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Heineken Financial Markets Conference

Day Two - Mexico City, 6th December 2013

Heineken Financial Markets Conference, Mexico City - Day Two

Heineken

George Toulantas, Director Investor Relations

Josep Ferrer, VP Sales, Cuauhtémoc Mockezuma

Peter Hall, Regional Marketing Director

René Hooft Graafland, CFO and Member of the Executive Board

QUESTIONS FROM

Audience Members

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Heineken Financial Markets Conference, Mexico City - Day Two

Passion for Sales Excellence

Josep Ferrer, VP Sales, Cuauhtémoc Mockezuma Good morning everyone, I'm here on behalf of 12,000 colleagues in the Sales and Trade Marketing team, and the team of six. I'm very happy to share some of our initiatives, some our key drivers to success because we are succeeding in Mexico, we're winning in Mexico, I want to make that very clear.

I've been 22 years in the company since FEMSA and the last three years have been just amazing, have been thrilling, have been intense and the flavour of success when you dedicate your whole life to this kind of job, it's so good, it's so rewarding and I'm really happy to share that with you.

First of all, let me remind that we have a national footprint, we've said that we're very strong in the North and very strong in the Southeast. In those two regions we have more than 90% of weighted distribution, we have very strong portfolios in the North with an American brand Coors Light, we have a long term agreement with. We have Tecate Light, we have Tacate, we have Indio and we also have regional brands like Carta Blanca.

In the Southeast we are introducing Tecate Light, Indio and Dos Equis with great success. We also have more than 90% of weighted distribution and we are managing the Sol brand in a much smarter way. We did a lot of mistakes with that brand, I'm going to talk later about Centre and West where the big opportunity really lie. And in Central and West, like you saw yesterday we are starting to fly. I will address the Mexico City case later, but I hope you had a sense of that success that we're starting to achieve here. Much more customers, a much more motivated sales force, much more profits and much more sales and winning market share big time.

This is the national average, it varies per region, but the traditional off trade, even though it's declining it will remain as the most important channel in the industry. And I want to address this channel is - our index is big in Central and West in what we call challenger markets, big time.

Modern trade you saw yesterday an example of what the 7-Eleven store is, the convenience stores, you also a chedraui, and an OXXO. Let me remind that we have of the captaincies of the top six supermarket chains. We are responsible to make the category grow. We are managing very effectively revenue management tools, we have brought to the company experts on that topic. And with 7-Eleven that you saw yesterday even in Mexico City we already sell more than our competitor, when we are in a market between 20 and 25% market share.

So that's for me very, very promising, the challenge is to grow in returnable packaging. Leandro showed yesterday that we're going much more aggressive in 40 ounces in returnable big sizes and 12 ounces and quartitos (?) what we call the 8 ounces.

There were some examples yesterday in OXXO and 7-Eleven that you could see already five options for 40 ounces.

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Heineken Financial Markets Conference, Mexico City - Day Two

So I have to confess that process is not the most popular word in sales, we tend to be - to like the flexibility. But I have to acknowledge that we have improved big time in this topic. Now we don't call it process we call it the way to succeed, there are two words, that are in the top of mind of every member of the sales team and that's numerical (?) distribution, or what we call c…., penetration and numerical (?) distribution, more availability for our brands and execution. Once we have the outlet we have to make our brands shine.

We measure and link to the variable compensations of our sales force, mainly if we have the right fridge in the right place, if we have the right assortment and if we have the right prices, 60% of the compensation of our sales force is linked to those variables.

So I will dive in these topics, it all starts with our goal, like I said in North and South we have more than 90% weighted distribution, at the national level we have - we are already in 60 but we want to go to 70. And this is mainly going forward in challenger markets. You see there are many small customers that we call bronze customers, they account for 30% of the industry, but only for 5% of the volume.

We have been focusing much more on these kinds of customers, what we call silver customer. We segment per channel, per size and we also include a factor of the commercial skills of the retailer.

Marc mentioned yesterday that we changed our route to market and we were focusing to penetrate these kinds of markets in bringing as many accounts as we could, without really focusing in the productivity and tried to make them exclusive and try to penetrate with Sol. So these whole formula was very expensive, because we tried to compete with cheap prices, with low prices, trying to make them exclusive, so that was also very expensive. And I didn't matter if the drop size was low. So even to take the beer to the outlet was a very, very - difficult business case.

So we've changed that - there's a lot of what we call, mortality, in these kinds of outlets, so what we do now is we - when they stop buying beer because they sometimes, or many times, it's when they see the electricity bill, when they see that they have to deal with inspectors sometimes it's just not worth it. So there's a lot of these small customers that just stop selling beer every year.

So we have a route to market for these customers, which is efficient, we found the way to make money in these customers, but we are focused in the outlets that have productivity between 1.5 and 13 hectolitres that are mainly in traditional off trade in challenger markets.

So we have our goal to achieve 70% of weighted distribution. How do we do that? First of all, you know, we have massive - you see these very big cities, Mexico City is a city of around 24 million inhabitants, we have Guadalajara, we have more than ten cities that have more than one million people. So first of all we have to a very detailed census of the industry.

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Heineken Financial Markets Conference, Mexico City - Day Two

So our sales reps and some special teams do on a yearly basis a census that allows the trade marketing team to get all the information necessary to know if it's profitable, if the productivity is attractive and also what we call attractiveness, it's not only profitability, we need these retailers to have the right attitude towards our brands.

So we sell the idea of our portfolio, we sell the idea of our margins, we don't compare our margins only against Modelo, we're not that frontal, and let's remember something the new legislation, the new regulation plays in our favour, because all these Mom and Pops cannot be exclusive any more. So they are open to sell both, or any supplier, even if it's craft beer, or Modelo, or ABI sorry, or our beer.

So we train our people to speak about margins in a much easier way for the retailer to understand. We compare you know the space they dedicate to snacks, or to sodas, sometimes it's too much so if you put a fridge of our brands, with the rotation that you will have the portfolio that we have and with the prices that you have you will earn more money. And it's working big time I tell you.

In the last three months we have brought more than 10,000 to our customer base. In 2013, more than 40,000 with the right productivity will be incorporated to our customer base. We have special sales figures that are called conquerors, or conquistadores, they are dedicated full time to do that right analysis customer by customer, to convince them to work with us.

So this is the way, after we get the customer then we decide how to serve him, how to serve it. If it has the productivity between 1.5 and 55 hectolitres per month we assign a sales rep to visit him between once and twice a week. And helps to execute the brands, he helps to accommodate; he always is talking about margins, about prices, about how to improve the business. And this has been a differentiator against other suppliers. We have been rated like the most trustable and best supplier of all the suppliers that get to a sales point.

If it's too small and we still have 20% of these customers in our base, we just make a phone call, we take the order and we have a wholesaler that has a neighbourhood - he's responsible for a neighbourhood, for an area of the city, and he delivers the beer. So it's good business for him, it's good business for us. We're not focusing, I want to again emphasis that we're not focusing on these customers and that has been a real game changer when we talk about profitability.

If the customer sells more than 55 hectolitres, we have the options of electronic order, they enter a webpage, or automatic replenishment with an electronic system that we have in big accounts. And we have a representative that goes maybe you were with some of them yesterday these girls that are very enthusiastic they serve the customer, they help also to make promotions, to make activations, but they have to be - productive to deserve this kind of service.

I want to mention that we have six breweries, as you know, 90% of our volume is delivered through direct depots and direct sales force and we have 10% of our volume in what we call Franquicias, franchises. These are associates that only sell our beer and in then sometimes we're partners with them in the companies that serve these markets.

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Heineken Financial Markets Conference, Mexico City - Day Two

And these are entrepreneurs or business people that have been in the beer industry for years, for example Chiapas (?) which is our biggest retailer, they sell around 900,000 hectolitres and they have been with us for more than 30 years.

Then we have detected the potential of the outlet. We have reached an agreement of margins and the way to serve them. Then we talk about cold. It's very basic, it's been in the industry for years, but I want to also stress that in sales it's not that easy to come with new things. The way to succeed is to do the same things better every day. The way we have morning one to one meetings with our sales reps, the way we train them, the way we hire them, the way we give them the ability to have great dialogues with the customer, the way we compensate them and the tools we give them to be more efficient. In all those chapters instead of trying to be spectacular or too flashy we're trying to do the right things day by day.

So the fridges have been in the market industry for a long time, but now as you saw yesterday, small things like those who went to the Cerveceria saw these fridges with the door that gives that icy effect. Those really make the difference. The Ultra F… in the Six, which has the beer at 5 degrees below zero, so we can really claim that we have the coldest beer in town.

And then we talk about how to make these accounts grow and be more profitable. We have a special team dedicated per channel, per segment to design the right assortments. Assortments that will give more profitability, when you take into account rotation and the space they need in the fridge. And this is key for the future. Like Leandro said yesterday we are going for national brands, we're going to have much more big sizes, big returnable sizes, and as you see a clear space for premium brands.

So this is what is delivering, it might not be the most spectacular thing, but these simple things, done day by day, with discipline, with follow up, we are always encouraging our people to do this with passion; because believe it or not it really makes a different. Beer is about passion, beer is a social product. So when we go to a retailer and we show him, or show her the commercials and we give her a case so she can try, or he can try the products, we become much more close than other products. Beer really is an exciting product.

So, here are some figures, like I said we do a monthly survey to rate the service of the suppliers, of the customers, and we rate consistently number one, way above our competitor. And well above our very high - well, high regarded suppliers. So this makes me really proud and like I said this really makes a difference.

On the right side you'll see that in 2011 when we started this effort to bring more productive customers, we started to have interesting results, like half of the customers that we brought to a customer base were above productivities of 1.5 hectolitres, in 2013, we're going to bring 43,000, that's massive huh, imagine yesterday we only saw five off trades and five on trades, just imagine 43,000 new customers and 90% of them with the right productivity. This is driving market share growth and this is driving much better availability for our renewed portfolio.

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Heineken Financial Markets Conference, Mexico City - Day Two

People, I mentioned about people, I wanted to share some flavour of our team with a video, but again you saw that we have a boxer, if you like boxing there is a Philippine fighter, a boxer that was called Manny Mexicanos, he was always beating Mexican boxers and our boxer called Juan Manuel Marquez, sponsored by Tecate beat him last year and it was a big, big topic in Mexico. Everybody was talking about him.

And we are making these events because this guy is amazing. I mean he comes from a very, very modest origin and he makes $10m per fight. So when people - our sales force listen to him, and our leaders listen to him, how he connects with people and how he explained that it's all about believing in it, it's all about paying the price and discipline of doing day by day what you have to do. It really makes a difference with the sales force. And with our leaders in every zone they see this guy motivating our people and they also follow his example, we all do. I need to lose a bit of weight, but I'm on my way - so you only have to believe in it.

Laughter

So I'm going to focus a bit more in challenger markets. You should have seen me before.

In challenger markets it's 40% of the industry, it's where Mom and Pops are the most important channel, they account for more than 75% of the sales, 75% is returnable, there's an opportunity like we said, to also grow per capita consumption, we're at 30 litres per year. Regular and dark beer are the biggest segments and it's a very fragmented market, only in Mexico City there are more than 80,000 outlets.

So you saw our concept of Six as a very efficient tool to penetrate, to also have big assortments, to complement with the expansion of OXXO. We also have the commercial framework to detect the outlets that we want to reach and the right dialogues to persuade them. But before all this happened we mapped our ability to win and the attractiveness of each market.

When we decided to focus it really paid off. Before we used to try to go for every challenge market, we decided to focus in 16. And in 13 of these 16 challenger markets we're growing double digit and we're growing healthy market share is how I call it, because it's not based on cheap prices, it's not based in over promoting, it's not based in giving money and giving high exclusives to the customers, so it's really sustainable and its really profitable. So like I said, focus based.

Mexico City, like you saw one of our key success stories. And eight million hectolitre market, 24 million inhabitants, we used to fight here, like I said with Sol, because we thought it was similar to Corona and we could, if we had a similar product at a cheaper price it could succeed, so we stayed like - for six years with low prices, with big offers to the outlets to sell our product, with big promotions. So we started to really make a mess with the brand. And I'm really sorry for the brand because it's a great brand. And now we have to pay the price, but we really learnt from that, from that mistake.

You saw our commercials yesterday, we talk about intrinsic, we talk about the quality of the liquid which is very good and we just let it breath here. We still have it available,

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Heineken Financial Markets Conference, Mexico City - Day Two

but we don't promote it any more, we don't sell it cheap any more and believe it or not it's starting to grow in some markets when you stop doing stupid things. And with the new portfolio, Tecate, Dos Equis, Indio at the right price we are making these wheels starting to speed up really quickly, because these brands have traction. You see that we also focus in having the trendy places to make our brands aspiration. Like I said, I want to emphasis, we don't over promote any more, we focus on good execution, we focus in cold beer, very basic things, but when you do it every day they work.

Like I said, we're growing five times more, I'm very tempted to say the figures but I can't. But we are really, really selling a lot of beer incrementally in these markets. We're gaining scale, which also makes our fixed cost more efficient. We have a brewery here in Toluca and another one in Orizaba and we're starting to put a lot of pressure on them so they have to produce more. So it all brings to a winning wheel.

So in summary, please don't forget that we are gaining share in challenger markets where the opportunities are, where 40% of the industry is, where our competitor sells the most.

In our strongholds I believe we're very safe, we have a great portfolio, we have a very difficult to penetrate industry, because Mom and Pops are really almost non-exist and that's the industry that is really like open for our competition. But even in open - in mixed accounts, for example 7-Eleven in Monterrey we sell 85% of the beer, even when it's mixed. So in our portfolio and our tradition of working well in these markets keeps us very safe. And in challenger markets we are succeeding. So you'll hear from us in three or four years from now with a very, very different market position.

Open for questions fellas. There's also Clamato for those that need it.

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Questions and Answers

Question I was just wondering whether you could tell us when you expect to reach your weighted average distribution target?

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Josep Ferrer, VP Sales, Cuauhtémoc Mockezuma Well the figures come - surprise us month after month. So I'm confident that the time frame is not a long term goal. So I would say that at least - the most pessimistic scenario for me would be three years from now.

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Question Not really your particular area but you've mentioned your breweries a couple of time and I see we're not going to hear, I don't think, any more on your breweries, so I'll ask you and maybe somebody else can jump in. What is your sort of capacity utilisation in your breweries at the moment? Do you need to put on more capacity and if so how will you do that over time?

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Heineken Financial Markets Conference, Mexico City - Day Two

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Josep Ferrer, VP Sales, Cuauhtémoc Mockezuma That's a good question, I'm not sure I'm the right person - maybe Marc can you help me on that one?

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Marc Busain, Managing Director, Cuauhtémoc Moctezuma We have two breweries which are roughly full capacity utilisation, on average we are around 80% capacity utilisation.

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Josep Ferrer, VP Sales, Cuauhtémoc Mockezuma Does that answer your question?

Laughter

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Question Your competitors has just finished a major SAP implementation across the whole functions. How would you describe your sales …

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Josep Ferrer, VP Sales, Cuauhtémoc Mockezuma Great.

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Question How would you describe your sales force technology?

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Josep Ferrer, VP Sales, Cuauhtémoc Mockezuma There is an opportunity. No sorry …

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Question How do you sales force tools and IT compare to them, are you happy with the level of IT infrastructure?

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Josep Ferrer, VP Sales, Cuauhtémoc Mockezuma That's a good question, now I have to confess that we suffered big time when we changed the technology - the platform - the IT platform. But now it's really playing - after you go through the tough times that last like a year, now it's really helping us to segment all that you see there, it's part of the - SAP platform that we have.

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Heineken Financial Markets Conference, Mexico City - Day Two

We have a great platform to segment, a great platform to know the profitability per outlet, the profitability per SKU, the profitability per fridge and that all helps to drive decisions in a much more easy way. But the implementation phase is really a nightmare, it lasts like one year, so I hope that my dear competitors will stay - stay occupied trying to find out how to get the best out of that platform.

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Trevor Stirling, Sanford Bernstein Josep, as you're withdrawing exclusivities from the market …

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Josep Ferrer, VP Sales, Cuauhtémoc Mockezuma Pardon me?

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Trevor Stirling, Sanford Bernstein As you withdraw exclusivities to get down to the government target, you're effectively taking some money out of retailers pockets, is there a possibility they'll try to compensate and take price increases and increase their margin to try and compensate for the lost exclusivities?

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Josep Ferrer, VP Sales, Cuauhtémoc Mockezuma I think that question should be more asked to our competitors, which is the most - they rely much more - they have been affected much more by this new regulation. I would say we don't pay exclusivities to enter the market any more in these challenger markets, we just talk about margin like I said. So all this is incremental volume and incremental profits. So I would say there will be opportunities, but I don't see it as an issue really.

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Trevor Stirling, Sanford Bernstein Thanks very much.

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Question Thanks, Josep if you can put back slide 14 there when you talk about the 43,000 stores that you are opening this year …

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Josep Ferrer, VP Sales, Cuauhtémoc Mockezuma SAP again.

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Question

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Heineken Financial Markets Conference, Mexico City - Day Two

No, no it's not SAP - those numbers I think you mentioned that there were like 300,000 stores in total in Mexico for Mom and Pop shops to sell beer what is the total number …

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Josep Ferrer, VP Sales, Cuauhtémoc Mockezuma Yes.

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Question Right, 300,000 in total.

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Josep Ferrer, VP Sales, Cuauhtémoc Mockezuma Yes, Mom and Pops.

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Question So those numbers there on page 14 are they cumulative - I mean it's like you already cover almost - I'm just trying to understand what's the further upside, in terms of how much more do you have in terms of coverage, in terms of outlets?

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Josep Ferrer, VP Sales, Cuauhtémoc Mockezuma Well there are 460,000 outlets in Mexico as a country, out of those around 300,000 are Mom and Pops. We are already present in around 150,000, but we want to be present in around 100,000 more that have productivities between 1.5 and 55 hectolitres.

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Question Right, and those 100,000 are on top of the 43,000 right?

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Josep Ferrer, VP Sales, Cuauhtémoc Mockezuma Yes, of course.

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Question Okay, and then the other question, in terms of the economics of the Mom and Pop shops exclusivities. I mean what are they really like - the way I understand it if I'm Modelo of maybe if I'm FEMSA I just put the chiller there for the Mom and Pop shop I don't pay them any money, they pay me cash right, they pay for electricity, I lend them the chiller but you know they are not paying - I'm not giving it to them. So what is the cost, I mean if a Mom and Pop shop is not exclusive, how does that affect my economics as a brewer in any way?

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Heineken Financial Markets Conference, Mexico City - Day Two

Josep Ferrer, VP Sales, Cuauhtémoc Mockezuma Well we learnt a lot with Six, I would say that way to become a preferred supplier is to help them realise first of all the economics of their business. When they realise how much they pay for electricity, what the rotation is per category, what the profitability that comes per SKU, when they have all this data they start to take tactical, but very powerful decisions in terms of how do they use their space. We are trying to be these advisors and that helps us to connect a lot with them. So like I said it's tough to compete with modern trade, but they will remain at least being 50% of the industry for the next ten or 15 years.

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Question I don't mean so much for the Mom and Pop shop itself, I mean for the beer companies, losing exclusivity how does that affect your economics it doesn't change them in any way - Mom and Pop - the shop is exclusive …

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Josep Ferrer, VP Sales, Cuauhtémoc Mockezuma Yes, I believe there are - in the long term there will be much more opportunities because the margins you dedicate to have an outlet exclusive you can dedicate it then to have a better ATL / BTL, you don't give money in advance. So I'm very positive about that in the future. I believe it will play in favour in the industry and of the consumer of course.

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Question If we saw numbers for your competitor for new customers this year, what would it look like and can you just talk a bit more about why you're so confident in being able to defend your own position in the strongholds? And what is it that Modelo is trying to do to get more share off you in the same way that you're attacking them?

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Josep Ferrer, VP Sales, Cuauhtémoc Mockezuma Well that's a question that maybe they should answer. But what I can tell you is that we're gaining from our distribution nationwide. So it's really been a successful year in terms of making our brands more available to the consumer. And I don't see them having success in this area.

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Question And is that because they're not putting as much effort behind that yet, or just because they've got the wrong brands or wrong strategy?

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Josep Ferrer, VP Sales, Cuauhtémoc Mockezuma

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I don't know. Laughter, ask Mr Brito or Tadeu, no I respect them a lot as competitors, they are really good at making synergies, at cost cutting. But I mean it's too soon to tell, they've been here six or nine months and they are focusing in cutting costs. We'll see maybe next year. I cannot comment, but I haven't seen a real difference now.

But Modelo - like Marc said Modelo used to be a very good competitor, so let's not underestimate that. So being more aggressive than them, I don't see that happening.

Okay, so thanks for your attention. I will be around if there's any more questions and I pass the mic to Peter. Okay George.

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Applause

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George Toulantas, Director Investor Relations We're going to take a half an hour coffee break now. So if we can start Peter Hall's presentation at quarter to eleven, thank you.

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Coffee Break

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Introduction

George Toulantas, Director Investor Relations It's my pleasure to introduce another fellow Australian to the stage, and I must say whilst the Australian contingent here is vastly outnumbered by the number of English people, I'm very pleased to see that we’re still dominating the cricket. I had to throw that in I'm afraid.

Peter joined Heineken in 2005 from Diageo, he has held a number of senior commercial and business development roles within the Americas region over the past eight years, and he was appointed Regional Marketing Director in 2010, so welcome.

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Heineken Americas: Winning with Brands

Peter Hall, Regional Marketing Director Thank you George and thanks Josep as well for that great presentation. And also for the wonderful field visits that we were able to enjoy yesterday. I know I was there with many of you celebrating in the on-premise afterwards; in fact yesterday was the 80th anniversary of the repeal of prohibition in the United States, so something to celebrate. I'm sure you would all agree.

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Thanks for mentioning the cricket as well George in your home town, 9 for 570 I believe was the score.

Actually it's been a bit of a big couple of days for news as I'm sure many of you will have already seen, but for those who haven't, obviously the labour department figure for the US this morning was well above expectations at 207,000 new jobs in the US, and October was revised up to 200,000, so that’s a piece of positive news. And obviously much more sadly the passing away of Nelson Mandela last night at aged 95. So a big day in the news.

I'm going to provide a marketing wrap-up of everything that we've seen over the last couple of days. I think it's very clear that Heineken is a very brand centric, consumer oriented, and marketing driven organisation, so all of the speakers who have come before me have touched on the subjects of brands, marketing, and these questions. So I'm going to take it back up a level now from Mexico and give a bit of an overview from the whole region.

So, if we look at exactly what I'm going to say, of course I will begin by reconfirming our brand centric approach; describe that in a little bit more detail. Of course then after that we’ll jump in to the Heineken brand which is the first imperative of our company strategy.

But I'm also going to talk about how we’re really building on those achievements of the Heineken brand to develop the next generation of global brands for Heineken, and how we’re going to do that in the Americas.

Now thirdly we’re very fortunate in this region to have a couple of very important and very strong regional brands in Dos Equis and Tecate, and I want to talk more about those as well.

And, as we know, strong brands don’t happen by accident so last but not least I'll talk about our people and our brand capabilities, and how they really make our strong brands stronger.

Now, a slide - part of which you've seen many times, the six imperatives of the Heineken company strategy. And what I'd like to do very briefly now, just below those imperatives, is describe some of the marketing initiatives that really bring to life these elements of the company’s strategy and in particular how we’re applying them and deploying them in the markets of the region.

Number one, obviously mentioned many times, is to grow Heineken disproportionately, and I'll talk more about what that involves, the stabilisation of the Heineken brand in the United States, the use of the tremendous global assets that the Heineken brand has at its disposal, things like Champions League, the Legends Campaign, etc, and also how our expansion is going outside of the United States on the Heineken brand, which is a great story as you'll see.

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Secondly, we've talked a lot, many of our speakers have talked about the innovation rate, so I want to go in to more detail about how we are raising the innovation rate in the Americas, and what we expect to happen in the future with our innovation.

Something that hasn’t been mentioned so far is a programme we call Winning in Top Cities. So, globally we've staked out ten world cities as Must Win Battles for our company. We believe that trends and many important things happen starting in cities, and four of these ten world cities happen to be within our Americas region, including, not surprisingly, the one we’re in right now.

Fourthly, I'll talk about our approach to portfolios; you've heard these phrases mentioned, global brands, Heineken brand, regional brands, local brands. How does this all come together at the level of the portfolio for an individual operating company? I'm going to talk about that very briefly as well.

Fifthly, the global brands, there they are again, I've already mentioned them and we’ll see a little bit more on Strongbow, also on Desperados and Affligem as well.

In personal leadership I've mentioned about our capabilities, and I'll talk there about how we’re step changing those using again elements that the company makes available to us, like the Global Commerce University.

And last but certainly not least is the subject of responsible consumption. Here we have a couple of things to really feature, our very innovative Drink Slow, Dance More programme. And as Jean-François mentioned yesterday, the Heineken Sunrise spot which many of you will have already seen, I'm sure.

But it's probably worth beginning by noting that in a region the size of Americas we’re obviously talking about an extremely diverse range of consumers, and when you take that with our issue of our portfolio, local, regional and global brands, we obviously have had to develop a very strong methodology for bringing all of these elements together in a portfolio plan.

And the way it works, very simply, I'm not going in to too much detail, is we define consumer typologies across different markets, and Leandro talked about some of those yesterday. An example of a consumer typology might be a yuppie; there could be obviously many others as well. And then alongside that we go to consumption occasions and define need states.

So basically we then create a grid of consumer typologies, consumer needs and occasions, and within those we create what we call super segments, and that is where we look to position our brands.

What this approach allows us to do is it allows us to find consistent positions across different markets, which is obviously a must when it comes to taking global brands in to local markets in a consistent way.

But we also, very importantly of course, use price laddering. This slide is really giving you an overview of that very diverse portfolio, our share of the 235 global brands, or

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brands that are within the Heineken family globally. And in price laddering there's roughly five segments in the way that we see it, two within mainstream, or mainstream and below mainstream, two within premium, and then I add here the layer of the regional brands, which as I mentioned are very, very significant for us in this market.

Now whether we’re pursuing strategies of broad market leadership or premium segment leadership, the Heineken brand and the global brands are always right there at the heart of the strategy. But of course a diverse region has markets at very different stages of development. So as I then after this slide go on to talk more about individual markets I want you to keep in mind a development model of how individual markets work, and then how that relates to the brand strategies that we’ll talk about.

So, if we think about it, the very first stage of market development are markets that don’t even really have true national brands in their portfolios. I've called them here provincial brands so as not to confuse with regional brands. But if we think about markets like Australia or the UK in the 1970s, they still weren’t really fully national brands that had emerged. Now obviously these days there are not many markets that are in that particular segment.

And the first stage of development is where those mainstream national brands really appear. By and large they are one of the regional or provincial brands that ends up having success on a national basis. So if I think about the least developed markets of our region, one that Stefan mentioned yesterday was Haiti, when we look at a brand like Prestige in Haiti, Prestige is really today a Port-au-Prince, it's a capital city brand. It's not really even yet a fully national brand. So that is the first stage of development.

The next stage is where it begins to get particularly exciting is when the premium segment starts to emerge. That normally happens first with domestic premium brands, and these are often very classical, and they tend to have very classical cues, use of gold, look quite upmarket, but are generally operating in a 10 to 20% premium to the mainstream segment.

Premium really gets going when the international brands enter, and that’s what we call IPS, as you know, DPS domestic premium segment, IPS international premium segment. This is a stage that quite a few of our markets are coming in to where premium is really set for quite accelerated growth.

Thereafter, the modern trade tends to be gathering strength, and that creates an opportunity for the value segment, or the price and economy segment to emerge as the modern trade starts consolidating itself and growing.

However, generally through this process as well, IPS is continuing to grow.

And then really towards the end, or at least as far as we can tell of the development model, we start seeing the Craft or speciality segment begin to emerge in a bigger way, and that obviously is where you tend to see markets more like the USA and Canada who are in that particular position.

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So thinking about those end stages of development I'm going to mention a bit about the situation in the United States, which is obviously a classic example of a market where Craft beers have emerged, and in some cases at price points above the international premium segment.

What should be the response of the international premium brands to that? Well basically what we see in that particular case is that the international brands need to retain their premium credentials, and that’s basically been what we've been doing in the US market over the last three or four years. And what we see is how that has begun to stabilise the performance of the Heineken brand, upgrading the packaging, deploying more powerfully the global platforms for the brand, and a focus on execution. So that’s a little bit from the USA.

If we look at the USA within the region as a whole, this is an unusual map; it basically shows countries as if their size was the size of the Heineken brand. And what it shows is that we have five very well developed markets for the Heineken brand, United States, Puerto Rico, Mexico, Argentina and Chile. But still 10 years ago this picture would have looked very different, and there would've been a question as to whether the Latin American markets were really receptive and open to the Heineken brand.

And I think what we’re really starting to see now is that we are not just a US, Canada phenomenon, we always had Puerto Rico, that should have been a good clue for us, but what we begin to see now is that really Latin America is open for the Heineken brand, and that I think is now beyond a shadow of doubt.

There's obviously plenty of white spaces when you look at a map like this, and obviously our goal is to try and develop those white spaces as rapidly as we can for the Heineken brand.

So I've mentioned briefly the US. If we go on and look at Brazil, which is one of those bigger markets down there, this I think is a great example of how that development, that segmentation model really comes to develop. If you look at Brazil over the last six years, the segments have developed, as I said, pretty much in a copy book fashion.

Mainstream beer in Brazil has grown at or slightly under GDP; roughly around 3%. If you look at the value segment, that’s actually grown about double the pace of GDP over the last five, six years.

The really explosive growth has come in premium. But when you peel that back and you look at where has the premium growth come from, it's all coming from IPS. DPS is not going away, DPS is a very steady excellent segment. But the real explosive growth is being driven by IPS. And that's obviously of very special interest to us.

Now, how have we achieved that type of growth, because obviously we have a very good position within premium, within IPS now in Brazil. Basically some of our global platforms have landed extremely well in Brazil. Obviously we’re just watching the draw for the World Cup so you can imagine that the Champions League, which is a brand in itself, is getting tremendous traction in Latin America. We hear all about Thais wanting to buy

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Arsenal shirts and things like that, but obviously Latin America is also a tremendously fertile region that UEFA and others are really targeting.

So global platforms, our Legends campaign, Champions League fit very, very well in Brazil. Sometimes when I'm around the regions, encouraging our markets to deploy more actively our global platforms, I have to do quite a lot of persuading. But I must say in Brazil that is a market where everything regarding football and the advertising is received with very, very open arms.

But on top of that, they're complementing it with extremely good local activation, and that obviously is a very, very important part, not just to be global, to have great authority and stature and to be premium, but to also through local activation really achieve that closeness.

And one of the best examples is what the Brazilian team have been doing Rock in Rio, with Rock in Rio that enormous music event. And when you see the video in just a moment, the consumption number is not an error. The consumption number is really 5,000 hectolitres at a music festival. Let’s show the video.

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Video Playing

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Peter Hall, Regional Marketing Director So I'm sure you can all see why we get a lot of energy from the success of the Heineken brand in Brazil. And this is obviously more than just fantastic activation, something I think you can see, Leandro mentioned, Viva Latino, the Mexican music festival as well. I think we really have a great capability in this area of activation.

If we look at the health indicators, the obvious ones that talk about consumption as you would expect are moving up, that reflects very closely the growth in volume, and that’s pretty much shown by what you see there on the left hand side where Heineken’s share of premium was last year at 12.8%, and as you saw from the video which we just received from Brazil, we’re actually almost touching 15% now of share of the premium segment in Brazil.

But of course the future is about those leading indicators, not just about current consumption, and that’s where I think we also have very good cause for optimism, when we look at indicators like a trusted brand, an innovative brand, we see these measures still continuing to rise in Brazil; so, we're very, very pleased about that, obviously.

And therefore we see no reason why the premium segment couldn’t double in size again over the next five years in Brazil. And currently only two of the four big players are even active in the premium segment, and that’s probably going to change as well.

Now, Brazil of course is one of the more developed and well known economies of South America but in fact in terms of premium beer, Chile and Argentina are much more developed. And let’s just take a little look at that with the case of these two markets.

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Not just because it is interesting that they have such a well-developed premium segment but also because of the way the premium segment has been built and the way Heineken has really led that development I think is particular interesting and could really I think tie together some of the comments that we've talked about on pricing for example over the last couple of days.

So pretty much what we see here is on the left hand side a market like Chile, where the brand is close to achieving a 7% share of beer which is a very, very high amount. In Argentina a little lower - more around 3.6 or 3.7%. In both cases, as you know, we go to market through our joint venture company, CCU.

Now the bit I was hinting at as I opened up this slide was how has that occurred? And actually when you look at the pricing, I think in economics they call this a given good, a product where, as the price goes up, you actually sell more. I think it's very interesting to reflect in Latin America why that has been the case. And certainly it's not proven, but again there are several good reasons to believe why.

The first one is simple capitalism. When you're working with partners, when you're working with customers, margin is important. And the moment that, I hesitate to use the word, velocity, begins to pick up, that high margin really starts to kick in, and that drives the whole chain. Whether you're in a three tiered distributer system in the US, whether you're in a mom and pop traditional store in Chile, margin really works. And as the brand steps over a certain threshold, having the difference between a 120 versus a 150 or 170 begins to make a very, very big difference.

The other point that I believe is that, and this Leandro and Josep have mentioned as well, is that to become a real segment, premium has to be noticeably different. And 120 is not noticeably different. 110, 120, by the time you're on deal, you're already back at the price of mainstream. So given that we know as premium reaches like in these countries almost 20% share of the beer category, you are going to get promotional activity, there is no way that we are going to step back from promotional activity when we’re talking about brands at this level of development.

So if you're going to do a promotional activity, 10% off, 15% off even, you don’t want that price activity to take you back in to mainstream territory. So, we believe that this is a really excellent case of how to build the premium segment and how the Heineken brand can really show the way in doing that.

Now others will follow, of course, and we plan to do that ourselves. Not surprisingly, we've got a terrific portfolio of premium brands so why wouldn’t we use them and do it again.

And here are three that I really want to just highlight because they are of special interest to us in the region. Two or so years ago we really picked this up as part of our agenda and it's going to grow over the coming years, starting with our very own Sol of course, we're at the home of Sol, and so imagine our pride at Sol being picked up by the Heineken Company to become one of our five global brands.

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What have we done on Sol? Now here my comments are very much reserved for outside of Mexico, because the Mexico case is obviously a special one that you've heard a little bit today, we are not planning to land the global spaceship on the Mexican operating company when it comes to Sol.

Sol is being transitioned, the strategy that you heard discussed for Mexico was also pretty representative of the export strategy that Sol had as well, so Sol was launched in a couple of other markets, Brazil, the United States, but it was launched at a mainstream price point, generally 30 or so percent under the competitor brand.

As in Mexico, so for the globe, we fairly quickly concluded that that was not the way to go. So in the markets of Brazil and Chile we are transitioning Sol to the new global positioning, which is premium, and in a very, very attractive new presentation. So that’s a bit on Sol.

If we look at the other two brands, Desperados and Strongbow it's probably best illustrated if we look at this chart. I'm sure many of you know, cider is a very hot category right now in the US, but also in Canada where actually it began to develop before the US. In fact the category is doubling year on year in the United States. Not large yet, still probably under a million hectolitres but we are very much accelerating our plans for Strongbow in the United States, and showing very good results with that.

As we are in Canada, and as Leandro mentioned yesterday as well, where we are beginning in a different environment, Mexico, a country with no history really of cider, to come in and see if we can actually create the new category of cider where none currently exists today. So, big focus on the North American markets for Strongbow.

Now Desperados is a brand that actually came in to the region almost without us realising. Desperados, as many of you know, came from France where it is fabulously successful, and in the French territories of the Caribbean, the retailers naturally wanted to bring it with them. And that was something that was managed on the side for a number of years.

When we looked at that we realised that in some markets of the Caribbean, Desperados is taking up to a 30% share of total beer, which is an extraordinary number when you consider that it's priced above Heineken, so of course we very quickly realised, and with the support of Desperados being designated a global brand, we quickly realised what we have in our hands with a brand like Desperados. So we’re focusing on rolling it out from the French Caribbean, across the Caribbean, and in 2012 we launched the brand in Brazil, and we are continuing the national roll-out of Desperados which will be complete by next year. So we’re very, very excited about this global brand as well.

Now, I've hinted a little bit at these regional brands and of course we've all been enjoying Tecate and Dos Equis, but I do want to make a bit of a special point about these two brands, partly because in the case of Tecate it allows me not just to talk about premium, although obviously with the mainstream brands activity that we've been hearing about from Mexico, you can see that we’re very, very active in mainstream as well; but to just think about premium for a minute and why these two brands are so important.

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Just as a reminder, Tecate is the second largest brand within the Heineken company, and Dos Equis is the fastest growing major brand in the Heineken company as well, so very, very important for us.

But let’s think about first the context of North America, why this matters. So, first of all just a bit of backing off from the beer category. So if we cast our minds back to 1993, the formation of NAFTA, as we know not a political union but a pretty effective economic agreement amongst the countries of North America. And some of you may even know the famous quote of President Carlos Salinas who told the US Congress in urging them to ratify NAFTA he said, ‘Take my goods or take my people’.

Now if you actually look at this chart, probably you've got both, for in trade this has exploded to the point where this is the largest commercial trading relationship in the world, between the US and Mexico. It is the biggest cross border relationship in the world.

And within a decade, it appears likely that US / Mexico trade will actually surpass US / EU trade which is obviously quite a mind boggling thought. So that’s a little bit on the trade and economic integration of these two countries.

But of course the demographic side is extremely critical as well, and I just want to talk about that for a little bit.

If we look at Mexican Americans, or Mexican Hispanics, this is the group that is really driving the population growth of the United States. We often hear about the size of Hispanics, a lot of you will have heard, 50 million Hispanics by 2040 in the United States, what's more, the Hispanic community in the United States because of its economic power is actually more sizeable in purchasing power than Mexico or Brazil as separate countries; simply because they have that high GDP per capita.

So my message is we all know about multi-cultural growth, Census Bureau says by 2050 the multi-cultural population will overtake the general market, and within that, Hispanic is driving, and within Hispanic Mexican Hispanic is driving. So in other words we’re talking about an ever deeper integration of these two markets, and that’s very, very significant for us, and it's very evident in the beer market.

So as we think about that, let’s now have a look at our portfolios across these two businesses of the US and Mexico. The Mexico one by now you're very familiar with, the US one as we know is a little bit simpler because the portfolio is almost fully focused on IPS. And there you can see, obviously I'm going to talk in a minute about Dos Equis, and you can see it up there really having achieved super premium as they call it in the US, premium was not enough for the US, we had to call it super premium, so Dos Equis has achieved that status in the US.

That’s a little bit different than Mexico where some of you will have observed yesterday, we’re at about a 105 to 110 index in the Mexican markets, so that is a difference. Tecate is identical, so Tecate, Tecate Light are at the reference 100 price point in both countries.

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Now I mention this for a couple of reasons but if we think about our head to head if you like, or our competitive context in this very exciting Mexican beer category, there's a couple of points to note. First of all if we think about the Corona brand, Corona is at the same price as Dos Equis in the United States, but it is below the price of Dos Equis in Mexico. So you will have all noticed that yesterday.

And then if we take the other key competitor brand which will be Modelo Especial, Modelo Especial is also under the price of Dos Equis in the United States, and in Mexico. So when we often look at those different growth rates, what's going on, just important to remember that the brand building approaches are not exactly the same of the two companies.

Now since acquisition and in some senses before as well, both brands have actually achieved, and this is adding together, as I said, I'm aggregating here the Mexico and US markets, you can see the double digit growth achieved from 2010 to 2012 and that’s why these brands are so important for us.

Now what's very well-known is the growth of Dos Equis in the United States, René office, or I've been talking to you about that for many years I know, and here of course this week you've seen how excited we are about the national opportunity to grow the Tecate brand.

But within a difficult year of 2013 there's more very good news. First of all the Tecate brand has returned to growth in the United States which is important for us that it's able to do that. And Dos Equis is really preparing for even faster growth in the United States.

So that’s something that’s very important for us. And of course it's worth noting that with both trademarks, and in both markets, Heineken has full control and full ownership over both of these platforms. There is no division or lack of alignment, we’re one company with these brands and with both these markets, so we can manage and develop these brands in a consistent and powerful way in both countries, and of course that’s exactly what we plan to do.

Now no presentation on the subject of Dos Equis would be complete without mention of the Most Interesting Man in the World, which of course I'm going to do. In fact he's become so iconic within the Heineken Company, we just refer to him as the MIM. But, there is a story to the brand which is apart from the MIM, so it would be my pleasure to show you the video now of the MIM, our related activities driving this growth of Dos Equis in the United States. Video please.

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Video Playing

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Peter Hall, Regional Marketing Director Which is always a great message to conclude in our meetings with US distributers to remind them to stay thirsty.

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Now another great example of cross border activation and this has been touched on already from the Mexican side, is the platform of boxing. We all know that boxing is a very natural fit with Tecate’s positioning as easily the most masculine beer brand in North America. But what does that mean in reality? And if we look, as we know, the Tecate brand is growing nationally but has pockets of very deep development in the North East and North West of Mexico and also in the Sunbelt states of the US and what I'm showing on this chart are the city pairs. And these are some of the fastest growing urban areas in both countries, again stimulated by that spectacular increase in cross border trade that we’re observing.

So these are key battle ground cities for us. So what do we like to do in boxing? We like to put resources together from both markets so we can do more than either market could do alone. So that might mean that if there are some of those legendary fights, like Josep was mentioning, quite often they’ll happen in the United States, that’s very relevant back on free to air TV, back into - free to air TV in a country like Mexico with ratings of 10, 12, very, very high ratings for boxing back in to Mexico.

On the other hand, it allows us a level of presence and bigness if I can say that in the South Western United States which otherwise we wouldn’t normally be able to afford. So that pooling of resources, synergy of the two, is really well displayed in how we activate boxing, and by now these big fights are generally two to three per year, we've been activating those ever more successfully over the past four to five years. And as a result of that we’re seeing Tecate light grow 40% this year in the US market, which is off a low base but very, very promising indeed.

So, as we like to say, the only strategy a consumer will ever see is execution. So as I move to execution, there's two things only, there's obviously more to execution than that, Josep’s given us a great example of Mexico sales execution. I'm going to look at innovation and then I'm going to look at sales execution in Brazil where quite a few of you have had questions about how do we work with the bottlers, so I thought it might be interesting for you to see how we apply some of our sales thinking in a market which is very different from the Mexican one in terms of that route to market.

But let’s start with innovation, and you've heard much discussion, as I said, of the innovation rate. Now obviously we talk about that number as a global number, we take that in to the region, and the nice thing about it is obviously it's a number we can measure at a number of levels, including the operating company.

But this, as Jean-François mentioned yesterday, has been about a three year journey and the very important first step was to define what innovation is. Until you do that you're really having a fairly nonsensical internal conversation about what you want innovation to be. Once you've defined the rate, then you can measure it, and then you can drive to action. And this is, I think, very, very clear how our business units have responded to the challenge laid down on the innovation rate. And here you can see pretty much without fail how that response is a market by market phenomenon.

Now if we look at our current year, you'll notice that these numbers are below the Heineken Group average, and certainly still below our target. However, following the

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acquisition of FEMSA Cerveza the base business was at a very, very low level of innovation, under 1% after acquisition, and that amount and that particular number is moving up very quickly, and we actually think we can double that next year as we get behind some of our great local innovations and more of the global platforms as well.

Speaking of global platforms, obviously that means things like the global brands, Radler, innovative dispensing technology, but within the operating company the global platforms are complemented by local innovation, and this is a great example which some of you will be familiar with, which is the Beers of Mexico variety pack in the US.

This started life back in 2005 at COSCO, and actually really became so successful that we realised we could even innovate around this successful concept, going to twelve packs, bottles, cans, and now using the variety pack as a perfect sampling technique for US consumers on innovations in our Mexican beer portfolio that we like to expose them to.

Now then moving on to sales execution in Brazil we've really got a couple of key takeaways on this. First of all, as I mentioned, operating through a third tier, in this case the Coca Cola bottler, makes it even more imperative to have a very simple message, so very much about simplicity for scale, bigger and faster, and measure and track everything.

And if we talk a little bit about how that works in Brazil, I'd like to talk about the route to market because I think this will really bring to life for you exactly how we work with the Coca Cola bottler.

So, what we were finding in Brazil is a need to really find a way in a naturally CSD oriented organisation to get some space for beer, and for beer accounts. And the way we did that was to develop a couple of pilots back in 2012 where we asked bottlers to fund a couple of ideas that we had, and you'll see, all of these are, we think, ideas and we found that ideas that bottlers could understand and could accept.

The first one is what we call a beer centric rep. A beer centric rep is an incremental salesperson who is more focused on beer than soft drinks, as per the outlet selection. So within a natural bottler framework you're obviously looking for those customers that are big on CSD, not necessarily big for beer. So as we look for a win, win we look for customers where beer is important and CSD coverage is low or non-existent. That’s called a beer centric rep.

A beer ambassador is a kind of an account activator, a person who goes in to the field looking for beer accounts, activates them and then passes them over to the bottler sales force ready to go first order, credit established, off you go.

And then the last are what we call beer coachers, which is a doubling up of the supervisor structure. So if you think that a sales team, any supervisor might have seven or eight sales people under him or her, we've tried adding a second supervisor for those sales people who is the beer coach.

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And lastly we then create KPIs so we ensure that those beer centric folks have KPIs and incentives to make sure that they get after beer.

What we found, not surprisingly, is that the bottlers' ability to sell more beer increased quite significantly as a result of these changes. What was particularly important for us though was that they were able to increase their CSD sales as well, hence the win win.

So as we find and improve these models we've actually brought six bottlers on board with this programme in 2013, funded by the bottlers which is producing an incremental 200 routes for beer sales in Brazil for us this year, very, very important for us.

Now, of course, setting up the route to market is one thing, audit and making sure that what's going on in the point of sale is where it needs to be is very important as well. And here, we've introduced an audit process that reaches 7,000 accounts currently. This is actually the results of the first one that we did, and it shows significant gaps in performance, whether that be about distribution, whether that be about price compliance, promotion, or merchandising in the fridge, big opportunities for improvement, great raw material to have when you're sitting down in a performance review discussion with a bottler about how we can do better.

So, wrapping up, this slide is one that Stefan shared with you yesterday. We think it shows that with a clear sided strategy, a good focus on excellent execution, that this should and does drive share growth. These are the six business units that I look at on my desktop on a regular basis, and very happy to be able to say that as October year to date in all six of these business we have been able to grow share October year to date, so that’s obviously very gratifying and suggests to us that our strategy is working and we should keep doing it.

So to wrap up, brand building - a cornerstone not just of our global strategy but also obviously here in the Americas, something that we’re very, very keen to get after. The trend to premium is continuing in North America, considerable room to grow in Latin America for premium.

Our portfolios are spearheaded by the Heineken brand and complemented by the global brands and regional brands in North America, and obviously the local brands complete the picture as well in an important way.

We’re focusing on our capability development, especially looking at innovation, especially looking at sales execution. And as I said, the combination of these building blocks we think is helping us drive share gains in the key markets of segments where we compete.

So with that, I will conclude my presentation. George I'm not sure if there's time to go onto the next one. Questions.

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Questions and Answers

Question

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On the US where you've got Dos Equis with the Most Interesting Man and Heineken which is Man of the World, are you happy that you’ve got those two brand equities differentiated enough or do you think there's a bit of lowering between the two in terms of consumer perception?

And then a second question on Brazil, in terms of signing up the bottlers for the new model, where are you weakest in terms of bottler buy in at the moment in Brazil for your beer brands?

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Peter Hall, Regional Marketing Director Dos Equis and Heineken, we do feel there's clear daylight between the positioning of these two brands. Obviously in Mexico it's clear because one is operating at top of mainstream and one is in premium. But in the US where they are priced similarly, the first difference is there's a very significant geographic difference between the development of the two brands.

The Heineken brand has always been very strong where Europe is most relevant to the US, which is in the East, so the North East and the South East.

Dos Equis on the other hand has developed very strongly in the West, South and South West. But geography aside, we do believe there's also positioning differences. Heineken is a little more badge, a little more, if I may say, show off and a little more individualistic in its outlook on life. Dos Equis is a little bit more towards younger adults, and has a little bit more of a group and social dimension to it.

So I think between those three factors we’re pretty well able, as I like to say, I can explain it to my mum in 30 seconds on the phone what is the difference between what a customer should be doing with Dos Equis and Heineken.

For your question on Brazil, you might be able to see on the map which are the bottlers that have picked up the programme. Bottler reaction to initiatives like this tends to be related to how they're going in their base CSD business. So a couple of those bottlers that are not participating with us this year are involved in consolidation, which obviously is a very big deal for them, or they may be having some issues in their CSD business trends.

If that’s the case, clearly they're not that receptive to hearing about some of these transformational ideas. So I think there's no structural issue and obviously as you're all aware, the number of bottlers is declining so therefore the number of people we have to convince is declining as well.

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Question Another question on the US. If you were just to focus on the Mexican brands in the US, how would you benchmark your success versus Constellation and do you see differences, forgetting pricing for now, but in terms of how Constellation is executing in the

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marketplace and what kind of strategies they're developing as a single owner compared to prior experience?

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Peter Hall, Regional Marketing Director Yes, obviously there is some comparability there. However, the portfolio approach is a little bit different. What we’re doing with Tecate is different than Modelo Especial and Dos Equis and Corona, so there's comparability but not full comparability I would say.

The other point of course to remember is that Crown is, or Constellation Beer as it's now called, is certainly much larger in the Mexican category than ourselves, that is still the case. And also the portfolio is completely concentrated, not completely, but very, very strong in the West and South West. So, basically in those markets which also happen to be very strong chain grocer markets, basically when those premium Mexican brands are on offer or on promotion, we want to be in that process as well.

So in terms of the promotional frequency, execution, when that add box is there for Corona, we want Dos Equis in there as well. And we probably want Heineken also. So we want to be on pace with them in terms of getting those ads, and we are. And then we want to out execute them on display. And there we still have a gap to fill. Because obviously as we all know, the combination of the promotion with the display is what gives the most significant lift, so that for us is a focus for getting our in store execution, especially with displays, on pace with that level of promotion. Does that make sense, do you understand?

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Question Do you see a difference in how they're going to market and their effectiveness and execution being wholly owned now as opposed to how it was last year when it was jointly owned?

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Peter Hall, Regional Marketing Director I would say the difference I can observe is the increased media spend for behind Corona and a different media lay down, in other words the way they're using TV is different than in the past. Higher spend, and I would say more tactical in the use of their TV. Much more seasonal and promotional oriented than thematic or brand equity oriented.

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Question Can you describe how much we’re investing behind the type of capabilities that you have to launch those Rock in Rio type events and maybe for some of the sports marketing events, how much has that increased in your budget and how effective do you think you are at those events?

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Peter Hall, Regional Marketing Director

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Heineken Financial Markets Conference, Mexico City - Day Two

Well as I said, I think we’re very, very effective, and Josep talked a lot about the importance of repetition, that’s true in marketing as well, so I think if you look at the way we activate Champions League or the way we activate Rock in Rio 2013 versus 2011, significant improvement. So repetition is very, very important.

I think inflation in terms of sponsorship platforms is pretty similar to media inflation, I would say, in general. What we like to do is make ourselves indispensable, and that’s where the brands really come forward. So there may even be on occasions brands offering more money, but if we are the better brand in terms of working with and in terms of the imagery, because if I'm running Rock in Rio I want to borrow equity from a brand that helps my brand. And so again that’s a bit more the approach that we take.

And by doing it that way I think the cost side is pretty manageable. I'm obviously not going to reveal costs of individual events because that’s very sensitive.

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Question A couple of questions. One, if Mexicans in Mexico drink 99% Mexican beer, in the US, Mexican Hispanics, how much Mexican beer will they drink? Is it 50%, 90%? If it can be measured. And then the second one, of the Mexican brands in the US market, which really transcend the Hispanic community? I mean Tecate, Modelo Especial are very Hispanic, Dos Equis - transcended Corona I'm not sure, and the third related to that, has the very fast growth of Modelo Especial hurt Tecate or not necessarily, just hurting other brands?

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Peter Hall, Regional Marketing Director Very perceptive questions. The receptiveness of a share of Mexican brands amongst Mexican Americans actually goes through a quite interesting life stage I would say. We talk about newcomers, less acculturated and more acculturated, and the actual trends might surprise you. For newcomers, naturally, they're very interested in the brands from home that provide them that reassurance for that very difficult period in their life when they are coming in to the United States, and this is actually where Tecate has a very strong position.

Any of you have been immigrants, I'm an immigrant myself, so I know a little bit what this feels like, the next step is to fit in, and at that point we see a very strong migration of newcomers in to domestic premium light beers, so therefore in that second phase Bud Light is the number one brand for those less acculturated Mexican Hispanics.

But then a very interesting thing happens in the third phase which is a rediscovery of roots and a new pride in origin. And that’s often what you see in the second generation, and that’s where there's a rediscovery, and that’s where brands like Modelo Especial, Corona and Tecate come back again and start to do very well.

Now the other point is, within Hispanic things are very different. The most general market of the Mexican brands is Dos Equis, so Dos Equis has absolutely transcended, in

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fact it actually started its success in the US in the general market, not as a brand that was carried over from Mexico.

Corona is extremely concentrated with Mexican Hispanics, not very successful with Caribbean Hispanics. Caribbean Hispanics, actually Heineken is really the preferred brand there.

So as you know, the US, enormous continental market, I have to divide your question in various parts to give you an answer. I know you had another question that I don’t think I've addressed, could you remind me what it was?

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Question Just before I go to Tecate, your comment most people in the industry outside say Corona is very Hispanic but I'm almost surprised to hear that comment because when I look at the advertisements on TV and the way Corona’s marketed, in terms of consumer profile, I would put it almost as having transcended as much as Dos Equis, or am I wrong in that perception?

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Peter Hall, Regional Marketing Director Yes you are wrong. Certainly in absolute volume, Corona does more business in the general market than Dos Equis does, but if you look at the proportion within the brand, Dos Equis is more skewed to the general market. Corona, I don’t know if you watch Univision or some of these guys, Corona do a lot of advertising directly at Mexican Hispanics, which is a campaign which I would say is unrecognisable from the general market campaign. They're also working in a more [audio jump] than us as well.

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Question Has Modelo Especial taken a lot of share from Tecate in the US or has their growth come from other brands actually?

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Peter Hall, Regional Marketing Director Well Modelo Especial is quite significantly larger than Tecate. And I think the biggest source of business for Modelo Especial is in the can format, is in the West of the United States and is at a price index of 110, so what I think the biggest interaction with Modelo Especial is with domestic premium lights, I think that’s clear.

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Question Looking at the innovation rates, the Americas seems to be extraordinarily low relative to the Group, and then when you look at the regional brand overview you can see that in the big profit markets and in the big volume markets you've got a lot of gaps in terms of different price tiers, in terms of brands. Do you need to fill those tiers before you can really innovate at the same as level as the Group overall or do you think that just

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structurally the Americas’ business is going to struggle keeping up with the Group's innovation rate?

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Peter Hall, Regional Marketing Director No, I think we’ll catch up, we'll catch up next year. You might remember what Leandro talked about yesterday of this sweet spot in 110 to 120, actually right where Modelo Especial is in the US, and that’s something that we’re seeing using strong brands with upwards line extensions, we can actually do that.

That price space in the US is more difficult I would say for us to access, that’s where you've got the Reeters and Platinums and things of that kind going on, and I think in the US we’re a four, five share player. We have to be careful about how we do innovation because we really do need to try and capture some sort of scale in what we do there rather than cover every possible segment of the market.

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Question Are you better off, especially with the US business, just managing the SKUs that you have instead of trying to flood the market with extensions on your core brands there?

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Peter Hall, Regional Marketing Director It depends, in terms of a brand like Heineken it's already quite extended in terms of pack formats. There is more we can do, for example convenience is a channel where we’d maybe like to have a few new pack configurations to get there. And we will do some innovation. But the US portfolio for its size already has quite a few brands in it, and obviously we want to keep that collective focus there as well on premium to make sure that we get more than our fair share.

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Question Looking at your US portfolio, on the face of it you would think that a Craft beer could fit quite nicely in to there, any thoughts on either developing or acquiring in the Craft segment? And the second one is related to the price erosion of Heineken over the last two or three years. How long do you think it’ll take you to get that back up to where you want it to be? Assuming you want it to go back to where it started.

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Peter Hall, Regional Marketing Director One of the things we found, remember I described our portfolio planning process, that involves a very deep exploration with consumers, and we were really through that exercise able to understand very well how Craft is operating and developing in the US market.

And what we believe is that there is a more brand conscious consumer, Craft is in some ways not very highly branded. It's very much about connoisseurship, the variety

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seeking is prodigious, so there are Craft consumers we speak to who their average repertoire per year is 46 brands, which basically tells you they never drink the same thing twice.

So that for a company which is focusing on brand building badging is not necessarily the most high potential area for us. We want to access that if we can, but we’re not talking about accessing it through Craft brands of our own, we want to do it more with global and badge brands and see what piece of that we can capture.

And the other part of the map, which is the badge side, doesn't get as much publicity, is more multi-cultural skewed but is very, very deep profit pool and will keep growing as well. So that’s basically how we look at the phenomenon of the Craft brands.

And then your second question about pricing, actually pricing is something that has been moving in the US, so we've been able to take pricing. The days of across the board annual price increases in the US, those days are gone; it's very much more now about micro pricing and revenue management.

But when you look on a State by State, channel by channel, pack type by pack type opportunity, we’re still getting pricing in the US.

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Applause

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Bringing it all together

René Hooft Graafland, CFO and Member of the Executive Board We are almost at the end of this conference, we had one and a half intensive days, I think you've got six very rich and insightful presentations and we had two great market visits to the off-premise and to the on-premise which were hopefully insightful but also enjoyable.

What I would like to do is not repeat everything which we have covered in the one and a half days, I picked out ten slides just to repeat a few of the key messages we wanted to bring across during this Financial Market Conference.

And the first one is a slide out of Jean-François#; presentation where he explained our internal performance matrix, the golden triangle which we use on NV level, regional level and on op co level, it's the combination of top line growth, revenue growth, market share growth, return on sales and return on invested capital.

And company by company, op co by op co you will see a different focus, but ultimately, the three need to be in balance and need to go forward.

Now, we explained and discussed many times that 2013 is a disappointing year with all the good and well understood reasons, but if you look at these eight drivers of value and

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drivers of growth we are pretty comfortable that we can further make progress on that golden triangle and improve on the different angles of that triangle.

Now the Americas will play an important role in that respect, the Americas after the acquisition of the beer business of FEMSA has become a real important region for us in the company. It's the biggest region in terms of volume; it's the number two region in terms of profitability. But it is not only the acquisition of the beer business of FEMSA which gives the boost of this region; we see also that organically we are able to grow the business across the region. This is a region where we see a lot of potential and a lot of future for us as a company.

Interestingly in the region, and I've got a slide out of Stefan’s presentation, you see that the international premium segment is the least developed in Latin America and the Caribbean region, and the 3% for us is what you saw in the other regions.

And we strongly believe that there is a development going on on the international premium segment. You see that markets are starting to premiumise. We see it in markets like Chile, we see it in markets like Brazil, we see it here in Mexico.

If you look at what we saw last night during the market visit, you feel that premium is getting more to the forefront. It's still very, very small in this market but you see developments which will help the international premium segment further to develop.

And clearly, that is a territory we are strong at, with the Heineken brand we have over 20% of the international premium segment worldwide, and we can capitalise on that asset also here in the region.

But obviously it is not only about the Heineken brand, also where you talk about the international premium segment, I think Peter alluded on the success of Desperados, the efforts we are making with Strongbow and Sol here in the region, these global brands will find their place here in the region as well.

But next to that we have a couple of brands which have a phenomenal result here. If you look at Dos Equis, if you look at Tecate, these are fantastic brands which go beyond their country border. Dos Equis very much driven by the success in the USA, but we see now here how it gets traction again in the Mexican market, and we see a lot of potential for Dos Equis at that price premium just above mainstream index; 105, 110, that is a very, very attractive proposition to have in your portfolio.

And Tecate, the other way around, based on the huge success here in Mexico, and looking at this slide, it's amazing what has been done with the brand in the last 10 years when you see that that is spreading out in to the border cities, the sunbelt states and we believe that there is a lot of potential for Tecate also in the USA.

Innovation, we talk a lot about innovation and we do a lot in innovation. It is a hot theme in the beer industry. I think the beer industry has been lagging behind on innovation but we are stepping up, and Heineken is absolutely committed to take the lead in to innovation.

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When you look at innovation rate here in the Americas, still low but we see that it is increasing quickly, partly based on local innovations like the Sol Clamato you have in front of you, and not many people have tried yet, but please do before you go home.

But also here you see the power of a global company, we really exploit global innovations and our global capabilities to further drive the innovation agenda; extremely important for us as an industry, and Heineken is absolutely committed to drive that further.

Now, the focus of the conference obviously was Mexico, we believe that this a very attractive market, and despite the fact that the beer market was not growing in 2013, and Marc explained the post-election year, the weather conditions, but fundamentally we believe that Mexico is a growing market which should grow at two to 3% a year. That is driven by the economic reforms in the country, the economic developments. You will see here that it's also driven by the strong population growth or the demographics where you see younger people getting in to the legal drinking age.

So overall, we think Mexico is a great place to be, it's a beer market which is, we always say, a bit in between developed and a developing market, it has characteristics of both, but there will be a solid underlying volume growth in this market.

Now, since the acquisition of FEMSA Cerveza, you see that the company has performed extremely well. I think the acquisition of FEMSA Cerveza has been a huge success so far. We are very well on track on our acquisition plan, we are even slightly above that, and that is driven by solid revenue growth here in the market. A bit less on volume, a bit more on price mix than we originally estimated because the volumes, as I just explained, are not yet fully coming but the overall revenue is very healthy here in the market.

And if you combine that with strong cost agenda 220 million already out of the cost base you see the profit development over 20% compounded, and you see more than 500 basis points margin expansion.

That is certainly not the end. I hope that you have discovered enough elements where the team here in Mexico is working on to further expand on the success they have so far as well on the top line as on the cost side, the additional 100 million cost, which Mark mentioned, and that will drive further margins up going forward.

Leandro explained the brand portfolio, as I said, price mix has been an important driver and that is not only price, it is also mix, it is really what we have been doing here since we acquired the business is getting that price laddering in the market, getting out the situation where all these brands were priced at the same price, now we clearly built a portfolio with price laddering. You see that here on the slide.

But what is as important is that within the price laddering, that all these brands have their own position, have their own character and have their own destination, and I think Leandro explained very well how the different brands are positioned versus each other.

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Having a strong brand portfolio is obviously not enough; you need to bring it to the consumer, so route to market is extremely important. Getting the distribution and getting that sales execution at outlet level. I think your presentation Josep explained that very well, we have a very structured approach to do that, you went through that. It's not rocket science, it is very basic stuff but you have to do it damn well and you have to do it every day a little bit better. And I think the team, how it has been executing here, is very much on that way and you see that we are successful in the market.

So if we look at this company, and there has been always in the discussions, Jean- François and myself, and the IR team is having with you, you're always saying, what will happen here in the market once ABI takes the ownership of Modelo? of course they are a great and very professional competitor, but I think what the team has put here in place in terms of brand portfolio, in terms of route to market, in terms of supply chain capabilities, we feel pretty confident that we are in a good spot here in the market, and that huge success and financial track record we have since the acquisition, that we can continue working on that.

So, Mexico is obviously the most important part of the region, it's the biggest operation we have here, it's the biggest operation in the Heineken Company, but the Americas is more than just Mexico. We have very attractive positions across the whole regions. I think that we have the different models in place to capture opportunities.

You have seen that we are winning there where we choose to compete. We are not in all markets, there are markets where we stay out because we don’t think we can compete effectively, but where we choose to compete we see that we are winning. And that is the message I would like to give you when you go home, that we feel very comfortable here in the Americas, we see the opportunities, we feel that we have the right things in place to grab these opportunities, and we show that we can do it.

That is a very short summary of what I wanted to share with you. I would like to thank you for the fact that you spent one and a half days with us. I think we were very fortunate to have such a high quality audience. It's always the debate who will come to Mexico, it is for most of you a very long trip. Some things that we were discussing, security issues would keep people home, now you have seen that the image of Mexico is often worse than the reality. We were walking around yesterday evening through Mexico City, you feel it's a great place to be, it's a great place to work, and it is a great market to work in.

So thank you very much for being here and sharing so much time with us. Thank you very much to the regional and Mexican team. It's not your daily work to present, but I think you did great, and you conveyed the message that you are on top of your business, that you know what you're talking about, and that we put the trust of the company in your hands with the right reasons.

I think it was a great presentation. Also thank you to the management team members who didn’t present but who were present here to discuss with you in the breaks. Thank you very much for being here. Thank you to your sales team, Josep, for organising all

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the electric shocks. Absolutely. That was great and as a corporate guy I lost out. But I see the people in the markets holding onto that, that was great fun.

Thank you also to the IR Department, and they are obviously available for any follow-up questions or things you further want to share in the weeks to come.

A big thank you to Miriam of the IR Department who did a lot of the organisation, and Lily, but probably she is outside, the Assistant of Marc who did a perfect job.

Thank you, this is the end, take your binders, it will be on the web, hopefully you got a lot of insights, but also confidence that we are absolutely on the right track here in the Americas. Have a good trip home and we stay in touch. We still have lunch, I don't know where, at the same place as yesterday?

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George Toulantas, Director Investor Relations No it's at the Lip (?) restaurant brassiere, so as you come of the foyer of the hotel it's to the left on the ground floor. That's at 12.30 so you've time to freshen up and have a nice lunch.

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René Hooft Graafland, CFO and Member of the Executive Board We'll have lunch together and then have a good trip home. Applause

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END

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This transcription has been derived from a recording of the event. Every possible effort has been made to transcribe this event accurately; however, neither World Television nor the applicable company shall be liable for any inaccuracies, errors or omissions.

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