Aug 11, 2011
Executives
Carlos Brito – CEO Felipe Dutra – CFO
Analysts
Mark Swartzberg – Stifel Nicolaus Chris Pitcher – Redburn Lauren Torres – HSBC Jon Fell – Deutsche Bank Nico Lambrechts – Bank of America Merrill Lynch Dirk van Vlaanderen – Jefferies Ian Shackleton – Nomura Simon Hales – Barclays Capital Caroline Levy – CLSA Andrea Pistacchi – Citi Alice Longley – Buckingham Research Chris Skippers [ph] – Peter Cam Jason DeRise – UBS
Operator
Welcome to the Anheuser-Busch InBev second quarter 2011 earnings conference call and webcast. Hosting the call today from Anheuser-Busch InBev is Mr.
Carlos Brito, Chief Executive Officer. To access the slides accompanying today’s call, please visit Anheuser-Busch InBev’s website now at www.ab-inbev.com and click on the Investors tab.
Today's webcast will be available for on-demand playback later today. At this time, all participants have been placed in a listen-only mode and the floor will be open for your questions following the presentation.
(Operator instructions) Some of the information provided during the conference call may contain statements of future expectations and other forward-looking statements. These expectations are based on 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-20F filled with Securities and Exchange Commission on April 12th, 2011.
Anheuser-Busch InBev assumes no obligation to update any forward-looking information provided during the conference call. It is now my pleasure to turn the floor over to Mr.
Carlos Brito. Sir, you may begin.
Carlos Brito
Well, thank you, Jackie. Good morning, good afternoon, everyone and thank you for joining our second quarter 2011 conference call and webcast.
As usual, I'm joined here today by our CFO, Felipe Dutra. So let’s get started.
Today, we have reported solid results in the three-months ending June 2011, delivering EBITDA margin expansion and earnings growth. In fact, we have now reported 11 consecutive quarters of year-over-year normalized EBITDA margin expansion since the combination Anheuser-Busch at the end of 2008.
We also continued to deliver strong cash flow results with cash flow from operating activities in the six months to June 2011 reaching more than $4.5 billion, a growth of almost 10% on a reported basis. Our own beer volumes drove momentum after a slow first quarter, growing by 0.6%.
As confirmed in our outlook, we expect this momentum to continue in the second half, especially the first quarter. Our Focus Brands grew at even faster rates of 2.3%, with particularly strong performances from Budweiser, Harbin and Sedrin in China.
The performance of global Budweiser, U.S. volumes, plus international volumes was particularly impressive with grow of 2.5% in the quarter.
We also announced a brand partnership of the FA Cup [ph] for the next three years, a property we will be able to leverage to support our soccer platforms in multiple countries. Total revenue grew by 3.7% and by 3.4% on a per hectoliter basis, helped by disciplined field sales execution and the revenue management best practices.
Revenue per hectoliter grew by 4.4% on a constant geographic basis. The focus on revenue management coupled with continuous investment behind our brands should allow us to deliver revenue per hectoliter growth ahead of inflation on constant a geographic basis for the full year?
In United States, we estimate our market share decline by 50 basis point, mainly attributable to the sub-premium segment, while achieving good progress in Focus Brand performance. We gained and maintained share in Argentina, Belgium, Canada, China and Germany and made consistent progress in line with our brand and pricing strategies in Brazil, Russia and the U.K.
We increased our investment behind sales and marketing by 3.9% in the quarter and by 4.3% in the half year. This compares to a growth of 7.6% in the first half of last year, which included incremental spend related to the FIFA World Cup.
Our guidelines for growth and sales and marketing spend for the full-year remains at mid-to-high single digits. Finally, EBITDA grew by 11.7% in normal terms and 6% organically, while EBITDA margin expanded by 83 basis points year over year to 37.7%.
I would now like look in a little more detail at our progress in the United States, Brazil and China. In the US, we are all aware that high levels of unemployment remains the most serious challenge for the economy.
Although this clearly impacts our consumers and our business, it is outside of our control. We must have full focus on what we can control.
We have confidence in our US strategy and we are putting all our efforts into its execution. US industry volumes in the quarter were impacted by poor weather and gas prices.
However, the quarter ended on a positive note, with industry enjoying better volumes during the 4th of July holiday period, with IRI reporting industry beer volumes up 1.4% in the four weeks to July 10th and the combined food, drug, mass, convenience channels. Our shipments in the quarter declined 1.7% while STRs, sales through retailers declined by 3.4%.
As I mentioned earlier, we estimate the market share decline in the U.S. by approximately 50 basis points in the quarter.
We gained share with Bud Light, Michelob Ultra in our high end portfolio. But as anticipated, we saw share loss in the sub-premium segment, as we continued to close the price gap, that’s premium.
We also saw share loss with Budweiser, but the rate of decline is decelerating quite rapidly. Our revenue management results continued to be strong.
Beer-only revenue per hectoliter grew by 3.6% in the quarter, driven by our September 2010 price increase, as well as improved mix which we estimate provided a benefit of 52 basis points. As you know, our number one priority in the US is to accelerate the growth of Bud Light.
The key brand health indicators for Bud Light continued to improve and we gained share in the quarter. Budweiser and Bud Light are encouraging.
We believe we can do better. With this in mind, we are excited to be the official and exclusive beer sponsor for the NFL.
Our multi-year partnership began on April 1st and we look forward to leveraging our investment to connect Bud Light more closely with NFL fans. NFL is about the fan, about action and it is about fans getting together.
And as such, is perfectly aligned with the Bud Light brand. Our goal is to bring consumers closer to some of the ultimate NFL’s fan experiences.
We will be celebrating back to football with the Bud Light National Happy Hours in September to kick up the season and we will be launching new TV campaign coupled with the strong visitor platform to drive consumers to retail. Additionally, at retail, consumers can expect to find new packaging and innovations, including limited edition team specific cans and packs with innovative functional benefits.
The stabilization of Budweiser in the U.S is also another major priority for us. And therefore, I am pleased to report that the brand has just delivered its best half year volume performance in 11 years.
As you know, the brand has been losing share for some time, but according to IRI combined grocery and convenience store data, the brand cut its share decline to 0.3 percentage points in June 2011 from a decline of 0.8 percentage points in June 2010 on the rolling 12-month basis. Even more encouraging is the fact that share has been flat on a rolling 12-month basis since January 2011.
This is very encouraging results for Budweiser, but we still have more to do. So what have we done so far with Budweiser?
Since the third quarter of last year, we have been working hard in partnership with our wholesalers on the coordinated series of initiatives, most reasonably a system-wide execution focus from Memorial Day through the 4th of July. During this period, we announced limited edition patriot can, the (inaudible) program and the National Happy Hour on Flag Day on June 14th, initiatives, which stimulated consumer sampling, awareness and reconnection with the brand.
We are going to build on this momentum and last week, we announced a new global visual, brand identity for Budweiser. The refreshed packaging involves a new (inaudible) designed Budweiser can, as well as changes to aluminum bottle in all secondary packaging.
This fresh contemporary look is designed to appeal to new Budweiser consumers and drive the appraisal, and at the same time, reinforce Budweiser’s heritage among our current consumers. New packaging passed it extremely well and we believe we have a winner in our hands.
Next, I would like to address the high-end growth. We are making with the high end and have grown in this segment by a 4 percentage points since December 2010.
Working hand in hand with our wholesale partners, the sales team has added over a quarter of million new points of distributions in six months. A great effort, but we can still do better and we will.
High end sales to retailers, STRs were up 18.7% in the quarter and 16.5% in the half year. All of our major brands in this segment saw growth in the half year, with Stella Artois growing 22% and Shock Top over 76%.
Goose Island, our recent acquisition, grew by double digits in the quarter. And as the integration process continues, we are gaining valuable insights into the high-end segment.
Turning now to Brazil, Brazil has seen a slowdown in consumer spending this year, driven in part government policies to curb the risk in inflation after a strong GDP growth in 2010. However, we firmly believe that this slowdown is temporary and we remain confident about the growth prospects for the country and our industry in the medium to long run.
Our constants is based upon the continuing growth of the C&D consumer classes of 7.5% real, 14% nominal, increase in the minimal wage which should be implemented in January 2012 and the economic growth that will be triggered as the company prepares for the FIFA World Cup in 2014 and the Olympics in 2016. Beer brands in Brazil declined 2.6% in the quarter driven by difficult comps.
You will recall that volumes grew 13.7% in the second quarter last year helped by the FIFA World Cup. This was on top of 7% growth in the second quarter of 2009.
Low growth in real disposable income this year is also impacting volumes. Although volumes were soft, we delivered a strong revenue performance, with beer revenue per hectoliter growing by 8.1% in the quarter driven by our price increases and a higher mix of direct distribution volume.
Revenue per hectoliter grew 10% for the half. As we have seen in previous years, we initially lost market share after we took pricing in the fourth quarter last year, increasing the gap, the price gap to competitors.
However, as expected, we have started to recover this loss and share has been growing sequentially since February of this year. In fact, share reached – market share reached 69.3% in the month of June and we achieved our total highest second quarter share in the last ten years.
This has been achieved through strong consumer preference for our brands, continued brand investment and disciplined sales execution. EBITDA for the Latin American zone continues to be strong and grew by 10.3%, bringing the half year growth to 10.9%.
EBITDA margin expanded by 234 basis points in this quarter. Our approach for Brazil remain on track.
Consumer preference for Focus Brands, Cobra [ph] and Antarctica continues to grow and remains more than 10 percentage points ahead of their combined market share, driven by consistent brand building investment. Secondly innovation, our pipeline remains very strong.
The last two years have demonstrated our ability to use innovation to lead and shape the existing industry and create a better industry for the future. We have also demonstrated that innovation does not have to confined to liquid and package.
For example, within our existing route to market model, we have been practicing new propositions involving both on premise and off premise. Our third focus area in Brazil is the premium segment.
This is a big opportunity for us since it is underdeveloped and represents only 5% of the industry. We have the right franchise to shape this segment and deliver long-term volume and margin growth.
Stella Artois is now the fastest growing brand in premium, growing by almost 200% in the first half of this year, complementing our local brands Original and Bohemia. Also some consumers in Brazil will be able to enjoy Budweiser with the launch planned for later this month.
Finally, regional growth. The Northeast continues to offer an opportunity for growth and we’re gaining share primarily led by Skol.
We are also rolling out our liquid and package innovations across the country based on the consumer opportunity. As I have said before, 2011 Brazil will be year focused more on the revenue management than volume.
But we remain confident about growth prospects for the industry in the medium and long run. Finally, China.
China is an exciting and growing market for us with significant long-term volume and margin potential. There is strong consumer demand for beer, especially premium brands and per capita consumption is growing.
Our beer volumes grew by 11.7% in the second quarter, with our Focus Brands, Budweiser, Harbin and Sedrin which account for approximately 70% of our volume growing by 21.3%. All three of these brands grew by double digits in the quarter.
We successfully transitioned our local value brand portfolio volume into our Focus Brands over time. And as a result, we maintained market share in the quarter with good revenue per hectoliter growth.
In summary, we are very pleased with the progress we’re making in implementation of our strategy in China and in particular in the premium segment. I would now like to hand over to Felipe to discuss the zone performances and the below EBIT line items in more detail.
Felipe?
Felipe Dutra
Thank you, Brito and hello, everyone. Let me start with North America.
As Brito mentioned, shipment volumes in the US in the quarter declined 1.7%, while sale to retailers, STRs decreased 3.4%. As you know, there will always be variations between shipments and STRs from quarter to quarter, but take it a year as a whole, absolute shipments and the STRs should be closely aligned.
In Canada, beer volumes fell 1% on the back of our soft industry. We saw flat share in the quarter and the share has been stable at around 41% level for the last 15 months.
Balancing volume and profitability is the priority in North America. And in the second quarter, we grew the EBITDA margin in the zone by 66 basis points to 43.3%.
Our performance, well ahead of our main competitors. In doing so, we delivered $70 million of (inaudible) integration and synergies of $145 million in the half year and remain track to deliver at least our committed quarter billion dollars on a cumulative basis this year.
Latin America North, beer volumes were down 2% and soft drinks grew 1.9%. Brito has already commented on our volume performance in Brazil and that on prior year comps.
So that did – that grew 10.3% in the quarter and margin expanded by 234 basis points to 46.2%, with revenue growth and lower admin expenses more than offsetting higher input costs and distribution expenses. In Latin America South, saw our total volumes decline by 0.2% in the quarter with beer volumes up 2.9%.
Argentina grew volumes by 4.5%, and we gained market share with Stella Artois growing double digits. EBITDA in the zone grew over 20% in the quarter.
In Western Europe, own beer volumes declined 1.6% in the quarter, with all countries in the zone gaining or maintaining market share, with the exception of the UK, which faced difficult comparables due to the FIFA World Cup in 2010. Total volumes declined 4.3% driven by determination of legacy commercial product contracts, which delivered an immaterial EBITDA contribution.
Our beer volumes in Belgium grew 3.2%, driven by good weather and the rollout of a number of innovations. Germany enjoyed a very strong quarter with own beer volumes growing 9.9% driven by good Focus Brand performance, share gains, new product launches, line expansions, favorable weather and the relisting of our products by an important off-trade customer.
Our beer volumes in the UK declined by 16% in the quarter against our tough comparable of over 18% growth and that was doubling of Budweiser volumes driven by the work done. The second quarter also saw the successful launch of Stella Artois which we believe is on track to become one of the UK’s most successful new product launches in any consumer product category.
EBITDA in the zone grew by 1.7%, with margin expansion of 278 basis points. Central and Eastern Europe volumes declined 3.1% in the quarter.
Russian beer volumes declined 6% to soft drink industry as well as market share loss in the so-called low price segment, a segment we have chosen to deemphasize as we focus on the (inaudible) of our portfolio. Looking at the first half of 2011 as whole, we lost 20 basis points of market share in volume terms while gaining 60 basis points of share in value terms growing from 15.7% to 16.3%.
Ukraine beer volumes grew 1.2% helped by new digital media on trade programs and Trinity lager line expense. EBITDA in the zone declined by 19.8% due to higher commodity costs, higher transport tariffs and the right distribution leading to higher distribution expenses, but that should not be viewed as a proxy for the remaining of the year.
Last, but not least, Asia Pacific. Second quarter volumes rose 12.1%.
In China, as Brito confirmed, our beer volumes grew by 11.7% with Focus Brands growing by over 20%. Zone EBITDA increased over 50% in the quarter driven by revenue growth and improved brand mix, partially offset by higher cost of sales and distribution expenses.
There were also favorable sales and market being comparisons due to incremental investments in 2010 related to the work done. Before moving to below EBIT line items, I would just like to reconfirm our previous guidance of that in 2011 we expect the consolidated cost of sales per hectoliter to increase by low single digits on a constant geographic basis and for distribution expenses to increase by mid-single digits.
In the half year, we generated over $4.5 billion in cash from operating activities and the seasonality of our business should result in even stronger cash flow generation in the second half, positively impacting the timing of debt paid down and therefore, interest expenses. We are also continuing to have to drive our commercial innovation pipeline and in building capacities to meet demand in growth markets such as Brazil and China.
We have previously guided full-year 2011 net CapEx of between $2.7 and $2.9 billion. However, we are revising this guidance to approximately $3.1 billion due primarily to foreign exchange fluctuations mainly depreciation of the Brazilian reais, euro and Chinese won against the U.S dollars.
Turning now to the below EBIT line items. Our net interest expense continues to decline year over year as we reduce our (inaudible) level and manage our average.
With regard to net debt evolution, it is important to point out that approximately 37% of our debt is denominated in (inaudible) other than U.S dollars, mainly the Brazilian reais and the euro. The weakening of the U.S dollars in relation to these currencies in the half year negatively impacted the absolute level of our debt and therefore our interest expense, although the movements in action rates have a positive effect on reported EBITDA.
In summary, we remain fully committed to the leveraging and expect to reach net debt EBITDA ratio of below 2.5 times by the end of 2011 as we progress towards reaching out target of two times during the course of 2012. I would also like to confirm our expectations for the average coupon and our net debt for the full year between 6% and 6.5%.
Other financial results show an adverse variance of $487 million compared to the second quarter last year, and this is due to the booking in 2010 of favorable market to market adjustments on derivative contracts. Our normalized effective tax rate excluding the effect of non-recurring items dropped to 19.8% versus 25.4% in the same quarter last year.
This decrease is due to approximate shift to countries with lower marginal tax rates, incremental income tax benefits in Brazil and favorable outcomes on tax claims. While we continue to expect the rate to be in the range of 25% to 27% in the long run, we expect the result to be below 25% in the full year 2011.
Finally, our normalized earnings per share for the quarter grew by over 11% to over $1 from $0.90. That concludes our comments for today and we would like to open up the lines for the Q&A.
Operator, Jackie, if you could please.
Operator
(Operator instructions) Thank you. Our first question is coming from Mark Swartzberg with Stifel Nicolaus.
Mark Swartzberg – Stifel Nicolaus
Yes. Thanks, operator.
Morning, gentlemen.
Carlos Brito
Good morning.
Mark Swartzberg – Stifel Nicolaus
Brito or Felipe, on Asia-Pac it was really an area strength in the quarter from a top-line and from an EBITDA perspective. Could you talk a little bit about how sustainable that volume strength and margin strength is going forward?
Carlos Brito
Well, I think, Mark, I think what we see in APAC and China is that our Focus Brands namely Budweiser, Harbin, Sedrin are performing very well. They represent 70% of our volume.
We still have some volume that we are replacing by this Focus Brand, so that’s why our share hasn’t progressed at the same phase of the Focus Brand. But we’re doing the right thing for the future because these three brands are the ones we’re investing heavily behind and they are growing double digits.
So they grew by 21% in the second quarter versus our total volume of around 12% for the quarter. So, we’re very happy.
We have two quasi, one national brand Budweiser and quasi national Harbin. And the uptrade of consumers in China is a reality.
So people are trading up, and that’s good for us, because we have our strengths on the premium segment. So we’re the leaders in the premium segment.
So we think we own solid brands. Our team is very motivated.
We are now expanding our operations. We have Greenfields.
We have some small M&As that will complement our footprint and that’s our plan in China. We are not looking back.
Mark Swartzberg – Stifel Nicolaus
Okay. Great.
And if I could switch over to the U.S, I mean, I think from an observer stand point, a perception that there is a lot of turnover in St. Lewis [ph], there has been obviously tension with your distributors.
And yet, the performance in the quarter was pretty good and you’re seeing some good things for brand Budweiser. It sounds like your optimism generally from a share perspective is growing.
So could you talk a little bit about from, you have been on record publicly saying you are really focused on organic growth now. Can you talk a little bit from where you sit, what you’re seeing within the organization here in the U.S that folks in the investment community or larger community may be missing from a kind of organizational capabilities standpoint?
Carlos Brito
I think I am very confident about our U.S organizational capabilities. I think what you’ve seen is that some people had some retirement arrangements and stuff and they left the company, some others left for some other reasons.
But you should think about the number of people we have in the U.S. and then the number of people leaving and then the – I would say, I don’t see that as a problem.
We are very happy with the innovations on the other hand that we’re bringing to the marketplace and that they think speaks to the fact that people are doing the stuff, they are doing behind Budweiser for example. I think our system was really well when you bring good ideas to them to execute.
So I mean, you look Bud Light line some two years ago. You look now what’s happening with Budweiser, what continues to happen with Bud Light, Shock Top, Stella.
So I think our system is a very strong system. Our wholesaler network is a big strength to our company.
And remember, people get a good idea, they get them to the market in a very efficient way. So I think what we have in the U.S is that we’ve decided when we got here two or three years ago, we decided to correct some pricing tree or pricing structure issues that were legacy issues.
And we’re feeling a little bit of the price in terms of the sub-premium ready brand segments. But again we’ve always said our business is to sell core and core above and premium brands, not value brands.
So that’s what we’re committed and that’s what we’re doing in the U.S. So we are very excited about the growth in our Focus brands because those are the brands that will a part of our future.
Mark Swartzberg
Great. Thank you, Brito
Carlos Brito
Thanks, Mark.
Operator
Your next question comes from the line of Chris Pitcher with Redburn.
Chris Pitcher – Redburn
Good afternoon. A couple of questions on Brazil please, obviously you regained market share in Brazil, during the period in Brazil, but are they slightly absorbed more of the XIDT [ph] increase, maybe otherwise bought, I wonder if you could talk briefly about how competitive price actions have been through the period in Brazil?
And then, specifically on the soft drink side, whether there is scope to recoup some of the lost revenue per hectoliter that we saw in the second quarter? And then following on from the guidance on distribution for the full year, that implies quite a significant step-down in growth in distribution expenses in the second half, is it really extreme now in Brazil you’ve got capacity in the north, just reason expense to be flat or even down year on year in H2, just want to try and understand that development?
Thanks.
Carlos Brito
Okay, Chris. This is Brito here.
I’ll try to tackle all three of them. In terms of Brazil, prices are very stronger, just saw 8% for the quarter, 10% for the half.
We said this year Brazil would be year of revenue management, correcting some things as opposed to volume growth, given the fact that the government is trying to cool down the economy a little bit. So against that would be not the wisest thing to do.
So, we’ve decided to take advantage that we ended the last year at record market share which gave us a lot of options to do things in terms of price pack as a strategy. We decided to increase more the price on the one way segment.
We like returnables more than one way. And that’s what we did.
So, we are very glad with it. We lost some market share, as we always do and I would like to do it, but it is always the case, because as you increase prices, competitors in the markets take some months to settle, but you should look at our market share on the sequential basis; it has grown since February.
And it is now June, it’s 69.3% and then after a huge, maybe a record increase price implemented in the fourth quarter of last year, plus another price increase in April, given that the exercised price increase. So I think the brand that was span [ph] very well.
Our market execution is spanning very well. What you see in Brazil was that there was a decline in net revenues per hectoliter in the second quarter compared to the first quarter, but if you look at the last two years, that has always been the case mainly for two reasons.
First, because we sell more cans in the shelter parts of the year’s first quarter and fourth quarter and cans command a higher revenue when included, as do in the second and third quarters. So that happens every year.
You can look back last few years versus same thing when you look at revenues per hectoliter for beer. And this year, there was a mismatch between the IPI price increase exercised, federal price increase that was did beginning of the month of April and our second price increase which was at the towards the end of Aprils so that affected a little bit the second quarter as well, but I am not too worried about that.
So I think the market is beginning to settle and that’s why our share is coming back given what the high price. And soft drinks, we don’t believe the market, so we are followers.
And yes, we – in the quarter, given that the exercised tax increase, or exercised tax increase in soft drinks was much higher than beer. We were not able to pass that fully to price and that’s our margin or revenue per hectoliter contracted a little bit.
I mean, you know the way we operate, we are committed to fix that. And in terms of – I guess your third question was about distribution expenses.
I think two things, again, first our outlook for the year hasn’t changed and that’s based a lot on two or three things. First, the fact that we are going to start with cycling some tough numbers for CE in Russia.
As you recall, the tariff increase was implemented by the government in the third quarter of last year. So, it has impacted the last four quarters.
As we go through the third quarter, the comps should be a bit easier. And also in Brazil, as you likely said, as we have the plants, the new breweries in the northeast starting to produce beer in large imported cans, that will be a positive impact with second half.
So that’s why we keep our – and if you look at the first quarter to the second half, there was already a big decrease from I think 14 plus to 9 in one quarter.
Chris Pitcher – Redburn
Okay.
Carlos Brito
So, we are committed to what we said we would do in our outlook for the logistics, the cost, distribution expenses.
Chris Pitcher – Redburn
Thank you very much.
Carlos Brito
Welcome, Chris.
Operator
Your next question comes from the line of Lauren Torres with HSBC.
Lauren Torres – HSBC
Good morning, everyone.
Carlos Brito
Good morning.
Lauren Torres – HSBC
Brito, my questions regarding the US and obviously it’s tough market and I think you are sending yourself upper beginning to take next round pricing actions and I understand you can’t be too specific at this point, but just curious about how you are thinking about pricing in light of how the consumer is behaving, do you think there is room for pricing as we look into next year? And I guess also with respect to market share losses, when should we expect to see a reverse on and maybe being able to regain some of that lost market share?
Carlos Brito
Yes, Lauren, thanks for the question. I mean, what we can say is that we are committed to reverse this market share losses, but doing it the right way.
It could be very easy to reverse it during the wrong way, but we want to do it in the valued added sustainable way and that we are willing to live with some time with that in the short term. We generally take price increases at this time of the year in the US, so there is nothing new.
Other consumer goods products are doing the same. So, we are not alone there in that domain.
Beer prices, if you look at the – in six years have been below CPI and the food category, so beer has been behind CPI and food category. And then our view remains I think beer tends to being elastic in the US.
I am not saying you don’t lose some value as you increase prices, but there are other things like demographics that should play in our favor and also the things like excellent investments that we are putting to support our brands. So, our strategy continue to be a one of among many things of narrowing the price gap between sub-premium and premium.
And you also need to remember the prices increases necessary to offset commodity price increases that we are facing even with all the ups and downs of commodities, even when they are down, they are still up versus last year, most of them. So, of course, we recognize that any price increase poses uncertainty and risk for some share loss in the short term, but increases will be different by geography, brand, package in order to remain competitive.
So, we are going to be competitive in the marketplace, but we have to do it – strive for the long term. And we think price is something that we need to correct, the lightest suite, the baggage the we inherited.
Lauren Torres – HSBC
And also you mentioned commodity costs that, I am not sure if you are ready to talk about that for next year, but any guidance or any idea of how you’re looking into next year?
Carlos Brito
No, I mean I am not ready to give a guidance for next year, but you know, is that we do – we have hedging policy, our hedging policy, the role of it is not to the beat the market, it’s just to give us some constants that we have – that we know our cost when we construct budgets and when we do price strategies. So, we are the beer business, not into commodity business, but given that it’s an important part of our business, we use hedging as the way to give us time to react.
That’s the name of the game time to react, not beat the market in any shape or form.
Lauren Torres – HSBC
Okay, thank you.
Carlos Brito
Thanks, Lauren.
Operator
Your next question comes from the line of Jon Fell with Deutsche Bank.
Jon Fell – Deutsche Bank
Carlos Brito
Well, for the full year, we are expecting to be below the 25%, but in the longer-run between 25%, 27%, so it’s too early to provide guidance for next year, but the long run range is 25% to 27%, but this year, specifically full year should be below 25%.
Jon Fell – Deutsche Bank
But you are expecting to be below 25% for the second half as well, or will you be back into that territory you think?
Carlos Brito
Well, below 25% for the full year taking into account what happened during the first half. So, second half will be the natural consequence of that, but it’s 25%, below 25% for the full year.
Jon Fell – Deutsche Bank
Okay, thank you.
Carlos Brito
You are welcome.
Operator
Your next question comes from the line of Nico Lambrechts with Bank of America Merrill Lynch.
Nico Lambrechts – Bank of America Merrill Lynch
Thank you very much. Good afternoon, gentlemen.
Just with respect increases in the US, could you give sense how far you have moved between the premium and price caps and if you take any price increases in October, should there still be disproportionate price increase on the sub-premium versus premium? And then – the outlook –
Carlos Brito
Yes, okay. Go ahead, Nico.
Nico Lambrechts – Bank of America Merrill Lynch
And just checking on the outlook, the first two quarter volumes that we saw for the US, we’re facing one year of pretty easy comps, as we go into the second half for the US, that you got two years of easier comps, could you give us any sense looking forward? Do you see any improvement in the consumer, any senses of what you feel how the beer market might react in the second half, or do you sense any inflections points?
Thank you.
Nico Lambrechts – Bank of America Merrill Lynch
Hi, Nico. In terms of the second question, no, we are not going to give any guidance in terms of the second half, but we will continue what we to – our strategies, things we can’t control.
Your first question about the US price, the gap closure between sub-premium and premium is a multi-year project. So I am not going to comment specific about the next price in October, but it is a multi-year project, that’s where we had it, but, of course, we are flexible on how to get there depending on many other things we learned along the way, but that’s where we had it.
Nico Lambrechts – Bank of America Merrill Lynch
Carlos Brito
No.
Nico Lambrechts – Bank of America Merrill Lynch
Okay. And you – I think you’ve mentioned that the gap was around 25%, I presume that is in aggregate across your total portfolio, can you give us a sense of at what level it is approximately at the moment?
Carlos Brito
I mean, those are profit numbers, but I think the gap was, I think, depending on package, region, channel. And I think if you look at the IRI, you would say that we contracted that, the gap by 2% or 3% – by 2 points or 3 points, but those – again, those are public numbers we can check.
Nico Lambrechts – Bank of America Merrill Lynch
Excellent. Okay, so it’s quite a way to go.
Thank you very much.
Carlos Brito
Thank you.
Operator
Your next question comes from the line of Dirk van Vlaanderen with Jefferies.
Dirk van Vlaanderen – Jefferies
Hi, thanks very much, Carlos. Just a question going to central Eastern Europe, if you can maybe give a sense for how much of the volume decline was market versus ABI performance?
And then Felipe made a comment about the performance in the first half lumping approximately for the full year, is that just because you are rolling through food the comps, etcetera, was it going to be coming off of maybe should we know about in that region?
Felipe Dutra
Well, starting from the second part of the question, there are facts behind it. The first one as – pointed out, there is a significant increase or there was a significant increase in the third quarter of last year in terms of distribution expenses, and now, we will be cycling that one.
So we are going to get easier comps. And secondly in terms of cost of sales per hectoliter, in the second quarter of this year, we saw a big spike in terms of our cost of sales per hectoliter growth year over year, significantly higher on more than twice the increase of the first quarter.
And we see the cost of sales per hectoliter increase year over year for the second quarter as a kind of one-off and not a proxy for the remaining of the year.
Carlos Brito
In terms of, Dirk, your first question, and then, of course, what happened in terms of volume industry or most of the industry, some of it is volume share, where we gain value share. So, yes, there was some volume share slippage on our side, but most of it was industry negative territory.
Dirk van Vlaanderen – Jefferies
Okay, thanks very much.
Operator
Ian Shackleton – Nomura
Yes, good afternoon, gentlemen. Thinking about how you use free cash flow and I appreciate at the moment the focus on deleveraging, but I suspect you look at your stock at the moment, $34, maybe it becomes all the more cheap where do you think free clash will be used wise going forward, if you are going to think about dividend and also buybacks over the next 12 months?
Felipe Dutra
Hi, Ian. Felipe here.
This is somehow a good problem to have, I believe many – we have been deleveraging in line with the plan. We are still not there yet, but while going to the target of we have reviewing dividend payment upwards and we remain targeting a kind of dividend yield in line with other FMCG companies, recognizing that we work below that level this year.
I don’t think it’s appropriate for me to express an opinion on the current share price while respecting your comments, but we will be monitoring the situation. And we understand the market has been very volatile, and volatility may stay, who knows for how long, but we will be managing that accordingly.
Ian Shackleton – Nomura
Fair. But I guess my question really was, you have set these targets, I know given the target for this year, 2.5 times of your EBITDA, 2 by the end of next year, and see, you don’t need to meet those targets from a point of view of the debt covenants any more, I mean, how much flexibility is there if there is value to be added through using cash in other ways?
Felipe Dutra
Yes, we understand and recognize that flexibility. And together with our Board, we will be monitoring the situation and we will be acting accordingly, but we do have that flexibility.
Ian Shackleton – Nomura
Okay, thanks so much.
Felipe Dutra
You’re welcome.
Operator
Your next question comes from the line Simon Hales with Barclays Capital.
Simon Hales – Barclays Capital
Good morning, guys. Just a couple of questions going back to the whole issue of volume, if I can, just firstly on Brazil, I wondered you’ve done work just strip out if you can, in the Q2 what you think the impact of the World Cup was on the complexities to give us a feel for – actually underlying was at – how that for the last quarter?
And then just building on from that, Brito, in terms of your comment on H2 for Brazil, am I right to read what you are saying is that you generally expect volumes in Brazil in negative territory for the remainder of the year? And then shift to the US, obviously you flagged the improving IRI data through early July, is there anything we should be aware of that’s driving that from a technical point of view?
Interesting your general comments on why think you’ve seen the pickup there?
Carlos Brito
And you put on top of that the minimum wage increase that had a real increase in Brazil this year, but we will have a very big increase next year in January. So, because of all that, we saw that this year was the year for us to correct some revenue and price increase initiatives in Brazil, given that we ended last year in the record share.
And doing all that was to have the 69.3% share at June. So, we are very happy with that performance and with our going for next year in terms of supply chain, product offering, innovations, because we think January next year with the minimum wage coming could be interesting for the beer industry.
And your second point was?
Simon Hales – Barclays Capital
Just on recent US IRI data, what you think just given the uptick there and any technical facts, you should aware of?
Carlos Brito
I mean we don’t comment on the third quarter, the only thing we said, because it’s public, is that IRI said that the four weeks leading to July 10, including the 4th of July was, the industry was in positive territory, 1.5%. So, that’s what we said, but we don’t comment on July and because that’s third quarter.
Simon Hales – Barclays Capital
Okay, thank you.
Felipe Dutra
You’re welcome.
Carlos Brito
Thank you.
Operator
Your next question comes from the line of Caroline Levy with CLSA.
Caroline Levy – CLSA
Good morning, everyone. I wonder if you could talk a little bit about the metrics on brand health in North America, because it’s something you’ve stretched the law that you watched for your ability to grow volume over time and if you could just tell us a little bit more about that?
And then also, when does NFL advertising begin to hit the airwaves and what can you expect from that?
Carlos Brito
In terms of brand health, we believe that brand health today is market share and topline growth tomorrow. So, that’s why we have a very strict way of measuring and tracking brand health of our Focus Brands across all of our markets.
And we are very excited because Bud Light continues to show increasing brand health; Budweiser, same thing; Ultra and Stella, our high-end portfolio. So that’s something that gives us encouragement, because for us that’s brewing for the future.
Caroline Levy – CLSA
Thank you. Can I also just ask, inventory levels going into the quarter were a sign, is that what you are indicating by saying that if 2010 end shipment to match by midyear?
Felipe Dutra
Hi, this is Felipe here. Let me address the second question.
The impact here, you’ve seen in terms of net revenues per hectoliter in Europe is very much driven the termination of legacy contracts in UK, also had an effect in our volume as I referred to. Legacy contracts have had very high net revenues per hectoliter, also very high costs.
That’s why we said on the EBITDA line, the impact isn’t [ph] immaterial and not having to deal with it will allow us to focus completely on our brand and developing our portfolio. So, we are pleased about that outcome.
However, that has an impact on our net revenues per hectoliter which is not price related.
Carlos Brito
Caroline Levy – CLSA
Thank you so much.
Carlos Brito
Welcome.
Operator
Your next question comes from the line of Andrea Pistacchi with Citi.
Andrea Pistacchi – Citi
Hi, guys. I had two questions, please.
One on, with the Budweiser launch in Brazil imminent, if you could just tell us a bit about maybe the ambition, whether the scale of this loan, is it national? And the second one on your Europe, on pricing, your revenue per hectoliter slipped a bit in the second quarter, I was wondering whether is some geographic mix in that, possibly Germany growing fast, or is it a sign of deterioration of it and the pricing environment in Europe and Western Europe?
Thanks.
Carlos Brito
Budweiser is a brand that has already Brazil, given all the sponsorships that Budweiser carries from the World Cup, all inaugural sports and music and celebrities’ association. And so, people know the brand, but they can’t buy the brand.
And we think given the brand profile and the positioning in terms of celebrating good times, we think that will be something that will add to our portfolio in Brazil. Just to complement, Stella, grew 200% in the first half of Brazil.
It was the fastest growing brand in the super premium segment And Budweiser will be launched in the next three weeks, (inaudible) and that’s something that we are very excited.
Andrea Pistacchi – Citi
And is this – can I just follow-up, is this launch going to be sort of at the same time national or is it going to be a sort of a gradual rollout?
Carlos Brito
It’s going to be more focused in the 70% of Brazil which is the south and southeast, it will be national in terms of availability and trade mark activities, but most of the campaign in the first months will be concentrated in the south and southeast.
Andrea Pistacchi – Citi
Great. Thank you.
Carlos Brito
Thank you.
Operator
Your next question comes from the line of Alice Longley with Buckingham Research.
Alice Longley – Buckingham Research
Hi, good morning. And my question is about your volume comments, I think in your press release you said you expect this momentum of volume improving from the second quarter – first quarter into the second quarter to continue into the second half, especially the fourth quarter, does that mean you expect volume to continue to accelerate so to be stronger in the third quarter than the second quarter?
Or in the second half in the second quarter?
Carlos Brito
No, we didn’t split third quarter and fourth quarter. In that fashion, what was said is that we expect volume to continue to gain momentum in the second half, especially in the fourth quarter.
Alice Longley – Buckingham Research
So, second half volume should be up more than the second quarter volume?
Carlos Brito
Again, we said momentum would be building, so it build from first quarter to second quarter. We said it will continue to build for the second half, especially in the fourth quarter.
Alice Longley – Buckingham Research
And what are the reasons for that? Is that most Latin America and North America, what are the reasons that volumes becomes stronger in the second half than the second quarter?
Carlos Brito
Well, the reasons for that is some comps that we had for last year, okay. And especially in Brazil and that is something that as you lap those easier comps in the fourth quarter especially in Brazil that will be the benefit for this year.
Alice Longley – Buckingham Research
And then if we look at price mix on some of the comments you made about Brazil indicated that maybe price mix also could be better half versus the second quarter, is that –?
Carlos Brito
No, what I said is that there was a question about net revenue in Brazil, that fluctuated from first quarter to second quarter and what we said is that that’s normally the case, if you look at last three years, has been the case and that’s because we sell more one ways in the first and fourth quarter of the year. So that is right, net revenue.
Plus, we have our price increase in Brazil normally in the fourth quarter, so the fourth quarter and first quarter tends to be stronger in terms of net revenue year on year vis-a-vis – versus the second and third quarter, that’s pretty much solves the case.
Alice Longley – Buckingham Research
Carlos Brito
Alice Longley – Buckingham Research
Okay. And then my another question is about Bud Light versus your two leading competitors in that segment, looking at all the data, you look at on – did Bud Light gained more share than the others, or less share than the others?
Carlos Brito
Well, Bud Light gained share in this quarter and in the half and that’s something that we intend to continue to accelerate. When I talk about our priorities for the US, there were a couple.
First one was to accelerate even further the Bud Light, because it’s a brand that has 21% of the market in the US, tremendous loyalty with the consumers. We think now we can still do even better job, because NFL is not in the base of Bud Light and it’s going despite not having the NFL.
Our second priority is Budweiser stabilization. And this first half was the best in 11 years.
The third priority is the high end, the high end brands and the fourth priority is to continue to be very disciplined and that is given the market growth that we have and the strategy that we have for the second half.
Alice Longley – Buckingham Research
Do you think Bud Light gained share within the premium light segment?
Carlos Brito
If you look at IRI, no.
Alice Longley – Buckingham Research
Okay. And then with the NFL deal kicking in, how – what will the average consumer see as effective bet?
I mean, I am assuming that your competitors will be advertising on TV too, so the TV exposure doesn’t necessarily, right. So what is the difference that the consumer really sees with your NFL sponsorship?
Carlos Brito
Well, it is the same thing as any property. I mean just look at what they did with FIFA and then with the FIFA World Cup, everybody could announce around the FIFA World Cup games and activities, but we were the only ones in terms of beer that had the property, the footage, the prime time and so on and so forth.
So, that makes a huge difference, because today, what get consumers to hook up with you is really content. And if you can provide content as opposed to – today consumers don’t like to speak at them, they like you to speak with them and for you to speak with them and interact with them, you need content.
And when you become the exclusive sponsor of something as huge as the NFL, the big sports in our franchise in the US, you have tons of content and that’s what consumers are looking for. They are not just looking for nice ads before and after games.
They are looking for content providing companies and we can provide those contents.
Operator
Your next question comes from the line of Chris Skippers [ph] with Peter Cam [ph]
Chris Skippers – Peter Cam
Yes, good afternoon. Thank you for taking my call.
I’ve remaining questions on the US. Firstly, regarding your pricing, pricing at the high end, could you get some more color on that, how much that influenced the pricing in Q2 and perhaps, linked to that going forward also was a question previously from what to do with your cash flow, could you consider doing transactions such Goose Island transaction a couple of quarters ago, just to get more across beers into your category?
Thank you.
Carlos Brito
Felipe Dutra
I would say that the cash flow generation was not a constraint for the Goose Island transaction. The same way [ph] is not going to be a constraint going forward.
We are being active on M&A in China in line with our strategy, more looking for capacity rather than brands. And as we rollout Budweiser and Hardin as mentioned, and so we have been active in China as well.
Chris Skippers – Peter Cam
But there is no linkage towards, for example, the current situation in the market in US that you could say, for example, your cash flow to indeed make more acquisitions in that high end markets to make yourself vulnerable, and certainly Budweiser, Bud Light brand of course, that’s not something you are considering a shift in your strategy for example, now you are focusing on China, but you could also focus on the US market, I would say?
Felipe Dutra
I mean we are focusing in the US market as well as China. We are investing in the US, not only in terms of brands, but also in terms of CapEx, in terms of M&A.
So US is, given the size of the business and relevance of the business, is a bigger priority for us together with Brazil, together with China.
Operator
Your final question comes from the line of Jason DeRise of UBS.
Jason DeRise – UBS
Hi, it’s Jason DeRise at UBS. A lot of questions, but very near term and focus, I wonder if we can look a bit longer term, in the US, you’ve come a long way on the margins, but do you think that you’ve done everything that you can on the margins there?
Do you think that there is more room to go compared to some of the other markets that you run big beer businesses in? And kind of a follow-up, just the global business, I mean what do you imagine the organic growth profile looking like on let’s say a five year view, other companies that are big FMCG companies give this type of thought, I am wondering if you do want to share some ideas of where you see the company growing organically?
Carlos Brito
Well, hi, Jason. I think in terms of margin growth, the one I can tell you is we kept opening [ph] our and challenging our colleagues for them to look at margins and learn, Latin America north and south gets an inspiration.
So that’s how we are working our company with positive competition and trying to get people to be competitive. So that’s how I would say about margins.
Our company has been a story of – a history of margin growth, margin expansion. So, that’s something we firmly believe in in general.
In terms of global business, no, we are not going to give you a five-year view and then but we remain very focused on the organic business and because we believe with the footprint we have, the scale, the people and the brands we have, we still have lots and lots to do and that’s what keeps us excited day in and day out.
Jason DeRise – UBS
Can I just follow up on the margin, is there any reason why the US beer market couldn’t match Brazil’s EBITDA margin, hypothetical long-term scenario, not like next quarter obviously?
Carlos Brito
Operator
Thank you. I would now like to turn the floor back over to Mr.
Carlos Brito for any additional or closing remarks.
Carlos Brito
Well, thank you very much for your time. Have a nice day and we will see you next quarter.
Bye-bye.
Operator
Thank you. This does conclude today’s teleconference and webcast.
Please disconnect your lines at this time and have a wonderful day.