Carlos Brito – Chief Executive Officer Felipe Dutra – Chief Finance and Technology Officer.

Edward Mundy – Jefferies Olivier Nicolai – Morgan Stanley Chris Pitcher – Redburn Fernando Ferreira – Bank of America Merrill Lynch Richard Withagen – Kepler Trevor Stirling – Bernstein Andrea Pistacchi – Citi Robert Ottenstein – Evercore ISI Anthony Bucalo – HSBC.

Welcome to the Anheuser-Busch InBev First Quarter 2017 Earnings Conference Call and Webcast. Hosting the call today from AB InBev are Mr. Carlos Brito, Chief Executive Officer; and Mr. Felipe Dutra, Chief Finance and Technology Officer.

To access the slides accompanying today’s call, please visit AB InBev’s website now at www.ab-inbev.com and click on the Investors tab. Today’s webcast will be available for on-demand playback later today. At this time, all participants have been placed in a listen-only mode and 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 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 the 22nd of March 2017.

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.

Please refer to the reference base press release dated January 6, 2017, available on the company’s website for important information about the company’s updated 2015 and 2016 segment reporting. It is now my pleasure to turn the floor over to Mr. Carlos Brito. Sir, you may begin..

Thank you, Maria, and good morning, good afternoon everyone, and welcome to our 2017 first quarter results conference call. The first quarter saw a strong performance in many of our markets, especially in China, Mexico, Western Europe and Australia.

In Brazil, while the market remains challenging, all volumes returned to growth this quarter, and we continue to see solid results from our premium brands. Premiumization also contributed to solid revenue per hectoliter growth in markets such as the U.S. and South Africa.

Our 3 global brands, Budweiser, Stella Artois and Corona, accelerated their growth with combined revenue growing by more than 12%. Additionally, it has now been more than 6 months since we completed our combination with SAB, and our integration is well underway. Let’s now take a look at the first quarter results in more detail.

Total revenue in the quarter grew by 3.7%, with revenue per hectoliter growing by 4.5% on a constant geographic basis driven by revenue management initiatives and continued premiumization efforts. Total volumes were down 0.5%, with our own beer volumes down 0.2% and nonbeer volumes down 2.7%.

EBITDA grew by 5.8% with margin expansion of 76 basis points. This quarter’s performance was driven by top line growth and the realization of synergies offsetting an anticipated weak performance in Brazil, where EBITDA was down by 23.3%.

This is due to the combined impact of the significant cost of sales per hectoliter increase and a decline in revenue per hectoliter, as expected. Excluding Brazil, our business delivered solid results, with revenue up 4.2% and EBITDA growing by 12.3%. We remain optimistic about Brazil in the long run.

And more specifically, regarding 2017, we will soon begin cycling more favorable net revenue per hectoliter comps while cost of sales per hectoliter will bridge to between a flattish and a low single-digit increase in the second half of 2017. Normalized earnings per share increased by $0.23 to $0.74, predominantly due to higher profit.

We continue to deliver synergies resulting from the combination with SAB. This quarter, we delivered $252 million, with a large portion of the synergies coming from best practice sharing as we strive to progress with the best of both approach.

We continue to expect the delivery of $2.8 billion worth of recurring synergies and cost savings on a constant currency basis as of August 2016 to be realized in the next 3 to 4 years.

As we have previously said, this will require estimated one-off cash costs of approximately $900 million to be incurred in the first 3 years after closing, and of which $318 million has been spent to date. Now turning our Global Brands, which delivered a great result this quarter with revenues up more than 12%.

Budweiser continued to perform very well this quarter, supported by a powerful Chinese New Year campaign as well as Super Bowl activations introduced for the first time in international markets such as the UK and Brazil. Stella Artois grew revenues by more than 20%, with good volume-led performances coming from the U.S. and Argentina.

This quarter was especially exciting for the brand as its Buy a Lady a Drink partnership with Water.org, which is aimed at ending the global water crisis, was scaled out to 7 markets and generated $12 billion PR impressions.

Corona continued its impressive track record of growth, with revenues up by over 18% and by almost 50% outside of Mexico, driven by China, the UK and Colombia.

We’ll continue fueling the growth of our Global Brands by leveraging their global commercial assets with consistent communication and execution around the world while expanding to new markets, such as Australia, Peru, Colombia and South Africa. Let’s now have a closer look at the results of each of our regions.

Our volumes in North America declined by 4.4% this quarter due to industry softness and some inventory adjustment in the normal course of business.

This decline was partially offset by revenue per hectoliter improvement of 2.4% driven by revenue management initiatives and continued premiumization of our portfolio, resulting in a revenue decline of 2.1%. EBITDA declined by 1.2% with margin expansion of 34 basis points to 39%.

In the U.S., we estimated industry sales to retailers, STRs, declined by 1.6% in the first quarter, facing a strong comparable from the prior year quarter that had the benefit of an earlier Easter. Our own STRs were down 2.9%, resulting in market share loss of approximately 60 bps based on our estimates. Our revenue in the U.S. declined by 2.6%.

However, we saw revenue per hectoliter growth of 2.2% due to strong pricing discipline and the premiumization of our portfolio. EBITDA declined by 1.6% with margin expansion of 41 basis points to 40.2%. We also saw improvement in our gross margin, which was up by 68 basis points to 60.6%, building upon 7 consecutive years of margin expansion.

We’ll continue to invest sufficiently in the U.S. behind proven initiatives in new partnerships to drive long-term growth of revenue and EBITDA. While this was an overall challenging quarter for the U.S., certain segments of our business performed very well. In the high-end space, Stella Artois continued to be one of the top 5 share gainers in the U.S.

Our regional craft portfolio, once again, grew ahead of the segment, and thus, contributed to growth and elevated our revenue per hectoliter results. In the core plus segment, Michelob Ultra remains on fire, with 8 straight quarters as the first share gainer in the U.S. market.

It is now the market leader in the Above Premium space according to IRI and continues to leverage its positioning as the active lifestyle beer brand. While the brand’s performance has been excellent, it still has room to grow in terms of awareness and penetration. And therefore, we believe there’s plenty of opportunity for further acceleration.

Our core lagers remain under pressure, driven primarily by Bud Light and Budweiser. Bud Light lost approximately 65 basis points of share, while STRs declined by mid-single digits. Although we’re continuing to see pockets of success, including gaining share gains in some states, it remains challenged in a few key markets.

This quarter, we launched our new Famous Among Friends platform, which we believe will help improve the brand’s volume and share trends in 2017. The platform has already received positive feedback, and our Super Bowl ad was the second most-viewed ad with over 21 million views.

We’ll continue to tap into cultural trends for the remainder of 2017, particularly in sports and music through the lens of our friendship platform. Budweiser’s share declined by approximately 35 bps this quarter, with STRs down by mid-single digits.

Our marketing campaigns focus on the brand’s quality and heritage credentials, and our Born the Hard Way Super Bowl ad was the first most-watched Super Bowl ad with over 34 million views.

This summer, the brand will leverage the cultural moments of Memorial Day and Labor Day to bring back our America media campaign and packaging, building on the success of last year. Value remains an important segment within our portfolio given its very loyal consumer base.

We have strong brands in this category, led by Busch, whose Super Bowl appearance this year successfully drove increases in the key brand, health metrics of affinity and penetration. Moving now to Latin America West.

Volumes in Latin America West declined by 0.5% this year, with the good performance in Mexico offset by declines in Colombia and Ecuador. Revenue grew by 3%, with revenue per hectoliter increasing by 3.5%. Our EBITDA increased by 8.1% with margin expansion of 216 basis points to 46.6%.

Mexico recorded a solid performance this quarter, with volumes up low single digits and revenue growing by high single digits. Our EBITDA grew in the teens with margin expansion of over 300 basis points to 42.1%.

While the industry in Mexico has grown rapidly in the past several years, we believe there are still many opportunities to further grow the category. First, the Premium segment in Mexico is still underdeveloped.

We have initiatives in place to drive premiumization through the expansion of brands such as Budweiser, Michelob Ultra, Stella Artois and the Modelo family. Second, there are many occasions in which beer has a larger role to play.

Therefore, we’re focusing on programs to grow beer occasions throughout the country, including weekday consumption occasions such as Miercolesdefut, led by Corona; and Jueves de Amigos, led by Victoria.

Additionally, we’re connecting the Modelo family with new occasions to drive beer’s associations with food as well as building the celebration occasion through Stella Artois in the high-end. Third, we see opportunities to expand our distribution through new brands, regions and channels.

Bud Light is an example of a brand that has a potential to be leveraged in new regions, and we are, therefore, taking our distribution beyond the North region. We’re committed to growing the beer category in Mexico and believe we have the right plans in place to achieve it.

The other key market in Latin America West is Colombia, which had a challenging quarter due to a countrywide VAT increase at the beginning of this year, which put pressure on consumers. This negative impact on results was exacerbated by the shift of the Easter holiday period from March into April this year.

Volumes were down almost 8%, with revenue declining by more than 5%. Lower top line, together with a difficult comparable in the relocation of regional functions to Columbia, led to an EBITDA decline of over 10%. However, our global brand expansion got off to a good start, with revenues up well into the double digits.

The primary focus has been on Corona, which, in February, became Colombia’s biggest international Premium Brand. More than 300 Corona sunset activations executed so far this year have resulted in significant uplifts in both consumption and brand equity.

Budweiser has also been gaining momentum with its presence at high-energy events, such as Colombia’s largest music festival. Meanwhile, Stella Artois is targeting influencer events and expanding premium trade executions.

We’re very excited about the opportunities in Colombia and are looking forward to growing both the high-end and the whole beer category. Moving now to Latin America North. Our performance in Latin America North rebounded this quarter from an extremely difficult 2016. Volumes in the region improved by 2.3%, with revenue growing by 2%.

Our revenue per hectoliter declined by 0.3% as large state tax increases during the course of 2016 have yet to be fully passed on to consumers. EBITDA declined 19% with margin contraction of 996 basis points to 38.6%.

In Brazil, specifically, we saw the beer industry decline by low single digits this quarter in a continued challenging consumer environment. We outperformed the industry with beer volumes up 3.4%, while our non-beer volumes declined 0.3%.

Our revenues increased by 0.6%, while the revenue per hectoliter decreased by 1.8% due to a tough comparable as large state tax increases during the course of 2016 have yet to be fully passed on to consumers. Cost of sales per hectoliter was affected, as anticipated, by devaluation of the Brazilian real of close to 40% versus the U.S.

dollar embedded in our cost of sales. Currently, approximately half of our cost of sales in Brazil is denominated in U.S. dollars. Cost of sales per hectoliter is expected to grow double digits in the first half of the year and to be flattish to up low single digits in the second half of this year.

The combined impact of a significant cost of sales per hectoliter increased, which explains more than 75% of our EBITDA decline and the decline in revenue per hectoliter, led to a 33.3% reduction in EBITDA with EBITDA margin contraction of approximately 1,200 basis points to 38.8%.

Despite the difficult macroeconomic environment, we remain cautiously optimistic for the year. It’ll continue to leverage our platforms and focus on our commercial strategy. In 2017, Carnival season ended 10 days later than it did in 2016, which has a positive effect of extending the summer in Brazil.

This year, we have the biggest activation in our history, leveraging many of our brands and assets. Skol sponsored the country’s largest festival in El Salvador and Antarctica sponsored the celebration in Rio. In all, we were present in over 40 cities and impacted 43 million people through our campaigns. Let’s now move to Latin America South.

We had a solid performance this quarter in Latin America South, with volumes improving by 3.1%, with Argentina returning to growth. Revenues grew by 27.4% as a result of pricing in line with inflation as well as growth of our Premium Brands, especially our Global Brands.

EBITDA grew by 16.4% with margin contraction of 433 basis points to 45.7% as top line growth was partially offset by cost of sales increases as a result of adverse foreign exchange impact. Turning now to EMEA. Our volumes declined by 2.7% in EMEA this quarter.

Our revenues grew by 4.9%, with revenue per hectoliter increasing by 7.8%, largely driven by the growth of our Premium Brands in Western Europe, as well as our revenue management initiatives. EBITDA grew by 18.6% with margin expansion of 358 basis points to 28.4%.

Our beer volumes in South Africa declined by 1.6% in the first quarter, mostly as the result of the diverse timing of Easter. However, total revenue per hectoliter increased by 4.4%, benefiting from the annualization of the July 2016 price increase and a good performance of our Premium Brands, especially Castle Lite.

Our performance in the quarter was assisted by several innovations. We introduced packaging innovations to drive growth in the in-home consumption occasion, such as the upsized packs, for which demand was well ahead of our expectations. We also introduced the first of its kind Bear Bonanza campaign with promotional messaging directly on the packaging.

Moving now to Asia Pacific region. Our volume in the region improved by 1.9%, with revenue growth of 8%, driven mostly by brand mix. This was led by the strength of Budweiser in China and our enhanced portfolio in Australia, which now includes Corona.

EBITDA grew by 25.2% with margin expansion of 497 bps to 36.3%, partially due to synergy captured in our new markets. In China, we estimate that the industry volumes declined by approximately 0.5% this quarter.

Our own beer volumes performed well ahead of the industry, up 5%, with growth coming from Budweiser as well as our Super Premium brands and innovations. Revenues grew by 11.3%, driven by continued premiumization initiatives. EBITDA grew 39.6% with margin expansion of 681 basis points to 33.6%.

The strong result in China benefited from the timing of the Chinese New Year, as well as brand activations focused on Budweiser, leaving the brand to achieve all-time high brand health. We continue to believe we the right portfolio in China focused on the core plus and above segments to grow our business in a sustainable way for the long term.

With that, I would like to hand over to Felipe, who will take you through some further detail in our first quarter results.

Felipe?.

Thank you, Brito, and good morning, good afternoon, everyone. Let’s start with our net finance costs on Slide 21. Net finance costs in the quarter were almost $1.5 billion compared to just over $1.2 billion in the first quarter of 2016.

This variance was driven primarily by the interest expense now reflecting the full quarterly interest cost associated with the bonds issued throughout 2016.

This increase was partially offset by a favorable $130 million mark-to-market gains linked to the hedging of our share-based payment programs compared to a loss of $138 million in the first quarter last year, a swing of $268 million.

Nonrecurring net finance income was $99 million in the first quarter this year compared to a cost of $684 million in the first quarter last year. These items do not impact normalized earnings, normalized EPS, but are included within reported profit.

The swing was driven by a number of factors shown in the table on Slide 22, of which the main item is almost $600 million mark-to-market adjustment related to the FX hedging of the purchase price of SAB, which is no longer applicable. Our normalized effective tax rate for the first quarter was 20.4%, down from 23.2% in the first quarter of 2016.

This decrease is mainly due to the nontaxable nature of the gains and losses of the hedging of our share-based payment programs as well as a change in country profit mix following the combination with SAB.

Our guidance for the full year 2017 remains in the 24% to 26% range, which excludes the impact of any future gains and losses related to the hedging of our share-based payment programs, as we have said before. Normalized earnings per share increased 45% to $0.74 from $0.51 in the first quarter of last year.

This was largely driven by a $0.63 increase in normalized EBIT due to organic growth and benefiting from the earnings generated by the retained SAB businesses.

There was also a $0.16 year-over-year change in the mark-to-market adjustments linked to the hedging of our share-based payment program, which had a $268 million swing, as previously mentioned. In addition, last year’s results were impacted by the prefunding costs related to the SAB transaction not yet matched by earnings at the time.

These favorable impacts were partially offset by higher net finance costs as well as dilution due to the increased number of shares. Our capital allocation objectives remain unchanged. Our optimum capital structure remains a net debt-to-EBITDA ratio of around 2x.

Our first priorities to use cash will always be to invest behind our brands and to take full advantage of the organic growth opportunities in our business. Deleveraging to around 2x remains our commitment, and we will prioritize debt repayment in order to meet this objective.

M&A remains our core competency, and we will always be ready to look at opportunities when and if they arise, subject to our strict financial discipline and deleveraging commitments. Our goal is for dividends to be a growing flow over time, consistent with the noncyclical nature of our business.

However, as we have said before, given our emphasis on deleveraging, dividend growth is expected to be modest in the short term. And with that, I will hand back to Maria to begin the Q&A section. Thank you..

The floor is now open for questions. [Operator Instructions] Our first question comes from the line of Edward Mundy of Jefferies..

Morning, afternoon everyone. Two questions, please, or one question and one follow-up. The first question is on Brazil. You’ve seen a very good response on volumes in the first quarter. But do you expect the revenue perhaps to be more positive this year, in particular as you lap easier comparatives? And the follow-up is really around interest expense.

Within the other financial results line, if you back up the positive impacts of share-based payments, there’s a negative of $340 million. I appreciate this is an inherently volatile line.

But given this materiality, could you provide any guidance – or any rules of thumb as to how to model this? And is it noncash?.

Edward, I’ll take the first one, and Felipe will take the second one. So on the first one, what I would say in terms of Brazil and volume is that, first, it’s great to see Brazil back to growth. Second, it’s also very good to see that we did much better than the industry.

So industry was down in our estimates by low single digits, and we were up by 3.4%. So I think that’s a very good result. It’s also good to see that our Premium Brands continue to be very healthy, Budweiser growing more than 30%. So we’re not giving guidance here in terms of volumes. Of course, you know that the Brazil consumer remains under pressure.

Political stability is a bit better, but there are still reforms to be approved. My understanding is that what we saw in the first quarter was an industry that was still slightly negative, but our program’s working better than the industry, and that’s encouraging.

I think we had a very strong start, and I’m very confident on our commercial plans for the rest of the year..

Yes. So on the net finance costs in, let’s call it, in a normal quarter, right, so we have essentially 5 buckets. The first one, the interest expense, without the impact of the proposed combination with SABMiller. And for that, we have the guidance on the coupon range.

So then you can add to that the interest expense, the impact of proposed combination with the SABMiller and essentially merge the 2. So we move to accretion expenses, where we expect to be approximately $85 million per quarter. Pension interest expense, which made approximately $30 million per quarter or $120 million for the full year.

And then we come to the other financial results, which we have items that can cause volatility between quarters. And they are essentially, first, the equity swap as the hedge for the share-based payment program. We have approximately $38 million equivalents of shares in that.

And every EUR 1 share price movement between the quarters leads to about $38 million gain or loss, right? So that’s the kind of – easy to model, although you have to track the share price at the beginning of the quarter, at the end of the quarter, so on and so forth.

So we are also required to report in our P&L any non-cash and realized foreign exchange transaction losses on intercompany’s balances and loans and cost of currency and commodity hedges. And that is much harder to predict, and – but we have to deal with it. We had – last year, in Mexico, for example, the cash held in U.S.

dollars, there was the devaluation of pesos that translated into non-cash gains in Mexico, as reported. And this line also includes bank fees and transaction taxes in the normal course of business, which were $170 million, but that is kind of in the past. So going forward, it’s more the ordinary course of business.

There is only one comment on the accretion. I mentioned $85 million. $85 million was actually last year. This year, the number is $150 million..

Thank you. So within the other financial results line, the largest majority of that is noncash other than the bank fees and transaction taxes, which seem one-off in nature.

Is that a fair way to characterize it?.

Yes, it is..

And then, Brito – sorry, Brito, just to follow-up. My question was less on the volume outlook for 2017 and more in the revenue per hectoliter outlook.

As you lap easier comparatives for the rest of the year, are you able to comment at all on whether you think your revenue per hectoliter in Brazil will improve sequentially as you get through the year?.

Yes, that’s a very good point because – let me say a couple things about net revenue per hectoliter. First, I mean, as said before, during last year, VAT state tax increases were running ahead of our pricing, right? So that’s one thing. It was a year where there was a lot of activity in terms of VAT increase. So that’s the first time.

And we’re trying to recover that as we go along, but it’s still ahead of price. Second, we’ve had negative – because of that, we’ve had negative net revenue per hectoliter year-on-year in the last 3 quarters, Q3, Q4 last year and Q1 this year. But as you said, there is a cycling element that’s going on here and so I’ll stay there.

And the third point is that the fourth quarter of any year, given the current way taxes work and the way we increase prices, there’s always a little bit of a tough reference point because you have the full price that normally kicks in, in September, October for the full year because it only increases normally once a year.

But you don’t have the taxes being updated. So you have new price, old taxes in Q4. Taxes are updated in January. So it’s better to compare Q3 with Q1 because Q3, you have old price, old taxes. In Q1, you have new prices, new taxes. So if you go from Q3 last year to Q1 this year, you have net revenue per hectoliter increasing by 7.8%.

So I think that gives you a little bit of an idea. And the inflation, of course, is way above inflation, the current inflation. So I think this is – these are some of the things we see. So VAT running ahead of price still. So negatives last 3 quarters net revenue year-on-year, which, again, gives rise to the cycling idea.

And the third one is that from Q3 to Q1 this year, price increased by – net revenue per hectoliter increased by 7.8%..

Thank you..

Thank you..

Our next question comes from the line of Olivier Nicolai of Morgan Stanley..

Hi, good morning. I got one question and one follow-up, please. First of all, in Colombia, you’ve seen margin contraction in Q1 of about 266 bps, and one of the reason you mentioned in the press release was with a sort of certain provision that the previous order took in Q1 2016.

Now how much of this margin decline is linked to that? And should we expect further of this one-off in the next coming quarter? Or do we have a clean base now for the rest of the year? And the second question is, well, a follow-up on the U.S. You said that your sales to wholesalers, they were obviously worst than your sales to retailers.

That’s been the case now 2 quarters in a row. Do you see wholesalers structurally with using their level of inventories? Or is this just temporary, implying that, technically, STRs should be better than STWs for the rest of the year? Thank you..

Okay. So your first question – I mean, you’re right. I mean, the comparison with Colombia this first quarter is a bit of an apples-and-oranges comparison because of basically a couple reasons.

First, there were some phases in the normal course of business during – under our management in terms of SG&A in that we put more money at the beginning of the year because we have an Aguila Light strong campaign that we chose to do at the beginning of the year. We had the Corona-Busch that’s now in a new distribution system that responded very well.

And we also have a renewal of our certain sponsorship for the national team that hit that SG&A. So that’s the first reason. The second reason is that there were some reversal of certain provisions in the first quarter of last year under the old management that, of course, gave rise to a tough comp for this year.

And the third one, which is also very important, is that Columbia, because it became the center, the zone, as we call it, the zone headquarters for Columbia, Peru and Ecuador, a lot of the costs that used to be seen in Peru and Ecuador and also in the Miami Latin American hub from SAB, is now in Columbia.

So shared service centers and some service that were provided from Miami and service that was concentrated in Colombia are now being displayed as a Columbia cost. So these three things will make it for an apple-and-orange comparison, and this will tend to normalize as we cycle on the new management.

In terms of the U.S., STWs and STRs are continuing to say the same thing, that, over time, they will converge. But because of the weak end of last quarter – last year, there was a need to correct inventories, and that’s a normal course of business. I mean, what you do is you tend to raise your inventories for the summer season.

You also have some inventories going for the end of the year, Christmas season. But when those – they’re materialize as per your assumptions, you need to start correcting in the months to follow. So through the normal course of business, happens from time to time. But over the long run, STWs and STRs, of course, converge..

Thank you, Carlos Brito..

Thank you..

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

Thanks very much. A couple questions on your beer portfolios. I mean, firstly, in Brazil, you’ve obviously put a lot of effort behind the repositioning or relaunch of Skol and more recently, Brahma. And that’s kept sales and marketing investment reasonably high.

But what are the plans for Antarctica? And should we expect sales and marketing investment to fall as a percentage of sales for the balance of the year, particularly as we cycle Rio? And then as a sort of a follow-on, what are your plans for the South Africa portfolio positioning, particularly the 3 big mainstream brands in South Africa? Were the big price increases in South Africa consistent across the portfolio? Or are you starting to rethink the positioning of brands there? Thank you..

Yes. Hi, Chris. In terms of Brazil, what we did, we didn’t relaunch. I don’t know exactly the words you said. I don’t remember. But we didn’t relaunch Skol. Brahma, what we did – and you’re right. We redressed some of it.

So from time to time, any brand has a visual identity, modernization, and we changed a little bit things in terms of label, some iconic branding signage that we put more prominent. So I mean, all these things, yes, it did happen.

But also, investing in the last – we did invest the last few years in the Global Brands that are performing really well in Brazil. And as a company, we have for SG&A, we have our guidance for the year to be flattish, right? That’s our guidance for the year. In terms of South Africa, we have a great portfolio. I mean, Castle Lite, working very well.

We have some very strong core brands. And as we said in our release, despite the negative volumes gained – I mean, Castle Lite and very strong brands. The other thing that was missing – that’s what I wanted to say. The other thing that was missing in South Africa was Global Brands, right? So now we have a portfolio of Global Brands.

They were already present in South Africa but in a very minimum scale because we had no access to distribution or scale. So now we have that. And Corona, in particular, has a very strong – had a very strong growth of trajectory. Brand awareness is growing, supported by a lot of experiential events.

And just in the month of February, we had a 5 percentage point in brand awareness increase from 7% to 12%. So again, a brand that’s entering the market in 1 month, almost doubling its brand awareness. So Stella will follow, and then Budweiser in local production will follow as well this year, preparing for the World Cup next year, the FIFA World Cup.

So we’re very excited because in South Africa, we had a very solid portfolio that has been premiumizing with local brands like Castle Lite, which is already a very important part of the portfolio, continues to grow. And now we have the Global Brands on top of it. So it’s going to be a very interesting portfolio to watch..

Thank you, thank you. That’s it, thank you..

Our next question comes from the line of Fernando Ferreira of Bank of America Merrill Lynch..

Thank you. Hi Brito and Felipe, 2 questions, please. First one on the synergy number on the 250, if you can give us some more granularity on where that came from. And also, when we look forward, should we expect a substantial portion of the synergies coming from the global export holding? And then a follow-up on Brazil, on the price mix.

I mean, if – on the revenue per hectoliter, right? If we’re right here in our calculations, I mean, their market share was already up back to the high end of the historical range, right? Historically, that has allowed you to be a little bit more flexible on pricing.

So on your prepared remarks, Brito, you mentioned that you’re still trying to recover, right, the state taxes that were – you’re not able to pass through last year. So going back to the high end of the market share, is that enabling you to be a little bit more flexible on the pricing going forward? Thank you..

Okay, Fernando. Thank you. So I’ll go first on the second question. So in terms of Brazil – and then I explained a little bit why the net revenue is in a negative position, right? The VAT ahead price – some negative last few quarters that we will now start recycling and the fact that you have a 7.8% increase from third quarter to Q1 this year.

Having said that, our long-term view on most of our markets continue to be that we want to have price in line with inflation as much as possible and therefore, compensate for any taxes. So yes, our long-term view is unchanged. So if VAT is ahead of price, we’ll continue to try to balance that out.

And in terms of market share, Fernando, we have the policy of only commenting now on a yearly basis. But what you’re right is that we’re building options. You’re totally right. As we grow ahead of the industry, the market share, of course, responds.

And because of what you just said, then you start building options to kind of catch up the VAT in pricing at some point in the future. So you’re right in terms of building options. And the pricing, normally, we’ll do once a year. So again, we don’t correct every month. But taxes can change every month, as it did last year.

So again, net-net, there is some cycle to be done. VAT is still ahead of price. Market share, if we grew ahead of the industry, should be building those options for us. And so that’s why we’re cautiously optimistic about our business in Brazil. We had a very strong start. In terms of synergies, we’re very excited about the beginning of the synergies.

I mean, we already started under new management last quarter. But this quarter, we had a very good delivery. And a large part of it comes really from best practice sharing.

I mean, one thing we’ve said about this combination with SAB is that for the first time, compared to the other combinations, we had not only the cost synergy potential, the growth potential.

But also, we have a lot of intellectual synergies that were exchanged, not only in the supply, procurement and logistics, but also in terms of category knowledge and top line ways of work. So – and including some reverse synergies. So we learned stuff that were also brought back to the old ABI company.

So I mean, synergies are flowing both ways, and that’s why you see this very strong number coming in the first quarter..

Thank you..

Our next question comes from the line of Richard Withagen of Kepler..

Yes, good morning. So two questions, please. First of all, if I look at your revenue per hectoliter in the U.S., it’s pretty stable over the last few quarters. But when I look at your competitor, Miller, Coors, it’s actually coming down.

Is there any reason to believe that those two should be more in line with each other? And therefore, is there any risk to your revenue per hectoliter in the course of 2017? And the second question is on China. We see what appears to be quite an acceleration in your business in the first quarter.

Could you talk a bit about what’s driving that?.

Well, thank you, Richard.

In terms of revenue per hectoliter in the U.S., we’ve said now, I think for more than a year, when there was talk in the market about us discounting more or less, be more aggressive, we’ve said loud and clear – every quarter, we said what we’re doing is that we’re using the same discount envelope just in a different way because we’re trying to target it and get more efficiencies out of the – out of our discount dollars.

And we said continue to check our net revenue per hectoliter because we are pretty confident that what we’re saying is what we’re doing, right? And again this quarter, 2.2% growth per hectoliter.

It attests to our price discipline, it attests to the efficiency of our discount dollars and also to revenue management and mix improvement within our portfolio. Let’s remind ourselves that our gross margin this quarter in the U.S. went up by 68 basis points to 60.6%, and this is the – after 7 consecutive years of gross margin expansion.

So our strategy since we got here in the U.S. has always been one of let’s try to get this portfolio to be more Premium, let’s try to get our consumers to trade up, give them reasons to trade up, and I think we’re delivering on that. Of course, we need to balance the share equation. That’s still to be done.

In terms of China, we’re very happy with our business there. I think last year, our business was very affected by one big province in the south, Guangdong, because of some weather – mostly weather and some economy as well. I mean, this year, what we see is that things are more back to normal.

And we have strong plans for our Budweiser brand, which is the leading Premium Brand in China. But also now, very important to us, our Super Premium side of the business with Corona, Hoegaarden and Leffe. So these brands are very strong, and they are compounding with Budweiser a very nice growth.

And again, in China, the industry was down by 0.5% in our estimates in this first quarter, and we outperformed big time by growing our volumes by 5% and net revenue per hectoliter growing 6% to a revenue growth of 11%. So again, very strong, not only top line in China, but also, the cost side is very efficient.

What’s happening in China, as we shared with investors in our China Investor Day some years ago, is that the Super Premium segment and the Premium segment, in which we have – in the core plus, which we have most of our brands, core plus with Harbin Ice, otherwise had a growth. And the core value is declining.

And we have more than half of our business in – almost a majority of our margin in investments in those three top segments, which are growing between 5% in our estimates to all the way to 54% in the Super Premium segment. So these are growing way ahead in core better, declining around 8% to 10% so – this quarter.

So we’re very blessed to be in the right segments. We have brands that are waiting for consumers as they trade up. So very interesting what’s happening there. Thank you..

Thank you..

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

Two questions from my side, please, as well.

First one is, are you seeing any impact yet on Bud Light depletions from the new campaign? Or is it too early yet?.

Yes, you’re right. I mean, of course, we wish that the campaign, the next day, Bud Light responds. But of course, it doesn’t work like that. But you’re right. I mean, we’re transitioning from a campaign that we had in the past to this new campaign from the Bud Light Party to now Famous Among Friends.

We think this campaign has legs because it goes back to what made Bud Light the great brand that it is today. I mean, almost 25 beers in the U.S. of Bud Light. But we’re still in that transition phase, where things are happening, there are some positive signs in brand health. But again, not yet strong enough to translate to sales.

The good thing also is that this new platform has been developed in partnership with our wholesaler network, and they’re very excited about it. And now we have Andy Goeler, who’s a long time ABI marketer that had dealt with Bud Light in the 90s.

He’s now back to the brand after being at the high-end, which is a very successful part of our business in the U.S. He was very focused on our craft brands and our craft partners. So he did an amazing job there, learned a lot of things about the high-end, helped us a lot to develop that.

Now he’s bringing all that to Bud Light with the new agency, new campaign. So I mean, I think we’re onto something that could start making sense. But so far, we’re still in a transition period..

And my follow-up question, Brito, you mentioned in the press release about the excitement you had about the top line opportunities.

Is that mainly the opportunities for international Premium Brands in the former SAB territories that you referenced before? Or is it something beyond that?.

Very good point. First, it’s the Global Brands, for sure. And I just mentioned what the Global Brands are doing in South Africa, Columbia. I mean, amazing first few months. And of course, the sky is the limit there because we see that every market in the world where we go with our Global Brands, they perform well. So it’s a no-brainer.

And now we have these huge countries that, for us, were pretty much wide territories, very hard to – for us to get distribution – quality distribution, and now we have that. So that’s very exciting.

The second thing, Trevor, is that SAB developed a lot of knowledge around the category and category expansion – be it category and be it category expansion. Why? Because they had very high market shares in their main markets. And for them to grow, share of beer was not enough. They have to think about share of total alcohol.

And they developed for many years many frameworks that we now adopted because we have this – our culture is all about best of both. So if we see a good idea, we just copy, adopt. We don’t have any problems with that. So when we did our global meeting with our leaders in March, as we do every March, this year – we did it, by the way, in South Africa.

And pretty much the whole meeting was around these new frameworks about category expansion and how to look at portfolio in the sense of where my portfolio is today, where it should be in the future and how to cascade that to resource allocation. So very exciting times. And that’s why we mention top line opportunities..

Thank you very much. Appreciate it..

Thanks, Trevor..

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

Yes, good morning. Two questions, please. The first one, on your interest expense. You’ve given guidance on the coupon for the full year of 3.5% to 4%, which is quite a wide range on a $100 billion of debt you have. Now in this quarter, the net interest expense was higher, I think, than some people are expecting, at least, than consensus.

Now besides the disposal of the Eastern Europe assets we still place at the end of the quarter, which will reduce your net debt, are there other reasons possibly why this – the interest charge in the next quarters could or should come down? And then the second question, on your Mexican margins, which you said increased 300 basis points organically.

Top line trends were solid in Mexico but didn’t seem to – they weren’t really stronger than previous quarters. The peso devaluation, I assume, is unhelpful.

So what is really driving that margin expansion in Mexico?.

Okay. I’ll take the second question, and then Felipe will tackle the first question. In terms of Mexican margin, what’s happening is that our revenues grow by high single digits and because we have operational leverage in Mexico and we had invested in sales and marketing in prior years, which – with very good results.

So that’s now the magic of operational margins on top of very healthy high-single digits revenue growth. We also had some SG&A savings that’s compounded to that. And also, other operating income because of that sale of some PPE that also impacted the EBITDA growth. So again, very happy with our business in Mexico.

If you look at our Mexican business in the last few years, what happened is that the industry, in terms of beer on the category expanded within alcohol beverage. Per capital beer consumption expanded. So our investments, I think, as a market leader was – had a very good payback.

And now I think we’re enjoying that payback, plus a very healthy top line that continues to be there. So operational leverage is the answer..

On the first one, we appreciate the fact that the guidance on coupon, 3.4%, 5% to 4% is kind of – its wide, but there’s SAB in there, and we are essentially keeping it as it is.

The important business that this quarterly interest charges reflects the full quarterly charges that should decline over time as we deleverage, but that is not to be compared to the first quarter of last year since we have several prefunding issuances throughout the quarter and throughout the year, so making the 2016 reference not a good reference.

2017 reference is a much better one going forward..

Can I just follow up? I mean, recently, you’ve been doing – there’s been a bit of activity on your bonds. There’ve been some exchange offers and things.

Will this have any impact on your coupon? Have you been – will you get some efficiencies effectively on your coupon from this?.

Yes, there was a recent exchange of high coupon. That had an impact on that. Economically, you should assume that to be somehow neutral. It’s more an account impact. There was also the debt paydown, as you flagged, as we closed the disposals of the CE assets.

And we report balance sheet and cash flow twice a year, the next one being at the end of the second quarter. But given the deleveraging commitment, you should expect this 5.5% to be kind – in decline towards December 2017.

Although when you take the first half and second half, it tends to be more geared towards the second half given the seasonality of our cash flow generation, CapEx and also dividend payment flow, in which the first half dividend is higher than the second half dividend. But we remain on track with our commitments, and we’ll continue to work on it..

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

Great. Two questions. One, could you please remind us what percentage of your sales now are coming from the Global Brands? And a little bit how you’re thinking about the pricing architecture between mainstream and the different Global Brands, and maybe even throw Goose Island into that.

And I know it’s different country by country, but maybe a general broad conception of that. So that will be the first question.

And then the second question, if you could talk a little bit about, there was a Bloomberg article that mentioned the possibility or thinking around expanding capacity, perhaps a greenfield in Nigeria, and I was wondering if that is, in fact, going forward. If you can talk a little bit about your strategy in Nigeria. So 2 questions, please..

Okay, Robert, I’ll start from the second one. So Nigeria, very exciting market in Africa. Together with South Africa, of course, big engines for us of growth going forward. And we’re growing Nigeria double digits, and I think it’s not new news that we have capacity issues in Nigeria. So we’re pretty much selling everything we can produce.

So then it follows that, yes, we need more capacity in Nigeria. But at this point, we’re still in the planning phase. We’re still trying to get the permits. So we’re not yet committed to a final number on this project. When the right time comes, we’ll talk about it. But for sure, we need capacity there. We’re very excited about the business there.

Our brands are strong, growing. And of course, we still have the Global Brands put on top of all that. So – but for that, we need capacity, and that’s the next big thing in Nigeria. But for that, you need approvals and other things, and we’re not there yet. In terms of Global Brands, I mean, I think last time we referred to it – and you can do the math.

The last time we referred to it, they we’re slightly above 20% of our total volume. But if you look at our net revenue growth, they were more like 30% plus, 40%. So they have a very – they make a huge difference because not only they have great margins, above of our average, but they have double digit-type growth.

And they do well, so it’s a very low risk to invest in our Global Brands as you go to a new market or as you scale up and grow in existing markets because these 2 have very low awareness compared to some of the brands. And as you grow awareness, they respond. And so it’s one of those low-risk moves and no-brainer. So you’re right. Right on.

I mean, it’s something that’s still at 20-plus percent, but already 40% of our net revenue growth..

And the pricing architecture, could you talk on average – I know it’s different country-by-country.

But if you’ve got mainstream at 100, how are you differentiating between Bud, Stella, Corona and Goose Island when you bring that in?.

Yes. That’s – it’s public because you can go to market and see what the prices are. But normally, what we try to do – and there are exceptions because sometimes, Global Brands is a local brand in its home market. So of course, there are exceptions. But what we try to do is have Corona priced in terms of our three Global Brands.

We have to price Corona above the other two, and then Stella in the middle, and then Budweiser in the third-tier pricing. But having said that, all that in the Premium segment and Super Premium. But again, depending on the country, we have some legacy issues. Some of those brands are local in their markets. Sometimes, they are the 110, 120.

But in most markets, they are at 130 and 140 and above going to 200, 200-plus..

And where would Goose Island be priced in international markets? I mean, do you try to price that above Corona or below Corona?.

At the very high end. Normally paired with Corona at the very high end of the range I just gave you..

Okay.

And then just to follow up on Nigeria, is there – in your CapEx guidance, is there something in there for Nigeria? Or would – if you decided to go with that, would that have to change that? Or was that more 2018?.

It’s accounted for, Robert. Because, as you know, I mean, being present in 50 countries, you always have countries that you just finish the project, and then you’re onto to the next project. So in the portfolio of these countries, there are always things to compensate for each other.

So that’s the amount – the ballpark number that we see for our business..

And will this be a greenfield?.

Well, it depends. I mean, in Nigeria, we have some brews already in place. So some of this capacity will come as an additional line, some could be greenfields. But again, too early to comment on that, but you’re right. It could be both, a combination..

But strategically, you’re – my understating is you’re very much a regional player in Nigeria.

So I guess the question is, strategically, are you looking to put in perhaps a greenfield in another geography in Nigeria?.

Well, in Nigeria, you cannot import beer. I mean, the taxes are prohibitively, so we have to produce locally. And what we have today in Nigeria is that we only have, as just said, local brands, and that’s what’s exciting about it. Because it’s a huge beer market and we don’t have yet our Global Brands because you cannot import them.

So we have to produce locally. So capacity also should also be used for that not only to continue to support the growth of the local brands, but also to enable our Global Brands to be present in that market as well..

Great. Thank you very much..

Carlos Brito:.

.:.

Ladies and gentlemen, we have time for one more question. Our final question will come from the line of Anthony Bucalo of HSBC..

Hi, Brito.

How are you?.

Hi..

Quick question. You had just spoken about a meeting in South Africa and the influence of category management – or sorry, category development in beer as an SAB strength that you will be applying. Is that purely in Africa? Or do you see applications for that around your global footprint? And a related....

No, no, no. Okay, go ahead. Go ahead..

Well, just on a related question, Brito, your main competitor in South Africa appears to be having some success mostly in the high-end.

My other question is, is there enough room in the South African market now to bring in your best Global Brands and to compete sort of toe-to-toe with the high-end and the development that we’ve seen there from your competitor over the last 20, 30 years?.

No, we love a good competition. And I mean, our colleagues in South Africa could never compete in that high-end international premium. Now we can. And yes, the market will grow in our view because now we have more brands that will be more appealing for consumers.

And so it’s very exciting now to have our Global Brands in South Africa because that segment of the market was one that we were not competing, and now we’re going to be committing big time. So yes, there is space for more brands there, and we’re very excited because it’s where the growth of the margins are in most markets.

In terms of category expansion, I mean, Tony, the fact that we did the meeting in South Africa, just because every year we do it in a different place, but the category expansion that was developed by SAB was developed in Australia, Colombia, South Africa. So I mean, multiple markets and different maturity levels. So it applies to all markets, really..

Okay.

And in terms of South Africa, do you have any sort of residual or any sense of what kind of brand awareness your big brands have in the market already judging from we had the World Cup a few years ago, and Bud was big then? And is there anything in the market that you think you have an initial advantage?.

Well, yes. I just mentioned, Corona, we just started supporting more this year, was present in the market, but very, very small and impossible to find, went from seven to almost 16 brand awareness in just three months. And Stella also has already around 16.

But again, we’re just starting now to work on Stella because, so far, we didn’t have local production there. So that – it’s all going to be very exciting.

In Budweiser, I mean, Q4 next year, 2018, it’s going to be amazing to see what we can do around the world with Budweiser because we’re going to be preparing in South Africa as everywhere to get Budweiser in place to our – to get advantage of this big global property we have that’s so beer-centric as the soccer FIFA World Cup..

Great. Thanks, Brito..

So I guess, Maria, that was the last question. Thank you, Maria. In summary, our performance in the first quarter of 2017 is solid, and we’re very pleased to see our business turning the corner from a very difficult 2016. While our EBITDA was negatively impacted by the cost of sales in Brazil, we expect this effect to dissipate throughout the year.

Our integration is progressing very well, and we’ll continue to update you on the progress. So thank you for joining the call. Have a great day, and enjoy the rest of your day. Thank you. Bye-bye..

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