Welcome to the Anheuser-Busch InBev Second Quarter 2016 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. [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 assumptions and involve known and unknown risks and uncertainties. It is possible that the Company's actual results and financial condition may differ, possibly materially, from the anticipated results and financial condition indicated in these forward-looking statements. For a discussion of some of the risks and important factors that could affect the Firm's future results, see Risk Factors in the company's latest annual report on Form 20-F filed with the Securities and Exchange Commission on March 14, 2016. AB InBev assumes no obligation to update or revise any forward-looking information provided during the conference call and shall not be liable for any action taken in reliance upon such information. It is now my pleasure to turn the floor over to Mr. Carlos Brito. Sir, you may begin.

Thank you, Jackie and good morning, good afternoon, everyone and welcome to our 2016 second quarter results conference call. I'm here with Graham Staley, as Felipe is not available today. The purpose of today's call is to talk about those second quarter results, but given the events of the past few days, I'll start by giving you a brief update on the status of the SABMiller transaction. As I'm sure you can appreciate, it would not be appropriate for me to take any questions on this topic. This week, we announced revised and final terms of our offer to SABMiller shareholders. These new terms entitle each SABMiller shareholder to receive £45 per share, an increase of £1 over our offer in November. Additionally, we respect the Partial Share Alternative which is available to all shareholders. Each SABMiller shareholder that elects to receive that partial share alternative will receive a cash element of £4.6588. The amount of restricted shares remains the same as our offer in November. This offer is final and cannot be increased or otherwise changed. We believe that the revised and final offer represents a compelling opportunity for all SABMiller shareholders and hope to receive the recommendation of the SABMiller Board for the cash consideration at the appropriate time. SABMiller's two largest shareholders have undertaken to vote in favor of the transaction, as have the SABMiller directors, with respect to their personal shareholders. In recent weeks, we have made significant progress in obtaining the necessary regulatory clearance for the transaction and this morning, we welcomed the conditional approval of China's Ministry of Commerce of the Company's proposed combination with SABMiller. The Ministry of Commerce approval is a significant milestone for the transition. Following previously announced clearances in the EU, South Africa and United States, all of the pre-conditions…

[Operator Instructions]. Our first question comes from the line of Sanjeet Aujla with Credit Suisse.

Brito, can you shed a bit more light on the competitive dynamics in Brazil at the moment? Also on the U.S., clearly, Bud Light you've had some big activations in Q2. What's your initial assessments there? What's working, what's not working and do you plan to change anything? Thanks.

The Brazil market has always been very competitive and today is no different. Of course, we have an industry that's being pressured what consumers are feeling given the economy and we had to pass also prices, two prices, federal and state taxes, so that put more pressure. The second quarter was better than the first quarter but not yet where it should be. The pricing environment is I would say is the competitive pricing environment that we always had. We have different dynamics when it comes to returnable bottles and the one-way package and that's the big silver lining from this whole situation. When you think about the macro consumer under pressure, the big silver lining that we invest in big time, because it helps in the short term but it builds a brighter long term, is the returnable glass bottles. So if you heard me saying in the off-trade, our returnable glass business has more than doubled in the first half of this year and continues to accelerate into the second half of the year. That's very good because if you have been to Brazil lately, you would see up to a year ago, no glass returnable bottles in the off-trade, especially the big box stores. Now they're back because consumers are looking for smart choices in terms of buying and when they buy the returnable glass bottles, they are buying the liquid of their preferred brand, not the package, not paying for the package. That's something that is a proprietary bottle and that is something that builds a very good long term. That's a big silver lining that were trying to take advantage. We're pressing the gas pedal and trying to get those returnable glass bottles back into the different channels, especially the off-trade. On the other hand,…

Our next question comes from the line of Caroline Levy with CLSA.

You did address Brazil somewhat already, Brito, but there's been some change in government and I'm just wondering, from your perspective which was a long one, on Brazil, if you could talk about the macros in a little bit more detail. Then I wondering if you could also discuss on-premise trends in the U.S. which have been a big drag for the industry. What are you seeing there?

In terms of Brazil, we've been doing business there, Caroline, for 27 years and net/net it has always been a great market for us. So we continue to be bullish on Brazil, but we know that it's not a straight line up, but it's up. But every five years or so, you have one or two years where things go sideways or backwards, but then that's when you have to take advantage and look for those silver linings. So for example, the only way returnable glass bottles could ever go back to the off-trade in the big way it's going now is in a situation of crisis like today. Because when times are good, consumers are not necessarily looking for that smart price point and off-traders, they don't like to deal with returnables. So that's a silver lining that we want to put the foot in the door, open the door, put the glass bottles in there and that is a big play on margins. So that's a big silver lining. The fundamentals in Brazil remain the same, middle-class growing, the population young, lots of LDA coming to market ever year and the regional differences we see at place in Brazil in per capita consumption is very pretty low. Premium is growing, still from a very low base. If you look at the reasons to believe, we have core brands that are very strong and that we still can do lots to grow those brands. We have premiums, as I said before. We have near beer which is growing in Brazil very healthy. We have the Beats family. We have the 0,0%, Brahma 0,0%. We have the in-home opportunity, again, where we're putting more and more returnable, again, because the off-trade has opened the door for returnables. The out-of-home, beyond…

Our next question comes from the line of Anthony Bucalo with HSBC.

Quick question, Brazil is the hot topic right now. In terms of market share, it seems like InBev for years has hung back from going past 70% market share and when you consider what's going on in Brazil and the momentum you have with returnable bottles and with your super premium brands, do you think there will be a change in your attitude towards market share and do you think you might attempt to accumulate more than 70% market share considering the condition of some of your competitors?

Well, Tony, we've always worked with that range of 67% to 69% in terms of Nielsen metrics, what I can tell you is that because of the price increase that we implemented in the first quarters and now coming back, we're below that range at this point, but slightly below, so we intend to get back to range. Just remember that three years ago, we were above 70%. So there is no ceiling at 70%. We've always said that 67% to 69% is where we feel things get optimized, but if you see an opportunity to go beyond the 70%, for sure we will take it. Right now we're at slightly below the 67%, but the trend is positive to get back to that range. So that's the range we've always used.

Right, but is gaining market share a top priority for you in Brazil or is it really just managing your mix through the macro crisis more than--?

In Brazil, the top priority is go top line and create value. The market share, right hand management, all those things are parts of this bigger idea. Of course, if we fall below 67%, we then re-jig the levers to get back to 67%, the range of 67% or 69%. And then if we go to 69% and there is inflation pressure, then we pass that on to price and we go below again. That has always been our mechanic in Brazil of trying to get the levers in harmony so as to create value. The big thing in Brazil has always -- more than share when we think it's a great value, by having share under check in that range.

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

Two questions on my side, both relating to China. The first one is, for me there's a bit of a between an economy that's growing, at least in official terms, around 6% and beer volumes down 8% and consistently weak for a couple of years now. I was wondering if you can maybe give your perspectives on that disconnect? And the same thing is, given that context with your own volumes down 2%, I was struck by 550 bps of margin expansions, incredible. Is the hold under product mix or are there other things that are going on in China, as well?

Trevor, two very good points. The economy in China, of course, decelerated, but we know it's still 6%-plus, 6.6% in the second quarter, so it grew 7% last year, so that's very strong. But of course we all know that China and the government, they say that, that they are trying to transform their economy from a manufacturing-led to more of a consumption-led, more service-led. And then, of course, there's impact from channels, regions and that is something that brewers are trying to figure out, what the new China will look like in terms of channels, regions and consumer profile. It is also true, to be fair, that the last two years, the summer in China has been very -- in the regions that are strong for beer, it has been very weak. This year, it seems it's going to be a better summer. But again, it's more structural, in the sense that we see some channels. That's an opportunity for us, Trevor, to tell the truth, because when you look at the channels that are growing, for example, the restaurant channels in the high-end restaurants, for example, that is very good for our super-premium brands and we lead that category and we lead also the premium segment. So the fact that our volume -- the fact that industry volume in China is negative, it's all on the core and value brands or core and value segment brands and that is where the negative is all. If you look at the core-plus, premium and super-premium, they are of course not growing at the same speed they were before, but they're still growing and that's where we have most of our volume anyway. But we still have a 34% of our volumes in non- or below core-plus brands, so core and…

Our next question comes from the line of Tristan van Strien with Deutsche Bank.

First of all, congratulations on getting all the pre-approvals today, the pre-conditional approvals. Two questions on the margins, please. One in Mexico, you had a lot of sales and marketing investments. Can you just remind us what they were in -- what those investments were for and do you expect that margin to reverse in H2? And the second one, in Europe, you had a good premium mix and nice growth, but the margin declined so I'm trying to get a bit more understanding why you had a margin decline in that area?

Tristan, both of them have very similar explanations. In Mexico, we had sales and marketing phasing that were more weighted toward the first half of the year. That's in our press release and we had signaled to that, in terms of Company-wide, that would happen pretty much in all zones. So that, of course, takes a toll on margin. In Mexico, we also have the fact that Bud Light is growing so fast. We have to bring Bud Light from the U.S. into Mexico because we do not have enough capacity to produce Bud Light locally and that of course also puts more strain on our logistics costs. So that's something that will be relieved when we come up with a new brewery, the Meyer brewery in the Yucatan Peninsula that should come towards the beginning of next year. In Europe, you have some of the same thing. Sales and marketing are more weighted towards the first half of the year, plus in Europe, because Corona is growing so fast, we also have some logistics that is impacting our logistics cost there. But Europe is growing very well. We're very happy that now, for the past two years, we've found a role for our European business in that it's all about the high-end and that's very good. So I would say Mexico and Europe, sales and marketing weighted more towards the first half and plus the import of Bud Light to Mexico and Corona in Europe. So those of the reasons.

Very clear. Thank you.

Thank you. Then again Europe is growing top line of 4.6% for the half year, so that's very, very good.

Our next question comes from the line of Mark Swartzberg with Stifel Nicolaus.

Brito, question on the U.S. The category continues to be a little healthier than it was a few years ago. And in addition to that, you're having some improvement in your own performance. What do you think is going on with the category from a larger macroeconomic and beer-specific perspective? And as you think about employment levels and other factors that contribute to the health of the category, how sustainable do you think this improved atmosphere is?

Well, Mark, it's hard to predict that, but we had in our guidance, we said that we expect better industry for the U.S. this year, so that is in tune with our guidance. Reasons for that are the economy -- of course, it could always be better, but it's been fine, unemployment is at its lowest level since the crisis in 2008 and inflation is down at 1% or so. So there's growth in median earnings and that is important for the industry. So, again, it's in light our guidance and, yes, it's a good thing to have because that helps the volume, of course. What we see also is a continued trade up. Consumers, if you look at retail sales, dollar retail sales, IRI, it's one of the healthier categories you have from all other categories. It has been for many years since the crisis in 2008. And in terms of our market share -- that was part of the question, we've been investing sales and marketing because it's the opportunity on the high-end, brands like Michelob ULTRA and Stella and craft portfolio. We're also supporting Bud, Bud Light, so those of the things. And you see that our trends in terms of market share, 35 bps loss is still a loss, but it's much better than the two years, any quarter. You see that this half year in the U.S., we're growing top line, we're growing EBITDA, we're expanding margins in the U.S. despite growing sales and marketing by 18% to 20%. The beer revenue per hectoliter grew 1.8% in this quarter, so there's a lot of talk of discounting and all that in the marketplace. We said last quarter that our discount dollars were the same, just being applied differently in ways that were new to the market and I'm very happy to report that beer revenue per hectoliter is 1.8% up in the second quarter this year.

A quick follow-up on that, Brito. As you said, better than some years out there and you cited the improvement in brand, Budweiser. When you look at where you are for Bud Light in the larger portfolio, do you think that these tactical changes, if you will, with the emphasis on Budweiser, Bud Light and Michelob ULTRA, are actually helping Bud Light specifically or are you just looking at it on a broader portfolio's perspective?

What's happening in our performance in the U.S. big time is what our guys here led by Joao is doing together with the whole server system. Ron came with a new mindset of winning together, of really working together with the panel, with the wholesalers, really listening to what their concerns are, to where the opportunities are. As a Company, we decided two or three years ago to invest ahead of the curve in the U.S. because we started to see some brands of ours that deserved more support. So a lot has to do with the wholesaler alignment, the joint work that Joao and his team, Alex and Jorn, together with the wholesalers, look at the market, the opportunities and the fact that we as a Company decided to invest, obviously, in our biggest market, the U.S. market. So it's all pointing in the right direction.

Our next question comes from the line of Pablo Zuanic from SIG.

Two questions, Brito, can you comment on the relationship with Pepsi-Cola? What I'm talking about here, how is the soft drinks business doing in South America, particularly Pepsi? You have more flexibility in the contract now to terminate that relationship. I want to understand, Pepsi has been struggling in South American and the region for a while. Coke remains very strong. I'd like to hear what's the state of that relationship? And very, very briefly on China, you have only 19% market share which of course, you are grateful it is in super and premium and I didn't see that with numbers, but very below what you have in other markets. Is there room there in the future to look through these transactions, like if buy on the Japanese companies, it would stay the state of having things out. I'm wondering, is there room or in China, would you think that pretty much forget about M&A, it's going to be a site for more M&A in China and in tends to be more about just growing organically what you have? Thanks.

Pablo, in terms of China, we're very happy with the business we have there. We made -- AB, many years ago, made a decision to go high-end in China. When we got together with them, 2008, we kept that very smart decision they made in China. Today, we lead the premium segment in China, we lead the super-premium segment in China and we're very well positioned in the core-plus segment. That's where we put most of our investments and that's where the growth is coming from. We're very happy with it because we see our business continuously gain share, margin continuing to be accretive and to continue to go up and it's very healthy and it's organic. So very happy with the China business and very happy to be in the core-plus, premium and super-premium segments. It would make no sense for us to grow in the opposite direction, trying to add more core and value brands to our business. In terms of Pepsi relationship, we've had a relationship with Pepsi for a long time. We're very proud of our relationship we have with Pepsi, but it's true to say, in terms of the soft drinks business in Latin America, like the beer business, in LN and LAS, it is suffering. It's under pressure. The same consumer that's been pressure for beer is being pressured for soft drinks. In Brazil, real income is down, disposable income is down, inflation now is coming down but was up for the past few months. In Argentina, the same thing. In Argentina, the government is doing, in our view, all the right reforms and all the right moves, but the consumers, they are under pressure and their salary is going to be reviewed now in July. That is when the negotiations for salary increase take place. But before July, they were in an environment where inflation was almost close to 40% and their salary was still the salary from a year before. So a very tough environment and soft drinks tend to suffer as much as beer and sometimes even more than beer. I don't know exactly the reasons, but the history in both countries, so again, not unlike beer, soft drink in both LN and LAS, more specifically Brazil and Argentina.

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

Brito, as we talk to a lot of your distributors in the U.S., as well as other industry observers and participants, there are two questions that we get a lot and I'd love to pass them by you. A lot of people are mystified, would be the right word, in terms of some of the pricing they've seen from Michelob ULTRA given how well the brand is doing and the premium image that the brand is supposed to have. That's the first question on Michelob ULTRA. The second one is, it appears, as you evolve the Bud Light image and come up with a brand identity, at least this year, there been a number of advertisements that have a social justice theme to them, if you will. People want to know, I'd love to know, whether those sorts of social justice themes are just what you're doing this year or what you see as part of the new image for Bud Light going forward? Thank you.

Robert, with Bud Light, I wouldn't say it's social justice, I would say it's more Bud Light going back to its roots and being edgy and very in tune with contemporary cultural topics and relevant topics. That's what it is and that's how Bud Light was built. Bud Light was built by not being afraid of tackling cultural, contemporary, relevant topics in a very Bud Light way of doing it. We're back to that way of doing things. That's totally -- if you go to and look at old communication from Bud Light in the last 20 years, you'll see that, that was always the theme there, to be really in tune with pop culture and relevant topics, so no change there; we're just going back to what made the brand the biggest brand in the U.S. In terms of Michelob ULTRA, there's no change. This is a core-plus brand. It's priced at 20%-plus compared to Bud and Bud Light so no change there. What you saw was a promotion we did for a holiday period in which to get more ULTRA on lips, we joined that promotion with Bud and Bud Light just for three or four days, just to get penetration to move up because what you see with Michelob ULTRA is that it's growing ahead a 20% volume-wise, but penetration is still very low. Sometimes what you have to do in this beer consumer goods is you have to give people reason to buy it -- because it's always a risk to buy something you're not used to have a reason to buy it and taste it, so they can have an opinion about it and maybe become consumers of that brand. So let's not confuse a pricing policy that has been very consistent with some events that can be geared to drive penetration, experimentation and be on lips type occasion or opportunity. That's the difference I would drive there. Fair concerns, but I would just drive the difference between what's the price policy and what's an event to get more penetration and more experimentation.

Our next question comes from the line of Brett Cooper with Consumer Edge Research.

On Mic ULTRA, I was just wondering, the strong growth that we're seeing here, how much of that cannibalizes Bud Light? Is there any part of the chain where there's retailer, distributor or the Company itself that is pushing on the hot brand at the expense of Bud Light?

Cannibalization, we're not giving out those numbers, but the only thing I can say is that Michelob ULTRA sells at a higher price than Bud Light and has a better margin, so even if there is some cannibalization, it's for a better result. For example, if you look at our gross margin and I mentioned this in the past few calls, that for me is a great indicator where things ahead. If you look at gross margin, it has progressed 1 percentage point every year since 2012. It was a 66%, then 67%, 68%. Last year, it was 68.7%. This year, for the half-year, is at 61.2%. So what that tells me is that the is progressing the right way and even if there is some cannibalization, it's still creating value at the gross margin level which, is very good. And we're reinvesting some of that gross margin back into the business and still having EBITDA growing this year. So that's the virtual circle that you always want to have in a consumer goods company.

If I can follow up on a different topic of non-alcoholic beer, can you talk about the opportunities you see in some of your bigger markets? Then if you were willing to talk about what you've seen with the non-alcoholic Budweiser in Canada?

I see that as a big opportunity. We put out there 10-year commitment on our side of having 20% of our volume in 10 years, checked, of course, every year, in non-alcohol and low alcohol beers. This is a great opportunity, not only because there is a consumer trends there from some groups of consumers going to that direction, but also because our brands can extend in that domain. If you look at some markets in Europe, for example, where the beer industry has declined, the segment that's growing the most, even in Brazil, that can also be said, is the low alcohol, no alcohol beer. The profits are very interesting for those brands because the ex-size is smaller because there is no alcohol or low alcohol. So that's a very in tune with some trends out there. Our brands can do it, our asset base can manufacture those beer brands and it's something that can be very interesting in terms of enlarging the pie of consumers that connect and stay within our franchise. So we're very committed to it. Our target 20%, 10 years. Today, our number 6%, so today we have 6% of our portfolio in non-alcohol, low alcohol beers and we intend to get that to 20% in the next 10 years. Bud Prohibition is being well received by consumers in Canada. Of course, very early days, but our Canadian teams are being very creative. It's amazing because it's a 0.0% products, you can go to parks and point of sales that beer would not go to. It can go to a pizza place, it can go to a fast food place, it can go to many places because it is an adult soft drink at the end.

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

Two quick ones, first of all, on Brazilian margins. This year you've hedged on the dollar-exposed both parts of your Brazilian COGS at BRL3.21 to the dollar which is pretty close to where spot. Are you able to comment on whether you've managed to capitalize on the recent strengthening of the Brazilian real in your hedging for next year 2017? The second question is on Estrella Jalisco. Are you able to comment on your ambition for this brand and what you might be doing differently relative to the Montejo launch?

On Estrella, I will start with the second question. Estrella Jalisco is a brand that started very well. We rolled out Estrella Jalisco in the southwest region of the U.S. Initial results have been very positive, especially in California, with a very strong rate of sales according to IRI, making it the second fastest trading 12-pack can and third fastest six-pack glass within Mexican imports in California and now having a 1% share of total beer in California. So, that's very encouraging. Of course it's a brand that we just started, but those are the numbers that are out there, all public, so I'm just mentioning to them. Of course, you have some capacity constraints at the moment because, again, the Mexican supply capacity is being all taken by the growth we have in Mexico, by the growth Corona has worldwide in our system and now by the growth we have with Mexican imports from us into the U.S. markets. That's why we're building a new brewery there in the Yucatan Peninsula. We're very excited hopes to Jalisco. Let's see, early days, but some good signs, some good numbers to start with. In terms of the Brazil-U.S. hedge, I don't have a number in front of me, the BRL3.21or the BRL3.24 that is staying for 2016. That's confirmed. Last year was BRL2.31 for 2016 and we always hedge for 12 months. That is our standard practice and the number for 2017 will be known toward the end of the year, not now.

Thank you so much. With that, I'd like to thank you all. During the second quarter, we saw continued strong growth in Mexico, we saw encouraging trends in the U.S. with particularly market share and a good contribution from Budweiser in China, despite the very weak industry performance. Numbers in Brazil were disappointing, but we will continue to work hard and remain focused on what we can impact and influence. With regards the proposed combination with SABMiller, we have worked in close collaboration with the SABMiller team since November. We have made significant progress with them on the regulatory process and bond financing and on the disposals in the U.S., China and Europe, as well as general integration planning. It remains our objective to close the transaction in 2016. So I'd like to thank you all for joining the call and I would like to say enjoy the rest of the day. All the best. Thank you very much. Thank you.

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