Welcome to the Anheuser-Busch InBev Third Quarter 2016 Earnings Conference Call and Webcast. Hosting the call today from AB InBev are Mr. Carlos Brito, Chief Executive Officer; and Mr. Felipe Dutra, Chief Finance and Technology 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. [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 on Form 20-F filed with the Securities and Exchange Commission on March 14, 2016. AB InBev assumes no obligation to update or revise any forward-looking information provided during the conference call and shall not be liable for any action taken in reliance upon such information. It is now my pleasure to turn the floor over to Mr. Carlos Brito. Sir, you may begin.

Thank you, Regina, and good morning, good afternoon, everyone. And welcome to our 2016 Third Quarter Results Conference Call. Before we discuss results, I'd like to take a moment to focus on the very exciting milestone we reached just a couple of weeks ago when we closed the combination with SAB. The rationale is extremely compelling, creating the first truly global brewer, and one of the world's most leading consumer products companies. The combined company has a leadership position in most of the world's largest profit pools, and a rich portfolio, including 7 of the top 10 most valuable beer brands globally. We now have an expanded geographic footprint with access to many more high-growth markets as well as the diverse portfolio of brands to provide more choices to consumers around the world. Also I was asked to leverage the talent, expertise and insights of the 2 companies to further enhance the consumer experience. We are already working closely with our new colleagues to ensure smooth integration and to deliver on our dream of bringing people together for a better world. We believe the 2 companies can achieve far more together than we could separately. And we look forward to building a company, not just for the next decade, but for the next 100 years. Since the transaction closed after the end of the third quarter, the results released today do not include the SAB retained business. However, we have included volumes and revenues for the retained business for the 3 months through September in our press release. Turning down to our third quarter results. Most of our markets are on track and delivered solid results. However, these performances were negatively impacted by a very weak quarter in Brazil. Consolidated revenue in the quarter grew by 2.8%, with net revenue…

Thank you, Brito and good morning, good afternoon, everyone. Moving on to our below EBIT results, starting with our earnings per share performance. Normalized earnings per share decreased to $0.83 from $1.02 per share in the third quarter last year. This decrease is due mainly to higher net interest expenses resulting from the free funding of the SAB purchase price and lower foreign exchange translation gains, partially offset by the mark-to-market adjustments linked to our share-based payment programs and lower income taxes. Net finance costs in the quarter were just over $1.2 billion compared to $810 million in the third quarter of last year. This variance was driven primarily by the additional net interest expenses resulting from the bond issuances earlier this year. Also other financial results include the negative mark-to-market adjustment of $57 million linked to the hedging of our share-based payment programs compared to a loss of $585 million in the third quarter of 2015, a positive swing of $528 million. Foreign exchange translation gains in the fourth quarter this year were also lower than the third quarter of 2015. Nonrecurring net finance costs were $678 million in the third quarter compared to $327 million in the third quarter last year. Nonrecurring net finance costs include a negative mark-to-market adjustment to almost $600 million related to the portion of the FX hedging of the purchase price of the combination with SAB that does not qualify for hedge accounting under the IFRS rules. We also recognized a negative mark-to-market adjustment of $22 million resulting from the derivative instruments entered into to hedge the deferred share instrument issued in a transaction related to the combination with Grupo Modelo, compared to a loss of $327 million in the third quarter of 2015, a positive swing of $305 million. Our normalized effective…

[Operator Instructions] Our first question will come from the line of Edward Mundy with Jefferies.

Brito, you mentioned in your opening remarks that this has been one of the most difficult years in Brazil for a decade. Do you expect next year to be as difficult or more difficult or slightly better?

Edward, good morning. I mean, hard to predict. We're not pretending here to be economists. But what we see is that consumer confidence -- in public figures that consumer confidence is beginning to rebound. We see that inflation is coming down. We see that currency is in a better place. Financial markets tend to come first. And we see that political environment is more stable. But I think more importantly than that, Edward, because again we're not economists, but more important than that, is to say that our confidence and the fact that we've been always been bullish about Brazil remains intact. And the reasons are simple. I mean, first, it's not a 1 or 2 bad years or some political stability that will change some of the basics that make this market such a great market, which are, for example, its very attractive demographics. The regional disparities that still show gaps that could be closed and that could result in capital in per capita consumption increases, and also the openness of consumers to go for Premium products. You can see that, even in a tough environment like this, Premium -- the Premium segment continues to grow and we have many brands to take advantage of that growth. And our commercial programs are very geared towards taking advantage of those fundamental drivers of the attractiveness of this market. And those are the basic 5 platforms, which is: elevate the core because we have a very high share in that segment; accelerate Premium, because as I said, consumers are open; the near beer opportunity, and we have examples in Brazil, 0.0, it's called Senses, that are really very high margins and high growths; shaping homes with being home consumption with the returnables and that's very important, having more returnables in the off-trade; and also, to continue to develop the out-of-home experience, the on-trade experience with our Global Brands, draft and much more things we can do in terms of reinvigorating the category and premiumizing the consumer experience. So I mean, we put all of this together. We continue to be very bullish about the country. We've been there for 27 years. But you're right, I mean, this year has been one of the toughest we've seen in a long time.

Thanks, Brito. And if I could ask a follow-up. And I appreciate you've only had the keys to SAB for a couple of weeks, but could you talk in more general terms how during the Modelo integration you managed to deliver such a significant margin expansion without jeopardizing the top line? And as you think about SAB integration ahead of you, are you confident in being able to do a similar thing, i.e. delivering significant margin expansion and not jeopardizing the top line?

I think that's a very good point. I mean I think every integration we do, Edward, we come with a better ticket or better ways of doing things. And I think in the Modelo integration, we learned a lot about exactly what you said, I mean, trying to reach a better balance between the stage in delivery and the momentum of the business that we accelerate in Mexico. I think that's something that's very much top of mind for us. That's reflecting the targets for our people in the new zones and that's something that we learned and that we intend to continue to carry on. Very good point.

And is that what gives you confidence to say you expect a fast start to 2017?

Well, we had, as you know, 11 months to prepare for day 1. We had the integration planning. Of course, in the commercial side, we didn't have the access as we do know. So the integration planning was on everything else but the commercial side. But our guys are picking up speed very quickly on trying to understand the commercial drivers and try to implement again what we learned in that integrations and exchange the best practices that we planned during those 11 months. So we're ready for a fast start. Of course, every country has its different macro situations, but we'll learn how to deal with that. And I think more than that, Edward, we're very excited with the people, our new colleagues coming from the SAB side. Now there's no more ABI, SAB; now there's the new ABI. And they're all colleagues, and these are amazing people that build an amazing business. And now, as part of an enlarged organization with access to best practice on both sides of the business, I think the new company will have a lot and will do more together than we would do separately.

Your next question will come from the line of Robert Ottenstein with Evercore ISI.

Very good. Brito, if you could talk a little bit about a couple of things in the U.S. market. Number one, what you see going on with craft beer? It looks like an inflection point this year in terms of that slowing. Do you think that's the case? And who do you think -- and do you think that is going to represent a decline in overall U.S. volumes with what people go into craft now go into wine and spirits? Or do you see that as an opportunity for premium regular? And then second, in terms of Bud Light and the weakness of Bud Light, how much of that do you think is cannibalization from Ultra?

Robert, so on your first question about craft. I mean, of course, craft has been growing for the past few years. We, as a market leader, like that a lot because it's a growth segment and it's a very profitable segment. And now, after some years of rekindling and really building a portfolio, we have -- we're very active in this segment. We're happy to say that we're gaining share within that segment and our craft brands are doing very well. So you should look at all our national brands that are like Goose Island, for example, growing double digits. And that's very encouraging. If you look at our craft partners in the different regions, also growing double digits. So that's very encouraging. So in terms of craft, I think it's too early to call. But what we've seen in some customers is that there is some kind of thinking at this point about how much more of an assortment can you carry? Customers began to realize some time ago that as you enlarge assortment, there's only so much shelf space that you can share and cold box that you can split. And there's also working capital implications and out of stock that goes up, more people that you need to stuff the shelves. So I mean, I think there is, like anything else, at some point, consumers also get a bit tired of so much choice and they start going for fewer brands. But again, this is all speculation on our side. It's too early to call. But again, we like the segment. We think it's great that the segment is growing. It's elevating beer, it's a growing segment. It's a profitable segment where we play in that segment. So -- but again, too early to call. On Bud…

Just a follow-up for Felipe. We're -- we continue to scratch our head a little bit in terms of why your view is, is that the acquisition debt won't be tax-deductible. I'm just wondering if you could kind of help us understand that a little better.

Robert, that is the approach we are taking. You may say that is a conservative approach. It all depends on what is the income level in different jurisdictions and where the debt will be allocated as part of the final structure that we are fine-tuning. If we find the opportunity in that, they're going to keep you guys updated. But for now, the best assumption we have is to assume it's not going to be deductible.

Your next question comes from the line of Trevor Stirling with Bernstein.

My first question is look, the pressures from transactional FX in Brazil is something you've known about for at least 9 months. Why did you actually then choose this time to postpone the price increase? And was competitive dynamics part of that decision-making process?

Trevor, Brito here. So as you know, I mean, this year, as I've said just minutes ago, I mean, the market in Brazil has been very challenging. It has been a very tough year on consumers and on us, of course. And it's a very competitive market, has always been. And the same way in the U.S., we decided to anticipate the price increase to bring it forward. In Brazil, we've decided to delay it. And price is a very local-type decision. Our guys, locally, will try to time it the best way possible. And sometimes, that means different phases. So in the U.S., the phasing was bring it earlier; and in Brazil, was bring it later. And that has to do with many things. But, I mean, these are all competitive sensitive things, so I'd rather not mention. But I will say that phasing is not something uncommon. But to your question, to your question, what I can say is that the net revenue pack liter that was down by 1.2%, the primary driver of that difference, going from a 6-plus percent to a minus 1.2% in Brazilian beer was the delay in the price increase. Also contributed to that, the fact that we, as always, try to balance revenue, share, volume and try to cover, given situation of the consumer, some interesting price points and also try to push more for returnable glass bottles. So all that, of course, impacted the net revenue number. But the primary impact was the delay in the price increase that went from the third quarter last year to the fourth quarter last year. And given the kind of price increase we're talking about, this is relevant. This is a relevant difference.

Okay, Brito. And then, my follow-up question is there are similar pressures from transactional FX in Mexico. Volumes could be very, very strong. Bud Light is doing very well and yet only 2% revenue -- or, sorry, price/mix growth in Mexico in the quarter.

Yes, because, I mean, first, I mean, again, pricing decision is very local. There are also mix impacts there. But what's important to say is that, that number is in line with inflation of last year. It is true that the inflation has come up this year in Mexico. And that will -- our pricing guidelines, as you know, has always been pretty much everywhere, not every year, but long term, is always to keep pricing in line with inflation. So this pricing this year is in line with last year's inflation. Inflation come up -- came up, so we have to relook at this when the time is right.

I'm sorry, could I --- sorry, to ask a follow-up. When was the last time a price increase was taken in Mexico?

We don't necessarily comment on that, because there are different channels, different packs, different so many things, different regions. So it's a little bit of a patchwork in terms of date.

Your next question comes from the line of James Edwardes Jones with RBC.

Can I follow up on Trevor's question, first? Can you confirm that the Brazilian price increase has now gone through? And assuming it has, how much was it broadly? What's been the effect on volumes? And what should we be expecting for gross margin in Q4 in Brazil?

Well, I mean, we're not going to comment on the fourth quarter. But the only thing we can say is that the price increase was delayed from last year third quarter price increase to a fourth quarter price increase this year. So we can say it's already in the market. But we're not going to comment more than that, James, at this point. So it went from, basically, September to October.

Okay. And as a follow-up, your sales and marketing expenditures now increased by around 300 basis points over the last 3 years with little obvious benefit to revenue growth. What's your thinking here? Is it a reflection of the cost to compete rising? Or can we expect sales to marketing to fall shortly? Or is it just a phasing thing, at some stage, you expect that to do better revenue growth?

You're asking about the total company?

Yes.

Okay. So in terms of total company, let me tell you a little bit how the thinking went and how we can connect the dots. So in 2009, we got our first, let's say, global brand, Budweiser. Okay. Stella was there before, but the footprint was not as large. Budweiser had a large footprint. In 2013, we got Corona, and in the meantime, we saw what happened with craft. We acquired our first craft in the U.S., in 2011, Goose Island. So all of a sudden, in 2013, we had 3 global brands that were complementary and a craft portfolio or a craft business that we believe could be developed elsewhere in the world. Then in 2014, we had the World Cup which, normally, we invest more money in the World Cup. And then after that, we decided that it was time to start investing in the high-end business, in all the different regions around the world. So now that we have a global brand that we didn't have before, and now that we have a view for what craft can represent, we started investing. So the sales and marketing uptick that you saw in the last 3 years, first year was for the World Cup, which is pretty normal. But then '15 and '16 was to do things like, for example, to fund the high-end business in the U.S., which is growing very nicely. Our craft's growing out of the crafts. Our import's growing nicely, like Stella. So that was part of that. In Mexico, to grow the category, and American brands, so Bud Light in Mexico. For example, in LAN and LAS, to grow the Global Brands and specialties, crafts, and that's a big part of the net revenue growth that we have in both zones. In LAN…

Yes, that's a very helpful answer. And sorry, can I just go back to previous question and check? Did you say that the price increase in Brazil was deferred from September to October?

Yes, I did.

Your next question comes from the line of Chris McDonald [ph] with Redburn.

Chris Pitcher here, from Redburn. A couple of questions. Firstly, on the Bud Light situation. You talked about it earlier, Brito. But in a period where craft slowed, market share performance actually deteriorated. Is it fair to say you see as a bigger threat, Bud Light, that the Mexican brands, and perhaps there's some lost volume there? And the follow-up to that is what are you doing to sort of take the strength of Budweiser and Bud Light in Mexico and make that work in the United States? Because I notice in your Mexican comments, and this is a follow-on from James' question, that in the first half, you were saying that the higher sales and marketing was phasing, but in this quarter, you're actually saying now it looks like it's just incremental spend. So it feels like that, that is baked in higher spend.

No, no, what I said about the overall companies that this year, sales and marketing was front-loaded, and we guided that at the beginning of the year. But in terms of if you look at the last 3, 4 years, then I told a little bit about the story, about how sales and marketing evolved, first, because of the World Cup, then because of the Global Brands and the high-end opportunity in many of our markets, right. So those are 2 very different things. In terms of your question, Bud Light and craft, I don't see -- I mean, it's only 1 quarter. But it's also true that craft has been decelerating for more than 1 quarter. And that has not affected Bud Light to the point that -- of the share loss we had this quarter. So we'd not connect those 2 things. I don't think they're necessarily connected. So again, Bud Light now went to the football season, which is always very strong in terms of occasion and brand identification and positioning. And we have an amazing partnership with the NFL and we'll do lots together this year even more than before. So I think this is -- let's go now for the fourth quarter. I wouldn't take 1 quarter and try to drive any conclusion between craft and Bud Light.

It was more specifically looking at the success you're having with Bud and Bud Light in Mexico and yet in the [indiscernible]...

Oh sorry. That's right...

You're losing share to the Mexican brands. Why aren't you joining the dots between Mexicans drinking American beer in Mexico and the Americas and the U.S. situation?

Yes. No, no, you're right. I mean, we are the #1 brewer in Mexico. And it's fair to say that because it's a fact, that Bud Light's the #1 beer with Hispanics in the U.S. and we're trying to bring more Mexican brands from Mexico into the U.S, especially the Southwest. So Estrella Jalisco, Montejo are 2 brands that were brought. Estrella Jalisco, very promising brand. And a lot of the immigrants in many parts of the Southwest came from Jalisco, and so that's a brand that tugs deeply into the hearts and we're trying to get the brands in their hands. And in terms of Bud Light, I mean, you're right. I mean, there is a lot of influences that come from the U.S. Southern states into the Northern part of Mexico and vice versa. And you see Bud Light growing very strongly in Mexico and we're always trying to, in the Northern part of Mexico especially, we're always trying to think of ways of connecting that back to the Southwest and South of the U.S. So that's something that's top of mind for sure for the Bud Light folks.

Your next question will come from the line of Mark Swartzberg with Stifel, Nicolaus.

On Brazil, I don't know if you can give us a sense. But year-to-date, EBITDA down 13%, 14% in local currency. Can you give us a sense what cash flow from operations have done in that particular region?

No, no, we don't. No.

That second is an unrelated question.

No, we can't. Sorry. I mean, we only talk about cash flow, anyway, at twice year, midyear and end of the year. So it wouldn't be a decision.

Okay, fair enough. I thought I'd try. Fair enough. And then, Africa, it's nice to see the SAB numbers, the plus 10% revenue growth in the third quarter. Can you give us a sense -- and yet volumes are declining about 3%. Can you give us a sense, other than Nigeria, of markets where you do see an opportunity for volume to start turning positive? I know volumes are growing in Nigeria, but are there particular countries there where you see a near-term or medium-term opportunity to return to positive volumes there?

Well, Mark, it's too early for us to talk about SAB and insights into different countries, because, again, as I said, integration planning has been going on for 11 months. But the commercial part, because of the integration rules, they were not available to us. So it's now, we've been, what, 2, 3 weeks at the steering wheel. And now, we're learning very fast about the commercial things. But one thing that I've always said about Africa is that Africa reminds me a lot about Brazil in the sense that, for sure, it's up in terms of where society is going, middle class growing, GDP growing; therefore, a good place to have a business, especially our kind of business. But it's not a straight line. It's not a straight line and there'll be foreign exchange crisis from time-to-time. There'll be political crisis from time-to-time and consumer confidence will go up and down. But again, for us, it's just like Brazil, and we've been in Brazil for 27 years. And yes, Brazil this year is a bad year. But again, look at the past and see where it came from, and you see it's a line that it's up, but not a straight line. Sometimes, maybe 5 years or so, there's 1 or 2 years where you go sideways or backwards, as we're going this year in Brazil. But again, then when you go backwards when you have a tough year, you try to look for the silver linings. And the silver linings in Brazil this year are 2. First, the RGBs that are growing very fast, because consumers are asking for it and customers are open for it like never before to that tune. And second, we're getting a lot of sponsorships and properties that are important to drive our business to the category in Brazil back at much lower prices. So for example, the Carnival properties in Rio and Salvador are 2 very important things for us and very high season beer sales periods are back to us at better pricing. And that's because the market is down. So that's -- when you have that long-term view, you take advantage because you can only do things like this if you have a long-term view, returnables and properties with multiyear contracts. But after, I think it's a little bit like that. You have to have the view, as we do, that these things are up, but not every year.

Your next question comes from the line of Anthony Bucalo with HSBC.

Brito, when you acquired Anheuser-Busch and Grupo Modelo both, you had a lot of brand equity in Latin American markets where you didn't have those, or those brands really weren't distributed. Taking a look at, let's say, the Andean region or even Australia, do you find that you have the same levels of brand awareness for, say, Bud or Stella Artois or Corona that you had in Brazil when you bought those brands? And can you give us a sense of what your plans are in terms of getting those brands up to speed in the new markets that you've acquired?

Well, in most of those markets, I mean, our brands have been present. In some like Australia, in a big way, like Corona, which has a 6% to 7% market share there, right. In other markets, a smaller presence. But because we didn't have distribution, right. Because we didn't have the scale, the critical mass. So in South Africa, our Global Brands have been there. In Colombia, they have been there. But sometimes, there's other partners, sometimes in the licensing arrangement, sometimes with different partners. So that's the time to get all this and put it in a maiden distribution system that SAB has in those countries and grow those brands in the right way. So we said from the beginning that we were giving synergies in terms of cost synergies that we're putting a number to it, like we always do. But now we saw lots of opportunities in terms of revenue, top line synergies that we're not quantifying. And Global Brands for sure is a part of that and also the working capital that were not being quantified. So -- and we remain of the same opinion.

So do you think you'll need to step up like you did a few years ago with more sales and marketing effort to sort of get those brands to where you'd like them, sort of put them on steroids in a sense?

Well, in a way, the beautiful thing about the Global Brands is that they benefit from global investments. So when you do Tomorrowland, we're benefiting many brands of ours. When you do a World Cup, they see Budweiser in the existing countries and the new countries. When you do Corona SunSets, the same. When you do World Surf League for the target consumer, Corona, the same. So I mean, I think a lot of what's already in the base that's been aired on a global basis or activated on a quasi-global basis will now have a bigger footprint. But those -- a lot of those monies are already in our base, because those are properties that we have in the system. And so it's going to be a standard implementation like we've done. We have what we call toolkits for the global brand implementation. And again, those brands are already in those markets, it's just that they're going to now get bigger.

Your next question will come from the line of Caroline Levy with CLSA.

Just thinking about the margin changes, which are so severe versus anything we've seen in the past. You said you knew about the hedging situation. Would you not be inclined in future to sort of warn us that, that could be coming?

No. I mean, we always told you, Caroline, that -- told you in the sense of everybody, that we do hedge pretty much 12 months ahead. So that's -- we've always done that. So much so, that -- let me call your attention to something more specific. I mean, when you look at the EBITDA shortfall in Brazil, you see that half of it can be explained by the cost of sales. And in that cost of sales, there is a huge impact of our unfavorable, if you will, foreign exchange hedge because we hedged -- because we hedged a year ahead, we hedged in 2015 midyear when the currency went up big time, because of the uncertainties in the country, and we hedged at that level. So that will continue to impact us. But on the other hand, will become a tailwind in the second half of next year, okay? But again, that has been there, out there in the public forever, that we hedged a year in advance, right. So since I spoke about EBITDA in Brazil, let me say even a bit more. I mean, if you connect the cost of sales with the sales and marketing that were uploaded or loaded upfront in terms of the year, as we guided before, and the incentives, fiscal incentives that have to do with top line that came down, that explains 80% of the EBITDA shortfall. And the net revenue per hectoliter explains 10% of the EBITDA shortfall this quarter in Brazil. So cost of sales, yes, it was half of the EBITDA shortfall. So big impact.

Okay. Then, could you also talk about the margin shift in Mexico and the investment spending to grow the brands, which is clearly working? Is that something that you -- because it's working, we should expect will continue, and so not necessarily a place where we should look for margin growth?

No. I mean, I wouldn't guide it specifically on Mexico. Actually, I would not give any guidance in terms of sales and marketing. But what I just said I think when James asked the question, we increased our base in the last 3 years given many opportunities we saw in Global Brands in craft and specialties. We feel good about the current base we have, and we'll continue to grow it whenever we see opportunities. But for sure, we'll continue to do which is what's in our DNA, which is sweat that base that became bigger now. So -- and the same, Mexico is part of that. So in Mexico, we increased that because we saw opportunities in the occasions. We saw opportunities in Global Brands that we didn't have in Mexico up to 2013. American brands, that started developing very fast once we got control over that market. So I mean, lots of things. But then, you've got the base that you feel good about it. And that's a question of sweating the assets and continue to look for opportunities to add to it, if the case be.

And then, the last question, Brito, would just be, I sense in your answer to the question on SAB and the way you're compensating people going forward that top line growth has taken a front row seat versus cost savings in the entire organization at this point. Am I reading that right?

Well, if you look at the 27 years of our history here in the company, I mean the -- we've always grown the company with both, right, the top line growth and the costs or efficiencies. Now, of course, when it came to the U.S., that story changed a bit, because we got to a market where it was more of a developed market, that was a big part of our business. So that changed. But we continue to grow top line in LAN and LAS. And again, sometimes there's a bad year. We continue to grow top line big time in China and APAC in general, and now we're growing top line in Europe at the 2% to 4% in the last 3 years. So we grew top line this year slightly in the U.S. and Canada, not this quarter, but year-to-date. So I mean, top line has always been in the back of our minds. But with the Global Brands, it is true that we begin to see even more opportunities and our targets reflect that, because they are weighted towards not only growing top line as a whole, but also growing top line at the high end, in which Global Brands and specialties are the case. But cost is our DNA. I mean, we always work on cost. There's always opportunities, be it because of scale, be it because of technology developments, be it because of just our learning curve, be it because of synergies when we do such a transaction, transformational transaction like this one. So again, very excited about the SAB people, our new colleagues and the markets. And again, we're building a company for the next 100 years.

Your next question comes from the line of Alicia Forry with Liberum Capital.

I was just looking at the CCBA decision; Coke's decision to buy you out of CCBA. I was wondering if you could remind us where in your combined network you will still be bottling for Coke after that business goes away? And in the markets where you are going to lose the Coke bottling rights, the CCBA African markets, do you intend to replace that with, say, Pepsi volumes or other soft drinks that you have in your portfolio?

Well, Alicia, very hard for me to comment on this. The only thing we can say is that the notice Coke sent to us is public and we tend to work constructively with The Coca-Cola Company to ensure an orderly and efficient process and to minimize any disruption to our business. But at this point, that's all I can say.

Okay. Perhaps I could have a follow-up on something else. I was wondering how much of the EBITDA decline in Brazil in the quarter was operating deleverage on the lower volumes? And I appreciate that those volumes may indeed come back. But if it takes a while, what opportunities do you think you have to rightsize the cost base in Brazil?

Again, half -- if you're talking about the EBITDA decline, half of it was because of cost of goods sold, cost of sales, okay? And that's on Page 14 of the investor presentation we've put out today in our website. And there, you see that half of that 33% organic drop in EBITDA in Brazil, more than half, 16.7%, was based on the cost of sales increase. And that cost of sales has a lot to do with the unfavorable foreign exchange hedge that we have in place because of our hedging policy. We've always had, on average, 12 months ahead and we take the time 12 months ago the currency was very devalued because of political instability in Brazil. And that is the currency relating now in terms of our transactional costs. And that will take some quarters to unwind and will easily become, I would say, possibly a tailwind in the second half of next year. But that's half of that -- and then you have, as I said, 80% if you add this cost implication, the incentives that came down because revenue came down and the sales and marketing that was front-loaded, that's 80% of the explanation of why EBITDA came down. So there are a lot of temporary effects and events on this EBITDA downfall this quarter.

We have reached our allotted time for Q&A for today's call. We will take our final question from the line of Andrea Pistacchi with Citi.

Yes. Just 1 question from me on China, which has had a few subdued quarters, even in the premium segment, quarters being a bit better. So are you seeing any signs there that the environment could be starting to improve? Or what do you think is the issue really there? I mean, the macro is not as strong as it was 2 years ago for sure, but it's reasonably strong. So what really is holding back growth do you think?

Well, I think, I mean, as we showed the investors last year in China, there is a big difference between the segments in China, between when you look at Core and Value, Core+, Premium and Super Premium. And our business is heavily geared in terms of profitability and growth on the Core+, Premium and Super Premium. Those segments slowed down a bit, like the whole industry, but they continued to grow way ahead of the Core and Value. And that's why we're so happy with our positioning in China and so happy with the decision of our guys in China of having started the Super Premium company, as we called it in China, 3 years ago, with brands like Corona, Stella, Aleston, Hoegaarden that are really, profitability-wise, way above even Budweiser. China is a market, from the markets where we operate, where the difference between the Core profitability and the Premium, Super Premium profitability is like 5x to 10x bigger. So it is a big thing. And that's why we're the #1 profitability taker in China, despite being the #3 in volumes, because we do operate in that top 10 of the market. But you're right. I mean, the industry in China has been negative. This quarter was flat, but it has been negative. Our volumes have always been ahead of the industry's. So we're gaining share, because of the segment shift that's favoring us. But we continue to be -- I mean, if you look at China, it's a market that, for sure, will continue to be very relevant in the beer market or in any category in the world. And again, the economy has changed a little bit from blue collars to more white collars. The center of gravity of regions moved a little bit. The channels moved…

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