Earnings Call: Q4 2012

Feb 27, 2013

Welcome to the Anheuser Busch InBev Full Year and 4th Quarter 2012 Earnings Conference Call and Webcast. Hosting the call today from AB InBev is Mr. Carlos Brito, Chief Executive Officer. To access the slides accompanying today's call, please visit AB InBev's website now at www.ab inbev.com and click on the Investors tab. Today's webcast will be available for on demand playback later today. 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, seeing Risk Factors in the company's latest annual report on Form 20 F filed with the Securities and Exchange Commission on April 13, 2012. 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. Thanks, Jackie, and good morning, good afternoon, everyone. I have here with me our CFO, Felipe Dutra. Today, we reported a solid set of results for 2012. Total revenue for the year grew by 7.2%, driven by revenue per hectoliter growth of 7.7%. The main drivers were strong results in the U. S. With revenue per hectoliter growth of 4.9%, including 170 basis points of favorable brand mix and in Brazil with revenue per hectoliter growth of 9.6%. Our Focus Brands volumes grew by 1.5 percent with our 3 global brands growing ahead of this rate at 4.1%. EBITDA grew by 7.7% with growth of 9.9% in the 4th quarter and full year EBITDA margin expansion of 18 basis points reaching 39%. Earnings per share grew by 12.6 percent to 4 $0.55 and the Board is recommending a dividend of €1.70 per share 1.70 a growth of almost 42% over the previous year. Strong operating cash flow has allowed us to reduce our net debt to EBITDA ratio to 1.87 times before M and A activity well below our commitment of 2 times. In summary, a good year with solid top line and EBITDA growth in a disciplined approach to cash management. The volumes of our global brands Budweiser, Stella Artois and Bex grew collectively by 4.1%. Global Budweiser continues to deliver strong growth with global volumes growing by 6.3% in the full year. STELLARIC 12 volumes were marginally down due to competitive pressure in the U. K, although we saw double digit volume growth in the U. S. And strong sales results in Brazil and Russia. MAX volumes were down 1.7% during the year, although the brand performed well in Germany and China. 2012 was another great year for the Budweiser brand globally, with more than half of the brand's global volume being sold outside of the U. S. For the first time ever. The 6.3% volume increase was driven by strong growth in China, the brand's 2nd biggest market, good bud volume growth in Russia and gains in the premium segment in Brazil. The brand still faces challenges in the U. S, but we remain committed to stabilizing its share. Innovations played a major role in our success last year, accounting for approximately 7% of total volumes, up from 6% in 2011. Bud Light Platinum and Bud Light Lime Limes Marita in the U. S. Led the way with other highlights being Humans Nights in Argentina, the new visual identity for SCOR in Brazil, L'Eco Royal in Belgium and France and Stella Toi Cibreper in the U. K. With that introduction, I would now like to move to our top 3 markets starting with the U. S. 2012 saw an encouraging improvement in industry volumes following 3 challenging years. We estimate that industry sales to retailers, STRs grew by 0.8% last year, driven by good weather in the Q1 and improvement in the economy and innovations throughout the year. The trend of our own selling day adjusted STRs was also positive in the full year and by 0.9% in the quarter. We'll continue our focused brands and premiumization strategy in 2013, supported by a healthy innovation pipeline and a strong sales execution plan. However, we do expect U. S. Volumes to be impacted in the Q1 due to short term pressure in consumer disposable income from higher payroll taxes, delayed tax refunds and gas prices. Also faced a tough weather comparable. Our market share performance also improved last year. We estimate that our share was up more than 20 basis points in the Q4, our Q1 of market share growth since mid-two 1009. Share was also flat in the second half and down less than 20 basis points in the full year. The main contributors to the improving volume and share trends were Bud Light Platinum and Bud Light Lime Lime Marita. We also saw share gains from Michelob Ultra as well as our high end brands led by Stella Artois and Shock Top. These gains were offset by share losses due to a decline in the value segment across the industry as well as softness in Budweiser. As mentioned earlier, revenue per hectoliter grew by 4.9% in the full year. This includes approximately 100 and 70 basis points of favorable brand mix, driven by the growth in our Premium Plus and high end brands. Strategy of positioning our innovations at higher price points is having a very positive effect on the revenue per hectoliter performance of the individual brand families. EBITDA margin in the U. S. Did come under pressure in 2012 as a result of incremental short term production and distribution costs related to our innovations as well as sales and market investments to support the positive momentum in the market. However, we see no fundamental change in the cost of doing business and remain confident of the potential for margin expansion in the future. Last year was an exciting one for the Bud Light family with volume growth of 4.3% and 70 basis points of share gain, taking the estimated brand family share to almost 21%. 2012 began with the January launch of Bud Light Platinum, which topped the charts as the number one new beer product of the year, achieving a 1.1% share since launch according to IRI. Our internal estimates suggest that over 40% of Bud Light Platinum's volume is being sourced from wine and hard liquor with approximately 30 coming from competitor beer brands. We'll continue to invest behind the growth of Platinum and have recently launched the 10 ounce sleek can, which will enable the brand to penetrate new consumer occasions. A few months after the launch of Platinum, Bud Light Lime Lime Morita hit the market, earning the number 2 slot in the list of top selling new beer products of 2012. Brand has achieved a market share of 0.4% since launch according to IRI and based on our estimates is sourcing only 18% of its volume from our own portfolio. 2013 will bring more new news with La Merita being joined by new flavor, Strawburita. The success of our innovations last year led to some shift in retail focus away from Budweiser leading to a disappointing year for the brand in terms of share performance. However, we were pleased with the quality of the Budweiser programs and activations, which included Major League Baseball, the Walk Off a Hero program and the 2 day Budweiser Made in America Music Festival. We also completed the work behind the new Budweiser line extension, Budweiser Black Crown, which hit the market at the start of this year. Budweiser Black Crown is a 6% ABV Umber Lager priced at 15% to 20% premium to Budweiser and designed to carry the brand into the nighttime occasion. It's still early days, but the new brand is off to a good start. We remain committed to stabilizing the Budweiser family's market share in the U. S. Expect Black Crown to help in broadening consideration, especially amongst young adults. Michelob Ultra continued to deliver last year with nearly 8% volume growth and over 10 basis points of share gain. We introduced 2 line extensions to the family during the year, Ultra Light Cider and Ultra 19th Hole. Both performed well, driving brand revenue per hectoliter growth and reinforcing our confidence in the potential of the Michelob Ultra family. Our high end brands also saw strong volume growth with STRs up more than 18% and almost 30 basis points of share gain. With this result, Stella 12 volumes grew by 20% and Shark Top by more than 60%, reinforcing the brand's credentials as a national and scalable craft. 2012 undoubtedly a strong year for innovations in the U. S, but the 2013 pipeline is also very strong. I've already mentioned Budweiser Black Crown, Straubarita and the Platinum Sleek Aluminum Can. But there are others including Bags Sapphire, a premium line extension for the Bags family and Stella Artois Cedor, which reflects category. And there will be others as the year progresses, not least of which will be the new Budweiser bowtie can, specially shaped to replicate the brand's signature bowtie logo. This new design will not replace our standard Budweiser can, but will become a permanent addition to the Budweiser portfolio. And so 2013 will be another year of investing behind our focused brands in the U. S. We aim to grow market share of the Bud Light, Michelob Ultra and Stellar to our families and continue to work hard to stimulate the appraisal of the Budweiser brand family, especially among young adults. We'll continue to drive results in the high end with the focus on growing share of the top segment building on the success of Stella Artois and Chautau. We'll also look for revenue management opportunities growing revenue per hectoliter through better brand mix, strong innovations, tech price initiatives and optimization of our promotional activities. Finally, we'll be driving excellence in sales and route to market execution. Together with our wholesaler partners, we'll continue to share best practices and improve our sales planning and execution tools. Turning now to Brazil. We estimate that the beer industry in Brazil grew by 3.2% in the full year and 4.7% in the quarter. Our own beer volumes were up 2.5% in the full year and 2.9% in the quarter. Market share for the year declined by 50 basis points to 68.5 percent as a consequence of the timing of our price increases, but we made good progress in recovering these loss towards the end of the Q4. Year revenue per hectoliter grew by 9.6% in the full year in line with our guidance. As a result of the Q3 price increase, the higher weight of own distribution and accelerated growth of premium beer volumes. Latin American North Zone grew EBITDA by over 14% in 2012 with margin expansion of 72 basis points. Our focus brands of Skol, Brahma and Antarctica performed well during 2012, partially due to the impact As mentioned last quarter, we launched a refreshed visual identity for Skol designed to reinforce the brand's innovative and youthful image. SKOLA has also played a key role in growing the returnable glass bottle business in the off premise channel. Brahma's performance was supported by our focus on connecting with the brand with the millions of soccer fans in Brazil through initiatives such as sponsorship of over 30 top teams and the recently launched fan membership program. For 2013, activations will also be centered on the upcoming 2014 FIFA World Cup. The Antarctica brand delivered great results during the year, thanks mainly to the continued rollout of Antarctica Sub Zero. Brands performance especially in Rio de Janeiro has continued to improve through the brand's association with Samba and Carnival. Our premium volumes grew well ahead of the market and now represent around 6% of our Brazil beer volume. We have adopted a portfolio approach to developing the premium super premium segments with a focus on 2 domestic and 2 international premium brands with a clear price position strategy. Budweiser became the leading international premium brand in Brazil in the Q4 and Stella Artois in the super premium segment delivered another year of substantial growth. To summarize, our Brazil business strong results and we remain confident about the strength of our brands and our commercial plants. Looking into 20 13, we expect our beer volumes to grow by low to mid single digits in the full year. Although we see some softness in the Q1 due to the earlier timing of Carnival compared to 2012 and wet weather. Our number one priority in Brazil in 2013 will be on maintaining consumer preference for our 3 national brands Skol, Brahmin and Torchica. We'll continue to expand the beer category through liquid and package innovations as well as route to market initiatives designed to enhance the consumer experience and improve availability of our products. We'll build on the success of the 300 ml returnable glass bottle now being rolled out nationally. We remain focused on growing premium volumes. Finally, we'll continue with our regional expansion using our strong brands and route to market capabilities to expand in the faster growing North and Northeast parts of the country. Moving now to China. OBO volumes in China grew 1.9% in 2012. In the Q4, our volumes declined by 8.1% on the back of an estimated industry decline in our footprint of almost 12% due to severe cold and wet weather. Nevertheless, we estimate that we gained 30 basis points of market share in China last year with strong growth of our focused brands Budweiser and Harbin. Revenue per hectoliter also grew by 10.6% mainly as a result of our brand mix. EBITDA for the Asia Pacific zone increased by 8.2% in the full year. Despite the short term volume challenges at the end of 2012, we remain optimistic about the long term growth opportunities in China and expect industry volumes to continue to grow mid single digits with core plus and premium volumes growing well ahead of this rate. This is a space where Budweiser and Harbin eyes play. Geographic expansion is a key element of our strategy in China. Naturally, we're focusing on those provinces with the greatest growth potential and are expanding to those markets through both acquisition and greenfield developments. In 2012, we opened 2 new breweries in the Fujian and Henan provinces with a total capacity of 5,000,000 hectoliter. 3 other brewers will open in 2013 and 4 more in 2014 2015. In total, over 20,000,000 hectares of new capacity will come on stream by 2015. We also remain active on the M and A front. And in the Q3 last year, we entered into agreements to acquire control in 4 other breweries to support our growth, bringing approximately 9,000,000 hectares of additional capacity. We expect these transactions to close in the Q1 of this year. In 2012 Budweiser volumes in China, the brand's 2nd largest market grew by double digits, making China the biggest contributor to global Budweiser growth. Budweiser was first introduced into China in 1996 and is today the largest premium brand in the market with well over 40% share of the segment and priced at least 3 times the level of mainstream beers. Budweiser plays a key role in the Chinese New Year holiday, the most anticipated celebration of the year. In response, we have just rolled out a number of primary and secondary package innovations across all channels, including new aluminum bottle to celebrate the year of the snake. In fact, we are supporting all of our focus brands with a strong innovation agenda, addressing occasion based opportunities such as mealtime and nightlife. In line with this strategy, we have introduced Budweiser Supreme, a line extension with a smooth taste and an even more premium image developed especially for the Chinese restaurant channel. Supreme was introduced in selected markets in December and will be rolled out nationally in the Q2. We also launched Hard and Cooling in selected markets, which like Budweiser Supreme was also created for meal times. To complement these innovations, we have also introduced a number of new packages for the nightlife, such as the Budweiser Crown display and the Gunbay can. Looking ahead to 2013, we expect a return to solid industry volume growth with our own volumes in the Q1 showing a good recovery. Our priority in 2013 will continuing to grow consumer preference for our national brands Budweiser and Harbin in our regional brand Cedric supported by a strong innovation agenda. We'll look to leverage occasion based innovation, especially opportunities in the restaurant and nightlife channels to build the beer category and stimulate trading up. 2013 will be another year of expansion in China. We'll continue to improve our footprint in the most attractive markets through greenfield developments and selected acquisitions, while growing distribution of our brands in new channels, cities and segments. We'll maximize performance in our key provinces, growing our business in our well established geographies of the Northeast and the Southeast. Finally, we'll focus on enhancing our sales operations. We'll leverage best practice to further develop revenue management, route to market, field sales and wholesaler performance. I'd now like to hand over to Filipe to cover the highlights of the other business units and below EBIT results. Felipe? Thank you, Brito and hello everyone. Let me start with Canada from slide 26. Our BF1s in Canada grew by 0.1% in the full year and declined by 2% in the 4th quarter, mainly due to the ICE hockey lockout. We estimate that our market share was relatively stable in 2012 with a strong performance from Bud Light. Total volumes in Latin America South decreased 0.3% in 2012 with BFOs up 0.1% and non BFOs down 2.2%. Our Bf1s in Argentina showed a decline of 0.4% for the full year, mainly driven by a soft industry during the uncertain consumer environment. We gained share with strong performances from the Qumis family and Stella Artois. Latin America South EBITDA grew 21.9% with an EBITDA margin increase of 78 basis points. In Western Europe, Ombia volumes declined by 3.5% for the full year. In Belgium, Ombia volumes declined 4.1% on the back of a weak weather related industry performance in the first half. However, we estimate that the market share was stable for the full year. In Germany, home beer volumes decreased 1.4% with growth in market share driven by strong performance of our focus brands, PAGS and Hesser Roder. In the UK, volumes were down 8.2%, mainly driven by a weak industry and market share pressure due to competitive activity in Gulf trade channel. However, Stella to Atsidar continues to grow, up almost 60% for the full year. EBITDA for Western Europe grew 1.4% in 2012 with an EBITDA margin improvement of 89 basis points to 31.9%. BF volumes in Central and Eastern Europe decreased by 11.3% last year. In Russia, our BF volumes declined 12% driven by industry weakness as a result of continued regulatory pressure and share loss driven by tax related and other selective price increases ahead of competitors. However, we made good progress with our premiumization strategy. Premium and super premium brands including Sabira, Crown, Buds, Stella Artois, Huguarden and Logan Brown gained an estimated 90 basis points of share and now represent 35% of our total volumes, but reached an estimated market share of 1.4% in Russia and 1% in Ukraine. EBITDA for DAZN grew by 19% as a result of our focus on improving the brand portfolio and overall profitability. Turning now to the below EBIT line items. Our normalized earnings per share for the full year grew by 12.6 percent to $4.55 from $4.04 last year, mainly driven by organic EBIT growth of 8.5%, lower net finance costs and lower effective tax rate, partially offset by significant currency translation headwinds. Our net finance costs decreased by approximately $400,000,000 for the full year. Our net interest expense included within net finance costs continues to decline year over year as we reduced our net debt level. We expect the average coupon on net debt in 2013 to be in the range of 4.8% to 5.3 percent provided that the combination with Grupo Modelo closes in the first half. The average coupon is expected to decline by 50 basis points as from 2014 without the negative cash carry associated with the delay in closing the transaction. Accretion expenses were $270,000,000 in 20.12 and in 2013, we expect an expense of 75 $1,000,000 per quarter. 2013 net finance costs will also include net pension interest expense of approximately $40,000,000 per quarter as a result of the revised IAS 19 implementation. Other financial results also included with the net finance costs were negative $116,000,000 in 2012. In the Q4, other financial results was a negative $227,000,000 mainly driven by non cash unrealized foreign exchange translation losses on intercompany payables and loans, costs of currency and commodity hedges, losses from derivative contracts related to our share based payment programs as well as the payment of bank fees and taxes in the normal course of business. We faced a difficult comparable quarter over quarter in this line, having reported a $200,000,000 gain in the Q4 of 2011, primarily from derivative contracts related to the hedging of our compensation programs. Our effective tax rate for the year was 16.3%, down from 20 point 2% in 2011. This decrease is due to the profit mix shift to countries with lower marginal tax rates, incremental income tax benefits in Brazil and China and favorable outcomes on tax claims. Our effective tax rate is expected to be in the range of 20% to 22% in 2013, between 20% to 25% from 2014 to 2017 and in the range of 25% to 27% thereafter. Cash flow generation in 2012 was strong with an increase in cash flow from operating activities of 6.3%, resulting from higher profit generation and a continued contribution from working capital. Back in 2008, we committed to making core working capital improvement an important source of cash flow generation. In fact, we have been able to turn core working capital as a percentage of net revenues from a positive 2.1 percent in 2008 to a negative 8.5% in 2012, generating almost $1,000,000,000 per year in incremental cash. And we still feel that there are more opportunities ahead of us. Our strong cash flow results enable us to reduce our year end net debt to $30,100,000,000 a decrease of $4,600,000,000 compared to the end of 2011. Net debt to EBITDA fell from 2.26 times at the end of 2011 to 1.87 times before M and A activity at the end of 2012, well below our commitment two times. The reported net debt to EBITDA ratio including M and A was 1.94 times just as a matter of reference. The Board is proposing subject to shareholders approval a dividend of €1.70 per share, an increase of 42% over the dividend paid last year and representing a dividend payout of 49%, up from 39% last year. The dividend will be paid as from May 2. We've recognized the value of consistently growing dividends over time and our goal is to reach a dividend yield between 3% to 4%, more in line with other FMCGs. The Board has also decided to introduce semiannual dividend payments going forward to allow the company to manage its cash flow more efficiently by matching dividend payments more closely with operating cash flow generation. This change will start with the dividend for the fiscal year 2013, which will be paid in November 2013 and again in May 2014. Before we close, a brief word on our proposed combination with Grupo Modelo. Following the announcement of the revised agreement with Constellation Brands on February 14, the parties have entered into discussions with the Department of Justice DOJ to resolve their challenge to the proposed combination. As a result, the parties and the DOJ requested a stay off the litigation until March 19th and this was granted by the court last week. The combination with Grupo Modelo has always been about the Mexican domestic market and the international growth opportunity outside U. S. For the Mexican brands. And we remain excited about the potential to grow this business. In summary, we delivered a solid top line result with revenues growing 7.2% to just under $40,000,000,000 EBITDA increased by 7.7%, while our EBITDA margin expanded to 39%. Earnings per share increased by 12.6 percent despite significant currency translation headwinds. We over delivered against our commitment to reach a net debt to EBITDA ratio of 2 times and the Board again is recommending a dividend increase of 42% to €1.70 per share. With that, I would like to hand back to Jackie to start the Q and A section. Thank you. The floor is now open for questions. You. Our first question comes from the line of Lauren Torres with HSBC. Hi, everyone. Brito, I was curious and Felipe if you could talk a bit about your cost guidance for this year. You're guiding cost per hectoliter up mid single digits. Ambev in Brazil talked about cost for them this year being up high single digits to low double digits. So just curious to get visibility on the basket of markets that you operate in as far as your confidence in hitting that mid single digit guidance number? And then also with respect to offsetting that, just curious on the pricing side if that's the main lever to offset those cost increases? Or are you looking to other avenues to kind of keep margins whole or improve them this year? Thank you. Hi, Laurent. This is Felipe here. We are confident about the guidance of mid single digits for cost of goods sold. In Brazil, besides commodities, there is a significant impact, which is linked to the currency translation sorry, transaction as the implied average FX rate for the COGS in 2013 is 1.93 versus 1.66 in 2012. That is kind of 16% increase and given the fact that about 60% of the COGS in Brazil is dollar linked. So that gives itself a kind of $300,000,000 impact at a consolidated level, which ballpark is like 180 basis points so on and so forth. So we are highly confident about the mid single digits. That's why we put as part of our outlook. Regarding the second point, which is I think is more pricing related. But sorry, Lauren, what was exactly that the second question? Yes. With respect to your ability to offset the costs with more pricing as far as pricing opportunities across your markets and if this could keep your margins whole or improve margins because that's the main offset to offset higher costs? Hi, Lauren. Brinta here. What we said about revenue per hectoliter for the total company is that we expected to grow organically ahead of inflation weighted by country of course as a result of mix initiatives and revenue management programs that we have. And then of course, I mean, the best way to do this is to continue to focus on building brands, continue to invest behind our focused brands, get those premiumization initiatives to go to the market, So we can grow our revenue also by means of mix improvement. But in terms of cost offsetting, there's also a lot of measures inside the company in terms of efficiencies as we have every year to try to offset the pressure. Okay. Very good. Thank you. Your next question comes from the line of Chris Pitcher with Redburn. Good afternoon. It was on China. I'm just wanted to confirm the numbers that you said, Brito, with regard to the new capacity coming on that you're building yourselves and the acquired capacity and whether you can give us a feel for the cost of that? Because it certainly feels like while we're expecting good growth to come through in China this year that we've got several years of probably margin compression to look forward to? And then on a second point, a specific point, Deepak, could you just know what rate you're getting on the cash deposited waiting for the Modelo transaction to try and help model the cash dilution if there is indeed a delay, at the rate dilution? Thanks. So let me get the second part of the question. The interest rate is almost 0 as the cash is maintained in highly liquid U. S. Treasuries. And year over year, it is expected the impact of 50 basis points improvement in the coupon as anticipated in the absence of that, let's say, negative cash carry. I see. Thank you. Yes. On the channel one, I mean, again in 2012, we opened 2 new breweries that added 5,000,000 hectoliters of capacity. 3 of the breweries will open in 2013 and 4 during the period of 2014 and 2015. In total, over 20,000,000 hectoliters of new capacity will come on stream by 2015. Plus on the M and A front, the 4 breweries that we are in the process between signing and closing that we announced last quarter will add another 9,000,000 hectoliters of capacity. So that's the plan for the next from what we have now into 2015. And from a capital return point of view, can you let us know what the cost of building these new breweries are? And how much inflation we're seeing in new build in China? Is it still around that sort of $20, dollars 30 hectoliter? Or is it being heading north? Yes. No, no. We're not giving any guidance in terms of cost of building those breweries. I mean, you have to remember that we also have fiscal incentives at this point to for the greenfields. And we also have 2 national brands. So whenever we buy an existing operation, I mean the value it has to us it's not only the capacity that becomes available, but also the route to market and the critical mass to develop our global brand I mean, our national brands in that new territory. But it's fair to assume with the additional depreciation with the extra sales resource, administrative resource, etcetera, that margins in China are set to go down over the next couple years given these pressures before they obviously start growing again? Is that the right direction? We don't have a specific guidance on margins in China. I think there are 2 fronts in there. There is a front of premiumization of our portfolio that is evidenced by the strong net revenues per hectoliter growth at around 10%. That trend should continue as our focus brands primarily Harbin and Budweiser are growing well ahead of the brands and these brands command a price premium of about 3 times higher than the average mainstream brand. On the other hand, you have a significant number in terms of cost of goods sold that is exposed to commodities and that may have an impact in margin contraction. But nevertheless, we are building for the future in China and we feel good about the strategy and the direction we are going. Thanks very much. You're welcome. Your next question comes from the line of Melissa Ehrlund with UBS. Hello. I had a question please on your U. S. Production footprint and supply chain. Can you talk a little bit about the changes you've made to deal with the innovation pipeline in 2013 versus 2012? Yes. Hi, Melissa Brito here. What happened in 2012 is that we underestimated the our innovations in terms of platinum and La Marita. And we started production in 1 brewery for each of them. But as the products start growing, we expanded to other breweries and that's why you saw our cost of distribution coming down towards the end of the year. And also don't forget that we are upping our CapEx big time for next year from $3,100,000,000 to $3,700,000,000 so 20% increase in CapEx. And that is exactly not only to expand capacity in Brazil and China, but also to support the innovation pipeline and market programs that we have in our plan. So that's what happened. I mean as we started producing closer to the market's points of consumption, the cost of distribution and cost overall came down. La Marita for example will be in 3 breweries by the start of the summer. And that's a huge difference from last year, where it was all being sourced from 1 brewery. Thank you very much. Thank you. Your next question comes from the line of Trevor Stirling with Sanford Bernstein. Brito, two questions related to Brazil, Brito. The first one is you talked about the likely softness in the Q1 due to the earlier timing of Carnival. Does that mean that some of the shipments may well have taken place in the Q4? And if so, if you could just give us a sense of how many hectoliters of beer you think might have been pulled forward? And second question relating to the 9.6% pricemix in Brazil, could you give us a sense of roughly how much of that's price? And then how much relates to the other factors that you mentioned? What's the second question again? 9% growth in Brazil, what's the breakdown between price and the other elements such as direct distribution, utilization? Okay. All right. So the first question and then what happened really in a situation like this normally, I'm not giving any guidance in terms of the trading conditions in Brazil in terms of specifics of January February. But whenever Carnival is earlier in February what happens is that there's more of a volume transfer into January but not into December, okay? So that's what normally happens. In terms of the second one, Filipe of the Yes. We know there is pricing in order to keep up price or revenues at least in line with inflation. There was the tax increase that we faced last year. There is a direct distribution increase that has also an impact. There There is mix package and also brands as part of the premiumization strategy, but we do not provide the break down of those. On the first question, just to add to what Bruno said, there is also the notion that the carnival in Brazil marks the end of the summer and the start of the school period. And therefore, the early it takes, the shorter the summer ends up being. So year over year, there is that impact that we are accounting for in our outlook. That's very helpful Felipe. Thank you. Your next question comes from the line of Andrea Pistacchi with Citi. Hi. Good morning, guys. I have a couple of questions, please. The first one on your guidance on marketing spend, up high single digit, which is more obviously than you spent in terms of in 20 12 and Europe about 7%. So could you be specific at all if you can on what is driving this step of any particular initiative or by region if there is any SKU? And then the second question is on and Europe. You didn't see the margin recovery that you've seen in previous quarters. Volumes were down quite substantially in this quarter, but also in previous quarters. You have the marketing ban in Russia. So I was wondering what is specifically driving this margin decline in the quarter? Andrew, it's Brito here. I mean, first in terms of marketing sales, our guidance is high single digits. And the only reason for that, it's a very positive one is that because we see a great innovation pipeline ahead of us and strong commercial plans. And we are not shy to invest behind good ideas when we see them. So that's the reason for that. We think it makes sense and that's where we're headed. Sorry, can I sorry on the marketing spend should we therefore think of it I mean it's high single digit at group level? I know you don't give guidance by region, by division, but sort of all divisions will see quite a substantial increase therefore. Is that fair? No. At this point, we're not talking about any division specifically. We're talking about the total group, total ABI and saying that marketing sales will likely rise to high single digits or increase by high single digits and that's because we see a great innovation pipeline ahead of us and some very good commercial plans for 2013. In terms of CE, I mean Russia is the one that has most of that region, of course. And you know that for the last 4 years Russia has been a very tough place to do business. In 2,009, excise tax was quadrupled and that affected the industry big time. And on top of that, all the restrictions in terms of distribution that kicked in towards the end of last year and this year and also the media ban that kicked in July last year. So all those together provides for a very tough environment. Our guys are doing a great job in terms of trying to get our portfolio up. Yes, we continue to lose in the value segment, but 30% of our volume is already on premium super premium in Russia. And that is the only way to survive in a market where profitability has been has decreased in the last 4 years because of regulations. And in terms of the quarter, I wouldn't look at 1 quarter. I would look to the full year. So what happened is that for the full year, our margin went from 12.8% to 15.4% and that's 241 bps. So that's what I would look at as opposed to 1 quarter. Okay. Thank you. Thank you. Your next question comes from the line of Ian Shackleton with Nomura. Yeah. Good morning, gentlemen. You made the comment in the statement that you expect margin expansion in the U. S, but you don't say whether you expect that for 2013. I wonder if you could just talk about that. Obviously, you've got the rollout of Black Crown still to come, which presumably puts some pressure. Are you still expecting Bud Light Platinum to grow? And just give us some more color around how you see margin next this year in the U. S. Or North America? Yes. Hi, Brito here. We're not giving any guidance specifically for this year, but what we said for the U. S. Is that we see continuous opportunity for margin expansion and that's not necessarily for 2013. Could be, could not be, but I mean that's in terms of future. I mean, we've been doing a lot of innovation on the what we call the Premium Plus segment actually creating that segment and leading that segment and that has been very good for us. And yes, as there was a question before that didn't reflect 100% in margins for 2012 because of all the logistics issues we have because the brands turned out to be the innovations turned out to be much bigger than our planning. So but if you look at the Q4, you start already seeing some of those costs coming down more in line and that's what it should be. So but margin expansion is a hallmark of our company and we continue to see room in the U. S. For margin expansion. And if you can just follow-up, going back to the COGS guidance, I mean, it looks to me if you took out the negative impact from the real U. S. Dollar transaction exposure. You really still seeing across the group of COGS being flattish and presumably that's really what you're seeing in North America for this year? For the whole group, if you say mid single digits is 5, 4, just for the sake of having a number, okay? And assuming that the FX impact in Brazil is like 180 basis points that should put the group at a consolidated level around 3. And that accounts not only for the commodity impact in Brazil, but the commodity impact worldwide, partially offset by procurement initiatives and productivity gains. Whether or not that means flattish in the U. S. Then you can play with the numbers. But that is the math we are doing here. Great. Thanks for that Felipe. Welcome. Your next question comes from the line of Dirk Van Blanderen with Jefferies. Hi, good morning. I wonder if you could sorry, just keep digging around in the North American margins. Is it possible to give an impact from the bonus accrual reversal in the Q4? And then also maybe just I was surprised that the gross profit bonus reverse in the last quarter? Yes. Well, the impact of that, I think it would have come through from Q4 2011. So that's happening to 4 2011 favoring the Q4 hurting to 4112 on a quarterly over quarter comparisons, right? Is that the value math? Yes, correct. I think that's something that we can follow-up with you later. It's we don't have the detail here in front of us, but our guys from IR will follow-up with you later. Dirk, if you don't mind. Thanks. Good luck. Your next question comes from the line of Mitch Collett with Goldman Sachs. I guess your guidance for Brazil implies slightly stronger volume growth this year than you achieved in 2012. I'd just love to hear some of the assumptions behind that given a less favorable impact from the minimum wage and more of an excise increase to offset? And then secondly, just to come back to Carnival. If I understood this right, you're saying it didn't cause volumes to move into Q4. It just means that the positive impact of Carnival is less material if it's earlier in the year. Is that right? Yes, exactly. That's totally right. I mean as Filipe said, carnival in Brazil is normally at the end of the summer. That's when the families go back to normal life, kids go back to school. So the earlier the carnival, let's say, the shorter the summer. So that doesn't translate into more volume in Q4. It translates just in less of a Carnival impact positive impact for the Q1. And that goes back and forth every year. In terms of your other question, what I see if I had to summarize Brazil in a few words, it would be very strong finish, strong Q4, some softness in the Q1 from the things we said Carnival earlier, so a shorter summer and a wetter season. On the other hand, the government stimulus continues. So the government is really committed to get the economy to do better than last year. Families have deleverage during the first half of last year. And you should remember that minimum wage last year had a real increase of 7.5% and this year 3.5% real increase again. So that's one on top of the other. And I think the biggest testament on our belief and bullishness about Brazil is the fact that our CapEx just for Brazil is around $1,500,000,000 in our total CapEx of $3,700,000,000 so 20% above last year. We have the World Cup coming up. We have the Olympics. And therefore, our outlook for volumes for this year for Brazil is volumes grow in Brazil pretty much in line with last year and that is low to mid single digits. So that's the summary for Brazil. Given that Q1 is going to be a bit soft that leaves quite a lot to do I guess in Q2, Q3 and Q4 and Q4 would have a tougher comp I suppose. The comp is easy for Q3, but Q2 will have to be reasonably strong I guess to get you there? Again, we've given the outlook and the guidance for the year for the full year not by quarter. Okay. Thank you. Thank you. Welcome. Your next question comes from the line of Andrew Holland with Societe Generale. Yes. Hi. You've restated your well, obviously, you reported the numbers on the ordinary basis. You then restated the 2012 numbers in the appendix and you restated down to EBIT. Can you just tell me what happens on a restated basis below EBIT whether that restatement has implications for, for example, your tax rate? Or should we just take the reported below EBIT numbers as being equal to the restated? Should be equal to the restated. There is more details on that on the page 36 of the financial report. Okay. Thank you. You're welcome, Andrew. Your next question comes from the line of Robert Ottenstein with IFI. Thank you. It was very gratifying to see the U. S. Market share trends throughout the year. Can you talk a little bit number 1 about Bud Light brand health scores and to the extent that Platinum has improved the actual brand health scores for Bud Light itself? And then maybe a little bit I know it's very early days, but maybe a little bit of early color in terms of how Black Crown is doing, how that compares with Platinum and whether you think you'll be able to gain market share in 2013 in the U. S? Hi, Robert. It's Brito here. I mean Bud Light's family had a great year last year with the 2 top innovations in the U. S. Platinum and La Marita. The brand the family grew by 70 basis points a share, reaching 21%. Brand health is doing quite well given those that momentum that the family has. So it was a great year for Bud Light family. In terms of Black Crown, Blackground has been launched at the beginning of this year. So it's been 4 weeks or a bit more in the market. It's off to a great start. But at this point, we're not going to comment too much on it because we think it's too early to draw any conclusions. But we're very glad with the way it's been launched. Okay. And then on China, can you talk a little bit about what pricing looks like there last year in terms of both the core products as well as premium? What kind of pricing you're actually seeing in the market and realizing? Well, Rob, we don't comment on the trading conditions during the quarter. But as you know, I mean most of our net revenue per hectoliter growth in China for a number of years now has come from mix improvement and also with some price increases, okay? So it's that's the way the market has grown. It's never or we have grown in that market net revenue per hectoliter in the last few years. Thank you. You're welcome. Your next question comes from the line of Sanjit Aujla with Credit Suisse. A couple of questions please. Firstly, Felipe, you talked about further working capital opportunities. Can you elaborate Can you speak up a little bit, Sanjay? Hi. Can you hear me now? Yes. I know. You talked about further working capital opportunities Felipe. Please can you elaborate where you expect those opportunities to be? And just to come back on the U. S. Margin. Look, I understand the issues you had with distribution, But can you just explain why gross margins were weak given the strong revenue per hectoliter numbers that you generated throughout the quarters? And whether you expect gross margins in the U. S. To be down next year as well? Thanks. Yes. On the working capital opportunities, quite honestly, we feel we are still in the learning curve. As we started our journey back in 2,008, we feel there is more to come in terms of best practices sharing across the geographical zones we operate. And if I were to make an analogy to ZBB, ZBB is a kind of 15 years old boy, while core working capital for us is a 5 years old baby. So there is more to come. That is over time becoming part of our DNA more and more. And as we look into it in all fronts being payables, receivables, inventories, we feel there is more opportunities there. That's why we flag that there is more to come. Sanjay, in terms of the U. S. Margin or gross margin as you mentioned, I mean, it grew by 5% for the full year 2012 on an organic basis. And that is despite of a lot of inefficiencies in the COGS given the success of our innovations as we discussed earlier. So we planned for Platinum, we planned for La Merita, but these two brands surprised us big time in terms of more volumes. And again, an example I gave earlier on, La Marita, we started with 1 brewery producing it covering the whole country. Now we have 3 breweries. So I mean and platinum same thing. We started with 1 brewery and now we have 5 or 6. So I mean all this cost of logistics, the cost also of some raw materials that were new to the beer business like the blue bottle came down as the scale build up. So all those things kind of impacted in 2012 the margin. But even then gross profit grew by 5% for the full year for the North American zone as per our press release. Sure. Many thanks. And just finally just on the gross margin point again. Do you think you can grow gross margin next year in the U. Well, what our guidance is on On a margin level? Yes. Our guidance is on EBITDA margin. I mean, we say we see we continue to see room for improvement in EBITDA margin expansion in the U. S. As we see in most places in our company, okay? So that's a hallmark of the company and that's how we look at the business. Okay. Sure. Thank you. But again, this is not a guidance. This is just a hallmark of the company. That's how we've been managing the business forever. I'm not referring to U. S, North America or 2013. I'm just saying in general that's how we see it. Understood. Many thanks, Peter. Your next question comes from the line of Jamie Norman with Societe Generale. Yes. Good morning, gentlemen. A question on your thoughts on the direction of the U. S. Beer market. You mentioned as have the trade press that the increased payroll taxes have taken their toll on the consumer, so higher fuel costs. And I wonder in your mind how that nets off more positive news on, for example, leveling off of unemployment? And whether in the context of all of that you're expecting the industry growth to be broadly the same in 2013 as it was in 2012? What is your kind of central case? Well, when I gave we're not giving guidance in terms of U. S. Industry growth, what we're saying is that we'll see some softness in the Q1. And that's because consumer disposable income is under pressure during the quarter. And that's for the reasons you just mentioned payroll, tax reimbursements being delayed, gas prices. Payroll and the weather Philippe is right, the weather comparison. Gas taxes goes up and down all the time. Tax reimbursements are delayed, but will take place. And the payroll is the one that consumers like anything else will get used to it and will adapt their expense levels or profile of what they spend. In that respect, beer in our view has a big advantage being an affordable luxury for consumers. Okay. Thank you. Thank you. You're welcome. Your next question comes from the line of Mark Swartzberg with Stifel. Thank you. Good morning, gentlemen. A follow-up to Jamie's question and that's helpful Brito. What you just went through taxes being delayed makes sense once you actually get that cash that consumption comes back. But these other things potentially are more enduring. So why what gives you the confidence that this is a short term blip and not a sign that we may be heading back to the trends we saw prior to 2012? Well, Mark, what we 1st, we can only control what we control, right? So we're very excited about the pipeline of innovations we very excited about the commercial plans and the way our people are really committed to executing those plans as you saw in 2012 with the share performance flat in the second half growing in the 4th quarter. On the other hand, if you look at the economy at large, I mean, you see that labor demand. And gas prices again go up and down. So who's to say what's going to happen? But I mean at this point they're up. But just some months ago they were down. The tax reimbursements were delayed, but will take place. And the payroll tax, yes, that's something that will likely stay, but as many things consumers first are shocked and then they get used to it. And again beer is a very affordable luxury. So I'm not predicting anything. I'm not giving any guidance to the U. S. Market. I'm just flagging that there'll be some softness because of weather and some temporary things that are happening in the Q1. But on the things we can control, we remain very excited because we saw the results of 2012 and in a very strong quarter and those things will remain in 2013. Got it. The strategy in the U. S. Is working. I think that's the main point. I mean the whole thing about the innovation plan, execution of market, creating the Premium Plus segment, this all seems to be working given the share levels and profitability. And on platinum specifically, it looks like what is the trend on that sequentially from a share perspective? Lapping those that innovation in theory is a major issue, but it seems to be holding up sequentially rather well. Can you just give us a little color on the sequential trends on platinum? I mean most of the numbers are public because they are IRI numbers anyway. IRI says that Platinum reached 1.1%. As you said it's been pretty stable. And the launches this year Black Crown, too early to call what kind of size it could be, but it's off to a good start. And again, we'll continue to invest in platinum. For example, we just came out with a new sleek can that will enable platinum to go into occasions. It was not going because it was only in the bottle. So that platinum continues. The story of platinum will continue. Great. Thanks, Brito. Ladies and gentlemen, we have time for one additional question. Your final question comes from the line of Olivier Delahous with Natixis. Hello? Hello? I think Olivier is not there. Okay. If that's the case, Jackie, and I'd like to thank you everybody for your time. And I'll see 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 and have a wonderful day.