Anheuser-Busch InBev SA/NV (BUD) Q4 2011 Earnings Report, Transcript and Summary

Good morning and welcome to the Anheuser-Busch InBev Fourth Quarter 2011 Earnings Conference Call and Webcast. Hosting the call today from AB InBev is Mr. Carlos Brito, Chief Executive Officer. To access the slides accompanying today’s call, please visit AB InBev’s website now at www.ab-inbev.com and click on the “Investors” tab. Today’s webcast will be available for on-demand playback later today. At this time, all participants have been placed in a listen-only mode and the floor will be opened for your questions following the presentation. (Operator Instructions). Some of the information provided during the conference call may contain statements of future expectations and other forward-looking statements. These expectations are based on the management’s current views and assumption and involves 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 forward-looking statements. For a discussion of some of the risk and important factors that could affect the firm’s future results, see “Risk Factors” in the company’s latest Annual Report on Form 20-F, filed with the Securities and Exchange Commission on the 12th of April, 2011. AB InBev assumes no obligation to update or revise any forward-looking information provided during the conference call. It should not be liable for any action taken in reliance upon such information. It is now my pleasure to turn the floor over to Mr. Graham Staley, Global Vice President of Investor Relations. Sir, you may begin.

Thank you, Maria. Good morning and good afternoon everyone, and thank you for joining our fourth quarter 2011 conference call and webcast. I’m joined here today by our CEO, Carlos Brito; and our CFO, Felipe Dutra. In a few moments they will be making their comments on the results published this morning as well as providing an outlook on 2012. This will then be followed by a Q&A session. During that session, I would ask that you limit yourself to one question please and one follow-up question. This will allow us to accommodate as many people as possible during the call. Also in the interest of time, I would ask that you direct your technical accounting and reporting questions to the IR team after the call. So thanks in advance for your cooperation on this front. With that, I will now hand over to Brito to start the ball rolling. Brito.

Well, thank you, Graham. Good afternoon, everyone. Today, Anheuser-Busch InBev reported another year of solid performance. As you know, we are committed to driving top-line performance by investing behind our focus brands and premiumizing our portfolio. This strategy continues to be successfully implemented in a consistent and disciplined manner in all of our key markets. Volumes of our focus brands grew by 0.8% with our three global brands growing by 3.3%. Revenue grew by 4.6% with net revenue per hectoliter growth of 5.8% on a constant geographic basis. EBITDA grew by 10.7% in normal terms and 7.7% organically. EBITDA margin expanded by a 130 basis points to 39.3% organically. Our earnings per share grew by 27.4% to $4.04 on a normalized basis. Cash flow from operating activities grew by 26% to almost $12.5 billion, allowing us to reduce the net debt-to-EBITDA ratio to 2.26 times by the end of last year. And finally, the Board is proposing to shareholders an increase in the dividend of 50% to EUR1.20 per share. As you can see, profitability remains very healthy. In fact, the fourth quarter 2011 was the 13th consecutive quarter of EBITDA margin expansion year-over-year since our combination with AB, with our global EBITDA margin in the fourth quarter almost went 1,000 basis points ahead of the same period in 2008. This results have been delivered against the background of a balanced exposure to both developed and developing markets, with developing markets representing about 60% of our volume, while EBITDA generation is split approximately half and half. Our three global brands, Budweiser, Stella Artois, and Beck’s performed well, growing collectively by 3.3% last year. Global Budweiser delivered growth of 3.1% on top of the 1.7% delivered in 2010. The Stella Artois grew by almost 6% with double-digit growth in key markets,…

Thank you, Brito, and hello, everyone. Our normalized earnings per share for the full year grew by 27.4% to $4.04 from $3.17 in 2010. This was largely due to a 9.7% increase in EBIT. Our net interest expense included within net finance costs continues to decline year-over-year, as we reduce our net debt level and manage our average coupon downwards. We expect the average coupon on net debt in 2012 to be in the range of 5% to 5.5%. Other financial results also included with the net finance costs showed a favorable variance of $287 million in the fourth quarter when compared to last year. This is mainly due to gains from derivative contracts related to our share-based payment progress, while in the fourth quarter of 2010, these contracts generated a loss. Our normalized effective tax rate for the year, excluding the effect of nonrecurring items dropped to 20.7% versus 24.8% last year. This decrease is due to a profit mix shift to countries with lower marginal tax rates, incremental income, tax benefits in Brazil and favorable outcomes on certain tax claims. We expect the normalized effective tax rate for 2012 to be in the range of 21% to 23% with long run guidance remaining at 25% to 27%. Cash flow in 2011 was very strong with an increasing cash flow from operating activities of 26%, resulting from a higher profit generation and strong contribution from the working capital. Cash flow from operating activities as a percentage of net sales has been growing consistently since our recombination with the Anheuser-Busch and reached 32% in 2011. As I said, our core working capital performance has been particularly strong in the last three years, generating more than $3 billion during that same period. This has led the core working capital as a…

Thank you. The floor is now opened for questions. In the interest of time, we will limit participants to one question and one follow-up. (Operator Instructions). Our first question comes from the line of Andrea Pistacchi of Citi. Please go ahead. Andrea Pistacchi – Citi: Yes, hi, and hello, everybody. I had a question please on the US. Could you talk about the pricing environment there with particular reference to the premium segment versus import and high end? You’ve obviously taken price (inaudible) have followed that that clearly hasn’t been much yet at least on the – from the imported – import companies. So how would you see this planning out over the next few months or year?

Hi, Andrea. So we took a price increase in the fall of last year of around 3%. This price increase is different by segment within the market. You know that we have – I stated three years ago that we would like to narrow the distance, the price gap between the sub premium and the premium brands and that’s what we’ve been doing, it’s a multiyear type proposition. And so I would say that’s has been our intention since 2008, to recover the price levels and to be very consistent with our pricing. Andrea Pistacchi – Citi: And if I could just press you slightly on that, but – so the gap has been narrowing versus the top end. Do you sense in the – sort of in the markets that anything could be changing from that point of view how you see Crown, what they are doing, how would you – how important is it for them to move for you to be able to continue pricing on your premium brands?

Well, every time we come with our price increase, of course we look at what’s happening in the marketplace. And as I said, I mean the 3% price that we implement in the market was more in the sub premium average on the premium, and much less on the high end, because of the conditions we found in the marketplace. So I think that’s in an indirect way to answer your question. Thank you.

You’re welcome. Your next question comes from the line of Lauren Torres of HSBC. Please go ahead. Lauren Torres – HSBC: Good morning. My question is a bit more long-term when you think about building out your business globally. Recently we heard more talk about potential acquisitions, whether it’d be in China or Europe, and as your goal for net debt to EBITDA is getting to where you are comfortable, I was just curious – and once again in a more general sense about your appetite for deals where they may be gaps that you’d look to fill and how do you see things kind of developing over the next few years for you?

Okay Lauren. I mean I would say a couple of things. First, I have to say, as I said before that, as a company we feel very hefty with our footprint that we have today. I mean with the exposure – balanced exposure between developed and developing markets in terms of volume and EBITDA generation. So we don’t feel pressured to do anything. We have a great footprint. Second thing is that focus of 99% plus of our people is really on growing within this footprint of organic business and that’s what we’re doing day-in and day-out, and there are tons of things to do in terms of plans for 2012, and the years to come. So – on the other hand that is true that we will always – there is a fiduciary obligation look for opportunities when and if they arise. And I also said some calls ago that China would be a market that we’ll continue to look since it’s a market in consolidation phase. And if you look at our press release, you see that we confirmed some M&A activity in China and Greenfields in China. So that’s how we are thinking processes right now. Lauren Torres – HSBC: And as a follow-up, as we think about CapEx spend I guess, you have talked about China and Brazil being where that is being directed, is that still the case, and how do we think about the split of where you are spending and how you are spending for this year?

Well, in terms of our CapEx, I mean our expectation for this year, 2012, is to be around $3.2 billion, and that’s not only about capacity expansion, but also commercial CapEx. So innovations that we’re bringing to market, be it new borrows, new draft systems and things like that. So that’s our expectation for – pretty much in line with the last year for this year 2012 around $3.2 billion, and that’s capacity and commercial as well.

Our next question comes from the line of Jon Fell of Deutsche Bank. Please go ahead. Jon Fell – Deutsche Bank: Hi there. I was wondering if you could talk a little bit more about why and how you have managed to have managed the coupon on net debt to 5%, 5.5% for this year. It looks like you have switched a fair amount of debt out of Real into Euros effectively, so that you have now got quite a different split of debts versus earnings for the whole Group, is that something that’s going to continue?

Hi, this is Felipe here. In fact, our constant borrowing is gradually declining as we have been upgraded by rating agencies and as we get better metrics and so on and so forth, that helps. The rate finance is executed during the course of 2011 all towards that goal. In terms of currency break down, there is more detail in our full financial reporting, but the Brazilian Reais that is about 10% of the total or so and our Euro denominated debt is about 30%. So we are more heavily exposed to Euro at this stage. And we feel this to be the appropriate currency break down for the growth at this moment. Jon Fell – Deutsche Bank: But can we expect the relative difference in earning exposure and debt exposure to continue?

Well, the currency break down we have right now is the one as described, so we will be monitoring the markets and we will address as appropriate. We leverage on the cross correlation of the exposures we have with the currencies, commodities, et cetera. We take into account the different currencies, we generate our cash. And based on today’s markets conditions, this is the optimal level from our perspective. If correlation changes over time, we will have to act accordingly, but for now, this is adequate. Jon Fell – Deutsche Bank: Thank you very much.

We have taken that into account in our 5% to 5.5% guidance for this year. Jon Fell – Deutsche Bank: Sure. Okay, great. Thank you.

Our next question comes from the line of Trevor of Sanford Bernstein. Please go ahead. Trevor – Sanford Bernstein: Hello. Two questions; one question and a follow-up. The first question is probably for Felipe. Felipe, I know that the depreciation and amortization fell significantly in beer in Brazil despite the new capacity and other operating income was up. Could you give us a bit more color on that?

I – there are more details on that. There was a change in the depreciation that took place in the fourth quarter of 2010. You are going to find more explanations on that if I’m no mistaking on Note 13 of the financial reporting page 42 or so. So we can follow-up on that later on if you have any further questions. But that is what is causing the swing in beer. Trevor – Sanford Bernstein: The big swing. And then the follow-up question maybe for Brito. As you look at Bud Light Platinum in Brazil, I appreciate it’s early days, what are the indications of other sources of that volume. What’s cannibalization, what’s coming from other beer brands and other indications that you’re actually getting volume from outside the beer category?

Well, Trevor, it’s – again it’s early days, so it’s very hard to talk about sources of volume or cannibalization, we need more data points. But the design of the product was conceived not only to source from within beer, but also given the occasions to which it’s targeted to source all (inaudible) of beer. So that was the – by decision what the product was supposed to do. But again, it’s very early days. And we are excited and it’s – when you look at the early weeks it’s behaving better than Bud Light Lime with the caveat that Bud Light Lime was launched right before the summer, so it had the advantage of the summer ramp up, while Platinum has been launched during the winter. Of course, in mild winter, but still winter. So they are encouraged by the early signs, but it’s early days to talk about source of volume or cannibalization. Trevor – Sanford Bernstein: Okay. Thank you very much, Brito.

Thank you.

Our next question comes from the line of Chris Pitcher of Redburn. Please go ahead. Chris Pitcher – Redburn: Good afternoon. Thanks. Just a question on the development of your Asian business and quite some dramatic movements between the administrative expenses and other income, and we started to see some margin growth or improvement comes through. Are we going to start to see better operating leverage in duration of the business or specifically in China 2012 and beyond, or are we still going to see ongoing big step-ups in these cost items?

Well, Chris, I wouldn’t give any guidance on that, but I would comment that we are expanding regions, we are doing Greenfields, we are hiring people to cover this new area, so we are in the expansion phase in China. Well, what helps us big time in China is that, there is a trend from consumers in terms of up-trading and that helps us big time, because 70% of our portfolio is in that core and above especially with Budweiser being the number one premium brand in the – number one premium brand in China, that’s been helping a lot. And that’s why when you look at our – if I’m not mistaken, 9.9 net revenues per hectoliter last year that was helped not only by price increase, straight price increase but also by mix enhancement. So we feel like we are in the sweet spot in terms of portfolio in China, and consumers are coming our way, and that’s why we are so committed to expand our business, hire more people and expand geographies, because we see that our two national brands, Budweiser and Harbin, are really in the sweet spot of where the market is going to. Chris Pitcher – Redburn: Excellent. And then one quick follow-up. In Brazil, you are saying – or InBev is saying, revenue per hectoliter is broadly in line with inflation. Is this the way to think about it, as you got the trading up from the push into premium, but the minimum wage is obviously driving volume growth at the low end of the pool? So are we seeing faster growth at the top end and at the bottom end, sort of netting each other out, so you don’t get positive mix this year? Just want to get – am I right?

No, what we said – what we said in terms of guidance for Brazil in terms of revenue per hectoliter is that, we expect this year, 2012, that beer revenue per hectoliter growth to be in line with inflation. Although, we said in the first quarter of 2012, will be below this average, on a quarter-over-quarter basis due to some difficult comps last year. And so, therefore, the first quarter in terms of net revenues per hectoliter will not be indicative of the expected performance for the full year. So that’s the observation we have. Chris Pitcher – Redburn: Yes. Did you put through an inflation price increase in the fourth quarter and you saw nearly 10% revenue per hectoliter growth in Brazil is obviously some good mix coming through the business.

Sure. No, no, you’re right. Out of the 9.7 that we put through in the fourth quarter in Brazil, let’s say 75% of that came from a price increase, which was slightly above inflation for the year and 25% came from direct distribution – an increase in direct distribution and also premium mix increase in our portfolio. You’re right. Chris Pitcher – Redburn: And so you would – still expect some mix positive benefit through 2012 even with more sort of minimum wage earners are going out and buying them?

Yes, possibly. Yes. Chris Pitcher – Redburn: Okay, thank you. Cheers!

Thank you.

Our next question comes from the line of Mark Swartzberg of Stifel Nicolaus. Please go ahead. Mark Swartzberg – Stifel Nicolaus: Thanks. Good morning, Brito, Felipe. Question on Brazil, and I was wondering if you could just step back for us and talk a little bit about the consumer dynamic in general and how you think these rate cuts are affecting the operating environment, and might be affecting the operating environment in 2012.

Well, we remain – Mark, hi Mark. We remain very optimistic about consumer dynamics in Brazil, and then when you think about the minimum wage increase of 7% in real terms, so 7% above inflation, 14% in nominal terms, the very low employment – record low in employment and the move that’s very important for us of the Class C going to Class B and so on, that’s our core consumer base. I mean when you put all this together, I think it’s a very optimistic scenario for us. So we remain very confident in the short term and midterm for the beer industry in Brazil. Mark Swartzberg – Stifel Nicolaus: And if I could ask two quick follow-ups, one for your Brito and then for you Felipe on this cost of sales benefits from this FX transactional hedge. But on the top-line, the guide you’re giving us for the first quarter being either rate net sales per hectoliter being below the full-year number, I’m not being comparison – I think we get the comparisons. I’m wondering if there is another element of promotional activity here. And what I mean by that is, when you get a plus one volume number in the fourth quarter, I realize weather is a factor, but it seems like there is kind of a business incentive to get a little more promotional to deal with the volumes being a little softer than you might like. Is that – well that – is that a fair assumption and is that a good way to think about how you’ll be behaving in the marketplace?

I guess the best way for you to think about the business is that, to take a view for the full year as opposed to a quarterly view in Brazil. In that, for net revenue per hectoliter, we’re going to be in line with inflation, we’re just calling attention to the first quarter, because of some tough comps, because of 2010 first quarter, that’s not a good indicative for what net revenues will be for the year. But you’re right. I mean the 2012 – in 2012, there will be a better balance between volume and pricing as compared to 2011. In 2011, we said it was going to be a year of much more revenue management than volume, this year in 2012, we’re saying it’s going to be more balanced between both of them. Mark Swartzberg – Stifel Nicolaus: Got it, great. And then, finally, I just want to see if I’m thinking about this right. The – you have an FX – you hedged well, right? And InBev calls out in their press release the two exchange – the hedged rate versus the effective rate for ’11. Am I right in thinking that if rates stay where they are in terms of the Real versus the Dollar that that’s kind of a 3.5 percentage point cost of sales benefit that you get this year that you don’t get next year?

Let’s see for next year, but yes, for this year it’s essentially hedged. We do not provide that kind of break out for operation. But in fact when we say when our cost of sales are ahead of consolidated level at the same geographical mix should grow by mid single digits that is taken to account. So in fact, we this year, we are benefiting from our more favorable year-over-year FX rate, Brazilian Reais versus the US Dollars that is helping to offset part of the commodity impact. For 2013, we still we don’t have a guidance at this stage, but it will depend, there are so many variables in terms of the FX rates, as well as commodities. That is what we will be managing throughout 2012. Thank you for your question.

(Operator Instructions). Our next question comes from the line of Brett Cooper of Consumer Edge Research. Please go ahead. Brett Cooper – Consumer Edge Research: Good morning, guys. Your innovation pipeline in the US is quite full and I guess there is – I guess two questions, but – I’ll use one and then a follow-up. But can you continue to improve Budweiser performance given what is probably the cannibalization from all the innovation that you have out there? Is that how we should measure or how you’re measuring it in ’12?

Say again, I mean what’s the question again on Budweiser? Brett Cooper – Consumer Edge Research: Can you improve Budweiser given what are probably likely cannibalization rates from all the innovation that you have out there?

Okay. Well, first again, the cannibalization from Bud Light Platinum is too early to say, so I wouldn’t comment on that, because we need more data points. On the other hand, we have very strong programs for Budweiser this year as well. But, of course, when you have 48% market share, cannibalization is something you need to watch out. But again in the pipeline, we have similarizations (ph) for Budweiser as well that we will be kicking in a couple of months of the year. Brett Cooper – Consumer Edge Research: And then a follow-up to that is, so is your innovation is more successful than you expected, how do you think about the incremental dollars that are derived from that innovation or the upside of that upside in terms of reinvesting the business or dropping to the bottom-line?

Well, it’s a mix of all these. I mean, we’re each year for the last three, we’ve been investing more behind our brands, that’s part of our strategy to continued support, especially our four focus brands, Bud, Bud Light, Ultra and Stella Artois in the US. So these brands are performing well. I mean, especially Ultra and Budweiser, Bud Light. But I mean the other thing is to improve the quality of the investment. I mean the more insights we have about consumers about occasions, about media efficiency, we’ve been shifting some dollars around to get more – the biggest thing for the buck. So I mean we’re committed to continue to invest behind our brands in the US, so we can continue to charge the prices that we think our brands can support and consumers can feel good about paying those prices. Thank you.

Our next question comes from the line of Anthony Bucalo of Santander. Please go ahead. Anthony Bucalo – Santander: Hi Brito. This was a follow-up to Andrea’s question about pricing in the US, and this is more of a pricing architecture question. You’ve brought up the posting on your sub premium substantially since ’08, where are those brand index now in sort of a retail case basis against Bud Light, and how does that compare to where there were in ’08, and if you’re looking maybe to get some market share down the line, would you have room to flex that maybe move the index downward a little bit to gain some market share, or are you content going forward with the index where it is?

Hi Tony. No, I mean in 2008, we could say that the gap between sub premium and premium was around – let’s say between 27% and 30%, okay? And now it’s more around 23%. So we have made some strides in narrowing that gap. And we’ve said at time and again that we think at least 15%, 20% is something that we should have as a target. In terms of gaining market share, we’ll never go from market share based on pricing, I mean that’s not the way we build our company. We like to create problems so we can solve them by narrowing the gap from sub premium to premium, we’ve created a healthy problem for people in that we have to think about premium and above brands, and that’s what we’re doing with Bud, Bud Light, Ultra, Stella and some high-end premium brands of ours like Shock Top, Leffe, Hoegaarden and so. Those are the brands that we’d like to sell. I’m going to neglect the fact that there is a sub premium segment, but for us to gain share, we’re much more focused on the premium and above segments. Anthony Bucalo – Santander: Okay, so there is still a little bit of room here to bring up the index between the sub premiums and the premiums, then?

Yes. Anthony Bucalo – Santander: Okay, so we will probably see a little bit more aggressive pricing on some premiums next year?

We’ll see. When the time comes, we’ll look at the market and make a decision. But that’s the general direction, yes. Anthony Bucalo – Santander: Okay, great. Thank you so much.

Thanks Tony.

Our next question comes from the line of Kris Kippers of Petercam. Please go ahead. Kris Kippers – Petercam: Yes, good afternoon. Thank you for taking my questions. Firstly, I’ve got a question on Brazil. Have you already noticed anything of increased competition, mainly for example in the high-end segments, now with Heineken of course clearly acting forward? And just as a follow-up, we haven’t heard anything recently on Modelo. Could you shed some light on that?

Hi Chris. In terms of the Brazil and the competitive environment, we’ve always said that we will rather compete with a multinational public company that’s interested in investing behind brands, trading up consumers and getting therefore the whole category to be more profitability than to invest with the local non-public company – private company. So – and that remains true. So I mean we appreciate the fact that we now have new competition in Brazil and that’s welcome, because again this company that enter Brazil apparently – if you look at what they have done in other markets, we are committed, they are committed to investing behind premiumization behind improving brands, and that’s good for the whole market. So it levels the playing field, and that’s the kind of game we’d like to play, build brands and charge a premium for it. Kris Kippers – Petercam: So you would prefer them to do an acquisition on Petropolis for example than any other player?

Well, I don’t want to speculate on that, but again it’s good to compete with people that are trying to trade our consumers as opposed to commoditize the business. Kris Kippers – Petercam: Perfect.

And on Modelo.

On Modelo, there is not much rather than saying that their full-year results and fourth quarter results are public, results were very strong. We have placed above the investment and we have been working with management at the Board level in order to know each other better and to build the relationship from that. Kris Kippers – Petercam: Okay, thank you.

You’re welcome.

Our next question comes from the line of Edward Mundy of Nomura. Please go ahead. Edward Mundy – Nomura: Good morning, gentlemen, thanks for taking my question. One for Felipe. With respect to the $134 million tax incentives included within other operating income, should we expect this to reverse in 2012 or are there further tax incentives to look forward to given you CapEx and Greenfield plans in both markets of Brazil and China?

Well, tax incentives are basically long-term incentives, and we will continue throughout years ahead, and would be a fraction of future investments as we are planning, so I do not expect volatility in there, and should grow as long as we keep on investing. And incentives are usually over five years, eight years, and things like that. Edward Mundy – Nomura: So the $134 million will (ph) reverse in 2012?

That is not our expectation. So the tax incentive is a – we’re talking about the grants and you know long-term grants for a long period of time. So that flow should continue. Edward Mundy – Nomura: Right. And just as a follow-up. On the assumption that your geographical mix remains broadly unchanged, should we expect your tax guidance of 21% to 23% in 2012 to also be applicable, be on 2012?

That we don’t know yet. We came with the current one out to date. The long-term remains the 25%, 27%. We are more optimistic for 2012. And as we progress throughout ’12, as we get more colors beyond, so we’ll be in a position to update that guidance. But for now that is the most appropriate one. Edward Mundy – Nomura: Okay thank you.

Thank you for your question.

Our next question comes from the line of Melissa Earlam of UBS. Please go ahead. Melissa Earlam – UBS: Hello. I have a question on the cash flow for Felipe. You mentioned that you had three years of very impressive working capital efficiencies and we had $1.4 billion of cash benefit in 2011. Is this step change over or should we still expect this to be a focus and to benefit your cash flow over the next coming years?

Hi Melissa, it’s Felipe. Well, basically what happened since the combination with AB and given the higher leverage level and et cetera, I think that was a very compelling sentence for the whole organization to get more cash out of our businesses, we benchmarked against other companies, we saw a very big opportunities in terms of improving working capital management so on and so forth including that, as part of the overall target compensation as we normally do, and then (inaudible). The minus 7% of net sales has a negative core working capital we reached last year, we have been progressing. We have zones within our own business doing far better than that and we still see opportunities in that going forward, and that became part of our best practices, became part of our DNA, and we will continue to extract more them that at least is our expectations. Melissa Earlam – UBS: Thank you.

You’re welcome.

Our next question comes from the line of Pablo Zuanic of Liberum Capital. Please go ahead. Pablo Zuanic – Liberum Capital: Good morning, everyone. I guess, Brito, my question is for you, but I don’t – I realize that you don’t directly manage the North American business against other people doing that. But are you happy with EBITDA margin performance there? And I’m asking there in the context of – here we are 12 years after the Brahma and Antarctica, margins in Brazil this year were up for Latin America north 290 bps on top of 200 bps a year before. And in the North American business, we don’t have 50 bps margin expansion for the year. And, clearly through a year, this has decelerated down (inaudible) in the fourth quarter. So just let help me think through over the next few years one would think that the EBITDA margin opportunity in the US should be much bigger and the EBITDA margin expansion as a result should be higher than in Latin America or that is still out of equation, because you have to work on all these levers regarding innovation, improving marketing, improving execution to drive top line, but at the end of the day, we would end up with little margin expansion and perhaps 1% and 2% EBITDA growth only. Can you help me understand that?

Hi Pablo. I mean, margin expansion is one of the hallmarks of our company, and we’re very proud of the fact that we have a team in place that believes in that and understands that the way to do business, both looking at top line and developing the top line invest behind our brands and operating a very efficient shop, a very efficient company. So you have to remember that margins in the US and North American business or let’s say US more specifically came from less than 30% EBITDA margin just in 2008 to more than 40% just three years later. So I think the development is remarkable. But we’ll continue to see opportunities and that’s why we continue to invest and be more efficient. Anyway we continue to invest behind our brands, because we see opportunities to continue to expand that margin, we’ve always said that. So that hasn’t changed. Pablo Zuanic – Liberum Capital: Okay. If I can just a quick follow-up. Can you just give us some examples of this improvements that you talk about in the press release about point-of-sale execution or realignment or working with distributors, can I say that if you were to go liquor stores in the US and 30%, 50% gets allocated to craft beer, which you only have 6%, 7% share. I mean obviously your people are executing better on the ground, we should expect the shift in control (ph) space. But just give us an example of how things have improved (inaudible) and why you are really doing better in control execution on the point-of-sale? Thanks.

Well, that’s a very good question. I need more than just a couple of minutes to answer. But I will give you one example. One of the things that we’ve been very in our category management department, very busy talking to our customers is what we call the balance portfolio approach. I mean we have enough data, public data to show that the retailers that went too far in the sense of having more than 500 beer brands or 1000 beer brands in their store lost share of business compared to others that understood that graft was growing, but also understood that the bread and butter was coming really from the more established brands, the more national brands. Those retailers won versus the one that squeezes space from the more established national brands to give space to more local brands. So what we call the balance portfolio approach something now that we’re sharing with a lot of the retailers and there is a lot of a specialty press beer, the specialized press are writing about this, because the numbers are striking. I mean the guys who went crazy about number of brands and expanded the portfolio too quickly and mismanaged their cold box lost share of business and attract the kind of consumer that goes – that do fewer trips and per trip buy less beer and loss that consumer to other people that are more focused and understood that common sense had to prevail at the end in terms of space to sales. So that’s one thing. Alignment with wholesalers, I mean in the first two years, I think we’re busy integrating the company, now we are one company, we have delivered the synergies, and now it’s time to look at the commercial agenda and tell our wholesalers what we believe in. And we believe that having their share of mind in our portfolio is something very important, will define what anchor wholesalers is all about, and people that want to grow within our system in the US will have to be anchor wholesalers, otherwise they won’t grow. And anchor wholesalers is about having the financial capability, about having the people to track record and having alignment with ABI. So that is just some of – couple of things given your question in terms of what to expect in the market in terms of better alignment and execution. Pablo Zuanic – Liberum Capital: Thank you.

You’re welcome.

Our next question comes from the line of Gerard Rijk of ING. Please go ahead. Gerard Rijk – ING: Yes, good morning. On the tax incentives in Brazil and China, you said that’s a (inaudible) program for a five to eight year. Is that the payment which we recon must be only in the fourth quarter or is that every quarter we must now at $134 million. And so the question is about Russia, about your strategy. Can we expect that you will continue with your current sales and marketing investments in that country?

The fiscal incentives as they are granted they are connected to many elements, but primarily volume, sales, incremental volumes, incremental sales, and depends on the price mix and price points, and so on and so forth. And there should be some seasonality across quarters, but it’s very hard to forecast that. But as we grow investments and grow volumes, we should be growing for the couple of years, all these centers of benefits linked to that as well.

And in terms of Russia, Gerard, I mean we are committed to that country. We recognize it has been a couple of very tough years, the environment is very tough for the industry, given the tax – the excise tax increase two years ago to 100%, restrictions being implemented this year and next year. But we’re committed to the country. We are going to continue invest behind our premium and above brands, because that’s where the future is in our view and the margins, and that’s what we will continue to do. Budweiser is doing very well in that market, it’s already a 1% share brand in that market. Stella Artois, Hoegaarden is also developing well and Siberian Crown the local premium brand of ours is also developing very well. So those are the brands that will continue to push together with Klinskoye, that’s more of a mainstream brand, and continue to look at the efficiencies. I mean the industry has declined for some years, so we have continued to look at ways to right size our business, given the new environment, given the near profit pool that has decreased in the last four years. Gerard Rijk – ING: Okay, thanks very much.

Thanks.

Our next question comes from the line of Dirk Van Vlaanderen of Jefferies. Please go ahead. Dirk Van Vlaanderen – Jefferies: Hi, gentlemen, thank you for taking my question. Just a question on the innovation rate of 6%, I was wondering if you can maybe situate how that has changed over recent years and also is there perhaps an innovation target that you’re aiming for or is it just a function of the innovations in the pipeline. I mean I would expect presumably that would raise, that number would come up, I would assume in 2012. But any sort of thoughts around that would be great. Thank you.

Well, I don’t have a specific number going forward though on what’s the target number we’re aiming at. But what I think it’s important is that, innovation it has be part of the business, consumers expect today that companies bring new offerings given new requirements that popup, and then that’s what we’re committed to do. If you look at our business in Brazil and China, for example, where the innovation pipeline has been filled already for a couple of years and the rollout of those innovations and the results of the business, that’s very good, and that’s what we’re doing now in the US. So in the – and when we give guidance in terms of sales and marketing expenses, mid-to-single digits, that’s already taken into account that our commitment to innovation has been brought to the marketplace and new insights being generated. So that’s already in the guidance. Dirk Van Vlaanderen – Jefferies: Okay, great. Just as – this is a follow-up, so presumably that 6% is higher than it has been a year before and then secondly what sort of – how many years of visibility do you have on your innovation pipeline currently for example just to get a feel for how far ahead you’re thinking?

Well, it depends. I mean normally when you talk about more specific projects, we talk about three years. But when you talk about development platforms, you talk more about five years or so. So it depends on platforms and umbrellas and specific projects are the components of that umbrella. So we have platforms that are more five-year type, then we have projects that we have more in the three-year plan scenario. Dirk Van Vlaanderen – Jefferies: Great, thanks very much.

Our final question comes from the line of Caroline Levy of CLSA. Please go ahead. Caroline Levy – CLSA: Good morning, everybody. It’s about margins and the massive margin expansion that came through in various segments, specifically if you look at Western European for example and also in Latin America North. Can you just help us understand what the drivers were, how much was pricing, how was mix and how much was specific cost cuts in terms of understanding how sustainable those increases are?

It’s a mix of these, Caroline. I mean, it’s hard for us to be more precise in that. But you’re right, I mean in Brazil, if you look at Brazil and the innovation especially on packaging have been a great help for us in terms of margin (inaudible) and be it liquid or package. And in China the same thing. I mean if you look at the mix improvement that we’re adding in China with Budweiser and Harbin growing ahead of the average of other brands, that has caused a lot of net revenues per hectoliter growth, and that’s there to stay in our view. The mix enhancement also because consumers are trading up in China. So again we are in the sweet spot the way consumers are going and we have the brands that they want. So – and in the US, now we are beginning to rollout a richer pipeline of innovations that will also be accretive we believe that’s the plan. Caroline Levy – CLSA: The margin accretion is driven by mix shift within the country, but again – I mean these were just giant numbers, almost a 1000 basis points in a big, big market.

No. But I mean a 1000 basis points were also because of the synergies of the AB transaction. So I mean you put on top of everything I said, the two points between $5 billion of synergies that we add into our business after the transaction in 2008. So that’s all part of the margin enhancements. So it’s a little bit of everything you said. Caroline Levy – CLSA: Yes, I was actually looking at Latin America North in the fourth quarter was just huge, and I don’t know if it was the new plant or was there anything specific in it?

Well, Latin American North what you have is the – you had top-line – net revenue per hectoliter in the fourth quarter growing at 9.7%, we said 75% of that was price increase, 25% was the growth of direct distribution and the impact it has on top-line and the premiumization of our mix. On top of that, you have to remember the Latin America North has a very lean operation and continues to be leaner every year, because there as technology evolves the scale of business goes up and the learning curve of us operating the business is always showing us how to be more efficient every time. And the timing of sales and marketing also in Brazil in the fourth quarter played a role a little bit. So you have to look at margin expansion on a yearly basis not on a quarterly basis. Caroline Levy – CLSA: Thank you so much.

Welcome. All right, so, well thank you very much for your time. And we will see you next quarter. All the best, have a great day, bye.

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