Anheuser-Busch's (AHBIF) CEO Carlos Brito on Q2 2014 Results - Earnings Call Transcript

| About: Anheuser-Busch Inbev (AHBIF)

Anheuser-Busch InBev (OTCPK:AHBIF) Q2 2014 Results Earnings Conference Call July 31, 2014 9:00 AM ET

Executives

Carlos Brito - Chief Executive Officer

Felipe Dutra - Chief Financial & Technology Officer

Analysts

Melissa Earlam - UBS

Anthony Bucalo - Santander

Simon Hales - Barclays

Sanjeet Aujla - Credit Suisse

Trevor Stirling - Sanford C. Bernstein

Andrea Pistacchi - Citi

Edward Mundy - Nomura

Caroline Levy - CLSA

Eric Serotta - ISI Group

Andrew Holland - Societe Generale

Lauren Torres - HSBC

Operator

Welcome to the Anheuser-Busch InBev Second Quarter 2014 Earnings Conference Call and Webcast. Hosting the call today from AB InBev is Mr. Carlos Brito, Chief Executive Officer. To access the slides accompanying today's call please visit AB InBev's website now at www.ab-inbev.com and click on the Investors tab. Today’s webcast will be available for on-demand playback later today. At this time all participants have been placed in a listen only mode and the floor will be opened for your questions following the presentation. (Operator Instructions).

Some of the information provided during the conference call may contain statements of future expectations and other forward-looking statements. These expectations are based on the management's current views and assumptions and involve known and unknown risks and uncertainties. It is possible that the company’s actual results and financial condition may differ possibly materially from the anticipated results and financial condition indicated in these forward-looking statements. For a discussion of some of the risks and important factors that could affect the firm's future results, see Risk Factors in the company's latest annual report on Form 20-F filed with the Securities and Exchange Commission on March 25, 2014. AB InBev assumes no obligation to update or revise any forward-looking information provided during the conference call and shall not be liable for any action taken in reliance upon such information.

It is now my pleasure to turn the floor over to Mr. Carlos Brito. Sir, you may begin.

Carlos Brito

Well, thank you, Jackie, and good morning, good afternoon everyone and welcome to our second quarter 2014 results conference call. Let’s start with the highlights of the quarter. The strong momentum built in the first three months of the year continued into the second quarter with volumes benefiting from the FIFA World Cup. The World Cup provided us with a great opportunity to build equity for our brands as well, not only in the host country, Brazil, but in many other soccer-loving markets around the world.

Beer volumes in our top 4 markets of the U.S., Mexico, Brazil and China were all in line or ahead of our expectations, supported by a strong focus and global brands performance. Solid revenue growth and good cost management led to a healthy EBITDA growth and margin expansion in spite of the timing of the sales and marketing investments to support our top line initiatives.

Turning now to the details of these results. Total volumes grew by 1% in the quarter with own beer volumes up 0.5% and non-beer volumes up nearly 6%. Our Focus Brands grew over 3% and our 3 Global Brands grew 6%. Total revenue for the quarter grew by 5%, driven by the strong revenue management, the strong revenue per hectoliter growth of 4.6% on a constant geographic basis. As planned, we increased sales and marketing investments by almost 10% in the quarter in support of our top line initiatives and by 13% year-to-date, driven mainly by World Cup activations.

EBITDA grew by 9.5% in the quarter with EBITDA margin expanding by 157 basis points to 39.8%. Normalized net profit grew by 74% in the quarter to $2.6 billion and earnings per share grew by 72% to $1.60 per share.

Our Global Brands delivered another strong result with volumes growing by 6% in the quarter, well ahead of the growth of our other Focus Brands. This growth was led by Budweiser, the global beer sponsor of the World Cup, which grew by 6.7%, driven by strong results from Brazil, China, Canada and the UK. In fact, Budweiser grew 10% in the month of June alone.

The Corona family grew by 5.3% with good growth in Mexico and Canada, despite significant glass shortages. This summer, Corona is celebrating the world’s beaches with the Corona SunSets Festival, a musical experience focused on electronic music culture. Corona SunSets Festivals are in full swing, traveling to some of the best known beaches in the world. This is our first major global initiative for Corona and we’re very excited about it.

Stella Artois grew by 4.6%, led by results in Brazil, Canada, the UK and the U.S. During the second quarter, we launched a new brand building platform for Stella Artois, which celebrates the world’s greatest events. This platform highlights artistry and perfection at events such as Wimbledon, the Cannes Film Festival and the Kentucky Derby.

With the World Cup final almost three weeks behind us, we’ve had time and chance to reflect the many of the great activations from Budweiser and our local soccer brands during the tournament. This World Cup drew record high television audiences, driving fantastic exposure for our brands which were featured throughout the stadiums. The final game drew over 27 million TV viewers in the U.S. alone, setting a record for the highest viewership ever for a soccer match.

There was also new records set of over 600,000 tweets per minute after the final whistle of the final game underscoring the importance of social media as a channel to engage consumers globally. And in June, Budweiser celebrated an all-time record sales month with over 4.1 million hectoliters being sold globally. This includes the nearly 25% increase in China, over 25% growth in the UK, almost 90% growth in Brazil and good growth in other top markets such as Canada, Russia and France.

The iconic gold Budweiser bottle became the central connection point for fans celebrations around the world. This helped Budweiser to record over 20 billion total impressions before, during and after the World Cup, a huge increase over the 3.5 billion impressions recorded in the 2010 World Cup tournament. FIFA’s Man of the Match sponsored by Budweiser was also a big success, attracting almost 4 million votes across all platforms from consumers around the world and was a truly unique opportunity to engage with millions of fans.

We're also very pleased with our activations in the host country of Brazil and the effort put in by our global and local teams as well as our customers to make the World Cup a big success. We estimate the impact of the tournament on our own beer volumes was around 1.4 million hectoliters, with 80% of this impact falling in the second quarter and the remainder in the first 2 weeks of July. And this impact again, is for Brazil only.

During the tournament, we ran more than 80,000 events in 700 cities across Brazil, reaching more than 15 million people. And in the stadiums, the Brahma and Budweiser cups were a huge success, with consumers clamoring to take them home as a souvenir.

Our activations resulted in a solid gain in beer market share in Brazil during the quarter, a record market share in soft drinks, the doubling of the normal cold beer segment, with Brahma 0.0 leading the category and Budweiser taking over the number one position in the international premium beer segment.

The Budweiser Hotel in Rio was the place to be during the World Cup and was the centerpiece of our Rise As One campaign. Our team delivered in a big way in Brazil, congratulations to our team. There were also major World Cup activations in many of our other markets around the world involving our local brands. In Germany, Hasseroder World Cup activations featured sponsored public viewing events, limited-edition World Cup glasses and in-store activations during the matches.

The World Cup helped own beer volumes grow by 3.2% in the second quarter. In Argentina, Quilmes activations included limited-edition cans in multipacks and strong social media campaigns across all relevant channels. In Mexico, our Corona promotion led to the redemption of 3.4 million special promotional codes in over 1 million digital connections. The Mexico volume result was good with Corona improving its position as a consumer favorite brand in Mexico. In Belgium, where Jupiler is the number one brand we sponsored public viewings and fan trips to Brazil as well as off-trade activations with all major retailers. Own beer volumes grew by 9.3% in Belgium during the second quarter.

In the UK Budweiser was the lead brand, total own volumes in the UK grew by 13.5% in the quarter with estimated market share gains for both Budweiser and Stella Artois. We also run other major World Cup campaigns in the U.S. with Bud Light and Budweiser, in Russia with Bud and Siberian Crown, in Italy with Becks and in South Korea with Cass. This is a truly global effort and we are very proud of what our teams have accomplished.

Let’s now turn to the other highlights of our second quarter performance in our top four markets starting with the U.S. U.S. industry volumes continue to improve with industry STRs up 0.4% in the quarter according to our estimates compared to a decline of 1.7% in the first quarter finishing the half you down just 0.5%. The trend of our STRs also improved down 1% in the quarter compared to decline of 2.6% in first quarter and finishing the half year down 1.7%. Our STW sales to wholesalers declined 3.4% as anticipated as we reduced inventories following the buildup during the first quarter as part of our continuously planning in advance of labor negotiations.

Our total estimated market share was down approximately 65 bps in the quarter driven mainly by Budweiser, which faced a tough comparable but with good results from Bud Light, Michelob Ultra, our high-end brands, as well as our value brands.

U.S. beer-only revenue per hectoliter grew by 1.5% in the quarter and by 1.7% year-to-date. As anticipated the second quarter result was impacted by a lower brand mix contribution and a negative package mix impact from the 25-ounce can, which continues to be accretive at the gross margin level.

U.S. EBITDA was flat in the quarter and included a mid-teens percentage increase in sales and marketing investments to support our top line initiatives. EBITDA margin expanded by 69 basis points.

Turning now to performance of our U.S. brands. Bud Light is our most important brand and had a good quarter with trends continue to improve. Bud Light STRs were down only 0.5%, with the brand gaining share of premium lights segment based on our estimates. As I've said before, big focus for this year are our packaging innovations, in particular, the 16-ounce reclosable aluminum bottle and the 25-ounce can, which are helping to drive share gains for Bud Light. The summer is underway for Bud Light with Up For Whatever, a major campaign which has already generated tremendous consumer interests, with digital activations playing a major role in building engagement. Excitement and anticipation continue to build, so stay tuned.

The Ritas, which now hold a full 1 percentage share of total market in the U.S., are performing well and are being supported by a new campaigns, Fiesta Forever, which was launched in June. We'll also be introducing a new flavor, Apple-Ahh-Rita, which we expect to be in the market in the third quarter. This is an exciting category and we believe that it has a lot of untapped growth potential, given especially the still low level of penetrations for the Rita families.

Turning now to Budweiser. The total estimated market share of the Budweiser family was down approximately 50 bps in the quarter, driven by a tough comparable in the second quarter last year, in which share for the family was marginally down by 15 basis points. However, we have a strong program for the rest of the summer centered on Budweiser Made in America, which this year, will involve 2 major music festivals at Philadelphia and Los Angeles. We also expect the brand to benefit from the 16 aluminum bottle, which will be extended to include Budweiser in the third quarter.

Michelob Ultra had another strong quarter with an estimated share gain of 15 basis points. The brand's active lifestyle messaging continues to resonate with consumers and is helping to drive share growth. Our other high-end brands also performed very well, benefiting from our heightened focus on the on-trade and delivering an estimated share gain of 20 basis points.

Moving on to Mexico. Our Mexican business had another strong quarter in terms of volume, revenue and EBITDA growth. In June, we celebrated our first anniversary of the closing of the Grupo Modelo combination. It has been a great first 12 months, in which we have over-delivered on the cost synergies while at the same time delivering top line growth. The team has done a great job. A very strong World Cup activation behind the Corona brand family and the later timing of the Easter holiday helped our own volumes to grow by 1.5% in the quarter with the industry also growing by low single digits according to our estimates.

This growth was constrained by the significant glass shortages which impacted sales of Corona in the quarter. These shortages are being addressed and the supply situation is improving. Beer revenue per hectoliter in Mexico grew by 2.1% in the quarter which includes the benefit of our revenue management initiatives and a May 1st price increase in line with inflation. As a reminder, our price increase last year was taken on March 1. Mexico EBITDA grew by almost 35% in the quarter to $631 million with EBITDA margin growing over 1,000 basis points to nearly 49%.

Our focus brands in Mexico grew collectively by 5.5% led by the Corona family which grew by almost 9% in the quarter despite the glass shortages largely due to the brand's World Cup activations. We’re also pleased with the performance of Bud Light and Victoria both of which had good volume growth.

Turning now to Brazil. The second quarter in Brazil was all about the World Cup. Our total volumes grew by 7.5% in the quarter with our own beer volumes up 7.2% and our soft drinks volumes up 8.8%. We estimate that the beer industry volumes grew by approximately 6.8% in the quarter and by 9.5% in the half year. We estimate that our beer market share increased by 90 basis points sequentially with a year over year market share gain of 30 basis points to 68.4%.

Brazil beer revenue per hectoliter grew by 3.8% in the quarter and includes the carryover of our 2013 revenue management initiatives increased own distribution volumes and premium brand mix improvements. These increases were partially offset by our World Cup activations which included no price increases during the tournament in spite of higher taxes. For the half year, beer revenue per hectoliter growth was 6.6%, in line with inflation.

Brazil EBITDA grew by 8.1% in the quarter with an EBITDA margin decline of 128 bps to 44.6%, driven mainly by the one-time impact of our FIFA World Cup special packaging and a higher mix of cans. With the World Cup over, our attention now turns to finalizing our plans for the coming summer and the launch of Corona towards the end of the year.

Moving on to China, our China beer volumes grew by 4.6% in the quarter and by 6.5% in the half year. We estimate that in the half year we have gained approximately 80 basis points of market share, reaching estimated market share of 15.4%. This includes the benefit of Siping Ginsber since the beginning of April.

In recent months, there has been some slowdown in the economy but so far, this has not affected our business. The slowdown has mainly affected local value brands which are losing share to national core and premium brands such as Harbin and Budweiser.

Revenue per hectoliter grew by 8.5% in the quarter and continues to benefit from improved brand mix. China EBITDA grew by 65.7% in the second quarter driven by solid top line growth, lower cost of sales per hectoliter, improved operating leverage and the timing of our sales and marketing initiatives.

Our volume growth and market share performance in China is being driven by our Focus Brands and by Budweiser and Harbin in particular. Our Focus Brands grew by 9.6% in the quarter with Budweiser and Harbin both benefiting from successful World Cup campaigns and Harbin brand preference reaching a record high level in the second quarter.

Finally, I’m pleased to say that we have reached an agreement with Carlsberg to take back the Corona brand in China as of tomorrow and are looking forward to including it in our premium brand portfolio. So, this is very exciting for our business in China.

As I mentioned earlier, the acquisition of Oriental Brewery was completed at the beginning of April, and the integrating is going very well. The business delivering another strong quarter with beer volumes growing by more than 10% helped us by a strong Cass brand performance during the World Cup. Revenues increased by nearly 12% and EBITDA by more than 20% in the quarter, driven by strong volume growth.

During the quarter, we also lunched Aleston, a new ale brand as part of our premiumization strategy. With that I would like to hand over to Felipe who will take you through some further detail in our second quarter results. Felipe?

Felipe Dutra

Thank you, Brito. And good morning, good afternoon everyone. Brito has covered our top markets in some detail, and you will find additional information about the other relevant markets in the appendix to today’s presentation as well with the press release.

Slide 21, for those following the webcast, shows the EBITDA breakdown by zone for both the second quarter and the half year. As Brito mentioned, our total company EBITDA performance was very solid in the second quarter with EBITDA growing by 9.5%, an organic increase of more than $400 million; EBITDA margin grew by more than 150 basis points. The results in Latin America south were significantly impacted by the challenging macroeconomic environment in Argentina. Our own beer volumes declined by 8.9% in the quarter, driven mainly by industry performance although once in July are much improved. Our beer volumes in the half declined by 0.8%.

The crisis in Ukraine continues to cause us concern and our focus is on keeping our people safe. Volumes in Europe overall fell by 4.7% in the quarter, although if we exclude the impact of the crisis, the decline would have been only 0.7%. In fact, our former Western Europe markets implemented very strong World Cup programs and saw combined volumes growth of 6.8% in the quarter.

Let me give you an update on the cost synergies resulting from the combination with Grupo Modelo. During the quarter we realized synergies of approximately $135 million, bringing the total cost savings to-date to approximately $750 million. We still expect to deliver against our commitment of $1 billion of savings by the end of ‘16 with the majority of this coming by the end of ‘15.

I would now like to quickly review our EPS and below EBIT results before we move to the Q&A. Normalized earnings per share in the second quarter increased to $1.6 per share from $0.93 in the second quarter of last year. This increase is primarily due to lower net finance costs, driven by the market to market gain related to the hedging of our share based payment programs, while the second quarter last year included a loss. EPS also includes a positive contribution of $0.10 per share from organic EBIT growth.

Net finance costs in the quarter were $382 million compared to $1 billion in the same period of last year. And this decrease of $618 million was mainly due to the positive impact of the market to market adjustments linked to the hedging of our share-based payment programs which had a positive year-over-year swing of $642 million. And this results from a reported gain, as I said before, of $344 million in the second quarter this year compared to a reported loss of $298 million last year. In addition, our second quarter net finance costs include negative currency results and other hedging costs of approximately $58 million.

Our normalized effective tax rate for the second quarter was 18.1%, slightly below the 18.7% in the second quarter of 2013. The normalized tax rate in the quarter was favorably impacted by the nontaxable nature of the $344 million gain from the hedging of our share-based payment programs, partially offset by the unfavorable impact of changes in country profit mix, including the impact resulting from the combination with Grupo Modelo.

Our guidance for the full year 2014 remains in the 21% to 23% range. Cash flow in the first half of the year was robust, with cash flow from operating activities increasing by over $1 billion from $7.4 billion in the first half of 2013 to $8.5 billion this year. Free cash flow, which we define as cash flow from operating activities after interest and CapEx, increased from $4 billion to $4.5 billion in the first half.

At the end of June 2014, our net debt-to-EBITDA ratio was 2.49 times on a reported basis or 2.44 times when including 12 months of EBITDA from OB. Our capital allocation objectives remain unchanged. Our first priority will always be to invest behind our brands and to and it will take forward advantage of the organic growth opportunities in our business. M&A remains a core competency and we will always be ready to look at opportunities if and when they arise, provided at the target deal structure and price makes sense.

We recognized the value of growing dividends overtime consistent with the low volatility of non-cyclical business and our goal is to reach dividend yield between 3% to 4%, in line with other large cap consumer business CapEx. Our optimum capital structure remains our net debt to EBITDA ratio of approximately two 2 times and around this way we're able to return of cash to shareholders is expected to be comprised of both dividends and share buybacks.

And with that, I will hand back to Jackie to begin the Q&A session. Thank you.

Question-and-Answer Session

Operator

(Operator Instructions) Thank you our first question is coming from Melissa Earlam with UBS.

Melissa Earlam - UBS

Good morning, a couple of questions, please, Brito and Felipe. Firstly, your guidance for sales and marketing...

Carlos Brito

Melissa, can you speak a bit louder, please? This is Brito here.

Melissa Earlam - UBS

Hi Brito, can you hear me better now?

Carlos Brito

Yes, much better. Thank you.

Melissa Earlam - UBS

Great, just a question on sales and marketing costs. Your guidance is for low-teens growth for the year, and you did 13% organically in the first half. I'm just wondering whether we should assume that the spread of growth is actually more even H1-H2 than, perhaps, people had anticipated?

And then the follow-up question is regarding distribution costs. You've increased guidance a little bit in terms of the increase we should expect for the full year. Could you just comment on which additional opportunities you saw specifically to drive that increase? Thank you.

Carlos Brito

Hi Melissa, Brito here. So first, in terms of sales and marketing, we'll stick to our guidance in terms of what was said before. And I think we should look at this more on a yearly basis as opposed to quarter on a quarterly basis or half year basis. So again, our guidance hasn't changed. In terms of distribution expenses Felipe, would like to comment on that?

Felipe Dutra

Well, we updated the guidance of low single-digits growth to mid-single digits. And in beer, we do see some cost increases in relevant markets like Brazil, U.S. and Mexico. However, particularly in Brazil, this increase is linked to the increase of direct distribution volumes from approximately 67% to 70%, which is more than offset by higher revenues, which is accretive at the bottom line and therefore, not a reason for concern.

Melissa Earlam - UBS

And specifically in Mexico, is this related to increasing your direct distribution for print as well?

Felipe Dutra

No, direct distribution level in Mexico is already very high, much higher than Brazil, and it has been reasonably stable. That is, in Mexico, it's really more linked to the cost per barrel.

Melissa Earlam - UBS

Thank you very much.

Felipe Dutra

You're welcome.

Operator

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

Anthony Bucalo - Santander

Hi guys, good afternoon. The market share issues in the U.S., the U.S. strategy has been in place for about five years now, and we've just seen this sort of gradual ticking down of market share in the US sort of quarter after quarter. And one of your main competitors in liquor this morning said that they would probably get more promotional with their lead vodka brand. Are you concerned that the pricing strategy and the premiumization strategy may have run its course? And what is your concern about market share going forward? Where do you see the sort of critical point where you need to sort of turn that around?

Carlos Brito

Hi Tony, Brito here, good morning. First as I said I mean our revenue management strategy in the U.S. has been very consistent over the last five years, we are doing pretty much what we said we will do when we got here five years ago. We also said back then that we anticipated some issues in getting our mix to be above the mix in getting value to be less relevant and the bought premium to be more relevant and that we felt beer was very affordable. So we act on those thing we create a lot of value and we also said that we are very committed show stabilization. We didn’t put a date to this but if you know as in other market we like to create issues in the short-term for the benefit of long-term but of course as long as we close the gap in the short-term.

So we are very committed to that unfortunately we have been able to yet to balance all sorts of different initiatives in the U.S. So this quarter for example we are very excited of Bud Light. I think there is one thing that you come back all time is that your main brand has to be your focus all the time and the Bud Light has 20% share in the U.S. market some amazing and performed very well this quarter performing very well this year and within the quarter performed better every month including flat STRs during the month of June. So this shows that the investments that we are making behind our biggest brand are working it’s gaining share within the premium light segment. And again last month of the quarter flat overall.

Aluminum bottle has been a very important feature for Bud Light as the Up For Whatever platform for the summer. Bud Light has been a brand that has not been well supported during the summer in the past and this year we decided to take a different view and said this brand of course deserves to be supported throughout the year. And the results are showing and we're very excited about the Up For Whatever summer program.

Michelob Ultra, doing very well, high-end getting share. That has stabilized share, so flat share. So Budweiser remains an issue especially this quarter where we had a very tough comp. So the family, Budweiser family this quarter year-on-year lost 52 basis points. And second quarter last year, it lost only 15 basis points of the family. So that is the source of the difference. But we remain optimistic about our programs. We think we are creating the right issues and the right conversations with our team. We promote our team to look upward to the market to trade up as opposed to rely on old methods to get share back like value brands, like in the past and creating value.

So we remain optimistic, especially like things like the Ritas. I mean if you look at the Ritas, given its still low penetration, we believe that has a huge untapped potential continues to be a big brand for us now with 1 percentage share of total market and with still big potential and that’s why we're also putting more money behind it with Fiesta Forever and new flavors. So again these are going to be the engine the growth engines and will get us to a better portfolio that’s more in tune with today’s consumers and marketplace.

Anthony Bucalo - Santander

Okay. So you're comfortable with the strategy going forward?

Carlos Brito

Yes.

Anthony Bucalo - Santander

Great. Thank you.

Carlos Brito

Thank you, Tony.

Operator

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

Simon Hales - Barclays

Thank you. Good afternoon or good morning gentlemen. Quick one on Brazil if I can, I’m interested in your thoughts, Brito, around the consumer dynamics in Brazil at the moment. Clearly in the quarter you benefited from obviously the World Cup, but I think if you stripped out that benefit, underlying volumes were probably going near the 1% level for you in the quarter. And certainly listening to some of your consumer staples peers over the last sort of couple of weeks, they have been talking pretty bearishly about recent consumer off-take trends in Brazil. I’m just wondering what your thoughts are as we look into the second half, even ahead of you perhaps taking price increases on beer to offset some of the tax rises we've got coming down the pipes.

And just secondly, just a quick follow-up. Felipe, you mentioned the Ukraine in the quarter being weak. I don’t think you put a volume number on it. I would just be interested on what the volume decline was.

Felipe Dutra

Okay.

Carlos Brito

All right. So Simon, in terms of the 1% that you mentioned without the World Cup volume, I would correct that to 2.6% because if you take the Confederations Cup, I mean if you decide to take the World Cup from this year it’s only natural that you take also from the base of last year the Confederations Cup and then volume is 2.6% growth without the World Cup. So that would be the number to look at.

In terms of the consumer dynamic in Brazil unemployment rate continues to be at very low historical rate of around 5%. Disposable income growth has accelerated during this quarter and that’s because food inflation in among other things, because food inflation also remained stable during this quarter, while beer inflation is currently even below general inflation. So it is true the consumer confidence is a bit down from previous periods. On the other hand we have the macros that have not changed. I mean if we look at the LDA growth until the year 2030, its projected to grow 1.5% every year; real income growth is still positive and we have incremental benefit from the premiumization of the market as shown throughout. So consumers are trading up, middle class continues to grow.

So the focus on Brazil going forward, I believe that was part of your question or that is say for this year has improved much fourfold. First, increase demand and expand consumption occasions, so in terms of pack price strategies, expand the 300 ml returnable and the 1 liter returnable packages, introduce other packaging and liquid innovations to stimulate demand.

So that's a big driver, we think for that per capita consumption that still lags in parts of Brazil or in the country as a whole compared to other countries. So, the second one is grow premium volumes. So I mean, we've seen it in the last few years finally, the premium segment is growing.

Budweiser had an amazing World Cup, Stella Artois has had an amazing set of years. So that has been very good for the business and industry in general. The third one is geographic opportunities. I mean we have programs for targeted areas where we see volume and market share opportunities and that's not the first time we mentioned this. And the fourth and final is the World Cup legacy. We don’t think the investments that we put in the World Cup were only for five week period. We understand that this will be there for many years in terms of equity of our brands and the learnings of this big event.

So again, the challenge we put now to our team is how can we package the learnings from this year’s Super Bowl, from this year’s World Cup into something that can be used more often. Super Bowl is once a year, World Cup is once every four years; we sponsor things, everything that moves from sports to awards to entertainment and how can you use that learning in a toolbox -- package them in a toolbox, so we can use them much more frequently.

So I think in terms of Brazil, we continue to be very optimistic as we’ve always been. Of course, in a year of election, there is some volatility. After the World Cup, there is a tough comp. That’s all true but the basics in terms of macro and population and growth and real income, they haven’t changed and those are the same basics that provided the growth in the past few years. So plus everything I just mentioned in terms of priorities. So again, continue to be very bullish about the country in the mid-term and long run.

Simon Hales - Barclays

And specifically Brito, just in terms of at the end of Q2, there is no excess stock in the trade channels that have got to be sort of depleted out before we start to see any new shipments that…

Carlos Brito

No, nothing to really mention because luckily, I mean Brazil went far enough in the tournament to get those ones going and everybody was very involved up until the end, and the weather proved also to help. So in a way, I think there was good turn; good velocity and yes, so the answer to your question is no.

Felipe Dutra

Hi Sam, on the second question linked to Ukraine, as you would imagine, the crisis continues to cause us concern and our focus remains the one of keeping our people safe. However, in the second quarter, we’ve seen volumes decline of 27% versus same quarter of last year. And we believe that the trading environment will remain challenging in light of the political instability.

Simon Hales - Barclays

Perfect. Thanks Felipe. Thank you, guys.

Felipe Dutra

You're welcome.

Carlos Brito

Thank you.

Operator

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

Sanjeet Aujla - Credit Suisse

Hey, couple of questions please, firstly on Mexico. Are you able to quantify the impact of the glass shortage on volumes? How significant was that really? And on oriental, are you able to talk a bit about that now that you have integrated the business, what the margin opportunity and top line opportunity is for you guys? Thanks.

Carlos Brito

Hi Sanjeet, in terms of Mexico, we haven’t quantified but the glass shortage is really and this is public, I mean has really caused us issues in the second quarter, not only in the Mexican domestic market but also markets outside of Mexico. So, on a global scale, the glass shortage. And that was mainly due to the fact that demand across a variety of markets came way ahead of our expectations and plus the glass supply constraints.

So, Corona has shown strong performance in the first half of the year, with 7.6% volume growth globally excluding the U.S. And we are currently working with our customers around the globe to manage inventories and minimize disruption of supply, which is improving as we continue to work hard to resolve the situation, including July it's already much improved. So, we’re very excited about Corona; it has a global potential; in Mexico, it proved again that it's healthy; the World Cup was a big proof point of that, growing 10%; it's number one in terms of preference. So again great platform to grow there and also great platform to grow especially, as we bring Corona back to our system.

And if you look at Western Europe, we have it back in all markets but the UK. In the UK, it's coming next January; in Canada, it's back and doing very well, gaining share in Canada by the way; in APAC, we took the rights over on August 1st, so tomorrow we'll start having it; in Korea, it's already with us; we're going to launch in Brazil before the end of the year. And in LAS, we reached an agreement with CCU to repatriate the brand to -- back to us in Argentina. So I mean in our main countries, the brand is back with us and we see, if you look at Budweiser, it's a global brand and what happened the last five years, we see some of the same could happen to Corona and are working towards it.

In terms of OB, your second question, I mean we are very happy with the integration. As I said, volumes for this quarter 10% up; EBITDA, 120% up, so the momentum is there. Our colleagues are really topnotch. They understand the business, they are great performers and the integration is going very well. So in the next few quarters, we're going to provide more details, but at this point that's what I can share with you.

Sanjeet Aujla - Credit Suisse

Okay, great. Thanks.

Carlos Brito

Thanks.

Operator

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

Trevor Stirling - Sanford C. Bernstein

To Felipe -- Good afternoon here. Could you tell us what the latest news is on the taxation in Brazil, the tax that was deferred, are there still negotiations going on, is there a possibility of further deferral or not?

Carlos Brito

Well Trevor, what we know is what’s public. I mean the last statement from the government was the postponement of the reference base price update. That was originally announced for April. That was postponed. And also in that announcement, they said that when implemented that they would do it on a gradual way. So we as an industry of course welcomed this decision and are working together with the sector alongside with the government to discuss this next step. But at this point, there is no confirmation yet of how this gradual schedule will be implemented. But we’ll continue to work with the government. And what we call the cold beverage sector in Brazil, we'll continue to work with the Federal government. And the main intent here is to show once again to the authorities that tax revenues can grow the same way but based on a lower tax burden on the industry, enabling a greater volume growth and further investments with no pressure on inflation. So that has been the focus of the discussion.

Trevor Stirling - Sanford C. Bernstein

Very good. My follow-up question Brito, you talked about the weakness of Budweiser in the United States. Is that just a matter of the tough comps on Black Crown, or is it Bud, or is it weakness inside the core brand franchise as well?

Carlos Brito

No, the brand health for Budweiser mother brand is doing very well, especially with young consumers. It is true that some of the consumers that are leading the category by means of age or demographics and the guys that are coming in, this balance is not there yet. So we continue to work and to accelerate the connection with young adults to be able to bridge the gap and get the brand to be healthier going forward. What's happening this -- what happened this quarter, as I said, is that the comp was a very tough comp, so 50 basis points decline for the family compared to 15 in the same quarter last year. But again, we continue to have many programs for the brand going forward. So for example, for the second half of the year, we have the Budweiser Made in America Festival now in the West Coast as well. That has proven to be an amazing instrument to connect with the LDA 27 cohort. We have the Major League Baseball activations. We have the launch of Budweiser in the 16 ounce aluminum bottle, so we're taking the aluminum bottle that has been a big driver for Bud Light now also to Budweiser. And we're going to have a big holiday activation this year, the first time in many years, for Budweiser. Budweiser used to do that activation around Christmas and the year end in the past. For many years, it did not do it. And this year, we're coming back with that tradition.

So again, I think the brand is pointed in the right direction in terms of brand health. I think there is enough support behind the brand. But we're going through that phase in that we're bridging consumer profile that's changing within the brand franchise. So that's the -- what you have to go through when you're trying to bridge those two different situations.

Trevor Stirling - Sanford C. Bernstein

Thank you very much, Brito.

Carlos Brito

Thank you.

Operator

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

Andrea Pistacchi - Citi

I have a couple of questions on China, please. The first one is you're clearly doing -- I mean, in terms of profit, this was another excellent quarter in China. I think about $100 million of organic EBITDA growth there. Now besides very good mix, what's driving this? And what really has changed -- since end of 2012 is when you started delivering consistent and very good margin expansion every quarter. So has something changed since then? And then a follow-up on Corona, which you said you're taking back tomorrow in China. How do you plan to position it versus Budweiser? Obviously, Budweiser is doing incredibly well there, so is there a risk of cannibalizing some of its success?

Carlos Brito

Two very good points about China. I mean, China first, we're very happy with the development in terms of profitability in China. And that's a direct consequence of our strategy that has been very stable and consistent since 2009, when we joined with AB and had the Budweiser and the Harbin brand.

EBITDA grew this quarter by almost 66%, and that is because of our revenue growth initiatives, our mix that's growing the right direction. So we're trading up, so Bud and Harbin being more and more important in the overall mix. And also some improved operating leverage. So as you grow the business, of course, you not only grow but you also optimize the business. So as you do a Greenfield, for example, and the beer is now available in that region, you have to travel less compared to what you're doing before that Greenfield was there. So your logistics is optimized. As Budweiser's produced also in more breweries again, the logistics is optimized. As you become more of a bigger company there, scale starts benefiting you, so the same people doing more. So I think it's a whole bunch of virtual circle taking place in China.

So this quarter, of course, the timing of sales and marketing benefited the EBITDA growth. So let's not forget that. But you're right, I mean if you forget the quarter-on-quarter comparisons and if you look at the yearly developments, you're right to say that margin has appreciated and China has grown. And we believe that we still have room to continue to do the same because the fundamentals are in place and better than that, they are working.

In terms of Corona, I think it's amazing because if you think that our whole idea in China is to become not to become because we already are the leading company in premium, but to extend that leadership and to grow the segment even further as we bring, together with Budweiser, Corona. And the Belgium Trio, as we call it, Stella, Hoegaarden, Leffe, I mean the potential is really amazing. So Corona is going to be positioned and priced above Budweiser to continue to extend the definition of super-premium in China. So if Budweiser today is the super-premium brand, we’re going to now do a super, super premium brand in China with Corona. And Corona will also afford us access to some channels that today Budweiser is not necessarily is in.

So for example western bars that's growing a lot in China, where Corona has more of a position that fits with that kind of channel. So that's going to be very important to complement our premium strategy in China. So we’re very excited about it. Of course we’re going to do it in a gradual way like you have to do it with any super premium brand. It’s not going to be any big bang. But it’s great to have the brand back in the biggest market in the world and in a market where we lead the premium segment which is really where the profits are and the growth is.

Andrea Pistacchi - Citi

Alright, thank you.

Carlos Brito

Thanks Andrea.

Operator

Our next question comes from the line of Edward Mundy with Nomura.

Edward Mundy - Nomura

Good morning, gents, thanks for taking the question. In the U.S. your revenue per hectoliter of 1.5% in Q2 are you able to split out the difference between price and mix? And how do you see revenue per hectoliter progressing into next year, do you feel you need a more liquid-centric innovation pipeline for 2015?

Carlos Brito

Well, in the U.S, I mean yes, we have said last quarter that we should expect for the next two quarters, second quarter and third quarter with the fourth quarter being better that revenue per hectoliter would be impacted by brand and package mix in a way that would lower the overall net revenue per hectoliter growth. And that’s what we anticipated and that's what we see this quarter and we should see again next quarter and the fourth quarter being better. And that's a direct consequence of some of the innovations that we did this year that are doing very well share wise, doing very well margin wise. But the 16-ounce reclosable aluminum bottle for example is one that is, together with the 25-ounce can, is one that’s dilutive at top line but accretive at gross profit.

So what we said last quarter is valid for this quarter and for the next quarter because we are cycling those two launches. In fourth quarter, we should be, let's say, back to normal again.

Edward Mundy - Nomura

And Brito, for next year?

Carlos Brito

Well, for next year again, we are not giving any guidance, but we'll continue to invest behind our base and big brands like Bud Light, Budweiser, the high-end brands and Michelob Ultra. Those are the key brands that make up our business along with the value brands as well not to be forgotten. And we'll continue to invest behind those innovations as well. So I mean unchanged. But again the only different thing about this three quarters is the lapping of package innovation that again is accretive for margin and share, but not at top line necessarily. So that's what's diluting. So fourth quarter onwards we should see a more normal picture.

Edward Mundy - Nomura

Okay, thanks. And as a follow up on a separate point. There was an article on Reuters on the 11th of July that seems to imply that your business is focused on Latin America and Asia and ABI is slightly more lukewarm towards Africa. And so I'd just clarify the context of that. Is it really from an organic as opposed to inorganic perspective?

Carlos Brito

No, I think that came from a conference we had in Rio in which when asked about new markets or growth markets, we said that our focus in terms of investment CapEx these days are really in Latin America and Asia, mostly of course Brazil and China. That's what I answered. And I also said that I saw in Asia, because the question continued more specifically in Asia, I said that I saw that we continue to see huge opportunity for growth in Asia. When you think about our footprint today, I mean not only our businesses are doing very well in China, but now we have Korea the leading brand or be the leading brand in Korea. We have Corona. And our Belgium brands and Budweiser are doing very well in Australia. We have Vietnam, in which we have a presence, a growing presence and we're going to start a brewery next year to have even more of a portfolio there. And we have, in a very small scale India also doing very well. So I mean when I look at India and the opportunities it offered together with Latin America its growth that we've known forever, I mean those are the two growth platforms for the company today. That's what I said at the summit.

Edward Mundy - Nomura

Okay. Thank you.

Carlos Brito

Thanks Edward.

Operator

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

Caroline Levy - CLSA

If you could clarify why you think July improved in Argentina and whether that seems like a sustainable improvement, if that’s actually positive? And the second question is, how are you improving the supply of glass? And is that something that will get you to where you need to be to be fully supplied for next summer? If you could just size that out for us, please.

Carlos Brito

Okay. In terms of your question, how can I say that July is better, well, because we have the numbers and...

Caroline Levy - CLSA

No, no sorry, the question is why is July better, like what changed the margins there?

Carlos Brito

Sorry, sorry, I misunderstood your question. Sorry about that. So let me step back and give you the full picture. The second quarter volume performance was very impacted, of course, as we know by the macro environment in Argentina, which led to an industry-driven volume decline in the country.

So we had double-digits drop in April followed by a lower mid-single digit decline in May and June. So April was really when the crisis hit at its worst, at least so far. And then May and June, you already saw a better picture and in July a much improved picture.

A couple of things there first, the inflation of course was really higher than anybody could have anticipated and that hit consumers hard. But most of the salary negotiations only kicked in in the month of June. So in April, May, consumers they were really pressured in between having inflation growing every month and salary not yet there.

So now salaries are corrected and I think that's beginning to flow into the economy. So real wage has decreased, but now, at least nominally, is back up to a much better place than April, May. So I think that's one big portion there that is impacting positively, the end of the second quarter and July. And we believe it will also -- July is a good sign for, if you compare it to the second quarter, that the second quarter was really a bad time of this year year-to-date.

Caroline Levy - CLSA

Thank you the. And then on the glass side, I mean how are you addressing that shortage? And does it sort of disappear over the winter or ….?

Carlos Brito

That's a supply chain classic problem. I mean if you have a plan and you supply can always, within certain boundaries deal with pluses or minus within a certain tolerance. But the fact is that all markets demanded more than the plan and away from that tolerance. And then what was really -- the issue was glass supply.

So now that the summer -- in terms of inventories are being rebuilt again and July shows a much better picture, now supply of course is tapping up different sources of glass and so glass supply is in the better place. And now after the summer, in North America and Europe, as demands in Mexico, as demands go down a little bit because of seasonality, supply will have its opportunity to really refill the inventories in the pipeline. So that's the story about glass supply. I mean demand that was way higher than plan, supply not being able to react overnight, but now with two months being able to react, and therefore, better numbers now for July.

Caroline Levy - CLSA

Thank you so much.

Carlos Brito

Welcome.

Operator

Our next question comes from the line of Eric Serotta with ISI Group.

Carlos Brito

Eric?

Eric Serotta - ISI Group

I'm wondering if you could go into the U.S. business in a little bit more detail. Can you give us a sense of what happened on the on-premise initiatives that you talked about last year, some of the initiatives in terms of improving distributor execution and then your craft initiatives, specifically Goose Island, Blue Point, as well as Cider?

Carlos Brito

So, let me touch on -- it's a broad question, so let me touch on many of the points. So on-premise, we are very happy with the performance. I think I mentioned that on Bud Light, one of the drivers for that share performance has been the on-premise as well as the aluminum bottle, as well as the summer campaign we have here. So that has been good. But of course, it’s a long-term (inaudible) proposition. Today, we have more than 330 brand activation managers in the marketplace. we didn’t have that a year ago. So these people are trained to develop and to deal with the on-trade and that has to do mainly, but not only with drafts but also packaging and also it’s going to benefit a lot our main brands and the high-end brands.

So that’s something that we lost room in the on-trade in years past and now we are here to regain what’s ours given our share in our brands. So that’s the on-premise. The other parts of your question?

Eric Serotta - ISI Group

Wholesaler…

Carlos Brito

Wholesaler, yes, wholesaler execution, we continue to improve. I mean our wholesaler system is a big asset that we have in the U.S. Our AOE or excellence program is a big thing today in our relationship. We have a whole ritual and process in terms of sharing best practices; awarding the best performers; having two conventions a year to again award the performers, exchange best practice, talking and aligning on what’s to come. So I think it’s very important that we have also defined two or three years ago what anchor wholesalers means. It’s very clear today what we see as an anchor wholesaler. And that's clear for the system. So again, the wholesalers have been a big partner in our innovations and executions in the marketplace, big assets. And we continue to be very close to them through the panel and through the excellence program. So that's on the positive side.

Felipe Dutra

The third one is craft strategy.

Carlos Brito

The third one is craft strategy. So we are growing in the high-end, as I said. I mean we grew 20 bps in the -- with our high-end brands and Michelob Ultra also grew by 15 bps, if not mistaken, right, those are the numbers. And so the high-end, we have Goose Island doing very well; we have Shock Top doing very well; we have Blue Point now also doing very well. We're not giving numbers for everything, but this is all part of the high-end strategy. And we also have the import brands led by Stella also having a very good year.

So I think the high-end is a mix of all these things. Yes, it's the so called craft but also with our 600 years of history in Europe, there's a lot to be said about our European brands and its potential in markets like the U.S. So that's also part of our high-end strategy. So very committed to it, and it's where a lot of the growth is and it's where a lot of the profits are. So that's very good together with of course our main business that brings us the scale and the share in the marketplace. So that's pretty much our strategy going forward.

Eric Serotta - ISI Group

Brito, can you give us any kind of numbers or metrics around Goose Island and around your ciders?

Carlos Brito

I don't think those are public numbers at this point [Robert]. But again, this is part of our high-end strategy, which is gaining share, as I just said. So that's -- yes, that's what I would say at this point.

Eric Serotta - ISI Group

Terrific. Thank you.

Carlos Brito

Thank you.

Operator

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

Andrew Holland - Societe Generale

Yes, hi. Thanks for taking the question. Can I just ask on your China margin, obviously up very strongly in the quarter; it was up I think 440 bps in Q1, 620 in Q2. I'm guessing you don't want us to get sort of carried away, thinking that this is an accelerating margin performance. Can you give us an idea, maybe with reference to those two numbers, what your expectation is for the full year when we take account of the timing of your sales and marketing expenditure? That would be the first question.

Carlos Brito

Yes. We don't give guidance Andrew, but I'm very glad you asked this question, because what I would like to say is that I don't see in China because again, let me step back. The margin has been -- EBITDA margin has been increasing in China in the last many years. So this is not a new thing. I wouldn't call what we’ve seen in the last past two quarters an inflection point of any sort. So what I would say is that those were great quarters for different reasons, but I’m not saying that these are quarters that should be taken in consideration to project the next two, for example. But what I would say is that margin expansion in China is a reality. It's based on fundamentals that are working, and therefore, it should continue along the same, let's say, trend that we've had in the last few years.

Andrew Holland - Societe Generale

Okay. And just a question on OB, I guess you were asked earlier about that. Can I specifically ask whether you were able to quantify the synergies and also whether you're able to say what the base EBITDA was because when you originally announced the deal, you said that the EBITDA was 500 million euros -- sorry dollars million, but that was not prepared on your basis. Now you had a chance to look at it. Can you say what the base EBITDA was?

Carlos Brito

Yes. In terms of EBITDA, there was no major difference, I mean so you can take that as the true base for the business. And the first part of the question was...

Andrew Holland - Societe Generale

Synergies, any chance of quantification?

Carlos Brito

Andrew, this was a different kind of combination because when you think about it, this business was ours just five years ago. And what (inaudible) did is that they really continued to grow the business on the same basis, did a very good job. So it's not a business that we go in and our systems are not present, that the culture solely different. I mean, no. I mean you got there and our systems and the way we run the business were there. So it's not a business that would -- the other thing, on the other hand, is that I would say that the multiple at which we were able to reintegrate the business was a very good multiple, and I think that's where a lot of the value creation for sure was, as opposed to announcing synergy.

One thing I could say without giving you a number is that, of course, there'll be synergies because now the company is back to being part of a larger organization, and therefore, procurement is the first thing that comes to mind. Back office support, analytical global brands, I mean toolkits like the World Cup. I mean Cass for example, was the local sponsor for the World Cup. I mean that would not have happened hadn't we merged. So I mean I think those are all things that will contribute to the business but we decided not to quantify this time because again, this is not a new business for us. It's a business that had a five year leave of absence.

Let's put it this way. And now it's back with the same systems and pretty much with a few exceptions, the same colleagues that we had and that are performing very well, great colleagues to be back. So that's Korea.

Andrew Holland - Societe Generale

Okay. Thank you.

Carlos Brito

Thank you Andrew.

Operator

Our final question comes from the line of Lauren Torres of HSBC.

Lauren Torres - HSBC

Good morning my question is on Mexico. And Brito, you've done a great job integrating that business and taking margins into the mid to high 40s. Just curious if you view that as a sustainable margin, if there's room for upside from there. It seems quite high, but it seems like the right number. And then obviously, we're a year now, and the cost synergy number is maintained. Any color on revenue synergies? It seems like once again being a year in, you have better visibility on the brand, whether it be domestically or globally and your plans for further expansion of the portfolio?

Carlos Brito

Yes hi, Lauren, good point. I mean our guys in Mexico deserve the credit for this last one year and the preparation for this integration. I mean our Mexican colleagues have delivered an amazing job. The Mexican margin has proved that and as in all other business that we have we like this thing about margin expansion. We think it's interesting, it's exciting. It's about being more efficient and we continue to see opportunities in Mexico as well as in the other zones. In terms of revenue synergies in Mexico, we didn't put a number to it as we normally only talk about cost synergies, but if you think about the Corona potential in Mexico. Again, just look at the World Cup, the proof point is there. If you look at Bud Light in the northern part of Mexico, but also in the whole country. If you look at Stella, they launched in Mexico, where the premium segment is way underdeveloped. Then you look at own businesses like the Modeloramas, where we see a huge opportunity to grow as a trade format and direct distribution best practices.

Because in Mexico, we have 85% as direct distribution, that's one thing our company, our people have lots of toolkits to implement. And again, our colleagues in Mexico have been very open to exchange best practice, and that has been the key secret why these changes have kicked in so quickly and so in a sustainable fashion, allow including even with the whole synergy integration taking place, the top line grew. So that was a -- we could have the one and the other. So that's Mexico.

Lauren Torres - HSBC

And can I just ask as a follow-up are there other markets like what you mentioned with Corona and China from Carlsberg that you’re potentially going to regain the brand, is there anything imminent on that front?

Carlos Brito

Yes, I mean in Europe, we just regained a brand in main markets this year. And in the UK, there is a big market for the brand where we're going to regain it in January next year, 2015. In Canada, we have regained in March this year. So I mean and in Brazil, it’s a light territory for the brand. We’re going to launch it before the end of this year. Of course as you launch a premium brand in a very seeding type way. And in Argentina, we also just got the brand back from CCU. So I mean in our main markets where the brand is back and that's good news for me.

Lauren Torres - HSBC

Very good, thank you.

Carlos Brito

Thank you, Lauren, and thank you everybody, for all your questions and your time. Again, just three points to sum it up. I mean we had a strong momentum going from the first quarter into the second quarter and we’re going to continue to work very hard to get it in the second half of the year as well.

The World Cup was a great opportunity not only for the five week period but also, we’re sure will have lasting effects, positive effects on our brands, global brand and local brands that were connected to the tournament.

And the summer is in full swing. That’s very important for a lot of our markets, and we’re very excited about the programs we have and the activations. And thank you very much again, and I’ll see you on October 31st. Have a great day. Bye-bye. 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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