Welcome to the Anheuser-Busch InBev’s Full Year 2019 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 Solutions Officer.

To access the slides accompanying today’s call, please visit AB InBev’s website at www.ab-inbev.com and click on the Investors tab and the Reports and Results Center page. Today’s webcast will be available for on-demand playback later today.

At this time, all participants have been placed in a listen-only mode and the floor will be 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 the forward-looking statement.

For a discussion of some of the risks factors 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 22nd of March 2019.

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..

a chief non-alcohol beverages officer and a chief owned-retail officer, who leads our direct-to-consumer businesses. Our non-alcohol business represents approximately 10% of our total volume, generating approximately $3 billion of revenue.

Our top six markets for this business are Brazil, Honduras, El Salvador, Dominican Republic, Argentina and Colombia. We have a strong portfolio of brands, spanning different styles, functions, price points and occasions.

This portfolio comprises our own brands such as Guaraná Antarctica and those of some of the leading beverage companies in the world, such as Coca-Cola and Pepsi.

Our non-beer business performed very well in 2019, with volume growth of 5.3%, the result of an evolved strategy that was put in place in 2019 by our new alcohol -- new non-alcohol leadership team. We seek to grow and optimize our legacy business, expand our portfolio and disrupt the space by capitalizing on trends such as health and wellness.

We're proud of the work done in 2019, to elevate the importance of our non-alcohol business and to leverage this momentum into 2020.

Our chief owned-retail officer leads now all of our direct-to-consumer businesses, which reached approximately 250 million consumer interactions annually, through a network of roughly 13,000 stores, pops and e-commerce ventures. This business generates over $1 billion in revenue and grew by double digits last year.

It also enables us to be closer than ever to our consumers, leveraging technology to personalize experiences. A good example is our omni-channel ecosystem in Brazil that includes our e-commerce platform Zé Delivery in our pit stores, which enables us to leverage data to ensure consumers have a seamless experience, both online and off-line.

Furthermore, the majority of our own retail outlets have franchise, including thousands of our Modelorama stores in Mexico. We are proud to support local communities and promote the thriving business environment in our markets. Moving on, I would like to spend a few minutes discussing the advancements we've made in our Better World agenda.

In March 2018, we launched our 2025 sustainability goals, our most ambitious set of commitments yet that will help us grow our business for the next 100 years and beyond, while reducing our impact on the environment.

Our goals are closely aligned to the United Nations Sustainable Development Goals, as we believe private-sector companies have a responsibility to contribute to solutions for some of the world's most pressing and complex issues. I'd like to update you on the progress we have made on each goal in 2019.

In 2019, we continued to support our farmers through agricultural development. We're working with over 20,000 farmers in 13 countries to grow the best barley, wheat, cassava, hops, maize, rice and sorghum. We set an ambitious goal that 100% of our direct farmers will be skilled, connected and financially empowered by 2025.

Today 50% of our direct farmers are skilled, 45% are connected and 35% are financially empowered.

When it comes to our water stewardship efforts, we leverage our partnership with The Nature Conservancy to accelerate the establishment of waterfronts in Argentina, Colombia, El Salvador and Mexico and support watershed protection projects in California and Colorado in the U.S.

We also continue to work with the World Wildlife Fund, focusing on conservation and reforestation efforts and addressing local water challenges in Bolivia, Mozambique, Uganda and Zambia. We're constantly looking for ways to increase the recycled content in our packaging and advocate for returnable solutions.

We have committed that by 2025, 100% of our products will be available in packaging that's either returnable or made from majority recycled content. Currently over 40% of our volume is in returnable packaging and we have achieved 42.3% recycled content in our one-way glass bottles.

Climate change has a far-reaching impact on our business and the communities in which we live and work. We have committed to transition to 100% of our purchased electricity to come from renewable sources by 2025. Today, 61% of our purchased electricity is under contract, from renewable sources.

Now I would like to hand it over to, Felipe, who will take you through, our 2019 earnings cash flow and capital allocation, Felipe?.

Thank you, Brito. Good morning. Good afternoon, everyone. Let's start, with an update on our net finance costs. Net finance costs in the year, were over $4.3 billion, compared to over $6.8 billion in 2018.

This decrease was mainly driven by lower mark-to-market gains, related to the hedging of our share-based payment programs of nearly $900 million, compared to a loss of nearly $1.8 billion, in 2018. Excluding the impact of the gains and losses, related to the hedging of our share-based payment programs.

Our ETR in 2019 was 24.9%, slightly better than the low end of our guidance. This was due to a significantly lower ETR, in the fourth quarter, driven by accrued benefits from interest on capital in Brazil.

Our effective tax rate guidance for the full year 2020 is between 27% and 29%, excluding any gains and losses, related to the hedging of our share-based payment programs. The expected increase in ETR is driven by the full impact of the U.S. tax reform, record-low interest rates in Brazil, which minimize the interest on capital benefit.

And the change in the country mix. Moving on now to earnings per share, our underlying EPS this year, defined as our normalized EPS excluding the impact of mark-to-market related to the hedging of our share-based payment programs. And hyperinflation adjustment in Argentina, decreased by $0.47 from $4.10 to $3.63.

The decrease was mainly driven by lower normalized EBIT. And net finance costs, excluding the impact of the hedging of our share-based payment programs.

We closed fiscal year 2019, with $13.4 billion of cash flow from operations, an EBITDA margin of 40.3%, and converted 25.5% of our net revenue into cash, well ahead of most of our peers, in all three metrics.

Moving to core working capital, another important dimension for cash flow generation, core working capital consists of those elements of working capital, which we consider fundamental to the operation of our business. It excludes certain items, which management has little or no ability to influence, for example, payroll-related payables.

In 2019, we reached an average level of core working capital, as a percentage of revenue of negative 13.4%. This number is broadly in line with the last two years, despite the significant country mix headwinds. We continue to see opportunities to further drive core working capital, as a percentage of net revenue.

I'll now spend some time discussing, our debt profile. As you see on this slide, our debt maturity profile is well distributed, across the next several years. In 2019, we undertook a significant refinancing effort, which further extended our weighted average maturity, and gives us a comfortable maturity profile.

In addition, we took significant steps to retire debt, including the expected divestitures of our Australian operations, not yet reflected in this slide. Our strong cash flow generation provides us with sufficient cushion to repay or refinance outstanding debt, without being dependent on capital market transactions, to meet our funding needs.

In addition, we maintained roughly $16 billion of liquidity, comprised of cash, and revolving credit facility. Our debt portfolio remains insulated from interest rate volatility, as 91% of the debt holds at fixed rate. Furthermore, the portfolio is comprised of a diverse mix of currencies. 57% of our debt is denominated in U.S. dollars and 29% in euro.

We use the euro as a proxy for a basket of emerging market currencies, using its correlation with our key emerging market currencies. In addition, the euro has the advantage of providing access to bond markets with significantly higher liquidity and lower costs, when compared to those of emerging market currencies.

Our weighted average maturity is roughly 14 years. And there is no year in which, the total debt maturing, exceeds our liquidity, as you have seen on the previous slide. Finally, we have a weighted average coupon rate, of approximately 4%.

Accounting for the proceeds expected to be received, from the divestment of the Australian operations, while excluding the last 12 months, of its EBITDA, our net debt-to-EBITDA ratio was 4 times, for the 12-month period ending December 31 2019.

Deleveraging to around 2 times remais our commitment and we will prioritize debt repayment in order to meet this objective. As you can see on the slide, our capital allocation objectives remain unchanged. And with that, I will hand back to Maria to begin the Q&A section. Thank you..

Question-and:.

Thank you. The floor is now open for questions. [Operator Instructions] Our first question is coming from the line of Robert Ottenstein of Evercore ISI..

Great, thank you very much. Two questions, one, the revenue per hectoliter was disappointing. And it's -- you gave some good explanations for that, in terms of consumer mix, affordability initiatives, the non-beer. And so all of that makes sense, but it is a metric that is important.

It's one that in the past we followed to get a sense of how you're doing in revenue management. So I'm wondering, if you can give us a sense of what the revenue per hectoliter looked like for just beer or any kind of comparable measure on that metric. So that would be number one.

And then second, I was just wondering, Brito, in particular, if you could give us your assessment of the hard seltzer outlook, in the U.S. Based on our numbers, it looks like you're getting about an 18% market share. I know it's early days. Does that sound about right? And do you see hard seltzers being margin accretive to the U.S. business? Thank you..

Thank you Robert. So, to your first question and then about net revenue per hectoliter in the fourth quarter. So before I go there, let me just remind us that the net revenue for the full year was 3.1%. In the fourth quarter it came down.

Reasons why it came down; first, I mean in Europe, we're expanding our portfolio into new customer occasions and price tiers within premium. So for example by the launch of Budweiser in Netherlands and France that's early days but doing very well.

This, of course, is a dilutive impact on our net revenue per hectoliter, but it's incremental to our portfolio because it addresses price segments we were -- in which we were totally absent. Then in Brazil, we saw the impact of category mix due to the rapid growth of non-beer versus beer. So for example beer grew 3%.

CSD carbonated soft drinks; water; everything else that's non-alcohol grew 11%. So that, of course, the non-beer business has a lower revenue per hectoliter. But again it's incremental business. So another thing in Brazil is that we have implemented some tactical revenue management initiatives.

You remember that in Q3, we had a price increase that had some issues in terms of its implementation given the competitive reaction where competitive reaction that took price down at the same time.

And then as these things came to more of a normality, but it only came halfway through the fourth quarter, so you still have some impact in that in the fourth quarter. In China, we also had some tough comps. If you remember Q4 last year in China, our revenue per hectoliter grew over 10%. So we're cycling that in China.

So I think those are some reasons why the net revenue per hectoliter in the fourth quarter was below the yearly average. But again, it's one quarter only.

In terms of your question about still on the net revenue, I think what we have to say about price in general to step back Robert is that in many of our emerging markets, in which we operate, consumer disposable income has -- growth has lagged, considerably lagged inflation over the past several years.

This has impacted the relative affordability of beer and in many cases a negative impact on per capita consumption of beer. So in order to sustain and accelerate the long-term growth prospects of the company, we're taking many factors into consideration.

So we run a big study in terms of price elasticity in those markets with many factors being taken into consideration local -- at the local level, so the health of the consumer environment relative to the affordability, inflation taxes, competitive environment.

And we found by market that there is a better place to place this healthy top-line balance in several of those markets, resulting in very strong top-line growth in markets such as Mexico, South Africa and Colombia. We study those markets. And we believe that the disciplined execution of the strategy will enable us to accelerate top line growth.

If you remember this is all connected to the category expansion framework. So this is not a new framework.

It's just that in the category expansion framework that has many components, we've been very busy in the last three, four years since we learned about the model in the core, flavored, styles, premium side of the category expansion framework and less on the smart affordability.

And this year after all these elasticity studies that we learned more about each market as opposed to big averages and because elasticity has changed over time, because of income -- disposable income, inflation taxes and everything and employment so many things, we decided to review some of the parameters that we used to have and we saw that there were opportunities for us to tap into that volume pool and profit pool.

So that's one thing that also relates to the whole thing about smart affordability. So a long answer, but just touch on different points on our pricing and revenue strategy. In terms of the second question about hard seltzer, for sure it's a huge opportunity for us and for the beer industry in general in the U.S.

It's bringing new consumers to the category from wine, from spirits, so much so that the category went back to growth in the fourth quarter last year. We started in this category with a 10% share. We're number three today. But as you said, we have a portfolio approach. So we have Bon & Viv. We have Natty Seltzer.

And now since Super Bowl since January this year, we have Bud Light Seltzer. And you're right, I mean we're getting very quickly to close to 20% share of segment. And we intend to get to number two position with this portfolio approach that again is catering to different price points and different consumer needs and occasions.

And that's the way we're doing global brands as well. It's interesting to think when you think about seltzer when you think what's happened with craft in the U.S. Craft was also an emerging trend helped the beer category, brought new customers. So not unlike seltzer, we were behind because when we got to the U.S.

the portfolio -- legacy portfolio we had, had no crafts. Quickly in a few years, we built the portfolio of craft brands that today grows at many, many times over what the craft industry grows. We grow a strong double digit versus the low single digits for the craft industry. And that was done through some years.

And today we are the biggest players in the U.S. and growing way ahead of the industry. So -- and the good news about seltzer compared to craft is that seltzer is a game of national brands, which of course caters much more to the way we go to market. So I think it's all good news very profitable. It's incremental, brings new people to the category.

It addresses a lot of trends that are out there in terms of health and wellness, more co-ads and with flavors there are many things that can be accomplished..

Is it margin-accretive? Would you expect hard seltzers to be margin accretive for you in the U.S.

this year? Or do you need more scale?.

It is once production is streamlined, because today it's not yet there. As you can imagine we have to invest. And today we're still dependent on a couple of beers, a couple of breweries to cover the whole country. But as is often the case as it grows then we go for the breweries. And then, of course -- and that's what our U.S. business guys announced.

They announced an investment of $100 million in our Beyond Beer big bets in terms of OpEx and CapEx. And some of that CapEx is not only for capacity but also for localization of capacity, so we can cover the whole U.S. from a more streamlined perspective..

Thank you very much..

Thank you..

Our next question comes from the line of Trevor Stirling from Bernstein. Trevor, your line is open. Make sure you are not on mute. And we'll move on to our next question. Comes from the line of Edward Mundy of Jefferies..

Accelerate versus the 4.6% you did in fiscal 2013 to 2017 given the more growthy portfolio....

Ed, we didn't get the first part of your question for some reason.

Can you start again please?.

So is that better?.

Yes..

Good okay.

So the first part of my question is that back in the capital markets event in South Africa in 2018 -- you didn't provide guidance, but I think you indicated that you expected group growth to accelerate versus the last five years from fiscal 2013 to 2017 of 4.6% partly because of the more growthy portfolio that you're getting from SABMiller as well as the enhanced revenue management toolkit from the category expansion model framework.

I appreciate in the very near-term the external environment has been incredibly tough. But has anything changed in how you look at the opportunity today for your business for growth? And my follow-up question is around COVID-19.

And I appreciate you don't have a crystal ball on where COVID-19 ultimately ends up, but I was wondering whether you could elaborate a little bit more around some of the assumptions around the scale and magnitude of the virus as to how it relates to your guidance of 2% to 5% EBITDA growth..

seltzer, pure malt, premium in South Africa, for example. And we need to accelerate our participation in those segments so we can also benefit from that growth. But in terms of the overall business, we had some important countries for us like China, Brazil.

Korea, of course, less important but China and Brazil were one because of the channel that we overindexed nightlife; the other one for a price increase and its execution. In Korea both macro and price increase. So our ambitions are unchanged. We're going to continue to grow with a more balanced top-line and that is between volume and net revenue.

And we think as a company we can do better than the average of 4.6%. This year we did 4.3% because of all of the headwinds we mentioned at first. But we see opportunities in segments where we are underindexed and that we're taking measures to grow and catch up faster in those segments.

In terms of COVID-19 -- COVID-19 what we put in our release is that first we're only talking about COVID-19 in China because that's where we have information about it and that's where it's relevant at this point.

So for the first two months of 2020, we estimate that this outbreak has resulted in lost revenue of approximately $285 million in terms of ABI and lost EBITDA of approximately US$170 -- 1-7-0 billion at the EBITDA level.

So the financial impact on our business in China is difficult to estimate given it's dependent on the containment of the virus and especially the speed by which our customers and consumers resume their normal operations and lives which can be different by channel and province.

In China you have more than 30 provinces and each province is adopting a slightly different way of going back to normal life. Some provinces were hardly hit -- or harder hit so they're taking a bit more time. Some others are going back to business a bit faster.

And we're anticipating our customers to resume their operations in the course of Q2 second quarter of this year. So -- and the impact of our current view is reflected on our estimates for Q1 and full year that we gave in the outlook session. And -- but of course this is based on what we know today right? So this is where we are today.

And the good news -- I mean the silver lining in this whole thing is that Chinese consumers were surveyed by Kantar, a market research company regarding the impact of COVID on their consumption patterns and what they intend to do once they are released from their confinement and quarantine.

And out of the 10 top things they want to do 6 -- the top six are totally within our business realm. They want to go back to restaurants. They want to go back to meet friends, to dine out, to entertain, to go outdoors, indoor entertainment to do everything that they would normally do. So that's squarely within our dream of bringing people together.

So that's why our team in China has a crisis room that's now working of course on a daily basis. We have weekly calls with the global guys as well. And we're monitoring province by province, channel by channel because we want to come back very fast because we think when it comes back it will be very fast.

If you look at SARS that's the way it came back.

And as a company given the portfolio we have the channels that we're strong and the channels that we're getting stronger like e-commerce because people are changing habits and we have a very good share higher than the average market share of the market in those channels, we want to be an even stronger company in China after this crisis is over.

So, right now, of course, the first priority is the safety of our people community consumers. But once the government guidelines allow us to go back to business, we're prepared and we have -- as the recovery takes place. So, we're very prepared and we feel good about it in terms of the recovery..

Thank you..

Thank you, Ed..

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

Hello, Brito can you hear me this time?.

Yes..

Great. Brito in your prepared remarks and in the press release, you talked a little bit about being not satisfied and you talked about some of the headwinds that emerged over 2019 that weren't there when you started the year.

But if you look at the elements of performance that were actually inside your own control, which elements of your own say within-control performance are you not satisfied with and would you aim to resolve next year?.

Well, I think as you said some elements we anticipated for the market just to be -- in the name of completeness I'll start from there, Trevor. So, we said that the second half of the year will be tougher because of the timing of our commodity and FX hedges.

We also said it would be tougher because of the sales and marketing phasing coming from our World Cup year a year before. We also said that there was some inventory in China that was advanced in Q2 for summer activities. Every year is a bit different. This year it was Q2 and that would take away a little bit from Q3.

So, all that was said was public and all that. On top of that, things we didn't expect was; first, the price increase we executed in Brazil in the first week of July in terms of execution was not very successful not because we executed it poorly but because we didn't anticipate market participants' reactions.

And some participants took their price down as we were taking our price up. So, that took a while some months including into the fourth quarter with volume impacts to get fixed. Let's put it this way, to find its new balance. So, we lost volume in Q3 and part of Q4 in a market that's very important for us in a period where that quarter is important.

The last quarter for Brazil is the main quarter. So, that was not in our plans. In Korea, the same thing happened. We implemented a price increase in April. Every three years we implement a price increase in Korea. We implemented one in April; the same thing happened. Competition took a different view. And then we had to roll back prices in October.

So, again, we lost a lot of the summer in South Korea. So, I think those two things are things that looking back we could have done better. Nightlife channel, it was hard to predict because it was something that was mandated by -- it was an externality. Maybe we could have shifted resources faster as we're doing now to other channels.

And as I said before, we under-indexed in some fast-growing channels like seltzer, pure malts, and example South Africa and premium. We're growing all these channels but maybe we could have started six months a year before than whichever time we started. So, I think those are things that are within our control. We learned from it.

We intend to do a better job going forward. But you're right some things were externalities. We had no control. And we normally focus on the things we control. We're very avid with ourselves as you know and don't take it -- we don't take this lightly. So, we are learning and trying to see how we can do it better next time around..

And just my follow-up question Brito, you talked about -- in Brazil at the start about part of the problem was that beer grew 3% and non-beer 11%. But if I look at beer Brazil from the AmBev accounts, price/mix there was down 20 bps in the quarter.

Was that due to rebating of price increases to try and regain some volume in Q4?.

Well, that was due to many things including the one I just mentioned that the issue we have with the execution of the price increase in the third quarter bleeds -- bled into the fourth quarter. So, that, of course, affected the year-on-year comparison.

Also this quarter the positive brand mix from premium growth was more than offset by these tactical revenue management initiatives. So, that offset.

And the negative geographic mix, right from expanding more in the north and the northeast as pure malt started growing and accelerating, pure malt is more prevalent these days in the north and the northeast. So, that has a geographic mix -- and you know that we make less of a margin those margins because of socioeconomic classes.

The lower socioeconomic classes are more prevalent there. As well as some smart affordability initiatives like the growth of our local craft beers. On top of all that, you also had non-alcohol as you said growing way ahead of beer with a lower net revenue per hectoliter but incremental margins.

So, I mean you put all these in the mix that was why we didn't grow much in terms of net revenue per hectoliter. On the other hand, if you look at the full year, in Brazil, net revenue per hectoliter grew by 1.9%. So -- I mean, of course, impacted by the fourth quarter. So, I mean we had good growth in net revenue per hectoliter.

Net revenue in Brazil full year grew 7%. Total volume in Brazil grew 5%. So, I'm very happy to see Brazil back to growth. This is great. Brazil hasn't grown volume for some years, so it's great to see net revenue more balanced with volume growth in both beer and non-beer.

It's great to see premium growing double-digits even in the face of a cost of sales that went up by 15.5% during the year. So, that's something that was really brutal. Doesn't happen all the time. And that cost of sales took -- let me check here took 300 basis points from our EBITDA. So, the EBITDA in Brazil declined by 4.4%.

Three percentage points of that 4% was the commodity and FX that was higher than any time we can remember. So, I mean that's also something that should be mentioned..

Thank you very much Brito..

You're welcome..

Our next question comes from the line of Celine Pannuti of JPMorgan..

Yes, thanks very much. Good morning everyone. My question is on -- a follow-up on the price/mix.

I wanted to understand first of all if you could help us how big is smart affordability as a percentage of sales in 2019? And what would be the plan for 2020 in terms of rollout? And just to what you are seeing in terms of pricing, do you think that the environment is looking better in terms of pricing increase for 2020? I'm also asking that because you're guiding for raw material costs and transaction to be around mid-single digits for 2020.

In that regard, it would be helpful if you could tell us, why is it that you have mid-single-digit? I presume transaction is a big impact. And in which countries we should expect this to be the most impactful? Thank you..

trying to get these consumers into our category safer for them as well, because of branded products, more high-quality products. So – but again, this doesn't live by itself. This lives in the context of the category expansion framework that has five dimensions. This is one of them and the only one that goes from core down. That's the first thing.

Your second question was about price.

And can you just remind us exactly – you asked whether the environment is better for price, right?.

Yeah. I mean, you mentioned earlier that it has been difficult for you execution of pricing has been complicated.

And since you are mentioning still a high raw material cost inflation will you be able this year to get better pricing?.

Yeah. No, no, no. I mentioned two markets. I mentioned Brazil and South Korea. I didn't say the price was being tough. I said that pricing execution looking back maybe could have done – could have been better planned, right? So that's what we learned from it that at the end the market moved somewhat, but in a different timing.

And we would normally do pricing in a different time. We tried to do in a different time from normal and it didn't work so well.

So it was more on the execution piece than believing that there is no pricing possibilities, because again remember as we grow premium, as we grow styles as again within the category expansion framework there are many things that can create net revenue opportunities per hectoliter not because of price, but because of mix.

So that's the story in China, where we don't do a lot of price increases but the mix gets net revenue to grow every year by 6%, 7% at least in the past. And again, when you get all factors embedded we've given an EBITDA guidance for next year given what we know today about COVID-19 of EBITDA growing organically between 2% and 5%.

So I think this encompasses everything.

And we also gave guidance, including for the first quarter and said that the growth organically of EBITDA, total ABI should be around minus 10%, because of all the things we said tough comparable in Brazil, right? Let's remember that Brazil had an amazing quarter last year and that we're comping that and that we have the COVID-19 that is impacting the China business.

Thank you..

Our next question comes from the line of Carlos Laboy of HSBC..

Yes. Good morning, everyone. Brito we see considerable discounting in some of our emerging market tours of local premium brands whether it's maybe Bohemia in Brazil, Castle Lite in South Africa or even of global brands in some of these markets.

When is it helpful and strategically important to discount? And when is it destructive? How does this fit into your broader strategy for building these premium brands?.

Well, this thing a price ladder Laboy as you know is very dynamic. And for example – I'll give you an example. Pure malt in Brazil was a segment that five years was non-existent. All of a sudden you create a segment called pure malt. We didn't create, but all of a sudden somebody created others jumped into that bandwagon including us.

And now Bohemia is the number one in there. So Bohemia was in a place, which was premium segment. The premium segment was more and more populated by international brands. So Bohemia was losing a little bit of that edge of premium. So it went to the premium segment still premium with improvements within pure malt and now it's the number one category.

So it's now called core plus. So yes, we repositioned Bohemia from premium to core plus, because we asked Bohemia to play a different role, because now we have a big portfolio of local core brands – I mean local, craft brands and premium brands in the premium segment.

And Bohemia you can find a position for everybody, but in the premium segment Bohemia had an amazing role to play so much so that it's grown by triple digits in the last three years, and it became only in three years the leader in the pure malt segment at a core-plus price as opposed to be walking sideways or backwards in the premium segment.

So I think you have to be – you have to understand that some brands will play different roles because sometimes segments have to get redefined when a new segment comes in, right? So Pure Malt in Brazil redefined the segment, so it's a portfolio strategy.

That's why it's good to have brands because sometimes just like a soccer player sitting on the bench, you call one bench to play because there is a new role for that brand to play and that brand goes and play that brand.

So I agree with kudos for our guys in Brazil because they recognized that Bohemia that was being cluttered in the premium segment by all these international brands from margin competition in craft brands had a bigger role to play in Core Plus.

It was a bet, they took the risk and in a few years it became the number one brand in the premium segment Core Plus premium brands. I mean Pure Malt, Core Plus segment in Brazil. So I think that's what we're always trying to do.

In Africa for example not Castle Lite, but Carling Black Label we saw that there was an opportunity because of the growth of the premium segment that's growing way ahead of anybody's expectation that Core was being pressured by cheap alcohol, not beer necessarily, but wine in tetra pack and all that and premium beer appealing to some core consumers.

So there was a role to be played by Carling Black Label going ZAR 1 gallon at some point going to ZAR 15 and growing as it's growing now as opposed to being ZAR 16 or ZAR 17 and being declining. But because -- if Carling Black Label was our own brand you could say, well you took your own brand and took down in pricing.

Yes, but because it's part of a portfolio that brand came down in price and it's doing very well but other brands went up in price, right? So we didn't have enough capacity for our FABs in South Africa. Now we do. So now we're playing that role that before we were not playing because of lack of capacity.

So now we can again appeal to some consumers that as you know South Africa is going through tough economic times. They are budget consumers. Those consumers exist. We would like to be the beer that brings people together, all people not just the ones that can buy Core Plus and premium, super-premium.

There's also in the category expansion framework, smart affordability and core and that's what we need to continue to look at. And this is a dynamic aim and that's why it's good to have a portfolio..

Thank you. .

You’re welcome..

Our next question comes from the line of Simon Hales of Citi..

Thank you, morning for two. A couple please for me. I wonder just following on Brito on your comments around the category and sort of management framework and the increased implementation of the affordability strategy.

What does the strategy sort of mean? And how do you think about perhaps medium-term group margins -- margin development from here? Do you think you can still expand margins over the medium term with the application of that strategic approach as it stands? And secondly just on the -- oh sorry. Sorry Brito..

I think so I think so because you should think of the category expansion framework it has core in the middle, you have styles going to one side, flavors going to the other side and you have premium going up and you have smart affordability going from core down. We've been active in all five, but not at the same intensity that we've been in core.

And then we started doing premium. We still have lots to do in flavor and styles and those are very accretive to margins. So smart affordability is the only one that dilutes margin, but brings new consumers into the category and it's incremental to margin dollars.

So I mean, if you look at all five dimensions being only one dilutive all the other four are neutral to incremental. And we are not yet at full steam in all 4..

Got it. And then just secondly, just going back to the U.S. business obviously a lot of innovation coming into the portfolio again in 2020, you talked about the -- obviously the hard seltzers.

How do we think about sort of the investment that's going in behind that? And I hear what you say around the CapEx side, what about marketing investment for 2020? Should we expect a step change in the business? Or was it just a reallocation of spend within that U.S.

portfolio to support all that innovation?.

Well let me tell you, Simon if you don't mind, I will step back and talk about the five commercial priorities in the U.S. with numbers, okay, because again those are metrics. So the first priority is to grow Core Plus. We went from 6% of total market to 8% in two years driven by Michelob Ultra. The second one is to grow superpremium.

We're flat, so here we can do a better job. But we're flat at 20% of the segment. In premium, we wanted to double -- we wanted to multiply by 10 times our volume. And in two years, we double it from -- we double from two years ago. Mainstream that's core and value we want to stabilize.

Two years ago we're losing 60 bps that's core and value; now we're losing 13 bps. And Beyond Beer that we were declining 6% two years ago we're now double-digit revenue growth. And that is what's causing our net revenue in the U.S.

to grow this year at 0.5%; EBITDA 1.1%; margin expansion of 28 bps going to 40.8% EBITDA margin in a very competitive market. So that is what we're doing. And to support the growth of Beyond Beer especially seltzer, we are going to commit to 20% increase in investments in the U.S.

And that's mostly CapEx, but also some OpEx behind Michelob Ultra Pure Gold, behind Michelob Ultra mother brands and behind seltzers in terms of capacity and also in terms of canned wine and canned cocktails. So I mean all these things are mostly CapEx. And in terms of OpEx there's a lot of resource reallocation because that's where growth is..

Great. That’s very helpful. Thank you..

Thanks Simon..

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

Yes, hi. Thank you. I first have a question for Felipe on the tax rate and then a quick follow-up. So one of the reasons for the higher tax rate guidance is the U.S. fiscal reform you said and the -- I think the nondeductibility of your interest charge.

Is there a path over the medium term to reduce the tax rate as you delever the balance sheet? And then Brito going slightly deeper on Beyond Beer in the U.S., you talked about seltzers. You've just referred in the previous question to canned wine Babe; and Cutwater sort of ready-to-make cocktails.

Can you just talk a little bit more about these how they're performing the size of these now? And are we close to the point where these two brands in particular can start to make a more meaningful contribution to the total?.

Andrea, this is Felipe. On the effective tax rate, the point on U.S. tax reform is the full implementation of that. I would say the most relevant impact it's also coming from the country mix as there has been a significant shift. And this thing is less sensitive to the leverage level.

And what happens if you recollect at the very beginning part of the SAB funding was not deductible. There is room for -- still for deleveraging and that should help. But I think for 2020, you should stick to the current guidance of 27% to 29%..

And on the Beyond Beer, Andrea let me just recap that Beyond Beer. So big growth driver for the industry, so that's something we have to take advantage profitable, brings a lot of consumers back incremental. So, first the seltzer, we already spoke about it. Second, canned wine and spirits.

When we started ZX five years ago, one of the missions of ZX was to look at alcohol adjacencies or other alcohol segments, where there were profit pools and volumes that we're not using or potent and go there with some innovative approaches.

And that was the canned wine, the canned spirits, and now ready-to-drink works as well though our broad based machine for cocktails and beer, which has been around in the U.S. not really commercial in many states, which allow us to gain incremental volume outside the beer category. We're leveraging our existing capabilities and assets.

The other one was to fill the category white space focusing on brands like Kombrewcha, which is kombucha with alcohol that have a higher opportunity to grow in micro trends. Southwest is big on that.

But we continue to bet on that, because that could be something that connects to health and wellness, very low ABV, something that health and wellness consumers are willing to pay a premium for. And then leveraging the improved performance of our existing brands like the Ritas. We're seeing improved brand health and volume trend performance in Ritas.

And the idea really is to establish this as a business unit and that's what we did in November last year when we established a new Beyond Beer business unit, which allow us to focus on developing this portfolio to meet consumer needs in these different categories and occasions. So, we're very committed to Beyond Beer.

That's why we announced this investment mainly on seltzer, but not only but also for canned wine and spirits. And we think there's a lot of interesting volume and margins to be captured here..

Okay. Thanks..

And ladies and gentlemen, we have time for one more question. Our last question comes from the line of Sanjeet Aujla of Credit Suisse..

Hi, Brito and Felipe. So you've been talking about category expansion for a couple of years now. It seems like the pace of innovation has stepped up, but it doesn't seem like it's been enough.

Is there a risk you're trying to do too much at once and perhaps spreading yourself too thinly and losing focus on the core brands?.

No. I don't think so Sanjeet, because I mean the teams that are doing this are separate teams. That's why -- one of the reasons why ZX was put in place. So, core is more than 70% of our business. We want to continue to hero the core within our company but we know that these days this is not only about focus in one thing. You have to do and.

Again, the category expansion framework gives a good roadway to do that. So, we have proven ways of work in core. There's still work to be done of course, because core is being challenged by many sides from below from above.

But we've been investing in core trying to understand a bit more how brands can be positioned, packaging, promotion activities, new channels, e-commerce. So lots of things that core is very important. So core is also about deliver the current but transform the business continue to transform, so it continues to remain relevant.

And a lot of these other innovations are being done by different sides of the business. For example, the premiumization is being done by the High-End Company. So the High-End Company is separate from the core organization right? The flavor and styles are being done by ZX, right.

And the smart affordability is being done by the core, because they are more connected in terms of packaging, occasion, box. And the idea is to the High-End Company -- I mean the High-End Company grew double-digits, both top and bottom line. ZX is already 15% of our revenue growth.

So I mean -- but to your question, you're right not everybody is doing the same thing. So, core is core together with smart affordability. Okay? Then you have High-End taking care of premiumization, and then you have ZX taking care of styles and flavors. So that's pretty much how we are divided to conquer..

Just a quick follow-up. It seems like the competitive intensity across the industry has stepped up over the last couple of years.

Is that offsetting some of the gains that you're making with category expansion? And what's embedded in your outlook for the competitive environment? Do you expect it to remain just as intense?.

No, no. I mean, beer has always been competitive. What you see different today is because two or three companies in the beer business are developing more and more global brands. They start facing each other just like Coke and Pepsi, right? Coke and Pepsi, they are exactly in all the markets facing each other.

Beer used to be very local in terms of brands. That's going to international, then going to global brands.

And this -- as this continues to grow, competitors are going to face each other in many markets at the same time, but because the growth to another market is being done via global brands that is also very healthy compared to other food and beverage categories, where the new entrant comes as a private label.

Our business at least the new entrants comes at the very top either as a craft or as a global brand and that get consumers to trade up. And that's beneficial for the category, beneficial for our players, especially for the leading player in that market.

So when somebody comes to our market and starts developing or is asking as well in the premium segment, if we don't sleep on the wheel, we're going to be the biggest beneficiary of that segment growing faster, right? So -- and that's what we want to do.

As more people invest in seltzer, we want to have a close to fair share and at some point fair share. So as the segment grows, we take our fair share of that growth. Today, we're not there yet..

Got it. Thanks..

And this was our final question. If your question has not been answered, please feel free to contact the Investor Relations team. I will now turn the floor back over to Carlos Brito for closing remarks..

So, thank you Maria. And I would like to do two things in this call. I'd like to close the business part and then I would like to close and talk about our 30-year colleague, Felipe his last conference call. So, bear with me a little bit.

So in terms of the business in closing, throughout the year, we achieved a more balanced top line growth between volume and revenue per hectoliter growth, and made considerable progress toward our optimal capital structure. However, our overall performance was below our expectations.

We're a company of owners, who are never fully satisfied with our results. As I said during the call, we learn from some implementations and executions of prices for example, or some categories that we're under-indexed and we're trying -- and we're going to fix this very quickly.

We're a strong diversified company, with an unrivaled geographic footprint portfolio of brands and talent pool. We'll use these learnings from this year to better position ourselves to deliver long-term growth.

While there are some short-term challenges ahead, we're confident in our strategy and plans to grow our business by delivering balanced, sustainable, top and bottom line growth in 2020 and beyond.

So, before I conclude, now I want to take a couple of minutes to thank Felipe Dutra, my friend, my partner, our Chief Financial and Technology Officer, who'll be stepping down after a long and distinguished career with our company to pursue new projects.

As we announced earlier this year, Felipe's departure will be effective after our Annual Shareholders' Meeting on April 29. Since he joined our company in 1999, Felipe has embodied the spirit -- this is wrong 1989. Felipe has embodied the spirit of true ownership.

He's been in the company for 30 years, has been the architect of our company's best-in-class financial strategy. And his contributions to value creation are numerous. Under Felipe's direction, our financial discipline has freed up resources to invest behind the growth of our business.

Likewise, he played a key role in the creations of AmBev, InBev as well as in our landmark combinations with Anheuser-Busch, Grupo Modelo and SAB. Over the years Felipe has developed a strong bench of talent, that's now spread across different zones and functions of our company.

Fernando Tennenbaum, our incoming Chief Financial and Technology Officer is a great example of this bench. Fernando is a 15-year veteran of the company and presently serves as Vice President of Finance for the company's South America zone as well as the Chief Financial Officer for our Brazilian subsidiary Ambev S.A.

He has a deep understanding of our business and international experience, developed through several positions in the finance function including Treasury, M&A and Investor Relations. He will be part of our senior leadership team and a member of our Executive Committee. Felipe, we have been honored to have you as our partner over 30 years.

And speaking for myself, it has been invaluable having your advice and your friendship. It has been an amazing journey. Wish you the best of luck in your new endeavors and success in the next chapter of your life. Thank you very much. And Fernando, welcome. We're excited to have you appointed as our CFO.

I look forward to partnering with you to ensure we will lead, growth through consumer-centricity, operational excellence and innovation supported by strong financial discipline. So, welcome Fernando. All right. Well, thank you and we'll see you next quarter. Thank you very much. Thank you for your time..

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