Earnings Call: Q1 2014

May 7, 2014

Welcome to the Anheuser Busch InBev First Quarter 2014 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.av inbez.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. We do ask that you please limit yourself to one question and one follow-up question. 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. 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 2014 Q1 results Q1 results conference call. I have here with me today Philippe Dutra as well. So let's start with the highlights. Our focus remains 1 of driving top line growth and so we are very pleased with the results of this quarter. We delivered good volume performance in all of our top four markets led by strong results from our focus on global brands. This volume performance coupled with a robust revenue per hectoliter result led to strong top line growth. Our cost of sales decreased on a per hectoliter basis, which together with the strong top line result drove a double digit growth in EBITDA as well as EBITDA margin expansion. Turning to the details of these results. Our own beer volumes in the quarter grew by 4.5% with our focus brands growing by 6% and our 3 global brands growing by more than 8%. Total revenue per hectoliter total revenue for the quarter grew by almost 9%, driven by a strong revenue per hectoliter growth of 5.7% on the basis of the same geographic mix, solid performance in our top four markets as well. We also increased investment behind our brands by more than 16% in the quarter to take advantage of growth opportunities in the market. EBITDA in the Q1 grew by 10.8 percent with our EBITDA margin up 63 basis points to 36.6%. Earnings per share declined from $1.16 per share to $0.87 per share, due to an increase in other financial results within net finance costs. Philippe will provide more detail on this line item later. Our focus on global brands performed very well. Volumes of our focus brands grew by 6%, led by the Bud Light family and Michelob Ultra in the U. S, Corona in Mexico, Skol and Tarte Canbrombie in Brazil and Budweiser and Harbin in China. Within our focus brands, all 3 of our global brands delivered good volume growth in the Q1 growing collectively by 8.3%. Global Budweisers fueled by an excellent Chinese New Year campaign grew by 7.8%. Global Corona driven by a very strong result in Mexico grew by 10.5% while Stella Artois grew by 5.2% due to good results in Argentina, Brazil and the U. S. We have a very strong portfolio of brands and we'll continue to invest behind them going forward. Our sales and marketing investments increased by 16.7% in the quarter and we reiterate our previous guidance of a lowtomidteens percentage increase in the full year. Let's now look briefly at the results in our top markets starting with the U. S. We estimate that the industry sales to retailers, STRs, declined by 1.7% in the quarter, driven by very challenging winter weather in the later timing of Easter this year. Our own STRs were down by 2.6% leading to a share decline of approximately 40 basis points. This decline in the market share was due to the lapping of Budweiser Black Crown launch volumes as well as the segment mix shift to the high end, where we under indexed versus the industry. We continue to focus on growing our share of the high end with a particular emphasis on the entree. Sales to wholesales STWs were up 2.1% in the quarter, driven by an increase in the wholesale inventories as part of a contingency planning ahead of labor negotiations for our 12 U. S. Breweries. Negotiations came to a successful close on April 30, when we announced that a new 5 year agreement with the Teamsters have been reached. We expect STWs to decline in the 2nd quarter compared to the same period last year as we make adjustments to inventory levels. We expect STWs and STRs to converge on a full year basis. U. S. Beer only revenue per hectoliter grew by 1.9% in the quarter. This includes the brand mix contribution of approximately 50 basis points versus 150 basis points in the Q1 of last year as a result of the timing of our innovations in 2013. The successful introduction of our new 25 ounce can is driving a negative package mix impact on the revenue per hectoliter line, but is accretive on a gross profit per hectoliter basis. Looking ahead, we expect a lower brand mix contribution and similar packaging mix impact for the next two quarters and more favorable comparables in the 4th quarter. EBITDA in the U. S. Grew by 1.8% in the quarter with a margin contraction of approximately 90 bps, primarily due to the timing of our sales and marketing investments and admin expenses. Turning to the performance of our brands in the U. S. The Bud Light family had a great quarter. We estimate that market share for the family was marginally ahead with Bud Light gaining share in the premium light segment based on our estimates. During the Super Bowl, at the beginning of February, we launched a new positioning creative for Bud Light with the tagline, the perfect beer for whatever happens. The Super Bowl execution was our best ever with our brands Bud Light and Budweiser generating nearly half of all social media traffic during the game across all categories. The digital media response to the rollout of the new Bud Light campaign has been very positive and paves the way for an exciting Bud Light summer program, which will be announced in the coming weeks. Bud Light is also benefiting from the rollout of our new 16 ounce reclosable aluminum bottle and the 25 ounce can, both of which continue to gain share. The Ritz family gained approximately 25 basis points of share in the 1st 3 months of the year, benefiting from the launch of our 2 new flavors, mongorita and rasburita. As a family, the ritas have reached almost a full percentage point of market share. Turning now to Budweiser. We're very pleased with the progress we make with Budweiser and are seeing consistently meaningful improvements in the brand's health. Our 2014 Super Bowl execution was our best ever. The Heroes Welcome and Puppy Love campaigns coupled with our music programs and the reinforcement of the brand's credentials are driving reappraisal with young adults. Market share for the Budweiser brand was down approximately 25 bps in the quarter, a marked improvement over historical trends. We'll be building on Budweiser's momentum and have a strong set of programs in place for the rest of the year. This includes the extension of our Budweiser made in American music platform from Philadelphia to the 2nd location on the West Coast Los Angeles. The LA event will feature leading Hispanic artists and will help Budweiser further connect with the large Hispanic population in California. We'll also be leveraging the brand's global sponsorship of the FIFA World Cup and building on our established Major League Baseball and Red, White and Blue programs during the summer months. We still have work to do to stabilize Budweiser's market share, but we're heading in the right direction. Michelob Ultra and our high end brands continued to perform well, gaining 20 basis points of total market share in the quarter. We continue to invest behind our focused brands of Michelob Ultra, Sharktop and Stella Artois, with Goose Island continuing its national rollout. The on trade is a particular focus for us with programs and investment in place to increase the relevance of our brands in food and nightlife occasions. Cider continues to grow as a category and at the beginning of April, we launched Jonny Appleseed, a new refreshingly sweet and intense hard apple cider. Jonny Appleseed joins Stella Trois Cedre in our cider portfolio. It's too early days, but we're off to a good start with the new brand. Summing up our U. S. Performance, we have made good progress with our Focus brands against the backdrop of a harsh winter. Early indications are that the industry performed better in April, driven in part by the later timing of this year. Moving now to Mexico. Our Mexican business delivered a strong quarter in terms of volume, revenue and EBITDA. The Mexican economy is still soft, but showing signs of recovery helping to deliver marginal growth in the beer industry in the Q1. Our volumes grew just under 1% despite the later timing of Easter, which is the most important holiday in the Mexican calendar, driven by a strong focus on brand performance and leading to a small gain in market share. The Corona family result was particularly good with bottoms up 10% in the quarter. Bud Light also performed well and we have now launched Stella Artois to kick start our development of the super premium segment in that market. Revenue for our included grew by 2.2% against a tough comparable, which included the March 2013 price increase. Mexico EBITDA grew by 27%, driven by the growth in revenue and the capture of cost synergies, partially offset by an increase in sales and marketing investments. EBITDA margin grew by over 800 basis points. As I mentioned, our Focus Brands performance in Mexico was strong with volume growth of 5% in the quarter. This was helped by the launch of the largest out of consumer goods promotion in Mexico with the goal of sending more than 1,000 Mexican consumers to the World Cup in Brazil. The campaign attracted a huge amount of attention and was a major contributor to the growth of corona in the Q1. Over $2,000,000 special on package promotional codes were redeemed and nearly all of the consumer trips have now been awarded. The ongoing renovation refurbishment of our Modelo Ramos stores will also be an important driver of future volume growth and we have an ambitious program in place. Cost synergies resulting from the combination with Good Modelo continue to be delivered ahead of our original schedule. We have now realized approximately $580,000,000 of savings to date with approximately $120,000,000,000 being delivered in the Q1 this year. We remain committed to delivering $1,000,000,000 of cost synergies before the end of 2016 with the majority of this savings coming by the end of next year. Turning to Brazil. Brazil had a great Q1 with the industry staging a strong recovery after a very challenging start last year. We estimate that industry beer volumes grew by 12% with our own beer volumes up 10.9%, leading to a flat market share sequentially and a decline of 60 basis points compared to the Q1 of last year. Our average market share for the quarter was 75.5 percent within our 76 sorry, 67.5 percent within our historical range of 67% to 69%. Dealer revenue per hectoliter grew by approximately 9%, reflecting our revenue management initiatives, increased weight of own distribution and premium brand mix improvements. Editime Brazil grew by over 15% in the quarter with a margin decline of 160 basis points. The contraction in margin was driven by one time credit relating to government incentives of approximately $55,000,000 reported in the Q1 last year and the timing of our sales and marketing investments driven by stronger volume performance and our World Cup activations. The strong industry volume performance in the Q1 was driven by a number of factors. Brazil enjoyed record higher temperatures in January February in contrast to the poor weather at the start of last year. The Carnival holiday, which additionally marks the end of the summer vacation period was also 3 weeks later this year extending the summer selling season. Finally, lower levels of food inflation compared to the Q1 last year eased the pressure on consumer disposable income. Our own summer without price increase campaign, which focused on the affordability of beer at the consumer level was also beneficial for both ourselves and the industry. Just a few words on the cold beverage tax increase that was announced in Brazil. A week ago, the federal government announced adjustments to the reference price tables, which are used to calculate beer and soft drink excise taxes with the fact from June 1 this year. While we're sensitive to the fact that the Brazilian government is under pressure to address their fiscal challenges, we believe that with no tax increase and a better industry volume growth, the government could achieve a similar level of tax revenues with a much better social impact. It remains our policy to pass along any tax increases, but we're not commenting on the timing of our price increase for competitive reasons. Despite the volume impact that will result from the pass through of the tax increase, we continue to expect that Brazil beer industry volumes will resume growth in 2014 helped by the FIFA World Cup. Moving now to China. Our China business had another strong quarter on the back of a very successful Chinese New Year campaign. Our beer volumes grew by 9.4% in the quarter, driven by the industry growth and an estimated market share gain of approximately 70 bps to 15.6%. Our focus brands of Budweiser, Harbin and Southern grew by 13%. Revenue per hectoliter growth of 5.9% was mainly driven by improved premium brand mix led by Budweiser and Harbin Ice as consumers continue to trade out to the core pleasant premium segments. China EBITDA increased by over 47% with EBITDA margin growing by over 400 basis points to 20.4%. Budweiser delivered a great result in the Q1. Budweiser leads in the premium super premium segment with an estimated share of over 50% and took center stage in our recent 2014 Chinese New Year campaign. To celebrate the Chinese year of the horse, we sent the Clydesdales horses to China and they were a huge success. The campaign stretched into March with the Clydesdales appearing at iconic venues such as the Great Wall of China. In summary, another great quarter in China. Our attention now turns to the FIFA World Cup in Brazil with the first game just 5 weeks away. The World Cup begins on June 12 and will comprise a total of 64 matches, which will be played in 12 cities across Brazil. Of the 32 teams that are playing the tournament, over half originate from countries where we have a major presence. We'll be acting World Cup activating World Cup campaigns globally with a particular emphasis in these participating markets. In many of our key markets, World Cup activations will have 2 distinct flavors. There will be the local sponsorship activities where the brand champion will Dairy by market and a global brand campaign, which will be exclusively owned by Budweiser. Local brand sponsorship activations will tap into feelings of national pride and it will ignite fans to root for their teams. By contrast, global Budweiser activations will promote the idea of bringing people together across borders around the theme of Rise as 1. Our campaigns will celebrate the world not any particular country and fans' passion for the beautiful game. The Gold Aluminum Trophy bottle is designed to reinforce the permanence of Budweiser globally and will be available in over 40 markets. Global Budweiser also participated in a 6 part documentary series bringing Rises 1 to life featuring the likes of Ronaldo and Zidane. This series has been broadcasted in 84 countries, reaching an estimated 600,000,000 households. At the end of every game, Budweiser will also present the FIFA man of the match with fans worldwide voting for their favorite player. World Cup activations within Brazil will be significant with both the Budweiser and Bronco brands bringing the tournament to life for fans. In Rio, the Budweiser Hotel will host guests from around the world and will be the centerpiece of Budweiser's International Rise as 1 campaign, capturing the greatest party on earth and sharing it with football fans worldwide. Programming at the Budweiser Hotel will include performance by world renowned music guests, appearance by FIFA World Cup legends, media announcements and a series of exclusive partner events. In addition to the Budweiser Hotel, we will host more than 14,000 events in more than 150 cities, reaching a total of almost 2,000,000 consumers. We'll also be running widespread trademarking initiatives throughout the 1,000,000 points of sales in Brazil, but we'll bring to life the concept of World Cup for all. This campaign is meant to bring the World Cup experience to all soccer fans around Brazil not only those who will attend games in stadiums. With that, I'd like now to hand over to Filipe, who'll take us through some further detail in our first quarter results. Filipe? Thank you, Brito, and good morning, good afternoon, everyone. Starting now from Slide 20 that shows the EBITDA breakdown per zone. As Brillo mentioned, our total company EBITDA performance was very solid with organic growth of almost 11% and EBITDA margin expansion of over 60 basis points. The timing of sales and market investments in our 2 largest zones, North America and Latin America North, drove margin contraction in the Q1, although we had strong margin expansion in Mexico, Latin America South and APAC. Brito has covered our top markets in some detail, and you will find additional information about the other relevant markets in our press release as well as the appendix to today's presentation. These results naturally do not include the acquisition of Oriento Brewery in South Korea, which closed on April 1. Obi is the leading brewer in South Korea, and we are excited to welcome the Obi team back to the AB InBev family. OB was already enjoying good momentum prior to the sale in 2009, and the team has continued to build upon this platform, making Caz the number one beer brand in the country supported by a healthy consumer brand preference. I would now like to quickly review our EPS and the below EBIT results before we move to the Q and A section. Normalized earnings per share in the Q1 declined to $0.87 per share from $1.16 in the Q1 of 2013. The decrease is mainly due to a difficult comparable in net finance costs driven by the mark to market gain related to the hedging of our share based programs and reported in the Q1 of last year. EPS also includes a positive contribution of $0.11 per share from organic EBIT growth. Net finance costs in the Q1 were $866,000,000 compared to just $255,000,000 in the same period of last year. This increase of $611,000,000 was mainly due to the negative non cash impact of the mark to market adjustments linked to the hedging of our share based payment programs, which had a negative year over year swing of $454,000,000 This results from the reported gain of $402,000,000 in the Q1 of last year and a reported loss of $52,000,000 this year. In addition, our Q1 net finance costs include negative currency results, including intercompany transactions and other hedging costs of approximately $200,000,000 of which about half are non cash. Finally, our normalized effective tax rate for the quarter was 18.8%, up from 13.3% in the Q1 of 2013. This increase is mainly due to the non taxable nature of the gain from the hedging of our share based payment program in the Q1 of last year. At the same time, one should keep in mind the Q1 2014 loss was non deductible as well. The increase in effective tax rate is also due to the changes in country profit mix, including the mix impact resulting from the combination with Grupo Modelo. Our guidance for the full year 2014 in terms of effective tax rates remains in the range of 21 percent to 23%. And with that, I will hand back to Maria to begin the Q and A section. Thank you. Thank you. The floor is now open for questions. In the interest of time, we will limit participants to one question and one follow-up. Our first question will be coming from the line of Andrea Pistacchi of Citi. Good morning. I have 2 questions please. The first one about the U. S. About the market shares you were down 40 basis points in the quarter despite the significant step up in marketing spend, the Bud Light bottle. So how optimistic are you that with the progressing of the year that you can improve this performance? And then just please on Mexico on the pricing environment there, You commented on 2%, 2% pricemix in the market, which is well below what we've been used to in the past? Is this an issue about phasing of price increases? I mean, your competitor there has been commenting on increased promotions in the market. If you could talk about that a little bit please? Okay, Andrea. Hi, Brito here. So in terms of U. S. Market share, our commitment is really to stabilize the share equation. We're not there yet. But our strategy in terms of brands and revenue management is very straightforward. So since we got here 5 years ago, it has always been about growing Bud Light, which we did this quarter in terms of family. It's all about stabilizing Budweiser, which continue to decline, but at a much lower rate at 25 bps compared to 80 bps in some years ago. Growing the high end, continue to bring innovation to the market like the Repas that are now a full percentage point. This 40 bps that we saw this quarter in terms of revenue decline was has a lot to do with the lap of the Black Crown Budweiser Black Crown Lounge. That's most of that 40 bps. But we're very encouraged by the fact that Bud Light's family gained ground in terms of total market, so slightly a share gain. Budweiser, again, much better trend compared to historical levels. We're gaining with Ultra in the high end. And so the direction is pretty much what we said, invest in the premium and premium plus and high end of the market. In terms of Mexico, to your question about the pricing, Last year, our price increase in Mexico was in March 2013. This year, it was introduced. It's already in the market in May. So because that fell in the Q2 compared to last year that was the phasing of the price increase that's mainly responsible for this change. And the only promotional activity that we had or the main one in Mexico is the one that we've announced last quarter, which is the biggest ever in terms of CPG companies in Mexico, which is the one around the World Cup in which we're bringing more than 1,000 Mexican consumers to Brazil to experience the World Cup. So that's what we implemented in Mexico. And the price increase in March May that's also the one that answers your question. Yes. It's clear. Thank you. Our next question comes from the line of Mark Swartzberg of Stifel Nicolaus. Thanks. Good morning, Brito. Good morning, Felipe. Good morning, Mark. I guess two questions on Bud Light as we think about how it's performing and its outlook here in the U. S. One is, what does your research say about the opportunity for further innovation with the liquids so to speak beyond perhaps the readers we're seeing something more like a platinum to come or something like that? And also on the research side of things, what is your research saying about the perfect beer for whatever happens? How well is that sticking if you will with consumers? So that's kind of question 1, kind of research on those two counts. And then this announcement of plans for the summer seems relatively late with Memorial Day coming up. Is that accurate? Or is this typical? Hi, Mark. So, Brito here. So, in terms of Bud Light, we're very happy with the Q1 results. I mean, when you talk about liquid innovation, we have to see that this quarter we had a lot of package innovation around Bud Light. So if you think about the 16 ounce reclosable aluminum bottle and the 25 ounce aluminum can, Those are 2 big innovations for Bud Light not on liquid, but on packaging. This also is a very important year for Bud Light in terms of innovation. In other years, we have been innovating on the Premium Plus side with the retail of course that's within Bud Light family, but also other brands and more in the high end. This year we are more focused on Bud Light with the 2 packaging initiatives and continue to innovate with the retailers. So that answers the first part of your first question. The second part is about the perfect beer for whatever happens. We are seeing very good signs since Super Bowl that this campaign has lots of mileage and has lots of is echoing very well with our LD8 to 27, which is our main focus. If you look at this campaign, it was really designed for the digital space. So if you only look at what's happening on the TV, you're losing 80% of the action, because the whole action is in the digital. For example, during the Super Bowl game, the Super Bowl event, more than half of all social media traffic during the game was about both Budweiser. So I mean campaigns clearly designed to this new LDA 27 cohort that spends a lot of time on social media. So we're very happy that we see lots of mileage. And the summer will continue to drive or to draw on that same idea. That's the umbrella idea. And the summer you see new executions connected to this idea. We're very happy that we're able to have this summer campaign out for Budweiser for Bud Light. Summer has not been a part of the year in which Bud Light in previous years had good investments compared to the shoulder parts of the years because of all the sports events. This year again we took a different approach and we're having more of a stable support behind Bud Light including the summer. So that's something new and maybe that's what caught your attention. But of course it has been in preparation since the beginning of the year. And your second question? That was it. Okay, great. All right. Thank you, Mark. Our next question comes from the line of Chris Pitcher of Redburn Partners. Thanks very much. A couple of questions. I mean, following up again on the market share story. You've highlighted that Crown as one of the difficult brands for comping. Obviously, you've got one of the big Aritas will be comping in the next quarter its launch. Do you think the launch of Johnny Appleseed and the other Aritas will be enough to keep that innovation group of your portfolio incremental to market share? The second question was just a bit more color. We can give it on the follow-up to the agreement with the Teamsters and what that means now in terms of costs and I assume that's built into your guidance. Hi, Chris. I'll start by the second question. I mean, in terms of the agreement with the Teamsters, we're very happy with the agreement. I mean, we set out as a company as a team to create a contract that was good for all involved, our people, our company and our customers and by recognizing and addressing some of the business conditions and challenges. So we believe this contract accomplishes all of that and positions our company and our people, our employees for future success. So again, very happy with it. Of course, the detailed terms of this agreement are confidential. So not much I can comment on that. And on your first question about market share, I mean, when you look at the innovation journey that we've been taking last few years, I mean, we've had amazing innovations in the last 3 years. If you look at 2012, we had the number 1 and 2 top innovations in the industry 2013, number 1 and number 2. And for this Q1 again number 1 and number 2, so according to IRI. So we're very glad with our innovation pipeline. Of course, some become bigger innovations after 1 or 2 years. Some become a bit smaller. But the fact is that they are all working in the sense of what we planned. So Black Crown is an innovation or land extension from Budweiser that had a very specific role to play and it played a role. I mean, we see it reflected on the mother brand and that's why Budweiser is doing so well in terms of brand health. Not the only reason, but one of the reasons because it showed again and it called attention again to consumers about the artisanship and the craftsmanship that go in brewing Budweiser. And the ability of our brew masters to come with different liquids and that's not going to be for sure the end of the story for Budweiser. So it plays an important role. Of course, it's smaller than a platinum, but again an important role in supporting the mother brand. So there's more to come for this year. Again, this year we took a different approach in terms of only liquids. We're doing big package innovations, the 16 ounce aluminum bottle, 25 ounce can, very important for Bud Light. So that's key. It's a year where Bud Light will have lots of support in terms of a new campaign that started very well, some package innovation that's very important for a premium brand like Bud Light and a summer that will be more intense than previous summers for the brand. Our next question comes from the line of Melissa Ehrlund of UBS. Good morning. A couple of questions please. First of all a question on Nodelo. Can you give a comment on whether you feel that sales Modelorama renovation is? And the second question was just on your CapEx guidance. For the full year, you're reiterating the $4,000,000,000 whereas Ambev is now commenting how its CapEx for the year will be down year on year. Can you just explain where the offset is regionally to Brazil? Thank you. Hi, Melissa. I mean, sales and marketing in Mexico, Mexican zone increased by 5.5% quarter over quarter year over year. What you should not forget is in this first phase of integration, there's a lot of non working money that gets transferred to working money and that's not visible in this 5.5%. So you have more than that being channeled into working money type activities that are clearly benefiting the brands. I mean, if you look at the Focus brand performance in the Q1 in Mexico, we're all very pleased with it. So we think it's the right thing to do. It's the right amount, the right envelope. And this promotion again of the World Cup promotion has proven to be very good for the Corona family of brands, but also a great performance of Bud Light in Mexico. So that's very good news. Modelorama, it's another big driver we think for the future. It's a beer centric type outlet. We're just now reinvesting in terms of the consumer experience in those stores. I mean it has been a very poor consumer experience and we're remodeling the stores bringing standards, bringing training to our people and really spending money in having the consumer experience bringing that to a new level. And that's going to be a very important driver for our top line growth going forward. So very excited about that. And as you see in the slides in our website web presentation, you see that was a lot about the corona centric hypermodeling of the store front. And your second question was On the CapEx side, which you know, on behalf we'll be revealing downwards the CapEx for Brazil. But nevertheless, our outlook is for a total CapEx of around $4,000,000,000 Brazil is 1 third of that number and we are keeping our outlook of around $4,000,000,000 sorry. All right. Thank you. Our next question comes from Nick Oliver of Merrill Lynch. Hey, good morning, guys. Thanks for the question. I have 2 on China please, one short term and one longer term. Short term, just looking at the margin progression in 1Q being very strong, could you help us think about a run rate for the rest of the year? Is that sustainable on an organic basis before thinking about OB? And secondly, longer term, I think in the past you've talked about the premium segment growing to maybe 10%, 15% of the Chinese market. Is that still your aspiration? And do you think ABI can hold share within that segment as it grows? And perhaps what role do you see for the Corona brand within that segment? Thank you. Hi Nick. So, Brito here. Yes, we're very pleased with the margin expansion in China. Our strategy in China has been pretty much the same very consistent for the past 5 years since we got there and put the 2 companies together in 2,008, 2009. And that has been one of developing 2 national brands Budweiser and Harbin and more specifically Harmon Ice, the core line extension, the core plugs line extension. And these 2 national brands are performing and growing very well. That coupled with a Chinese industry or consumer that's trading up and that's great to have the brands up top waiting for them to come to you. And that's why you see our net revenues per hectoliter growing so in double digits the last few years. And that's not great. That's all or pretty much all of it or a big portion of it better to say from brand mix. And so we're very glad with that. The strategy has been consistent. It's working. Margin has been expanding. And I'm not going to give you a guidance in terms of this year or the next few years, but we see potential for continuous margin expansion in China. And the second question was about the premium segment in China. Again, this the premium segment in China is growing way ahead of the total industry. We've always said 15%, because that's what we see in other markets that are comparable. But we still have lots to do to get there. So that's going to be again that's exciting because I mean we have all these results all this growth for the last 5 years and the premium segment is still underdeveloped compared to some other markets. So that's very good. And Budweiser has more than 50% of this premium segment and growing. So that's very encouraging. So again, strategy is working. We'll continue to support it. And now on top of that, Nick, we'll have corona that will also be arriving in our hands at some point in China. So that's also very exciting. Our next question comes from the line of Anthony Baccala of Santander. Good morning, Brito. Quick question on Bud Light in Mexico. I know that it's early days there, but can you give us some color on how the brand is performing, where it's performing well, what channels, how it's priced regionally, where it may be strong? Can you give us an update on that? And the second question is on soft drinks in Brazil. It looks like you're chipping away at some incremental market share with your soft drink portfolio. Is that outperformance coming from the Pepsi brands? Or is it from the Ambev brands? Or is it a combination of both? Hi, Tony. I mean in terms of Bud Light, I mean we've always knew that Budweiser always known that Budweiser Bud Light had a very big potential that was really underexplored in Mexico. I mean, when you did consumer research, it was all there. I mean, supply segment is beginning to develop in Mexico, especially in the northern part of the country, a lot of because of the influence we believe from the U. S, also the weather being much warmer. So light segment's developing. We're underdeveloped big time. So since we got there, we said not only the our focus Mexican brands, but also Bud Light would deserve a lot of attention and support, because growth was there to be taken. So very happy with Bud Light. I'm not going to give you a lot of numbers on that, because that would give away a little bit of all of our strategy around the brand. But again early days, but maybe in the next few quarters we'll talk more about Bud Light in Mexico. But again very happy and get it ready for a brand that will be much bigger than what we see today. In terms of soft drinks in Brazil, I've been very glad that we gained share. I mean soft drinks remain a very important pillar in our Latin American North business. CSD net revenue grew 8.8% and volume expanded 2.1% and that increased our market share by 20 bps to 18.3%. So that's very good. And we also are implementing the returnable bottles on the Pepsi brand after having done that with the Guarana Antarctica. And we also have very exciting launches on the Pepsi line including H2OH. So I mean all in all good business for us and one that continues to progress well including market share gains. Do the Modelorama stores will they be stocked with Bud Light I imagine? Yes sure. Okay. It's a Bicentric story, yes, with all our portfolios, yes. Okay, great. Thank you, Tony. Thank you. Our next question comes from the line of Brett Cooper of Consumer Edge Research. Good morning, guys. Two questions. When we're looking at innovation, can you speak to, I guess, on a profit per hectoliter basis, the benefits from packaging versus a liquid, so Bud Light aluminum bottle versus a platinum? Brad, yes, good question. And then platinum of course was one that because it was priced as a Premium Plus brand, it added both at the net revenue per hectoliter and at the gross profit per hectoliter, okay? The contrast with the 25 ounce can, okay, in the case of Bud Light, for example, in the total portfolio, that is same, because it's applied for all brands, the 25 ounce aluminum can is one that has a different effect. It's one that has a dilutive effect at the net revenues per accretive line, but it's accretive at the gross line at the gross profit per hectoliter. So I mean liquid I'm not saying that all liquids will behave like that or all packages will behave like that. I just took 2 examples just to show how different pack innovations depending on how they are positioned and depending on gross profit they bring in a per hectoliter basis can cause different effects. And that's why this time around because of the big pack that the 25 ounce can because it's been a huge success became in our mix. That's why we decided to split hairs a little bit and say, okay, this pack is one that's dilutive at the net revenue per hectoliter line, but it's accretive at the gross profit per hectoliter line. And that's part of the explanation why the net revenue total net revenue of $1,900,000 was below last year's net revenue per hectoliter for total U. S. Business. Great. And if I can follow-up and push my luck. I mean can you you said you wouldn't speak to whether you were going to put through a price increase or when you were going to put through in Brazil. Can you talk about whether your results to date are ahead of expectations in Brazil? Well, if you look at our guidance, I mean, we haven't changed our guidance even with the recent tax increase. I mean, we continue to say the same thing in terms of overall business and Brazil in terms of industry. So, of course, the tax increase will change a little bit the equation between price and volumes and we refer that in our press release, but we continue to say that. And of course, the summer, of course, was very good. We had record temperatures in January February. And we had a later carnival time, which enlarges the summer vacation period in Brazil. So that was all in our favor. And now we're going to have the World Cup in Brazil, which happened last time 60 years ago. So it's an important event and we've been preparing for that event for 4 years. So again very excited about the Q2 and what it can bring to us. Our next question comes from the line of Sanjit Ajwala of Credit Suisse. Yes. Hi. A couple of questions please. Firstly on Brazil, slightly surprised you're not gaining share in that marketplace given the scale of investment gone in. Can you just talk a little bit around that? And secondly, just on Asia, Asia Pac in the Oriental Brewery business now you're consolidating that. Can you just talk a little bit about the cost synergy potential in that marketplace? Thank you. So in terms of the Oriental Brewers in Korea, we're very happy to have the business back. It was a business that when we sold in 2009 was pointed in the right direction. We're gaining market share. CASK was growing as a brand and we're very happy to see that our colleagues in the last 5 years have taken that positive trend and make the best out of it and made CAS the number one brand in the country and grew market share to a market share leadership position in that country. And now we reacquire the brand and the business and we see that a lot of our colleagues are there. So it's great to have them back in the family. So Sanjeet, we're not giving at this point many details on OB other than that the fact that the last 5 years have been a great one. And next quarter, we'll have more details because that will be in our numbers. In terms of market share Brazil, your first question, market share was flat sequentially in the Q1. And if you compare it to the Q1 of last year, so year on year basis, it lost 60 basis points, but it's still within our range. So reaching 67.5% for the quarter, but still in our historical range of 67% to 69%. I mean this has been the range in Brazil for many years and it fluctuates from one side to the range the other side depending on price increases and the lapping of those price increases and investments in the market and things like that. So I mean, it has always been within that range. So we're very glad to see that we had an amazing performance in terms of top line net revenue calculator that we're able to recover part of the share that we lost last year and we're still within our range with and now preparing for the World Cup that comes next quarter. It's also fair to say that the results in Brazil for the Q1, the sales and marketing were up. And that's also in anticipation for the World Cup, which impact a little bit the margin and the EBITDA growth. But again, it's planting seeds for some for a quarter that we have high expectations on which the Q2. So it's all within the plan. Thank you. Our next question comes from Edward Mundy of Nomura. Good morning, gents. Just coming back to the revenue per hectoliter in the U. S. I appreciate your comments around the negative pack mix and the launch of the 25 ounce can. I'm just trying to understand the weaker headline pricing evolution. Do you feel the industry is less able to absorb the strong pricing that you've put through the last couple of years? Or is this an attempt to take your foot off the pedal to some extent to help stimulate volume demand? And my second question is really around your expectations for October tax increase in Brazil. Would you got any further comments there? Well, Edward, in terms of our the price in the U. S, let me start by saying that our pricing strategy remains the same since 2,009 when we got here, okay? And so nothing has changed there. The difference you saw this quarter compared to last quarter, let's say from 1.9% net revenue per hectoliter growth this quarter compared to the 4% you saw in the Q1 last year can be explained in a very straightforward way. The 1 percentage point is because of brand mix that this quarter contributed 50 bps versus 150 last quarter and that's because of timing of our innovations last year and this year. So 1 percentage point is right there of let's say the 2 percentage point difference. And the other percentage point has to do mostly with our mix impact from package mix impact, which has mostly to do with the 25 ounce can. That as I said is a great pack in terms of being accretive to share and gross profit on a per hectoliter basis, but it does dilute the net revenue per hectoliter line. At the end of the day, of course, what matters is the gross profit, but because we always have a look at, of course, at the net revenue per hectoliter as well. That's why we're explaining this time that this pack has a dual effect in terms of being dilutive. Net revenue is calculated accretive and gross profit, different than from our innovations that were accretive on both lines, okay? So, 1 percentage point explained by the mix contribution that has to do with the timing of our innovations last year and this year. And most of the other of the balance of the other points explained by the 25 ounce scan, which became a huge pack in terms of innovation for us and is one that has a different effect compared to other innovations. In terms of tax increase in Brazil, I mean, as I said, I mean, we understand that the federal government is trying to balance their numbers. They announced last week an adjustment to the reference price tables that are the base for the excise federal excise tax for both being soft drinks. And this is to take effect on June 1. We remain convinced that the government could achieve the same results with a different mix, which not include the tax increase, but would count and rely on better industry volume growth that would create a similar level of tax revenues with a much better social impact in terms of investments in drug creation. So that's our strong belief. But of course our policy is to pass along any tax increases to prices. But at this time we're not commenting on the timing of our price increase related to this tax pass through for competitive reasons of course. But again, we remain our outlook remains one that industry will resume growth in Brazil mainly because of the World Cup even or despite this tax increase. Thank you. Our next question comes from Chris Kippers of Petercam. Yes. Good morning. Thank you for taking my questions. Regarding your marketing, which was quite increasing a lot in Q1 with plus 17%, could you shed some light on the split between the three items that Brito mentioned in the Q1 conference call being growth, the World Cup and innovation that could give some more flavor towards the split after Q2 when the World Cup is done? And then the second follow-up as a follow-up regarding the corona. Are there any new markets where you're going to expand the brand after the announcement of Canada? And of course, can you give some comment on when you will launch it in Brazil? Thank you. Hi, Chris. I mean, in terms of the sales and marketing investments in the Q1, they're totally within our guidance for the year of lowtomidteensgrowth. And also our guidance of that investment being more heavily skewed towards the first half of the year. And that's because of as you said the World Cup of some scale up innovations and initiatives that we're taking and also because of innovations that we have in this first half of the year. So that's all consistent, very consistent with our previous guidance and we're maintaining that guidance. So no change, no new news there. In terms of corona, as you said Canada, we got the brand on March 1. Very excited about what that brand can do for that market. I mean it changes our position big time at the high end of that market. It's full 2 percentage points share in that Canadian market, so very excited. We also transitioned the brand in some smaller countries like Italy, France, Spain. And the next big one we'll do in a very phased approach will be Brazil after the World Cup. So that's also already announced. So those are the countries and there's more to come. U. K. Has also been confirmed for next year and we're in negotiation for other markets as we speak. So again, very excited about the Corona potential as a global brand. If you think about it, Chris, Corona today outside of the U. S. And outside of Mexico, so the rest of the world, it sells around 400,000,000 hectoliters compared to 20,000,000 hectoliters of Budweiser sales outside the U. S. Of course, Corona is a far more premium brand than Budweiser, but that gives you an idea of what we did with Budweiser when we got it in 2009 that we grew it every year since then. A blend that was declining on a global basis and after it joined our system never looked back. It went from a 1% growth the 1st year to 3% to 5% to 6% to more than that this time around. And with Corona, we expect something similar in terms of growth. We're very excited about this brand and what it can do for our global brand portfolio. Thank you. Our next question comes from the line of Robert Ottenstein of ISI. Great. Thank you very much. I was very impressed by the Focus brand growth in the U. S. I think with STRs being up 0.7%. Can you give us a little bit more color on that? Was the Bud Light core brand volumes up? Yes. I mean hi Robert. I mean Bud Light as a family grew share slightly. So that's great news much better than last year. And within the family, the retailers continue to perform very well and the Bud Light brand grew within the light segment. So again, that's very good for Bud Light. The campaign as I said before the new campaign the perfect beer for whatever happens also is off to a very good start with the Super Bowl. I mean it's a campaign that was all designed for digital. And now with the summer, we'll continue to have mileage off of that campaign off of that good start. So very exciting news for Bud Light. And then but did the volumes for Bud Light itself grow? Well, we said in our press release, I think low single digits decrease. Okay. Okay. And then looking at the Mexican market, over the amount of time that you've been there, in terms of the top line opportunities, what can you kind of summarize what you've learned? And also as you've looked at holes in the marketplace, where your brands are and the brand health of your brands, kind of what are the key takeaways over the last 6 months or so of really having a chance to examine that market more closely? Yes. I think first time in the portfolio of brands in Mexico that connects the top line of course is one that's still not complete. So I mean Bud Light for example needs to have a much bigger role within that portfolio. Corona Light for example also makes bigger role. We also need to be more active in the high end. So just introduce Stella, Stella Artois in Mexico. So that will give us that latitude that we're lacking today in our Mexican portfolio. We also see many opportunities in terms of revenue management, pack prices, modern trade execution, many things that will relate to top line. But de la Rama also has a role to play. So I mean, so many things to do in Mexico. The package mix is also one that's still not what it should be. So again, I think portfolio revenue initiatives and trade initiatives and the Modelorama all this will be conducive to top line opportunity. Let's put it this way. Our next question comes from the line of Lauren Torres of HSBC. Good morning, everyone. My question goes back to Mexico. And Brito, I know you noted that the environment is still soft there, but you are seeing some signs of a recovery. I was just curious if you could talk a little bit more about the environment. It seems like other consumer products companies seem less enthusiastic about the second half recovery. So I was curious to hear what you're seeing in beer. And then second on Stell on Mexico, you mentioned that the price increase will go through in May. So with consumers still a bit under pressure here and seeing more pricing coming through, why do you think you can take this pricing with the consumer pushing back a bit? Thanks. Well, Lauren, in terms of beer, we're seeing a different scenario because I mean we're more bullish about this year and we told that in our outlook in terms of industry resuming growth in Mexico. And what we saw in the Q1, yes, our volumes grew by 0.9% with a slight share gain. But you have to remember that Easter was out this year of Q1. So even without Easter, which is the main holiday period in Mexico, we're still able to come with positive volumes different than the performance from last year. The price is already in the market. It was introduced in the 1st days of May. So now for the Q2, not only we have the Easter holiday that's now going to help the Q2, but we also have the World Cup with everything I said about the promotions everything. And we believe from what we see from analysts and economists that the economy in Mexico also will be stronger this year. And given all the investments we're doing, because Lauren you have to remember this is going to be the 1st year that we're going to be managing the business in Mexico full 12 months. Last year we managed for 6 months. And this year we gathered of course some learnings last year and that was embedded in our plan for this year. So not only everything I said, but increased investments in overall in terms of sales and marketing. So again, very excited about what Mexico can bring to our overall company mix this year. Thank you. We only have time for one more question. Our question comes from Mitch Koulay of Goldman Sachs. Hi there. On Mexico, I think if you take synergies out ex synergies EBITDA was down about 7% organically. I just wondered if you could provide some color about that. And then secondly, your guidance for cost per hectoliter on a constant geographic basis, I think is still low single digit increase. It was flat in the quarter. I'd just be interested to know why it was going to increase for the remainder of the year? Thanks. Well, I think it's not a one thing it's a good comparison to take just 1 quarter, especially in a country that is still going through integration phase. So of course, the synergies are there, very important. But we also as I just said in the previous questions, we're seeing lots of opportunities on top line. Again, this quarter was heavily impacted by 2 things. First, the Easter that moved from last year being the Q1 to the Q2 this year and the price increase that took place in March last year and is now taking place in May this year by the way already in the marketplace in Mexico. So those two things of course give pretty much an apples to oranges comparisons when you compare Q1 last year, Q1 this year. So we tend to look on a more yearly basis. And then you have to split what's synergy and what's let's say organic growth outside of synergies. But I think for 1 quarter especially with these 2 huge impacts, which is the price increase and Easter, I think it's not a good basis for comparison. So given your comment from the previous question, we should probably expect both synergies and underlying organic to contribute to EBITDA growth for Mexico for the full year? Well, again, we're not giving any guidance, but you can expect that Mexico is all pointing in the right direction in terms of brand share and synergy delivery. So and the industry now in a better place this year as we said in our outlook that's our belief. So I think again very glad with our performance in Mexico. Don't take please the Q1 as a comparison because of the price and Easter. I don't think it makes sense. Look at a broader period. Okay. And then on the input cost side of things? In terms of cost of sales, I mean, we continue to be within the guidance we gave. No change there. Yes, this Q1 was better than the guidance, but we continue to stick to our guidance for the full year. Okay. Thank you. Okay. Thank you very much. So I think that was the last question. So let me tell this, the IR team will follow-up with some of the questions that didn't get the opportunity to be asked given the time constraints. And in terms of my closing remarks, I'd like to thank you for your time. We're very excited about the Q2 World Cup in Brazil. Most of our relevant countries participate in the World Cup. We've been preparing this for 4 years. Now it's time to execute. So talk to you next quarter. Have a great day. Bye bye. Thank you. This does conclude today's teleconference and webcast. Please disconnect your lines at this time.