Molson Coors Beverage Co (TAP) 2007 Q4 法說會逐字稿

Good day, ladies and gentlemen and welcome to Molson Coors Brewing Company 2007 fourth quarter and year-end earnings conference call. At this time, all lines are in a listen only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. (OPERATOR INSTRUCTIONS). As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's conference, Mr. Leo Kiely, President and Chief Executive Officer of Molson Coors Brewing Company. Sir, you may begin.

Thanks, Matt. Hello, and welcome everybody. Thanks for joining us today. With me on the call today are Tim Wolf, our global CFO, Kevin Boyce, CEO of Molson Canada, Peter Swinburn, CEO of Coors Brewing Company, Mark Hunter, CEO of Coors Brewers Limited, Sam Walker, our Chief Legal Officer, Mike Gannon, global Treasurer, Marty Miller, global Controller and Dave Dunnewald, Vice President of Investor Relations. This morning Tim and I will take you through some highlights of the fourth quarter and full year 2007 results for the Molson Coors Brewing Company along with initial perspective on 2008 and then we will open it up for questions.

In 2007, despite significant competitive and cost inflation challenges in each of our markets, our company results show the value of building brands, reducing costs and staying keenly focused: equally important, we continue to deliver on the promise of the Molson Coors merger three years ago. For the second consecutive year, we achieved solid top line momentum and substantial cost reductions that exceeded our goals in double digit earnings growth. Let's review highlights for 2007. At the global level, we grew Coors Light comparable sales to retail nearly 4% globally for full year 2007 and more than 5% on the second half. We achieved net sales growth of nearly 6% in 2007, driven by brand strength, positive pricing and the benefit of favorable foreign currency. We grew net pricing in all three of our businesses on the strength of our brands, and the discipline of our sales teams. We kicked off the next generation resources for growth cost reduction program early in the year, and wrapped up our original three-year merger synergies program at the end of 2007.

For both programs, we exceeded our 2007 financial goals, across the company we captured more than $146 million of cost reductions, including $55 million of merger synergies and $91 million of resources for growth cost savings in the year. The success of these cost reduction programs allowed us to offset more than 80% of the $175 million of cost inflations that challenged our company in 2007 including more than $120 million of commodity and other inflation in the U.S. business alone. We continue to invest at a high level in our brands and sales capability in each of our businesses. We generated $226 million of free cash flow in 2007, despite the need to fund more than $250 million of one-time cash issues. We strengthened our financial foundation and reduced interest and other nonoperating more than $26 million annually by refinancing more than one-fourth of our debt, making substantial voluntary pension contributions and streamlining our corporate legal structure.

Excluding special and other one-time items in both years we grew 2007 consolidated income from continuing operations 40% to $507 million after tax. This increase was driven by our strategic brand growth, positive pricing and cost initiatives, as well as favorable currency movements and a lower tax rate. In the U.S., we are seeing the results of more than two years of focused work to transform the front end of the business and reduce costs. In 2007, our team stayed focused and achieved very strong sales to retail and market share growth in, on each of our four largest brands.

For our U.S. portfolio, excuse me, our U.S. portfolio showed broad based strength by growing sales to retail in 45 out of 50 states in all major channels. As a result, we grew market share in the U.S. at an accelerating pace in 2007. We reduced transportation and other costs and improved service to our east coast customers by opening our new brewery in Virginia. We developed plans to make our U.S. business even more competitive by announcing an agreement with SAB Miller to merge our U.S. operations into a joint venture and capture $500 million of cost reductions over three years. This deal also offers substantial growth benefits and represents potentially the biggest value driving deal in global beer today.

In Canada, our team continued to make significant progress against our commitments from the merger three years ago, including accelerating volume growth and balancing share and pricing priorities. In 2007, our team gained market share on a full-year basis for the first time in six years and only the second time in 17 years, driven by Coors Light and our other strategic brands. At the same time, we continued to strategically increase net pricing in a very competitive market, Based on the growing strength of our brands. An important achievement for future growth was the team's success in securing new relationships with each of our major partner brands in Canada for the long haul. These relationships give our Canadian business the three largest import brands, Corona, Heineken and MGD and the broadest portfolio in that market.

We reduced costs and improved access to the Canadian maritime markets by closing our brewery in Edmonton Alberta and opening a new brewery in Moncton, New Brunswick. In Europe, our team continued to make the best of a very challenging competitive environment by building strong brands and growing pricing and profit. In 2007, our Europe team grew net pricing for the first time in three years and increased operating profit for the second consecutive year by staying focused and disciplined at retail, by building our strategic brands and by reducing costs aggressively. These results represent a substantial achievement in the UK market that faced smoking bands, weak consumer spending and record breaking wet weather, which resulted in a volume decline of approximately 4% for the the industry in 2007. So in total we are pleased with the progress of Molson Coors Brewing Company and what we achieved in the past year in both top line and bottom line growth, as well as in strengthening the company's financial foundation and competitive position.

So at this point, I will turn it over to Tim to review fourth quarter financial highlights and trends and then we will provide perspective on 2008. So Timothy?

Thanks, Leo. Hello everybody.

I will start with fourth quarter financial highlights. In the last quarter of 2007, each of our businesses faced difficult competitive conditions and cost inflation as well as cycling the 53rd week of fiscal 2006 calendar. Still, our company maintained momentum to grow net sales and gross profit and reduce costs, which allowed us to invest in our brands and grow total company operating income and after-tax earnings strongly in the fourth quarter, As we detailed in our earnings release earlier today. On the bottom line, we achieved income from continuing operations of $133 million or $0.73 per diluted share in the fourth quarter and this is up 23.6% from a year ago, excluding special and other one-time items. Foreign exchange movements increased our total company pretax profit by approximately $12 million in the fourth quarter excluding special and other one-time items driven by the appreciation of the Canadian dollar and the British pound versus the U.S. dollar.

On the other hand, cycling the additional week in our 2006 fiscal calendar reduced fourth quarter pretax profit this year by approximately $6 million, and reported sales volume by about 600,000 barrels. These results exclude one-time tax rate benefits in the fourth quarter this year, restructuring the brewery closure costs in Europe and Canada as well as expenses related to our proposed U.S. joint venture. These adjustments are described in more detail in the earnings news release we distributed this morning. Unless otherwise indicated, all financial results we share with you today will be in U.S. dollars.

In segment performance highlights, starting with Canada, pretax income of $129.6 million, excluding the special charges in the fourth quarter was 2.9% lower than a year ago. The decline was driven by the impact of the additional week of sales in the prior year and higher costs of goods per barrel, which was offset by positive net pricing and $18 million benefit from favorable foreign currency. Our Canada sales to retail, or STRs for the fourth calendar quarter ended December 31st, the increase 0.7% versus a year ago, driven by mid single digit growth of strategic brands, which account for more than 85% of our total volume. Coors Light continues to fuel this growth by posting a high single digit increase in the quarter while Rickards, Creemore, Carling and our partner import brands all grew at double-digit rates. Molson Canadian experienced a mid single digit volume decline in the fourth quarter.

Total Canadian beer industry grew an estimated 0.8% in the fourth quarter, resulting in a very slight market share decline for our Canada business compared to prior year, as we ran fewer price promotions on our strategic brands than some of our competitors. For the full calendar year, we grew share slightly in the Canada market, driven by share growth over the key summer selling period on the strength of our strategic brands. Our Canada sales volume totaled 1.9 million-barrels for the fiscal fourth quarter ended December 30th, which is a decrease of 3.8% from a year ago, excluding 130,000-barrels of sales volume in the 53rd week in our fiscal 2006 calendar. This decline was entirely due to the termination of our Fosters U.S. production contract earlier in the fourth quarter, partially offset by a slight increase in our Canada market sales volume.

Net sales per barrel increased 4.5% in local currency driven by positive net pricing and increased sales mix toward higher revenue per barrel products. Net pricing contributed half of this increase as we benefited from selective price increases over the past year and less price discounting in Ontario. The remainder of the increase was due to improved sales mix in the quarter driven by the termination of our low revenue per barrel Fosters U.S. production contract. Cost of goods sold per barrel increased approximately 11% in local currency in the fourth quarter. The majority of the increase was again due to the termination of the fosters USA production contract, a shift in sales mix to partner import brands and a favorable currency adjustment of $4 million in the prior year. The remaining cost of goods sold per barrel increase was limited to a 3% increase due to inflation and other costs partially offset by cost reduction initiatives.

Marketing, general administrative expense in the quarter decreased approximately 7% in local currency, driven by cost reduction initiatives implemented in the year and lower overhead expenses including lower non cash amortization. For our U.S. business, fourth quarter pretax income was $71.5 million, up 39.7%, excluding special items this year. This increase was driven by sales volume growth, higher net pricing and continued savings from our operations cost initiative offset by continued inflation in key commodities and transportation costs. Recall that we are cycling the 53rd week in the fiscal 2006 calendar, which added about 330,000 barrels to U.S. sales volumes and was approximately break even in profit.

Looking at U.S. highlights, sales to retail in the 50 states U.S. increased 6.2% on a comparable basis, and we accelerated our market share growth in the fourth quarter. This increase was driven by mid single digit growth for Coors Light, which achieved its 11th consecutive quarter of growth along with strong double digit growth at Blue Moon and low double digit growth of Keystone Light. Coors Banquet accelerated its turnaround momentum in the fourth quarter by growing at a low double digit rate.

U.S. volume to wholesalers grew 2.0%, due to strong sales to retail growth, offset by cycling the 53rd week in 2006. Without the impact of the extra week in 2006, shipments increased 8.1% in the fourth quarter. U.S. net sales per barrel increased 2.1% on the fourth quarter driven by higher front line pricing. Cost of goods per barrel increased 2.0% in the quarter, driven by higher commodity, transportation and packaging and material costs which were partially offset by over $20 million of cost saving initiatives and lower depreciation expense. Our operations cost savings in the fourth quarter offset about two-thirds of our U.S. goods inflation.

On a full year basis our cost of goods per barrel increased 0.9% driven by more than the $120 million of cost inflation. Nearly two-thirds of this inflation was offset by our merger synergies and other operation cost reduction initiatives. U.S. marketing, general administrative expense decreased 6.1% in the fourth quarter, driven by year-over-year timing differences in expense. Our Europe business fourth quarter pretax income was $38.1 million excluding special items, which is an increase of 17.9% from a year ago driven by higher revenue per barrel, savings and general administrative expense, and $2 million of favorable exchange.

These factors were partly offset by negative impact of lower volumes as a result of recently enacted smoking bans along with weak consumer spending. Year-over-year results, the comparisons are also affected by the additional week in our fiscal 2006, which include volume of about 140,000-barrels and a pretax loss of less than $1 million in the 2006 fourth quarter results. Our Europe-owned brand volumes decreased 10.7% on a reported 13 week versus 14 week basis. Excluding the additional week, volume decreased by 6.0%, reflecting a weak on-premise market in the UK, aggravated by the smoking bans implemented earlier in the year.

In this difficult trading environment, our market share in the quarter declined slightly versus the prior year. Our Europe net revenue per barrel in local currency increased by 6% in the fourth quarter with approximately 4 percentage points of this change related to non-owned factored brands we deliver to retail driven by our acquisition of the Cameron's on-premise distribution business early in the third quarter. The addition of this business will raise our Europe net sales per barrel and cost of goods per barrel several percentage points for the next year, due to a step up in our factored brand sales.

U.K. owned brand net revenue per barrel local currency increased nearly 3% in the fourth quarter as a result of higher pricing, mainly on the on premises, in the on premise channel. This represents our fourth consecutive quarter of year on year growth in own-brand pricing. Total Europe cost of goods sold per barrel in local currency increased by 5% in the fourth quarter with all of this change related to factor brand sales including Cameron's. Cost of goods sold for our U.K. owned brands per barrel was relatively flat year-on-year in local currency, with increases driven by cost inflation and fixed cost deleverage as a result of lower volumes offset by cost savings.

Marketing, general and administrative expense in the U.K. decreased approximately 13% in local currency as a result of continued aggressive cost control and lower expenses related to cycling the additional week in 2006. Moving beyond operating business unit performance, our fourth quarter effective tax rate was negative 15% on a reported basis, and positive 24%, excluding special and other one-time items. The $60.4 million one tax tax benefit in the quarter resulted primarily from a 3.5 percentage point reduction in the Canada corporate income tax rate to be phased in through 2012, along with a one-time U.K. tax benefit.

Free cash flow for 2007 totaled approximately $226 million, which was made up of $660 million of operating cash flow, plus $38 million of proceeds from asset sales minus capital spending of $428 million. Recall that our 2007 free cash flow was reduced by several significant nonrecurring events totaling about $250 million this year. These include the net effects of buying back our U.K. kegs, additional CapEx to complete two new breweries, premiums to repurchase debt and voluntary pension contributions partially offset by nonstrategic asset sales.

Total owned debt at the end of the fourth quarter was $2.15 billion, excluding approximately $113 million of non-owned joint venture debt. Cash and cash equivalents totaled $377 million at the end of the quarter, resulting in owned net debt of $1.78 billion. We will use a portion of the cash on hand to buy back up to $225 million of our 2012 senior notes during this month.

I will preface the outlook session as usual, by paraphrasing our Safe Harbor language. Some of what we talk about now and many the Q and A may constitute forward-looking statements. Our actual results could differ materially from what we project today, so please refer to our most recent 10-K, 10-Q and proxy filings for a more complete description of factors that could affect our projections. We do not undertake to publicly update forward-looking statements whether as a result of new information, future events or otherwise. Regarding any U.S. GAAP measures that we may discuss during the call, please visit our web site, www.MolsonCoors.com for a reconciliation of these measures to the nearest U.S. GAAP results.

Looking forward, we anticipate 2008 corporate net interest expense of approximately 95 to $100 million on a foreign exchange neutral basis. This reduction from last year, this roughly $13 million reduction from last year is attributable to the debt repayments and the restructurings we've undertaken in the past year to strengthen our financial foundation, partially offset by the higher interest cost of a stronger Canadian dollar. We plan a full-year 2008 corporate and general administrative expense of approximately $110 million, plus or minus $5 million, which is in line with 2007. Note that about one-fifth of this total expense is related to projects for our resources for growth cost reduction programs.

Turning to our effective tax rate, we anticipate that our full-year 2008 rate will be in the range of 10% to 15%, excluding special and other one-time items, and assuming no further changes in tax laws. We expect our 2008 rate to be lower than our long-term range of 22 to 27% because of the, of the release of unrecognized tax benefits this year. Note that the settlement of additional open tax years or passage of tax legislation in Canada could indeed alter our tax rate outlook. Our capital spending outlook for this year is approximately $280 million, excluding self-funded capital spending by consolidated joint ventures, note that the completion of the Miller-Coors joint venture in U.S. could change this outlook.

Our view of 2008 free cash flow remains approximately $550 million, plus or minus 10%. Formation of the U.S. JV again, would also affect this outlook as we plan to hit the ground running following completion of the transaction, which we anticipate could be around mid year 2008. Now, highlights of cost reduction initiatives, first we overdelivered against the three-year $175 million merger synergies target and wrapped up with $180 million of savings delivered, including an incremental $5 million of merger related synergies in 2007. Second, we are already ahead of schedule on the three-year, $250 million resources for growth cost reduction initiatives. We have achieved $91 million of savings during 2007 which is the first year of this program, which is $25 million more than the initial 2007 target we shared a year ago.

We exceeded our first year cost target by more than 37% by accelerating a number of our cost reduction programs, particularly in our North America supply chain. Combining both cost reduction programs, we have captured $146 million in total 2007 cost savings. For 2008, we continue to target an incremental $77 million of cost reductions from the resources for growth programs. Regardless of when the U.S. JV might be completed, we intend to capture these cost savings, and the JV will provide substantial additional savings Beyond our existing resources for growth program. At this point, I will turn it back other to Leo for a look ahead to 2008 for our other businesses. Leo?

Thanks, Tim.

In 2008, we will remain focused on building strong brands and reducing costs in each of our businesses. We have ended the New Year with encouraging momentum. Our strategic brands in Canada are building volume and taking share. In the U.S., we have strong and broad volume and market share momentum on our four largest brands. We are holding the line on pricing in Europe and helping our retail customers work through the smoking bans, and in all three businesses the strength of our brands is supporting positive pricing and cost reductions of providing resources to offset inflation and grow our business.

To keep this momentum rolling in 2008, in Canada, we will continue to build on the momentum of our strategic brands, where we've experienced strong volume growth, we will continue to bring innovation to the market and new packages, promotions, and advertising platforms including the cold-certified can for Coors Light and new advertising created for all the Molson brands that we will launch and evolve in 2008. We will continue to build on our superpremium portfolio of owned and partner brands through new programming and unique SKUs, leveraging the double-digit growth of these brands in 2007. The most recent example of our efforts in this critical segment is our new long term joint venture with Grupo Modelo, effective at the beginning of this year, to import and distribute and market the Modelo beer portfolio across Canada. The joint venture builds on the previous successful relationship we had with Modelo as we now pick up these superpremium brands for our portfolio in the western provinces.

In the U.S., we are staying focused in 2008 on maintaining our strong volume and share momentum while continuing to aggressively reduce costs. Coors Light, Keystone and Blue Moon will remain our primary focus in 2008 along with maintaining strong momentum behind the Coors Banquet brand. We have designed initiatives to improve sales trends for Killians and Molson Canadian. In 2008, we will continue to drive sales by increasing our marketing and sales spending at a mid single digit rate, growing our retail key account business through increased distribution and becoming better aligned with our distributor network by pushing accountability for profitable brand growth to our local levels. We will drive sustainable volume and profit growth by continuing to make a disciplined approach in both front end pricing and discounting, while continuing our to build our core brand equities which as you know for Coors Light is all about Rocky Mountain Cold Refreshment.

Turning to Europe, in addition to strong marketing investment behind Carling, we will continue the relaunch of Coors Light. We have recently secured distribution for Coors Light in JD Wetherspoon, a major on premise customer and a particularly attractive venue for building a brand loyalty among our core consumers. We will also continue to roll out the new cold dispense technology in distinctive above-bar fonts, which support our whole portfolio via cold positioning and modern brand representation. We completed 46,000 installations in 2007 and plan to install another 40,000 in 2008. We expect our new Carling distribution contract with Marston, who is a major on premise customer will drive market share in the important on premise channel for 2008. In 2008, there are a few additional considerations regarding volume. In Canada, our sales to retail in January have increased at a low single digit rate on a comparable basis, though as always, it is hard to call a full quarter based on only a month of results.

With the termination of our Foster's U.S. production contract in the fourth quarter of last year, we expect Canadian sales volume to be lower in the first three quarters of 2008, compared to 2007. The loss of this contract will result in lower reported sales volume but will have no impact on sales to retail. The Foster's termination will also increase net sales per barrel as well as cost per goods, costs of goods per barrel over the next three quarters due to lower fixed cost leverage on lower production volumes. We continued our solid momentum in the U.S. to start the first quarter. Overall in the first five weeks of the first quarter, our 50 state U.S. sales to retail grew at a high single digit rate from a year ago. In Puerto Rico, expect continued challenging economic conditions to impact trends.

Based on the particularly strong volume momentum of the largest brands in the past months, we expect our distributors to build their inventories approximately 180,000-barrels more in the first quarter this year than a year ago as they prepare for peak season. This will benefit our U.S. volume and financial results in the first quarter versus last year. In Europe, we continue to face challenges from a weak U.K. economy, a highly competitive industry and the smoking bans in England and Wales, which will not cycle until July of this year.

In the first six weeks of the first quarter, Europe sales to retail decreased at a mid single digit rate from a year ago. Regarding cost reductions, our teams exceeded their goals in 2007 and are striving to repeat this accomplishment in 2008. Looking at the cost outlook by business, in Canada we anticipate that our reported cost of goods per barrel will increase at a mid single digit rate in local currency for the full year 2008 but if you exclude the mix impacts from increased partner, import volume and lower contract brewing volume, we expect costs of goods sold per barrel to increase at a low single digit rate. In the U.S., we currently expect our 2008 cost of goods per barrel to increase at a low single digit rate as well.

We are confident that we will meet or exceed our cost reduction goals this year via the resources for growth program, which continues to be a top priority because we anticipate cost challenges again in two major areas, first, based on the current outlook for commodities and other inputs, we expect transportation and fuel costs to increase significantly in the year, along with moderate increases in packaging costs. Second, we will have higher contract packaging fees, and a full year of Shenandoah Brewery depreciation expense in 2008. This outlook excludes the proposed Miller Coors joint venture, which would accelerate our potential cost savings in the U.S.. In Europe, a team will continue to attack costs to offset input inflation and provide fuel for our brand investments. Additional cost reduction initiatives are being pursued with initiatives already underway in the supply chain and head office support services.

We announced late in 2007 we have entered an agreement with Scottish and Newcastle, the contract brewing keg selected S&N lager brands. Brewing will begin around the middle of 2008 and reach full production in 2010. We will be producing up to 3 million hectoliters of lager for S&N annually. This will generate additional income and fixed cost leverage in our U.K. brewing footprint. Based on improved projected longevity for retirees in the U.K., we do not expect the benefit from U.K. pension income in 2008, a departure from the past two years, and finally looking at the quarterly flow of pretax earnings, cycling the England smoking ban mid year and picking up the benefit of the S&N production contracts starting in the second half, yields a Europe financial plan weighted toward the second half of the year.

In summary, we are pleased with our progress in 2007 and we are excited about the future for Molson Coors Brewing Company. We took several bold steps last year towards our vision to become a top-performing global brewer. We are building an innovative brand-led organization that can compete and win in a dynamic global beer industry. Our proposed U.S. joint venture with SAB Miller represents an important step in this direction. The joint venture will create a stronger U.S. brewer with the scale, resources and distribution platform to compete more effectively in the highly competitive U.S. beer market. The opportunities provided by the joint venture include $500 million of annual cost synergies by the third full year of the JV, which will strengthen our business and enhance financial performance.

In the U.S. JV will provide tremendous momentum and resources for Molson Coors to compete in the global marketplace, While offering substantial benefits for our U.S. distributors, retailers and beer drinkers. While working diligently to complete this transaction, we signed a definitive agreement in December, and are cooperating fully with the regulatory clearance process. The closing of the transaction is subject to obtaining clearance from the U.S. Department of Justice, other regulatory clearances and third party consents. We look forward to closing the deal in mid 2008. Pending completion of the JV, we will stay focused on delivering strong results. I continue to be impressed with the focus, energy and commitment that our U.S. team has applied to maintaining record-breaking momentum in this business.

Globally, we are building a strong deep team and are confident we can manage through this period of JV approval with solid momentum and emerge stronger than ever. All of our business unit CEOs have their teams tightly focused on driving profitable growth in each of their marks as we we continue to focus on becoming a topper forming global brewer. Before we start the Q&A portion of the call, a quick comment, our prepared remarks will be on the web site for your reference within a couple of hours this afternoon. Also, at 3:00 eastern time today, our investor relations team, led by Dave Dunnewald, will host a follow up conference call which is essentially a working session for analysts and investors who have additional questions regarding our quarterly results. This call will also be available for you to hear via webcast and recorded replay on our website. So at this point, Matt, let's open it up for questions.

(OPERATOR INSTRUCTIONS) Thank You. Our first question comes from Judy Hong from Goldman Sachs.

Hi, everyone. Tim, I was hoping you could give us more color in terms of the lower tax rate forecast for 2008. It's clearly a much lower number than your ongoing rate. What's driving that? Is it not effecting your cash flow, and thirdly, whether there's sort of an opportunity to take down your long-term tax rate?

Yeah. We will save a lot of the detail for Dave's call, but this doesn't immediately reduce cash taxes. As I said, this phases in over the next few years. There's a reasonable possibility, sure that this could over time lower that range that I gave you, the 22 to 28% and again we have to just see what happens in the legislative front. Obviously this is good news when our biggest profit, biggest cash generating market, its government deems lower taxes it is a good thing. It is a good thing for Canada and a good thing for Molson Coors. I think it will play out to be slightly lower over time tax rate and certainly in 2008.

Okay. And then just a question on Canada, Kevin, it looked like if the fourth quarter you saw better net pricing per barrel growth. You have talked about reducing discounting in Ontario, can you talk about the competitive dynamics there, and as you look at 2008, is this sort of a trend we can look forward to in terms of getting better pricing and still maintaining the improved trend you see in that market?

Yeah, if you look at the fourth quarter, our net pricing was probably 2.5% on a national basis. Clearly, we did pull back our activity compared to a year ago. It is encouraging to go see that our share performed pretty well in face of that. If you look at what's happening so far, year-to-date, the activities about the same, maybe a little less in Ontario than what happened last year at this point in time, but this is early in the year, and these are pretty small months from a volume perspective we have to play it by ear going forward but certainty our performance in the fourth quarter was encouraging.

Okay. Thank you.

Thank you. Our next question comes from Bryan Spillane from Banc of America.

Actually, this is Joe Herrick with Gutterman Research. A couple of things, Leo. Congratulations on the solid numbers you come through on challenging times. Can you provide some more color as to what you are doing for your supply chain initiatives to reduce manufacturing costs per hectoliter as you originally promised 150 in synergy or savings to decrease working capital?

Kevin, do you want to sick on that?

I am assuming you are referring now to our resources for growth effort for this past year or next few years. We are continuing to look for ways to optimize our footprint. You saw, in the fourth quarter, the work in Canadian team led on optimizing how they would source volume for Canada by the careful shutdown of Edmonton, is a great example. As we have found, the more we work this, whether it is optimizing the Canadian production footprint, doing the same thing in the U.S. obviously we are seeing the impact this year and we will see it continue to impact in the first part of '08 from the construction of the Shenandoah facility, is the sort of work we're going after.

Clearly leveraging procurement deals, not just direct but indirect, these sort of things we are taking a look at. We announced our North America supply chain optimization, which resulted in much more efficient use of our skills and talent. We don't need three engineering groups, we don't need three design groups and we are starting to push that as an opportunity. It is really what is most exciting about the production, manufacturing, costs of goods, work and resource for growth is that it really spans all areas. It is not focused on one area, not focused on a couple of SKUs. It's really across the business, across all activities throughout the supply chain.

You had had $50 million targeted for your packaging operation in Golden. How is that coming along?

Well. Again, the, we try to be really careful about what we say versus what we, what we invest. I mean the U.S. has done a great job the last year and has an exciting pipeline of ideas for '08 and '09 on packaging initiatives. So make no mistake as we save money on packaging, on line productivity, on line optimization, on plant scheduling, we also want to make sure we are investing in packaging and liquids and ideas that our consumers and distributors and retailers can get behind. That's exactly what the U.S. business has and is doing.

What metrics are you guys using measure success, are you looking at [RONO] or OE, how are you guys going to be sure you stay the number one in your industry with the right metrics in your manufacturing process?

I will defer to supply chain folks. If you are talking about the U.S. to Peter Swinburn, but we look at COGS per barrel, we look at line rates, we look at efficiency rates. We look clearly at safety metrics because no amount of productivity is ever worth compromising the safety and health of our employees. We look at all of that. Quality scores, we have a battery of important metrics that we look at not just in the U.S. but the U.K. and Canada as well.

Final question, going forward, for 2008, Leo what would you like to tell all of the shareholders on the call is your number one goal to reduce costs to make sure your stock price continues to go up, you stay number one in industry and you continue to provide the best brand for the value?

It is interesting, it is really about engaging people. It is remarkable to me. We have set some pretty high goals, but once those goals are owned by our teams and rolled down the people close to the action, we get ideas better than the stretched targets. To me, it is really keeping our people focused, having them understand why we are so focused on cost to remain competitive, because it gives us the resources to invest at the top line and grow the bottom line at the same time. The more people get that, the more yield we see, it is plain and simple. That's our game plan. We are staying with it.

We will share the progress and resources for growth, some of the ideas, the new ideas that have come to the floor and show you how that is working because we think it is, to Leo's point, by engaging people across the entire organization and it's GIA too, it's how we get more efficient in the back office as well as on the production floor, we think we will have some more positive encouraging things to share with you next month in New York.

Thank you.

Our next question comes from Kaumil Gajrawala of UBS.

Thanks, everybody. Can you talk a little bit about the cost savings program that is have been planned particularly in brewery optimization between the Coors and Molson merger, if anything is on hand between now and when the deal closes?

I think you misspoke. I think you mean Miller and Coors.

No, I actually mean the old blend from Molson and Coors.

All right. Is there -- pending Miller Coors. I am sorry. I didn't understand your question. Absolutely positively not. As you saw we overdelivered by $25 million on the resources for growth program separate from, in addition to what we did with synergies in 2007 and as I shared in my remarks we are going after $55 million more in 2008 on resources for growth. So, absolutely. Again, on the production floor, the procurement, back office, we are not slowing down our resources for growth for Molson Coors at all because of what may happen and the great opportunities that we see in the Miller Coors joint venture down the road.

We have taken a point over view no matter what our future is these initiatives are right for our business. In a sense what's good for the goose is good for the gander. If this is right for the North American matrix, it will be right for the JV. I am very impressed with the way our teams have stayed focused. You are right, there's a tendency to say why should we do this now and someone else is coming. The fact with is we are out ahead of it. It sets the tone for the JV, gives us positive momentum for going into JV and really tackling those synergy challenges with great momentum. That's the posture we have taken and the team is delivering.

Great. That's useful. Quickly on Blue Moon, there's some print advertising out now, is this is a change in strategy or is Blue Moon so large now it will require media support going forward?

This is Peter Swinburn. We're not changing strategy on Blue Moon, we have been pretty consistent with our approach. Nothing remains identical -- exactly the same forever but the strategy is consistent. That's exactly what we have been trying to keep to that going forward because frankly, the sort of success we have had with it, why bother to change?

Thank you.

Our next question comes from Christine Farkas from Merrill Lynch.

Thank you very much. Some follow up questions on Canada if I could, Kevin or maybe Tim. I'm trying to reconcile -- your reported volume decline, down 9.9% according to your press release and your reported sales, up 9.2%. I think your price mix was up 4.5% points. Can you talk about currency or the other factors that would have driven that big swing in the top line?

Kevin, you want to take that.

I am having a hard time reconciling your numbers to be honest. Can you go over the first nine and second nine.

The reported barrels on the press release show volumes down 9.9%, is that actually incorrect? You talked about volumes down 3.8 excluding Fosters impact.

Right. Okay. So,.

So was Fosters six points of volume negative volume hit year-over-year?

The third week. you are comparing 14 weeks a year ago to 13 weeks this year. So I think 130,000 hectoliters there.

Yes.

And then the rest is fosters.

Okay.

That's right.

Your overall revenue per barrel growth was 4.5.

Right.

Okay. That included a couple of points from mix?

Yes, it did.

Okay. can you tell us maybe in dollars how much currency added to your Canadian top line?

How much in Canadian dollars?

Yeah, either points to growth or dollars. U.S. dollars will be fine.

Okay. Bear with me. We are going to grab that. $17 million.

On the top line. Okay. If I could just follow up then with respect to a broader question on Canada, how is it progressing throughout the year, the overall mix impact from value brands growing faster than premium brands. Has that changed, and how to do you find your activities are working there?

The value segment is actually stopped growing and is in a slight decline. What you are seeing when you look, if you stop back and look at the whole market, you are seeing accelerated growth in the superpremium and premium brands, because remember, it is done by the regular retail price is, so as regular brands increase their discounting, and you saw that throughout the course of all year, they're still classified as premium brands if you like, so that stunted the growth and actually turned the value segment into a decline. So some normalization by the growth of the premium light segment, but also the premium segment beginning to stabilize in the superpremium to out perform the whole market clearly.

That's helpful. Thanks. Lastly to U.S., Peter, we've heard some comments from other beverage companies about slowing immediate consumption trends. Now your brands have performed very well, and it may be less relevant to Molson Coors, but can you talk about what you're seeing in perhaps some of the on premise trends or other immediate consumption trends with respect to those channels and your brands?

Yes, certainly. It is really by market. Overall we are comfortable with consumption trends though we are seeing softer trends over in the northeast.

Thank you.

Thank you. Our next question comes from Mark Swartzberg from Stifel Nicolaus.

Morning.

Morning.

Tim, on the free cash throw for '08, a couple of clarifications if I could. The 550 number is where you remain,.

Correct.

If you think about that number, in terms of what might be possible puts and takes against it beside the JV as it moves through the year and besides of course in earning view it could change, but things like pension contribution, CapEx, some of the things historically we have seen cause that number to be different than you thought at the beginning of the year, what are the items you are at least contemplating as notable changes, as potential notable changes to that 550?

Good question I mean obviously the objective is to park it above the 550. We want to make sure we are flexible enough to be investing in ideas. You will see that the guidance I gave on the CapEx plan of about $280 million is a bit more than what we shared at the 250 level earlier last year. When opportunities like the contract packing project with S&N in the U.K., arises, and it's very very high return, very attractive, we want to make sure we can fund that and go after it. So discrete projects that have very attractive returns that are cash positive we will take a look at. Could the 280 be a little higher, little lower? Certainly, that's one of them.

Pensions, perhaps, but as we have been sharing, we have made very significant pension contributions, we've derisked our pension asset allocations. We think we are pretty darn close, we are never done but we're very far along in terms of being fully funded. I think that the, those are the two main areas where we have had variability in the past to your point. So I have to presume that's why we are going to see, the most variable. Again, still within a pretty tight band in '08. Restructuring opportunities, you saw the great opportunity to close Edmondton. I can't think of any anymore plants we're inclined to shutter, but those sort of instances, that when we have an opportunity, if it requires cash to restructure or improve or tighten we are going to do it. Of course, we will be forthcoming in details of how and why but it is business opportunities that we want to seize or momentum we want to chase that could cause us to that 550.

That's great. Very helpful, Tim. If I can, same topic but if we bring the JV into the picture here. Perhaps I have missed if this. If we think about the timing of the $450 million in CapEx, the total JV would invest to get the $500 million in savings, how are you thinking about the timing of that $450? Is it particularly first year, second year, how does it weight among those three years?

Mark, first of all, the $430 million that we shared in New York in October and have been consistent since then is the total CapEx and restructuring costs. So, restructuring and any write offs, relocations, severance, those sort of expenses cost issues are also in there. What we shared is we'd be spending roughly $200 million plus or minus 10 or 15% and again the bulk of that CapEx is going to deliver logistic synergies and production synergies that we have detailed by optimizing what will be a eight plant versus a two plant or a six plant supply chain footprint. To your point, the best things for the JV, the best things for SAB Miller value, the best thing for Molson Coors value is to spend that money wisely, but to spend it quickly, because we would love to be in the situation, I think, and certainly wouldn't speak for our colleagues in Milwaukee, but think about the game theory, we love to be in a position where most of, if not all of the eight plants in the JV footprint are ready to rock-n roll as one system as quickly as possible, certainly, certainly in time for all of peak season '09 but maybe even a portion of '08.

Great. Thank you, Tim.

My pleasure, thanks.

(OPERATOR INSTRUCTIONS). Our next question comes from Bryan Spillane with Banc of America.

Hey, good morning, guys.

Morning, Brian.

Just a couple of follow up questions, first, Tim, getting back to the free cash flow question, any just thoughts on the potential for share repurchases and also how you are thinking about your balance sheet now going forward, where repurchases, dividends and acquisitions kind of stand.

Your second point first, we like our balance sheet. The tender that we just announced really in my mine kind of completes our three year journey as we begin our fourth year at Molson Coors of paying down all of the debt we can cost-effectively pay down. We have said we will continue to repeat this soundness and solid funding of our pension plans in all three geographies. We have dispatched the Brazil investment just a year ago. So overall, we feel pretty darn good about the balance sheet and sure you will see as you look at our K, you will see movements much of which is triggered by FX, obviously when you have an asset like to Canadian business and the Canadian currency does what it does, you may have some of the values really spiking up on you. But in terms of the overall health of the balance sheet, I think we all feel really good about where we are, the financial strength that we have to go forward and do some great things over the next couple of years. That's point one.

Point two, in terms of disposition of free cash flow, don't forget. I mean, again not to repeat myself. We have been hard at work the last couple of years building plants, making pension contributions, paying down debt, and so now, as we embark on '08, this will be a year where we don't have lots of earmarks so to speak for the $550 million. We have begun and will continue a conversation with our Board in terms of the right thing to do in terms of cash disposition, but also acknowledge it has been Leo's challenge to us. It has been our mantra that we want to invest money to become more competitive, to make money our first commitment is to the business to build it. The free cash flow will help do that. Certainly not ignorant or blind to the fact our dividend hasn't moved in three years. We are clearly aware of that. That's part of the conversation we would and will have with our Board.

would you think timing of that is that conversation better had once you have the clarity on the JV closing it is hard to make those sort of decisions until that happen? Is that fair to say?

I think it is for our Board to direct and counsel on timing. That would be premature and inappropriate of me to say. I would be presumptuous in talking about timing. Okay.

Leo, can you talk a little about the transition again assuming that the JV is approved, that you move into your new role, the succession plan now?

I think as we have said before we have a really robust succession dialogue with our Board. As evidenced by the way we are able to move behind the departure this year, with Peter Swinburn moving into the U.S.. Mark Hunter moving into the U.K., we really feel good about the leadership team. This is obviously Board work and dialogue will continue, but I feel very confident we have the talent on board we need to move forward.

Okay.

The, we won't announce any of the new team for the JV other than what has been announced until we have DOJ approval, it wouldn't be appropriate. So, but in that sense, too we feel like we have tremendous depth as we head into this venture.

Okay. One last question relative to the DOJ, are you still providing information to the DOJ, or have you pretty much provided everything they have asked for?

We are still in process. This is, you know, this is a process just has a pace to it.

Right.

So we are still in document transfer. We're preparing white papers on key issues. We will have executive interviews in the month of March for example. This is a process that is -- we are just working our way through. There aren't any tea leaves to read, what we do feel positive about is we anticipate a decision early to midsummer and we overly think it will be a positive one.

Okay. Great. Thanks, guys.

Thanks, Bryan.

Thank you. Mr. Kiely, I am showing no further questions at this time.

Thanks for being with us, everybody. Appreciate your questions, I want to remind you that to win in the beer business, you have to grow, you have to make money, you have to have a great team. Okay. I think underlying our results this year, the investment and growth and the bang for buck in our investments and growth is one of the things I am most excited about.

Building a team that is market facing, brand led and focused on bringing meaningful innovation to the market is the way we believe we will win in the beer business. To do that, we have to grow the bottom line and have resources for those investments. That's our game plain. We are sticking with it. Really, thanks for being with us. That's it, Matt.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may now disconnect. Have a great day.