Anheuser-Busch InBev SA/NV (BUD) Q3 2011 Earnings Report, Transcript and Summary

Good morning and welcome to the Anheuser-Busch Inbev Q3 2011 Earnings Conference Call and Webcast. Hosting the call today from AB Inbev is Mr. Carlos Brito, Chief Executive Officer. Today’s call is being recorded and will be available for telephone replay beginning at 6PM Central European Time. Today’s webcast will also be available for on-demand playback. (Operator instructions.) The monthly information provided during the conference call may contain statements of future expectations and other forward-looking statements. These expectations are based on the management’s current views and assumptions and involve known and unknown risks and uncertainties. It is possible that the company’s actual results and financial condition may differ, possibly materially, from the anticipated results and financial conditions indicated in these forward-looking statements. For a discussion of some of the risks and important factors that could affect the firm’s future results, see “Risk Factors” in the company’s latest annual report. Anheuser-Busch Inbev assumes no obligation to update any forward-looking information provided during the conference call. It is now my pleasure to turn the floor over to Mr. Carlos Brito. Sir, you may begin.

Well thank you, Melissa. Good morning and good afternoon everyone, and thank you for joining our Q3 2011 conference call and webcast. I’m joined here today by our CFO Felipe Dutra. Today, AB Inbev reported solid results in the three months ending September, 2011, delivering yet another quarter of EBIDTA margin expansion and earnings growth. This means we have reported twelve consecutive quarters of year-over-year EBIDTA margin expansion since the combination with Anheuser-Busch at the end of 2008. Non-beer volumes in the quarter declined 0.6% and are flat year-to-date. However, as confirmed in our outlook, we expect volumes to gain momentum in Q4 as we cycle more favorable comps in Brazil. Our focused brands grew by 1.1% in the quarter with particularly strong performance from Stella Artois in the US and the UK, Budweiser and Harbin in China, and Skol in Brazil; [Culmos] in Argentina and Bud in Russia. Global Budweiser is also doing very well, growing by 6.9% in the quarter and by 2.5% year-to-date. We’re committed to growing the brand globally and last month we announced a renewal of the partnership with FIFA, extending our sponsorship to cover the 2018 and 2022 World Cup Tournaments. The FIFA World Cup provides us with a great platform not only for Budweiser but also for our other leading brands in selected soccer markets around the world. In Q3, market share was ahead in Germany, Russia, Ukraine, and China; flat in Argentina, and marginally lower in Canada and the UK. In the US, market share declined by 25 basis points concentrated in sub-premium brands, while focused brands continued to perform well. We continued to make consistent progress with our strategy of balancing market share and profitability in Brazil and Belgium. Total revenue grew by 3.6% in Q3 and by 4% on a…

Thank you, Brito. Good morning, good afternoon , everyone. Let me start with North America. Q3 results in the US was impacted by the timing of our 2011 price increase which was three weeks later than our price increase in 2010, leading to an easier-won comparable and a more challenging comparable for revenue per hectoliter. In 2010 we increased prices on September 13, which led to a trade buy in during the first half of September last year, and consequently soft STRs in the second half of that month. In 2011 however, our price increase of 3% on average took place three weeks later on October 3, leading to a trade buy in towards the end of September this year. We estimate that industry STRs declined by 0.4% in the quarter and by 1.2% in the nine months through the end of September. Our own STRs fell by 0.9% in the quarter with shipments to wholesalers [SD plus] declining by 3.4%. The difference between STRs and STWs is due mainly to the timing of our price increases. As a result, STRs in the first part of October this year faced a more difficult comparable. However, taking the year as a whole, absolute shipments and STRs should be closely aligned. We made good progress with our focused brands in the quarter with Miller Lite, Michelob Ultra and Stella Artois all gaining share, and as anticipated we saw share loss in the sub-premium segment as we continued to close our price gap with premium. We also saw a share decline with Budweiser but at a slower rate than in the past. Beer-only revenue per hectoliter grew by 1.9% in the quarter, lower than the 3.6% achieved in the previous two quarters, exclusively driven by the later timing of our price increase year-over-year.…

(Operator instructions.) Your first question comes from Andrea Pistacchi of Citi. Andrea Pistacchi – Citi : Yes, hi, good morning. My question is on your COGS please. If I looked at Brazil beer you had cold COGS inflation, this is from (inaudible)’s number of course, of around 4.1%. That was despite FX gains and given an easy comp you have on cans. So clearly you’re seeing more input cost inflation in Brazil than elsewhere, so I was wondering whether this is an issue of timing of your hedges or what is, if you could explain on that a bit and in general on your COGS.

This is related to the timing of the FX hedges. We had several items of impact in the year-to-date number in terms of imported cans, so on and so forth. So for the full year at the consolidated level we are maintaining the guidance of cost of goods sold to grow at low single digits. Andrea Pistacchi – Citi : Okay. If I could, so I just have a quick follow-up please. On your additional marketing efficiencies that you’ve talked about, you’ve identified, if you can just be a little bit more specific on this, if these were mostly in the US and on what areas you’ve sort of identified these potential efficiencies.

By marketing efficiencies we basically mean procurement savings related to non-working money, which is a part of what we do in the ordinary course of business – buying the same for less. And next to that we are also anticipating lower sales expanses in the specific geographies but that being linked to lower volumes. Andrea Pistacchi – Citi : Okay, thank you.

Your next question comes from Jon Fell of Deutsche Bank. Jon Fell – Deutsche Bank: Hi there. Just a few things on the price increase in the US. Can you give us some idea of about how much volume that slightly later price increase actually impacted? So are we talking about a week’s worth of volume that got bought ahead or was it less than that? And I know it’s early days, but can you tell us anything about the reaction so far from trade in customers to the price increase? Are they putting it through or do you have to deal some money back?

Hi Jon, it’s Brito here. As you said it’s early days. We implemented our price increase this year on October 3, and last year we implemented on September 13. So there is an important lag and that’s why Felipe made the disclaimer that a lot of the numbers for Q3 for the US have to be taken with this caution given the different timing. We continue to think that beer is very affordable in the US. Price of beer is like CPI for the last sixteen years and a lot of other companies are doing the same in terms of consumer goods. So that’s where we’re headed and that’s pretty much what we do in October – increasing prices – so that’s what we did this year. But again, too early to talk in terms of impacts and things like that other than the timing that was very different from last year. Jon Fell – Deutsche Bank: Sure. And is there anything you can say about the volume impact? Like if the price increase had been the same time as last year, what do you think industry STRs would have been?

Well that, I cannot speculate on that. What I can say is there was a relevant volume shift given the difference in two to three weeks of the price increase, and that’s why you see our disclaimer in terms of easier comps on volumes, tougher comps on the revenue per quarter. Jon Fell – Deutsche Bank: Okay, thanks.

Your next question comes from Andrew Holland of Societe Generale. Andrew Holland – Societe Generale: Yeah, hi. Can I just stick with that and ask a related question, which is why you put your prices up three weeks later this year than last year? Is that indicating to us that there is resistance from consumers to today’s price increases? And a second slightly unrelated question relates to your margin in North America which if I strip out the AB synergies was up about 20 basis points in Q3 despite weaker volumes, but was down 150 basis points on that basis in the first half. So can you tell me what was helping the margin in Q3?

Andrew, in terms of the price increase it’s not really that this year we did it later. It’s more that last year we tried to push it earlier but then we learned that it is better to do it at the beginning of the month given the way that a lot of our customers work. So this year we came back to the old practice of doing it in October at the beginning of the month. So again, it was more about last year being earlier than this year being late. In terms of our margin expansion, I mean we’re very glad that we’ve been expanding margins. As we said in the intro, when we got here to the US, the US business had margins that were lower than 30% and last year we already got high in the 40% and this year we saw continued margin expansion for the nine months of the year. Our recipe, for the ones that know our company for a long time like you do, is always top line growth with cost management. That’s the recipe that has afforded us the margin expansion in the last twenty years in the different markets where we operate, so that’s going to be the recipe for the US as well – top line with cost management. Andrew Holland – Societe Generale: Sure. I’m just trying to get what was particular about Q3, because as I say, if you strip out the AB synergies your margin was down I think about 150 basis points in the first half, and it’s up 20 basis points on that basis in Q3. So is this a phasing issue? Was there a cutback on A&P?

Yeah, the only exceptional item that comes to my mind is potentially the timing of the sales and marketing investments year-over-year, but we’re going to recheck the numbers as you are calculating and follow up with you after this call. Andrew Holland – Societe Generale: Okay, thank you.

Your next question comes from Trevor Stirling of Stanford C. Bernstein. Trevor Stirling – Sanford C. Bernstein: Two questions please, one and one follow-up. The first one: has Inbev taken its normal price increase in Q4 already and if so how much is that broadly speaking? And the second question is if industry volumes in the United States continued to decline, at what stage would you have to consider closing a brewery or a network reconfiguration; and what level of constraints does your Teamsters contract impose on that?

Well, let me take the price in Brazil. Our strategy has been to keep prices moving in line with inflation and we normally increase prices during Q4. This year is not different totally from last year. We are increasing prices as we speak. It is generally on a per-package, per-region basis. Some of that price increase has already been announced and implemented beginning of October, and some is being implemented as we speak. So no unusual movement year-over-year for prices in Brazil.

And Trevor, related to your second question what we’re doing is we’re not closing any breweries. What we’re doing is we’re reconfiguring some of the capacity footprint. For example, we just announced that we are taking one line out of Newark brewery and taking it to St. Louis, because given how the different regions have performed in the last few years that’s what makes sense. So that’s what we’re doing. We’ve been very active trying to reshuffle and right-size different breweries, because there are breweries that are oversold like the ones in Texas and some others that are undersold given share developments and industry developments in different states. Trevor Stirling – Sanford C. Bernstein: Great, thank you very much Brito and Felipe.

Your next question comes from Lauren Torres of HSBC Securities. Lauren Torres – HSBC Securities: Good morning, everyone. If you don’t mind I just wanted to go back to the US pricing environment again. I guess you’ve mentioned that you’re not happy obviously with market share losses but more importantly you need to get this pricing structure right. So I’m just curious as we think about your price points what you’ve done on the sub-premium side. Where are you with respect to getting it where you need to go? And with that said, I assume once you get that properly aligned and if competition follows the market share gains will come back. So can you just give us an update on how you’re flowing through that and how that’s impacting your results?

Sure, Lauren. Again our US pricing was done on October 3. It was done pretty much along the lines of the last price increase last year in that we are increasing more the sub-premium than the premium and above segments, and the idea as I said is to continue to decrease that gap or narrow that gap between the sub-premium and the premium brands. So we continue to be committed to that and as we do that, we create a healthy problem for us in that we need to find that volume that’s been squeezed out of the sub-premium categories in more profitable categories. But that’s the game we like about brand building and up-trading consumers, and doing things that are margin accretive. So that’s where we’re headed and that’s our decision. Lauren Torres – HSBC Securities: And if I could also ask a follow-up on the Budweiser brand: as we’ve seen the market share stabilize there’s some modest improvements from the lack of growth here. Where are you two with respect to getting where you need to be? I mean is this progress you’re making slower than you expected or you feel comfortable with how these improvements are coming through?

I think we’re on track. I mean last year we said that we were committed to stabilize the brand. We had enough in sight to come to the conclusion that consumers saw a lot of differentiated factors in the brand that we were not supporting rightly so we changed the mix, the marketing mix of all the brand as presented, as executed. And you should look at what happened this summer with what we call the “red, white and blue” summer and the new packaging presentations. I mean consumers responded really well. This shows us again that iconic brands like Budweiser, when you continue to bring support and new news consumers stick around and continue to be loyal to the brand. So I think we’re on track and we’re committed to stabilizing the brand. That, together with the Bud Light acceleration, is our two biggest priorities for the US market. Lauren Torres – HSBC Securities: Okay, thank you.

Your next question comes Nico Lambrechts of Bank of America Merrill Lynch. Nico Lambrechts – Bank of America Merrill Lynch: Hi, Brito and Felipe. I’ve got three questions; the first is just on tax. Is it fair to assume with Brazil likely to grow faster next year that your tax rate would again be lower than the 25% to 27% range? That’s the first question. The second question: at this stage of the year you probably have very good visibility on your input costs for 2012. Some of the brewers have already guided that input costs would be up next year. Can you give us any indication of what your input costs would look like for next year? And then lastly and probably the most important question for me is, now that you have reached your gearing target, or the 2.5 and [next set] two times, is it possible to give shareholders an indication of your preference of use of free cash flow in the absence of acquisitions? We know that one is obviously dividends, it’s buying back your own shares or it’s buying back on those shares. What is your preference with respect to using these three methods of returning cash? And then could you remind us of your criteria for M&A and at what stage in terms of gearing would you say “We need to accelerate the return of cash to shareholders?” I think that’s probably the most critical questions on investors’ minds at this moment. Thank you very much.

Okay. So Nico, let me start from the tax-related questions. We continue to see effective tax rate in the medium- to long-term to be between 25% to 27%. This year given the change in country mix and which profits are generated, and also some positive outcomes in some of the tax disputes we expect to be able to deliver an effective tax rate between 20% to 22%. So we are not yet in 2012. In terms of guidance overall, and that is impacting your second question as well, we intend to provide guidance as we announce full-year results for the coming year and it has been the policy, and we are going to stick to that. So I hope you appreciate the fact that we are not in a position to provide guidance at this stage given that policy. Nico Lambrechts – Bank of America Merrill Lynch: With respect to tax, I think it’s fairly clear that the Brazilian market should grow faster than the US market EBIDTA at this stage. Is it fair to assume-

We’re seeing now 25% to 27% leading to the long-term range, and yes, the more the weight of Brazil in that equation perhaps toward the lower end of that range we can be. But I would take that range as the long-term reference as we have in our outlook. So finally in terms of usage of cash. So we have been deleveraging faster than anticipated and as a result we have been reviewing dividend payouts especially as a way to return money back to shareholders. So we see that as movements that will take place in parallel, meaning deleveraging while reviewing total shareholders return in terms of dividend and eventually buybacks. So we are not in a position to buy back shares at the moment as deleveraging remains a priority, but we declared the €0.80 dividend this year. We are not in the range of dividend yields we expect to be as we compare to other consumer products peers but we are converging towards that direction, and that trend should continue. We announce dividends as we announce full-year results. There has been no change in our dividend policy. We have a floor in terms of minimal payout which is 25% - we do not have a cap – but we think to look more on dividend yields rather than dividend payouts. I think that is important to keep in mind as we will always be looking more in terms of dividend yields on average over time rather than the specific payout percentage wise. We said before and we want to emphasize that we believe in a consistent dividend flow, and dividends should be managed accordingly and not be a rollercoaster. So that is what we think about dividend policy. Next to dividends, and moreover as we approach 2013 – so this year we are going to be below the 2.5x, for next year we will reach our, as already stated, 2x or below 2x net debt EBIDTA in terms of leveraging, preserving a strong credit rating. So as we get into 2013 and as we get to 2x, basically as you said in the absence of an M&A transaction that would make sense there is a substantial cash to be returned to shareholders, and it’s fair to assume that dividends and buybacks… It has been the ways of returning cash to shareholders we normally use but I cannot speculate on InBev or ABI buyback preferences. Usually ABI has been focused more on ABI buybacks on InBev is more focused on InBev buybacks, and that’s basically it. Nico Lambrechts – Bank of America Merrill Lynch: That’s very clear. I was just not 100% clear in terms of the dividend trends in the near term. Did you say that the trend that we saw in the payout ratio, there could be a continuation in that trend in the shorter term? Did I understand that correctly?

Well, as a result of the transformational nature of the AB transaction we reduced dividend payments significantly for the first years, and gradually we have been reviewing that number upwards so that this year, in regards to last year results, the declared dividend was €0.80 which implies a dividend yield below what we’ve seen in terms of other peers, so comparable peers – let’s put it that way. So the €0.80 implies below 3% and we always see comparable peers around 4%, not north of 4% or this kind of level. So I cannot speculate if we are going to fully close that gap in the dividends to be declared in March next year but we are moving towards that direction. Nico Lambrechts – Bank of America Merrill Lynch: Felipe, thanks very much. That’s very clear.

Your next question comes from Mark Swartzberg with Stifel Nicolaus. Mark Swartzberg – Stifel Nicolaus: Good morning, Brito and Felipe. Brito, I was wondering if you can give us kind of an update on where you think we are in the history of the company, and the angle I’m coming from is Dream-People-Culture and particularly the subject of brand building, brand capabilities, innovation. It seems like in the US we’re seeing a step up in focus on innovation. Of course this year as a company your sales and marketing rate of growth has picked up. So can you just give us a sense of where you think you are in your capabilities generally as a company and then what kind of added emphasis you are indeed putting on that from a total company perspective and from a US perspective?

Okay, Mark. First again, as I just said, I mean the formula that we’ve grown and created value in our company has always been one of top line growth and cost management. So that’s the first thing. The second thing, you’re right – after the 2008 transformational combination with Anheuser-Busch we looked at our company after we integrated the company and said “Well, now we have a much bigger company, much more powerful brands; a much better group of people, so now we can dare even further in terms of exploring and thinking about new news and things that other people might not be able to afford.” So if you look at what happened in Brazil with our pipeline of innovation, that’s exactly what we’re doing in the US – filling the pipeline to have a consistent delivery of new news together with a very strong-based business for the next few years. It is fair to say that the pipeline in the US was more geared towards big innovations every three years-type thing, like Bud Light Lime. We think those are great, we’ll continue those – Platinum is the next one in that same line – but we also need more new news and mid-term of every-year type innovation like we have in other markets of ours. That’s what consumers want and that’s how we know to do it. So we have our pipeline in the US getting ready to deliver on those short-term and more long-term type innovations. So we’re very excited because again, with this new company of ours, we can sail different seas and come with different ideas, and dare more in terms of what we call the “explore” agenda as opposed to the more routine, doing better what we know-type day-to-day focus. So I don’t know if that answered your questions but that’s the direction. And the Dream-People-Culture as I said remains the guiding principle for our company. It’s all about this big dram, having the best people with a culture of ownership, and now with the new and large company daring to think even bigger in terms of new news to bring to the market. Mark Swartzberg – Stifel Nicolaus: That’s great. And this may be a guidance question so you might wave it off, but with that added emphasis how should we be thinking about sales and marketing spend at least in North America vis a vis top line growth? This year it’s growing faster – should we think of that as a new normal in terms of relationship there or is there some sort of recess happening here in ’11?

Yeah, that I’ll wave off because again, as Felipe says, we give normally the guidance, whatever guidance we give it’s normally together with the full-year results announcement which will be beginning of March next year. But we’re committed to the US, it’s our number one market. We’re in this business for the long term. If you look at our company and the way it’s structured, our incentives are much more skewed to the long-term and that’s how we think about our business. We think about the short-term for sure but even more about the long-term, and innovations play a key role in that long-term focus. Mark Swartzberg – Stifel Nicolaus: That’s great. And if I could on CAPEX, Felipe, I may have missed this so apologies. But the number in ’12, sales are up appreciably and understandably with China and Brazil, but can you talk a little bit about what you intend to do incrementally, plans for growth spend that drive that view of ’12?

I mean more the absolute number, the $3.1 billion rather than percentage of sales. And in there we have incremental capacities, especially in China given the prospects of our business in there. There are investments as this year in terms of innovation and so on and so forth, so there is incremental bottling capacity in Brazil and more investments in returnable bottles as well. We have more cost-related and innovation-related projects in the US as well, so that is more what to expect for CAPEX for next year. Mark Swartzberg – Stifel Nicolaus: Got it, great. Thank you.

Your next question comes from Anthony Bucalo of Santander. Anthony Bucalo – Santander : Good morning. The launch of Budweiser in Brazil, Brito, can you give us a little bit of color and a little bit of detail on how that launch is going and sort of what your medium- and long-term plans are for the brand, and how it’s affecting your profitability and how it fits in your portfolio; and sort of what your hopes and dreams are over the long term for that brand?

Good question, thanks for that, Anthony. Since we formed ABI we’ve always said that Budweiser as a global brand, as a flagship global brand would be the icing on the cake just because that we saw huge potential that was not being used or exploited. So today, as I said in my opening speech, global Budweiser grew 6.9% volume-wise in Q3 and 2.5% in the nine months year-to-date this year, so a very strong growth. Today, 60% of the volume of Budweiser comes from the US, 40% from all the other countries, and we are on that track of getting this brand to be a huge global brand. I mean we did almost a re-launch in the UK – it’s doing very well. We continue to grow that brand double-digit in China. We launched it in Russia last year and it’s now selling at a premium to [Tuborg] which is the leader in that segment and has a 1% of share total market. We launched now in Brazil two months ago which is our second-biggest market at a price in between core plus and premium. It’s the number one brand in Canada and it has been since many years, and in Brazil we’re very committed to grow that brand because again in Brazil there’s a huge opportunity in the Brazilian segment. It’s only 5% of the total industry – that’s very small compared to any other countries where we operate, and now with Stella Artois, the local premium brands of ours – Bohemia and [Verregional]. And now with Budweiser, and with the upcoming FIFA World Cup in 2014 we think everything is in place to get Budweiser to really grow and support our share in the high end, and also the expansion of the high end segment in Brazil. So we’re very excited, very committed, good results. Budweiser has great positioning that travels through different markets, and that’s the good news about a global brand. You want to have the same positioning, same execution because that’s the beauty of a global brand scale. Anthony Bucalo – Santander : Are you making money on the brand in Brazil at this time or do you think there’s an investment period here?

No, of course we’re investing because we’re receiving the brand now in Rio and Sao Paolo, the two main markets. We’re going to have a full national launch this quarter, Q4. We couldn’t do it before in Brazil because of capacity issues, and it’s going to be a profitable brand for them and for Brazil because it’s going to be selling at a price that’s a premium price. Anthony Bucalo – Santander : Thank you very much, Brito.

Your next question comes from Chris Pitcher with Redburn. Chris Pitcher – Redburn : Good afternoon, gentlemen. Quick question on China in the quarter. In China there was a big step up in admin costs in the quarter and obviously distribution expenses on a per unit basis continue to go up. I’m just trying to get a feel for where the investments are going into China beyond just building breweries and how much more of the good top line growth and gross profit growth you’re going to keep reinvesting through the balance of the year.

Okay. So in China, admin expenses grew by 50% or $20 million this quarter. Most of that, so $15 million out of the $20 million was because of newly introduced social taxes for foreign companies in China and it’s counted as admin because it has to do with labor. $2 million out of that $20 million has to do with expansion, so hiring people for new territories where we’re expanding and setting up offices and everything that goes with it; and $3 million out of the $20 million is for bonus accrual given that we’re having a very good years in China. In terms of distribution expenses we grew distribution expenses around 20%, that’s $9 million; $6 million of that $9 million has to do with the way our brand mix is growing. So we’re selling more Budweiser and Harbin in terms of the total mix, and because these brands are not produced everywhere in China they have to travel more. So that’s $6 million out of the $9 million, and the other $3million is really connected to general volume growth and inflation in terms of oil prices and all that. Chris Pitcher – Redburn : Some of your competition is netting that up against revenue but that will be an ongoing cost headwind for the next couple of quarters – is that right?

Well, if you look at our net revenues for China, it has grown by 11.7%, so our revenue per hectoliter growth in China has been very healthy. Yes, you’re right – our religion here is whenever there is a tax increase we try to pass it on to consumers in a sustainable fashion so that’s exactly what we’re trying to do there as well. Chris Pitcher – Redburn : Thank you. And then just finally, can I ask a follow-up in terms of Western Europe? I’ve been reading that you’ve been taking up your on-trade prices in the UK. Is next year a year for taking up pricing and potentially risking share losses? I just want to get a feel for how the pricing is running in Western Europe.

Yeah, in the UK we announced price increases that are going to be introduced in January. That’s what you have to do in the UK – you have to announce it two, three months ahead of the price increase. Price increases are going to take place on January 2nd. Again, the government in the UK has been taking lots of duty increases in the last few years given the beer duty escalator. There’s also cost increases – as we know, notably from raw materials and energy. So we felt it was time to, I mean we do it every year but we felt it was time to increase a little bit the price increase proposed, and the headline is what we have in the press in terms of the price increase, around 7%. Chris Pitcher – Redburn : That’s just for the on-trade, obviously, not for the off-trade?

On- or off-trade. Chris Pitcher – Redburn : On- and off-trade, okay.

Yeah, of course that’s an average. Chris Pitcher – Redburn : Pre- any deal backs or anything like that.

Exactly, that’s the gross one. Chris Pitcher – Redburn : Okay, thank you very much.

Your next question comes from James Edwards Jones of RBS. James Edwards Jones – RBS : Hello, Carlos and Felipe, just a quick one. I know there’s a lot of moving parts in this, but in the US what sort of top line growth do you need if you’re not going to see margins under pressure and potentially declining?

I mean again, this would be almost kind of a guidance – we’re not giving guidance at this point. But what we can say, James, is we’re looking for both. We’re looking for margin expansion, top line growth together with the ever-in-our-DNA-type thing – cost management. So that has been the formula. We’re very happy with the margin expansion we’ve had in the US. We’ve said we’re not very happy for sure with the share development in the last two years, especially with share being lost in the sub-premium segment. We want to recover that in the premium and above segments. That takes a bit longer because of course you’re losing share in a segment where you have a very high share and gaining that share back in segments where you have a lower share, especially the high-end. But that’s what we’re committed to do like we did in so many other markets – like we did in Russia, like we did in China. We like to sell brands that command premium. We don’t like to sell brands that are sub-premium, value brands, price brands. And in the US when we got here, we saw that 30% of our volume was based on value and price brands that were selling at a 30% discount to our mainstream brands. We said okay, we like the share position but we don’t like the share composition. So we said as a company we’re resolved to change that. There’ll be some pain in the short-term but because we’re in this business for the long term we can endure this pain as long as we grow the business in the right way. And margin expansion I think is confirming that. James Edwards Jones – RBS : Alright, I’m not looking for any guidance on this but it would really help in terms of understanding where revenue growth has to go before we start getting concerned about margin progression.

What we have been doing basically is keeping prices moving in line or slightly above inflation while benefiting in terms of net revenues per hectoliter increase also in terms of better mix. So in previous quarters we’ve seen positive mix impact adding 40 to 80 basis points of incremental net revenue per hectoliter which is relevant for a market the size of the US and that is totally driven by a better brand mix of our portfolio. Specifically in Q3, the 1.9% in our release that the brand impact was basically neutral; not as a result as a change in trends but especially because of the buying ahead of the price increase was more concentrated in the sub-premium brands given the magnitude of the expected price increase for this brand. I think the point here is, margins aside, and we continue to see efficiencies, opportunities in the US as Brito mentioned before, we are not going to announce three years after the combination a new synergy number as a result of the integration, but we do see cost efficiencies, opportunities in the US as a result of best practices sharing. That is going to be incorporated into our numbers and that is going to help drive margin expansion and EBIDTA growth over and above what is being achieved in top line growth. James Edwards Jones – RBS : Thank you.

Your final question comes from Ian Shackleton of Nomura. Ian Shackleton – Nomura : Yeah, good morning, good afternoon gentlemen. My question is around Central and Eastern Europe which doesn’t often get many questions asked, and we’re always asking you what are you going to buy next – but my question is really why are you still involved in this region? It doesn’t really look strategically very important. You’re number three in the Ukraine; you’re probably going to slip to number three in Russia after the FS/SEB deal and they’ve been always difficult marketplaces. How core is that region for you?

Hi Ian, it’s Brito here. When we had to do our disposal program in 2008 we decided to look at the region and we decided what countries matter, and we decided to dispose of the other countries. So the other countries have nice margins but very little scale, not a lot of brand overlap in the different brands that were in different languages, different route to markets, different regulatory framework – everything. So we sold all those countries that were smaller and we remained with Russia and Ukraine; Russia for the obvious regions, being top five in terms of size, Ukraine for the leadership and close ties with Russian market and the synergies we have by having those two markets together in the same zone. So we are committed to the zone. On the other hand it is true that the zone only represents less than 2% of our total EBIDTA as a company but it’s an important volume market. We have strong brands. Our Klinskoye brand is the number two brand in the country with a 6% share of total market. Budweiser is doing very well in the Ukraine – we’ve gained share this quarter, we gained share with the right brands in the Ukraine with Chernigivske being the number one brand in the whole country, the market-leading brand. So I mean it’s a nice business to have and we’re very committed to the business. So you’re right – there has been some bad news coming from that region in terms of tax increases in the last two years, in terms of more regulatory restrictions. We are talking to the governments via the industry association trying to bring some light to this discussion, but again we’re committed to the region. It is also true there has been some new competitive news in the last month with FS and SEB getting together and we will continue to fight to be the number two player in Russia with the right portfolio of brands and with the right profitability. And it’s important to say that we gained share in Russia by volume and value in this Q3 driven mainly by Klinskoye, as I said the number two brand in the country, and Budweiser selling at a price premium to [Tuborg] and having one share of total market after one year of being launched. So again, good news on the business front; not so good news in terms of regulatory but we are fighting via the industry association to talk to the government and to try and get on common grounds. Ian Shackleton – Nomura : And just to follow up there, I mean do you actually think that those markets are going to go back into growth in the next couple of years?

Well, that would be very hard for me to speculate on at this point, because again, we’re still trying to talk to the government in terms of where the corporate affairs agenda will be led. So I wouldn’t make any forecasts at this point but again, we’re committed to both Russia and Ukraine, for sure. Ian Shackleton – Nomura : Thanks very much indeed.

Thank you. Okay, so thank you very much for your questions, for your time; and have a great day and see you next quarter.

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