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

Q3 2013 Earnings Call

October 31, 2013 9:00 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

Andrea Pistacchi - Citigroup Inc, Research Division

Chris Pitcher - Redburn Partners LLP, Research Division

Nik Oliver - BofA Merrill Lynch, Research Division

Simon Hales - Barclays Capital, Research Division

Melissa Earlam - UBS Investment Bank, Research Division

Kris Kippers - Petercam S.A., Research Division

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

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

Brett Cooper - Consumer Edge Research, LLC

James Edwardes Jones - RBC Capital Markets, LLC, Research Division

Mitch Collett - Goldman Sachs Group Inc., Research Division

Anthony J. Bucalo - Grupo Santander, Research Division

Sanjeet Aujla - Crédit Suisse AG, Research Division

Edward Mundy - Nomura Securities Co. Ltd., Research Division

Operator

Welcome to the Anheuser-Busch InBev Third Quarter 2013 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 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 25, 2013. 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

Thank you, Jackie. And good morning, good afternoon, everyone, and welcome to our third quarter results conference call. Let's start with the highlights.

We delivered solid revenue per hectoliter growth of 4.2%. That was a good performance from our global brand portfolio, led by Budweiser. The Grupo Modelo integration continues to go very well, and we are ahead of schedule in delivering cost synergies. Consolidated EBITDA grew by 10.5%, with healthy margin expansion in all zones apart from one. Normalized profit attributable to equity holders of AB InBev increased by 20% compared to the third quarter last year, and our board has approved an interim dividend for fiscal year 2013 of EUR 0.60.

Turning now to the detail of these results. Total revenue for the quarter grew by 3%, driven by strong revenue per hectoliter growth of 4.2% or 4.9% on the basis of the same geographic mix. As you can see from the chart, there was solid per hectoliter performances in all of our top 4 markets. Total volumes are down by 1.3%, with beer volumes down 1.4%. Our global brands grew by 5%, and our total Focus Brands volumes grew by 0.3%. EBITDA was up 10.5%, with an EBITDA margin expansion -- EBITDA margin of 39.8%, a growth of 274 basis points, with the strong contribution from the captured cost synergies from the Grupo Modelo combination of approximately $210 million in this quarter.

The volumes of our global brands -- Budweiser, Corona, Stella Artois and Beck's -- grew collectively by 5%, as I mentioned. Global Budweiser led the way, up 8.1% in the quarter and 7.5% year-to-date, led by strong performances in China, Brazil and the U.K. Corona grew by 3.7% due to the strong performances in Mexico and the brand's main export market outside the U.S. We continue to see tremendous growth opportunity and potential for Corona. Stella Artois also had a good quarter, growing by 3%, with good performances in the U.S., the U.K. and Argentina. Finally, Beck's volumes were down in the quarter, with performance being impacted by challenging industry conditions in Germany.

Moving now to our top markets, starting with the U.S. We estimate that industry selling day adjusted sales-to-retailers, STRs, declined by 1% in the quarter and by 2.2% year-to-date. Our own selling day adjusted STRs were down by 2.7% in the quarter and by 3.3% year-to-date, with the quarter partially impacted by the timing of our price increase. Our price increase took effect on 30th of September, although in some regions, the increase was delayed until the start of November, given local market conditions. Consequently, some of the retail buy-in, in advance of the price increase occurred in October this year compared to the third quarter last year, negatively affecting our third quarter STR volumes and market share. We estimate that our STR volumes in the fourth quarter should benefit from this timing difference.

Our reported sales-to-wholesalers, STWs, declined by 1.9% in the quarter and by 2.8% year-to-date. We estimate our total market share declined by approximately 80 basis points in the quarter and by 60 basis points year-to-date. Part of the share loss is linked to the timing of the price increase, which, as I just mentioned, resulted in some retail buy-in being delayed into October, benefiting the fourth quarter. The trend of our estimated year-to-date share loss at the end of October is expected to be in line with the share loss reported for the first half of the year, or approximately 45 basis points, primarily concentrated in the sub-premium segment.

U.S. revenue per hectoliter remains strong, growing by 3.2% in the quarter and by 3.7% year-to-date. This includes approximately 100 basis points of favorable brand mix, driven mainly by the launch of Straw-Ber-Rita earlier this year, as well as the growth of Ultra and our high-end brands. Brand mix contributed 130 basis points on a year-to-date basis.

EBITDA margin in the U.S. expanded by approximately 80 basis points in the quarter, mainly due to savings in distribution expenses from an improved production footprint for our Ritas innovations, as well as the strong revenue per hectoliter result. We estimate that selling day adjusted industry STRs declined by 1% in the third quarter, benefiting from more favorable weather, as well as reduced pressure on consumer disposable income. As you can see from this chart, the improving industry trends, which we have seen since the end of February, has continued through the peak summer season and into the fall.

I should point out that, for the purpose of this analysis, we have combined the month of June and July to eliminate the distortion created by the timing of the July 4 holiday. I've also combined the month of September with our estimates for October to eliminate the impact of the timing of our price increase on industry volumes. The trend is encouraging, and although labor participation and unemployment rates among young adult males continue to be under pressure, and we remain confident about the long-term growth potential of the industry.

Turning now to the performance of our brands in the U.S. We estimate that market share for the Bud Light family was down approximately 25 basis points in the quarter, with Bud Light gaining share in the premium light segment, based on our estimates. The premium light segment as a whole remains under pressure, and we're working hard to make Bud Light even more relevant for today's consumer. Our NFL sponsorship is an important property in this regard. Household ratings for the NFL are up this year, and we are leveraging its popularity to drive consumer connection with Bud Light. A decline in STRs for the Bud Light brand was partially offset by strong growth from Straw-Ber-Rita and Lime-a-Rita, with the Ritas achieving a combined market share of 80 basis points in the quarter based on STRs. Joining the Rita family, ready for the holiday season, will be Bud Light Lime Cran-Brrr-Rita, a seasonal addition to the portfolio.

Budweiser had a good summer, with improving performance trends supported in recent weeks by the Made in America music festival and Major League Baseball activations. We estimate that market share for the Budweiser family was marginally down in the quarter, with Budweiser Black Crown partially offsetting a share decline in Budweiser. The second annual Budweiser Made in America music festival in September was a big success, with a record 120,000 people attending the festival. Even more impressive, though, was the 2.5 million millennials who connected with Budweiser Made in America via social media. Our Major League Baseball sponsorship, Made in America and Project 12 are all important contributors in helping us drive the relevance of Budweiser to today's consumer and to stabilize its market share.

A quick word on Ultra and our high-end brands, which, as a group, continue to gain share. In 2013, Michelob Ultra became a top 10 brand in the U.S. with a market share of just over 2%, according to IRI. The brand has been in the market for more than a decade, and it's still growing. Shock Top and Stella Artois continue to deliver good volume and share results, and Goose Island has emerged as one of the fastest-growing craft brands in the country, with very strong volume growth in the quarter and year-to-date.

Before I close on the U.S., I'd like to share with you 2 exciting packaging innovations, which hit the market during the third quarter. Our new 25-ounce can, the only such package on the market, retails for the same price as a traditional 24-ounce can and delivers added value to the consumer. We also launched a resealable 16-ounce aluminum bottle, which provides a functional benefit to consumers and features a sleek, contemporary design. Both packages are being manufactured in our own facilities. These package innovations are part of a broad innovation agenda, which includes a diverse range of liquid, package and marketing initiatives.

Moving now to Brazil. Industry volumes were down 4.3% in the quarter, with our own beer volumes down 5%, driven by a continuing weak economy and pressure in consumer disposable income. We are not satisfied with this result, but we're focusing on what we can impact and influence. To this end, our revised commercial plan, which we put in place during the first quarter, is delivering good results. Our proprietary 1-liter and 300 ml returnable glass bottle packages continue to grow ahead of the industry, offering better value to the consumer at a time when they are feeling the pressure. These packages helped us to achieve a good market share result in the quarter, with share, by our estimates, down by only 10 basis points on a sequential basis, reaching 68%.

Looking at the industry in a little more detail, we're encouraged to see that the high level of food inflation, which impacted our volumes significantly at the start of the year, continued to ease during the third quarter although, on an annual basis, food inflation is still running ahead of general inflation. There's no doubt that the consumer environment will continue to face challenges in the short term. However, we remain confident in the medium- to long-term growth potential of the Brazilian beer market.

On the macroeconomic front, we expect the government policy to continue to be geared towards stimulating the economy and improving consumer disposable income. From a beer industry perspective, the demographics remain favorable, and we expect further growth in the level of per capita consumption, especially in the north and northeast parts of Brazil. The premium segment continues to grow quickly, and we have the portfolio of brands that can win in this segment.

The fact that the Brazilian federal government is supporting the industry by their recent decision to cancel the planned October excise tax increase is also very positive.

Last but not least, we're now 8 months away from the start of the 2014 FIFA World Cup, an event that's sure to bring tremendous excitement to Brazil with lots of new beer drinking occasions. Our programs are locked and loaded.

Moving now to Mexico. Mexican beer industry volumes remained under pressure in the third quarter, with our own volumes down by 2.3%. This industry performance was due to weak economic growth and the impact of severe hurricanes and tropical storms, which caused widespread disruption along the Mexican coastline during the month of September. EBITDA for Mexico grew by 70% in the quarter, driven mainly by the captured cost synergies but helped by the revenue per hectoliter growth of just over 6%.

The combination of Grupo Modelo is going extremely well. Our first priority after closing the combination in June was to engage with the new team and roll out our Dream-People-Culture platform. We're very pleased with the way the team has embraced the AB InBev culture and ways of working, with best practices being shared in both directions. This smooth integration has allowed us to capture cost synergies much quicker than planned. Since the closing of the combination, we have delivered $250 million of cost synergies. Of this amount, $210 million was delivered in the third quarter, with a further $40 million coming from initiatives in the second quarter. In addition, the Grupo Modelo management team delivered $75 million of cost savings prior to the closing as a result of best practice sharing. The total value of synergies captured so far is $325 million, of which $300 million has been captured in the Mexican zone, with the remaining $25 million being reported within our global export and holding companies.

We reiterate our commitment to deliver $1 billion of cost synergies before the end of 2016, although we now believe the majority of these savings will come by the end of 2015. We also remain on track to deliver $500 million of working capital savings in the first 2 years after closing.

So in summary, the new team is in place, the integration cost synergy capture is progressing extremely well, and we're very excited about the potential to grow the business in Mexico.

Moving now to China. Our business in China's performing very well. Our beer volumes grew 8.3% in the quarter and 8.8% year-to-date, driven by industry growth and estimated market share gains. Our Focus Brands Budweiser, Harbin and Sedrin, which represent about 73% of our volume in China, grew by 13.5% in the quarter and by 14.8% year-to-date. We estimate that we gained 75 basis points of market share in the first 8 months of the year, for which data is available. Revenue per hectoliter growth of 7.8% was mainly driven by improved premium brand mix. EBITDA for the APAC zone increased by 24.1% in the quarter with EBITDA margin expansion.

And with that, I'll hand over to Felipe to cover our other markets and below-EBIT line items. Felipe?

Felipe Dutra

Thank you, Brito, and good morning and good afternoon, everyone. Starting from Canada, we estimate that the industry declined by 1.2% in the quarter, driven by higher taxes and pressure on consumer disposable income, although there are good signs of industry improvement. Our own beer volumes in Canada declined by 2.2% in the quarter, with market share stable on a sequential basis.

Our Focus Brands grew 1.5% during the quarter, led by Bud Light family, which is benefiting from the rollout of our premium Platinum and Lime-a-Rita innovations. The market remains very competitive, but we continue to invest behind our brands while balancing volume and profitability in a sustainable way.

Moving to Latin America South. Total volumes in the zone were marginally down, with beer volume decline of 2% and non-beer volume growth of 2.2%. Our beer volumes in Argentina grew 0.5% despite a difficult economic environment and high inflationary pressure. We estimate that we gained market share during the quarter, as well as year-to-date. Zone EBITDA grew 20.5%, with margin expansion of almost 200 basis points to 42.6%.

In Western Europe, own beer volumes grew by 0.1%, helped by good weather in most of our markets. In Belgium, own beer volumes increased 0.4%, with a good performance from our Focus Brands during the summer. In Germany, own beer volumes fell by 3.5% due to a weak industry and market share loss following our price increases. In the U.K., own beer volumes grew by 4.2% in the quarter, with the industry enjoying excellent summer weather and our own business benefiting from very strong market growth. Belgium, Germany and England have already qualified for the FIFA World Cup in Brazil next year, allowing us to fully leverage our global sponsorship of the tournament to drive Jupiler, Hasseröder and Budweiser in their respective markets. Western Europe EBITDA grew 4.8% to $350 million in the quarter, with EBITDA margin expansion of just over 100 basis points to 34.4%.

The third quarter was a very challenging one in the Central and Eastern Europe zone, with volumes declining by 18.9%. In Russia, beer volumes fell 13.4% due to a weak industry. Nevertheless, we estimate we gained share sequentially, with Bud now the fifth largest premium brand in the country, with almost 2% market share only 2 years after launch. EBITDA in the zone was down by 38.2% in the quarter, driven by the volumes decline.

Turning now to the below-EBIT results. Net finance costs, excluding nonrecurring net finance costs, were $562 million in the quarter compared with $680 million in the same period of last year. Net interest expense was $430 million, in line with our net debt coupon guidance of 4.8% to 5.3%. Other financial results includes mark-to-market gains of $193 million on the hedges related to our share-based payment programs. In addition, we recorded a nonrecurring net finance results of positive $170 million in the quarter resulting from mark-to-market gains linked to the hedging of the EBIT exposure related to the combination with Grupo Modelo. This exposure is now fully hedged. Income tax in the quarter was approximately $700 million, with a normalized effective tax rate of 21.3% compared to 17.2% in the third quarter of last year. This increase mainly results from a change in country mix, which now includes Mexico. Our full year 2013 guidance remains in the range of 19% to 21%.

Earnings per share in the quarter increased by 17.2% to $1.36 per share. The increase is due to profit growth in the underlying business and the combination with Grupo Modelo, including the capture of cost synergies. The board has approved an interim dividend of EUR 0.60 per share for fiscal year 2013, with payments starting on 18th of November. This is consistent with the already announced decision to move to a semiannual dividend payment policy in order to better balance the payout impact and cash flow generation. Over time, we'll expect that the November interim dividend will grow in relevance when compared to the one usually paid in May. We recognize the value of growing dividend, with low volatility consistent with the noncyclical nature of our business, and we will continue to target a dividend yield between 3% to 4% with respect to each full fiscal year.

In terms of capital allocation, our first priority will always be to invest behind our brands and to take full advantage of the organic growth opportunities in our business. M&A remains a core competence, and we will always be ready to look at opportunities if and when they arise, provided that they are at the right markets, at the right price and at the right time. Our optimal capital structure calls for a net debt-to-EBITDA ratio of around 2x, and we remain committed to being below this level during the course of 2014. At that point, return of cash to shareholders is expected to be comprised of both dividend and buyback programs.

Just a quick update on our Better World agenda before we open it up for the Q&A section. On the 21st of September, we celebrated Global Be(er) Responsible Day for the fourth year. This is a very special day for us, with more than 35,000 colleagues taking to the streets to remind consumers and retailers of the importance of responsible drinking. In addition, leading up to this event, we hosted our first-ever online forum of responsible drinking. The forum featured more than 20 experts and more than 200 participants, with discussion on key topics such as preventing drink-driving and underage drinking. Through this effort, we gained valuable feedback on our work to date, as well as insights into what additional actions we should pursue going forward.

And with that, I'd like to hand back to Jackie to start the Q&A section. Thank you.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question is coming from Andrea Pistacchi with Citi.

Andrea Pistacchi - Citigroup Inc, Research Division

I had a question, please, on the surprising situation in the U.S. If you could be, please, a little more specific on what drove the decision to postpone pricing in some of your markets? And also, if you could possibly give a sense of what portion of your U.S. business this -- in what portion this postponement has taken place and general comments on the pricing situation, please?

Carlos Alves de Brito

Well, Andrea, Brito here. So first, I mean, the price in the U.S., as said in our press release, this year was a bit delayed because of some different regional conditions. So as you know, every year, price increase is done differently by region, by package, by channel, in some regions, with no price increases, some others with above-average price increase, so it's a very different footprint in terms of what we do. And of course, we take into account the market particularities and conditions. So -- and then this year, we thought it was best for our brands to delay some of those price increases. But at the end of the day, the net price increase was about 3%, which is slightly higher than last year. So that's the net of all this. But of course, since you asked, I mean, this delay will have an impact in the fourth quarter, for sure, because instead of having 3 months of new price in the fourth quarter, as we had last year, we're going to have 2 months because of the delay. And yes, so that's the summary in terms of the price increase in the U.S. this year.

Andrea Pistacchi - Citigroup Inc, Research Division

May I just -- sorry, a follow-up for [indiscernible]. Ask him whether these concerns are, in some states, the whole portfolio or whether this is just the low end or your -- the premium segment? If you could be at all more specific, please?

Carlos Alves de Brito

No, I mean, for competitive reasons, I think that's what we want to say at this point about the price increase.

Operator

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

Chris Pitcher - Redburn Partners LLP, Research Division

Following on from the pricing question. Could you just clarify -- I don't think you gave it, the percentage of your region or volume that has had the price increase delayed, just so we can get a better idea of the impact? And then on the whole pricing situation, could you talk a little bit about how the competitive price response has been in Brazil and confirm whether -- you said canceled -- the excise didn't increase, it had been canceled rather than deferred?

Carlos Alves de Brito

Well, again, this delay only affected some regions, as I said before. But I think, Chris, the best answer is at the end, the net of all the different situations -- because again, we apply pricing per pack, per region, per channel and in different timings. I think the best one is to say that the net price increase is about 3%, and that's slightly higher than last year. I think that summarizes everything. In terms of Brazil, the fellowship [ph] or the market is under pressure there because of the currency devaluation. Now the currency came a bit back, but there is inflation. There is currency devaluation, and therefore, as every time, I mean, we increase prices, there is delay. Competition has their own agenda. They don't follow 100%, but the fact of the matter is that everybody was pressured this year because of the cost pressure and the currency devaluation.

Operator

Our next question comes from the line of Nik Oliver with Bank of America Merrill Lynch.

Nik Oliver - BofA Merrill Lynch, Research Division

Just one on the North -- for the LATAM North margins, just trying to get a sense of how much of the increase is recurring factors and how much was one-off. So firstly, on the other operating income, how much of that increase was the government grant year-on-year, and how much was the legal claim? And then, on the admin expenses, just some sense about how big the element of variable compensation was within that number?

Felipe Dutra

Yes, probably the second question would answer the first one. On the other operating income, a significant chunk is linked to fiscal incentives, which are beer, in the long term, and it's a kind of recovering part of the business, which is helping or adding to the EBITDA margin expansion for the quarter although we do not -- or did not provide a breakdown on the pieces. In terms of admin expenses, there is not only the issue on bonus accrual here and there, but there is the issue on calendarization for different quarters. I would encourage you to take a look on the full year basis more than in any specific quarter. But in any event, the bonus accrual is linked to internal target achievements. And as always, targets are very strategic [ph].

Operator

Our next question comes from the line of Simon Hales with Barclays.

Simon Hales - Barclays Capital, Research Division

A question -- or a couple of questions around Mexico, if I can. Just on the cost saving delivery in Q3, I think it was ahead of most people's expectations. Can you just talk a little bit about where those cost savings actually came from in the quarter? And given that speedy delivery and the fact that those cost savings you delivered to date are going to continue to annualize over the coming months, why should we not expect to see an even greater proportion of the $1 billion delivered by the end of fiscal '14 rather than reflowing into 2015 and 2016?

Carlos Alves de Brito

Simon, what we said about -- again, stepping back, I mean, I think you're right. I mean, we're very pleased with the combination and the speed of integration of the Mexican operation into our business. I mean, the guys really embraced the culture and, really, the dream of building the Best Beer Company in a Better World and being part of that. So the $325 million of synergies within the -- what was the Grupo Modelo not only Mexico, but mostly in Mexico, year-to-date, was a great testament to that. Pretty much 45% of this is coming from cost of sales and the other 55% coming from operating expenses. What we said, given that the speed of capture is being greater than anticipated, is that the $1 billion is confirmed, but we're saying that most of it should be captured by the end of 2015, with all of it being captured by the end of 2016. So we recognized that by adding to what we have said the previous quarter, given the speed of the integration. So we're very happy with that.

Simon Hales - Barclays Capital, Research Division

Okay. And just following on the string on Mexico, if I can. Can you just -- obviously, the volumes were impacted, you said, by the weather in the quarter. I'm just sort of wondering, in the non-weather-hit regions, what the volume performance was like, trying to get an idea of what that, the underlying market, is looking like.

Carlos Alves de Brito

Well, we're not disclosing by region, but what I can tell you is that September was what really drove the volumes to what we have in terms of minus 2-plus percent because September was a terrible month. And I think everybody saw all the storms on both coasts, tropical storms and hurricanes. So if you look at July, August, a much better picture. If you look at September, a much worse picture that impacted the full quarter.

Operator

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

Melissa Earlam - UBS Investment Bank, Research Division

Just a couple of questions, please. Just to confirm, on the $1 billion savings target for Modelo, does that include the $75 million of cost savings prior to the acquisition completing? And then secondly, moving on to the U.S., can you just confirm -- you alluded to innovation being a key part of your agenda for the year. Can you confirm that we should expect a full innovation pipeline starting already from January 2014 again?

Carlos Alves de Brito

Yes, Melissa, yes. To your first question, yes, the $75 million is part of the $1 billion, so yes. In terms of the U.S., the pipeline continues to be very healthy. If you remember last year, 2012, we had the top 2 most successful innovations in this market. And if you look at this year, the year is not over yet, but year-to-date, we have also the top 2, being Straw-Ber-Rita the #1 innovation this year. That was not a full year, even. It was launched later in April. The pipeline remains very strong. And during the third quarter, we launched 2 package innovations: The 25-ounce can, which we're the only company with that kind of pack size in the marketplace. We think it's going to be very strong in the single-serve convenience store because it's at the same price point as the 24-ounce from our competitors, brand by brand. And we also launched the 20 -- 16-ounce resealable aluminum bottle that's, compared to competitor, it's sleeker, it's more contemporary. So we think we're building -- we're still in the building phase, but we think it's going to be very successful with our young adult consumer. So we have a great pipeline for next year that will start with Super Bowl, which is the time when we normally launch the innovations for the year, and that will be no different for 2014. So we continue to think 2 or 3 years ahead and very excited about innovations. And innovation should be looked in a broader fashion. It's not only liquid. It's also packaging, and it's also marketing programs, signature marketing programs, right? And it's also good to mention here that in our -- especially on the packaging innovation side, the verticalized operations that we have with MCC, Metal Container, has played a big role in providing us with proprietary packages in the market. So we're utilizing our verticalized operations to give us that competitive advantage in the marketplace in a very competitive market, which is the U.S.

Operator

Our next question comes from the line of Kris Kippers with Petercam.

Kris Kippers - Petercam S.A., Research Division

Some more follow-up questions. Perhaps, first one, specifically on the dividend strategy. We saw the interim dividend for the first time. How should we see this evolving going forward? Will it be a percentage of the full year dividend, or will it be gradual, going up together with the full year dividend? So some more feedback on that would be great. And then regarding the Mexican synergies, which are, indeed, quite fast. Are they just going faster, or you also see some lines which are going better than anticipated initially?

Felipe Dutra

Yes, first -- on the first one, from the cash management standpoint, given the fact that we have already paid EUR 1.7 at the beginning of this year and now the proposed EUR 0.6, that is EUR 2.3 in terms of total payout. We thought that EUR 0.6 is a good starting point for the transition while taking into account our strong commitment for the leveraging. So over time, as the balancing between first and second half payment is what we are trying to achieve with the policy of paying twice a year, the November should grow in relevance as compared to the May. I'm not suggesting here they are going to be equal, but the balance going forward should be a bit better than what we've seen this year, again, as a transition year. And, if I may add to that, the only point is, being the first or the second half, we will always be focused on the full year fiscal dividend or the dividend being paid in connection with each fiscal year, and that one is the one we expect to be a growing number, right?

Carlos Alves de Brito

And Kris, in terms of the synergies, I mean, yes, they are coming faster because, as I said, the integration is going very well, and people really embraced the idea that together, we can do more things, that together, we can do more. And they embraced the dream of building the Best Beer Company in a Better World. In terms of -- it's always the case, as you said, that synergies come from different lines. You planned for one thing, and then when you go to implement them, some lines are better, some lines are worse. But at the end, what we're seeing here is that we're confirming the $1 billion flat. We're saying that the speed will be greater. And therefore, we should have most of them captured by the end of 2015. The other thing that this is not in the numbers, but we continue to be very bullish about, is the Mexico top line opportunities over and above the $1 billion. The $1 billion, as you remember, is only related to cost synergies, as we always do. But we said at the time of the combination, when we announced it, that we also -- through the exchange of best practices, that we saw lots of opportunities for top line synergies that would not be announced but, for sure, would come on top of the $1 billion. So that hasn't changed.

Operator

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

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

First question would be, Brito, we've heard a lot about on-trade slowdown in the U.S. from people inside the beer category, but also in other beverage alcohol categories. Is that something you're seeing in your business as well?

Carlos Alves de Brito

Yes. I mean, on-trade has been hit by the whole economic situation. And then when you look at our consumer, consumer in the U.S. has been hit by so many things, I mean, payroll taxes and government shutdown, and that's still in discussions, and -- I don't know. I mean, so many things. I mean, it's -- and now the health care issue. I mean, it's a transition year for the health care, for the Obamacare. So I mean -- and you know that the on-trade beer is more expensive, not only beer, but everything is more expensive, so people tend -- not only in the U.S., but when times are tough, they tend to buy more in the off-trade, where they can get the same for much better pricing. So -- but on the other hand, we see big opportunities for the on-trade because that's a part that we haven't focused so much in the past. And we think, given the brands we have today and the fact that we're premiumizing more and more of the portfolio, as we've done in the past with brands that we've built, the on-trade is a very important component. So we're very committed, especially this fourth quarter and the beginning of next year, to really be more focused on the on-trade because, even if you say it's under pressure, the fact of the matter is that premium brands remain an important part of the on-trade, and we want to be more active in that segment.

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

My follow-up question would be, have you an estimate of what STRs would have been without the change in phasing of the price increase?

Carlos Alves de Brito

No, I mean, at this point, I think the best answer for this is to say that, as we said with our share, that our -- the fact that the price was delayed had an impact on the way the trade rose before the price increase. And last year and this year, there was a month lag, so that pushed some of the volume from September -- from October into November -- from September, sorry, into October, therefore, from the third to fourth quarter. And the best answer, net-net, is -- in our estimates is that by the end of this month, October, we should be back to the same share trend, which is a negative 45 bps, that we had in the first half, most of it coming from the sub-premium brands, okay? So that's the best way to explain this shift in between quarters, given the price -- the delay in the price increase.

Operator

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

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

Very strong results in China. Revenue per hectoliter was up strong, as was revenue per hectoliter for SAB Miller. Can you just give us your assessment of what's going on now in the Chinese beer market? Is there any kind of particular change? Are we at an inflection point here?

Carlos Alves de Brito

Robert, I mean, this is Brito here. I mean, I think our results in China, we're very happy with it. This is the number -- year #4 of our strategy. And we have been very consistent in what we've been saying and doing. It's all about developing 2 national brands, Budweiser and Harbin, especially Harbin Ice. It's also about developing our original brand, Sedrin. So these are the 3 Focus Brands that represent approximately 73% of our business, growing double digits. Also, our strategy in China continues to be one of not only growing the organic footprint, volume within the organic footprint, but also expanding the footprint via some acquisitions and also some greenfields, and this is all public. And so again, this has been part of the strategy since year 1. So China continues to grow, not at the same pace, in terms of industry, as compared to some years ago, but continues to be very healthy growth. And our net revenues per hectoliter continues to benefit big time from the fact that consumers are trading up. So we have the brands that consumers are going towards because they are going up. We have the brands that are up here, and some others are chasing consumers from down under, which, I think, it's a worse place to be. So I think we're very well positioned. We're investing behind our brands. And that, again, is the fourth year of our strategy that has proven to be the right one. So we're very glad with what our team has accomplished in China once again this quarter and once again this year-to-date.

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

And I guess the trade-up is also reflected in your market share gains. When you define the market share gains, is that for the entire country of China, or just in the provinces that you were concentrated in?

Carlos Alves de Brito

No, entire country.

Operator

Our next question comes from the line of Brett Cooper with Consumer Edge Research.

Brett Cooper - Consumer Edge Research, LLC

A couple of questions, if I might. With the macro pressures in your core markets and across the globe more broadly, how does this impact your plans for the rollout of the Corona brand in your key markets and Focus Brands in, I guess, new markets?

Carlos Alves de Brito

Well, Brett, if I understood your question correctly, you're talking about the short-term pressures on our key markets, and how does that affect our plans for developing our brands, right?

Brett Cooper - Consumer Edge Research, LLC

Correct.

Carlos Alves de Brito

Yes. So I think we need to separate what's short-term pressure and long-term opportunities. I think, if you look at our main markets, we continue to be very bullish in terms of the U.S., Mexico, Brazil, China. Of course, China has no short-term pressures, but if you look at Brazil, U.S., Mexico, yes, there are some short-term pressures because of the economy, because of consumers being under pressure, because of food inflation, so different reasons. But if you look at the fundamentals of why we've always been bullish about these top countries of ours, they haven't changed. I mean, look at Brazil, for example. The macroeconomic environment in Brazil could certainly be better, but it has improved this year. But I think more importantly is that the federal government is keeping their agenda of keeping inflation under control, stimulating investment in both public and private sectors and keeping unemployment at a low level. Second, demographics remain favorable: young and growing population and, more importantly, continuous social mobility. Third, the fundamental growth opportunities in terms of beer per capita consumption remains there in terms of regions and overall, and the premiumization has finally happened after many years, and we have the brands to take advantage of that. And finally, for next year, Brazil is hosting the World Cup and, in 2 years, the Olympics. So in the next 3 years, we'll see lots of events that are very beer-centric, especially the first one, the World Cup. And the Brazilian consumer, which has been under pressure because of food inflation and disposable income not growing as much this year as in previous year, is also -- some of these things are getting to a better place. And in the meantime, we're focusing on the things we can control with our pack price strategy, our new returnable glass bottles rollout and the things we can do to help consumers deal with this kind of pressure. In the U.S., we can say some are the same. I mean, the country is slowly going back to growth. I mean, as the growth continues, the pressure on consumers will get a bit better. And of course, the categories within the U.S. market where we have our biggest shares, which is the premium and sub-premium, are mostly under pressure when consumers are under pressure compared to the high end, which is a bit insulated from those pressures. So again, we continue to see that the U.S., as the economy gets better, will also go back to its trend of -- could go back to its trend of industry growth. In Mexico, again, it's everything in place. I mean, if you look at Mexico, the reforms are being implemented. The energy is cheap in Mexico. They are taking advantage of the cheap energy in the U.S. Labor market is very competitive, cost wise, even with China these days. So a lot of industries relocating to Mexico. And there is a very dynamic domestic market. But yes, this year, a new government, new policies, lots of things being discussed and the economy being soft. But again, that doesn't change the fundamentals. So a long answer but just trying to cover what you asked. So I mean, short-term pressure, yes, in our main markets, but long-term fundamentals remain unchanged, and that's why our view remain unchanged on being bullish about these markets.

Brett Cooper - Consumer Edge Research, LLC

If I can ask a follow-up, and I'm not sure if you want to answer this, but now that you own a business and have been able to see the contracts, do you have any view on the timeline of gaining more control of the Corona brand in markets in which, when it was owned by Modelo, it was given -- or it was part of another brewers as a distribution relationship?

Carlos Alves de Brito

Yes, that's a very good question. I mean, Corona we see as an amazing potential in terms of mid to long term. Of course, we'll have to respect the contracts that are in place. We'll transition them in the best way for the brand as they become due. And that will be a country-by-country, importer-by-importer type situation. And of course, we'll do the right thing for the brand. But it's very exciting. The brand is an amazing brand. It's very premium. Everywhere you do consumer research, it's very well positioned. And I think, as we bring it to our system, as it happened with Budweiser, we'll see different patterns of growth going forward. So very exciting and very margin accretive to our business.

Operator

Our next question comes from the line of James Edwardes Jones with RBC Capital Markets.

James Edwardes Jones - RBC Capital Markets, LLC, Research Division

How concerned should we be about Bud Light's performance? It seems to me that your rhetoric has become a bit more negative. Is that a reflection of a worsening brand next year, or am I reading too much into it?

Carlos Alves de Brito

Sorry, what's the question again? Is it about the U.S., or in general or...

James Edwardes Jones - RBC Capital Markets, LLC, Research Division

No, about Bud Light specifically. I just get the impression you were talking a bit more negatively about that, and I'm wondering if the brand equity scores are deteriorating, or am I just reading too much into that?

Carlos Alves de Brito

But again, top line in general or top line in the U.S.?

James Edwardes Jones - RBC Capital Markets, LLC, Research Division

Bud Light.

Carlos Alves de Brito

Sorry, I have a hearing problem today. All right. No, Bud Light performance, I mean, let me tell you what we think about it. First, #1 beer in the country, so our top priority has not changed. I mean, our top priority in the U.S. is to grow Bud Light. Bud Light has maintained its share of premium light within the premium light segment, but the premium light segment has declined this year. But that's only for this year, so it's not a long-term trend or anything. The premium light has been under pressure this year, but if you look at last year, that was not the case. So we know we can improve on Bud Light performance, and we're putting plans in place to drive the brand forward because we want to gain share in the premium light segment, as we're doing right now, but we also want to keep the share, at least keep the total -- its share in the total margin. The line extensions have been very successful: Bud Light Platinum, Straw-Ber-Rita, the Ritas, and so that has helped the family. And we have a clear action plan to grow Bud Light's market share going forward. A couple of points. First, we're going to increase media investment, supported by a sharper brand position and communication. In that respect, we have appointed a new agency, BBDO, and we're also leveraging our major properties even more, like the NFL. We also are putting major package innovation towards Bud Light, like the 25-ounce can and the 16-ounce resealable aluminum bottle. So the focus for the brand going forward will be finding new ways to connect even better with today's millennials and consumers. So again, Bud Light is a big brand. It's our top priority in the U.S. It's gaining share within the premium light segment, but the premium light, as a segment, is under pressure this year, but that's not a long-term trend. It's only this year. And we have great plans for the brand going forward, including its line extensions and including more focus on Bud Light brand, with more investments and a sharper position.

James Edwardes Jones - RBC Capital Markets, LLC, Research Division

So has there been any change in the trajectory of its brand equity scores, or is that all fine?

Carlos Alves de Brito

No, I mean, what we've said in our press release is that the Bud Light family this quarter has lost 25 bps in terms of market share performance, considering the total market. But the Bud Light brand gained share within its segment, premium light, but the segment declined because it's under pressure this year. So I mean, that's the overall picture. But again, we see opportunities, given the size of the brand. When you think about it, in a market like the U.S. with so many brands, one brand has 20% share of total market. So we think this brand, given its size and stature, can do even more in terms of connecting and bonding with the new young adult males and do even more in terms of executing and activating its properties, like the NFL, and that's our commitment.

Operator

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

Mitch Collett - Goldman Sachs Group Inc., Research Division

Just coming back to the admin expense in LATAM North. I accept it's a much less severe decline on the 9-month view, but it is still down, I think, about 15% for the 9 months. Maybe you could just explain a bit about how much of that has to do with variable compensation, whether you think that's a sustainable level, given that inflation is running at mid-single digits. And then secondly, perhaps, just if you could update us again on the gap between premium and sub-premium in the U.S. Is that still something you are trying to close, and roughly at what level is that today?

Felipe Dutra

Felipe here. In Brazil, on a year-to-date basis, yes, there is always the efforts to drive admin expenses down overall, but the majority of this is more variable pay linked, although we did not split precisely how much is coming from what. But if you take into account that our goal is to, overall, keep costs or overheads moving below inflation, and if you take inflation in Brazil being the range of 5% to 6%, then you can have a guesstimate of what is what. In terms of price gap, U.S. premium, sub-premium, we are currently at 23%, coming from as high as 30%, 25%-30%, currently at 33% -- 23%, sorry. And we continue to believe that 15% is a kind of ideal level, but this cannot be achieved in one shot. We are gravitating to that range, but we are not there yet.

Operator

Our next question comes from the line of Tony Bucalo with Santander.

Anthony J. Bucalo - Grupo Santander, Research Division

Brito, looking at your Central and Eastern European group, it's been about 2.5 years since we've had anything really resembling a constructive quarter in that division. I mean, looking forward, can we assume that there'll be any kind of a recovery in that division, or are we sort of stuck with sort of a negative trend that's going to go on for the foreseeable future?

Carlos Alves de Brito

Well, Tony, I think we can split the trajectory of our Central and Eastern European business in 2 parts, I mean, before and after the excise tax increase 2009-'10 and the restrictions in terms of trade. Of course, this affects everybody, but it made us change our idea about what to do in that market, how to win in that market. I think before 2009 and also the financial crisis, I mean, the market was growing double digits, we were expanding throughout the country, and we intended to have a presence in all segments. I think today, what became clear after the tax increases that destroyed more than 40% of the profit pool of the industry and lots of its volume, and since we're not the market leader there, I mean, it became clear to us that we have to be much more focused. We have to invest and shift resources around to support the brands that are premium-plus and super premium because that's the only way to make sense of that market. But that's a long road because we still have lots of our volume based on value brands that will not be part of our future. And we're transitioning resources, volume attention, share of mind, share of heart from those brands into the brands of that will be our future. So the good news in there, if there is a silver lining, is that Budweiser has reached a 2% share. It's a brand that we launched in 2010, continues to grow, very healthy margins. Siberian Crown, Stella, and that's the future -- and Klinskoye for Russia. So the other brands are going to brands that we're gonna be phasing more and more out in terms of attention and putting resources behind what we think our future is. But this has been a tough market because, first, there were the taxes, then was the media, then was the distribution restrictions, one on top of the other. So we've had to rightsize our structure and shift our resources around and come up with a new strategy that, yes, will take some time to pay off. But we're there to stay. It's one of the top 5 markets in the world in terms of volume, and we want to have our feet wet in that market, be present, because we have investments there. And it's a market where premiumization is also taking place, and we have the brands to take advantage of that, but it will take some years for us to see what we used to see before 2008 there.

Anthony J. Bucalo - Grupo Santander, Research Division

Do you see Corona playing a role in that region at some point?

Carlos Alves de Brito

Sorry?

Anthony J. Bucalo - Grupo Santander, Research Division

Do you see Corona playing a bigger role in that region at some point?

Carlos Alves de Brito

Yes, for sure. I mean, that's part of the premiumization strategy. Corona is pretty much absent of the region, and I think, together with Bud, Stella, Beck's, Siberian Crown, Klinskoye more of as a core play, I think this will be our future. And also, what we're doing right now in Russia is also, because of that focus in premium brands, we're also focusing more on certain regions as opposed to being widespread throughout out all the time zones because -- in recognition that, if you want to be more focused on the premium side of the business and core-plus, your route to market has to reflect that. The way you allocate sales reps and your sales structure have to reflect that, and that's the transition, the rightsizing that we've been through last year and this year.

Operator

Our next question comes from the line of Sanjeet Aujla with Credit Suisse.

Sanjeet Aujla - Crédit Suisse AG, Research Division

Do you expect the combination of your Western and Central and Eastern European businesses to yield in cost savings? That's the first question.

Carlos Alves de Brito

No, that's not the main opportunity. I mean, we see that -- 2 reasons. I mean, first, we think that the zone will be better positioned to tackle industry challenges that are common in both zones and leverage our innovation and premiumization opportunities as one zone. So again, 2 zones today, similar issues, similar focus, so why not put it all under one umbrella and share the best practices? And the other thing is to reduce complexity and improve efficiency because that's something we should always strive, especially in a company like ours, where we're always trying to be more efficient each year. So when you look at the CE in my last question, my previous question, it used to be a zone that has a different growth profile and today has more of a growth profile -- or a known growth profile is more Western Europe. And the premiumization strategy that was not there before, now it is there, which is the same as we have in Western Europe. So all of a sudden, these 2 markets became much more similar than they were in the past. And therefore, we saw an opportunity for more focus, reducing complexity and improving efficiency. So that's what's behind the decision.

Sanjeet Aujla - Crédit Suisse AG, Research Division

Okay, great. Secondly, on Brazil. At the Q2, you talked quite positively about trading in July. Did you see a big deceleration, then, in August or September, or was it both those months?

Carlos Alves de Brito

No, I think -- I mean, I think Q2, we had the Confederations Cup that, as we said, was -- made up a big difference for Q2. In Q3, we didn't have that. And the issues of food inflation and disposable income remain. So Q3 was better than Q1, but still, it's a tough year. And what we're saying for the year is that the industry should be, as guided before, within that flat to negative low single digits. The only thing we added this time is that given Q3, that range, the industry should be more towards the lower end of that range. So that's for the full year. I think we shouldn't look at quarter-by-quarter. We're talking about the full year.

Operator

Our next question comes from the line of Caroline Levy with CLSA.

Our final question comes from the line of Ed Mundy with Nomura.

Edward Mundy - Nomura Securities Co. Ltd., Research Division

You split out the mix impact on your revenue per hectoliter in the U.S. of 100 basis points. Could you split out the various constituents of the 6% revenue per hectoliter growth you're seeing in Brazil beer between pricing, mix and distribution?

Carlos Alves de Brito

In Brazil, we don't split that out, and the impact is much more in Brazil, for sure.

Edward Mundy - Nomura Securities Co. Ltd., Research Division

Okay, let me try another question, altogether separate from this. Your optimal capital structure is 2x net debt-to-EBITDA but you've indicated that once you get below that, from 2014 onwards, you'd be looking at share buybacks. You haven't indicated what the upper ceiling, from a leverage perspective, would be. Do you see yourself going, in the event of an industry-transformational deal, going back up to 5x net debt-to-EBITDA, as you did back in 2008?

Felipe Dutra

I couldn't speculate. We couldn't speculate on the M&A, but we couldn't rule out that option as well, given the proven track record of our ability to quickly deleverage as we are beyond the 2x optimum leverage. But again, this is always going to be a function on how attractive the potential transaction is and the overall economy and everything and our willingness to go to that level.

Carlos Alves de Brito

Well, so thank you. So if I could, yes, back to you, Jackie.

Operator

That was our final question. I'd now like to turn the floor back over to Carlos Brito for any additional or closing remarks.

Carlos Alves de Brito

Okay. Well, I'd like to thank you all very much for your time, for attending our call. I think the quarter had some solid numbers. The one that's missing, of course, is industry's volume. We're continuing to work hard. And in terms of our main markets, yes, there are some short-term pressures, but the fundamentals are there, and we continue to be bullish on our main markets. Okay, so thank you very much. See you next quarter. Have a great day. Goodbye. Thank you.

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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