Carlos Brito - Chief Executive Officer Felipe Dutra - Chief Financial and Technology Officer.

Mitch Collett - Goldman Sachs Trevor Stirling - Bernstein Fernando Ferreira - Bank of America Merrill Lynch Edward Mundy - Jefferies Sanjeet Aujla - Credit Suisse Caroline Levy - Macquarie Olivier Nicolai - Morgan Stanley Robert Ottenstein - Evercore ISI Tristan van Strien - Redburn Partners Andrea Pistacchi - Deutsche Bank Simon Hales - Citi.

Welcome to the Anheuser-Busch InBev's Second Quarter 2018 Earnings Conference Call and Webcast. Hosting the call today from AB InBev are Mr. Carlos Brito, Chief Executive Officer; and Mr. Felipe Dutra, Chief Financial 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 and then the Reports and Filings page. Today's webcast will be available for an on-demand playback later today.

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 management's current views and assumptions and involve known and unknown risks and uncertainties. It is possible that AB InBev'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 AB InBev'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 19 March, 2018.

AB InBev assumes no obligation to update or revise any forward-looking information provided during the conference call and shall not be liable for any action taken in reliance upon such information. It is now my pleasure to turn the floor over to Mr. Carlos Brito. Sir, you may begin..

Thank you, Maria. Good morning, good afternoon, everyone, and welcome to our second quarter and half year 2018 earnings call. Today, I would like to cover the results and highlights of our second quarter 2018 performance.

Next, I'll take you through the results of our global sponsorship of the FIFA World Cup, then spend a few minutes on how we will organize ourselves for future before handing it over to Felipe to discuss our financials. Similar to our last two results conference calls, we will not go into the details of each regions performances.

We, therefore, encourage you to refer to the earnings press release we published earlier this morning, and we'll be happy to answer any questions regarding our markets during the Q&A portion of today's call. So, let's start with the highlights.

This quarter, we saw beer volume growth of 0.9% with especially strong performances in Mexico, China, and Western Europe, and the benefits around the world of our global sponsorship of the FIFA World Cup.

Budweiser led the digital space as a global beer sponsor of the tournament coming in ahead of all other brands and becoming the most talked about brand globally. Budweiser's strength supported our global brand portfolio, which accelerated its gains and continues to grow faster than our total portfolio.

Our brand building capabilities have been recognized at the at Cannes Lions International Festival of Creativity winning 23 awards including two Grand Prix, the top price.

Healthy top-line growth contributed to EBITDA acceleration getting to 7% growth and we continue to expand our margins despite an increase in marketing spend behind the FIFA World Cup. Let me now tell you more about the results of the quarter.

Our revenue in the second quarter grew by 4.7%, with revenue per hectoliter growth of 4% and of 4.5% on a constant geographic basis. This growth was led by Brazil, China, and Western Europe.

In Brazil, we achieved healthy net revenue per hectoliter growth as a result of continued premiumization and annualization of price increases from the third quarter of last year.

One growth was further enhanced by the uplift from the FIFA World Cup, which on the other hand was negatively impacted by the truck driver’s strike, which held back our one growth in Brazil by 3 percentage points this quarter.

In China, our team delivered one of our best top-line quarterly performance in the last three years as our high-end portfolio continues to accelerate and Budweiser resumed volume growth on the back of a strong FIFA World Cup activation.

Our Western European markets also had a very strong volume and revenue performance this quarter, supported by share gains in the majority of our markets, a good contribution from the FIFA World Cup, and a favorable weather. Our global and premium brands are leading the way across the continent, especially in the U.K.

where we saw double-digit volume and revenue growth despite a tough comparable. Our global volumes grew by 0.8% with own-beer volumes as said before up plus 0.9% and non-beer volumes up plus 0.5%. Volume growth was led by Mexico, which continue to show strong momentum across our portfolio with growth coming from all brands and all regions.

Premiumization is a growing trend in Mexico and as a result we have seen very strong growth from Michelob Ultra and Stella Artois. In Argentina, we continue to see volume growth led by our core portfolio with Quilmes Clásica and Brahma as a result of the successful application of the category expansion framework.

In the U.S., while sales to wholesalers were softer due to industry weakness and logistics optimization, continued progress in our commercial strategy resulted in our best market share performance in almost four years. Our above premium brand portfolio continues to accelerate, including share by 100 basis points in the second quarter.

Michelob Ultra once again lead the way in our premiumization strategy as the top share gainer in the U.S. market for the 13th consecutive quarter. We also saw very good contribution from our recent innovations, especially Michelob Ultra, Pure Gold, Bud Light Orange, and the Budweiser Freedom Reserve.

Additionally, Bud Light improved its share trends within the Premium Light segment for the fourth straight quarter, while Budweiser maintained flat share of the segment for the second quarter in a row. Volume gains in many of our markets were partially offset by a tough quarter in South Africa where we saw volume declines of mid-single-digits.

This was a result of a difficult comparable, as well as a challenging consumer environment. Nevertheless, we remained optimistic about our business and the outlook for the country, as well as the growth opportunities for our global brand portfolio. Our global EBITDA increased by 7% with margin expansion of 85 basis points to 29.7%.

This was driven by healthy topline, cost efficiencies, and synergy capture, partially offset by increased marketing spend to leverage our global sponsorship after FIFA World Cup. Our normalized EPS increased by almost 16% to $1.10 per share.

Our global brands had a great quarter with revenue growth accelerating to 10.1% and 16.7% outside of their home markets. Budweiser delivered more than 10% revenue growth outside of the U.S. with the brand resuming volume growth in China and benefiting from a global sponsorship of the FIFA World Cup, which I will discuss in more detail shortly.

Stella Artois revenues were up by 9%, as we launched a new brand campaign called Joie de Biere, inspiring consumers to bring enjoyment to everyday. Our growth was driven by a variety of markets as Stella Artois increases penetration in new countries and gains relevance in the meal occasion.

Corona once again led the way with revenues up by more than 20% total and by more than 40% outside of Mexico. Our creative content successfully generated five times more impression this year, compared to last year as we leveraged platforms on occasions that are true to the band such as Earth Day and Oceans Week.

Additionally, we launched Corona Ligera in Australia, which is mid-strength beer and is off to a very good start supporting our efforts to achieve 20% of our beer volume in the no-and-low-alcohol space by 2025. An achievement I’m especially proud to highlight is our success at this year's Cannes Lions International Festival of Creativity.

The largest gathering of an advertising and creative communications industry. We won 23 awards, including two Grand Prix Awards, the top prize. In total, our creative work found five markets Brazil, South Africa, the U.S., Germany, and Peru has been recognized. This recognition is our testament to our relentless focus on brand building and creativity.

We look forward to leveraging this momentum to further drive our brands. In the first quarter 2018 results call, we took you through some of our plans to activate our global sponsorship of the FIFA World Cup, the world's largest sporting event that brings together more than 3.2 billion people around the world according to FIFA.

We leveraged the sponsorship asset to tap into consumer excitement around this unparalleled location, and I would like to talk to you about the results. Budweiser's global sponsorship as the official beer of the FIFA World Cup was the biggest campaign our company has ever done. We activated in more than 40% of our global POCs in over 50 countries.

This translated into sales, as our revenue for Budweiser outside the U.S. was up by more than 10% as said before. We’re also successful in building brand awareness in many of our new markets where Budweiser has only recently been introduced and are using this awareness to propel the brand toward future growth.

We over achieved on all of our immediate targets with Budweiser leaving the digital space ahead of all other brands. We became the most talked about brand in all industries. We had 1.2 billion views of our online content and delivered ahead of our expectations on earned view rates in total earned views.

We further maximized our sponsorship asset by activating more than 40 of our local brands in more than 14 [ph] markets. This activation has enabled us to elevate and extend core lager in more occasions to reach more consumers resulting a solid revenue growth contribution from our core portfolio.

We will create a content designed to keep up with the latest developments in the tournament and leverage key influences to achieve scale. Our global portfolio of brands allowed us to produce creative content such as a lively dialogue between brands in different markets, many of which are synonyms with their home country's football teams.

As an example, you see on Slide 11, the content we created between our leading brand in Panama and our leading brand in Belgium ahead of the game between the two countries. In-line with our culture of sharing best practices well to ensure that we’re making the most upgrade ideas.

If something works for one of our local brands in its home market, we quickly identified opportunities to do the same in other similar markets. We also executed global toolkits across similar brands in similar markets if it is the strategy to change the name of the sponsoring brand to its home country to resonate with consumers' national pride.

In summary, this FIFA World Cup exceeded our expectations and then enabled us to make the most of our global sponsorship by reaching more consumers and building awareness of our brands. We look forward to continuing this momentum. I would like to take a few moments to explain some changes to our organization before handing over to Felipe.

Following our successful combination with SAB, we're taking the next step in organizing ourselves for the future. We’ve learned lot since our integration and what it will take for our company to continue to be successful. Today, I would like to share our plans to enhance our focus on topline growth and value creation.

First, we’re simplifying our geographic structure by moving from 9 to 6 management terms. When we first indicated that with SAB, we increased our total number of management zones to support the integration. Now, two years later it makes sense to simplify the structure to be more effective.

Some of our concerns will retain the same structure, while others will evolve. North America, Europe, and Africa will remain as is. The key changes for the other zones are as follows. The new middle America zone will combine the current middle Americas zone with the current COPEC zone and BU Central America and Caribbean.

The new South America zone will combine the current Latin American North and Latin American South zones. The BU Central America and Caribbean will move into our new Americas zone. The new APAC zone will combine the current APAC North and APAC South zones.

All changes will be reflected in our financial statements as our January 1, 2019 and Europe and Africa will continue to be reported as the combined EMEA region. The next change is that we are bringing Marketing and ZX Ventures under a common global lead. In order to continue to grow, we have to anticipate the future.

We believe the common global leads will help us achieve our objectives of anticipating market and consumer trends and adopting ZX Ventures, innovation approach more broadly. ZX Ventures will maintain its current independence in order to remain ahead of the curve, stay agile and invest in new products and experience to address emerging consumer needs.

We know that when we take ownership of growth opportunities results follow. This has been proven by our high-end company ZX Ventures. That’s why we are adding two new members to our leadership team as designated owners of future growth opportunities. The first is a Chief Non-Alcohol Beverages Officer.

This role will focus on supporting zone teams to accelerate growth in our existing non-alcohol business, which represents more than 10% of our current volume. The second new role is the Chief OwnedRetail Officer.

This role will manage our existing OwnedRetail businesses such as our group hops in several countries and the thousands of Modeloramas in Mexico by shaping its strategy, coordinating cross-market initiatives and sharing best practices.

We believe these additions to our leadership team will effectively position us to capture additional growth in these key areas. We will use the coming months to lead a smooth transition into the new structure. We will remain focused on delivering topline growth creating new occasions and expanding the beer category.

We believe that by implementing these changes, we will be better equipped to accelerate growth and be more responsive to our consumers and customers to bring them an even better experience. For more details, please refer to the press release we published earlier this morning.

I now like to hand it over to Felipe, who will take you through more details on our financial results for the quarter.

Felipe?.

Thank you, Brito. Good morning, good afternoon, everyone. Let’s start with an update on our synergies. In the second quarter, we delivered $199 million of synergies bringing the total synergies captured to-date to almost $2.5 billion.

Our total synergy guidance remains at $3.2 billion to be delivered within the four-year period following the close of the combination. As a reminder, these synergies do not include any top-line or working capital synergies.

We continue to expect a synergy capture to require approximately $1 billion of one-off cash costs to be incurred in the first three years after closing and of which $717 million has been spent to date. Net finance cost in the quarter were $1.272 billion, compared to $1.6 [ph] billion in the second quarter of last year.

The increase was due to a positive swing of $249 million for the mark-to-market losses linked to the hedging of our share-based payment programs, which were $265 million in the second quarter of last year, compared to $16 million in the second quarter of this year.

We also saw year-over-year savings in our other financial results, as well as our accretion expenses. Our normalized effective tax rate for the second quarter was 24.8%, up from 21.3% in the second quarter of 2013, and bringing our year-to-date tax rates of 26.3%.

This was mainly due to country mix, as well as additional non-deductible mark-to- market losses and changes in tax legislation in some of the countries in which we operate.

Our effective tax rate guidance for the full-year 2018 remains in the range of 24% to 26%, which excludes the impact of any future gains and losses related to the hedging of our share-based payment programs.

Moving on now to earnings per share, normalized earnings per share increased by $0.15, $1.10 this quarter from $0.95 in the second quarter of 2017. Gains from the mark-to-market adjustments related to the hedging of our share-based payment programs, as well as higher normalized EBIT were partially offset by losses from the income tax expenses.

I will now take a moment to update you on our debt. Our net debt increased from $104.4 billion as of December 31, 2017 to $108.8 billion as of June 30, 2018.

The increase in our net debt is consistent with prior increases in the first half of the year, given that the majority of our cash flow is generated in the second half of the year, as you will see on Slide 23.

Our net debt-to-EBITDA ratio increased from 4.8 as of December 31, 2017 to 4.87 as of June 30, 2018, as a result of an increase in our net debt as well as adverse currency fluctuations in our EBITDA translation.

We continue to proactively manage our debt portfolio of which 93% holds a fixed interest rate, 42% is eliminated in currencies other than the U.S. dollar and maturities are well distributed across the next several years. The leveraging around 2x remains our commitment.

We remain on track in our deleveraging path, and we will prioritize debt repayment in order to meet this objective. As you can see on Slide 24, our capital allocation objectives remain unchanged. And with that, I will hand back to Maria to begin the Q&A section. Thank you..

Thank you. [Operator Instructions] Our first question comes from the line Mitch Collett of Goldman Sachs..

Hi, there. Two questions, can you first of all….

Excuse me.

Can you speak louder a bit?.

Sorry. Is that better? So, can you talk us through the drivers, the potential drivers, I guess of EBITDA acceleration for the second half, you obviously had the step-up in marketing for the World Cup.

Can you perhaps [indiscernible] on that? You’ve also had the gap between sales to wholesalers and sales to retailers, which you said should converge on a full-year basis and then the impact of the truckers’ strike in Brazil, and can you maybe help us understand how those moving parts fading away can help EBITDA growth in the second half of the year? And then secondly, your U.S.

performance has shown a meaningful improvement in recent months in the market data, can you give us a bit more color on the drivers of that, is it the new leadership, is it your new capital expansion framework, is it the success of some of your advertising campaigns? Can you just give us a bit of color to help us understand that improvement? Thank you..

Okay. Hi, this is Brito here. So, in terms of our second half, as guided in previous quarters, we expect the second half to accelerate and the reasons are a couple.

First, as we said before, there would be a concentration of more sales and marketing truck loaded in the first half to support the FIFA World Cup sponsorship and that is something they are happy with the results, so was a good call.

Second one is that, as you saw – and that’s your second quarter, there was a technical delay, I would call it a technical delay in shipments in the U.S. given that as you said, the STRs or the numbers in the marketplace in terms of sell-out are much better than the STWs.

On the other hand, as we said in our guidance for the year considering the reference to the U.S. we said is we say every year, the STWs and STRS will converge for the full-year. So, of course you can expect that that will happen now in the second half. So, it can converge for the full-year given that we’re delayed in the first half.

The other reason is that Brazil had the truckers strike, you also mentioned that and the truckers strike, pretty to have an idea, took 3 percentage points in the second quarter of our volume growth in Brazil.

So, beer volume growth from Brazil was 1.7% growth, the FIFA World Cup of course helped us, but without the truckers strike our volume growth in Brazil could have been 4.7. So that truckers strike, which is a one-off to 3 percentage points of that base. Also, we will have some easier comps in some markets, for example U.S.

hurricane season last year was very active in the second half. If it is normal this year, again that will provide an uplift there and moreover we will continue to leverage everything we've learned about category expansion framework like we did in Argentina and the results are there, like we do in other markets.

So – and the global brands continue to grow and accelerate that growth. So, if you put all this together that gives a lot of solid foundation. It is something we’ve been saying since the beginning of the year that the second half we would see results accelerating. In terms of your second question, you’ve answered most of that yourself.

So, when you said that the numbers in the market where set out our much better than the shipment numbers and the reason for that is that as we all know there is a very tight freight market in the U.S.

these days and what we try to do given that we have inventory is along the system every time we see opportunity to optimize logistics to minimize the distribution cost we do it. So, but I think the important thing here is our guidance that STRs and STWs will converge for the full-year. In terms of STRs, you’re right, we had a very good quarter.

I mean STRs improved, shares improved, we had our best share rating in the last four years. The brands are in a better place, which for me tells me that the strategy is showing up and it’s working, right? For example, this strategy was able to upset 50% of the segment mix shift in terms of share hit that we’re taking in other quarter.

This quarter is 50% offset by the growth, especially on the above core brands that grew a full-percentage point.

So, Michelob Ultra doing very well, the line of expansions, all the innovations we have this year, be it Pure Gold, Bud Light Orange, and Budweiser Light extension with the Reserve series, all worked very well and we’re all rated and we’re all topped. If you look at RI as the top innovations in the U.S. market in this first half.

So, again, very good news in the STR front, some technical delay in the STWs, given the freight market and how tight it is, but again we will converge for the full-year and therefore we will catch-up strongly in the second half..

One quick follow-up on the first one if I may, can you give a dollar number to the amount of additional marketing spend made in the first half?.

Well, no, that would be competitive sensitive, but what we can say is that we are happy with the volume progression. We expect, for example to benefit of the World Cup in terms of annual guidance to be around 45 bips, which is a sizeable volume when you think about global volumes on an annual basis.

So, that’s – we’re very happy it was the best World Cup we have done thus far because every World Cup we learn a bit more, and Budweiser is a brand. We will use the World Cup as an opportunity to introduce Budweiser in many new markets, like Nigeria for example, South Africa, Columbia, Peru, Ecuador and also to grow existing markets.

If you look at our U.K. performance, a lot of it was driven by Budweiser and Bud Light performances; Brazil, same thing. Thank you..

Thank you..

Our next question comes from Trevor Stirling of Bernstein. .

Hi, Brito and Felipe. Two follow-up questions, this was related to things that you had already talked about. The first one concerning the debt Felipe.

I’m not understanding, this year there was a 4 billion increase, last year there was a 1 billion increase, but there was also 5 billion in-flow from SAB disposals, and this year there is a 1 billion hit from the tax time freezing.

So actually, the debt performance this year is better on an underlying basis than last year, am I right on the map on that? And the second question Brito, coming back to the STW STRs, you also referred to an impact from the phasing of Easter and also the fact that July 4 fell mid-week and that was actually a 1.3 percentage point headwind, does that mean if I look at underlying STR trends in the U.S.

it’s more like 1.8 rather than 3.1?.

Well, if you, what we said – I’ll start with the second question and then Filipe will answer the first one Trevor. On the second question, you are right. When we spoke about the industry, we said that the industry in the U.S. was impacted by the timing of the holidays, both the July 4 and Easter. So, industry in the U.S.

was down by, I mean 2.4 and if you take 1.3 from those two holiday shifts you would get to an industry of negative 1.1, which is pretty much in-line with last year for example. So, yes, that’s what we wanted to convey..

Hi Trevor, Felipe here. On the first one, your math is right. For this year, out of the 4 billion increase that is coming from almost 7.8 billion of cash flow from operations we had some M&A related outflows this year.

The partial settlement for the Dominican Republican put option, as well as some other M&A related activities accounted for about 0.5 billion and while last year we had an inflow and proceeds from the disposals of about 7.9.

Cash flow from operations was 7.3, slightly lower than the 7.8 of this year, and never the less unless there was a significant currency headwind of 3.6 billion or so, while this year, we had about 700 million tailwind currency-wise.

But it is also true if you go back one year before meaning 2015, December net debt position to 2016 June net debt position, you would also have seen an increase there, meaning you can go back in time from December to June there is always this increase despite M&A related activities on the net debt position.

So, that is completely linked to seasonality of our cash flow..

Okay. Thank you very much, Felipe..

You’re welcome..

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

Hi, everyone. Thanks for the questions. Two questions for me please.

Can you quantify on the growth numbers what the impact of the World Cup both on top line and EBITDA for Q2? Or if maybe not, may be what is the spillover impact that you would expect for Q3 from the World Cup? And then second question related to China, can you talk about your margins there, and how should we think about the potential to continue to expand profitability there are going forward given the slowdown we have seen on the pace of margin expansion this year? Thank you..

Hi Fernando, Brito here.

So, in terms of the FIFA World Cup we have most of the, let’s say 80% of the impact already accounted for in the second half, the balance coming in the second quarter, the balance coming in the third quarter, and I said before it was around 25 bips in terms of global annual volume, which is very sizeable impact given our base.

So, again very happy with it and it’s 80:20 [ph] within the second quarter and the third quarter. In terms of China, it was a great quarter for China, delivering one of the best volume and share performance in the last three years.

And the business delivery, or again EBITDA growth was 6.3% that was 20 bips margin contraction off of the base of 35.6, which is very high. And this was also associated with phasing of market spend associated again with the FIFA World Cup. So, again all normal, China is doing very well, Budweiser back to growth.

Our High-End company growing triple digits led by Corona, we lead e-commerce, we have a higher share in e-commerce that is online that we have in the off-line business in the traditional channels, and so very healthy business, wherever you grew by 6.8% in this quarter with a healthy mix between volume growth in revenue growth, volume growing 3% revenue per hectoliter growing 3.7%.

So, again great quarter for China..

Great. Thanks Brito..

Thanks, Fernando..

Our next question comes from the line of Edward Mundy of Jefferies..

Good morning, good afternoon everyone. Two questions please.

First is on the new organization structure for future growth, and it appears to be a new relation towards a more decentralized model, certainly my read of it with the commercial agenda earned at the same level, are you able to set some examples of what is going to change in terms of how to drive the commercial agenda? And then a second question, just looking at Ad Age, Miguel Patricio and he made an analogy that when describing the marketing leadership changes that you change the roof of the house when it is sunny not when it’s raining, which I'm interested in your comments, your perspectives on that comments, after how you feel about your current marketing position?.

Yes, I agree with Miguel, I think you implement changes when things are going well because that is the time to implement them because you're trying to anticipate the future is supposed to react and lean behind the curve, trying to be ahead of the curve. So, in both marketing and total company I think that applies.

In my team, I think if you look at our global brands you should look at everything we learned in this combination, if you look at all the prices you have got for creativity, which is something we have been pushing the company in the last four years and why we're pushing for more creativity.

Because of the clutter and the fragmentation of media these days.

So, it is clear for us and everybody that the only way for you to stand out and really continue to be relevant is if you have content in a creative way, deliver in a creative way because today as we all know, people are very distracted, they look at things in seconds and if you don't capture their attention you're gone, they strive to the next one.

So, the fact that marketing is delivering global brands, toolkits for our core lager brands, the fact that we are being been recognized for our creativity and the fact that we’re able to have more market tiers in our senior leadership team that’s all a testament of what Miguel has been pushing together with us in terms of the company being more consumer centric and more connected to total brands in everything we do.

So that’s big testaments for that. In terms of the new organization, same thing. We are two years into a combination that we plan very carefully for because of the geographic dispersion, that’s why we increased the number of zones. We all knew internally at least that this would be temporary.

Now, two years into this, not only the synergies are coming at a faster pace, but also the learnings and the people retention is going well.

So, we decided to again take advantage of this momentum to implement the changes go back to 6 management zones and do the people moves in a quick way so there is no anxiety on the table and being very constraint with view outside world, so there is no misconception about what this represents.

The zones going from 9 to 6 brings simplicity, bigger zones will also enable more best practice sharing at the local level and more opportunities for people to grow within their zones even before they go to global.

ZX and Marketing coming under coming under one lead, with ZX keeping its independence will help us infuse in the larger company unless the access has been developing in terms of flexible teams, in terms of ways of work with innovation in terms of testing portfolio of new disruptive rents into the bigger company and having more relevance because being more scalable and also adding two new positions in terms of new areas of growth.

The upstream in terms of retail, owner retail, be it going beyond year in terms of non-alcohol beers. So, this restructuring is about growth, simplicity, and top-line. So, we're very glad to be able to move at this point given that we have momentum and things are going well..

Great. Thank you..

Thank you, very much..

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

Yes, hi Brito. Two questions for me please. Firstly, on the U.S. and the improved share performance, you did many line extensions over the years in the U.S.

many of them haven't stuck, what gives you the confidence that the new commercial initiatives will stick beyond this year and this time next year, we're not talking about a tough comp in the U.S., if you could take that one first please?.

Well Sanjeet, I think what gives me confidence is that the U.S. since last year under the new leadership is tackling innovation in a different way. So, there are many concepts as the portfolio of concept is being tested as we speak, it is in last year.

So, we are not relying it on one or two big ones and then if we fail or if we succeed it is only one or two. We’re relying on a portfolio of things that are being tested in different regions and different channels in different states and only then we decide to scale up.

And that’s where Bud Light Orange came from, the Reserve collection came from, and Pure Gold came from. So, I mean, all those things are coming from this new idea that we have to be more agile.

We have to test many concepts at the same time and not rely on one or two ideas and have a broad portfolio of concepts knowing that most of them will fail in their test, concert, but then of course because you have many one or two will come.

So, I am more confident because today I feel we have a portfolio and a reasonable work in a modus operandi that’s more in tune with how fast the world moves today..

Got it.

And just my follow-up is, just going back to the category expansion framework you tend to hold up Argentina as a bit of an example of how best practice has been embedded into some of your legacy markets, can you perhaps just talk about how that framework is being applied to Brazil in particular and what sort of successes or perhaps learnings you have in that particular market please? Thanks..

No, no, the same thing. In Brazil, we are doing the same thing.

I mean if you look at what is happening with Brahma, the way it is being repositioned to really be the classic lager, the national classic lager it was before that, it was converging to an easy drinking that really didn't belong to the brand, so it is going back to the classic lagers, World Cup and the whole soccer sponsorship is a big thing for classic lager brands, it is part of our toolkit.

Easy- drinking more the Skol, more about cold cues, about innovations, it is called hots for example, it is part of that and then you have also the brands like Brahma Extra, Bohemia things that are going really well, applying the toolkits we have for ritual reward, which is another one of the segments we have within the categories expansion framework.

We’re also planning those kits to our global brands. So, I mean Brazil is another example. Global brands is another example. The U.S., we’re trying to apply. So, this toolkit as I said, I think last quarter became company language.

So, today everybody speaks language of the different partitions within the category framework, about the country cluster, and their emissions within each cluster, and then became company language and then people draw their three-year plan, their one-year plan, their resource or location they have that in mind and the dialogue was made easier because now we’re comparing things that are more similar to each other.

For example, another best practice that we started last year was what we call growth champions, which is something that supply and procurement has been doing for a long time, which is getting global specialists of different themes and verticals within supply to exchange best practices and to continue to write the roles of more efficiency and more quality.

We’re doing the same now with growth champions, which is all about top line growth, but now, with the common language in the country clusters we’re comparing clusters and markets within similar clusters and then the comparison is much more effective..

Okay, got it. Thank you..

Thank you, Sanjeet..

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

Thank you, good morning.

Couple of things, could you just talk a little bit about Argentina, Felipe please and how much risk you see to going to hyperinflation, we’ve been through some bad experiences in Venezuela with a lot of multinationals where they’ve written that down to zero over the period of like three years of four years of trying to sort of salvage a business, how is this friend and what is your view on that and could you, Brito please address with, do you think the World Cup had much relevance in the U.S.

and how much that could grow over time, and just how World Cup impacted U.S., sorry a final one, you’ve appointed someone ahead of owned retail, which I thought was really interesting [indiscernible] you know, if you can elaborate on why and how that could have a significant impact on AB [ph] that would be great?.

So, Caroline let me take the first one.

I think, aside from hyperinflation or not, I believe it’s very hard, it is not [indiscernible] between the two countries Argentina and Venezuela, honestly inflation in Venenzuela is one of the smallest problem the country is facing and then it’s much more driven by institution than democracy and all related to that.

More specifically on the technical aspect of hyperinflation scenario, hyperinflation accounting requires the no monetary aspects such as certain components of inventory and property plant and equipment and [indiscernible] liabilities, the risk data using an inflation index. That is what it is.

And as a result, certain lines of both EBITDA and the depreciation line may be impacted there. They are not penalizing the quantification of moving to hyperinflation accounting.

And if and when we apply hyperinflation accounting to our Argentina operations and we will identify the impact separately in our financials and we will report with the IFRS standards when appropriate..

Hi, Caroline.

In terms of your other two questions, on retail, if something that we see as an opportunity because first what we have today more than 10,000 on retail POCs in different formats in different countries and these are all being managed on a global basis, doing very well, but again at this point in the same way at some point we went upstream, and we verticalized some operations like can manufacturing, glass manufacturing just because we felt that some monopolies, duopolies and oligopolies needed to be challenged, and that was good for us.

Multi-facilities as well. We feel the same way about going down stream. We’re not saying that we at this point we have any view on that, in a sense of expanding in this or that way.

We just feel that we already have a critical mass that needs to be managed and we would like to use our base and whatever comes out of that base in terms of expansion, also to build our brands.

Not only to be points of sale, but also to build like other brands have done to use on-storage to build not only brands, but also brands experiences and also category. We feel it is a role we have as market leader and no retail could be a very important thing for that.

In terms of World Cup in the U.S., it is growing every World Cup as people get more and more interested in soccer or football, families have their kids playing soccer so even adults are getting more and more connected. We also have people here from European heritage that appreciate soccer and this time of course the U.S.

was not in the World Cup and given the time of the games that was not ideal, right. But 2026 it is coming to the U.S. again and this time what we did we sponsored locally in relevant Bud Light and in the Southwest with Estrella Jalisco. So, it was very good for both brands. You see that our STRs were in a very good shape.

Hard to say exactly what was the World Cup impact, but that was in the mix as well, knowing that this time the World Cup in the U.S. was not as big as last time, because again the U.S. was not part of it. But again, it is growing every World Cup. So, it is something – it is beginning to make more sense in the U.S. market as well.

We just hope next year the U.S. is back..

Thank you..

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

Hi, good morning Brito, Felipe.

Just a couple of questions please, first of all on the Mexico, what is your view on the consumer environment and should we expect your margins to recover going forward, now that you have some extra capacity coming online? And just as a follow-up on the cash flow, you expect an acceleration in EBITDA growth in H2, assuming the Q1 stock rate, where should be expect net debt-to-EBITDA ratio to be at year-end? Thank you..

Hi, Olivier. In terms of – I mean, we had another amazing quarter in Mexico. We had, what was amazing this quarter is that, not only we had double digit revenue growth, we have high-single digit volume growth, but the amazing thing is that our portfolio works on all cylinders, firing on all cylinders.

So, we had growth on all brands, no exception in all regions of the country, no exception.

And that is to the previous question from Sanjeet, another one, there was examples of a category expansion framework was applied in terms of the finding about the domains and the brands that are playing classic lagers, is he drinking and a rich reward type profile. So, Mexico is another example of the application [indiscernible].

In terms of the economy, for us it is [indiscernible], we are not economists, but what we can say is that the macro indicators show moderate growth trend in this quarter. It was up by a consumer environment and consumer confidence.

There was a little bit of a blip with the presidential elections, but now that the president is elected, President Lopez Obrador.

We see that his first communications are very solid in terms of pursuing the government that would be very responsible in terms of public finances and in terms of independence for the central bank and that has been received, if you look at the currency that has reacted well after he was elected and after his first speech on election date.

So, again, Mexico continues to be a country that continues to amaze us. It’s also true that remittances continue to be very high, so that also helps the economy and our business continues to fire on all cylinders in Mexico.

And now that the elections are over, and the President has taken the ground in terms of what he tends to do in terms of economic policies, I think everybody feels better about the future of the country and so do we. So, great market for us..

So, let me pick up on the second one. We are not guiding at this point for net debt-to-EBITDA levels not for the year end.

However, as EBITDA accelerates and as you have seen that historically second half cash flow generation accounts for 65% to 75% of total full-year cash flow generation we do expect second half cash flow generation to be much stronger on the high end of this range also due to some technical issues that caused cash taxes in the first half of this year payments of the higher than prior years.

That said, our optimal capital structure levels points to a net debt to EBITDA around two times and we remain on track to deliver to that point. And also, as we think about debt profile and currencies overall, you have also to account to the fact that we have a benefit mix of currencies that mitigates the FX risk.

43% of our debt is in currencies other than U.S. dollars and then you also have to account for the translation of the EBITDA figures into U.S. dollars, nevertheless maturities are well distributed. We have an average duration of over 12 years and only $2 billion coming during 2018 and 2019, which is basically nothing in comparison to our numbers.

And in terms of interest rates again 92% of that is fixed at very favorable level and equity levels also stay around $17 billion, which is plenty of cash more than we actually need in the coming years.

So, we remain on track to deleveraging in approximately half a turn of net debt-to-EBITDA reduction per year through the combination of EBITDA growth as I said, as well as debt pay down. That’s basically it..

Thank you very much..

Thank you..

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

Great, thank you very much. First a clarification of a prior question, and then a couple of follow-ups. Brito, I think if I heard you right, I think you said, if you, in the US, if you adjusted for the timing of holidays, the U.S.

industry STRs would have been down more like 1.1, is that correct?.

That is correct..

And therefore, is it also safe to say given that you lost about 35 basis points or so of market share that your STRs so adjusted would be down more like 80 basis points or so, is that a fair account?.

I mean, I didn’t go that far because that would be too much speculation, but I mean, what I did is that even the industry numbers that were public and the holidays that were also public, and the way they moved, and the days of the week that got moved here and there, it was easy for anybody to calculate that 1.3 percentage points was taken away in terms of growth away from the industry.

So, that was what we’re trying to explain. So, the industry is down by 2.4% to take 1.3 it would be more like 1.1, which is even slightly better than what was industry number from last year, which was 1.3. So that was the comment. Yes..

Right.

And then, I was just trying to make the additional connection that making the similar adjustments for you would bring you down something like 80 basis points?.

80 basis points, no….

Was that [indiscernible] because you lost 30, 35 basis points of market share?.

Yes, I know, but I mean the industry should be better at 35 basis points from a better industry would mean more STRs right. So, it could benefit everybody if the holiday shift had not happened..

Got it. Great.

Can we talk a little bit about the Corona brand, which is obviously doing extremely well you're doing a line extension in Australia, so I love to hear about the overall Corona strategy, the line extension and if you could remind us what percentage of Corona sales are now sold out outside of Mexico and do you think that Corona has the potential like Budweiser over time to have more sales out of Mexico than in Mexico?.

Robert, Corona has been surprising us every time. It continues to be in the growth leader among our global brands, especially outside of Mexico, but in Mexico is well, it continues to grow. The Corona Ligera we did in Australia is a recognition that first Australia is one of the biggest markets we have for Corona.

Corona has close to 6% share of total market it’s an amazing brand and the mid-strength beers in Australia is a segment that’s growing and having a Corona 3.2 ABV is something that will get Corona in that technique as well and allow consumers that are looking for that kind of ABV to choose for Corona as opposed to what they have today in which they have no choice on that kind of ABV.

So, it was just a move to try to continue to expand Corona into new locations, trying to get that frequency up, and continue to build an amazing platform. So, if you look at Corona today, it has less than 1% share in most markets with only two exceptions. And Australia being one of them, Chili being another one.

Canada, in a much lower level being another one. So, now Colombia, also a place where Corona is beginning in terms of share total market to be more and more representative in Colombia, where Corona was hardly to be found.

So that’s how important this brand is as it travels outside of Mexico, and we see that it can get to very interesting numbers with very good margins. So, it seems to be a very strong premiumization opportunity for us..

And the sales of Corona outside of Mexico would be, what like 5% of Corona sales, for your sales?.

Yes, it’s more, but at this point, we’re not giving that number out, but it’s more..

Okay, great. And then just one last question.

And I know you’ve touched on it, but I would like to hear it again, how you're feeling about Brazil both on the macroeconomic level, which you are seeing in terms of the economy, as well as your own brand in commercial momentum?.

Well, in Brazil as you know, we’ve had some tough years last few years, this year the first quarter was very tough, but then the second quarter was much better, and we will continue to see opportunities in the second half.

With regards to operations, we continue to believe that the country has much to offer, and now our ideas on premiumization on new locations for beer on our core lager being strengthened with our category expansion framework. So, there is lot of opportunities in Brazil. There is a lot of [indiscernible] as well on the macro side.

You’ve seen currency going devalue a lot. Now it came back a lot as well. There is an important election this year in Brazil and this will only start getting a bit more clear by the end of August when TV starts in Brazil. Brazil, we have public funding for campaign.

So, people – candidates can go on TV and explain what their platforms are and that will start showing at the end of August and the elections are in October.

So, till the end of August and the beginning of October is when we will have a better reading of who the lead candidate is because today 50% of the population when being pulled are still undecided.

So, it is too early to call, but this is bringing in some volatility in terms of currency and consumer confidence, but again, obviously a great business in Brazil. We are used to volatility in Brazil as we are in Argentina.

So, people are used to do Plan B, Plan C we will have a strong portfolio of brands and strong team, and we will continue to invest and returnable package in capacity in premium brands and brand experiences. So, nothing has changed in our long-term view of Brazil..

Thank you, very much..

Welcome..

Our next question comes from the line of Tristan van Strien of Redburn Partners..

Hello, gentlemen. I just wanted to ask about your mainstream brands in Africa. Maybe just starting off with Carling Black Label. Obviously, you've got some well-deserved big Grand Prix awards at Cannes.

I'm just wondering how their brand is doing in South Africa relative to the market and related to that it seems like the one leader bulk pack hasn't really taken off in South Africa, so I am just wondering what the issue is, is the consumer issue, is the distribution issue, is the trade rejection? And then secondly, and perhaps related to that, can you maybe get some more color on your pricing strategy in Africa in general? There seems to be a lot of inconsistency with priceless changes on a regular basis in places like South Africa and Botswana, you don't seem to be taking pricing in Nigeria and an inflationary environment, and smart affordability seems to be given a bit of steroid injection.

So, I guess it all seems a bit extreme and short-term, so any color would be helpful to help me understand that?.

Well, first I mean, in terms of pricing strategy, I'm not going to comment because it’s a local issue and, of course, competitive sensitive. So, I'm not going to comment on that. In terms of the Carling Black label, it our – as you know our biggest brand in South Africa.

The one-liter bottle was introduced not only for Carling Black Label, but also to support our core lagers. The one-liter bottle has helped us to continue to bring new news into the core lager space.

It is just that it has been tough to read because with this price increase that we had to implement on March 1 this year, given that the exercise was double, the inflation 10% saw double pretty much of CPI, 5.5, there was a lot of noise this quarter.

When you think about this quarter, first of all we had many things that were one off that made this quarter very tough comp as expected. First, you had a price increase in 2017 and that was in July that brought the volume to Q2 last year.

Second, you had a price increase this year that was in March because of the stacks, the excise increased that brought volume from Q2 this year to Q1. So, already double hit right there.

Then you had Easter in 2018 that went from Q2 to Q1, that was a global phenomenon of course, but in South Africa as you know, Easter is an important date for some of you.

And then you have the exercise that was two times CPI, it is always a bit higher than CPI, it is true, but this time it was almost two times, and then of course put more pressure on the price increases on March 1. So, and last year because of that same phasing of price increase, volume grew double digits in South Africa.

So, we put all this together the second quarter for me for us it is not a fair reflection of what’s happening in the marketplace because of all this double, triple, quadruple hits that hit the second quarter.

Having said that, there was price moment on Carling Black label ahead of other brands and our guys are re-examining that price move but having said that the brand continues to be very healthy and continues to lead our market over there.

We also introduced a 910 ml pack resealable for Castle Lite, which is doing very well in the more premium side of the market, and it’s not available 80% of the appropriate pack in growth significantly.

So, as we saw in other markets, we introduced a bigger back in maturing markets, like South Africa is, especially some segments, this normally tends to increase industry and tends to help the core lager brands because it's new news we're bringing to an otherwise segment of the market when not many news comes very often.

So that is something that normally works very well. And with Castle Lite, the idea of the resealable bottle and – continue to to be sharing model. So that’s something also a new thing. We’re also going to be introducing global brands are growing very fast in South Africa.

If today there is one disadvantage we had in South Africa is that the high-end segment is growing, like it is around the world. And we have – as you know because of the brands we have to sell even before we have to sell those brands, we had a very low share within the next segment.

With this segment growing, the mix shift is against us, but of course we’re recovering very fast. Now, we’ve got three global brands in South Africa and going from almost a zero participation to now around 20% participation in that segment and growing every quarter.

So, we also have some actions that we'll take on Lion, which is at the bottom of the price ladder that also had to multiply.

I mean, we have a full portfolio in South Africa as you know high-end growing we never had representation of high-end market, global brand brands are now there, as we fix our share in the high-end market then things will add up in a different way. And we're taking share within the core brands.

But of course, the mix-shift because of the high-end growth, and our underrepresentation that – is that – in that segment that’s the thing we need to focus, as well as to continue to support the core brands..

Thank you very much for the color. Brito..

Thank you, Tristan..

Our next question comes from the line of Andrea Pistacchi of Deutsche Bank..

Yes, hi. I have two questions please. The first one is just a clarification, again on the higher cash tax charge that held back, cash generation in H1.

To understand whether this one is a facing issue that penalized H1 will benefit H2 or whether it’s a one-off increment, this H1, which will therefore come out next year? And the second question is on the U.S. on Stella, so I a lot of your portfolio in the U.S.

seems to be moving in the right direction, but Stella seems to have slowed a bit, so if you could talk about why you think this is unplanned to address it?.

Hi. On the first one it is both. At the same time, we had a one-off tax credit in 2017 first half. We had a one-off tax payment in 2018, first-half, it is that kind of big swing in there, but both are consistent with the guidance we provided on a full-year basis for both years..

Andrea, on Stella Artois U.S., you're right. On the other hand, one of the reasons why we reorganized a high-end side of our business in the U.S. was exactly because of this. This was one of the top reasons why? Because in the U.S. different than other countries, our high-end business invests a lot of time in managing our craft business.

That's within the high-end. Our craft business in the U.S. is much bigger and much more diversified than in other countries. We have 12 craft partners. Our craft business is doing very well going well ahead of the segment, growing double digits in a segment that this quarter was flat, craft segment, so we are doing very well.

But because of that focus on the craft the Stella sometimes is being left with not – the attention it deserves.

So, Michel and his team decided to reorganize the high end into – given the size of everything in the U.S., into 3 high-end subunits to bring focus and that is the craft, which is what we have always had, which is a Stella another import brand and it's beyond beer with things like SpikedSeltzer and the Rita's.

So, we believe that from now on, given that the brand health metrics are at an all-time high and consumer preference and penetration and frequency is an all-time high, we are going to know with this new high-end structure have more focus on Stella, group of people that will really live and breathe Stella.

And what you see in Stella is that some markets like [indiscernible] and New York, Texas are experiencing very good growth, but some of the markets need to also follow and again bringing more attention will allow us to have more a national focus..

Very clear, thanks..

Thank you..

[Operator Instructions] Our final question will come from the line of Simon Hales of Citi..

Thanks Brito, thanks Felipe. Two quick final ones, if I can. First, if I look at the overall H1 EBITDA growth it’s a 6.8% [ph], clearly there were a lots of moving parts that are holding back and the shipment facing in the U.S.

World Cup spend of freight cost, truckers strike, etcetera, can you give us a [indiscernible] of what you think the real underlying growth rate was in EBITDA for the half when you sort of perhaps strip out some of those one-offs? And then secondly just going back to the U.S., Brito, I'd just be interested in your general thoughts and comments around brand equity now for your Premium and Premium Light brands and we talked around the full-year about how the Dilly Dilly campaign had sort of got you to talking about Bud Light again? What are your consumers saying to you now about the equity of those brands?.

Well Simon in terms of the first half EBITDA you’re right. I mean, we have the STW difference in the U.S. We have the FIFA phasing – investment phasing in the first half the truckers strike, so we had a couple of things that are one-offs clearly.

The STWs because our guidance is to converge the FIFA because it is over, and the truckers strike, because we think and we hope it is a one-off never to happen in that sort of scale. And that took 3 percentage points of our growth in Brazil, one of our very profitable market.

So, that of course is something that we don't expect to happen in the second half and that is why we also guided for second half where things would accelerate and those are the reasons we gave at the beginning of the call, we used to believe in that acceleration. The second part of your question was about Bud Light.

Bud Light in the U.S., you are right. I mean if you look at some of the brand metrics, just the Dilly Dilly campaign, you will see that we have had growth in consideration for the first time since 2015. So, growth in consideration.

We've also seen, if you look at IRI, our share within the – with the Premium Light segment is now for the third quarter getting better, second quarter, sorry. The same with the plans for preconception [ph] and now again consideration for the first time since 2015 back to positive.

And Bud Light continues to lead social conversations in the second quarter ahead of all brands in the U.S. So very good space and having the benefit about having some line extensions like Bud Light Orange that is like, [indiscernible] lot of stock already and Bud Light Lion being reintroduced with the now all natural.

So, I mean all these things have some other brands, and so we're very excited about where Bud Life is going. And if you look at Budweiser, it has kept a flat share now for the past two quarters within the premium segment. Okay. It continues to lead with incredible content, bringing also multiple lines at the Cannes Festival.

And looking forward the brand will continue to lean in the American cultural calendar with the Freedom Reserve that we had Q2 for the second-year, Freedom Reserve but also now Q3 connecting two iconic brands in the U.S. that is Budweiser and Jim Beam, with co-creation that will be available now in the third quarter.

So, lots of good news for Budweiser, lots of new news for Bud Light, but again, the solution and what’s happened in the U.S. and what’s working best in the U.S. is that we're playing a portfolio game, not a Bud and Bud Light game. And I think that's important to say.

So, I just comment on Bud Light, but there is a lot to be said that I mentioned during the call about Michelob Ultra. It continues to be the biggest share gainer in the U.S. now with a line extension that’s also one of the biggest share gainers in IRI.

We have the high-end that is now being split in different focus areas to drive Stella, for example, stronger. And we have our crafts that are growing double digits in the markets that’s now flat as a total U.S. market for craft. So, the portfolio game is the one that will get us to win in the U.S.

not only Bud Light, but of course Bud and Bud Light being a better place will always be very important for our overall gain in the U.S. So, again Simon thank you for your questions, thank you everybody for participating. In summary, the second quarter delivered solid results and we saw improving trends in many of our key markets.

We’re pleased to see our global brand portfolio accelerate its growth, especially Budweiser as a result of a highly successful FIFA World Cup activation.

Looking forward, the second half of the year, we continue to expect our growth to accelerate as we leverage global earnings of the category expansion framework and share best practice across our markets.

However, we’re now completely satisfied with our results, thus we’re making organizational changes to accelerate growth and continue our strong track record of value creation.

We will remain excited about the long-term prospects of our geographic footprint, our brand portfolio and our worldwide [indiscernible], and we believe we're well-positioned to continue growing the global beer category. So, thank you very much. Enjoy the rest of the day. See you next quarter. Bye-bye. Thank you, Maria..

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