Earnings Call: Q1 2015

May 6, 2015

Welcome to the Anheuser Busch InBev First 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 dotav inbev.com and click on the Investors tab. Today's webcast will be available for on demand playback later today. At this time, all participants have been placed in a listen only mode and the floor will be open for your questions following the presentation. Some of the information provided during the conference call may contain statements of future expectations and other forward looking statements. These expectations are based on 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, please 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, Maria, and good morning, good afternoon, everyone, and welcome to our 2015 Q1 results conference call. Q1 was a strong quarter in terms of both revenue and EBITDA growth. Our focused brand strategy coupled with disciplined market execution enable us to deliver solid revenue growth of 6.2%. This was achieved despite challenging conditions in several of our markets. A strong revenue per hectoliter growth of 7.5% on the basis of the same geographic mix more than offset the decline in total volumes of 1.2%, which was impacted by a very difficult comp in the U. S. Volumes of our 3 global brands grew by 4.6% led by Budweiser, while volumes of our focus brands declined by 0.3% significantly impacted by the U. S. The strong top line performance translated into EBITDA growth of more than 11% with EBITDA margin expanding by 170 basis points to 38%. Normalized earnings per share also saw a strong growth up from $0.87 to $1.40 driven by the growth in EBITDA as well as very favorable net finance results, which Felipe will address in more detail later. Volumes of Global Budweiser grew by 6.2% fueled by an excellent Chinese New Year campaign in China, significant growth in Brazil and an improved performance in the U. S. Global corona grew by 2.7% with growth across our key markets. Results were especially strong in Australia, Canada and Italy as well as Mexico, which was facing a very tough comp as a result of our FIFA World Cup campaign. Finest Stella Artois grew by 1.2% due mainly to good results in the U. S. The Q1 also saw a stellar to our launch, the Buy a Lady a Drink campaign, one of our Better World initiatives focused on providing clean water to people in developing countries. Turning now to the results in the U. S. Industry volumes continue to improve. We estimate that industry sales to retailers, STRs, declined by 0.5% in the first quarter versus a 0.6% decline in the full year 2014. Our own STRs were down 1.5% leading to an estimated decline in market share of approximately 45 bps. Our sales to wholesalers, STWs, were down by 6% in the quarter as expected, driven by the very difficult comparable following the buildup of wholesaler inventories ahead of union negotiations in the same period of last year. We continue to expect STWs and STRs to converge on a full year basis. U. S. Beer only revenue per hectoliter grew by 1.3% in the quarter. This result was adversely impacted by approximately 40 bps since price promotion accruals are based on STR volumes and not STW volumes. EBITDA in the U. S. Declined by 6.5% in the quarter driven by the STW comparable. Turning to the performances of our brands in the U. S. Bud Light, our most important brand in the U. S. Continues to build on the momentum created last year from the UP For Whatever campaign and the Whatever USA event. Our 2015 Super Bowl execution and continued rollout of the new aluminum bottle added to this momentum, helping the brand to gain share of premium lights during the quarter based on our estimates. We estimate the brand was down approximately 20 bps in terms of total market share. Turning to Budweiser. Budweiser had one of its best quarters for a long time and we feel good about our plans for the rest of the year. We finished 2014 with good momentum and built on this with our Bruiser Hardaway campaign, which was unveiled during this year's Super Bowl. The underlying quality and heritage messages in this campaign are resonating well with the majority of our consumers and we're seeing good improvement in our STR and share results. The recurring Budweiser market share in the quarter was approximately 20 bps based on our estimates, much improved compared to historical trends. We have a strong program for the rest of the year. With quality message at the heart of everything we do. Our Budden Burgers program for example brings together quality beer with great food and has already generated lots of excitement with our wholesalers and retailers. And this year, our made in America summer program will include not only music, which has become a mainstay of the brand in recent years, but also programs built around our new partnership with the National Parks Foundation, including some eye catching primary packaging, which you can see on this slide. We have a long way to go in stabilizing the share of Budweiser, but the year is off to a very good start. Our portfolio of above premium brands grew share by approximately 20 bps based on our estimates with Ultra again leading the way with growth in STRs of more than 10%. We're very pleased with the momentum behind Ultra and we'll continue to invest behind the brand's unique positioning in the market. Stella Artois and Goose Island also delivered solid volume growth and share gains. Our on premise initiatives are also delivering good results. We have seen strong momentum since the middle of 2014, driven by the investment behind our above premium brands as well as the focus given to this important channel by our new high end business unit. Our above premium brands include a portfolio of near beer products, which play an important role in connecting with consumers who would not normally choose beer as their first choice of alcohol beverage. These products are helping us to improve our share of total alcohol as well as to drive premiumization of our category. The Q1 saw the rollout of 2 new brands to complement our Rita's and Cider products. Mixtail, a flavored cocktail brand with 3 variants and Occulto, a tequila flavored beer. It's early days for these new innovations, but both are doing well. Moving now to Mexico. Our Mexican business continues to make good progress with another solid result in terms of volume, revenue and EBITDA. We estimate that industry volumes grew by low single digits in the quarter driven by a growing economy and an earlier Easter, Easter being the most important holiday for beer in Mexico. Our own volumes grew by 2.1%. Revenue per hectoliter was also very healthy, growing by 5.9% due to our revenue management initiatives and favorable brand mix from the growth of Bud Light. The strong top line results led to growth in EBITDA of over 15% and margin expansion of more than 300 bps to 46.8 percent. Volumes of our focused brands grew by 4.4% in the quarter. This result was led by Bud Light and Victoria which both performed well. The Corona brand also saw good growth despite cycling a tough comp resulting from the very successful FIFA World Cup promotion in the Q1 last year. Moving to Brazil. We are very pleased with our performance in Brazil with revenues growing by 10.7%. Our beer volumes grew by 0.4% despite the challenging economic environment and a difficult comparable with beer volume growth of over 10% in the Q1 last year. We estimate industry beer volumes were marginally ahead of last year, resulting in a flat share for the quarter of 67.5%. Our beer revenue per hectoliter result was very solid with growth of 11%, reflecting our revenue management initiatives, increased own distribution volumes and premium brand mix, while keeping pricing in line with inflation. The Brazil soft drinks industry saw some weakness in the quarter, but we estimate to gain approximately 50 bps of market share with an average share for the quarter of 18.8%. Guarana Antarctica Black was launched during the quarter and helped to drive this result. EBITDA in Brazil grew by over 18% in the quarter with margin expansion of more than 300 bps. Our guidance for net revenue growth in Brazil this year remains mid to high single digits, despite facing a tough FIFA World Cup comparable with volumes in the Q2 last year growing by 7%. Our commercial focus in Brazil is to maintain a healthy balance between volume and revenue per hectoliter growth. We're delivering against this goal through our affordability and pack price strategies supported by very strong disciplined field execution. All of our core brands Skol, Brahma and Antarctica played leading roles in regional Carnival events in this Q1, building engagement with our consumers. In addition, we continue to invest behind our premium brands, which include not only our global brands, Budweiser, Corona and Stella Artois, but also our strong domestic specialty portfolio. We also continue to roll out innovations, building off the strength of our core brands such as Skolbeats Senses, which competes in the near beer space and Brahma 0. Both products continue to exceed our expectations. Moving on to China. Our China business had another strong quarter with revenue growth of over 15%, driven by a very successful Chinese New Year campaign. Our beer volumes grew by 4.7% in the quarter with our focused brands of Budweiser, Harbin and Sedrin growing by more than 10%. The Chinese economy continues to be soft, although this appears to be impacting value and core brands more than core plus and premium brands, which is where we have chosen to focus our efforts. We estimate that industry volumes declined by approximately 2% in the quarter, an improvement over the Q4 last year, resulting in an estimated organic gain in market share of approximately 100 basis points to 16.7%. We estimate our market share in the quarter reached 18.5% when including our recent acquisitions. Revenue per hectoliter growth of 10.1% was mainly driven by improved premium brand mix led by Budweiser and Herb and Ice as consumers continue to trade up to the core plus and premium segments. China EBITDA increased by over 50% with EBITDA margin growing to 26% driven by our top line result, the timing of our sales and marketing initiatives and strong operational leverage. Budweiser delivered a great result in the Q1 with volumes growing by double digits and leading the premium segment with an estimated share of well over 50%. Budweiser was at the heart of our Chinese New Year campaign across 9 major cities in China linked to celebrations in Times Square in New York included. We estimate the campaign reached over 500,000,000 Chinese consumers in December January. It is programs of this scale supported by liquid innovations such as Budweiser Supreme and the aluminum bottle, which are driving Budweiser's success in China. Harbin and Harbin Ice are also major contributors to our growth in China, building brand health through strong activations around our NBA program. With that, I'd like now to hand it over to Filipe, who'll take you through some further details in our Q1 results. Felipe? Thank you, Brito. Slide 16 shows the EBITDA breakdown by zone. As Brito said, our total company EBITDA performance was very solid with organic growth of 11.1% and EBITDA margin expansion of 170 basis points. The EBITDA performance was driven by strong top line growth despite the difficult STW comparable in the U. S. The result was also helped in part by a modest increase in sales and marketing investments of 1.3%, although it should be remembered that the increase in the Q1 of last year was 16.7%, reflecting the start of our FIFA World Cup campaign. We are maintaining our guidance for the full year growth in sales and marketing of mid to high single digits. Brito covered our 4 top markets, but I would just like to mention some highlights from other relevant markets. The weak consumer environment continues to put pressure on volumes in Argentina with our beer volumes down low single digits in the quarter. Mixed ale launched at the end of last year to compete in the near beer space continues to exceed our expectations. Industry volumes in Belgium declined in the quarter, although we estimate we gained share with a strong performance in the off trade. In Canada, good weather in March helped industry volumes in the Q1 and drove low single digit growth in our own beer volumes. We estimate we maintained share. And Corona, which we took over in March last year, continues to do very well. In Germany, our total volumes were marginally down in the quarter due to the timing of our price increase. We have recently introduced a number of exciting new Bax Liquids and Franciscan and non alcohol products in the German market to build on the strength of these two brands. Our volumes in South Korea declined mainly due to some share loss against a difficult comparable. And finally, in the UK, our volumes were down as a result of a weak industry as well as a difficult share comparable. I would now like to quickly review the below EBIT results, starting with our earnings per share performance. Normalized earnings per share increased to $1.40 from $0.87 in the Q1 last year. This increase was due to a $0.16 per share improvement in organic EBIT growth driven by our strong top line result and favorable net finance results of $0.53 per share, which I will explain in more details on the next slide. Net finance results in the Q1 was an income of $91,000,000 compared to an expense of $866,000,000 in the Q1 of last year, a variance of almost $1,000,000,000 This was driven primarily by $757,000,000 market to market adjustments linked to the hedging of our share based payment programs compared to a loss of $52,000,000 in the Q1 of last year, a swing of $809,000,000 In addition, our Q1 net finance results includes a positive currency impact and other hedging costs of approximately $153,000,000 and the payment of other bank fees and taxes in normal course of business of approximately $37,000,000 Our normalized effective tax rate for the Q1 was 18%, down from 18.8% in the Q1 of 2014. This decrease is mainly due to the non taxable nature of the gain from the hedging of our share based payment programs in the Q1 of 2015. At the same time, one should keep in mind that Q1 2014 loss was non deductible. Our guidance for full year 2015 remains in the 22% to 24% range. And as a reminder, this guidance continues to exclude the impact of any future gains or loss is related to the hedging of our share based payment programs. Our capital allocation objectives remain unchanged. Our first priority will always be to invest behind our brands and to take full advantage of the organic growth opportunities in our business. M and A remains a core competency and we will always be ready to look at opportunities when and if they arise, provided that the target, the deal structure and price makes sense. We do not feel any pressure to do deals and there is no predetermined timetable for that. We recognize the value of growing dividends over time, consistent with the low volatility of a non cyclical business. 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 2 times. And at this level, the return of cash to shareholders is expected to be consistent of both dividends and share buyback problems. And with that, I will hand back to Maria to begin the Q and A section. Thank you. The floor is now open for questions. Our first question is coming from the line of Trevor Stirling of Bernstein. My side. Relating to the other operating income and the €50,000,000 gain coming from investment incentives, you highlight in the text Felipe that that's recurring, but should we be expecting a further $50,000,000 increase in each of the 3 quarters to come this year? You should look at that as a percentage of net revenues, Trevor. There has been an increase throughout 2014 coming from a lower base as you look into the Q1 2014 to approximately 6%, 7% implied this quarter. And you should think about that as a percentage of net revenues going forward. As we keep investing, there may be more incentives grants, but that is specifically for Brazil and to a certain extent to China as well. Understood. Thank you very much, Felipe. You're welcome. Our next question comes from Olivier Nicolai of Morgan Stanley. Hi, good morning. Just one question on Brazil. Revenue per hectoliter grew by 11% in Q1. Could you please quantify the three elements here? So the mix, the pricing itself and the increase in weight of direct distribution? And should we also expect revenue per hectoliter to be as strong for the rest of the year or should moderate a bit? Thank you. Well, hi, Olivier. As you said, our net revenue per hectoliter in Brazil grew by 11% in Beer Brazil. With all the real growth that is what's above inflation coming from premium, which is growing ahead of our total volume, by the way growing double digits and the increase in direct distribution, which now reached 72.5% of our volumes. So and we continue with our policy of increasing prices in line with inflation. So everything that's ahead of that in terms of real growth of net revenue came from this basically these two initiatives premium growing out of total volume and direct distribution having a bigger impact. Thank you. Thank you. Our next question comes from the line of Chris Stitcher of Redburn. Thanks so much. Brito, I was wondering if you could comment on your strategy in craft, not just in the U. S. Where you continue to buy brands, but what you're learning from there, obviously buying brands in Brazil and whether you can confirm that you've taken a minority stake in a craft brewer in Colombia as well? And then as a follow-up sort of following on a bit from craft, could you talk about your learnings in social media? Because you've had some successes and some recent mistakes let's say or problems. Could you talk how you're learning on there and to help build your brands? Yes. So in terms of crafts or specialties, the strategy in different places of course different countries are slightly different because they are at different stages of development. In the U. S. For example, the segment is more developed than in other countries of course. And here, we're adopting a strategy very clearly of having more regional relevant brands. So that's the case when we joined with Goose Island, Blue Point, 10 Barrel, Elision, but also developing our own like Shock Top. And also trying to focus in a few that could be nationally expanded. So a few will remain regional. Some will go national in some specific segments within the craft portfolio. So for example, IPA, it's clear it's goods IPA. With wheat, it's clear it's truck top. And with if you think about specialties with lager, it's clear in a broader sense it's Stella Artois. So that's our strategy for the U. S. In other markets, what we're trying to do is get the U. S. Learnings over to other markets and try to be of course ahead of the curve, especially in markets where we lead like Brazil where we are trying again to together with our domestic specialties that we have in Brazil to have also some other local specialties like walls that we acquired. So that's pretty much how we expanded. And that's how we'll continue to do in other countries. To your other question on social media, as we all know social media continues to grow within our mix of media spend between social and traditional. We are learning every day by connecting more with consumers and making our content relevant. Of course, it's a very fast paced type interaction with consumers. And we don't intend to get everything right all the time. But I think when we don't get it right, we apologize and learn from it. We take it very seriously our messaging to consumers. So that's we've always been as a company, we take things very seriously and we'll continue to do be it in social media or traditional media. But the learnings are very interesting. Great. Could you just confirm whether you've taken a stake in the Colombian craft Bogota brewery because there were press reports on that Bogota beer company? Yes. On April 17, we closed a transaction in which Embav became a direct indirect owner of 100% of the shares of a company called Bogota Beer Company, very successful company in Colombia. And again, as we did with Bruce Island, the craft feature, creativity and dedication that makes Bogota Beer Company an exceptional brewery will remain unchanged and will be critical to business success in the future. What we're trying to do in Colombia, Colombia is a very exciting market is of course to play in the high end with our global brands and local brands. Thank you very much. Welcome. Our next question comes from the line of Mark Schwartzberg of Stifel Financial. Yes. Thanks. Good morning, gentlemen. One Brito on Brazil. Can you just help us better understand what you think the scale and pacing of the opportunity you might have there as you acquire more of your own distribution? And then Felipe, the repo rate of nearly $500,000,000 with $1,000,000,000 as the target basically says if you keep up that rate you'll be done by June, July. So my question there is what next? Well, on distribution in Brazil, it's something that has been going on now for 20 years as far as I can remember. And so there's no news really there. I mean it just continues and it's now at 72.5%. Last year I think it was more towards 70%. So I mean, there's no really any news there. It continues to be the consolidation pace we've had for many years. It's interesting because it provides scales, provides alignment, but that's not the only way to do it. That's the way we figure out in Brazil. And the U. S. For example is a different way. We're very happy with the wholesales we have in the U. S. And we do amazing things when we are aligned with them and when we go to market on a focused way. So it's business as usual I would say in Brazil. And so is the corollary then Brito that in spite of the lack of volume growth there, you're not putting a greater emphasis on taking that 72.5% up? No. I mean the strategy on direct distribution in Brazil has been a consistent one and it's not going to change because of 1 year volume softness or anything. I mean it will remain consistent. Businesses Great. Great. Well on the second part of before deciding the next move, which is something that is up for discussion with the Board. And as we get there, we will make that decision. So think we should think more like the second quarter we'll get an update on any incremental repo or some different approach with the balance sheet if there's no news between now and then? The current buyback program was much more risk management driven than capital structure driven as we are hedging the stock exposure under the stock ownership plan, which is something we'll keep doing. And as we continue to gravitate towards the 2 times net debt to EBITDA at the both level. Got it. Great. Thank you, gentlemen. Thank you, Mark. Our next question comes from the line of Sanjit Ojala of Credit Suisse. Just want to get a sense of why you think the beer category seems to be holding up relatively better than other consumer categories particularly soft drinks? Sorry. Can you repeat the question please Sanjit? Hi, sure. Yes, I just want to get a sense of why you think the beer category around flat in Q1 seems to be holding up relatively better than soft drinks and other consumer categories. You mean in Brazil? Yes, in Brazil. Okay. Well, I think that's a very interesting question. Thanks for it, because it our guys in Brazil, which has been through tough years before, at the beginning of this year, they decided they were not going to be part of the bad mood or whatever that was in some other industries in Brazil. They decided that we would focus on the things we could control. We felt we had good plans in our hands. So we decided to keep our head down, focus on execution and out execute competition in the marketplace but at least have that intent. I'd like to remind people that despite the bad mood or some poor macro indicators, the fundamentals in Brazil remain the same. So demographics, the fact that LDA is growing at a healthy pace, LDA plus the weather, the beer culture, the regional differences, middle class, all those things are there. Plus our plans, which is to continue to grow our core brands and some line extensions derived from very strong core brands that we have, accelerate premium. Premium is getting now to 8% of the total Brazilian market. If you look to Argentina, for example, it's more than double that. And we feel that there is enough space for us and the other competitors to continue to accelerate the premium growth. So that's very promising, because the margin is much better. Near beer is also another great opportunity in Brazil. That's pretty much now being scratched a little bit on the surface by us with Skolby senses, which has a very low cannibalization. So 70% of its volume source comes from outside of beer from other categories. And then you talk about the off trade. Everything we learn in the U. S. And Europe getting the off trade to be more of a sophisticated execution, more segmented execution in Brazil with coolers and shelf, Brazil with coolers and shelves and pack prices and promo OPTI. So lots of things we've been developing in other markets and the on trade. Now with the urban on trade as we call it sales force more segmented to high end products, it's key to develop things like the high end brands, specialties, but also things like the Scaldrat, which is a new initiative in Brazil. So I mean, we just decided not to be part of this whole bad mood and decided to focus on an amazing business we have. Our people in Brazil are used to deal with tough situations and we have a great team there. So that's why we feel good about and very happy with this Q1. Thanks. Thank you. Our next question comes from the line of Rob Ottenstein of Evercore. Just two questions on the U. S. Market please. First, in terms of volume industry volumes overall, I think you said you thought they were down. I'm just wondering if you could talk about that in the context of what we hear as an improving economy and the lower gasoline prices and perhaps what you're doing in terms of growing the beer market as a whole? And then second, also on the U. S. Market, perhaps give us a little bit more perspective on your price mix realized and some of the factors positive and negative on that, particularly given the fact that your mix continues to improve in terms of your above premium? Thank you. So in terms of your first question, I mean, as we said in our outlook, we expected industry volumes to improve this year 2015 compared to 2014. 2014 was already an improvement versus the prior year 2013. So in 2013, the industry declined 1.8% In 2014, it declined 0.6%. And in this Q1, it declined according to our estimates 0.5%. So heading in the right direction. What we're doing as a market leader, we invest in our core brands Bud Light, Bud Weiser, Ultra and we're coming with innovation. We're also investing in different segments like craft and we continue to support our value brands. So I mean that's our let's say our contribution to that industry. In terms of your second question, which was around the revenue realization, as we said in our release, I mean, this quarter, Q1, our net revenue per hectoliter increased by 1.3% and that's to be adjusted by a 0.4% that had to do with the mismatch between STWs and STRs and the way promotions are crude based on STRs and gross revenue based on STWs. So you can see that with this divergence in STWs and STRs during this Q1, this has led to disproportionately higher accrual for price promotions than would be the case if STWs and STRs were more closely aligned, which is normally the case. So that's why we continue to guide for STWs and STRs to converge on a full year basis as we always do. Okay. Were there any other factors? I mean even at 1.7 that is somewhat less than in over the last few years? Well, again, we have some packs that were introduced. Some are like the 25 ounce can that are dilutive at the top line, but accretive at the bottom line, as we said before last year. It's a very it's 1 quarter, Rob. So it's very hard to drive any conclusions from just 1 quarter. Terrific. Thank you. Thank you. Our next question comes from the line of Edward Mundy of Nomura. Good morning, guys. Thanks for taking the question. Just following up on the U. S. Revenue per hectoliter, would you say that 1.7% is a reasonable guide after 2015? Yes. We don't provide that kind of guidance. But yes, what we said about the U. S. Was in terms of guidance was that industry would be better in our view and that we expect that And that's it. I mean, in terms of top line, that's the guidance we gave. Thanks. And as a follow-up, I mean, as you go into the peak summer selling season in the U. S, I mean, what makes you most excited, Brito? Is it the improved performance of Budweiser? Was it the launch of some of the innovation? What really gets you excited? Well, lots of things got us very excited. I mean, first, the Bud Light program, which proved last year, because you have to remember that Bud Light for many years didn't have much support as a brand during the summer, because most of it investments was tied to sports and NFL, which in the summer doesn't really take place. So it was a very low support season for Bud Light. Last year, we decided to as you saw, we upped our investments in the U. S. One of the reasons being, we decided to support Bud Light during the summer and the results were quite impressive. So this year we're doing that again. So that's one thing. The other thing is Budweiser. With the Super Bowl Brew the Hard Way, we kind of reencountered the whole or went back to the roots of the brand in terms of tradition, heritage, quality, brew the hard way 30 days opposed to 15 days. I mean everything that made this brand stood the test of time. We went back to the roots, decided to communicate that back to consumers and the consumers reacted very well. So we decided again to put more money when things are working and that's going to be a little different for Budweiser. So the Bud and Burger together with Brew the Hard Way, together with Made in America, this time linked to National Parks Foundation. So it's going to be a very strong program for Budweiser as well. And then of course, you have the Ultra, Ultra, Michelob Ultra brand, which continues to grow, grew 10%. And you have the high end and you have the Rita's, which we have most of our investment for the year kicking in now in May June for the summer season. So I mean the summer is going to be very active and so very excited about the summer. And Britta, you didn't touch much on the innovation, the mixed sales in Aculte, which I think in your opening remarks you said that they're both doing quite well. I mean, how do you think about the rollout of these? And can they be as impactful as the REITAs back in 2012? Yes. What we're doing at this point, Edward, is that of course, we're in the early days, so it's very hard to predict anything at this point. But we are using some focused markets. For example, Qutu, we're heavily in Miami, building a showcase for where it can be and learning from it before we go heavy or heavy upper investments in other places. But Sharethroat is a big play for us in the U. S. And both Akuto mixed tail and Britas continue to play in that arena. And again, let's remember they all have command a much higher revenue per hectoliter and a less cannibalistic or therefore more incremental. So all good news when you talk about near beard type products. Okay. Thank you. Thank you. Our next question comes from the line of Andrea Pistacchi of Citi. Yes. Thanks for taking the question. So the first one please is on Corona. I think you said the brand globally grew 2.7%, which doesn't seem that much considering that you're starting to leverage the brand globally. So I was wondering what held back the performance somewhat and should we expect an acceleration in the sort of coming quarters and driven by what? And then secondly, if you could please give us an update on your brewery project in Vietnam whether when do you expect to start shipping beer there? And if greenfields like Vietnam are something we should expect to see more of going forward? Well, thank you Andrea for the question. I mean corona, we're very happy with corona around the world outside of Mexico also in Mexico. But of course, you have 2 different growth patterns. And Mexico is the number one brand. So it is growing this year. Corona grew over 10% in the Q1 in Mexico. So I mean last year, last year. So very tough comps because of the World Cup. So this year it grew again, but of course low single digits. So that's and because Mexico has a much higher base than the exports to the rest of the world, of course, outside of the U. S. Because it's not ours, then you have to understand that outside of the world, things are doing much better than Mexico. But Mexico, of course, being against a very tough comp of 10% last year because the World Cup kind of dragged down this volume a bit down. But again, very excited. All the countries who put Corona, this brand has an amazing power. People know about the brand. It's very premium and it's doing very well. So in terms of Vietnam, yes, we're building a brewery there. We expect to ship beer in May, so this month in Vietnam. We're very excited about Vietnam. It's a country again demographics, weather, beer culture, 90,000,000 people, a very extensive or very big high end segments. And that's where we want to play with Budweiser, Stella, Corona, also Whole Garden. So very exciting market, very committed to it. And learning from our experience in China to do a lot of what we did with Budweiser in China in Vietnam. Thanks. Thank you. Our next question comes from the line of Mitch Collett of Goldman Sachs. Hi, there. I wanted to ask about U. S. Margin. Obviously, there's some negative operating leverage this quarter. But I guess there wasn't positive operating leverage in the comparable quarter. So I just really wanted to ask whether the slight decline in margins is maybe structural rather than driven by operating leverage. And then secondly, you've obviously got clear guidance on sales and marketing expenses. I recognize it was up significantly this time last year. Can you perhaps give us some color on the likely timing of sales and marketing investment? It was only I think it was down 1% this quarter and your guidance is for it to be up mid single digit. Thanks. Yeah. Hi, Mitch. So I mean in terms of the U. S, I mean to take this quarter as any indication of anything would be a mistake, because of course this quarter you had a 6% volume drop, because of everything we explained the tough comps last year because of the unit negotiation. Our STRs were down 1.5%. But our STWs, which is the one that moves the P and L and the financials, went down by 6%. So of course, when you have a 6% drop in volume, it's very hard to compensate it anywhere else. So that's one point. So I wouldn't take this quarter as any guidance for anything going forward or anything. It's a one off. In terms of sales and marketing, our guidance as you well said for global sales and marketing remains as we said before mid to high single digits. And this quarter the fact that we were up only 1.3% has to do with some timing issues and also the fact that we are against last year's 16.7% growth in sales and marketing, okay? So I mean you're comparing against 16.7 percent. You also have in the U. S. Some savings that will be there throughout the year, because we had an insourcing we had an insource model of media buying and planning. We decided to outsource that to video comp. And with that came sales that we'll be seeing in the U. S. Beer. So which means that if you we could be spending the same amount of money in the U. S, but with more media pressure, because we're reinvesting the savings, okay? So that is going to be something that will be again a one off of this year in the U. S. Business, which is a big business for us that will impact also. But again, our guidance is the same. Okay. Very clear. Thank you. Thank you. Our next question comes from the line of Simon Hales of Barclays. Thank you. Good morning, everyone. Just a couple of follow ups really. Britta, just going back to the U. S. Market, I don't think you mentioned the performance of Montejo in the quarter. I don't know whether you could just update us on the performance of that brand. And secondly, just sticking with the U. S, distribution expenses I noted were very low in the quarter, the change is relatively low. I mean, I assume we're seeing the benefits of lower oil costs starting to feed through, But you were warning back at the Q4 stage that you were still seeing elevated freight cost rates. I just wonder if you could just update us on what's happening there and how we should think about that expense looking forward? Yes. In terms of the whole strategy for the Mexican segment or more broadly for the Hispanic consumer, which is what we should think about. You talk about Montel, of course, that's a very important piece. But even more important than that is Bud Light, Budweiser and Michelob Ultra, because those are brands that are very big with the Hispanic consumers. And we're spending more money last year and this year on Hispanic media and TouchPoints, because those brands are the big ones. Bud Light for example is the biggest brand with Hispanics in this country, right? So those are very important brands. But for the first time ever, we are now able to play in the Mexican segment with Mexican brands. We're never able as AB as a company to do that and now we're able to do it. So we brought our first one, Montego. There's more to come. First one is Montego. I think it's doing well, very well for a brand that has to be built at the same price of other established brands that have been here forever at core plus type prices. So we're not discounting or anything to get quick gains. We want to build this brand for the long term, because we're here for the long term. So we want to build it the right way. So we're selling at the same price as the next competitor. We're selling that core plus brand. And when we started, we only had 1 pack. Now we have more packs. And this pack, the tall can, the big can is very important for the convenience channel, which is important for the Hispanic consumer. So and we're also expanding now to other states. So I think again, we're very excited, very committed. Montero is all about Mexican authenticity. It comes from us and we are the Mexican leading brewer in Mexico. So talk about authenticity, that's what we offer. So very excited about this, more to come. But again, don't forget that Bud Light, Budweiser and Michelob Ultra also play a big role in the Hispanic market. So on the second part of your question regarding distribution expenses, I would point out to the global guidance of the distribution expenses per hectoliter to increase organically by mid single digits. As you look into the Q1, we are above that level, which implies an expected improvement in the coming quarters in terms of year over year growth and U. S. Is not an exception given its size. Okay. Perfect. Thanks Felipe. You're welcome. Thanks, Sam. Our next question comes from the line of Eddie Hargreaves of Canaccord. Thank you. Just a couple of questions on China from us. Recorded a very strong EBITDA margin advance in the quarter, 677 basis points and was following a good advance in the prior year quarter as well. And what extent was the phasing of sales and marketing responsible for that? So can you sort of give some indication broadly of whether that margin was flattered somewhat by the marketing phasing? And then the second question is, the Chinese market was down 2% you estimate in the quarter. Keeping your guidance for growth in the full year. Now clearly you got some very weak weather comps in the middle part of the year. Would it be fair to assume that the underlying trend if you like is still negative for the Chinese market as a whole? Well, I mean, we're very happy with China's performance. I mean, it's been very consistent. If you look at the last 4, 5 years, we're beginning share growing margins and we are more and more and more we have our business in that core plus and high end of the market, which is less affected when you have a year like this where the economy is still growing at 7%, but softens up a little bit that affects much more the value in core brands and much less our business which is in the core plus and the high in the super premium and premium. So as you saw, once again, like last year, the industry declined 2%, but it increased 4.7% in the Q1. And our revenue up by 10%, 10.1% mainly driven by these positive effects. And in terms of our guidance, I mean, we said that we expect the industry volumes to return to growth in fiscal 2015. That was not the case yet in the Q2, although better than last year, because last year industry declined by 4%, 4.2% and this quarter it declined by 2%, okay? And we also said that we expect our revenue per hectoliter to continue to be driven by favorable brand mix. So it's a very positive story. We're very excited about it. And now we're bringing to China brands like Corona, which will again redefine what premium pricing is in China. And again, given our route to market in China, this fits very well with the Budweiser route to market given that Budweiser is the number one premium brand in China. So we're very excited about growing that premium part of our business in China, which is now most of it. On the sales and marketing piece, as you pointed out to a 2 0.6% reduction, which leads to $5,000,000 out of a $90,000,000 organic EBITDA increase. I would also refer to the fact that in the Q1 of last year, sales and marketing growth was 35%. So the slightly decline this year is versus a very, very high base. And again, this is connected to the calendarization of this year. And we will continue to invest in China as we have been big time. Big time. Okay. Thank you. Our next question comes from the line of Wim Hof of KBC Securities. Good afternoon. I have two questions please. First one on Mexico, you estimated industry volumes grew low single digits in the quarter and you were up 2.1%. Could you shed a little bit of light of about regional market share trends and market dynamics? And then another question following up on your premium portfolio. You noted that Stella is growing below Budweiser and Corona up 1.2% in the quarter. Is your findings with Corona and your enthusiasm on Corona is that impacting your views on the outlook and potential for Stella? In other words, will it be mainly focused on growth in the U. S. And getting a little bit less emphasis in other regions? Thanks for sharing your views on that. No. Not at all. I mean, we're very excited about our 3 global brands Budweiser, Stella, Corona. Stella this quarter suffered from a weak U. K. Business performance, but that's 1 quarter, but did very well in the U. S, did very well in Brazil and in other markets. So a very good stellar business. Corona again as we explained has to do with Mexico lapping a very tough first quarter last year because of 10% growth because of World Cup and that's a bigger base compared to our export volumes, but the export is growing way ahead. And with Budweiser, you see the kind of growth that has been very consistent at this level of 6% plus. Terms of your question about Mexico, we kind of grew with the industry, low single digits 2.1%. And regional mix impact was not relevant this quarter. As you know share numbers from Mexico we only have for the full year. Okay. Thank you. Thank you. Ladies and gentlemen, we have time for one last question. Our final question will come from the line of Brett Cooper of Consumer Edge Research. Good morning. We've seen some brand fragmentation developed markets over the years. How concerned are you about that taking place in some of your core markets? And then I guess the opposite of that is how big of an opportunity does that represent for you in markets where you have no or small representation today? Thanks, Brett. I mean, you're right. I mean, brand fragmentation is a reality. It has to be managed though. One of the ways to manage it is with technology. So for example, by increasing the use of smartphones with our sales reps, which is something we do and using more algorithms, you can be better at your offer being tailored by customer when you have a bigger portfolio. You also have to be smarter about how you split your market money and sales money in support of those brands. So we're developing better models to check return on investment on both traditional and social media. So we are sharper on how to allocate resources behind brands. And you also have to add better training of our people, so they can talk to customers and also try to tell customers and get insights to customers on how they should build their assortment. Because what we see these days is that some customers that went too wild on assortment lost business on a relative basis. And they keep asking themselves why if I'm offering more assortment, which is what consumers seem to want, how come I'm losing share of business to my competitor, my neighbor? And what the insights we bring is that there is a point at which more assortment becomes like overwhelming to consumers, So they buy less of it. And not only that, it also becomes much hard to operate. So think about this. If Bud Light, which is a high turning SKU had 6 facings on a cold box and now has only 3 because you increase your assortment and you put lots of brands that turn much slower. Some consumers will be frustrated because they will come and their Bud Light will not be cold because they have just been replenished. So and then they will go to another store with a better assortment and with a cold blood light and things of that sort. So if you have some of those craft brands for example in the U. S, we've been proven data proves that that some of them should sit outside of the cold box because they turn 1 6 pack per month. And that of course doesn't compare to a Bud Light that turns 6 packs in a day, right? So those are the things that with increased fragmentation we need to do. We need to be smart about technology in our production, sales and distribution facilities. We should use more insights to help us and our customers to think about assortment. And I think we should use the scale and the company to go for value enhancing fragmentation and try to get rid every time of the value destructive fragmentation because you have both. Good fragmentation is great. That fragmentation should be dealt with. So again, it's where the market's going. It's a little bit of a pendulum. Some customers of ours have seen we have seen customers of ours then going too much to the one side with lots of SKUs being added then come to the conclusion that their cost was getting hit big time because of more working capital tied up in inventories, more of that product having to be thrown away because of best before dates. And then going back and losing share because of consumers being overwhelmed and not having their cold beer available coming back to a more rational assortment. So we're helping our customers with those category insights. Great. Thanks. Thank you. Thank you everybody for your time this morning. We are very excited about the beginning of this year. We had a great quarter in terms of both revenue growth and EBITDA growth. So that is a great start for the year. And we'll talk to you again on July 30 when we report our Q2. Have a great day. Thanks for your time. Bye. Thank you. This does conclude today's teleconference and webcast. Please disconnect your lines at this time and have a wonderful day.