, there's always a risk that states could increase taxes, but one thing is always the case. In case of a tax increase, we'll pass it through to price to consumers, always. So we'll see. States understand that. At the end of the day, what they want is not to increase the rate. They want to increase the tax collection. And what we're trying to show them is that there is a lot of this in our business, like any business. And as we pass it to consumers, sometimes collections are not necessarily going to be bigger and jobs are going to be lower for sure. So that's the trade off. We've been always talking to states. Thank you so much. Ladies and gentlemen, we have time for one more question. Our final question comes from the line of Mark Swartzberg with Stifel Nicolaus. Yes, thanks. Good morning, Brito. Good morning, Felipe. Two questions, 1 North America, 1 Mexico. North America, it seems like these 9 month figures are might be a reasonable proxy for your ability to grow profits there. I realize each year is unique, but what I'm getting at is EBITDA is down 2.5%, revenue is flat, your shipments are in line with your STRs, you're spending to defend share. I appreciate that you're trying to grow share, but if we take a more bearish view that it continues to be a struggle to grow share, do you think you can actually put up EBITDA growth in North America? Or is it more likely that we see this kind of low single digit contraction in North America from an EBITDA perspective? Well, Mark, as you know, we're not going to be able to give guidance there. All I wanted to say is that there are many things that work in the U. S, okay, but we have gaps. And we have a gap on Bud Light. We have gap on Rita's that are very profitable segment. And we have gaps on the Mexican imports. So we tend to be optimistic and bullish about the U. S, have always been, that's why we came here. It's an amazing market, very profitable market. But we need to fix those gaps in order to get net net back on a sustainable growth path. And that's what we're committed to do. So again, Balaji already commented on the new agency positioning packaging for next year. Rita's already commented on Rita Splash trying to plug a gap that we have there in terms of ABV and glass package. Mexican imports, we have them on pill, but of course, we need much more than that because with the Mexican we're the leaders in Mexico and in the U. S, we're totally underrepresented, to say the least, in the Mexican import category. So 3 big opportunities. And then you have Budweiser working much better, Michelob Ultra, Bud Light Limes, Stella Artois, Crafts, on premise. So I think as we get those gaps a bit bridged, we continue to be very bullish on what our business here can generate. That's great. And really hats off on Budweiser. That is impressive, not only here, but obviously around the world. But the second question is simply Mexico. If we take a longer term view, is it reasonable not only here, but obviously around the world. But the second question is simply Mexico. If we take a longer term view, is it reasonable to think obviously the share the volumes slow down a bit, you continue to take share, but you get better price mix there. So I'm trying to think about long term revenue growth here, and I'm thinking it's high single digits. I know you're not going to give us a per annum guide, but just trying to think about specifically the revenue per hectoliter. Can that improve as these premiumization efforts pick up? I think revenue platform in Mexico will be like any other market of ours, a function of 3 things: revenue management initiatives, premiumization and in Mexico specifically like Brazil, if we increase our own distribution. And let's be realistic. I mean premium in Mexico is only 3% of the EMEA. So think about the potential we have there. And again, think about Brazil, that for years years years, the thing didn't grow one day. It clicked. And then it's growing, growing, growing. So I think in Mexico, that's reason to believe that there is an underlying, just like in China and Brazil, thing in there that could help net revenue growth. And again, there's no guidance here. It's just a statement of facts. Again, 3% of the industry being premium. And we have 2 players that are investing heavily on that. That was our final question. I'd now like to turn the floor back over to Carlos Brito for any additional or closing remarks. Yes, I do have some. Thank you, Jackie. So to recap, the Q3 was a solid quarter in which we delivered strong revenue and EBITDA growth with a very good performance from our 3 global brands. Looking at our 4 top markets, just to summarize. Market share continues to be a challenge in the U. S, but many things are working well. We'll continue to invest behind lean brands and programs while continue to work on growing Bud Light, improving the results from the Ritos family and gaining share in the Mexican import segment. Mexico and Brazil performed very well in very different macroeconomic environments. China also continues to gain share despite a slower economy, driven by our focus on the growing core plus and premium segments. Finally, SABMiller. Obviously, we're very excited about the future opportunities that will be created by possible combination with SABMiller and are working hard towards the announcement of a formal transaction. However, it does not come at the expense of organic growth. Accelerating revenue growth remains top of our agenda. With that, thank you very much for your attention today, and I look forward to talking to you again soon. Thank you. See you next quarter. Have a great day. Bye. Thank you. This does conclude today's teleconference and webcast. Please disconnect your lines at this time and have a wonderful day.