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Welcome to the Anheuser-Busch InBev Second Quarter 2018 Earnings Conference Call and Webcast. Hosting the call today from AB InBev are Mr. Carlos Brito, Chief Executive Officer; and Mr. Felipe Dutra, Chief Financial Officer and Technology Officer.To access the slides accompanying today's call, please visit AB InBev's website now at www.ab-inbev.com and click on the Investors tab and then the Reports and Filings page. Today's webcast will be available for 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 management's current views and assumptions and involve known and unknown risks and uncertainties. It is possible that AB InBev's actual results and financial condition may differ possibly materially from the anticipated results and financial condition indicated in these forward-looking statements. For a discussion of some of the risks and important factors that could affect AB InBev's future results, see risk factors in the company's latest annual report on Form 20-F filed with the Securities and Exchange Commission on the 19th of March 2018. AB InBev assumes no obligation to update or revise any forward-looking information provided during the conference call and shall not be liable for any action taken in reliance upon such information.It is now my pleasure to turn the floor over to Mr. Carlos Brito. Sir, you may begin.
Thank you, Maria. Good morning, good afternoon, everyone, and welcome to our second quarter and half-year 2018 earnings call. Today, I would like to cover the results and highlights of our second quarter 2018 performance. Next, I'll take you through the results of our global sponsorship of the FIFA World Cup, then spend a few minutes on how we'll organize ourselves for future growth before handing it over to Felipe to discuss our financials.Similar to our last few results conference calls, we will not go into the details of each region's performance. We, therefore, encourage you to refer to the earnings press release we published earlier this morning, and we'll be happy to answer any questions regarding our markets during the Q&A portion of today's call.So let's start with the highlights. This quarter, we saw beer volume growth of 0.9%, with especially strong performances in Mexico, China and Western Europe and the benefits around the world of our global sponsorship of the FIFA World Cup. Budweiser led the digital space as a global beer sponsor of the tournament coming in ahead of all other brands and becoming the most talked about brand globally. Budweiser's strength supported our global brand portfolio, which accelerated its [ teams ] and continues to grow faster than our total portfolio.Our brand-building capabilities have been recognized at the Cannes Lions International Festival of Creativity, winning 23 awards, including 2 Grand Prix, the top prize.Healthy top line growth contributed to EBITDA acceleration getting to 7% growth, and we continue to expand our margins despite increase in marketing spend behind the FIFA World Cup.Let me now tell you more about the results of the quarter.Our revenue in the second quarter grew by 4.7% with revenue per hectoliter growth of 4% and of 4.5% on a constant geographic basis. This growth was led by Brazil, China and Western Europe.In Brazil, we achieved healthy net revenue per hectoliter growth as a result of continued premiumization and annualization of price increases from the third quarter of last year. Volume growth was further enhanced by the uplift from the FIFA World Cup, which, on the other hand, was negatively impacted by the truck drivers' strike, which held back our volume growth in Brazil by 3 percentage points this quarter.In China, our team delivered one of our best top line quarterly performance in the last 3 years as our high-end portfolio continues to accelerate and Budweiser resumes volume growth on the back of a strong FIFA World Cup activation.Our Western European markets also had a very strong volume and revenue performance this quarter, supported by share gains in the majority of our markets, a good contribution from the FIFA World Cup and favorable weather. Our global and premium brands are leading the way across the continent, especially in the U.K. where we saw double-digit volume and revenue growth despite a tough comparable.Our global volumes grew by 0.8%, with own beer volumes, as I said before, up plus 0.9% and non-beer volumes up plus 0.5%. Volume growth was led by Mexico, which continued to show strong momentum across our portfolio, with growth coming from all brands and all regions. Premiumization is a growing trend in Mexico, and as a result, we have seen very strong growth from Michelob Ultra and Stella Artois.In Argentina, we continue to see volume growth, led by our core portfolio with Quilmes Clásica and Brahma as a result of the successful application of the category expansion framework.In the U.S., while sales to wholesalers were softer due to industry weakness and logistics optimization, continued progress in our commercial strategy resulted in our best market share performance in almost 4 years. Our Above Premium brand portfolio continues to accelerate, increasing share by 100 basis points in the second quarter. Michelob Ultra once again led the way in our premiumization strategy as the top share gainer in the U.S. market for the 13th consecutive quarter. We also saw a very good contribution from our recent innovations, especially Michelob Ultra Pure Gold, Bud Light Orange and Budweiser Premium Reserve. Additionally, Bud Light improved its share trends within the Premium Light segment for the fourth straight quarter, while Budweiser maintained flat share of the segment for the second quarter in a row.Volume gains in many of our markets were partially offset by a tough quarter in South Africa, where we saw volume decline of mid-single-digits. This was a result of a difficult comparable as well as a challenging consumer environment. Nevertheless, we remain optimistic about our business and the outlook for the country as well as the growth opportunities for our global brand portfolio.Our global EBITDA increased by 7% with margin expansion of 85 basis points to 39.7%. This was driven by healthy top line growth, cost efficiencies and synergy capture, partially offset by increased marketing spend to leverage our global sponsorship of the FIFA World Cup. Our normalized EPS increased by almost 16% to $1.10 per share.Our global brands had a great quarter, with revenue growth accelerating to 10.1% and 16.7% outside of their home markets. Budweiser delivered more than 10% revenue growth outside of the U.S., with the brand resuming volume growth in China and benefiting from a global sponsorship of the FIFA World Cup, which I will discuss in more detail shortly.Stella Artois revenues were up by 9% as we launched a new brand campaign called Joie de Bière, inspiring consumers to bring enjoyment to every day. Our growth was driven by a variety of markets as Stella Artois increases penetration in new countries and gains relevance in the new location.Corona once again led the way, with revenues up by more than 20% total and by more than 40% outside of Mexico. Our creative content successfully generated 5x more impression this year compared to last year as we leverage platforms and locations that are true to the brand such as Earth Day and Oceans Week. Additionally, we launched Corona Ligera in Australia, which is a mid-strength beer and is off to a very good start, supporting our efforts to achieve 20% of our beer volume in the mill and low-alcohol space by 2025.An achievement I'm especially proud to highlight is our success at this year's Cannes Lions International Festival of Creativity, the largest gathering of an advertising and creative communications industry. We won 23 awards, including 2 Grand Prix awards, the top prize. In total, our creative work from 5 markets, Brazil, South Africa, the U.S., Germany and Peru, has been recognized. These recognitions are a testament to our relentless focus on brand-building and creativity. We look forward to leveraging this momentum to further drive our brands.In the first quarter 2018 results call, we took you through some of our plans to activate our global sponsorship of the FIFA World Cup, the world's largest sporting event that brings together more than 3.2 billion people around the world, according to FIFA. We leveraged the sponsorship to tap into consumer excitement around this unparalleled location, and now I would like to talk to you about the results.Budweiser's global sponsorship as the official beer of the FIFA World Cup was the biggest campaign our company has ever done. We activated in more than 40% of our global POCs in over 50 countries. This translated into sales as our revenue for Budweiser outside of the U.S. was up by more than 10%, as said before. We're also successful in building brand awareness in many of our new markets where Budweiser has only recently been introduced and are using this awareness to propel the brand toward future growth.We overachieved all of our media targets, with Budweiser leading the digital space ahead of all other brands. It became the most talked about brand in all industries. We have 1.2 billion views of our online content and delivered ahead of our expectations on earned view rates and total earned views.We further maximized our sponsorship asset by activating more than 40 of our local brands in more than 40 markets. These activations enabled us to elevate and extend core lager in more occasions to reach more consumers, resulting in solid revenue growth contribution from our core portfolio.We'll create a content designed to keep up with the latest developments in the tournament and leverage key influencers to achieve scale. Our global portfolio brands allowed us to produce creative content such as a lively dialogue between brands in different markets, many of which are synonyms with their home countries' football teams. As an example, you see on Slide 11 the content we created between our leading brand in Panama and our leading brand in Belgium ahead of the game between the 2 countries. In line with our culture of sharing best practices. We also ensured that we are making the most upgrade ideas. If something works for one of our local brands in its home market, we quickly identify opportunities to do the same in other similar markets. We'll also execute a global toolkits across similar brands and similar markets such as a strategy to change the name of the sponsoring brand to its home country to resonate with consumers' national pride.In summary, this FIFA World Cup exceeded our expectations and enabled us to make the most of our global sponsorship by reaching more consumers and building awareness of our brands. We look forward to continuing this momentum.And now I would like to take a few moments to explain some changes to our organization before handing over to Felipe. Following our successful combination with SAB, we're taking the next step in organizing ourselves for the future. We've learned lots since our integration and what it will take for our company to continue to be successful. Today, I'd like to share our plans to enhance our focus on top line growth and value creation.First, we're simplifying our geographic structure by moving from 9 to 6 management zones. When we first integrated with SAB, we increased our total number of management zones to support the integration. Now 2 years later, it makes sense to simplify the structure to be more effective.Some of our current zones will retain the same structure, while others will evolve. North America, Europe and Africa will remain as is. The key changes for the other zones are as follows: The new Middle Americas zone will combine the current Middle Americas zone with the current COPEC zone and BU Central America and Caribbean. The new South America zone will combine the current Latin American North and Latin American South zones. The BU Central America and Caribbean will move into our new Middle America zone. The new APAC zone will combine the current APAC North and APAC South zones. All changes will be reflected in our financial statements as of January 1, 2019, and Europe and Africa will continue to be reported as the combined EMEA region.The next change is that we're bringing Marketing and ZX Ventures under a common global lead. In order to continue to grow, we have to anticipate the future. We believe a common global lead will help us achieve our objectives of anticipating market and consumer trends and adopting ZX Ventures' innovation approach more broadly. ZX Ventures will maintain its current independence in order to remain ahead of the curve, stay agile and invest in new products and experience to address emerging consumer needs.We know that when we take ownership of growth opportunities, results follow. This has been proven by our High End Company and ZX Ventures. And that's why we're adding 2 new members to our leadership team as designated owners of future growth opportunities. The first is a Chief Non-Alcohol Beverages Officer. This role will focus on supporting zone teams to accelerate growth in our existing non-alcohol business, which represents more than 10% of our current volume. The second new role is a Chief Owned Retail Officer. This role will manage our existing owned retail businesses such as our group hops in several countries and the thousands of Modeloramas in Mexico by shaping its strategy, coordinating cross-market initiatives and sharing best practices. We believe these additions to our leadership team will effectively position us to capture additional growth in these key areas. We will use the coming months to lead a smooth transition into the new structure.We remain focused on delivering top line growth, creating new locations and expanding the beer category. We believe that by implementing these changes, we'll be better equipped to accelerate growth and be more responsive to our consumers and customers to bring them an even better experience. For more details, please refer to the press release we published earlier this morning.I'd now like to hand it over to Felipe, who will take you through more details on our financial results for the quarter. Felipe?
Thank you, Brito. Good morning, good afternoon, everyone. Let's start with an update on our synergies.In the second quarter, we delivered $199 million of synergies, bringing the total synergies captured to date to almost $2.5 billion. Our total synergy guidance remains at $3.2 billion to be delivered within the 4-year period following the close of the combination. As a reminder, the synergies do not include any top line or working capital synergies. We continue to expect the synergy capture to require approximately $1 billion of one-off cash costs to be incurred in the first 3 years after closing and of which $717 million has been spent to date.Net finance costs in the quarter were $1.272 billion compared to $1.628 billion in the second quarter of last year. The increase was due to a positive swing of $249 million from the mark-to-market losses linked to the hedging of our share-based payment programs, which were $265 million in the second quarter of last year compared to $16 million in the second quarter of this year. We also saw year-over-year savings in our other financial results as well as our acquisition expenses.Our normalized effective tax rate for the second quarter was 24.8%, up from 21.3% in the second quarter of 2017 and bringing our year-to-date tax rate to 26.3%. This was mainly due to country mix as well as additional nondeductible mark-to-market losses and changes in legislation in some of the countries in which we operate. Our effective tax rate guidance for the full year '18 remains in the range of 24% to 26%, which excludes the impact of any future gains and losses related to the hedging of our share-based payment programs.Moving on now to earnings per share. Normalized earnings per share increased by $0.15, $1.10 this quarter from $0.95 in the second quarter of 2017. Gains from the mark-to-market adjustments mainly to the hedging of our share-based payment programs as well as higher normalized EBIT were partially offset by losses from the income tax expenses.I will now take a moment to update you on our debt. Our net debt increased from $104.4 billion as of December 31 to -- 2017 to $108.8 billion as of June 30, 2018. The increase in our net debt is consistent with prior increases in the first half of the year given that the majority of our cash flow is generated in the second half of the year, as you'll see on Slide 23.Our net debt to EBITDA ratio increased from 4.8 as of December 31, '17, to 4.87 as of June 30, 2018, as a result of an increase in our net debt as well as a adverse currency fluctuations in our EBITDA translation.We'll continue to proactively manage our debt portfolio, of which 93% holds a fixed interest rate, 42% is denominated in currencies other than the U.S. dollar, and maturities are well distributed across the next several years.Deleveraging around 2x remains our commitment. We remain on track in our deleveraging path, and we will prioritize debt repayment in order to meet this objective. As you can see on Slide 24, our capital allocation objectives remain unchanged.And with that, I will hand back to Maria to begin the Q&A section. Thank you.
[Operator Instructions] Our first question comes from the line of Mitch Collett of Goldman Sachs.
Can you talk us through the drivers -- the potential drivers, I guess, of EBITDA acceleration for the second half? You obviously had the step-up in marketing for the World Cup. Can you perhaps quantify that? You've also had the gap between sales to wholesalers and sales to retailers, which you said should converge on a full year basis and then the impact of the truckers' strike in Brazil. Can you maybe help us understand how those moving parts fading away can help EBITDA growth in the second half of the year? And then secondly, your U.S. performance has shown a meaningful improvement in recent months in the market data. Can you give us a bit more color on the drivers of that? Is it the new leadership? Is it your new category expansion framework? Is it the success of some of your advertising campaigns? Can you just give us a bit of color to help us understand that improvement?
Okay. This is Brito here. So in terms of our second half, as guided in previous quarters, we expect the second half to accelerate, and the reasons are a couple. First, as I said before, there would be a concentration of more sales and marketing front loaded in the first half to support the FIFA World Cup sponsorship. And that is something we're very happy with the results, so it was a good call. Second one is that as you saw -- and that's your second question. There was a technical delay, I'll call it a technical delay, in shipments in the U.S. given that, as you said, the STRs with the numbers in the marketplace in terms of sellout are much better than the ST dollars. On the other hand, as I said in our guidance for the year concerning the -- in reference to the U.S., we said, as we say every year, that STWs and STRs will converge for the full year. So, of course, you can expect that, that will happen now in the second half, so it can converge for the full year given that we're delayed in the first half. The other reason is that Brazil had the truckers' strike. You also mentioned that. And the truckers' strike, for you to have an idea, took 3 percentage points in the second quarter of our volume growth in Brazil. So beer volume growth from Brazil was 1.7% growth. The FIFA World Cup, of course, helped us. But without the truckers' strike, our volume growth in Brazil could have been 4.7%. So that truckers' strike, which is a one-off, took 3 percentage points off that base. Also, we'll have some easier comps in some markets. For example, U.S. hurricane season last year was very active in the second half. If it's normal this year, again, that will provide an uplift there. And moreover, we'll continue to leverage everything we've learned about category expansion framework like we did in Argentina in the results there, like we're doing in other markets. So -- and the global brands continue to grow and accelerate that growth. So if you put all this together, that gives a lot of solid foundation. It's something we've been saying since the beginning of the year that the second half would see results accelerating. In terms of your second question, you answered most of it yourself. So when you said that the numbers in the market for sellouts are much better than the shipment numbers, and the reason for that is that, as we all know, there's a very tight freight market in the U.S. these days. And what we try to do given that we have inventories along the system, every time we see opportunities to optimize logistics to minimize distribution costs, we do it. So -- but I think the important thing here is the -- is our guidance that STRs and STWs will converge for the full year. In terms of STRs, you're right, we had a very good quarter. I mean, STRs improved. Share improved. We had our best share rating in the last 4 years. The brands are in a better place, which, for me, tells me that the strategy is showing up and it's working, right? For example, this strategy was able to offset 50% of the segment mix shift in terms of share hit that we're taking in other quarters. This quarter is 50% offset by the growth, especially on the above core brands that grew a full percentage point. So Michelob Ultra doing very well, the line extensions. All the innovations we have this year, be it Pure Gold, Bud Light Orange and Budweiser line extensions with the Reserve series, all worked very well, and were all rated in World Cup, if you look at IRI, as the top innovations in the U.S. market in this first half. So again, very good news on the STRs front -- STR front, some technical delay in the STWs given the freight market and how tight it is. But again, we'll converge for the full year, and therefore, we'll catch up strongly in the second half.
One quick follow-up on the first one, if I may. Can you give a dollar number to the amount of additional marketing spend made in the first half?
Well, no, no, that would be competitively sensitive. But what we can say is that we're very happy with the volume progression. We expect, for example, the benefit of the World Cup in terms of annual volumes to be around 45 bps, which is a sizable volume when you think about global volumes on an annual basis. So that's -- we're very happy. It was the best World Cup we've done thus far because every World Cup, we learn a bit more. And Budweiser is a brand. We use the World Cup as an opportunity to use Budweiser in many new markets like Nigeria, for example, South Africa, Colombia, Peru, Ecuador, and also to grow in existing markets. If you look at our U.K. performance, a lot of it was driven by Budweiser and Bud Light performances; Brazil, same thing.
Our next question comes from the line of Trevor Stirling of Bernstein.
Two follow-up questions as it relates to things you already talked about. The first one concerning the debt, Felipe. Am I right in understanding, this year, it was roughly a $4 billion increase. Last year, there was a $1 billion increase, but there was also $5 billion inflow from SAB disposals. And this year, there's a $1 billion hit from the tax time freezing. So actually, the debt performance this year is better on an underlying basis than last year. Am I right on the math on that? And the second question, Brito, coming back to this STW STRs, you also referred to an impact from the phasing of Easter and also the fact that Fourth of July fell midweek, and that was actually a 1.3 percentage point headwind. Does that mean, if I look at underlying STR trends in the U.S., it's more like 1.8% rather than 3.1%?
Well, if you -- what we -- I'll start with the second question, then Felipe will answer the first one, Trevor. On the second question, you're right. When we spoke about the industry, we said that the industry in the U.S. was impacted by the timing of the holidays, both the Fourth of July and Easter. So industry in the U.S. was down by 3 point -- I mean, 2.4%. And if you take 1.3 from these 2 holiday shifts, you'd get to an industry of negative 1.1%, which is pretty much in line with last year, for example. So yes, that's what we wanted to convey.
On the first one, your math is -- Felipe here. On the first one, your math is right. For this year, out of the $4 billion increase that is coming from almost $7.8 billion of cash flow from operations, we had some M&A-related outflows this year. The partial settlement for the Dominican Republican put option as well as some other M&A-related activities accounted for about $0.5 billion. And while last year we had an inflow and proceeds from the disposals of about $7.9 billion, cash flow from operations was $7.3 billion, slightly lower than the $7.8 billion of this year. And nevertheless, last year, there was a significant currency headwind of $3.6 billion or so, while this year, we had about $700 million tailwind currency-wise. But it's also true if you go back 1 year before, meaning 2015 December net debt position to 2016 June, at that position, you would also have seen an increase there. Meaning, you can go back in time from December to June, there was always this increase, despite M&A-related activities, on the net debt position. So that is completely linked to the seasonality of our cash flow.
Our next question comes from the line of Fernando Ferreira of Bank of America Merrill Lynch.
Two questions for me, please. Can you quantify the -- on your growth numbers what the impact of the World Cup, both on top line and EBITDA, for Q2? Or if maybe not, maybe what's the spillover impact that you would expect for Q3 from the World Cup? And then second question, related to China, can you talk about your margin there and how should we think about the potential to continue to expand profitability there going forward given the slowdown we've seen on the pace of margin expansion this year?
Brito here. So in terms of the FIFA World Cup, we have most of the -- let's say, 80% of the impact already accounted for in the second half. The balance coming -- in the second quarter, the balance coming in the third quarter. And as I said before, it was around 45 bps in terms of global annual volume, which is a very sizable impact given our base. So again, very happy with it, and it's 80/20 between the second quarter and the third quarter. In terms of China, it was a great quarter for China, delivering one of the best volume and share performance in the last 3 years. And the business delivered organic EBITDA growth of 6.2%. There was a 20 bps margin contraction off of a base of 35.6%, which is very high. And this was all associated with phasing of marketing spend associated, again, with the FIFA World Cup. So again, all normal. China is doing very well. Budweiser back to growth. Our High End Company growing triple digits, led by Corona. We lead e-commerce -- we have a higher share in e-commerce that is online than we have in the offline business in the traditional channels. And so a very healthy business. Revenue grew by 6.8% in this quarter with a healthy mix between volume growth and revenue growth, volume growing 3%, revenue per hectoliter growing 3.7%. So again, great quarter for China.
Our next question comes from the line of Edward Mundy of Jefferies.
Two questions, please. First is on the new organization structure for future growth. It appears to be a new relation towards a more decentralized model, simply my read of it, with the commercial agenda owned at the same level. Are you able to share some examples of what's going to change in terms of how to drive the commercial agenda? And then a second question. Just looking at Ad Age, Miguel Patricio and he made an analogy that when describing the marketing leadership changes that you change the roof of the house when it's sunny, not when it's raining, which I'm interested in your comments or your perspectives on that comment as to how you feel about your current marketing position.
Well, I agree. I agree with Miguel. I mean, I think you implement changes on things that are going well because that's the time to implement them because you're trying to anticipate the future as opposed to react and be behind the curve. You're trying to be ahead of the curve. So in both marketing and total company, I think that applies. In marketing, I think if you look at our global brands, if you look at everything we learned in this combination, if you look at all the prizes we got for creativity, which is something we've been pushing the company in the last 4 years, and why are we pushing for more creativity? Because of the clutter and the fragmentation of media these days. That's clear for us and everybody that the only way for you to stand out and really continue to be relevant is if you have content in a creative way -- delivered in a creative way, because today, as we all know, people are very distracted. They look at things in seconds, and if you don't capture their attention, you're gone. They slide to the next one. So the fact that marketing is delivering global brands, toolkits for our core lager brands, the fact that we are being recognized for our creativity and the fact that we're able to have more marketers in our senior leadership team, that's all a testament of what Miguel has been pushing together with us in terms of the company being more consumer-centric and more connected to our brands in everything we do. So that's the [indiscernible] for that. In terms of the new organization, same thing. We're 2 years into our combination that we planned very carefully for because of the geographic dispersion. That's why we increased the number of zones. We all knew, internally at least, that this would be temporary. Now 2 years into this, not only the synergies are coming at a faster pace but also the learnings and the people retention is going well, so we decided to, again, take advantage of this momentum to implement the changes, go back to 6 managerial -- management zones and do the people moves in a quick way, so there's no anxiety on the table and being very consistent with view outside world so there's no misconception about what this represents. The zones going from 9 to 6 brings simplicity. Bigger zones will also enable more best practice sharing at the local level and more opportunities for people to grow within their zones even before they go to global. ZX and Marketing coming under one lead, with ZX keeping its independence, will help us infuse in the larger company what ZX has been developing in terms of flexible teams, in terms of ways of work with innovation, in terms of testing portfolio of new disruptive [ rents ] into the bigger company and having more relevance because being more scalable and also adding 2 new positions in terms of new areas of growth, be it upstream in terms of retail, owned retail, be it going beyond beer in terms of non-alcohol beers. So this restructuring is about growth, simplicity and top line. So we're very glad to be able to move at this point. Given that we have momentum, things are going well.
Our next question comes from the line of Sanjeet Aujla of Crédit Suisse.
Two questions for me, please. Firstly, on the U.S. and the improved share performance. You've done many line extensions over the years in the U.S. Many of them haven't stuck. What gives you the confidence that the new commercial initiatives will stick beyond this year and this time next year? We're not talking about a tough comp in the U.S. If you could take that one first, please.
Well, Sanjeet, I think what gives me confidence is that the U.S. since last year under a new leadership is tackling innovation in a different way. So there are many concepts, there's a portfolio of concepts being tested as we speak and even last year. So we're not relying on 1 or 2 big ones. And then if we fail or if it succeeds, it's only 1 or 2. We're relying on a portfolio of things that are being tested in different regions, in different channels, in different states, and only then we decide to scale up. And that's where Bud Light Orange came from, the Reserve collection came from and Pure Gold came from. So I mean, all the things are coming from this new idea that we have to be more agile. We have to test many concepts at the same time and not rely on 1 or 2 ideas and have a broad portfolio of concepts, knowing that most of them will fail in their test concept, but then, of course, because you have many, 1 or 2 will come. So I'm more confident because today, I feel we have a portfolio and ways of work and a modus operandi that's more in tune with how fast the world moves today.
Got it. And just -- my follow-up is just going back to the capital expansion program where you tend to hold up Argentina as a bit of an example of how best practice has been embedded in some of your legacy markets. Can you perhaps just talk about how that framework has been applied to Brazil, in particular, and what sort of successes or perhaps learnings you have from that -- in that particular market, please?
No, no, the same thing. In Brazil, we're doing the same thing. I mean, if you look at what's happening with Brahma and the way it has been repositioned to really be the classic lager, the national classic lager, it was -- before that, it was converging to an easy-drinking that really didn't belong to the brand, so it's going back to the classic lager. World Cup and the whole soccer sponsorship is a big thing for classic lager brands as part of our toolkit. Easy-drinking more the Skol, more about cold cues, about innovations. Skol hops, for example, is part of that. And then you have also the brands like Brahma Extra, Bohemia, things that are going very well, applying the toolkits we have for ritual reward, which is another one of the segments we have within the category expansion framework. We're also applying those kits to our global brands, right? So I mean, Brazil is another example. Global brands is another example. The U.S. we're trying to apply. So these toolkits, as I said, I think last quarter, became company language. So today, everybody speaks the language of the different partitions within the category framework about the country cluster and their missions within each cluster, and that became company language. And when people draw the 3-year plan, the 1-year plan, their resource allocation, they have that in mind. And the dialogue was made easier because now we're comparing things that are more similar to each other. For example, another best practice that we started last year was what we call growth champions, which is something that supply and procurement has been doing for a long time, which is getting global specialists from different things and verticals within supply to exchange best practices and to continue to ride the road with more efficiency and more quality. We're doing the same now with growth champions, which is all about top line growth. But now with the common language and the country clusters, we're comparing clusters and markets within similar clusters, and then the comparison is much more effective.
Our next question comes from the line of Caroline Levy of Macquarie.
A couple of things. Could you just talk a little bit about Argentina, Felipe, please and how much risk you see to going to hyperinflation? We've been through some bad experiences in Venezuela with a lot of multinationals, where they've written that down to 0 over the period of like 3 or 4 years of trying to sort of salvage a business. How is this different? And what is your view on that? And then could you, Brito, please address whether you think the World Cup had much relevance in the U.S. and how much that could grow over time, just how World Cup impacted the U.S.? Sorry. A final one, you've appointed someone, head of owned-retail, which I thought was really interesting. If you can elaborate on why and how that could have a significant impact on AB, that would be great.
So Caroline, let me take the first one. I think aside from hyperinflation, on that, I believe this is very hard, if not unfair, to compare the political and account of situations between the 2 countries, Argentina and Venezuela. Honestly, inflation in Venezuela is one of the smallest problems the country is facing, and that is much more driven by institution than democracy and all related to that. More specifically, on the technical aspects of running hyperinflation scenario, hyperinflation accounting requires that non-monetary assets, such as certain components of inventory and property, plant and equipment and non-monetary liabilities, they're restated using an inflation index. That is what it is. And as a result, certain lines above EBITDA and the depreciation line may be impacted there. They are not penalizing the quantification of moving to hyperinflation accounting. And if and when we apply hyperinflation accounting to our Argentina operations, then we will identify the impact separately in our financials, and we'll report with the IFRS standards when appropriate.
Caroline, in terms of your other 2 questions, owned-retail is something that we see as an opportunity, because first, where we have today, more than 10,000 owned-retail blocks and different formats in different countries, and these are all being managed on a global basis. Doing very well, but again, at this point, the same way at some point, we went upstream. And we've verticalized some operations, like can manufacturing, glass manufacturing, just because we felt that some monopolies, duopolies and oligopolies needed to be challenged, and that was good for us, multi-facilities as well. We feel the same way about going downstream. We're not saying that, at this point, we have any view on that in the sense of expanding in this or that way. We just feel that we already have a critical mass that needs to be managed, and we would like to use our base. And whatever comes out of that base, in terms of expansion, also to build our brands, not only to the points-of-sale but also to build like other brands have done, to use owned stores to build not only brands but also brand experiences and also category. We feel it's a role we have as market leader, and owned-retail could be a very important thing for that. In terms of World Cup in the U.S., it's growing every World Cup as people get more and more interested in soccer or football. Families have their kids playing soccer so even adults are getting more and more connected. We also have people here from European heritage that appreciate soccer. And this time, of course, the U.S. was not in the World Cup. And given the time of the games, that was not ideal. But so -- but 2026, that's coming to the U.S. again. And this time what we did is we sponsored locally relevant with Bud Light and in the Southwest with Estrella Jalisco. So it's very good for both brands. You see that our STRs were in a very good shape. Hard to say exactly what was the World Cup impact, but that was in the mix as well, knowing that this time the World Cup in the U.S. was not as big as last time, because again, the U.S. was not part of it. But again, it's growing every World Cup. So it's something that is beginning to make more sense in the U.S. market as well. We just hope next year the U.S. is back.
Our next question comes from the line of Olivier Nicolai of Morgan Stanley.
Just a couple of questions please. First of all, on Mexico, what's your view on the consumer environment? And should we expect your margins to recover going forward now that you have some extra capacity coming online? And just to follow up on the cash flow. You expect an acceleration in EBITDA growth in H2. Assuming the Q1 spot rate, where should we expect net debt-to-EBITDA ratio to be at year-end?
Well, Olivier, in terms of -- I mean, we had another amazing quarter in Mexico. We had -- what was amazing this quarter is that not only do we have double-digit revenue growth, high single-digit volume growth, but the amazing thing is that our portfolio worked on all cylinders, fired on all cylinders. So we had growth on all brands, no exception, in all regions of the country, no exception. And that is, to the previous question from Sanjeet, another one of those examples where category expansion framework was applied in terms of defining better the domains and the brands that are playing classic lagers as you're drinking in the rich reward-type profile. So Mexico is another example of the application that's suited. In terms of the economy, for us -- I mean, we're brewers. We're not economists. But what we can say is that the macro indicators show a moderate growth trend in this quarter. It was helped by a consumer environment and consumer confidence. There was a little bit of a blip with the presidential elections, but now that the president is elected, President López Obrador, we see that his first communications are very solid in terms of pursuing a government that will be very responsible in terms of public finances and in terms of independence from the Central Bank. And that has been received -- if you look at the currency, that has reacted well after he was elected and after his first speech on election day. So again, Mexico continues to be a country that continues to amaze us. It's also true that remittances are -- continue to be very high, so that also helps the economy. And our business continues to fire on all cylinders in Mexico. And now that the election's over and President has put -- has taken to ground in terms of what he intends to do, in terms of economic policies, I think everybody feels better about the future of the country, and so do we. So big market for us.
Let me pick up on the second one. We're not guiding at this point for net debt-to-EBITDA levels for year-end. However, as EBITDA accelerates and as you have seen that, historically, second half cash flow generation accounts for 65% to 75% of total full year cash flow generation, we do expect second half cash flow generation to be much stronger on the higher end of this range, also due to some technical issues that caused cash taxes in the first half of this year payments to be higher than prior years. That said, our optimal capital structure levels points to a net debt to EBITDA around 2x, and we remain on track to delever to that point. And also, as we think about debt profile in currencies overall, you have also to account to the fact that we have a benefit mix of currencies that mitigates the FX risk. 22% of our debt is in currencies other than U.S. dollars, and then you also have to account for the translation of the EBITDA figure into U.S. dollars. Nevertheless, maturities are well distributed. We have an average duration of over 12 years and only $2 billion coming due in 2018 and '19, which is basically nothing in comparison to our numbers. And in terms of interest rates, again, 92% of that is fixed at very favorable level. And liquidity levels also stay around $17 billion, which is plenty of cash, more than we will actually need in the coming years. So we remain on track to deleveraging in approximately half a turn of net debt-to-EBITDA reduction per year through the combination of EBITDA growth, as I said, as well as debt paydown. And that's basically it.
Our next question comes from Robert Ottenstein of Evercore ISI.
First, a clarification of a prior question and a couple of follow-ups. Brito, I think -- if I heard you right, I think you said if you -- in the U.S., if you adjusted for the timing of holidays, the U.S. industry STRs would've been down more like 1.1. Is that correct?
That's correct.
And therefore, is it also safe to say, given that you've lost about 35 basis points or so of market share, that your STRs so adjusted would be down more like 80 basis points or so? Is that a fair account?
Well, that could be -- yes. I mean -- I didn't go that far because that would be too much speculation. But I mean, what I did is that given the industry numbers that are public and the holidays that are also public and the way they moved and the days of the week that got moved here and there, it was easy for anybody to calculate that 1.3 percentage points was taken away in terms of growth, away from the industry. So that was what we're trying to explain. So the industry went down by 2.4%. If you take 1.3, it could be more like 1.1, which is even slightly better than what was the industry number from last year, which was 1.3. So that was the comment, yes.
Right. And I was just trying to make the additional connection that making the similar adjustments for you would bring you down something like 80 basis points.
80 basis points? No, because -- I mean, also...
Because you lost 30, 35 basis points of market share.
Yes, I know. But I mean, if industry would be better, that 35 basis points from a better industry would mean more STRs, right? So it would benefit everybody if the holiday shift had not happened.
Got it, great. Can we talk a little bit about the Corona brand, which is obviously doing extremely well. You're doing a line extension in Australia, so I'd love to hear about this -- the overall Corona strategy, the line extension. And if you could remind us what percentage of Corona sales are now sold outside of Mexico. And do you think that Corona has the potential, like Budweiser, over time, to have more sales outside of Mexico than in Mexico?
Well, Robert, Corona has been surprising us every time. It continues to be the growth leader among our global brands, especially outside of Mexico. But in Mexico as well, it continues to grow. The Corona Ligera we did in Australia is recognition that, first, Australia is one of the biggest markets we have for Corona. The Corona has close to 6% share of total market. It's an amazing brand. It's -- and the mid-strength, the mid-strength beers in Australia is a segment that's strong. And having a Corona 3.2 ABV is something that will get Corona in that technique as well and allow consumers that are looking for this kind of ABV to switch to Corona as opposed to what they have today, in which they have no choice of that kind of ABV. So it was just a move to try to continue to expand Corona into new occasions, trying to get that frequency up and continue to build an amazing platform. If you look at Corona today, it has less than 1% share in most markets with only 2 exceptions, in Australia being one of them, Chile being another one. Canada, a much lower level, be other one. So -- and now Colombia is a also a place where Corona is beginning in terms of share of total market to be more and more representative in Colombia, where Corona was hardly to be found. So that's how potent this brand is as it travels outside of Mexico, and we see that it can get to very interesting numbers with very good margins. So it seems to be a very strong premiumization opportunity for us.
And the sales of Corona outside of Mexico would be what, like 5% of Corona sales for your sales.
At this point -- yes, it's more. But at this point, we're not giving that number out, but it's more.
Okay, great. And then -- and just one last question. And I know you've touched on it, but I just -- I'd like to hear it again, how you're feeling about Brazil, both on the macroeconomic level, what you're seeing in terms of the economy as well as your own brand and commercial momentum.
Well, in Brazil, as you know, we've had some tough years last few years. This year, the first quarter is very tough, but then the second quarter is much better. And we continue to see opportunities in the second half. With regards to operations, we continue to believe that the country has much to offer and our ideas on premiumization on new occasions for beer on our core lager being strengthened with our category expansion framework. So there's a lot of opportunities in Brazil. There is a lot of [indiscernible] as well on the macro side. You've seen currency going -- devalue a lot. Now it came back a lot as well. There is an important election this year in Brazil, and this will only start getting a bit more clear by the end of August when TV starts in Brazil. In Brazil, we have public funding for campaigns so people candidates can go on TV and explain what their platforms are. And that starts only at the end of August, and the elections are in October. So between the end of August and the end of October is when will have a better reading of who the lead candidate is, because today, 50% of the population, when being polled, are still undecided. So it's too early to call but this is bringing some volatility in terms of currency and consumer confidence. But again, that was a great business in Brazil. We're used to volatility in Brazil as we are in Argentina so people are used to do plan Bs, plan Cs. We'll have a strong portfolio of brands and strong team, and we'll continue to invest in returnable package, in capacity, in premium brands and in brand experiences. So nothing has changed in our long-term view of Brazil.
Our next question comes from the line of Tristan Van Strien of Redburn Partners.
I just wanted to ask about your mainstream brands in Africa. Maybe just starting off with Carling Black Label. Obviously, you've got some well-deserved big Grand Prix awards again. I'm just wondering how your brand is doing in South Africa relative to the market. And related to that, it seems like the 1-liter bulk pack hasn't really taken off in South Africa. So I'm just wondering what the issue is. Is it a consumer issue? Is it a distribution issue? Is it trade rejection? And then secondly, and perhaps related to that, can you maybe give some more color on your pricing strategy in Africa in general? There seems to be a lot of inconsistency with the priceless changes on a regular basis in places like South Africa and Botswana. You don't seem to be taking pricing in Nigeria in an inflationary environment, and smart affordability seems to be given a bit of steroid injection. So I guess it all seems a bit extreme and short term, so any color would be helpful to help me understand that.
Well, first, I mean, in terms of pricing strategy, I'm not going to comment because this is a local issue and, of course, competitive sensitive. So I'm not going to comment on that. In terms of the Carling Black label, it's our -- as you know, our biggest brand in South Africa. The 1-liter bottle was introduced not only for Carling Black Label, but also for -- to support our core lagers. The 1-liter bottle has helped us to continue to bring new news into the core lager space. It's just it has been tough to reach because with this price increase that they have to implement on March 1 this year, given that the excise was double the inflation, 10%, so double pretty much of CPI, 5.5, there was a lot of noise this quarter. When you think about this quarter, Tristan, we had many things that were one-offs that made this quarter very tough comp, as expected. First, they had a price increase in 2017, that was in July, that brought volume to Q2 last year. Second, they had a price increase this year, that was in March, because of the tax, the excise increased. That brought volume from Q2 this year to Q1, so already double hit right there. Then you had Easter in '18 that went from Q2 to Q1. That was a global phenomena, of course. But in South Africa, as you know, Easter is an important date for some of you. And then you had the excise that was 2x CPI. It's always a bit higher than CPI. It is true. But this time, it was almost 2x. And then of course, it put more pressure on the price increase in March 1. So last year, because of that same phasing of price increase, volume grew double digits in South Africa. So when you put all this together, the second quarter for me, for us, it's not a fair reflection of what's happening in the marketplace because of all this double, triple, quadruple hits that hit the second quarter. Having said that, there was price movement on Carling Black label ahead of other brands, and our guys are reexamining that price move. But having said that, the brand continues to be very healthy and continues to lead our market over there. We also introduced a 910 mL pack resealable for Castle Lite, which is very, very well in the more premium side of the market. And it's now available in 80% of the appropriate POCs and growing significantly. So as we saw on other markets when introduced a bigger pack in maturing markets, like South Africa is, especially some segments, this normally tends to increase industry and tends to help the core lager brands because it's new news we're bringing to an otherwise segment of the market where not many news come very often. So that's something that normally works very well. And with Castle Lite, the idea of the resealable bottle and -- continue to be sharing bottles, so that's something also a new thing. We're also going to be introducing global brands that are growing very fast in South Africa. And today, if there is one disadvantage we have in South Africa is that the high-end segment is growing, like it is around the world. And we have -- as you know, because of the brands we have to sell, even before we have to sell those brands, SAB had a very low share within that segment. With this segment growing, the mix shift is against us. But of course, we're recovering very fast now with all 3 global brands in South Africa and growing from almost 0 participation to now around 20% participation in that segment and growing every quarter. So we also have some actions that we'll take on Lion, which is at the bottom of the price ladder that also has a role to play. And then -- we have a full portfolio in South Africa, as you know, high-end growing. We never had representation of the high-end market global brands in our beer. As we fix our share in the high-end market, then things will add up in a different way. And we're taking share within the core brands. But of course, the mix shift, because of the high-end growth, and our underrepresentation that -- is that -- in that segment, that's the thing we need to focus as well as continue to support the core brands.
Our next question comes from the line of Andrea Pistacchi of Deutsche Bank.
I have 2 questions, please. The first one is just a clarification again on the higher cash tax charge that held back cash generation in H1, to understand whether this is a phasing issue that penalized H1, will benefit H2 or whether it's a sort of one-off increment this H1, which will, therefore, come out next year. And the second question is on the U.S. on Stella. So a lot of your portfolio in the U.S. seems to be moving in the right direction, but Stella seems to have slowed a bit. So if you could talk about why you think this is and plans to address it?
On the first one, it is both. At the same time, we had a one-off tax credit in 2017 first half. We had a one-off tax payment in 2018 first half, is the kind of big swing in there. But both are consistent with the guidance we provided on a full year basis for both years.
Andrea, on Stella Artois U.S., you're right. On the other hand, one of the reasons why we reorganized the high-end side of our business in the U.S. was exactly because of this. This was one of the top reasons why. Because in the U.S., different than other countries, our high-end business invests a lot of time in managing our craft business. That's within the high end. Our craft business in the U.S. is much more -- is much bigger and much more diversified than in other countries. We have 12 craft partners. Our craft business is doing very well, growing way ahead up the segment, growing double digits in a segment that this quarter was flat, craft segment. So we're doing very well. But because of that focus on the craft, Stella sometimes was being left with not -- the attention it deserves. So Michel and his team decided to reorganize the high end into -- given the size of everything in the U.S., into 3 high-end subunits to bring focus. And that is the craft, which is what we've always had, which is Stella and other import brands and it's beyond beer with things like SpikedSeltzer and the Rita's. So we believe that from now on, given that the brand health metrics are at an all-time high and consumer preference and penetration and frequency is at an all-time high, we are going to now, with this new high-end structure, have more focus on Stella, group of people that will really live and breathe Stella. And what you see in Stella is that some markets, like Florida, New York, Texas are experiencing very good growth. But some other markets need to also follow. And again, bringing more attention will allow us to have more of a national focus.
And ladies and gentlemen, we have time for one more question. Our final question will come from the line of Simon Hales of Citi.
Two quick final ones, if I can. First, if I look at the overall H1 EBITDA growth, it's at 6.8%. There were lots of moving parts that are holding that back, from the shipping you faced in the U.S., the World Cup spend, high freight costs, truck strike, et cetera. Can you give us some thoughts of what you think the real underlying growth rate was in EBITDA for the half when we sort of perhaps strip out some of those one-offs? And then secondly, just going back to the U.S., Brito, I'd just be interested in your general thoughts and comments around brand equity now with your premium Premium Light brands. And we talked around the full year about how the Dilly Dilly campaign had sort of got people talking about Bud Light again. What are your consumers saying to you now about the equity of those brands?
Well, Simon, in terms of the first half EBITDA, you're right. I mean, we had the STW difference in the U.S. We have the FIFA phasing -- investment phasing in the first half, the trucker strikes, so we had a couple of things that are one-offs, clearly: the STWs, because our guidance is to converge; the FIFA, because it's over; and the truckers strike, because we think and we hope it's a one-off never to happen again in that sort of scale. And that took 3 percentage points of our growth in Brazil, one of our very profitable markets. So that, of course, is something that we don't expect to happen in the second half, and that's why we also guided for second half where things would accelerate and that -- and those were the reasons we gave at the beginning of the call, reasons to believe in that acceleration. The second part of your question was about Bud Light. Bud Light...
Yes. And just brand equity.
Yes. Bud Light in the U.S., you're right. I mean, if you look at some of the brand metrics, just the Dilly Dilly campaign, you see that we've had growth in consideration for the first time since 2015. So growth in consideration. We've also seen, if you look at IRI, our share within the plane -- with the Premium Light segment is now, for the third quarter, getting better -- the second quarter, sorry. The same with the plans for reconception and now again consideration for the first time since 2015 back to positive. And Bud Light continues to lead social conversations in the second quarter, ahead of all brands in the U.S. So in a very good base in and the benefit of having some line extensions, like Bud Light Orange, that's like -- in many places out of stock already, and Bud Light Lime being reintroduced with now all-natural. So I mean, all these things help the mother brand. And the -- yes, so we're very excited about where Budweiser -- Bud Light is going. And if you look at Budweiser, it has kept a flat share now for the past 2 quarters within the premium segment, okay? It continues to lead with incredible content, bringing also multiple lines at the Cannes Festival. And looking forward, the brand will continue to lead in the American cultural calendar with the Freedom Reserve that we had in Q2 for the second year, Freedom Reserve, but also now in Q3, connecting to iconic brands in the U.S., that is Budweiser and Jim Beam, with co-creation that will be available now in the third quarter. So lots of good news for Budweiser. Lots of new news for Bud Light. But again, the solution in what's happening in the U.S. and what's working best in the U.S. is that we're playing a portfolio game, not a Bud and Bud Light game. And I think that's important to say. So I just comment on Bud and Bud Light, but there's a lot to be said that I mentioned here in the call about Michelob Ultra. It continues to be the biggest share gainer in the U.S. now with a line extension that's also one of the biggest share gainers in IRI. We have the high end that's now being split in different focus areas to drive Stella, for example, stronger. And we have our crafts that are growing double digits in a market that's now flat as the total U.S. market for craft. So the portfolio gain is the one that will get us to win in the U.S. now with Bud and Bud Light. But of course, Bud and Bud Light being a better place will always be very important for our overall game in the U.S. So again, Simon, thank you for your questions. Thank you, everybody, for participating. In summary, the second quarter delivered solid results, and we saw improving trends in many of our key markets. We're pleased to see our global brand portfolio accelerate its growth, especially Budweiser, as a result of highly successful FIFA World Cup activation. Looking forward, the second half of the year, we continue to expect our growth to accelerate as we leverage the learnings of the category expansion framework and share best practices across our markets. However, we're never completely satisfied with our results. Thus, we're making organizational changes to accelerate growth and continue our strong track record of value creation. We remain excited about the long-term prospects of our geographic footprint, our brand portfolio and our worldwide caliber and believe -- and we believe we're well-positioned to continue growing the global beer category. So thank you very much. Enjoy the rest of your day. See you next quarter. Bye-bye. Thank you, Maria.
This does conclude today's earnings conference call and webcast. Please disconnect your lines at this time, and have a wonderful day.