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Anheuser-Busch InBev SA/NV (NYSE:BUD)

Q4 2012 Earnings Call

February 27, 2013 8:00 am ET

Executives

Carlos Alves de Brito - Chief Executive Officer and Member of Executive Board of Management

Felipe Dutra - Chief Financial Officer and Member of Executive Board of Management

Analysts

Lauren Torres - HSBC, Research Division

Chris Pitcher - Redburn Partners LLP, Research Division

Melissa Earlam - UBS Investment Bank, Research Division

Trevor Stirling - Sanford C. Bernstein & Co., LLC., Research Division

Andrea Pistacchi - Citigroup Inc, Research Division

Ian Shackleton - Nomura Securities Co. Ltd., Research Division

Dirk Van Vlaanderen - Jefferies & Company, Inc., Research Division

Mitch Collett - Goldman Sachs Group Inc., Research Division

Andrew Holland - Societe Generale Cross Asset Research

Robert E. Ottenstein - ISI Group Inc., Research Division

Sanjeet Aujla - Crédit Suisse AG, Research Division

Jamie Norman

Mark D. Swartzberg - Stifel, Nicolaus & Co., Inc., Research Division

Operator

Welcome to the Anheuser-Busch InBev Full Year and Fourth Quarter 2012 Earnings Conference Call and Webcast. Hosting the call today from AB InBev is Mr. Carlos de 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. [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 the 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 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 de Brito. Sir, you may begin.

Carlos Alves de Brito

Well, 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%. We saw our 3 Global Brands growing ahead of the Street at 4.1%. EBITDA grew by 7.7%, with growth of 9.9% in the fourth quarter, and full year EBITDA margin expansion of 18 basis points, reaching 39%. Earnings per share grew by 12.6% to $4.55, and the board is recommending a dividend of EUR 1.70 per share, 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 1.87x before M&A activity, well below our commitment of 2x. In summary, a good year, a solid top line and EBITDA growth and a disciplined approach to cash management.

The volumes of our Global Brands, Budweiser, Stella Artois and Beck's, grew collectively by 4.1%. Global Budweiser continues to deliver strong growth, with global volumes growing by 6.3% in the full year. Stella Artois 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. Beck's 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 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 second 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.

Innovation has played a major role in our success last year, accounting for approximately 7% of total volumes, up from 6% in 2011. Bud Light Platinum, Bud Light Lime Lime-a-Rita in the U.S. led the way, with other highlights being Quilmes Night in Argentina and new visual identity for Skol in Brazil, Leffe Royale in Belgium and France and Stella Artois Cidre Pear in the U.K.

With that introduction, I'd 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 first quarter and improvement in the economy and innovations throughout the year. The trend of our old selling-day adjusted STRs was also positive in 2012, growing by 0.4% in the full year and by 0.9% in the quarter.

We'll continue a more Focus 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 first quarter due to short-term pressure in consumer disposable income from higher payroll taxes, delayed tax refunds and gas prices. We also face 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 fourth quarter, our first quarter of market share growth since mid-2009. 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-a-Rita. 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 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 170 basis points of favorable brand mix, driven by the growth in our premium plus and high-end brands. The strategy of positioning our innovations at higher price points is adding 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 marketing 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 general [ph] launch of Bud Light Platinum, which topped the charts as the #1 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-a-Rita hit the market, earning the #2 slot in the list of top-selling new beer products of 2012. The brand has achieved the market share of 0.4% since launch according to IRI, and based on our estimates, it's sourced only 18% of its volume from our own portfolio. 2013 will bring more new news, with Lime-a-Rita being joined by a new flavor, Straw-Ber-Rita.

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 amber 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. and expect Black Crown to help in broadening customer reach, 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 constants in the potential of the Michelob Ultra family.

Our high-end brands also saw a strong volume growth, with STRs up more than 18% and almost 30 basis points of share gain. With these results, Stella Artois volumes grew by 20% and Shock Top by more than 60%, reinforcing the brand's credentials as a national and scalable craft.

2012 was undoubtedly a strong year for innovations in the U.S., while the 2013 pipeline is also very strong. I have already mentioned Budweiser Black Crown, Straw-Ber-Rita and the Platinum sleek aluminum can. But there are others, including Beck's Sapphire, a premium line extension for the Beck's family, and Stella Artois Cidre, which reflects our commitment to developing the emerging U.S. cider category. And there will be others as the year progresses, not least of which will be the new Budweiser Bowtie can, especially 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 Focus Brands in the U.S. We aim to grow market share of the Bud Light, Michelob Ultra and Stella Artois families and continue to work hard to stimulate reappraisal of the Budweiser brand family, especially among young adults. We'll continue to drive results in the high end, with a focus on growing share of the top segment, building on the success of Stella Artois and Shock Top. We'll also look for revenue management opportunities, growing the revenue per hectoliter through better brand mix, strong innovations, price initiatives and optimization of our promotion 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% as a consequence of the timing of our price increases, but we made good progress in recovering this loss towards the end of the fourth quarter. Beer revenue per hectoliter grew by 9.6% for the full year, in line with our guidance, as a result of the third quarter price increase, the higher weight of own distribution and accelerated growth of premium beer volumes. Latin America-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 of innovations, including Antarctica Sub-Zero and the newly launched 550 ml cans for Skol and Brahma.

As mentioned last quarter, we launched the refreshed visual identity for Skol, designed to reinforce the brand's innovative and youthful image. Skol has also played the key role in growing the returnable glass bottle business in the off-premise channel.

Brahma's performance was supported by our focus in connecting 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. The brand's 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 and superpremium 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 fourth quarter, and Stella Artois in the superpremium segment delivering another year of substantial growth.

To summarize, our Brazil business delivered strong results, and we remain confident about the strength of our brands and our commercial plans. Looking into 2013, we expect our beer volumes to grow by low to mid-single digits in the full year, although we see some softness in the first quarter due to the earlier timing of Carnival compared to 2012 and wet weather. Our #1 priority in Brazil in 2013 will be on maintaining consumer preference for our 3 national brands: Skol, Brahma and Antarctica. We'll continue to expand the beer category through liquid and packaging innovations, as well as route-to-market initiatives designed to enhance the consumer experience and improve availability of our products. We will 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 fast-growing north and northeast parts of the country.

Moving now to China. Our beer volumes in China grew 1.9% in 2012. In the fourth quarter, our volumes declined by 8.1% on the back of an estimated industry decline in our footprint of almost 12% with the 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 Focus 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 Ice 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 million hectoliters. Three other breweries will open in 2013 and 4 more in 2014 and 2015. In total, over 20 million hectoliters of new capacity will come onstream by 2015.

We also remain active on the M&A front. And in the third quarter last year, we entered into agreements to acquire control in 4 other breweries to support our growth, bringing approximately 9 million hectoliters of additional capacity. We expect these transactions to close in the first quarter this year.

In 2012, Budweiser volumes in China, the brand's second 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; in price, at least 3x 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 packaging innovations across all channels, including a 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 meal time and night life. 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 select markets in December and will be rolled out nationally in the second quarter. We also launched Harbin Cool [ph] 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 night life, such as the Budweiser crown display and the Gan Bei can.

Looking ahead to 2013, we expect the return to solid industry volume growth with our own volumes in the first quarter showing a good recovery. Our priority in 2013 will include continuing to grow consumer preference for our national brands, Budweiser and Harbin, and our regional brand, Sedrin, supported by a strong innovation agenda. We'll look to leverage occasion-based innovations, 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 selective 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 in 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 the wholesaler performance.

I'd now like to hand over to Felipe to cover the highlights of the other business units and below EBIT results. Felipe?

Felipe Dutra

Thank you, Brito, and hello, everyone. Let me start with Canada from Slide 26. Our beer volumes in Canada grew by 0.1% in the full year and declined by 2% in the fourth 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 0.8% in 2012, with beer volumes up 0.1% and non-beer volumes down 2.2%. Our beer volumes in Argentina showed a decline of 0.4% for the full year, mainly driven by a softer [ph] industry, given the uncertain consumer environment. We gained share with strong performances from the Quilmes family and Stella Artois. Latin America-South EBITDA grew 21.9%, with an EBITDA margin increase of 78 basis points.

Western Europe, own beer volumes declined by 3.5% for the full year. In Belgium, own beer 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, own beer volumes decreased 1.4%, with growth in market share driven by strong performance of our Focus Brands, Beck's and Hasseröder.

In the U.K., volumes were down 8.2%, mainly driven by a weak industry and market share pressure due to competitive activity in the off-trade channel. However, Stella Artois Cidre continues to grow at 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%.

Beer volumes in Central and Eastern Europe decreased by 11.3% last year. In Russia, our beer 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 superpremium brands, including Siberian Crown, Bud, Stella Artois, Hoegaarden and Löwenbräu, gained an estimated 90 basis points of share and now represent 35% of our total points. Bud reached an estimated market share of 1.4% in Russia and 1% in Ukraine. EBITDA for the zone 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% 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 million for the full year. Our net interest expense, included with the net finance costs, continues to decline year-over-year as we reduce 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%, provided that the combination with Grupo Modelo closes in the first half. The average coupon is expected to decline by 50 basis points, that's from 2014, without the negative cash carry associated with the delay in closing the transaction.

Accretion expenses were $270 million in 2012. And in 2013, we expect an expense of $75 million per quarter. 2013 net finance costs will also include net pension interest expense of approximately $40 million per quarter as a result of the revised IAS 19 implementation.

Other financial results, also included with the net finance costs, were negative $116 million in 2012. In the fourth quarter, other financial results was a negative $227 million, mainly driven by noncash 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 interest line, having reported a $200 million gain in the fourth quarter of 2011, primarily from derivative contracts related to the hedging of our compensation products.

Our effective tax rate for the year was 16.3%, down from 20.2% 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 23% in 2013, between 20% to 25% from 2014 to '17 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% in 2008 to a negative 8.5% in 2012, generating almost $1 billion per year in incremental cash. And we still feel that there are more opportunities ahead of us. Our strong cash flow results enabled us to reduce our year-end net debt to $30.1 billion, a decrease of $4.6 billion compared to the end of 2011.

Net debt to EBITDA fell from 2.26x at the end of 2011 to 1.87x before M&A activity at the end of 2012, well below our commitment of 2x. The reported net debt-to-EBITDA ratio, including M&A, was 1.94x, just as a matter of reference.

The board is proposing, subject to shareholders' approval, a dividend of EUR 1.70 per share, an increase of 42% over the dividend paid last year and representing a dividend payout of 49% from 39% last year. The dividend will be paid as from May 2. We recognize 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 of the litigation until March 19, 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 billion. EBITDA increased by 7.7%, while our EBITDA margin expanded to 39%. Earnings per share increased by 12.6% despite significant currency translation headwinds. We overdelivered against our commitment to reach a net debt-to-EBITDA ratio of 2x. And the board, again, is recommending a dividend increase of 42% to EUR 1.70 per share.

With that, I would like to hand back to Jackie to start the Q&A session. Thank you.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Lauren Torres with HSBC.

Lauren Torres - HSBC, Research Division

Brito, I was curious -- and Felipe, if you could talk a bit about your cost guidance for this year. Your guiding cost per hectoliter up mid-single digits -- Ambev in Brazil talked about costs 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?

Felipe Dutra

Lauren, 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 has 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 million 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 that as part of our outlook. Regarding the second point, which is I think is more pricing related -- sorry, Lauren, what was exactly the second question?

Lauren Torres - HSBC, Research Division

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.

Carlos Alves de Brito

Lauren, Brito 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 mixed 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, continuously invest behind our Focus Brands and 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 of selling, there is also a lot of measures inside the company in terms of efficiencies as we have every year to try to offset the pressure.

Operator

Your next question comes from the line of Chris Pitcher with Redburn.

Chris Pitcher - Redburn Partners LLP, Research Division

On China, can I just confirm the numbers that you said, Brito, with regard to the new capacity coming on that you're building yourselves and the acquired capacity. I wonder if you could 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 the second point, a specific point, Felipe, could you address at what rate you're getting on the cash deposited waiting for the Modelo transaction to try to help model the cash dilution if there is indeed a delay, the rate dilution.

Felipe Dutra

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-point improvement in the coupon, as anticipated in the absence of debt as a negative cash carry.

Carlos Alves de Brito

On the China one, I mean, again, in 2012 we opened 2 new breweries. That added 5 million hectoliters of capacity. Three other breweries will open in 2013 and 4 during the period of '14 and '15. In total, over 20 million hectoliters of new capacity will come onstream by 2015. Plus the -- on the M&A front, the 4 breweries that we are in the process between signing and closing that we announced last year -- last quarter will have another 9 million hectoliters of capacity. So that's the plan for the next -- from what we have until 2015.

Chris Pitcher - Redburn Partners LLP, Research Division

And from a capital return point of view, can you tell us what the cost of building these new breweries are and how much inflation we're seeing in newbuild in China, or is it still around that sort of $20, $30 per hectoliter or has it been heading north?

Carlos Alves de Brito

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.

Chris Pitcher - Redburn Partners LLP, Research Division

Is it fair to assume with the additional depreciation, with the extra sales resource, administrative resource, et cetera, that margins in China are set to go down over the next couple years given these prices before they obviously start growing again. Is that the right direction?

Carlos Alves de Brito

We don't. We don't have 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 other brands. And these brands command a price premium of about 3x 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.

Operator

Your next question comes from the line of Melissa Earlam with UBS.

Melissa Earlam - UBS Investment Bank, Research Division

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?

Carlos Alves de Brito

Yes, Melissa, Brito here. What happened in 2012 is that we underestimated the -- our innovations in terms of Platinum and Lime-a-Rita. And we started production in one 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 $3.1 billion to $3.7 billion, so a 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 markets' points of consumption, the cost of distribution and costs overall came down. Lime-a-Rita, 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.

Operator

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

Trevor Stirling - Sanford C. Bernstein & Co., LLC., Research Division

I have 2 questions related to Brazil, Brito. The first one is you talked about the likely softness in the first quarter due to the earlier timing of Carnival. Does that mean that some of the shipments may well have taken place in the fourth quarter? And if so, could you 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% price mix in Brazil, can you give us a sense of roughly how much of that is price and then how much relates to the other factors that you mentioned?

Carlos Alves de Brito

What was the second question again, Trevor?

Felipe Dutra

9% growth in Brazil, what's the breakdown between price and the other elements, such as the right execution at the organization, et cetera.

Carlos Alves de Brito

Okay, all right. So -- okay, so the first question, I mean, 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 and February. But whenever Carnival is earlier in February, what happens is that there is more of a volume transfer into January but not into December, okay. So that's what normally happens. In terms of the second one, Felipe?

Felipe Dutra

Yes, we know there is pricing 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 is mix, package and also brands as part of the premiumization strategy, but we do not provide the breakdown of those. On the first question, just to add to what Brito said, there is also the notion that the Carnival in Brazil marks the end of December and the start of the school period. And therefore, the earlier 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.

Operator

Your next question comes from the line of Andrea Pistacchi with Citi.

Andrea Pistacchi - Citigroup Inc, Research Division

I have a couple of quick questions, please. The first one, on your guidance on marketing spend at the high single-digit, which is more, obviously, than you spent in terms of -- in 2012, and you're up about 7. So could you be specific at all if you can on what is driving this step-up. Any particular initiative or by region if there is any skew? And then the second question is on Eastern 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.

Carlos Alves de Brito

Andrea, it's Brito here. I mean, first, in terms of marketing and 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're 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. And in terms of...

Andrea Pistacchi - Citigroup Inc, Research Division

So sorry, can I -- sorry, on the marketing spend, so we therefore think of it -- I mean, it's high single-digit on 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?

Carlos Alves de Brito

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 and 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 2009, the 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 immediate ban that kicked in 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're continuing to lose in the value segment, but 30% of our volumes are already in premium and superpremium 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 one 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 one quarter.

Operator

Your next question comes from the line of Ian Shackleton with Nomura.

Ian Shackleton - Nomura Securities Co. Ltd., Research Division

You made the comment and the statement that you expect margin expansion in the U.S., but you don't say whether you expect that for 2013. Wondering if you could just talk about that. Obviously, you got the rollout of Black Crown sort of to come, which presumably would put some pressure. Are you still expecting Bud Light Platinum to grow? And just give us some more color around how you see margin mix this year in the U.S. or North America.

Carlos Alves de Brito

Brito here. We're not giving any guidance specifically for this year, but what we said for the U.S. is that we see a continuous opportunity for margin expansion, and that's not necessarily for 2013. It could be, could not be, but I mean, that's in terms of the 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 the fourth quarter, 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.

Ian Shackleton - Nomura Securities Co. Ltd., Research Division

And if you could just follow up pretty much the COGS guidance, I mean, it looks to me if you took out the negative impact from the real-U.S. dollar plus transaction exposure, you really sort of see it across the group of COGS being flattish. I'm presuming that's really what you're seeing in North America for this year.

Felipe Dutra

For the whole group, if you say mid-single digits, it 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, incentives and productivity gains. We're not -- that means flattish in the U.S., then you can play with the numbers, but that is the math we are doing here.

Operator

Your next question comes from the line of Dirk Van Vlaanderen with Jefferies.

Dirk Van Vlaanderen - Jefferies & Company, Inc., Research Division

I'm wondering if you could -- sorry, just keeping you under the North American margins. Is it possible to give an impact from the bonus accrual reversal in the fourth quarter? And then also maybe just I'm surprised that the gross profit continues to come under pressure. Maybe talk around what went on there in the fourth quarter.

Carlos Alves de Brito

Dirk, so what you asked is about the bonus reversal in the last quarter?

Dirk Van Vlaanderen - Jefferies & Company, Inc., Research Division

Yes, well, the impact of that, so I think it would have come through from Q4 '11.

Felipe Dutra

Well, that happened in Q4 '11 favoring the Q4 -- already in Q4 '12 on a quarter-over-quarter comparisons, right? Did that go with your math?

Dirk Van Vlaanderen - Jefferies & Company, Inc., Research Division

Yes, correct.

Carlos Alves de Brito

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.

Operator

Your next question comes from the line of Mitch Collett with Goldman Sachs.

Mitch Collett - Goldman Sachs Group Inc., Research Division

I guess your guidance for Brazil in price, slightly stronger volume growth this year than you achieved in 2012. I'd just like 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, don't know if I got this right, you said that 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?

Carlos Alves de Brito

Yes, exactly, that's totally right. I mean, as Felipe said, Carnival in Brazil is normally at the end of the summer. That's when the families go back to normal lives, kids go back to school. So the earlier the Carnival, the -- let's say, the shorter the summer, so that doesn't translate into more volume in the fourth quarter. It translates just in less of a Carnival impact, positive impact for the first quarter. 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, that would be very strong finish, strong fourth quarter, some softness in the first quarter 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 the leverage 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, 2.5%, a 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 $1.5 billion in our total CapEx of $3.7 billion, 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 volume is growing in Brazil pretty much in line with last year, and that is low to mid-single digits. So that is the summary for Brazil.

Mitch Collett - Goldman Sachs Group Inc., Research Division

Given that Q1 is going to be a bit softer, at least 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.

Carlos Alves de Brito

Again, we're giving the outlook and the guidance for the year, for the full year, not by quarter.

Operator

Your next question comes from the line of Andrew Holland with Societe Generale.

Andrew Holland - Societe Generale Cross Asset Research

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've restated down to EBIT. Can you just tell me what happens on the 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?

Felipe Dutra

Should be equal to the restated. There is more details on that on the Page 36 of the financial report.

Operator

Your next question comes from the line of Robert Ottenstein with ISI.

Robert E. Ottenstein - ISI Group Inc., Research Division

It was very gratifying to see the U.S. market share trends throughout the year. Can you talk a little bit, number one, about Bud Light brand health scores and to the extent that Platinum has improved the actual brand health scores for Bud Light itself? And maybe a little bit -- I know it's very early days but maybe a little bit 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.

Carlos Alves de Brito

Robert, it's Brito here. I mean, Bud Light family had a great year last year with the 2 top innovations in the U.S., Platinum and Lime-a-Rita. The brands -- the family grew by 70 basis points of 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, Black Crown has been launched at the beginning of this year, so it's been 4 weeks, 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 I think it's too early to draw any conclusions, but we're very glad with the way it's been launched.

Robert E. Ottenstein - ISI Group Inc., Research Division

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?

Carlos Alves de Brito

Well, Rob, we don't comment on the trading conditions during in 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 improvements and also with some price increases, okay. So that's the way the market has grown. It's never -- or we have grown that market net revenue per hectoliter in the last few years.

Operator

Your next question comes from the line of Sanjeet Aujla with Crédit Suisse.

Sanjeet Aujla - Crédit Suisse AG, Research Division

A couple questions, please. Firstly, Felipe, you talked about further working capital opportunities. Can you elaborate...

Carlos Alves de Brito

Can you speak up a little bit, Sanjeet?

Sanjeet Aujla - Crédit Suisse AG, Research Division

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.

Felipe Dutra

Yes, on the working capital opportunities, quite honestly, we feel we are still in the learning curve as we started our journey back in 2008. 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 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, meaning payables, receivables, inventories, we feel there is more opportunities there. That's why we flag that there is more to come.

Carlos Alves de Brito

Sanjeet, 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 Lime-a-Rita, but these 2 brands surprised us big time in terms of more volumes. And again, an example I gave earlier on, Lime-a-Rita, 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 these costs of logistics, the cost also of some raw materials that were new to the beer business, like the blue bottle, they 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.

Sanjeet Aujla - Crédit Suisse AG, Research Division

And just pointing on -- but just some of that gross margin point again, do you think you can grow gross margin next year in the U.S?

Carlos Alves de Brito

No, our guidance is not on EBIT...

Sanjeet Aujla - Crédit Suisse AG, Research Division

Not on EBIT level, but on a margin level.

Carlos Alves de Brito

Yes, our guidance is on EBITDA margin. I mean, we say we see -- we continue to see room for improvement in the 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. 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.

Operator

Your next question comes from the line of Jamie Norman with Societe Generale.

Jamie Norman

A question on your thoughts on the direction of the U.S. beer market. You mentioned as in the trade press that the increased payroll taxes have taken their toll on the consumer, just so fuel costs. I'm wondering your mind how that nets off, get 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?

Carlos Alves de Brito

Well, 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 first quarter, 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...

Felipe Dutra

Weather.

Carlos Alves de Brito

And the weather -- Felipe's right, the weather comparison. Gas taxes go 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 of being an affordable luxury for consumers.

Operator

Your next question comes from the line of Mark Swartzberg with Stifel.

Mark D. Swartzberg - Stifel, Nicolaus & Co., Inc., Research Division

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 '12?

Carlos Alves de Brito

Well, Mark, what we -- first, we can only control what we control, right? So we're very excited about the pipeline of innovations we have, 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 fourth quarter. On the other hand, if you look at the economy at large, I mean, you see that labor participation continues to go up, and that's something that correlates big time to our industry projections in terms of demand. And the 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 there's just many things, consumers, at 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 first quarter. But on the things we can control, we remain very excited because we saw the results of 2012 ending in a very strong quarter, and those things will remain in the -- in 2013. And 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, market, creating the premium plus segment, these all seems to be working given the share levels and profitability.

Mark D. Swartzberg - Stifel, Nicolaus & Co., Inc., Research Division

And on Platinum, specifically, looks like -- what is the trend on that sequentially from a share perspective? But 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?

Carlos Alves de Brito

I mean, most of the numbers are public because they are IRI numbers anyway. IRI says that Platinum reached 1.1%. As just 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 a bottle. So that Platinum continues -- the story of Platinum will continue.

Operator

Ladies and gentlemen, we have time for one additional question. Your final question comes from the line of Olivier Delahousse with Natixis.

Carlos Alves de Brito

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.

Operator

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

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