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

Q1 2011 Earnings Call

May 4, 2011 10:00 am ET

Executives

Carlos Brito – Chief Executive Officer

Felipe Dutra – Chief Financial Officer

Analysts

Lauren Torres – HSBC

Chris Pitcher – Redburn

Trevor Stirling – Sanford C. Bernstein

Nico Lambrechts – Bank of America Merrill Lynch

Andrea Pistacchi – Citigroup

Caroline Levy – CLSA

James Edwardes Jones – Espirito Santo Investment Bank

Mark Swartzberg – Stifel Nicolaus

Ian Shackleton – Nomura

Paul Hofman – Credit Agricole

Gerard Rijk – ING

Alice Longley – Buckingham

Kris Kippers – Petercam

Operator

Welcome to the Anheuser-Busch InBev First Quarter 2011 Earnings Conference Call and Webcast. Hosting the call today from Anheuser-Busch InBev is Mr. Carlos Brito, Chief Executive Officer.

Today's call is being recorded and will be available for telephone replay beginning at 6 pm Central European Time today. Today's webcast will also be available for on-demand playback. At this time, all participants have been placed in a listen-only-mode and the floor will be open for your questions following the presentation. (Operator Instructions)

Some of the information provided during the conference call may contain statements of future expectations and other forward-looking statements. These expectations are based on the management's current views and assumptions and involve known and unknown risks and uncertainties.

It is possible that the Company's actual results and financial condition may differ possibly materially from the anticipated results and financial condition indicated in these forward-looking statements.

For a discussion of some of the risks and important factors that could affect the Firm's future results see Risk Factors in the Company's latest Annual Report. Anheuser-Busch InBev assumes no obligation to update any forward-looking information provided during the conference call.

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

Carlos Brito

Well, thank you Melisa. Good morning and good afternoon everyone and thank you for joining our first quarter 2011 conference call and webcast. I'm joined here today by our CFO, Felipe Dutra.

Today, I'll briefly review our first quarter highlights and then provide you with an update on the priorities for this year for our two largest markets of the United States and Brazil, which I set out for you in our full-year 2010 press release some weeks ago. I will then hand over to Felipe who will review our performance by zone and provide you with an update on the outlook for 2011.

As previously guided, our first quarter volumes were soft, especially in the United States and Brazil, although this was compensated by our strong revenue growth performance. Total revenue grew by 5.6% despite essentially flat beer volumes for the quarter. Revenue per hectoliter grew 6.1%. This result would have been 6.8%, excluding the impact of geographic mix.

EBITDA grew by 10.4% in nominal terms and 6.5% organically, while EBITDA margin expanded to 37.9%. We gained market share in five of our top 10 markets, with good results in Argentina, Russia, U.K., Belgium and Germany. As expected, we lost market share in Brazil, following our fourth quarter price increase, which increased the gap to our competitors. Our market share in United States also declined as we continued with the rebalancing of our portfolio and the deemphasizing of the value segment.

Our Focus Brands, those brands which have the greatest growth potential and which represents almost 70% of our total own beer volume, continue to grow faster than our overall portfolio. As we have said before, we're committed to increasing the investment behind our brands and in the first quarter, we increased our spend by $52 million compared to the same period last year.

Distribution expenses for the quarter need further explanation since they were exceptionally high growing by 14.6%. The increases in Latin America North were primarily in Brazil and due to two main factors. Firstly, the transfer of products between geographies in anticipation of higher sales demand, which did not materialize in the quarter. This transfer costs will be eliminated when new capacity comes on stream later in the year.

Secondly, increases in direct distribution. There were also increases in Latin America South due to labor cost increases ahead of inflation and then Central and Eastern Europe, due to higher transport tariffs, both of which began to have an impact in the third quarter of last year. Felipe will provide further guidance on distribution expenses when he addresses the outlook for this year.

I would now like to focus on our two largest markets of the United States and Brazil. In the United States, high levels of unemployment, especially amongst our core consumers, continue to affect overall beer industry volumes. Nevertheless, we continue to believe that recovery in the U.S. is only a question of when and not if. In the meantime, we will remain focused on building brand health and driving it forward with all of our key initiatives.

Shipments in the quarter declined 3.3%, while sales-to-retailers, STRs, declined at a lower rate of 2.2%.

As in the fourth quarter of last year, price and revenue management results were positive. Normalized revenue per hectoliter grew by 3.7% in the quarter; driven by our September price increase, as well as improved mix, which we estimate provided a benefit of almost 60 basis points. We continue with our strategy introduced with the September 2010 price increases of reducing the price gap between our own sub-premium and premium brands, which has historically been around 25% to a level of around 15%. We're encouraged by the progress we're making and we'll continue to work to narrow this gap in the coming years.

We estimate we lost about 60 basis points of share in the quarter. Similar to the fourth quarter of last year, the main source of the share loss was a sub-premium segment, which is an expected consequence of the pricing strategy, which I have just mentioned.

We also saw share loss with Budweiser, but at a declining rate compared to the same period last year. Budweiser brand health indicators as in the fourth quarter, again, showed some positive signs of improvement. As I have said before, we're determined to regain our market share in the U.S. with the right mix. To this end, we're encouraged by the progress we're making in many areas, including the Bud Light mega brand, the high end and Michelob Ultra.

I'd now like to give you an update on the top priorities for the U.S. market; firstly, Bud Light growth. The more we work with this brand the more confident we become about its potential. The brand health of the mega brand continues to improve and the gap to competition is widening. We estimate the market share of the mega brand grew by 11 basis points in the quarter with the strong results in the important 21-year to 27-year old consumer group.

The Bud Light mother brand led the way with STR growth in the quarter being driven by the successful 'Here We Go' campaign, and further supported by our sponsorship of the Super Bowl and the Ultimate Fighting Championship.

Uncertainty surrounds the upcoming NFL season, but we remain optimistic that a solution can be found. This is a new sponsorship for the brand, and we have already started to leverage the property with the NFL Player Draft that took place at the end of April.

Secondly, Budweiser stabilization; as I mentioned earlier, the brand health indicators are showing encouraging signs of improvement following the launch of the Grab Some Buds campaign, and the Concentration Week in September last year. The brand is also being helped by new pricing strategy that narrows the gap between our sub-premium and premium brands. Market share remains under pressure, but the declines are decelerating from 60 basis points in the first quarter of last year to 40 basis points in the first quarter of this year.

Thirdly, high end growth; growth in this segment remained strong with superior pricing and margin opportunities. I'm pleased to report that our high end brands continue to perform well, increasing their share of the segment in the first quarter. STRs grew by 13.3% with Stella Artois and Shock Top STRs growing by almost 20% and 60% respectively. The acquisition of Goose Island, which closed this week will strengthen our portfolio even further and underlines our commitment to this segment. Finally, we'll continue to optimize the price positioning across our overall portfolio in line with our brand strategies.

Turning now to Brazil, as anticipated, beer volume growth in Brazil in the quarter was soft driven by severe floods and expected market share losses following our fourth quarter price adjustments, which increased the gap to our competitors. Beer volumes grew by 0.2% in the quarter, but it should be remembered that this was against tough comps from the first quarters of 2010 and 2009, where beer volumes grew by 15.9% and 7.6% respectively.

Our soft volumes were more than compensated by strong revenue growth.

Total revenue grew by 10.3% with our net revenue per hectoliter up double-digits helped by our fourth quarter price increases, a positive impact from increased direct distribution mix and flat excise taxes.

Despite the soft first quarter volumes, we remained very confident about the Brazilian industry. Although the real increase in minimum wage in 2011 is minor, consumer disposable income and consequently the beer industry should get a boost in 2012 since the official formula should provide an increase in the minimum wage of approximately 7.5% in real terms or 13% in nominal terms.

I would now like to focus on the top priorities for Brazil and firstly our Focus Brands. As a result of continued investment behind our brands, Skol, Brahma and Antarctica continued to command consumer preference more than 10 percentage points ahead of their combined market share. We work hard to maintain and extend this advantage.

Our innovation pipeline is also strong and driving brand health and consumer preference for our brands. The percentage of volume from innovations continued to grow well ahead of our average volume growth and success is coming from both liquids, for example, Antarctica Sub Zero and packaging. For example, our 269 ml can and the continued roll out of the one liter bottle.

Our third focus area is the Premium segment. As you know, premium accounts for only 5% of the industry and is a good opportunity for long-term volume and margin growth. We have a strong portfolio of brands including Original, Bohemia and Stella Artois and the launch of Budweiser in the second half of this year will further strengthen our portfolio.

Finally, regional growth; the economies of the north and the northeastern part of Brazil continue to show some of the highest growth rates in the country. In addition, we have been gaining share in that region, primarily led by Skol. Our new brewery in Pernambuco will open in the second half of this year and give us an improved footprint in the northeast, easing the capacity and logistics costs pressures that we have been facing in recent months.

I’d now like to hand over to Felipe to discuss the zone performance and the below EBIT line items in more detail. Felipe?

Felipe Dutra

Thank you, Brito and good morning, good afternoon everyone. Let me start with North America. Brito has already covered the U.S. in some detail and so I would be brief. Shipment volumes in the quarter fell 3.3%, while sales-to-retailers or STRs decreased 2.2%.

As we have said in other occasions you can expect to see some variation between shipment and STR volumes from quarter-to-quarter, but taking the year as a whole, absolute shipments and STRs should be closely aligned.

In Canada, beer volumes fell 6.1%. This was driven by a weak industry, which in part was impacted by a tough comparable in 2010, which benefited from the Winter Olympics in Vancouver and also a late Easter, which moved volume from March into April.

Despite a tough competitive environment, share in Canada has been stable at approximately 41% since the second quarter of last year. Budweiser, Budweiser 4 and Bud Light showed a good share growth in the quarter.

Balancing volume and profitability in Canada remains a priority and we intend to maintain industry-leading EBITDA and EBITDA margins. Latin America North beer volumes were up 0.6% and soft drinks declined 3.3%. Brito has already commented on our volume performance in Brazil and that have comparables in prior years.

Total zone revenue per hectoliter in the quarter increased 10.8%, ahead of our fourth quarter result of 9.9%. Cost of sales per hectoliter increased 9.4%, largely due to higher malt, adjunct and aluminum prices, and higher cost for imported cans, partially offset by favorable currency rates. We are no longer importing empty cans from overseas and the residual impact of doing so on second quarter results should not be material. Zone EBITDA grew 11.4% in the quarter, despite the exceptional distribution expenses as previously mentioned by Brito.

Latin America South saw volumes growth of 3.7% in the quarter with beer volumes up 4.4%, driven by solid industry performances. Argentina grew beer volumes 5%, and we continue to gain market share with Stella Artois growing 14.7%, almost twice the growth rate of the brand in 2010. EBITDA in the zone grew 21% in the quarter.

Western Europe owned beer volumes increased 2.6% in the quarter, with all countries in the zone gaining market share. Own beer volumes in Belgium grew 7.4%, compared to a decline of 9.4% in first quarter 2010 when sales were disrupted by social actions. In Germany, own beer volumes grew 0.9% helped by a milder winter. In the U.K., beer volumes were negatively impacted by the late Easter and our beer volumes fell 1.1%, but all of our Focus Brands in U.K. Budweiser, Stella Artois, and Beck's gained share. EBITDA in the zone grew by 7.7%.

Central and Eastern Europe volumes increased 5.6% in the quarter. Russian beer volumes grew 4.1%, compared to a weak first quarter last year, which was impacted by the 200% excise tax increase. We gained market share in the quarter helped by Bud, which has already reached at 0.6% share after its launch an year ago. Ukraine beer volumes grew 8%, helped by a stronger industry, although market share remains below the level of last year.

Finally, turning to Asia Pacific where first quarter volumes rose 2.8% organically. In China, our Focus Brands led by Budweiser and Harbin grew 7.4%, consistent with our Focus Brands strategy. First quarter volumes were influenced by the trade build-up in the previous quarter in anticipation of the Chinese New Year. Looking at the six months to March 2011, our Focus Brands grew 15%.

Zone EBITDA increased 3.2% in the quarter, driven by good revenue per hectoliter growth of 6.8%, partially offset by higher cost of sales and distribution expenses. Our net finance costs decreased from $900 million in the first quarter 2010 to $758 million in the first quarter of this year. This decrease is primarily due to lower net interest expense as a result of reduced net debt levels, although financial results of minus $60 million are driven by unrealized losses from derivative contracts to hedge risks associated with different share-based compensation programs and the payment of bank fees and taxes on financial transactions in the normal course of business.

Excluding the effect of non-recurring items, our normalized effective tax rate dropped to 22.2% versus 25.1% in the same quarter of last year. Our normalized earnings per share for the quarter grew by 30.4% to $0.73 from $0.56. Our outlook remains essentially unchanged for our full year 2010 press release issued on March 3. Therefore, I will only highlight the following; as mentioned by Brito, short-term distribution expenses are being impacted by transshipments and direct distribution expansion in Brazil besides additional cost in Latin America South and Central and Eastern Europe.

We will begin to cycle easier comparables in the second half of the year, and so we expect full year 2011 distribution expenses per hectoliter for the total Company to increase by mid single-digits. In the first quarter, we delivered $75 million of AB integration synergies and remain on track to deliver at least $270 million of synergies in the full year, which would bring the total to our commitment of $2.25 billion. Our previous guidance was for a normalized effective tax rate in the 25% to 27% range. We now believe the outcome for 2011 will be at the lower end of this range.

Finally, approximately 35% of our debt is denominated in currencies other than the U.S. dollars, mainly the Brazil reais and the euro. The weakening of the dollar is impacting the absolute level of our total debt, as well as the translation of interest expenses, although of course, the movement in FX rates has a positive impact on EBITDA. We remain fully committed to the leveraging and expect to reach our net debt to EBITDA target ratio of two times during the course of 2012.

This concludes our comments and we would like to open up the lines for the Q&A. Melisa, please.

Question-and-Answer Session

Operator

Thank you. The floor is now open for questions. IN the interested time, we will limit participants to one questions and one follow up. (Operator Instructions) Your first question comes from Lauren Torres of HSBC.

Lauren Torres – HSBC

Good morning everyone. Brito, my question is on the U.S. business, we saw market share losses last year. We saw some additional market share losses in the quarter, and you are talking about regaining this market share. I was just curious if you could talk about when we should expect this? And then I guess more generally speaking, as you get your pricing structure in place, how do we think about a more balanced volume and value growth in the U.S. going forward? I know right now it does make sense to work on pricing, but potentially the expense of volume growth. So curious, if that's going to change over time and how do you see that balance working out, you know maybe past your pricing structure plans?

Carlos Brito

Hi Lauren. I think in terms of the market share you asked, I mean when we got here two, two and a half years ago, we liked a lot of things we saw. One of the things we didn't like so much was the fact that 30% of our volume in the U.S. was being sold in the so-called sub-premium value price segment. We didn't like that, especially the difference between those products and our mainstream products, Bud and Bud Light of 25% or more sometimes. So, we set ourselves to change that and that's what we're doing and we'll continue to do that until we reach the 15% price difference. That's our target because that's what we see in other countries where we operate and that's what we see in other consumer products category. So, we are committed to that and the share we're losing is because of the fact that – because of the way we implemented price increases, especially last time around in 2010 September, when we put a much higher price increase in our sub-premium or value brands, and that of course caused us to deemphasize that segment and share loss. Of course, we're trying to pick that up with Bud and Bud Light, and the high-end products, but that will take a while to get even. But we're very committed to it because we think that's the right way for the future and we're always, as you know committed to the short-term, but also to the long-term. In terms of volume and price, what we all know is that beer compared to other consumer product categories tend to be more inelastic than some other categories, and added to that the fact that we have models that show that the industry volume in the U.S. today is being much more impacted by consumer confidence and unemployment especially among our core consumers. We saw an opportunity to start doing the price layering because we think it should be now, and not wait for anything else. So, I'm pretty confident, that that's the right thing to do for the future. But again, when you lead a market, yes, you have some short-term pains when you're trying to do the right thing for the future, and we've proven in other markets that we're willing to go through that short-term pains, if it's for something that's for the good of the margins and the business in the future. So that's what we are committed to do in the U.S.

Lauren Torres – HSBC

If I could just follow up quickly on the U.S. Yesterday, MillerCoors talked about sales-to-retailers according to Nielsen being down mid-single digits for them, I guess partially due to weather. I know you don't typically give monthly data, but is there any insight you could give us as far as how your trends may be shaping up?

Carlos Brito

No, I mean, sorry, but we're here to talk about the first quarter. So, we don't give information on future months. So, I would stick to what we have here in our press release.

Lauren Torres – HSBC

Okay. Thank you.

Operator

Your next question comes from Chris Pitcher of Redburn.

Chris Pitcher – Redburn

Good afternoon. A quick question on the impressive revenue perhaps led to growth in Brazil. I mean, you've given the key drivers behind that. I wonder if you can give us a bit more color on how that market is likely to play out. It seems like your pricing actually is slightly above inflation. Mix isn't mentioned as an important driver in Brazil. I just wonder, whether that's something to come forward? And then to give us a bit more color on where you are in terms of your own distribution and when that benefit to revenue will start to run through? And then finally, with the excise duty increases to come, will that get absorbed into this net sales per hectoliter improvement or will you look to pass that on as well? I'm just trying to get a feel for how those four different levers within Brazil are working and maybe focus more on the mix potential going forward? Thanks.

Carlos Brito

Well Chris, hi good morning. First question on price in Brazil; let me step back and give you a picture for Brazil very simple, we will help answer the questions. I think last year – last two years, 2009 and 2010, what we've seen in Brazil, it's an amazing volume growth, market share growth, brand health growth, largely fueled by innovations that we brought to the marketplace. On the other hand, we saw flat margins, and we also saw lot of tight capacity, a lot of CapEx, but always a bit – still lagging what the market was demanding. On the other hand, what we built last year in 2010 is that we ended the year with a record market share of 70% plus, 71%, and that is what we called the fact that we were building options for the future. So, the fact that we had a record market share gave us some room to be more aggressive on some of the things we wanted to do this year in 2011. So, this year, what we're doing is that since consumers wouldn't be as well-off in terms of real term wage gain as they have been on the last many years, they'll again be much better off next year, but this year 2011, they would have pretty much no real salary increase. We decided it to be a good year to use this optionality of the highest share ever to start fixing some things in the pricing tree, mainly in terms of the one-way segment that has a lower margin than the returnable bottle segment. So, as we increased prices last year, we did a higher increase on the one-way segment, which again, you pay a price in the present, but it's for a good cause in the future. We're also taking advantage to put the price we can, and to your third question, yes we're going to pass again taxes to consumers, so another price increase, and with that margin expanded, that bodes well with the fact that we still have tight capacity in Brazil, a lot of capacity has come in the second half and the fact that consumers would be less well off than in previous years. So, we've decided to take advantage of this all new mix of 2011, go more aggressive with pricing, generating therefore a different mix between price and volume, but still generating a very healthy top line. So, that will be the mantra if you will for 2011, and with that, we should see margin expanding again as opposed to last year's when margins were flat. So, I don't know if that answers your question, but that's the big picture on how we are thinking about Brazil this year as opposed to last two years and why.

Chris Pitcher – Redburn

Okay and in terms of (Inaudible), the mix effect within the Brazilian business, I mean, a lot of your present – your results may have been highlighting the mix benefit in the U.S., mix benefit at the group level from innovation. In Brazil, it seems to be lesser than the other focuses that's something that's still to come. And then just to confirm the excise duty increase, that will have a volume affect if anything rather than a net sales impact later effect?

Carlos Brito

Yeah, but I think – again, when you look at our top line, it's a mix of many things. As I think we mentioned in the press release, which is, it's not only the price increase, but also direct distribution increase that also helps net revenues per hectoliter and also the fact that for the first quarter, the excise tax was flat. So, that also helps. As excise increased, we passed that on to prices. It was a small increase. I’m pretty confident it won't affect volumes that much given that we had a much higher price increase before that, but that's important to show the discipline that whenever we have a tax increase, we pass to the consumers. I think that's an important discipline that we should have in all other countries.

Chris Pitcher – Redburn

Okay. Thanks very much.

Carlos Brito

Thank you.

Operator

Your next question comes Trevor Stirling of Sanford C. Bernstein.

Trevor Stirling – Sanford C. Bernstein

Two questions please, Brito and Felipe. The first one, I just want to check one thing. On an ABI level, you’ve guided to low single-digit unit COGS inflation and InBev have guided to COGS inflation in line with local inflation. So is that to right to imply that you have close to flat COGS for the rest of the world.

Felipe Dutra

It's fair to imply that the rest of the world will have much better performance than the InBev countries and, yes, we continue to guide to the low single-digits increase.

Trevor Stirling – Sanford C. Bernstein

And the second question, you mentioned Brito the 25% to 15% gap. How much of that have you closed with this year's pricing actions?

Carlos Brito

We closed some of it, but this is very dynamic as you can imagine because it depends a lot on mix of regions, mix of brands. But again, I think more important than what we have closed already is the fact that we've committed to continue to narrow that gap to what we think makes sense. When you look Trevor, at the countries where we do business, in none of our countries who have value brands or sub-premium brands of ours selling at a 25% discount to our mainstream brands or premium brands. So that was an anomaly that we found here, and we are on course to correct that. Of course, we're not going to do this in one price increase, it will take some years, but that's the direction we're going.

Trevor Stirling – Sanford C. Bernstein

Thank you very much Brito and Felipe.

Felipe Dutra

You’re welcome Trevor.

Carlos Brito

Thank you Trevor.

Operator

Your next question comes from Nico Lambrechts of Bank of America Merrill Lynch.

Nico Lambrechts – Bank of America Merrill Lynch

Good morning, Brito. Good morning, Felipe.

Carlos Brito

Good morning.

Felipe Dutra

Good morning Nico.

Nico Lambrechts – Bank of America Merrill Lynch

I’ve got three questions, if I may. First of all; the first question, in your outlook statement at February you made a comment that you expect momentum to build in the second quarter and into the second half. As you said, you left most of your outlook unchanged, but you did admit the statement. Would it be fair to say that the second quarter momentum might be a little bit weaker than what you expected at the time when you gave that guidance? That's the first question. Second question is relating to the interest charge. At the moment, the consensus is expecting 2.4 billion interest charge including the other – this is a recurring interest at 2.4 billion, 760 for the first quarter. Do you think that the market is too conservative on that and maybe Felipe, you can give us a little bit more color on the underlying interest coupon, et cetera, and how we should think about that? The third question is, on COGS per hectoliter, you're guiding to low single digits, but as I understand that that is the mix COGS per hectoliter impact. So it includes your hedging impact, but also includes cost savings and other efficiency gains. Could you maybe give us a feel for how much contribution to the COGS per hectoliter, the procurement savings and the efficiency gains would give? Reason for the question is just to benchmark that with the other consumer goods companies who give us a gross input cost figure and then quote, say, cost savings number opposed to that. Thank you very much.

Felipe Dutra

Nico, well let’s start from the last question, cost of sales per hectoliter, and you know the permanent search for better efficiency is a way of work. It's very hard to quantify what is driven by procurement, what is driven by cost efficiencies, but we have very much a kind of a balance between both initiatives and our cost of sales per hectoliter. Our guidance for the full year is adjusted by geographic mix, which is – well it drives at least during the first quarter, drove a number higher than the reported one. Moving to the net interest charges, the expected coupon remains between to 6% and 6.5% and we pointed out to the fact that 35% – about 35% of total debt is linked to currencies other than dollars and that should put some pressure on the translation of local interest charges in local currencies into U.S. dollars, but on balance that should help the translation out for overall EBITDA number and remain fully on track to the two times net debt to EBITDA by 2012. Within interest charges, we have accretion expenses that ballpark it's -- it's a reasonably stable number, about 40 million per quarter and has been like that, and in other financial results we've pointed out to the fact that we enter into some derivatives as hedging transactions for the equity-based compensation and in our full year results as published in March, it is disclosed the fact that we have about or the equivalent to 15 million shares outstanding and the market-to-market results of the 15 million shares should be affecting our P&L as we cannot apply hedge accounting. By the end of December, the closing price was over €42 per share, by the end of the first quarter the closing price was just over €40 per share. So, it's about €2 times 15 million shares that is €30 million, you convert that to dollar, so you can have an idea of the magnitude of that impact, which accounts for about 70% of the other financial results. Aside from debt, we have the annual bank fees and taxes paid on bank transactions on the ordinary course of business. We may have some currency fluctuations for companies that are not reporting in U.S. dollars as part of the consolidation process as per IFRS, but you can clearly see that the biggest impact came from the market-to-market adjustments on the hedge transactions for the equity based compensation. So, Brito is going to address the first question.

Nico Lambrechts – Bank of America Merrill Lynch

May I just ask for some follow-up before you hand over to Brito?

Felipe Dutra

Yes.

Nico Lambrechts – Bank of America Merrill Lynch

Just on the interest charge, 6% to 6.5%, is the pressure on the coupon going down or up if we had to just to see in terms of your variable component of your [debt]?

Felipe Dutra

This coupon is between to 6% to 6.5%. You should expect that the local or that linkage of currencies other than dollars when translated into U.S. dollars should drive a higher number, but on balance the EBITDA is also higher. So that is almost a wash.

Nico Lambrechts – Bank of America Merrill Lynch

Got it. And then on COGS per hectoliter, I know you've given net number. Should we assume that some of the synergy cost savings or the cost savings numbers that you do quote might be captured in the COGS per hectoliter number? So some of the 75 million savings that you achieved in this quarter?

Felipe Dutra

It's a fair assumption.

Nico Lambrechts – Bank of America Merrill Lynch

You're confirming that?

Felipe Dutra

Yes, some of the 75 million is being captured at the COGS line.

Nico Lambrechts – Bank of America Merrill Lynch

Okay, so if we put full 75, we might be double counting. That's clear. Thank you very much Felipe and Brito.

Felipe Dutra

Welcome.

Carlos Brito

I was going to say Nico that on your first question about volume outlook, what we said in our last press release concerning full year, or fiscal year 2010 in March, we said that we expect first quarter volumes to be soft, impacted by the high unemployment in the U.S. and heavy rains in Brazil, with volume momentum building from second quarter 2011 into the second half, and we continue to support that statement. That's volume statement.

Nico Lambrechts – Bank of America Merrill Lynch

So it will start recovering from the second quarter or more from the second half?

Felipe Dutra

Building momentum from the second quarter…

Carlos Brito

Building momentum from the second quarter into the second half, that's for volume.

Nico Lambrechts – Bank of America Merrill Lynch

Excellent. Thank you very much.

Felipe Dutra

You’re welcome Nico.

Carlos Brito

Thank you.

Operator

Your next question come from Andrea Pistacchi of Citi.

Andrea Pistacchi – Citigroup

Yes, hi. Hi, Carlos and Felipe. I had a couple of questions on cost lines in your North American business. If I look at the G&A, so stripping out marketing spend in North America, it increased, I believe, by about 1% organically, which is including obviously some benefit of cost savings, and it's the first increase, really, since you took over the business. So, I was wondering what is driving that. The second one on marketing spend in North America, of your incremental marketing in this quarter, only around 10 million was in North America. Should we expect, in the coming quarters, a further step-up in North America, particularly as your NFL deal kicks in April? Thanks.

Felipe Dutra

Well you’re welcome. So, let me start from the sales and marketing. We guided towards mid to high single-digits increase for the Company at a consolidated level for the full year and what was done in the first quarter, it's towards that direction. If you take into account the increase for the quarter of $52 million as compared to the $202 million organic growth at the EBITDA line. So, that is a sizable increase. We are committed to the North America business and we have lots of progress behind the brands, but sales and marketing on a quarterly basis will have its soft seasonality. We continue to work towards efficiencies within the U.S. market which is shifting non-working money into working money. Therefore, the money being invested should have a much better quality. Part of the synergies that we captured during the first quarter were captured in admin or G&A line, part of the 75, now addressing your first question, and that is helping to offset the cost escalation or cost pressure we've seen. So, yes, we expect to keep a tight grip on cost management and that is very much across the board, across all countries we operate.

Andrea Pistacchi – Citigroup

Okay, thanks.

Felipe Dutra

You’re welcome.

Operator

Your next question comes form Caroline Levy of CLSA.

Caroline Levy – CLSA

Good morning, everybody. Couple of questions. Your CapEx is up. It looks like about 30% this year will be up, and I'm assuming that's largely because of Brazil. But what are the plans for CapEx this year, and longer-term in North America, where volume is substantially off the high levels of a few years ago? Is there opportunity to actually reduce capital in U.S.?

Felipe Dutra

The expected CapEx increase is from $2.1 billion of last year to between $2.7 billion to $2.9 billion. Additional capacity is primarily in Brazil as you said, but also in China as we are expanding our business there significantly and the so called Focus Brands being Budweiser and Harbin continue to grow at high double-digits number. But we have overall investments in Western Europe as well as North America, but that is more linked to consumer products, potentially new packaging and innovation be in liquid, be in packaging that sometimes require additional CapEx not necessarily capacity. But there are also programs that should drive cost productivity and with payback of less than two to three years and that is being executed in U.S. as well as Western Europe more mature markets and that is also the case for developing markets as well, but new capacity is primarily Brazil and China.

Caroline Levy – CLSA

So, is that the run rate then for CapEx going forward? It's not going to go down from this level?

Felipe Dutra

Well, it may eventually go down from this level. A higher CapEx for us is a good problem to have because there is a fraction of better volumes expectations. That's why we increased the number from 2010 to 2011.

Caroline Levy – CLSA

Okay. And then, if I could just move to – you talk about the brand health scores on the U.S. brands, and I wonder if you could help us a little bit, are these off relatively low bases that you're seeing improvement, or how can we get comfortable that the Budweiser brand is really ever going to move into positive territory? If you could just help us understand that a little bit I think it would be critical, because in particular, as you go into the rest of the year in the US, your comps are actually much more difficult. This was your easy volume comp.

Carlos Brito

Well, first in terms of brand health. It is Brito here. In terms of brand health for the U.S. Brands, I mean as we mentioned before Bud Light is at highest brand health metrics that we've seen and the gap to competition in the Light segment continues to widen, so that's very good. That's bodes well with the fact that it's gaining share for the last two, three years, so those two are going hand in hand. What we see for Budweiser is a lot what we've seen for Stella Artois for example in the U.K. where it takes some years, brand health comes first, share will follow and that's what we are doing. I mean, first we define was a gap that we needed to close, then we went, did a lot of consumer search and asked the famous three questions that you should ask for any brand; what's working well with the brand, so we keep it? What's not working so well, so we get rid off? What should be added to the marketing mix or the brand position, so as to continue to build on the iconic status of the Great American Lager, Budweiser? So that's what we did. We came with a new campaign. We put more money behind the brand and the share loss that last year was 60 basis point is now 40 basis points, and before you grow a brand you need to stabilize a brand, and the important thing to say is also the Budweiser global volume is growing. So, despite the shortfall in the U.S., when you add the growth in markets like China, U.K., Russia and others, you see that the Budweiser as a global brand is back into growth after 20 years of being in [negative] territories. So that is all very encouraging. And again, we see cases in our business very recently of brands that were long-term decline and that we are able to turnaround. If you go Brazil, Brahma and Antarctica were also some years ago a typical case of brands that had been declining for 20 years, and in the last five or six, they have been growing again, of course from a different base, but again the top three brands in the country. So very meaningful. So, we have a track record of doing that. We have great people looking at this, and we are putting our money where our mouth is and we're very committed to stabilize first and then eventually grow the brand.

Caroline Levy – CLSA

Thank you and then if I might just on China, I thought you included Sedrin as one of your focus brands there, and it wasn't mentioned in the growth rate in the first quarter. So if you could just update us on that?

Carlos Brito

Yes, Sedrin is part of our Focus Brands in China. Of course, it doesn't have the same growth rate as Budweiser and Harbin do, but it's a very profitable brand, very strong in two provinces, but we tend to talk more about Bud and Harbin because they are more national brands. I mean Budweiser is for sure national brand and Harbin, I would say, quasi-national brand, so that's why we tend to focus more on those two.

Caroline Levy – CLSA

And then, finally, thank you, but if I might just ask about the health of the consumer in North America, it's really interesting that the soft drinks and snacks companies are saying that March and April have been continuation of improving trends in convenience stores, and yet household products and beer have said things have gotten much harder. And I'm just wondering what your observations are from the field from your distributors as to what's going on with the U.S. consumer and if you can shed any light?

Carlos Brito

Well, as we said in our last press release is that we see some signs of more consumer activity, but those signs are yet to be confirmed. But, yes, if you go through our business in the U.S., you see states, cities, counties, where things are getting better and still see some others where things are still going sideways. So, again, in the meantime, we're trying to do what we can control. We're trying to act on levers we can control, the economy we can't. So, we're trying to continue to grow the brand health, continue to have great planning for the summer season, that's very important for our business being a very seasonal business, and continue to get that price where it should be, because again, beer tend to be more inelastic than other categories and we should reflect that in our pricing architecture.

Caroline Levy – CLSA

Thank you so much.

Carlos Brito

Thank you.

Operator

Your next question comes from James Edwardes Jones of Espirito Santo Investment Bank.

James Edwardes Jones – Espirito Santo Investment Bank

Yes, hello. Could you say a little bit about what's happening in response to the price increases in the sub-premium brands in the U.S.? Are consumers leaving the [cash figure] they trading up into other Anheuser-Busch brands, or are they defecting to competitor, or are they just buying less sub-premium beer? Is there anything you can do to expand on that?

Carlos Brito

Well, the main effect of that differentiated price increase that we implemented in September last year was that consumers up-traded to premium brands. So that's why Budweiser was also in part benefited; Bud Light in the high end of the market. So, of course, you have what we call the bottom feeders so as you increase your price for your value brands or sub-premium brands, some others will try to catch you in terms of lower prices. So, you have that also that dynamics happen, but I think the main one is the consumer up-trade.

James Edwardes Jones – Espirito Santo Investment Bank

And you're in succeeding retaining them within the AB portfolio?

Carlos Brito

Well, I cannot say 100%, but when you look at the trends for Budweiser, again better than last year when you look at trends for Bud Light accelerating from the last year and the high end growing, I think that's all part of the – the differentiated price increase was definitely part of this dynamics.

James Edwardes Jones – Esprito Santo Investment Bank

Thank you.

Operator

Your next questions comes from Mark Swartzberg of Stifel Nicolaus.

Mark Swartzberg – Stifel Nicolaus

Thanks. Morning, Brito. Morning, Felipe.

Carlos Brito

Good morning.

Felipe Dutra

Morning.

Mark Swartzberg – Stifel Nicolaus

Really a follow-up on the question that just preceded, can you talk a little bit more about plans to improve the sub-premium share trends, and is it reasonable to think you can do that without getting at least a little bit more promotional on those brands kind of tweaking pricing down on those specific brands?

Carlos Brito

Well, I think what we want in the sub-premium brands or value in those segment is really have our fair share. We don't want to – when we say deemphasize those brands, we're not seeing about abandoning those brands. Those brands are very important volume wise. Of course, margin wise they are less important, but they are part of all our combo, our business in the U.S. So we continue to support the brands in a more tactical way maybe than we support other brands that are more in an equity base, but again, we want to have our fair share, but we're not willing to grow the segment; quite the opposite, we're trying to get consumers to up-trade to the upper segments.

Mark Swartzberg – Stifel Nicolaus

And when you say support, you're talking about some of that increased spend going behind the sub-premium?

Carlos Brito

Well, sub-premium, they are more about tactical and promotional activities. By promotional, we're trying to get to be smarter in terms of promotion. We've put a lot of science in understanding what kind of promotions drive value as opposed to ones that just give you volume, but don't add any value, and we're trying to use that learning to balance a little bit of what's happening in the sub-premium category. But, again, the direction is to maintain our fair share in that segment, but to de-emphasize the segment, which is 30% of the industry in our view too large for a market as profitable and as rich in terms of consumers compared to other markets as the U.S. markets.

Mark Swartzberg – Stifel Nicolaus

Okay, great. Thank you.

Carlos Brito

You’re welcome.

Felipe Dutra

Thank you.

Operator

Your next question comes from Mitch Collett of Goldman Sachs. Mitch your line is open. Your next question comes from Ian Shackleton of Nomura.

Ian Shackleton – Nomura

Yes, good morning, gentlemen.

Felipe Dutra

Good morning.

Ian Shackleton – Nomura

Following from Brazil, I know you're rather used to this time of the year to pricing up, and it takes some time for the competition to follow, and you do tend to lose share in Q1. But I just wonder if it was slightly different this time, because it does strike me you've got your two local competitors in Brazil with probably a slightly shorter-term agenda at the moment. Or really, frankly, is it just like you've always seen? Is there nothing different this year?

Carlos Brito

No, I mean, what's different this year it's two things. I mean, first we started from a much higher share position in terms of a price increase initiation than many years before because it was a record market share. So, that's good because, again, it's about building options so you can use those options and because of that optionality, we came up also with a much bigger price increase than with any years prior. So, of course, that again is a new dynamics that we're trying to have in the Brazil market this year given where consumers are compared to last few years in terms of minimal wage, not having that real increase about inflation, and the fact that we have some tight capacity, and the fact that beer is relatively inelastic, and our very high market share at the beginning of the price increase, we decided to be more aggressive, also decided to differentiate it and that we put more of the price increase on the one-way segments, which for us in the short-term puts pressure on our market share, but it's absolutely the right thing to do for the future given that the margins on that package type is lower than the returnable package. So, we took an advantage of the options we built by ending the year with a very high market share, by trying to correct and get that margin to expand again in Brazil.

Ian Shackleton – Nomura

Perhaps just a follow-up, on the commercial agenda, you talked a lot about innovation in Brazil, and I know there is a lot going on in Western Europe as well, you aren't talking about the U.S. at this stage. Is it too soon, is the innovation story more about 2012 for the U.S.?

Carlos Brito

I think the last big innovation we had in the U.S. in the last two years was Bud Light Lime and that showed up that when you have a big idea grounded in solid consumer insight, our system can really execute really very well and that brand made a big difference in our numbers, So, of course, we are looking for some more of those, but also trying to fill our pipeline. And if you look at what we've been doing in the marketplace, again, not a second Bud Light Lime for sure, but we have launched Shock Top Raspberry. We're bringing Alexander Keith's to the U.S. market. We have Margaritaville, Spiked Tea and Lemonade, which addresses the fast growing FAB segments. We launched Stella Artois, the high-end Chalice can. We also did a small thing, new news, but it's generating a lot of buzz in the social media space, which is (Inaudible) labels on Bud Light where you can write using a pen or a coin, your name or the number of your bottle or whatever you want, and communicate to other people in bars. At Budweiser also we have the flavor Lock Crown with the red tab and also Shock Top in 22 ounce bottles. So, I mean, there's a lot of things going on. They are not, of course, of the same magnitude of the Bud Light Lime, but Bud Light Lime only happens every few years. But in the meantime, we've been very active bringing new products and new package innovation to the marketplace, but there's more to come.

Ian Shackleton – Nomura

Okay, thanks very much.

Carlos Brito

Welcome.

Operator

Your next question comes from Paul Hofman of Credit Agricole.

Paul Hofman – Credit Agricole

Yes, hi, good morning, Paul Hofman from Credit Agricole Chevreaux. One question left, perhaps, on the cost of goods sold. You reiterate your statements of low single digits it's now nearly 4% per hectoliter. Are you expecting an easing, or at least not a worsening, during the remainder of this year? This is a bit contrary to what other brewers are saying. So where do you believe you differ, is it just savings elements? Is it simply the visibility coming from hedging? Yes, what can you tell about the outlook for the remainder of the year? Thank you.

Felipe Dutra

The first quarter is expected to be one of the toughest quarter in terms of cost of sales per hectoliter. In part, it was a – it's still affected by imported cans in Brazil, for example. As we move towards the coming quarters, we should see some improvements on that and that's why we're confirming the guidance of low single-digits.

PaulHofman – Credit Agricole

Okay, thank you.

Felipe Dutra

You’re welcome.

Operator

Your next question comes from Gerard Rijk of ING.

Gerard Rijk – ING

Yes, good morning, few questions. First one on Brazil, you're quite heavily investing there. Can you give some percentage numbers of capacity expansion you expect from this in 2011 and 2012? Also on Brazil, you're talking about fourth quarter price increases, fourth quarter 2010. Has there also been price increases in March 2011? And then, on Central and Eastern Europe, the volume recovery of, let's say, only 4% versus a decline last year first quarter of around 16%, 17%, that's quite a limited improvement. Maybe you can elaborate on it. And you're still talking about market share gains quarter-on-quarter, first quarter on first quarter, in Russia. Does it mean that that Russian market only grew by such a low percentage of single digit? And finally, on Asia-Pacific, about your expansion there, how about your – it is quite a big expansion in hectoliters in capacity. Concerning costs and benefits, how is that facing? Is that still in 2011 a lot of costs that are going on and benefits only later maybe in 2013, 2014?

Carlos Brito

In terms of the capacity, it's a competitor-sensitive issue, so I won't be that specific in terms of how much we're adding. What I can tell you is that as we said in the press release that we're building capacity not only in the Northeast, but mainly in the Northeast and that should ease our product availability with the new brewery in Pernambuco and offshore logistics cost. In March, yes, there was another price increase, March-April, because of the excise tax, not as big of course as the December or last quarter one, but there was another one to pass the federal tax increase. In Russia, 4% volume growth; you have to remember that taxes was a big impact in that whole market. That whole market is still trying to digest a 200% excise tax increase plus inflation. So, we had to pass that all to prices; the excise tax plus the inflation, which is 8% or so. So, I mean, all that, of course, impacted the industry, impacted the market. We're just glad to see that volumes are on positive territory and our share is evolving in a positive way.

Gerard Rijk – ING

Is that 4% on shipment or on IRI?

Carlos Brito

4% is pretty much – over there you don't have those kinds of strings. I mean, it's pretty much on secondary and primary sales pretty much the same the 4.1% I mentioned here. In terms of China, the Greenfields, we're very excited about the expansion strategy in China because again, now we have two national brands; one national Budweiser, one that's getting very fast to be a national brand Harbin. The good thing about our Greenfields in China is that they are at much lower risk than other Greenfields in that when we build a Greenfields in a region X we already have a base volume of Budweiser being sold in that region with very high margins, but being transported from a very high distance across the country. So, as you build the Greenfield you already have a 30%, 40% capacity occupation just by bringing home or to that new brewery that Budweiser volume at much better margins because of transportation cost. So, it's at much lower risk and the fact that you have the relative market already established in that market for Budweiser already helps Harbin as you introduce Harbin as well. So, it's a much lower risk Greenfield and that's why we are accelerating it and doing more of it.

Gerard Rijk – ING

Okay, thank you very much.

Carlos Brito

Thank you.

Operator

Your next question comes from Alice Longley of Buckingham Research.

Alice Longley – Buckingham

Hi, good morning. I have a couple of questions about timing in Brazil. I think you've said that your distribution costs should become more favorable in the second half, and also the cost of cans more favorable in the second half. Does that mean that they don't become more favorable in the second quarter? What's the timing of improvement in those two variables?

Felipe Dutra

Well, the main impact caused by imported cans is affecting the first quarter primarily, and it shouldn't be that material or not material at all as we move into the second quarter, and that is taking place primarily in Brazil. Our guidance is for the full-year and for the Company as a whole and as we see improvements coming in the next quarter starting in the second quarter, but going to the second half as well.

Alice Longley – Buckingham

And distribution costs will also be less of a pressure in the second quarter than the first?

Felipe Dutra

At a consolidated level, yes, and as we get into the third quarter we should face easier comps, and for the full year, we are confident to be able to keep that growing at the mid single-digits.

Alice Longley – Buckingham

Okay. Then my other question about Brazil is with volume. I know you're saying that you're favoring pricing over volume this year for the various reasons you cited, but the flooding and weather hurt the first quarter, so is it fair to assume that volume is some better in the second quarter than the first quarter, and maybe you can quantify how much you think the flooding and weather hurt the first quarter volume?

Carlos Brito

No, sorry Alice. We cannot give you guidance more than the one we gave in our outlook session, saying that volume wise the first quarter would be soft for the Company as a whole, and it should accelerate in the second quarter and going into the second half of the year. That's as much as we're willing to say right now.

Alice Longley – Buckingham

Okay. Do you think the second half would be better than the second quarter?

Carlos Brito

Again, I would stick to the wordings we have in our outlook session.

Alice Longley – Buckingham

Okay. And then my last question is about the high-end brands in the U.S., your STRs were 14.2%, and I think you said that you gained share at the high-end, how much, looking at all the retailers together, how fast do you think the high-end grew in the quarter in that sector?

Carlos Brito

Well, we don't have that number as a public number at this point, but it's growing as you know. But we’re growing within that segment. So, it's a segment that’s even within tough economic times, it's growing with high priced beers, high margins. The fact that we bought Goose Island and the brands that we already have supporting and growing like Stella and Shock Top will continue to give us an edge in that market in which we have lots and much to do because it's a share where we indexed compared to the other segments in the market.

Alice Longley – Buckingham

Can you quantify how much share you did gain there?

Carlos Brito

No, we are not giving this number out, I don't think.

Alice Longley – Buckingham

Okay. And I guess I'll add one about you gained share with Bud Light. Did you gain share of the premium light segment, or just gain share of the beer market?

Carlos Brito

Let me check here, but I think – let me see. We gained share within the – just a second. Yes, right here. Premium light, yes, we did gain share on the premium light segment.

Alice Longley – Buckingham

Within that segment?

Carlos Brito

Yes.

Alice Longley – Buckingham Research Group

Okay, super. Thanks a lot.

Felipe Dutra

You’re welcome.

Carlos Brito

Thank you.

Operator

Your next question comes from Kris Kippers of Petercam.

Kris Kippers – Petercam

Yes, good afternoon. Thank you for taking my calls, too. I had a small question regarding your U.S. market again. You lost market share, 60 basis points in Q1. And I was just wondering, is this something you feel comfortable with, going forward? As a matter of fact with, for example, antitrust authorities, should you have any opportunity to move more towards the high end, for example when taking more control of local cross brewers, or for example, when any solution would come up for [Modelo], is that something you could confirm, or is it just a result of the strategy? Thank you.

Carlos Brito

No, the 60 basis points, of course, we don't feel comfortable. We are not in the business of losing share, but we understand that this is the price we're paying for the strategy we decided to adopt last year and that we put more of our price increase in September in the sub-premium category and then of course put pressure on that segment and forced consumers in a way or gave them an incentive to up-trade, which was the whole idea. So, of course, we're not happy with it. We're trying to regain that shares as I said in our press release, but with the right mix, that's what's important, with the right mix.

Kris Kippers – Petercam

Okay. And then just a follow-on regarding Brazil, regarding your timing of the launch of Bud. I feel that there is some postponement in there, why is it not launched again in Q2, is it due to capacity constrains again or…?

Carlos Brito

Yes. You got it exactly right. I mean as you know, capacity in Brazil has been tight, especially the last two years as the consequence of the amazing growth we had in industry and share. So we decided it was not a good idea to put one more product on top of everything else to complicate the capacity issues even more. So we want to do a great launch for Bud and for that we need to wait for capacity to come on stream.

Kris Kippers – Petercam

Okay and then just one question on Brazil still. With Heineken, do you see any change yet in the aggressiveness of actions in the high end markets already or is it too early to say?

Carlos Brito

I think, Heineken has been in Brazil now for many years. So it's not new to the Brazilian market. So it's good to have someone in the Brazilian market now that we'll be competing in terms of building brands and not discounting prices. So, Heineken is welcome.

Kris Kippers – Petercam

Okay, perfect. Thank you, guys.

Felipe Dutra

You’re welcome.

Carlos Brito

Well, thank you very much and I think we’ll have one more.

Operator

Your final question comes from Chris Pitcher of Redburn.

Chris Pitcher – Redburn

Thanks for the follow-up. I'll keep them very short, hopefully. Just in terms of the U.S. and the branding, it's been a while now since Keith Levy left. Should we be waiting for a replacement for that role? And you mentioned at the full year results that you were attracting good new talent to North American business. Could you respond to the article in the Wall Street Journal recently saying morale's pretty low there? And then finally, Felipe, a quick question for you. You've had the credit rating upgrade, and there are some pretty decent chunks of debt maturing over the short-term, is there anything you can say about whether we should expect refinancing to take place, or whether you'd just let debt mature? Just trying to get a feel for the interest guidance, that is as it stands, or whether that does include any future plans for refinancing. Thanks.

Carlos Brito

Well, Chris, we've been doing engagement surveys as we call it since six years and what we've seen is that every time you merge with an operation, engagement goes down in the first two years, a couple of years, which is totally normal because of all the changes that you have to implement, but then the beauty of this process is that it's all about listening. It's all about knowing where the gaps are, what kind of information people need, what kind of questions are being not answered at this point, and it's all about communication building trusts and being available for Q&A. And we have a plan for that, so what's happening in the U.S., it's totally exactly the same what happened in Western Europe, what happened back then, with the survey that we had in Latin American South with Quilmes, so it's totally normal. Canada was the same. I mean, it's just a question of listening, waiting for the changes to be implemented, digested and start building that trust with the people that stayed in the Company.

Chris Pitcher – Redburn

Specific to Keith Levy's replacement, I think the time you said Frank Abenante was going to replace him temporarily…

Carlos Brito

Yeah, Frank Abenante is doing a great job. He is, I would say one of the top two marketers in our Company and so you feel very confident in having Frank there in the U.S., but of course, that's a temporary measure. He is putting a lot of the house in order there, and shortly, we're going to be announcing replacement for him, not on a temporary basis, but on a permanent basis.

Chris Pitcher – Redburn Partners

Great. Thanks.

Felipe Dutra

Chris, addressing your second question, as we were able to restructure the debt maturity profile significantly during 2009 and beginning of 2010, we adopted and approached the market, which was much more driven on small transactions on an opportunistic basis, really focused on pricing, and that has been in place since the second half of last year very much and that should continue to be the approach going forward.

Chris Pitcher – Redburn Partners

Okay, thank you.

Felipe Dutra

You’re welcome.

Carlos Brito

Well, thank you very much everyone for participating. Thank you very much for your time. Have a great day and we'll see you all next quarter. Thanks a lot. Bye, bye.

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