Logo of jester cap with thought bubble with words 'Fool Transcripts' below it

Image source: The Motley Fool.

Anheuser-Busch Inbev SA (NYSE:BUD)
Q1 2018 Earnings Conference Call
May 9, 2018, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome to the Anheuser-Busch InBev first 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 Finance 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 the reports and filings page. Today's webcast will be available for an on-demand playback later today. At this time, all participants have been placed in a listen-only mode and the floor will be opened for your questions following the presentation.

If you would like to ask a question at that time, please press *1 on your touchtone phone. If at any point your question has been answered, you may remove yourself from the queue by pressing the # key. If you should require operator assistance, please press *0.

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.

Carlos Brito -- Chief Executive Officer

Thank you, Maria. Good morning and good afternoon, everyone. Welcome to our first quarter 2018 earnings call. Today, I'd like to take you through the results and highlights of our first quarter 2018 performance. Next, I'll take you through our global brand portfolio, as well as Budweiser's plan for the 2018 FIFA World Cup. Finally, I'll spend a few minutes on our recently launched 2025 Sustainability Goals before handing it over to Felipe to discuss our earnings.

Similar to our last conference call on 2017 results, we will not go into all the details of our original performances. We, therefore, encourage you to refer to the press release we published earlier this morning, and we will be happy to answer any questions on our markets during the Q&A portion of today's call.

So, let's start with the highlights. This year, we saw beer volume growth of 0.5%, with strong performances coming from many of our markets such as Mexico, Argentina, and Colombia, as well as China, following a tough comparable. Our global brand portfolio continued to perform well and to grow faster than our total portfolio. Our EBITDA grew by 6.6%, and we continued to expand our margins as a result of healthy top-line growth, ongoing cost efficiencies, and synergy capture. We have all been very focused on preparing for our biggest FIFA World Cup activation ever, with Budweiser as the global sponsor and more than 45 of our local brands as local sponsors. I'll share fuller details about Budweiser's plans in a bit.

As part of our ongoing commitment to a better world, we launched our 2025 Sustainability Goals in March, an ambitious set of targets focused on smart agriculture, water stewardship, circular packaging, and climate action. As you will see shortly, most of these targets are being championed by one of our global brands, which represents a win/win proposition for our global brands and for the sustainability targets.

Now, I'll tell you more about the results of the quarter. Our revenue in the first quarter grew by 4.7%, with [inaudible] growth of 4.9% and 5.3% on a constant geographic basis. This was led by markets such as Colombia, where our global brand portfolio is rapidly increasing penetration, and Australia, where we continue to see success of Great Northern, as well as our hanging portfolio.

Western Europe continued this momentum, growing revenue into the fifth straight year and outperforming a weak industry. Our U.K. business delivered double-digit revenue growth, despite cycling of very strong prior year.

In the U.S., while top line was softer due mainly to industry weakness, we continued to see progress in our commercial strategy. Our Bud premium brand portfolio continues to accelerate, increasing share by 80 basis points in Q1 '18. Michelob Ultra once again led the way in our premiumization strategy as the top gainer in the U.S. for the 12th consecutive quarter. Additionally, Budweiser and Bud Light both improved their share trends within their respective segments.

Our global performs continue to outperform on a global basis, increasing revenue by more than 12% outside of their home markets.

Our beer volumes grew by 0.5% as said before. Our business in Mexico delivered outstanding results with beer volume growth in the mid-teens. Argentina grew beer volumes by mid-single digits, and grew market share for the third straight quarter following a successful application of the category expansion framework to reposition Quilmes and Brahma, which are both experiencing solid growth. Additionally, in Africa, excluding South Africa, our own beer volumes grew by double digits in nearly all countries in which we operate. Nigeria was the top contributor.

EBITDA increased by 6.6% with margin expansion of 70 basis points to 38.2%. Brazil continued to show margin recovery with EBITDA growth of 5.5% and margin expansion of almost 300 basis points. Our normalized EPS decreased by $0.01 to $0.73 per share.

In the past, you have heard us discuss our global brands and their increasing expansion to new markets and contribution to our company and our results. Today, I'd like to tell you more about them, including Budweiser's plans as an exclusive official global beer sponsor of this year's FIFA World Cup. In the first quarter of this year, our global brand portfolio of Budweiser, Stella Artois, and Corona continued to grow at a strong pace. The portfolio grew revenue by 7.9% and by 12.2% outside of the brand's home markets, where they traded at premium and command higher margins.

In the first quarter 2018, while Budweiser total revenues were down by 1.3%, outside of the U.S., we saw growth of 2.5%. This growth was held back by a tough comparable in China, as we discussed at the full-year 2017 results, where Budweiser grew volumes by 18% in last year's first quarter. The brand continued to perform very well in Brazil, where it sponsored the Lollapalooza Music Festival this quarter, feature several iconic performers. We also very strong results from many of the markets where we have been ramping up our presence with Budweiser, such as India, Paraguay, and South Korea.

Stella Artois had a solid quarter, with revenue growth of 12.3% and strong performances coming from Argentina, the U.K., and the U.S. It was also highlighted in the Super Bowl commercial in the U.S. for the first time since 2011, featuring our Better World campaign of "Buy a Lady a Drink."

Corona extended its impressive track record of international growth combined with the very strong result from its home market of Mexico. Revenues are up by 25.1% and by 40.3% outside of Mexico. The brand continues to grow rapidly in the super-premium segment in China, where it recently became the No. 1 imported beer brand in the country. We are also seeing very promising results from our new markets, where we have been stepping up our activation and distribution.

This portfolio of global brands plays an important role within our category expansion framework that we introduced to you during the last year's call in 2017. This framework allows us to think deeply about the beer category as a whole and how it can be expanded to meet new consumers and new occasions. Premiumization represents a major opportunity in many of our markets, both emerging and developed, as a rapidly growing and possible trend. Within the category expansion framework, our global brand portfolio premiumizes and drives the category upward to provide incremental value to our consumers by expanding the price spectrum.

Let me share some of the unique attributes that have allowed our portfolio to grow successfully as a genuinely global brand portfolio. Within the global brand portfolio, each brand maintains its own territory, brand position, and price point, allowing differentiation and minimizing overlaps. Budweiser is the perfect beer for high energy, premium party occasions, such as Tomorrowland, which we have highlighted in the past. Budweiser's position below start on the pricing ladder in above core lagers, an affordable luxury to which consumers can trade up.

Stella Artois premiumizes the meal occasion, as well as adding an element of sophistication when one is hosting an event. Stella Artois sits right in the middle of the three brands within the price ladder.

Corona's primary position is within coed social occasions, which aims to bring more women into the beer category. It's position as a super-premium brand, commanding a higher price point than Budweiser and Stella Artois.

Now, I'd like to take a few more minutes to discuss each brand in further detail. I'll start with Corona, our most premium global brand, and the world's second largest global brand by volume, behind only Budweiser, according to BrandZ. Corona encourages customers to spend more time outside, disconnecting from the daily grind. This is evident in its campaign platforms and experiential activations, such as the 7,500 Corona Sunsets Music Festivals with health. This is especially evident in how the brand works toward a better world through its partnership with Parley. Together, we have committed to help clean up the ocean by making 100 islands free of plastic by 2020, cleaning up the outdoors so that we can spend more time there.

The opportunity we see with Corona is that it has a market share of 3% or higher in only three countries where we own the brand: Chile, Australia, and Mexico. While the brand continues to grow double digits globally, it's still very far from reaching its full potential.

Moving on, I'd like to discuss Stella Artois from our home country of Belgium, with a brewing heritage dating back to 1366. Stella Artois [inaudible] for the joie de bière, enjoy the beer and enjoying life, especially during the meal occasion. We estimate that meals represent over 40% of total [inaudible] occasions globally, though beer is under-represented in this space. Stella Artois is the perfect beer to gain share of local volume in meal occasion, especially from wine, as markets mature.

Stella Artois is also committed toward our shared dream of bringing people together for a better world. This is especially evident through its "Buy a Lady a Drink" platform, launched in partnership with water.org and Matt Damon. This platform has helped provide water access to over 1.7 million people since its launch in 2015. This past year, we sold more than 350,000 limited edition Stella Artois chalices to benefit the program, a year-over-year increase of 35%.

From here, I'd like to talk about Budweiser, both its position and its role as the global beer sponsor of this year's FIFA World Cup. Budweiser is the most valuable beer brand in the world, according to BrandZ, and the No. 1 global beer brand by volume. Budweiser encourages consumers to trade up in high energy social occasions and is the flagship premium brand in the party space. Results were our [inaudible] team and assets come into play, such as music festivals like Tomorrowland and Lollapalooza, as well as sporting events, including this year's FIFA World Cup in Russia.

This year, we're launching the biggest commercial campaign ever [inaudible] Inbev called "Light Up the FIFA World Cup." The FIFA World Cup is the world's largest sporting event, bringing together more than 3.2 billion people around the world. We're leveraging this sponsorship to tap into consumer excitement around this entire world occasion. A truly global event such as [inaudible] Budweiser is making the most of its sponsorship by activating its campaign in more than 50 countries around the world, reaching hundreds of millions of consumers.

These activations are not only occurring in markets where Budweiser already has a strong presence, such as China, Brazil, the U.K., and Russia, but also in new markets such as Colombia, Peru, Ecuador, and Australia. In Africa, where we have now begun brewing Budweiser locally in Nigeria and South Africa, for both domestic consumption and exports to other Africa markets. Additionally, we have recently repatriated Budweiser in Argentina, where its market share is approximately 5%, and fútbol is, of course, a national passion.

Across all of these markets, we will be activating one global campaign, the "Light Up the FIFA World Cup" campaign is all about energy and excitement in line with the brand's position. It's am ambitious, fully integrated campaign, kicking off with a disruptive piece of video content that illustrates, with the help of thousands of drones, how Budweiser will deliver energy and excitement to the 2018 FIFA World Cup.

One of the major assets of the campaign will be our "Red Light Cup," which embodies in response to the energy of fans watching the tournament. We have achieved through lights within the cup that illuminates when there is an increase in ambient sound, such as when fans cheer after a goal is scored. It's important to note that the only way beer will be served in World Cup stadiums in Russia is in our Red Light Cup. It will also be made available to fans all over the world, especially in the designated fan zones.

In addition to the Red Light Cup, another pillar of the Budweiser FIFA World Cup campaign is the Man of the Match pro round. The activation will feature a Budweiser-owned trophy, which is given to the best player of each match as voted by fans. The world's biggest fútbol stars will be included in digital content featuring the Budweiser trophy and broadcast across the globe. This campaign will also be anchored in the trade, featuring our limited edition packaging and promotions that invite consumers to win tickets to the FIFA World Cup.

In summary, we believe the journey of our global brand portfolio is only just beginning, especially given the increased access to high-growth markets following the combination with SAB. Even more, our high-end company provides us with a dedicated platform to establish and grow the global brands. Through what we have learned from scaling up this portfolio, we have developed a replicable model that can be used to quickly penetrate new markets in the margin in an accretive way. Our global platforms such as music and sports contribute to higher awareness and pent-up demand, even in markets where they are not yet present.

What makes us even more excited is that in 2017, the brands represented only 11.4% of our total revenue outside the home markets, but more than 35% of our net revenue growth. We look forward to continuing to leverage these complementary premium brands to grow the global beer category.

Let's now turn to our newly announced 2025 Sustainability Goals. Having achieved all of our previous sustainability goals last year, in March we announced our new 2025 goals and the 100+ Sustainability Accelerator. The new goals build on our past achievements and are our most ambitious yet. Their delivery will have a wide-reaching impact that includes: First, connecting thousands of farmers to technologies and developing skills. Second, ensuring water access and quality in high-stress water communities. Third, partnering with our packaging suppliers to increase recycling content. Lastly, adding renewal energy, renewable electricity capacity to regional grids, as well as reducing carbon emissions across our value chain.

We know the challenges we face are too big for one company or organization to solve alone. That's why we also announced the 100+ Sustainability Accelerator. This accelerator will be supported by ZX Ventures, our global growth innovation group and will spread across all regions with a goal of identifying and supporting promising ideas and technologies. The first set of challenges will be announced in June.

We continue to brew high-quality beers and build brands that will bring people together for the next 100 years and beyond, and believe our new set of goals and the 100+ Sustainability Accelerator will better position us to continue to do so.

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 Dutra -- Chief Financial & Technology Officer

Thank you, Brito, and good morning, good afternoon, everyone. Let's start with an update on our synergies. In the first quarter, we delivered $160 million of synergies, bringing the total synergies captured to date to almost $2.3 billion. Our total synergy guidance remains at $3.2 billion, to be delivered within the 4-year period following the close of the combination. This number is inclusive of the $1.05 billion of cost savings previously identified by SAB. As a reminder, these synergies do not include any top line or working capital synergies.

We continue to expect that synergy capture should require approximately $1 billion of one-off cash costs to be incurred in the first 3 years after closing, and of which $640 million has been spent to date.

Net finance costs in the quarter were $1.545 billion compared to $1.492 billion in the first quarter of last year. The increase was due to mark-to-market losses linked to the hedging of our share-based payment programs of $242 million compared to a gain of $430 million in the first quarter of last year, or a swing of $372 million. We did see year-over-year savings of approximately $320 million across all other components of net finance costs.

Our normalized effective tax rate for the first quarter was 28.3%, up from 20.4% in the first quarter of 2017. The effective tax rate was negatively impacted by the mark-to-market adjustments linked to the hedging of our share-based payment programs. Excluding the mark-to-mark of EBITDA swaps, the normalized effective tax rate would have been 25.7% in the first quarter 2018, and 21.6% in the first quarter 2017. The year-over-year increase of the effective tax rate before the impact of EBITDA swaps results from the timing of certain deductions and the fact that EBITDA growth is stacked at higher marginal rates.

Our effective tax guidance for the full-year 2018 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 decreased by $0.01 to $0.73 this quarter from $0.74 in the first quarter 2017. Through an at-finance cost and higher normalized EBIT were offset by losses from the mark-to-market adjustments linked to the hedging of our share-based payment programs, as well as an increase in income tax expenses. It is worth noting that excluding the mark-to-market adjustments linked to the hedging of our share-based payment programs both [inaudible] EPS increased by 27% or $0.18 from $0.67 in the first quarter 2017 to $0.85 in the first quarter 2018.

I will now take a moment to update you on our debt. We continue to actively manage our debt portfolio to optimize maturities, coupons, and currency mix. This quarter we had two issuances, a new offering with a 9-year weighted average maturity, and a weighted average coupon of 0.9%, and a U.S. dollar offering with a weighted average maturity of 20 years and a weighted average coupon of 4.2%. These issuances were primarily used to repay most of the near-term maturities in 2019 and 2020, as you can see from Slide 23.

Our optimal capital structure remains a net debt to EBITDA ratio of around 2 times, and our capital allocation objectives remain unchanged, as you can see on Slide 24. With that, I will had it back to Maria to begin the Q&A session. Thank you.

Questions and Answers:

Operator

Thank you. The floor is now open for questions. In the interest of time, we will limit participants to one question and one follow-up question. Again, if you have a question or comment, please press *1 on our touchtone phone. If at any point your question has been answered, you may remove yourself from the queue by pressing the # key. We do ask that while you pose your question, you pick up your handset to provide optimal sound quality.

Our first question comes from the line of Trevor Stirling of Bernstein.

Trevor Stirling -- Sanford C. Bernstein & Co. -- Analyst

Hi Brito and Felipe. Two question from my side, please. The first one was [inaudible] volume is very weak. But still you've managed to deliver over 300 bps of EBITDA margin expansion. Was that mainly due to the roll-over of the hedges on the transactional effects or were there other factors at play there? And the second question, I suppose, is from the other angle. South Africa had very strong margin expansion, 300 bps. But in May, it was still down 100 bps. What was going on in the rest of the [inaudible] that pulled down the region?

Carlos Brito -- Chief Executive Officer

So, Trevor, hi, Brito here. So your first question is about Brazil, right? The connection is not so good, but I understood it was about Brazil and it's margin, right?

Trevor Stirling -- Sanford C. Bernstein & Co. -- Analyst

Yes, the strong margin, exactly.

Carlos Brito -- Chief Executive Officer

Yeah, well strong margin. First, we're n margin recovery mode in Brazil, as you know. Then we have high-water marks from years ago. Then we had the tax issues and the currency issue in 2016 that we couldn't pass all the way to the consumers, so we're now in recovery mode. This quarter was no different. We recovered some. Mostly because of a couple things. First, the mix continued to evolve as high-end brands continued to outpace core brands in terms of segment growth.

Second, the growth of the returnable glass bottle, which is margin accretive, continues to be the case. Third, when you think of cost of sales, there was a benefit this quarter in terms of our currency hedge position because the currency was lower than it was a quarter a year ago. So those three: a mix of brands, RGB, currency would have been behind the margin expansion, despite a top line that was subdued.

Trevor Stirling -- Sanford C. Bernstein & Co. -- Analyst

Great.

Carlos Brito -- Chief Executive Officer

And your second question about South Africa, can you repeat that? Because again, the connection is not so good.

Trevor Stirling -- Sanford C. Bernstein & Co. -- Analyst

Sorry, Brito. You had very good margin expansion in South Africa, but in May it was down 100 basis points. I was just wondering what was going on in the rest of the region that managed to drawn down the strongest results in South Africa.

Carlos Brito -- Chief Executive Officer

Yes, that was because of basically sales and marketing in Europe ahead of the World Cup, that was one of our regions where sales and marketing had more of an impact in the first quarter P&L. So, because Africa and Europe are together, that would be the explanation.

Trevor Stirling -- Sanford C. Bernstein & Co. -- Analyst

Thank you very much, Brito.

Carlos Brito -- Chief Executive Officer

Okay, great.

Operator

Our next question comes from the line of Olivier Nicolai of Morgan Stanley.

Olivier Nicolai -- Morgan Stanley & Co. International Plc -- Analyst

Hi, good morning, Brito and Felipe. First question is, regard the U.S., your margin came down each one and you flagged in the press release negative reporting leverage, higher end with cost, and also freight cost. How should we think about 2018? Is it fair to assume that your margin could still be flat or even growing slightly only driven by the [inaudible]? Do you expect freight cost, for instance, to be worse? Just to follow-up on your presentation, your global brands are growing very fast and they have obviously a higher revenue [inaudible], now out of your 4.9% organic revenue territorial growth in Q1 for the group, could you perhaps quantify the mixed benefit from the three global brands outside of their home markets? Thank you very much.

Carlos Brito -- Chief Executive Officer

Hi, Olivier. In terms of the first question about U.S. margins, again it is true that transportation cost is higher year-on-year, around 15% higher. As you said, we had commodity prices impacting the EBITDA number for this quarter and, of course, a weak industry compared to last year. So, Delta community and Delta transportation costs explained the decrease in margin in the U.S.

In terms of EBITDA margin, I don't think we should take one quarter because if you look at last year, U.S. increased EBITDA margin by 159 basis points. Last quarter, fourth quarter last year, it increased by 213. This quarter, decreased by 102 at 39, getting to 39%. So still very high margins. What we say about the U.S. is what we say about all markets in which we operate -- we continue to see space and room for margin expansion. Not every quarter, not every year, but as we continue to premiumize our mix, as we continue to use the category expansion model, as we continue to be more efficient in our investments and the way we use our money to run our business, we'll continue to see opportunities to continue to expand margins. That's exciting news for us and has always been the mantra in our company.

In terms of your second question of global brands and how much it represents our top line, all I can say is that global brands in 2017, which didn't have a full-year, represented 35% of our total net revenue growth for the company, outside of the home markets.

Olivier Nicolai -- Morgan Stanley & Co. International Plc -- Analyst

Thank you, Brito.

Operator

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

Carlos Brito -- Chief Executive Officer

Hi, Edward?

Operator

It looks like Edward removed himself from the queue. We'll move on to Robert Ottenstein of Evercore ISI.

Robert Ottenstein -- Evercore ISI -- Analyst

Great, thank you very much. I wondered if you could give us some more detail on China and Nigeria. In particular, in terms of China, a sense of what's going on there in margin specifically for China? And then maybe break out your business in terms of how Corona and Budweiser did in the Chinese market? That's the questions on China. Then a little bit of detail on your strategy in Nigeria and in terms of your growth there, how much of that is global brands and how much of that is value and mainstream?

Carlos Brito -- Chief Executive Officer

Hi, Robert. Brito, here. In terms of China, we had an amazing quarter. We have to remember that last year we had a very strong quarter, first quarter last year. Look at Budweiser, for example. Last year, first quarter '17 we grew Budweiser volumes by 18%. Of course, Budweiser was up to a very tough comparable. But even then, revenue in China grew by 4.4%, cycling again double-digit revenue growth last year. Volume grew 1.6% and [inaudible] grew 2.7%. Budweiser didn't grow as much as it normally would because it's against an 18% growth, but it continues to lead the premium segment by far.

Our high-end company continues to do very well, especially Corona, which became the No. 1 imported beer in China and growing very rapidly. So China, both Corona and Hoegaarden have doubled the margin of Budweiser and continues to grow in what we call the super-premium company in China.

Our e-commerce is also doing very well, which is also something to be said about China. We're ahead of any other market in terms of e-commerce development. That, again, is very important for premium and super-premium brands. As you asked about EBITDA, our EBITDA margin increased by more than 200 bps, getting to 35.5%. EBITDA grew 10.6%. So, again, an amazing quarter for China and we continue to hover above 20% in terms of our total market share and continue to lead by far both premium and super-premium brands. So, again, another amazing quarter for China, on back of a very tough comparable from last year.

In Nigeria, we are very happy with our business there. We've been capped in Nigeria big time for years in terms of capacity. Now, we are building new capacity there. The rest of our business outside of Africa grew in most countries by double digits in terms of revenue. Budweiser was launched in Nigeria ahead of the World Cup, so it was launched in March with very strong demand. It's being supported by traditional and digital media, given its sponsorship of the World Cup, in which the Nigerian national team will be competing.

So, Nigeria is one of those countries where soccer or fútbol is a big passion point for our customers there and we're very happy. We think Nigeria has a lot to offer both, as we said, in terms of global rents that SAB never had there, and local brands. We have very strong brands that are now going to [inaudible] and trophy, and also Budweiser growing it. So it's going to be, we think, a very good year because you're going to have capacity, global brands, and FIFA World Cup in more capacity also for the local brand extension.

Robert Ottenstein -- Evercore ISI -- Analyst

Thank you very much.

Operator

Our next question comes from the line of Andrea Pistacchi of Deustche Bank.

Andrea Pistacchi -- Deutsche Bank -- Analyst

Hi, good morning. Two questions, please. The first one, in your outlook comments, you say the growth will accelerate in the balance of the year, primarily in the second half. How should we read this? Does it mean that you expect to see some acceleration in Q2 and then further acceleration in the second half? Are there any reasons that could hold back Q2? Then the second question, please, on Brazil. What gives you confidence that Brazil will return to volume growth and staffing in the second quarter? Thank you.

Carlos Brito -- Chief Executive Officer

Hi, Andrea. First, in terms of Brazil, we said we're confident we have reasons to believe, of course, that in the second quarter volume will resume growth. You have to remember we're already in May, so we have some view into the second quarter, and we have the World Cup, right? So those are two big things for the second quarter in Brazil.

We also had some one-offs in the first quarter in Brazil that won't happen again in the second quarter. So that's your second question there. In terms of the guidance for the rest of the year, the balance of the year, what we had flagged already in the last call is that there will be some concentration of sales and marketing expenses in the first half of this year, especially now in the second quarter. That's one of the reasons why the second half will see better results or more acceleration because, of course, more sales and marketing will be in the first half. But yes, the first quarter was slightly better than we expected. Yes, that's also true.

Andrea Pistacchi -- Deutsche Bank -- Analyst

Thank you.

Operator

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

Edward Mundy -- Jefferies Int'l. Ltd. -- Analyst

Good morning. Thanks for taking the question. Two questions, please. Brito, I think you flagged an increase in sales and marketing spend ahead of the World Cup in Q1. When I look back at Q1 2014, I think this is about a 3% drag on your EBITDA growth in that quarter. Is it roughly a similar drag on your EBITDA growth in Q1?

Carlos Brito -- Chief Executive Officer

Well, the drag I would say this time is more between 50 and 100 basis points. Compared to 2014, it would be more concentrated into the second quarter.

Edward Mundy -- Jefferies Int'l. Ltd. -- Analyst

Okay, great. Thank you. The second question is on the U.S. Clearly, you have Michel Doukeris now in charge for part of the year, slightly different style. Are there any early signs you can point to of an encouragement? Your market share losses are more directed, to some extent, in the first quarter?

Carlos Brito -- Chief Executive Officer

Yeah, as you saw it again, despite the tough industry that declined 2.3% compared to 1.3% on average last year, so 1 percentage point worse. Of course, that's all due, we think because of the cold temperatures we experienced during the quarter. Temperatures worse [inaudible], that we have seen in other years. On our market share, the trends are improving. Our share performance, we lost 50 bps. That's much better than we had, 20 bps at least better than what we had on average of last three quarters and the last year.

At the same time, net revenue [inaudible] grew 1.9%. So a very healthy brand mix, once again, and gross profit expanded once again, gross profit margin. The Bud premium portfolio in terms of the share. The Bud premium portfolio continues to accelerate and Michelob Ultra, again, the biggest share gain in the U.S. for the 12th consecutive quarter as the No. 1 share gain. So the Bud premium portfolio grew by 80 bps in this quarter. The other thing we said is that both Bud and Bud Light saw sequential improvements in terms of their share within their respective segments and that's good news. I think Bud Light [inaudible] and everything that came from that. That brought the brand back as the No. 1 social beer conversation topic in the quarter. Budweiser continued to show improvement and got to a flat share within the premium segment this quarter, year-on-year. Again, that's going nicely in terms of share within segment, still losing share of total market.

In terms of Michelob Ultra, we had [inaudible] innovation has been more active this year than last year, so we have Michelob Ultra Pure Gold, we also had Bud Light Lime. We relaunched Bud Light Orange. [Inaudible] Budweiser line extensions come in the second half and second quarter and third quarter. So, I think all in all, we are more confident this year in terms of our brands. In terms of trends, I just spoke about, but also the innovation [inaudible] that we have, which is more active than last year.

We showed again a very strategic [inaudible] savvy person that did some interesting moves in terms of people. We feel the team is a very strong team to do what needs to be done in the U.S. Again, a good start [inaudible] industry.

Edward Mundy -- Jefferies Int'l. Ltd. -- Analyst

Very good, thank you.

Operator

Our next question comes from the line of Sanjeet Aujla of Credit Suisse.

Sanjeet Aujla -- Credit Suisse Securities (Europe) Ltd. -- Analyst

Hi, Brito, Felipe. A couple of questions, please. Firstly, you use Argentina as a good example of how category expansion is working. Can you perhaps talk about some of the initiatives you have driving the growth in other markets like Mexico and Colombia, in particular, with respect to category expansion? Also, can you just talk a little bit about the weakness in South Africa? How much of that is perhaps due to the tax changes versus the competitive environment? Thank you.

Carlos Brito -- Chief Executive Officer

Yeah, good point. South Africa, there was a excise tax increase that was a 10% tax increase, versus an average inflation of 5.5%. Of course, that starts to increase prices on March 1, compared to last year on July 1. So, there is a little bit of phasing there in South Africa. It's also true that in South Africa, the high-end segment, like [inaudible] markets is growing ahead of the core segment. In our participation, the high-end segment has always been minimum because SAB did not have brands to compete in that segment, but now we do. We've just introduced Bud on a national basis, and we just introduced last week Budweiser, the bulk pack, the big bottle, which is where most of the growth in the high end is coming from, so now we're going to be competitive for the first time.

Even with these initial steps, we've already gained 600 basis points within that high-end segment in South Africa. So, we're going to be much more competitive. We're going to have all our brands there, and the FIFA World Cup, and we intend to grow very fast within the high-end segment, which is growing ahead of the core segment. So, that's South Africa.

In terms of Argentina, we used to have a little bit of an overlap between our two main core brands, Brahma and Quilmes Clásica. The framework we have now for category expansion helped up separate those two brands into what's called core classic lager, and an easy-drinking lager. So, Brahma is the easy-drinking, Quilmes is more of classic lager. So, the good thing now is that we have both brands in growth, which was not the case because Brahma was growing a lot at the expense of Quilmes. Now, we have both brands growing high single digits in Q1. That, of course, we think it's because of the fact they are both now focused on different occasions. All that coming from the framework and the toolkit on how to localize brands for different occasions within core lager, where most of our business sits.

So, again, in summary, before they were sitting on top of each other. Now, they've been separated in terms of liquid packaging occasions activations and that has proven to be incremental to each other as opposed to cannibalistic. So, that has been very good.

Sanjeet Aujla -- Credit Suisse Securities (Europe) Ltd. -- Analyst

Thank you.

Operator

Our next question comes from the line of Mitch Collett from Goldman Sachs. Mitch, your line is open. Make sure you're not on mute.

Mitch Collett -- Goldman Sachs Group Inc. -- Analyst

Hello? Hi Brito and Felipe. You said that you expect sales to retailers and sales to wholesalers to converge for the full year. Sales to wholesales have been below sales to retailers in three of the last four years. Are you able to elaborate on why you'd expect this year to be better. And then maybe just a longer term question on the U.S. You commented on why it was slightly worse this quarter and I think that was mainly weather. Longer term, do you think that there's any chance that the market goes back to growth and that your own position within the market can stabilize? Thank you.

Carlos Brito -- Chief Executive Officer

Good point, Mitch. I'll start with the second question. Again, I think category expansion framework taught us that there are many occasions where beer is just not present or very under-represented. More importantly, it taught us how to think about getting beer to stand into those occasions. So, I just gave the example of Argentina in the question prior. What we see is that in the U.S., there are many opportunities and many occasions that have been growing, like the meal occasion, like women participation in our category, like the more high energy, party occasion. So, many occasions that are growing in which beer tends to be either totally absent or very under-represented. I think now we have the tools and knowledge and insights to try to get beer to be more present. So, I would think that this is not going to be overnight, but I think this changed our mindset because in the old days, we were just doing [inaudible] beer, which is a zero-sum gain. For me to gain, somebody has to lose. That game will be continued to be played in all markets, but if you add that to a category view, especially if you're the market leader, as a leader you have to lead growth and lead thinking about the category.

I think this framework, category expansion framework, because it talks not only about how to best use core lager brands, again, the example of Argentina, but how also to think about getting customers to trade up, and about the adjacencies to beer will help us think better about occasions consumed in each states in the portfolio.

I think prior to the category expansion framework, we thought a lot about brands in isolation. Now, we're thinking more and more about where customers are going, where our portfolio sits today, and what kind of portfolio makeup we need 3 to 5 years from now and what are the things we need to do now in terms of recourse allocation as well, to get there. So, I think that gives [inaudible] that we can get this industry again to growth.

In terms of wholesalers, STRs, STWs, we continue to say what we've always said. Of course, if you go back to some of the other years, there's always a difference a little bit here and there. But ballpark, you can say that toward year end, those two things tends to converge. There's breakage, there's lots of things that can happen. But, on average, the big numbers, the distance tends to converge, not to the second decimal point, but within 50 basis points they converge.

Mitch Collett -- Goldman Sachs Group Inc. -- Analyst

Thank you.

Operator

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

Mark Swartzberg -- Stifel Financial -- Analyst

Thanks. Good morning, gentlemen. Felipe, a few cash flow questions. We didn't get a net debt figure in the release, but based on your deck, it looks like net debt was about $100 billion at the end of March. Can you give us that number? Then more importantly, can you speak to your outlook for free cash flow growth this year and the scope for a dividend increase later this year?

Felipe Dutra -- Chief Financial & Technology Officer

Okay. In terms of debt and cash flow balance sheet, we do not publish on a quarterly basis. However, it is clear that due to seasonality, our cash flow generation is much stronger in the second half, as dividends are more concentrated in the first half, as well as certain tax payments, as well as CapEx investments. So, historically, cash flow is much stronger in the second half as compared to the first half. That impacts our net EBITDA upwards during the first half before it goes down in the second half of the year.

In terms of capital generation, the leveraging remains our priority. Capital allocation remains unchanged. We see dividends as a growing flow over time. However, in the short term, we don't see much room for that, given the leverage levels. But in terms of cash flow generation, the fact that we are already in the negative territory, that is as we grow revenues, that helps release funds strongly back to capital and we continue to work to improve [inaudible] working capital as a percentage of net revenues not only in the former ABI, but also in the former SAB, as talk of the synergy is not quantified in the $3.2 billion.

Mark Swartzberg -- Stifel Financial -- Analyst

Okay. A more technical question. On Slide 23, if we simply sum these blue bars and say they represent a little more than 95% of your total, that'll get us to your March debt level?

Felipe Dutra -- Chief Financial & Technology Officer

Yeah. Well, we have some local debt. For example, [inaudible] in Brazil and things like that, that is not included into this debt maturity profile, but they are very small in comparison to all of this. The orange bars are actually the ones of the new issuances since December last year, which indicates that the debt maturity [inaudible] is not only a healthy one, but become even healthier as we are proactively taking out some of the maturities already for 2019 and 2020.

Mark Swartzberg -- Stifel Financial -- Analyst

Yeah, we'd add those orange bars. Okay, great. Thanks, Felipe.

Felipe Dutra -- Chief Financial & Technology Officer

You're welcome.

Operator

Our next question comes from the line of James Edward Jones of RBC.

James Edward Jones -- RBC Capital Markets, LLC -- Analyst

Two questions, again, please. Mexico and Colombia, can you expand a bit on why those markets were so strong in the quarter and how sustainable this sort of performance is? Secondly, operating income was clearly a bit of a drag in the quarter. Can you give us any sort of idea of what trends we should expect for other operating income over the remainder of the year?

Carlos Brito -- Chief Executive Officer

Hi, James. It's Brito here. Mexico has been an amazing market for us. It continues to grow very strongly. Volume has grown in the mid-teens during the first quarter. Even if you take Easter out, it would still be double-digit growth in Mexico and revenue in the high teens. Corona doing very well, grew double digits. Victoria did the same thing, double digits. Bud Light, more than 20% growth, especially in the north region. Michelob Ultra, growing triple digits. We have all 7 in Mexico going well. We see no reason why this should change. We have the World Cup coming. So, that's important for both Mexico and Colombia as well.

In Colombia, again, revenue growing 12% this quarter. Beer volumes growing 8.3%. If you take the Easter effect into the 6.4%, so again, very strong anyway. Momentum is there. Of course, when you think about co-pack or co-pack in Colombia, of course there was some easy comps in terms of volumes because, remember last year, we had the PAT tax increase from 16% to 19% that affected the whole economy, starting on January 1, 2017. That, of course, put pressure on customers in our cycle in that period. Again, we have the World Cup.

But again, very strong in both markets with very strong margins as well. So, great markets for us.

Felipe Dutra -- Chief Financial & Technology Officer

On operating income, that line is usually connected to fiscal incentives in countries like Brazil, as well as China, although they are becoming less representative as a percentage of overall EBITDA and EBITDA growth. On this quarter in particular, we have a tough comp, if I'm not mistaken, for one-time gain recorded in the first quarter '17 in Mexico that is connected to the sale of some assets. But aside from that, business as normal.

Operator

Ladies and gentlemen, we have time for one more question. Our final question will come from the line of Nik Oliver of UBS.

Nik Oliver -- UBS -- Analyst

Hi, guys. Thanks for the question. Just one left from me. Back under the SAB synergies, I'm assuming some of those are coming from decentralizing of functions in a more zone level, as opposed to the country level under SAB. I'm just interested how you're balancing that with the risk of perhaps losing touch with some quite diverse country markets. I think in the past you mentioned maybe when you first bought Anheuser-Busch, say in China, things were too centralized, which then got reversed.

Carlos Brito -- Chief Executive Officer

Yeah, hi, Nik. Brito here. What we centralize in our company are functions that merit centralization. So, clearly, like procurement. We deal with global supplies, so it makes sense to deal with a one-touch point-type basis. We centralize IT or solutions, right? Because the backbone tends to be the same everywhere. We centralize global brands because they are, by their very name, global in nature and should have the same look and feel everywhere. So, we do centralize things that make sense. But when you think about our commercial activity, the center of gravity is the zone not the global headquarters and, more importantly, the markets.

Think about this, the country clusters, where we compare countries with a similar maturity level in terms of the beer and alcohol segment. It's much easier to compare notes within countries that are more similar. Not linked to geography, but linked to similarity in terms of maturity level. So, those things are done on a country-by-country level. Our people have a lot of autonomy to lead their business at each country market level.

You're right, I think the beautiful thing about companies that are built to last is the capacity to the do the "and" not the "or." So, yes, you have to be centralized in many things, and you have to be local in what matters. That's the balance we always try to strive for. Our regional guides in the markets are very strong. They have a lot of autonomy, power to conduct their business. What we do from a central location is to stimulate them to compare and learn from other markets that are in similar stages of development, so they can be even better at what they do in their local markets. That's the idea.

Nik Oliver -- UBS -- Analyst

That's very clear, thank you.

Carlos Brito -- Chief Executive Officer

Thank you, Nik. Well, thank you, Maria. In summary, the first quarter was better than initially expected and we remain confident that growth will accelerate for the balance of the year, primarily in the second half. We continue to scale up our category expansion framework in a way that allows us to focus on organic growth in all segments across our geographic footprint.

We remain committed to further enhancing our leadership position in the premium space, with the support of our complementary global brand portfolio to fuel the growth of the global beer category. Finally, we're exciting to be launching our biggest ever commercial activation for the 2018 FIFA World Cup in Russia. We look forward to sharing the results with you soon. Again, thank you very much for your time. Thanks for joining the call today, and enjoy the rest of your day. See you next quarter. Bye, thank you.

Operator

Thank you, ladies and gentlemen. This does conclude today's earnings conference call and webcast. Please disconnect your lines at this time and have a wonderful day.

Duration: 57 minutes

Call participants:

Carlos Brito -- Chief Executive Officer

Felipe Dutra -- Chief Financial & Technology Officer

Trevor Stirling -- Sanford C. Bernstein & Co. -- Analyst

Olivier Nicolai -- Morgan Stanley & Co. International Plc -- Analyst

Robert Ottenstein -- Evercore ISI -- Analyst

Andrea Pistacchi -- Deutsche Bank -- Analyst

Edward Mundy -- Jefferies Int'l. Ltd. -- Analyst

Sanjeet Aujla -- Credit Suisse Securities (Europe) Ltd. -- Analyst

Mitch Collett -- Goldman Sachs Group Inc. -- Analyst

Mark Swartzberg -- Stifel Financial -- Analyst

James Edward Jones -- RBC Capital Markets, LLC -- Analyst

Nik Oliver -- UBS -- Analyst

More BUD analysis

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

10 stocks we like better than Anheuser-Busch InBev NV
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has quadrupled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Anheuser-Busch InBev NV wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of May 8, 2018

The Motley Fool owns shares of and recommends Anheuser-Busch InBev NV. The Motley Fool has a disclosure policy.