Anheuser-Busch InBev SA/NV (BUD) Q4 2010 Earnings Report, Transcript and Summary

Welcome to the Anheuser-Busch InBev Full Year 2010 Earnings Conference Call and Webcast. Hosting the call today from AB InBev is Mr. Carlos Brito, Chief Executive Officer. He is joined by Felipe Dutra, Chief Financial Officer. Today’s call is being recorded and will be available for telephone replay, beginning at 4 o’clock CET today. Today’s webcast will also be available for on-demand playback. At this time, all participants have been placed in the listen-only mode. And the floor will be open for your questions following the presentation. (Operator Instructions) 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. Anheuser-Busch InBev assumes no obligation to update any forward-looking information provided during the conference call. It is now my pleasure to turn the floor over to Mr. Carlos Brito. Sir, you may begin.

Thank you, Fiona. Good morning and good afternoon everyone. And thank you for joining our Fourth Quarter 2010 Conference Call and Webcast. I have here with me today our CFO, Felipe Dutra, and Graham Staley, Head of Investors Relation. Today I will briefly review our 2010 highlights and our priorities for 2011. My focus will be on our two largest markets of the United States and Brazil. I will then hand over to Felipe, who will review our performance by zone. So let’s get stated. We are pleased with our fourth quarter results, which saw revenue growth of 5.9%, own beer volume of 1.4%, EBITDA growth of 21.9% and EBITDA margin expansion of 520 basis points. Overall, total revenue per hectoliter grew 5% in the quarter, reflecting disciplined revenue management initiatives, including improved brand mix. This result would have been 6%, excluding the impact of geographic mix. This strong fourth quarter results allowed us to close 2010 with full year revenue growth of 4.4%, own beer volume growth of 2.1%, EBITDA growth of 10.6% and EBITDA margin expansion of 209 basis points, reaching 38.2% EBITDA margin. As far as market share is concerned, in 2010 we gained or maintained share – market share in markets representing more than half of our total beer volumes, the strongest performance being Brazil and the UK, which both gained over one full share point. Our Focus Brands, those brands which we believe had the greatest growth potential, saw volume growth of 4.8% in 2010, outpacing our total beer volume growth of 2.1%. Focus Brands now accounts for almost 70% of our total beer volume. We’re particularly pleased with – particularly pleased with and encouraged by the global Budweiser brand results. Supported by the sponsorship of the FIFA World Cup, global Budweiser volumes grew by…

Thank you, Brito and hello everyone. Starting with North America, fourth quarter zone volumes decreased 1.3%. Brito has covered the US in some detail and so I will be brief. Shipment volumes in the quarter fell 0.9%, while domestic US beer selling day adjusted sales through retailers or STRs decreased 3.1%. For the full year, shipments and STRs were broadly in line, as previously guided, with shipments decreasing by 3% and STRs decreasing by 3.2%. In Canada, fourth quarter own beer volumes fell 5% due to industry weakness and competitive price environment. We lost share in the year, although trends did improve in the fourth quarter. Bud Light continues to make progress, building on its 5% share of the Canadian market. In such a competitive environment, we continue to focus on balancing volumes versus profitability and this led to an improved and industry leading EBITDA and EBITDA margin performance in 2010. In fact, profitability was strong throughout the North American zone in the fourth quarter, EBITDA increased 18%, driven by strong pricing and disciplined cost management, including synergies. In Latin America North, we delivered fourth quarter volumes growth of 3.4% with beer volumes up 3.5% and soft drinks up 3.4%. Total revenue per hectoliter in the quarter increased 9.9%, resulting in a revenue growth of 13.7%. Cost of sales per hectoliter increased 7.5% due to a higher can mix and packaging costs, primarily driven by important cans in Brazil, partially offset by lower aluminum prices. EBITDA in the zone increased 18.6% in the quarter. In Latin America South, we saw a total volumes growth of 2.6% in the quarter with a gain in beer volumes of 5%, driven by improved industry performance in most countries towards the end of the year, as well as market share gains. Argentina is benefiting…

Thank you. The floor is now open for question. (Operator Instructions) Thank you. Our first question comes from the line of Lauren Torres from HSBC. Please go ahead with your question. Lauren Torres – HSBC: Hi, everyone. Brito, I was wondering if you can at this point, give us somewhat of an update about trends in the US so far this year. Obviously, as we’re expecting some macros to firm up, curious about if you’re seeing directionally from a – I guess a brand category standpoint, so premium brands that higher growth brands or higher end brands still doing better? And secondly too, on the pricing front, I think you said a priority is refining your pricing strategy for this year. Just curious what that specifically meant? Thanks.

Thank you, Lauren. I mean in the US what happened is that two years ago when we got there, we saw a pricing tree or pricing structure in the marketplace that we were not very pleased with for two reasons. First, the overall pricing level that hadn’t recovered from the price war some three years before that, in 2005. And second, the big difference between the mainstream brands, the premium brands so-called, and the value in price brands, which was north of 25%. So we set ourselves the last three years to correct those things as market leader. And especially in this last price increase this September, we increased the price of the value priced brands way ahead of the average of the price increase. And that was the first step to address that 25% gap that were – that was in our view, pushing consumers to down trade. As a consequence of that, we saw an up-trade, which was the idea of the price move. So consumers traded up, that benefited brands like Bud Light, benefited Budweiser. As I said in my speech here, the brand that was declining at X is now declining at half of that X and benefited, Stella for sure and benefited Ultra. What happened is that we were not able to compensate in the premium and above segments what we lost in the value and price. But that’s just the – that’s the pain you suffer the short-term when you’re trying to do something that’s great for the company and the industry in the mid-term. And we’re willing to live with that. And we have plans in 2011 to correct those distortions by investing more in the high end, which has never been a priority for the old AB company in the US. But now, being one company, we have the brands, we have the import European brands and we have great domestic premium high-end brands also to invest, and we’re going to put more money behind those brands. So I think the pricing strategy is there. It only addressed part of the gap that we want to correct. We’ll have to do other moves to address that and the consequence is that consumers up trade. And our mix that throughout the year was the negative territory, ended the year in positive territory and again, with all brand consequence that I just mentioned. So that’s pretty much the strategy and how we’re going to deal for this consequence. Lauren Torres – HSBC: And any update with respect to first quarter trends so far in the US?

No, I mean, our outlooks says that unemployment is the key measure. I mean as unemployment gets down and on a sustained level, that will have a direct impact on the beer volumes, because our consumers skew more towards lower incomes and more younger consumers. And they are being even affected by unemployment than the average consumer. So that’s something that we are going to be on the watch for, but we’re not going to be waiting for that, because we know it’s coming and the recovery. It’s not a question of if, it’s a question of when, but that’s why we’re going to invest to be in an even better position when that comes. Lauren Torres – HSBC: Okay. Thank you.

Thank you.

Our next question comes from the line of Trevor Stirling from Sanford C. Bernstein. Please go ahead with your question. Trevor Stirling – Sanford C. Bernstein: Yeah, the first question, Brito, relates to share and share movements. The share trends that we see in the IRI and Nielsen numbers are obviously for the grocery channel. Are you seeing different share movements, when you look at other channels, such as convenience and on-trade?

Yes, I mean you know that the IRI – Trevor, hi, you know that the IRI is, of course, it’s a very good metric, very good source. You can compare apples-to-apples of course, but it only represents 20% – about 20% of the market. You know that our convenience business is much stronger and our on-premise business is also very healthy. So in our estimations, our share loss during the year and the fourth quarter was around a half percentage point and that’s exactly what I was saying before. I mean, was not only caused by the price increase, but also, by the price increase. And then what I was going to say is that, up until the price increase, our share loss to 0.5 percentage point was mostly because of Budweiser brand under performance. After the price increase, that changed. Budweiser started to perform better and the price and value brands started to underperform and that was the reason also for the mix straight up and the 0.5 percentage points loss remained the same just with different components. Trevor Stirling – Sanford C. Bernstein: Okay. Thank you very much. And a follow-up question relating to input costs. You very kindly given us the indication for 2011, Felipe, is really one for you, it’s looking forward a long way, but if the current spot prices for raw materials and FX stayed where they would – are, what would be outlook for 2012? Have the hedges just postponed the pressure from ‘11 to ‘12?

Trevor, this is Felipe. We are not in a position to talk about 2012 at this stage. Our policy has been to approach a kind of rolling 12 months, but we can’t deviate from that. And we can also use some other instruments instead of forward contracts. We could go for auctions, of course this is going to depend on the pipe volatility or out of the money options and things like that. So it’s still too early in the year to talk about 2012, but we have been working on it. Trevor Stirling – Sanford C. Bernstein: Very good. Thank you, Felipe.

You’re welcome.

Our next question comes from the line Jon Fell from Deutsche Bank. Please go ahead with your question. Jonathan Fell – Deutsche Bank: Yes. First off, on your plans to increase marketing spend for 2011, obviously a fair amount of that, from the sounds of it, is going to be directed at the US. How much of that is predicated on the economy and beer consumption recovery? And if it doesn’t, will you decide that maybe the money is better spent a little bit later on, when that recovery has actually happened?

Jon, hi, this is Brito. I think most of that is predicated on our belief that our pipeline is filled with good ideas in terms of new news to bring to the market and that our brands, Focus Brand are reacting well to the investments that have been made in the last few years. So that’s the idea. And also, because we want to be in an even better position in terms of brands and market activation and programs, when the economy recovers. So it has to do with the present and also with putting us in a better position, creating options for when the recovery comes. Jonathan Fell – Deutsche Bank: Okay. Thanks, and just one more technical question. It looked like there was a big step up in your D&A costs in the Latin America North region in the fourth quarter. Do you know what caused that?

Hello. This is Felipe here. For Latin America North, the increase was primarily driven by distribution expenses, as we have been facing higher or stronger volumes growth in the north and the northeast side of Brazil. And we have been forced to ship products from the southeast region and that is driving a significant increase, not only in the absolute amount but also, in terms of on a per hectoliter basis, knowing that the Brazilian market is primarily on premise consumption and primarily returnable bottles. So that forces you to travel bottles back and forth. As we execute our CapEx plans, we expect to mitigate that, starting from the first quarter of 2011 and going forward as we are putting the necessary capacity in play. Jonathan Fell – Deutsche Bank: Thanks. I was actually referring specifically to your depreciation and amortization expense. About $130 million and then I had $310 million in for the fourth quarter.

Sorry, I thought you were referring to overall. Jonathan Fell – Deutsche Bank: That was helpful, anyway. Sorry.

Yeah. So, in – you know, Latin America we – north, we saw a scope of about $98 million in the fourth quarter, mainly reflecting a year-over-year change in the accounting estimates and other assumption that we believe does not consider as part of the underlying performance of the business. So, give your more colors on that. EBITDA includes a positive scope of $119 million, reflecting a year-over-year, as I said, change in accounting estimates. In order assumptions, with respect to the measurement of the net periodic patient costs and long-term fiscal incentives and the scope out of Venezuela, but Venezuela is not that relevant. Furthermore, on the EBIT line includes a negative $159 million scope resulting from changes in the estimated user for wise of items of property, plant and equipment in Brazil, in other words, with we are accelerating the depreciation as a way to privilege cash flow being depreciation and non-cash expense that can be deducted out sooner rather than later. So that is the view we are taking. Our annual report, the financial report, is available in our website. So for further details, you are going to find – people are telling me, okay note 30 on page 44. You’re going to find more details on that. Jonathan Fell – Deutsche Bank: Okay, thanks. But it sounds like the previous quarters in the area that are a better guide for ongoing depreciation, rather than the first – rather than –

Well, in the fourth quarter there was an adjustment, which was equivalent for the full year. Jonathan Fell – Deutsche Bank: Okay.

All concentrated into the fourth quarter. Jonathan Fell – Deutsche Bank: Okay.

As we move into 2011, you should expect that scope go out for the first three quarters of the year, but nevertheless, the full impact is an increase for the full year of about that amount, which is $159 million. Jonathan Fell – Deutsche Bank: All right. Thanks very much.

You’re welcome. Thank you.

Our next question comes from the line of Ian Shackleton from Nomura. Please go ahead with your question. Ian Shackleton – Nomura: Yeah. Good afternoon, gentlemen. Going back to the US, your major competitor flagged a few weeks back that it expects the US beer market to grow slightly this year between 0% and 0.5%. I wonder whether you thought that was realistic. And equally, when you talk about regaining that 50 bps of market share you’ve lost, what is the timeframe that’s realistic for that?

Hi, Ian. This is Brito here. I mean we’re not going to comment on any specific numbers on US. What we said is that we believe that if unemployment gets better, that that has a big correlation because you cannot predict that. We’re going do what we can control, which is to invest behind our brands, make sure we invest – we execute well in the marketplace, and make sure we have the best people in the market in our company. Your second question was about the market share recovery. We’re going to recover it the right way and many have known us for many years, and we do it in a profitable way. We like to sell more of the high-end. And that’s the way we did it in Brazil, in Russia, in the UK. We’ve always tried in Canada, we’ve always tried to shy away from selling value and price brands. But when we got to the US two years ago, that was an important part of the business. And we’re now trying to change it by price increase, and by the way we allocate resources and by the focus and share of mind of our people. Ian Shackleton – Nomura: And perhaps just a follow-up, you did change some personnel in the marketing area in the US at the beginning of this year. I just wonder what’ll that signal in terms of a different approach going forward.

No, that – that involved some personal decisions, some people that decided – that had many years with the company and at some point decided to pursue their own personal interests. But there is a definite change in the way that we look at the market. Again, if you look at our pricing strategy, the pricing strategy was, we inherited a pricing tree, a price tree in the US that we didn’t like, and we’re changing it. So we’re not only getting the price level up, but also trying to deal with that very large gap between premium and sub-premium. And in doing that of course, there was a shift in the shares, you lose at the bottom and you have to gain at the top. And that’s why we said we’re going to be investing more at the top. And just by the sheer move we did with prices, we already have Bud Light that was already gaining share before the price increase, accelerated its share gain in the fourth quarter. And Budweiser, that was declining at X is now declining at half of that X for the fourth quarter, just one quarter, but again we saw consumers trading up. Of course the risk is there that bottom feeders will take advantage of that and undercut our prices in – at the bottom of the market. But again, that’s the price you pay for leading the market. You have to do what’s good for the industry in the long-term. Ian Shackleton – Nomura: And where do you see that sort of bottom feeder, the sub-premiums, as they’re sometimes called, possibly moving toward substantially the market? I mean could it be a bit like Canada where that sort of discount end became quite a material part?

Well, in Canada we saw it up going up and down. I mean it came – it was growing at some point and then when the – ourselves and the other player there decided to address it with like that price, that strategy as opposed to just discounting, simple and plain discounting, we got that under control. So I think that’s the same thing. I mean you can look at other markets as well. You can look at Brazil. You can look at sub-freeze in Brazil, one of those lead brands at some point represent 30% of the market and with a smart – initiated by our competitor and followed by us, price tag strategy, today they are back to 22% or even less than that. So, I think that’s the way we would like to play the game, we like to play the game, building profitability and building brands as opposes to having discount. Ian Shackleton – Nomura: Thanks very much indeed.

Thanks.

Our next question comes from the line of Michael Steib from MS. Please go ahead with your question. Michael Steib – MS: Yeah, hello. Michael Steib here from Morgan Stanley. My question relates to the outlook statement in your press release from this morning, where you’re basically guiding to once again revenue back to lead the growth ahead of inflation. My question is, are you confident that you can implement that in all the six regions that you’re currently operating in?

Well, this statement, of course, is for the total company. So we’re not saying it’s going to be in every country in every region. We’re saying for the total company, that’s what we’re striving for. Michael Steib – MS: Okay. And then my follow-up question would be on Brazil. Have your competitors followed the price increases that you’ve taken in the fourth quarter at this point?

Well, as always, I mean when you increase price in Brazil – I mean people that have followed the – our Brazilian market, know that, that as we increase prices, there is a lag. So this time was no different. There was a lag. That’s why we did lose some share. Or better said, that why the volume was soft in the fourth quarter. But on the other hand, what happens is that because we ended the year with the record market share, that’s what I said in my initial speech, in our language here, we say we created room for placing options for the future. Let me explain that. Because you have a record market share, now we can address issues in the marketplace with more share – starting from a higher share position. So for example, in this price increase that we implemented, we implemented more of a price increase on the one-way segment, because we thought again that was the healthy thing to do for the market – and to live with the short term consequence of this, but starting from much higher share than ever before. So that creates room for you, as a market leader, to do and implement options that’s you know are going to be good and healthy for the industry going forward. So that’s what we’re doing there. Michael Steib – MS: Okay. Thank you very much.

Our next question comes from the line of Dirk van Vlaanderen from Jefferies. Please go ahead with your question. Dirk van Vlaanderen – Jefferies: Thanks very much, afternoon. Just a question really on the dividend, the €0.80, on my calculation a payout ratio of about 35%. Is that where we should be looking going forward, medium term?

Well, it’s Felipe here, Dirk. Well, let me position this equation as addressed – your question. First of all, there has been no change to our dividend policy, right. That is the first element. Next to that, we also appreciate the fact that shareholders supported our initiative to reduce dividend flow following the AB combination in order to privilege the de-lever. So that being said, we believe in consistency. We believe that a stable growing dividend payout is healthy, and we believe there is no reason why ABI should not be able to generate a dividend yield comparable to other FMCGs. As our de-leveraging is moving faster than anticipated, our board understood, as well as management understood, the €0.80 per share was an appropriate level. And that is what is going to be proposed to the shareholders’ meeting. So our cash flow available for debt pay down is getting stronger every day and we remain committed to bring our net debt EBITDA to two times by 2012. I think that is the better way to look into our dividend. Dirk van Vlaanderen – Jefferies: Okay, thanks very much. And if I could just have one follow-up on just the phasing of marketing spend. And I realize it might be competitively sensitive. But for the first or second half, obviously you’ve got Budweiser going into Brazil in the second half. Just trying to get maybe a feel for how you see the phasing of marketing spend over the year.

No, I meant, Dirk, that that is not something we would talk too much about. It’s a competitive sensitive issue. What we’re saying already is more than what we normally say, is that we are going to invest a mid to high single digits in the overall sales and marketing expenses because we see good stuff from in our pipelines, good ideas. And we are never afraid of investing when we see good ideas. I mean you look at the NFL property, you look at the FIFA World Cup, you look at the innovations that we have done in Brazil in the last two years, whenever we see something with potential that will appeal to our consumers and will help build our brands, we won’t shy away from it. Dirk van Vlaanderen – Jefferies: All right. Thanks very much.

Our next question comes from the line of Chris Pitcher from Redburn. Please go ahead with your question. Chris Pitcher – Redburn: Good afternoon. First question, on the US, you talk about focusing on the high end and talk about your import portfolio and some of your domestic premium brands. I was wondering if you could talk about maybe your strategy in craft beer and a little bit more detail about I think the holding you’ve got in the Craft Brewers Alliance. Just to hear what you’re targeting about that the high growth area?

Hi, Chris. When I say focus on the high-end, let’s not forget that – that’s not our main business. O focus is really, as I outlined in my initial speech, it’s Bud Light, okay the number one brand in the country. It’s to continue to grow that brand. That brand has grown for three years – last three years. We want to continue to fuel the fire. The second priority is on stabilizing Budweiser, the second biggest brand in the country. Then it’s to continue to grow Stella. That grew again by double-digits, 20% last year. And yes, you’re right, we do have a new focus in that area that we haven’t had before in the old AB company, US company because the AB in those days didn’t have the brands. Now we do have the brands. Now we have our European heritage brands, we have Stella, we have Becks, we have (inaudible) we have Hoegaarden and we have some brands in the US, not only the Michelob line of brands but also Shock Top, (inaudible) and others that we’re going to be now supporting more than we did before. But our focus is in that order, but we do recognize that there is an opportunity in the high end because it has high profitability, it’s growing it’s where consumers some consumers are going and we want to be with our consumers. So we don’t want our consumers to leave our franchise when they go some occasion to occasion, we always want to be with them. So that’s the idea behind it. Chris Pitcher – Redburn: And can I confirm, you still have a stake in the Craft Brewers Alliance, is that still one of your investments?

Yes. We do. Chris Pitcher – Redburn: Okay. And could I have a follow-up question on the coupon? You’ve guided again to a range of 6% to 6.5% for this year, but looking at the numbers you put out today, there’s some $14 billion, $15 billion of debt that matures in 2012, 2013. Given your balance sheet, given your credit rating, given what you’ve done of late, should we expect some of that to be refinanced at lower levels, i.e., should we be modeling in interest rates falling over the next few years, caveat where rates obviously move?

Well for the time being the 6% to 6.5% range is appropriate, Chris, as we fall during the course of the year. We will keep you updated. Chris Pitcher – Redburn: Okay. Thank you.

You’re welcome. Chris Pitcher – Redburn: But should we expect some refinancing through the year, would that be sensible?

Well, we will be taking the same approach as we have been taking, which is more focus on pricing rather than side. Chris Pitcher – Redburn: Okay. Thank you.

You’re welcome.

Our next question comes from the line of Andrew Holland from Evolution Securities. Please go ahead with your question. Andrew Holland – Evolution Securities: Yes, just following up on Chris’s point there. I think the most difficult bit of the P&L to forecast has been your finance charges over the last year or two, and I wonder if you could give us some guidance as to what we should expect and model in for some of the one-off items and items other than the sort of normal interest that you will incur?

Hi, Andrew, this is Felipe here. The difficult line to model is the one-off orders. During the introduction to this call, I made a point that the $87 million negative for the fourth quarter, for example, that is coming primarily from the market-to-market adjustment of the hedge transactions we have for our equity compensation plan that does not qualify for hedge accounting. So we will have to leave with that some sort of volatility and that volatility is directly linked to the share price, honestly. So we have a certain number of options outstanding. In order to cover for that exposure, we can buyback and hold some treasury shares, which we have, but we also have as an alternative, swap agreements in order to protect for from the share price depreciation and we do that on a delta hedge basis. So as share price goes up, that should turn into a profit, or loss if the opposite happens. So and – that is hard to forecast where the share price is going to be, but that is one of the components. Next to that, we have FX fluctuations for inter-company transactions, which are not eliminated. And again, where the euro/dollars, or Brazilian reais/dollars FX rate is going to be – it’s hard to say. That’s why it’s – I appreciate the fact that it’s very hard to forecast, but it’s hard to forecast even to us because it depends on external elements that we have no control. Andrew Holland – Evolution Securities: Okay. And the safest thing probably is not to try to forecast it.

Yeah. Andrew Holland – Evolution Securities: And just one follow-up relating to Brazil. In the last couple of years, you’ve seen the minimum wage first introduced, and then go up I think by about 14% last year. This year, we’re just seeing that it’s only going up fractionally, by about 1%. How important do you think the minimum wage is to beer demand in Brazil?

Well, it is important, but it’s one of the components, Andrew. The minimum wages are moving based on the CPI plus inflation and there is a one-year lag. And sorry, CPI plus GDP and there is a one-year lag. That means for same way the minimum wage increase this year could be somehow modest in comparison to previous year, that implies an about 7% growth in real terms for 2012, because based on the GDP of Brazil during the year of 2010, and that plus inflation. So but nevertheless, overall, jobs are being created and the unemployment is falling. The overall salaries are moving up, income distribution is also improving. And all of that should be positive to beer. So minimum wages really set the floor in terms of a minimum, but there is a massive number of people moving up in terms of social economical classes and that is really what is driving beer consumption per capita in Brazil. Andrew Holland – Evolution Securities: Okay. Thank you.

You’re welcome.

Our next question comes from the line of Anthony Bucalo from Credit Suisse. Please go ahead with your question. Anthony Bucalo – Credit Suisse: Good afternoon. Questions for Brito, just thinking about US market share, where are you in terms of where you want your portfolio to be in terms of its pricing structure? And it doesn’t seem to me that history would suggest that if you continue to take pricing that you can gain market shares simultaneously for an extended period of time. So are you at a point where you’re comfortable with your portfolio pricing strategy? And over the long-term, where do you think your market share could go? Or what would be the natural rate of your market share?

Well, Tony, hi, this is Brito here, I mean, of course, we don’t like to lose share, but when we lose share on the short-term because we’re doing something that’s good for the long-term, that is something we can live with for a period of time. So as I indicated before, when somebody else – one of our colleagues here asked the question, I said that this market share loss, after the price increase, is mainly driven now by the share that we lost in the segment of value and price brands. That’s something we’re willing to live for a period of time. But, of course, we’re going to recover that half a point in the other segments. So that’s why we feel excited about the Bud Light growth. The Budweiser, better trend, still negative but better. And Ultra and Stella growing and the new emphasis that we have on the high end because it’s a growth segment with good margins. So you know, what we do in Brazil for many years, I mean, increase prices, we lose share. But it’s better to fight with money in the pocket, than money out there in the marketplace. That’s our philosophy. It’s better to increase prices, get the money and use the money in a very specific, detailed way to recover that share in the segment. That is best for the mid-term, not on the easiest segment. We could be recovering our market share in a very easy way by just promoting more, but that’s not the way we work. Andrew Holland – Evolution Securities: Right.

So, yes, we’re willing to live with some short-term pain to grow a long-term gain. Andrew Holland – Evolution Securities: Okay. So it’s not a longer-term share loss issue you’re willing to accept?

No, no, no, of course, not. In terms of share, we want to have 50% of the US market. That’s our long-term – you know, our share objective. Andrew Holland – Evolution Securities: Great. And any thoughts on the NFL lock out, what the implication might be for your business?

Well, I mean, we hope they find a solution. It’s very hard for us. We don’t have any insights, we hope they find a solution. But, again, we don’t depend on that property for our marketing efforts. We have a plan B. Of course, that property would be very welcome, it’s a very – it’s the number one sport. But let’s remind ourselves that Bud Light grew in the last three years without that property. So, of course, we count on that to increase that fire even more, but if some things unfortunate happens or gets delayed, we have of course a plan B, but I continue to be optimistic about this. But I’ll see – I don’t have any insights on that. Andrew Holland – Evolution Securities: Thank you.

Thank you.

Our next question comes from the line of Gerard Rijk from ING. Please go ahead with your question. Gerard Rijk – ING: Yes, good afternoon. A question about the Budweiser delay in Brazil. I thought it was to happen in the first half. Is there any reason for this delay? And concerning the CapEx investments, is the expense taking place only in LatAm and in China or are there also other places?

Hi Gerard, it’s Brito here. I mean, yes, there is a very strong reasons for delaying the Budweiser launch. That’s lack of capacity in Brazil. I mean the industry has grown ahead of our expectations, and last year we were tight on capacity. That’s one of the places where we’ve been putting a lot of CapEx in the last two years. And we feel now for the second half of this year, we’ll finally be in the position where capacity will be in a good stand and that’s when you want to launch a brand. You don’t want to launch a brand when capacity is tight. So that’s why we opted for this. Gerard Rijk – ING: Yeah.

And in terms of the overall CapEx, it’s mainly in Latin America in and last and China, for sure. But there are of course initiatives in many countries, as we introduce new news, and new packages, and new product launches in all other zones. Gerard Rijk – ING: Okay. Thank you.

Thank you.

Our next question comes from the line of Nico Lambrechts from Bank of America. Please go ahead with your question. Nico Lambrechts – Bank of America: Good afternoon, gentlemen. I’ve got two questions. Firstly, with respect to the dividend, could you give us a little bit more granularity on the dividend? How we should think about the payout ratio? You did mention, Felipe, that if the payout ratio goes below two, that might trigger something on the dividend. Maybe – should we use 2007 as a benchmark when your net debt EBITDA was below 1.5 and you paid out 80% of the earnings in form of a dividend? That’s question one. And then the second question is around the cost savings. I know you are not going to give out an additional target, but could you maybe give us a little bit of granularity around the type of cost savings, the regions where the cost savings could come, and would it be actually really material? Should we think about cost savings similar to previous ZBB initiative that you had when you bought (inaudible)? Thank you very much.

Hi, Nico. On the dividend, honestly there, of course, granularity is a very strong commitment and we are fully on track to get there. But then in fact that the dividend is primarily during the first two years’ sales in combination with AB. Going forward the next one, I could say is basically the same pretext I said before, we are delivering consistency and a stable growing dividend payout. And also again, we see no reason why ABI should not be able to generate a dividend, consistent with other FMCGs. We are converging to that level and that is the best way you should think about it. As we get to two, we will see what is best in terms of CapEx structure strategy. We cannot commit to anything specifically at this stage. From the costs – Nico Lambrechts – Bank of America: Maybe ask a question on that, Felipe. Just -what was the decisions based on to make such a big dividend payout in 2007? And at that stage, was there already the plan to make the Budweiser acquisition? And then, could I just confirm are you saying you would like a stable growing dividend payout ratio, not a stable growing dividend? So the payout ratio you see going up.

Well, for – let’s go back. The big dividend increase was done in 2008 in connection with ‘07 results. And that was 1.5 – about €1.5 billion, ballpark number. That number was significantly reduced as we had paid dividends in ‘09 in connection with ‘08 results to about €500 million. There was a slight increase in ‘09 percentage, but on a very small base for the dividends paid in 2010 in connection with 2009 results. And now the $0.80 – so, what is driving this, Nico, because of decision making process is consistency, right. We managed to significantly reduce net debt levels. We finished the year at 2.9 times. We’re going to get to the two times by 2012. And then we are reviewing dividend payout accordingly. And that is what is behind the board proposal. Nico Lambrechts – Bank of America: Got it. So I can – I’m hearing correct that you want to grow the payout ratio, not necessary only a dividend?

No, no, no, no. The payout ratio is going to be a fraction of the earning per share. Our policy is set in a way that there is a minimum of 25%. I appreciate the fact we are above that minimum already with this proposal. And when I say, we believe that growing a dividend payout is healthy, I’m referring more to the absolute number, and but there is a matter of being consistency, but that is not straightjacket. So that is the way we think about it. Nico Lambrechts – Bank of America: Excellent. Thank you.

On the second question, honestly the integration is complete, right. So that is why we took the decision not to put a number out there. That’s why I cannot say if it is relevant or not relevant. But honestly, besides the effective cost management that is our – within a way of working. I mentioned – and we mentioned in our press release, the top-line one – which the market would discount for 100% anyway, but from that angle, we see more of the Budweiser becoming global and driving incremental volume in the core and plus premium segments and we are performing well. We see best practice of sharing in terms of price management and price mix. We see a healthy pipeline of innovations always driving profitability upwards, which is best of both and several ideas that can be shared worldwide and are being tested in different markets. So we are excited about that prospect, but that is business as usual, right. That is the way we manage the business going forward. Nico Lambrechts – Bank of America: All right. Understood. And this is – these initiatives would be globally instituted, so we should think they’re happening in Latin America and in Europe, China, as well as in US.

So, that is worldwide. Nico Lambrechts – Bank of America: Okay. And then if I may just ask a final question, investors are continually asking, “What next?” I think your company and the management team has made a number of big steps over the last 5 to 8 years. That’s always been big steps. You executed well and then there is something next. How are you – how are you thinking or how should investors think about management’s thinking? Are you just going to be a very solid, cash card generating massive cash and a high dividend yield? Or what could be the next big thing?

Well, Nico, right now we’re leveraging the scale that we – this is Brito here – we’re leveraging the scale that we obtained after the AB transaction. We feel we have the right portfolio of brands and the right portfolio of countries. There is lots to be done with the current business we have at hand. We’re totally focused on the organic growth and, yes, to generate a very healthy cash flow, but as Felipe said, we’re totally focused on getting to two times by 2012. And when we get there, when we have to cross that bridge, then we’ll think what’s next. Nico Lambrechts – Bank of America: Assuming you didn’t take that, you would not increase the leverage even if opportunities come up before you reach that two times hurdle rate?

Then I wouldn’t comment because that’s too strategic. That’s the kind of conversation we have with our board if and when something shows up. Nico Lambrechts – Bank of America: Okay. Thank you very much.

Thank you.

Our next question comes from the line of Mark Swartzberg from Stifel Nicolaus. Please go ahead with your question. Mark Swartzberg – Stifel Nicolaus: Yeah, thank you. Good morning, gentlemen. A couple of questions for you here on the US. I guess number one, Brito, can you talk a little bit about share trends you’re seeing for your two largest brands for Bud Light and Budweiser in non-tracks channels as compared to the stuff we see kind of month-to-month in the tracks channels? And then specifically on Bud Light, how do you think the distribution opportunity pairs up with the equity in that brand at the consumer level? Because obviously, your largest competitor is saying that they think good things are happening, particularly late in last year into this year, with the combination of Miller Lite and Coors Light.

So, on Bud Light as I mentioned before, Bud Light has been growing for the past three years in terms of market share and in 2010 it grew again. Budweiser, as we all know, has been declining as a brand for many years. What we said is that after the price increase that we did on purpose to get consumers to up-trade, that benefited the brand, it’s only one quarter. And the rate at which it was going down decelerated by half. So that’s a good basis to start the year 2011, plus also, some brand health metrics that went up for Budweiser after many years of being sideways. So we’re very committed to both of these brands, being the two most important brands in our portfolio and the top two brands in the country. What else did you ask, sorry? Mark Swartzberg – Stifel Nicolaus: Yeah, I was asking about the opportunity on the distribution side of things for Bud Light. When you look at what consumers think about the brand and what the opportunity for the brand is at the consumer level, how much opportunity do you think is kind of sitting there, so to speak, because of untapped distribution opportunities?

I think we still have opportunities with Bud Light, many opportunities. For example, Bud Light Lime was one big one that showed us that a good, intelligent, smart line extension on a brand with the credentials of Bud Light can yield share profitability and appeal to consumers. So I think that’s a big learning for us. I think on Bud Light can still have opportunities with distribution in different packs. We have an innovation pipeline that will get the brand to new occasions in the next day or two. So those are all things that are very exciting because the brands deserves it and a good brand has the credential to be able to reach out for these new occasions and new line extensions, if they are smart line extensions like Bud Light Lime. Mark Swartzberg – Stifel Nicolaus: And as we think about the NFL and scenarios in which folks simply don’t play this fall, do you pay for that? Or how does that work – as we try to do our models and just try to factor in that scenario, as unlikely as it might be. Do you pay in that situation or do you not pay if people don’t – if the NFL doesn’t play?

We have a contract with the league that I cannot disclose. But of course, we have or – we’ve been thinking about, of course, and developing plan Bs in the unfortunate case it happens. I’m still optimistic about it. But again, we never had this property. It’s a very good addition, very important addition, but again, Bud Light grew even without the NFL. So if the NFL has its season, normal season, it will be great, because it will be another avenue of growth. If doesn’t happen for some unfortunate situation, which is totally outside of our control, and I don’t have any information other than what I read in the paper, we will more do more of what we’ve been doing. And that’s what we’ll do. Mark Swartzberg – Stifel Nicolaus: Great. That’s helpful. And then finally, retail on Brazil, when you say the first quarter volume, total company, likely soft, do you think Brazil volume is up? Or is that a comment that Brazil even might be down volume-wise?

Our comment was for the total company. Sorry, I won’t give more details, but that was for the total company. Mark Swartzberg – Stifel Nicolaus: Okay. Fair enough. Thanks, Brito.

Okay. Thank you very much.

We have no further questions. I’ll hand the conference back to you.

Okay. Well, thank you very much everybody for your time. It was great to have you join our call. And I’ll see you next quarter. Have a great day. Bye, bye.

Thank you. This does conclude today’s teleconference. Please disconnect your lines at this time and have a wonderful day.