Molson Coors Beverage Co (TAP) 2008 Q1 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Molson Coors Brewing Company 2008 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 the 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, and thanks for joining us today. With me on the call are Tim Wolf, Kevin Boyce, Peter Swinburn, Mark Hunter, the CEO of our Coors Brewers Limited business, Dave Perkins, President of Global Brand and Market Development, Sam Walker our Chief Legal Officer, Mike Gannon, our Global Treasurer, Marty Miller our Global Controller and Dave Dunnewald, Vice President of Investor Relations. This morning, Tim and I will take you through some highlights of our first quarter 2008 results for the Molson Coors Brewing Company along with some perspective on 2008. Then we'll open it up for questions. First quarter of 2008 was a very strong quarter for our Company, as we continued to achieve solid top line and bottom line performance, so let's start with global highlights for the quarter. We grew Coors Light sales to retail more than 5% globally in the first quarter. We achieved net sales growth of more than 10% driven by brand strength, positive pricing and the benefit of favorable foreign currency. We grew net pricing in all three of our major markets on the strength of our brands and the discipline of our sales teams.

We captured $29 million of cost reductions as part of our resources for growth program in the quarter. These cost reductions allowed us to offset more than 90% of our cost inflation in the quarter. We continue to invest with discipline and at a high level in our brands and our sales capabilities in each of our businesses. We used cash on hand to pay down more than $180 million worth of high rate senior notes during the quarter and, excluding special and other one-time items, we more than doubled our consolidated income from continuing operations in the first quarter of 2008 to $59.1 million after tax. This substantial increase in underlying earnings was driven by strong sales growth on our brands, positive pricing, and cost savings that exceeded our goals along with a lower tax rate.

With our first quarter bottom line results we also achieved the profit target for our primary long-term incentive program. This performance share program was designed to reward employees if the Company met a stretch target for trailing fourth quarter profit within a two- to five-year period. Due to the very strong performance of the Company in the past year, we achieved this target in the first quarter of this year, which is the third year of the program. As a result, we recorded $25 million of accelerated expense for the program that was originally planned to flow over the balance of 2008. In fact our earns per share would have been $0.10 higher without the accelerated expense related to this program in the quarter. It is a substantial accomplishment for this organization to grow underlying earnings 136% in a seasonably small profit quarter even though nearly half of the total expense of this multi-year incentive program fell on the first quarter of this year. This speaks to the strength and the quality of our Company's earnings performance in the quarter.

On the whole we are pleased are our strong start to 2008. We are building a winning culture based on strong talent and a clear vision of becoming one of the best performing beer companies in the world. We have more work to do, but we are clearly moving in the right direction and we have made good progress to date. So at this point, I will turn it over to Tim to review first quarter financial highlights and trends and then we will provide some perspective on the balance of 2008. So Timothy.

Thanks, Leo. Hello to everybody out there. I'll start with first quarter financial highlights. In the quarter we grew total company volume 2.8% and net sales 10.4%. Gross profit increased $63.2 million driving more than a full percentage point improvement in gross margin. Our operating margin of 6.3% excluding special items also increased more than a full percentage point from a year ago. On the bottom line, we achieved underlying aftertax earnings of $59.1 million or $0.32 per diluted share in the first quarter, which is up 136% from a year ago. We will discuss our earnings performance today primarily in terms of underlying earnings, which is the common performance measure that excludes special and other one-time items from our U.S. GAAP results. Also, unless otherwise indicated all financial results we share with you today will be in U.S. dollars.

Our first quarter underlying earnings exclude restructuring costs in the U.K., brewery closure costs in Canada and expenses related to our proposed U.S. joint venture partially offset by a gain on the sale of our company-owned distributorship in Boise, Idaho. We also exclude one-time debt extinguishment cost of $12.4 million, which we used to repurchase $180 million of our 6 3/8 senior notes that were due 2012. This debt tender made good sense because we had cash on hand from the year end and saw good value in paying down high cost debt especially with short-term rates so low. These adjustments to our U.S. GAAP results are described for more detail in the earnings news release we distributed this morning. Net foreign exchange improvements increased our total company pretax profit by approximately $4 million in the first quarter on an underlying basis driven by the appreciation of the Canadian dollar versus the U.S. dollar.

Before I go through our business segment results I want to share some changes in the way we are reporting our results this year. With the appointment of Dave Perkins to President of Global Brand and Market Development, results for our businesses in Asia, Latin America and continental Europe are now included with our corporate results in a new non-reportable segment called global markets and corporate. Prior year results have been reclassified the same way for comparability. As a result our U.S. segment now includes U.S. and Puerto Rico results and the Europe segment has been renamed and now includes only the U.K. and republic of Ireland. In Canada, the new Modelo-Molson joint venture created at the beginning of this year and the loss of Foster's U.S. production contract changed our reported results in two ways.

First, Modelo-Molson JV results are being reported under the equity method of accounting. When comparing current year results to prior year, this change will have the effect of reducing our reported sales volume, reported net sales per barrel, reported cost of goods per barrel and reported marketing expense. Our 50% share of the joint venture earnings are included in Canada cost of sales sold. In addition, sales to retail and market share results will now include sales of Modelo products for all of Canada where prior year results did not include provinces west of Ontario. Second, the lost to the Foster's U.S. production contract will driver lower reported sales volume and higher revenue and cost of goods per barrel for the first three quarters of 2008. The loss of this contract has no effect on the STRs, since the production volume has never been included in our Canadian STRs.

These reporting adjustments reflect recent changes in the structure of our Company. I'll provide more detail on the impact of these changes with discussion of each business. In segment performance highlights starting with Canada, underlying pretax income of $64.1 million in the first quarter was nearly 42% higher than a year ago, driven by positive net pricing a $9 million benefit from favorable foreign exchange. Our Canadian sales retailer STRs for first calendar quarter ended March 31st increased 2.5% versus a year ago driven by strong growth of our strategic brands and the addition of Modelo brands to our portfolio in western Canada. Coors Light continues to lead strategic brand growth with a double digit increase in the quarter. Creemore, Carling and our partner import brands also maintain their double digit growth rates, while Rickard's grew at a high single digit rate. Molson Canadian experienced only a slight volume increase compared to the prior year.

On a comparable basis, excluding the addition of Modelo brands in western Canada, our STRs grew 0.7% year-over-year. Total Canadian beer industry sales to retail grew an estimated 1.3% in the calendar first quarter. Our Canada market share increased 1/2 share point compared to prior year, due to the addition of the Modelo brand in the west. Excluding the addition of the Modelo volume to the west, our first quarter Canada market share declined approximately 0.25 share point. Our Canada sales volume total 1.5 million barrels for the fiscal first quarter ended March 30, which is a decrease of 8.6% from a year ago. This decline was attributed entirely to two factors, first, the termination of the Foster's contract which resulted in a 6% decline in current year volumes. Second the elimination of Canada sales volumes for Modelo products which is drove a 3% decline compared to prior year, which also exclude -- which also included sales volumes for eastern Canada. Excluding these two factors, comparable Canadian sales volume increased slightly over prior year.

Net sales per barrel increased 6.4% in local currency with approximately 3% of the increase driven by positive pricing. The remaining increase is due to the positive effect of the Foster's contract termination on our sales mix. Cost of goods sold per barrel increased 2% in local currency in the first quarter, due to 5 percentage points of commodity inflation, partially offset by a 3 percentage point decrease from cost of savings -- cost savings under our resources for growth initiatives. We will talk more about that in a moment. Market G&A -- marketing, general administrative expense in the quarter decreased approximately 5% in local currency due to lower overheads from cost savings initiatives and amortization expense, along with the elimination of all Modelo brand costs which is are now managed by the joint venture. These savings were partially offset by the Canada portion of accelerated expense for long term incentives.

In the U.S. we continued to drive very strong growth in both the top line and bottom line. As a result, underlying pretax income grew 36% in the first quarter to $61.9 million. Our performance represents a significant improvement versus a year ago and our ability to convert sales momentum into earnings growth as pretax margin improved by nearly 2 full percentage points. This substantial profit increase in the U.S. was the result of solid brand building and sales execution, positive pricing, volume leverage, cost reductions, and lower commodity inflation that we saw last year. The U.S. business delivered these strong results despite the accelerated expense for long-term incentives. Excluding incremental incentive costs, U.S. underlying pretax income would have increased more than 60%. Looking at U.S. highlights, U.S. sales to retail, which includes Puerto Rico, increased 6.6% and we grew market share significantly in the first quarter.

For the 50 states excluding Puerto Rico -- for the 50 states sales to retail increased 7.1%. This increase was driven by mid single digit growth of Coors Light and double digit growth by Blue Moon, Keystone Light and [Coors Banquets]. Each of the four largest brands achieved accelerated sales and market share growth trends in the quarter. Equally important, the strength of our U.S. portfolio spanned the country with sales to retail growth of 47 out of 50 states and in all major channels. In 15 states our portfolio grew at double digit rates. We also continue to expand distribution with about 30,000 new placements of Coors, Coors Light, Keystone Light in the quarter. U.S. volume including Puerto Rico again to wholesalers grew 7.4%. Net sales per barrel increased 3.4% in the first quarter, driven by 2.9 percentage points of positive net pricing along with increased distributor fuel surcharges and new commercial from our U.S. canned joint venture.

Cost of goods per barrel increased 1.6% in the quarter, driven by higher transportation and packaging material costs and tornado damage at our Memphis distribution center. In addition, our Memphis redistribution center was damaged, they say, by tornadoes. That damage caused a one-time 0.7% increase in cost of goods sold per barrel. These increases were partially offset by cost savings. U.S. marketing, G&A expense increased 9.6% in the first quarter, driven by accelerated expense from our long-term incentive plan. Our U.S. team continued to exceed cost reduction targets as overall cost savings offset essentially all of the U.S. inflation in the first quarter. Our U.K. business reported a $2 million pretax loss on an underlying basis. An increase in off-premise volume and supply chain savings, partially offset by higher pension cost and lower on-premise volume, drove a $700,000 improvement versus a year ago.

Our U.K.-owned brand volume increased 1% in the quarter, driven by a 17% increase in the off-premise channel. This strong volume growth was due to selective but more visible promotional features, the Easter Holiday falling in the first quarter and customers buying in advance of a 9% increase in beer excise tax. On-premise volume declined approximately 8% as a result of smoking ban enacted last year and challenging market conditions. The U.K. volume performance in the first quarter resulted in an increase in overall mark share in both the on- and off-premise channels. Net sales per barrel increased 4% in local currency with about half due to higher pricing and half due to our acquisition of the Cameron's on-premise distribution business in the middle of last year. In a challenging marker, we achieved our fifth consecutive quarter of year-on-year growth in owned brands pricing. Cost of goods sold per barrel in local currency increased 4.6% in the first quarter with approximately 3 percentage points of this change related to factor brand sales including the Cameron's acquisition. The balance of the increase was driven by higher pension costs and cost inflation offset in part by cost saving initiatives.

Marketing, G&A expense in the U.K. increased 3.5% in local currency as a result of higher pensioning expense and overhead costs related to the Cameron's business, again, partially offset by continued cost savings. Marketing costs were largely unchanged. In global markets and corporate, MG&A totaled $37.3 million in the first quarter including corporate G&A expense of $28.9 million. Corporate G&A increased about $8.3 million in the quarter driven by higher long term incentive plan expense this year. Corporate net interest expense improved $2.5 million from a year ago, meaning lower, because of the debt restructuring we completed last year along with lower net debt balances this year. We achieved this reduction in net interest despite $5 million of additional interest expense, due to unfavorable foreign exchange rates primarily caused by a stronger Canadian dollar. The underlying loss for global markets and corporate was $58.3 million pretax, which is a 13% increase as a result of the additional incentive plan expense in the first quarter this year we mentioned repeatedly.

Moving beyond operating performance and unit performance, our first quarter effective tax rate was negative 12% on a reported basis and positive 2% on an underlying basis. These rates are below our expected annual rate for 2008 because of the release of unrecognized tax benefits in the quarter, as we closed or settled some tax years. The first quarter is generally a cash use quarter because of the seasonality of the beer business. Free cash flow for the first quarter reflected a net cash use of $167 million, which was made up of $126 million of operating cash use plus $28 million of proceeds from asset sales less capital spending of $69 million. This free cash flow was $111 million improved versus the first quarter of 2007 due to higher net income and asset sales and lower capital spending this year versus last. Total owned debt at the end of the first quarter was $1.96 billion, excluding approximately $110 million of non-owned joint venture debt. Cash and cash equivalents totaled $119 million at the end of the quarter, resulting in owned net debt of $1.84 billion.

Now I'll preface the outlook session, as usual, by paraphrasing our Safe Harbor language. Some of what we talk about now and in the Q&A may constitution forward-looking statements. 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 don't take to publicly update forward-looking statements whether as a result of new information or future events or otherwise. Regarding any U.S., any non U.S. GAAP measures that we may discuss during the call, please visit our website, www.molsoncoors.com for a reconciliation of these measures to the nearest U.S. GAAP results. Looking forward, we continue to anticipate the 2008 corporate net interest expense of approximately $95 million to $100 million on a foreign exchange neutral basis. This approximate $13 million reduction from last year is attributable to debt repayments and restructurings we have undertaken the past year to lower costs and strength in our financial foundation. We still expect full-year 2008 corporate G&A expense of approximately $110 million plus or minus 5% which is in line with last year.

Turning to our effective tax rate we currently anticipate that our full-year 2008 underlying tax rate will be in the range of 14 to 18% and that excludes special other one-time items and that assumes no further changes in tax laws. With a rate of 2% in the first quarter, this implies underlying tax rate in the range of 15 to 19% for the balance of this year. We expect our 2008 rate to be lower than our long-term range of 22 to 26% because of the release of unrecognized tax benefits in 2008. Our capital spending outlook for 2008 remains approximately $280 million and that excludes self-funding capital spending by our consolidated joint ventures. We are on track to achieve our 2008 free cash flow goal of $550 million. Note also the completion of the Miller Coors JV in the U.S. would likely change our outlook in some or all of these areas.

Now to highlight some of our cost reduction initiatives, in our first quarter we capturing incremental $29 million in cost saving as part of our three-year $250 million resources for growth cost reduction initiative. We are on target to achieve our 2008 goal of at least $77 million of additional cost savings and we have delivered more than 1/3 of this annual goal in our first quarter. Equally important, we are confident that we will be able to achieve our goals for this three-year program. At this point let me turn it back to you, Leo for a look ahead to 2008 on our other businesses.

Thanks, Tim. In 2008 we remain focused on building strong brands and reducing costs in each of our businesses. To keep our brand momentum going this year, in Canada, we are building momentum on our strategic brands by rolling out innovative new packages, promotions and advertising creative in the year. Coors Light is receiving strong investment behind new ad creative in our gold certified campaign. We expect the solid growth trends to continue in our super premium owned brands, that's Rickard's and Creemore, including the continuation of our highly successful national roll out of Rickard's White. We will also focus on improving the performance of our Molson trademark brands throughout 2008 by introducing new advertising and innovation for Molson Canadian, Export and Dry.

Our super premium partner import brands continued their double digit organic growth In the first quarter. Our new long-term joint venture to import, distribute and market the Modelo beer portfolio across Canada further strengthens that portfolio and provides enhanced share growth opportunities for us in western Canada. From a trade promotion standpoint, Quebec has started the year with considerable competitive activity. We remain committed to growing our strategic brands while ensuring that our portfolio remains competitive on a market by market basis.

In the U.S., our strong volume and share growth continues as does our delivery of substantial cost reductions. Coors Light, Keystone Light and Blue Moon will remain our national focus brands. We intend to continue to leverage the momentum behind Coors Banquet to further expand distribution. We are also implemented programs to improve sales trends for Killians's and Molson Canadian. Our brands are strong and primarily play in healthy segments in the U.S. beer industry. We will continue to drive sales and profit by bringing our Rocky Mountain cold refreshment to more consumers and by extending our successful general managers sales' structure to the entire country by the the end of year. Fully half of our U.S. growth last year on our largest brands was through successful increased distribution. And we have plenty of head room versus our competition to do the same again this year. We will also grow our key account business through increased category management for retailers, better alignment with our distributor network and even more disciplined execution at retail. Finally we will continue to make -- take a disciplined approach to pricing while building our core brand equities.

In the U.K., we see 2008 as a year of two halves, with sales challenges related to the smoking bans and incremental pension expenses impacting the first half of this year. In the second half, we anticipate that the smoking ban impacts will lesson as we cycle their implementation and several strategic wins will begin to improve our performance trends in the U.K. These strategic wins include the S&N contract brewing agreement, the Magners Cider agreement, greater participation by our brands with major off-trade retailers and positive pricing for our brands despite difficult industry conditions. In addition, we continue to roll out our new cold dispense technology with 12,000 installations in the first quarter, as well as cold as you can see thermachromic packaging and our compact draft systems. Coors Light volume is also showing encouraging growth, driven by solid retail partnerships and an increasing consumer demand for lighter, more refreshing beers. And finally looking at the quarterly flow of pretax earnings, these factors yield a U.K. financial plan weighted to the back half of the year with a particularly difficult comparison expected in the second quarter.

Across the enterprise, there are a few additional considerations regarding volume for balance of 2008. In the U.S. our sales to retail continue to be strong in the first four weeks of the second quarter, growing at a high single digit rate from a year ago. In 2008, our reported sales volume in Canada will be significantly affected by the termination of our Foster's U.S. production contract and the new Modelo-Molson joint venture that Tim mentioned earlier. The termination of the Foster's contract will will result in approximately 4 to 6 percentage points of lower reported sales volume in each quarter for the first three quarters of 2008. The effect in the fourth quarter of 2008 will be much smaller as we cycle the end of the contract in early October. In addition, not reporting future sales volume for our new joint venture with Modelo will drive about 3 to 5 percentage points lower sales volume in each quarter of 2008 versus the prior year.

In Canada, our sales to retail in April, including Modelo brands for Canada, increased at a high single digit rate driven by unseasonably warm weather. As always, it is difficult to call a full quarter based on only one month of results. In the U.K., we continue to face challenges from a weak economy, the impact of the credit crunch on consumer confidence and smoking bans in England and Wales. The second quarter will also be adversely impacted by the timing of Easter and customers buying in advance of the beer excise duty increase, both of which benefited the first quarter. In the first four weeks of the second quarter, our U.K. sales to retail have decreased at a double digit rate from a year ago, due to difficult weather comparisons from last year and year-over-year timing of Easter.

Regarding cost reductions, we are on track to meet or exceed our goals in 2008. Looking at the cost outlook by business, In Canada we now anticipate that our reported cost of goods per barrel will decrease at a low single digit rate in local currency for the full year 2008. Excluding the impact that the effect of the new Modelo-Molson joint venture, the loss of the Foster's contract and the $8 million benefit of recycling prior year foreign currency adjustments, we expect the cost of goods sold per barrel to increase at a low single digit rate. In the U.S. we continue to expect our 2008 cost per barrel to increase at a low single digit rate. We are confident that we will meet or exceed our cost reduction goals this year via resources for growth program, even if the Miller-Coors joint venture is completed as expected around mid-year 2008.

We anticipate cost challenges in two main areas, first based on the current outlook for commodities, we expect transportation and fuel costs to increase substantially in 2008 along with moderate increases in packaging material and agricultural commodity costs. Second, we'll 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. Our U.K. team will continue to attack costs and maximize the return on our production assets. We're targeting a substantial savings as part of the resources for growth program driven by head count reductions, supplier negotiations and improvements in supply chain efficiencies.

To summarize our results and our discussion today, our first quarter performance really highlights the profit and value generation potential of this Company, in effect, delivering the promise of the Molson-Coors merger a little over three years ago. We have been building competencies across the Company to innovate, build brands, reduce costs, to reinvest for growth, sharpen profit and cash generation disciplines and strengthen our financial foundation. These improvements have generated solid results in recent quarters and they show that our Company is much stronger now than three years ago. Equally important, our results show this is a business with great potential to build brands and flow profit and cash for our shareholders. And we are not done yet. Our next step is to gain regulatory approval for our U.S. joint venture with SABMiller and then successfully integrate our respective U.S. operations. We continue to target mid-year completion of the U.S. JV and we will keep you informed as we make progress.

Following the completion of the JV, Tim and I and the rest of the new Miller Coors leadership team will focus on the U.S. and Molson Coors will forge ahead with a strong vision and a deep pool of talent to take the Company to the next level. We are more excited than ever about the future for the Molson Coors Brewing Company as we strive to become a top performing global brewer. Now before we start our 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 p.m. eastern time today our investor relations team, led by Dave Dunnewald, will host a follow-up conference call essentially a working session for analysts and investors who have additional questions regarding our quarterly results. That call will also be available for you to hear via webcast and recorded replay on our website. So, at this point, let's open it up for questions.

Thank you. (OPERATOR INSTRUCTIONS) Our first question comes from Mark Swartzberg from Stifel Nicolaus.

Thanks. Good morning, guys.

Good morning.

Leo or Peter I didn't catch if Peter was there but U.S. momentum is good here and you mentioned added distribution gains, could you be a little -- give us more detail on the opportunity for added distribution and as you think at some of the markets that are doing well but not as strong as the double digit for that 15. Are there some markets that you think are of size that have some near term opportunity to get to that even stronger rate of growth we are seeing for those 15?

Thanks, Mark. It is Peter here. First of all, on distribution, I think we quoted a figure of about 30,000 year-to-date, which is where we are and I think at the analysts review back in March, we said that about 50% of last year's growth came from distribution. I am not going to give you (inaudible) in terms of quoting a number, but suffice to say that we know that AB within the competitive side of Keystone Light and Coors Light have something like 600,000 to 800,000 more placements than we do. So we see continued opportunity in the distribution arena, both this year and going forward for our key brands. In terms of the markets that are not in double digit growth, if you -- you've got to balance that out between percentage increase and volume momentum. And what we are really interested in is seeing good momentum in all of our markets and looking to gain share in all of our markets. And presently we are doing really well on that front. So it really is a market by market share gain that we are looking for and, as I say, we are doing very well on all of those fronts and across all of the channels as well. So hopefully that gives you the answer you required.

Very helpful. Thank you, Peter.

Thank you. Our next question comes from Anthony Bucalo from Credit Suisse.

Hi, how are you?

Good.

Question is for Peter. Along a similar line as Mark's question, you said you had 15 states where you had double digit growth in the brand portfolio, correct?

Correct.

Are those states where you are traditionally strong or are they states where you are generally underindexed relative to your national share?

It is a complete mix.

Anymore detail than that?

Well really, no without giving you market by market exactly what we are doing. We are performing very well in some markets in the East Coast where you know we are traditionally strong, we are performing exceptionally well in some places in the central parts of the Midwest and also in the West, so it is -- and in the West we are strong as well. In the Midwest historically we have not been as strong. So it is a complete mix. I'm not trying to avoid the question.

This is Tim. Just to follow on, think about the math of what Peter is talking about. For 47 out of 50 states, on average to pull through 7.1 percentage point growth, again this is just the 50 states excluding Puerto Rico, you have got to have a very healthy and right skewed distribution, right? So we can talk about angels on a pinhead in terms of which states do what, but the overall distribution of those 47 states is, is very, very healthy around that 7%, some are a little bit lower but not a lot lower.

Right.

And you have a full 1/3 of those 47 states operating above 10%. So just a really, really strong portfolio, if you will, of states.

So there's no, there's no one particular state that you would highlight as a strong market in sort of a --

I think that's what, that is what Peter is saying, yes.

Okay. Great. Just a quick question for Tim. It looks like there may be some rule changes as pertains to convertible debt, accounting changes.

Yes, sir.

What do you expect to see in your P&L next year if you are in a position to do the gymnastics on that.

Yes, our friends at FASBI are always at work on our behalf. If indeed that happens and it looks like it will, that amortization of the as if interest expense would impact the expense line. Understand that it is noncash, understand it doesn't affect the fundamental economics and the wisdom retrospectively and prospectively of us having done that financing. So yes, from an accounting basis, it would be a hit to the P&L but nothing of any significance.

Okay. So you are not expecting to go give any sort of guidance on how to account for this in the P&L next year.

No, we will as we finish up this year, and we look at our plans for 2009, we will be happy to do that. And the reason why it makes no sense to do that now is I think we want to see where our cash balances are toward the end of this year, want to see what investment rates on invested cash look like. I think it would be premature to give you a number, but again, I think the most important point with great respect to the accounting, this won't affect the fundamental economics of that really good financing.

Great. Thank you very much. Congratulations on the quarter.

Thanks for question.

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

Hey, good morning, guys.

Good morning, Brian.

Just a couple of questions. First in the U.K., you talked a bit about the impact of the smoking ban, and I guess Leo can you just talk a little bit about has the U.K. reacted 00 this has lag or the time it has taken for demand to normalize been a little longer for some reason in the U.K. than you have seen in other markets?

I'd say really hard to compare. I think we are right in the middle of it in the U.K. And we have seen tremendous variability even within states within the United States and we are seeing that in Canada. But Mark, I think you can give some perspective within U.K. markets.

Yes, it is Mark Hunter here. Really just to build on Leo's point, there's a number of things which are impacting the U.K. market performance, the smoking ban is one, as we come out of the first quarter of the year, entertaining of Easter and obviously the magnitude of the excise duty increase that the government imposed. So all of those things are are in the mix. It is very difficult to call. Our assessment is that, particularly with the on-premise, the underlying rate of decline of the market which had been running at about 4 or 5% has increased by 2 to 3 percentage points. So the market has been around 8% but it is really going to be August, September of this year before we start to see probably the new base for in particular the on-premise in the beer industry.

Okay. And Mark, on the excise tax increase, has most of that been passed through -- have retailers passed that through to consumers directly?

I can't talk for what everybody has done but certainly, at the Coors business in the U.K. that excise increase has been passed through to all of our customers. Those customers will then decide how they want to deal within their premises, but we're certainly seeing -- we certainly saw pricing appear to harden within the off-premise channel. It looks like it has a little bit competitive again in the last couple of weeks.

Okay. And then Leo and Tim, just as you will or hopefully will begin spending most of your time focused on the U.S., it has been probably 30 years since you have seen an environment that has been this inflationary, especially harsh on wholesalers given where fuel costs are. Can you talk a little bit about how the -- just the length of this inflationary environment, what toll you think it is taking on wholesalers right now and do you suspect or think that it is going to drive maybe further consolidation of the wholesaler or cause some other changes to the way wholesalers approach the business just given that their costs have been rebased so much higher in the last two years.

There's no doubt this is a significant impact on our wholesalers and but the wholesalers are resilient characters as well however. This will inevitably bring pressure, continued pressure -- I'm not sure increase but continued pressure on consolidation at the wholesale level. Something we have believed for a long time is that well resourced and obviously well managed wholesalers are real assets to all brewers. And in our sense, that's why we have been pro consolidation for probably the past 10 or 12 years. Some escalation in the pressure there, but I don't -- frankly I don't see anything way unusual about the wholesaler reaction in this environment right now. They're hunkering down and have an incentive to sell more beer.

I guess the other thing I might add is obviously our JV is not being formed because of inflation, but it could not happen at a better time because by bringing two great companies together and, in effect, reducing distance traveled from brewery to market will decline by about 1/3, a little less than 1/3 for all Miller products, all Coors products we are going to do everything we can to reduce the costs that either company separately would have incurred. That's called synergies, right? So we are going to be hard about that work and our objective to be to meet or exceed the committed $500 million of synergies and that couldn't happen at a better time.

Great. Thanks, guys.

Thank you.

Thank you. Our next question comes from Judy Hong from Goldman Sachs.

Hi, everyone.

Hey, Judy.

Leo, a couple of questions on the JV. I am just wondering if you have any update on the timing of when you would expect a decision from the DOJ. I think there's a lot of chatter out there that we could get a decision by the end of this month. I am wondering if you have any clarity on the timing.

No, we are smack in the middle of the process, Judy. Very few tea leaves to read. As we are reported before, we anticipate clearance in the middle of year and I would say we are still there. Meanwhile we are doing everything possible we can to get off to a fast start within the guidelines of what are appropriate and, frankly, staying very focused on selling beer.

Okay. And then, with both you and Tim moving over to the JV, I am just wondering if there's anything to read in terms of the future corporate structure in thinking about the Coors management really moving over to the new JV and you are left with Molson Coors management that -- I am just wondering if there's anything to read in terms of both you and Tim moving over the the JV.

No, I don't think so at all, Judy. Look we -- in many ways, this merger of Miller and Coors in the U.S. is delivering the strategy we sat out three years ago for Molson Coors. And you know we said our first priority was really to firm out the performance in our core markets so that we could take Molson Coors on to the destiny we believed at the time of the merger. Frankly, I think we have got a terrific management team here. And our depth of management very good. We have a robust succession process with our board. So I think the baton pass here is going to be very clean and just very excited about the future of Molson Coors.

Okay. And then Tim I have a question on where you are on your decision, process of using the step up in the free cash flow this year. I know at the analysts meeting, you wanted to get a little bit more clarity in terms of the CapEx requirement for the JV. I am wondering if you have finalized that number and, at this point, we are closer to getting some kind of an announcement on the use of cash?

Yes, Judy. Thanks for the question. I'm astounded I got the question. Just kidding. You are kind to raise it. And I don't have an update today. Needless to say we have traveled further in time, so we have got more clarity than we did at the beginning of March. We are still working it and we will continue to have the conversation with our management team and our board and certainly are sensitive to and aware of the sort of issues that you and others have raised and we will continue to work it here. And if and when we have a decision, we will certainly communicate it in a timely fashion.

And then my last question for Kevin, if you look at Canada, DFTR excluding Modelo well 0.7%. You talked about losing a little bit of share in the first quarter, as well as step-up in competitive activity in Quebec. Can you talk about that you and how that sort of translated into your share performance in the first quarter and how we should think about share trends for the balance of the year?

If you look at -- historically we have spent a lot of time talking about Ontario, so I will just start there where we had less activity in terms of discounting and absolute number of activations, if you like, or weeks on sale this year versus last year. Quite a substantial reduction actually. So we are very encouraged in Ontario by our share performance. And nationally, when you look at it considering the amount of pricing that we got hold relative to the discounting in the marketplace, we actually think it is a good tribute to the strength of our brand. What you are seeing in Quebec is our major competitor has actually increased their discounting in the first quarter and that continues into the second quarter in the face of some share losses they have experienced. We will obviously continue to intelligently drive our strategic brand growth and react on a market by market basis.

Okay. And just clarification, you said revenue per barrel was up 6.4% in Canada.

Correct.

And how much of that was mix versus --

About half of it is pricing and about half of it is the change in the Foster's business, if you like, and the fact that we no longer have it, which was a negative impact on NSR.

Three points of pricing, that include also the mix benefit from the growth of the import portfolio as well.

Yes, most of it is pricing.

Okay.

So the vast majority of that 3% is pricing.

Thanks a lot, guys.

Thanks.

Thank you. (OPERATOR INSTRUCTIONS). Our next question comes from Christine Farkas from Merrill Lynch.

Thank you very much. Good morning, everyone. Keeping with Canada just for a second, Kevin, give the economy and given the discounting you are seeing in Canada, can you add a little color on whether or not there are now category -- or are there any category mix shifts going on? It sounded like it improved in '07. Are you seeing a reversal of that trend to value?

No actually, the value segment -- and part of it is probably the way that we look at the value segments, it's brands at their normal price. So if you discount, say a Canadian into a lower price, we still consider it a premium business if you like. But the value segment continues to decline on a national basis and we have seen some resurgence of the premium segment as they have been a little bit keener in pricing. So I think what you have seen in the first quarter was pretty predictable. It is a little bit of jockeying as the companies are trying to figure out what's going to happen the rest of the year. I would say compared to previous years across the country, pricing -- price increases have come a little bit earlier.

Okay. Great. And then move to go the U.S., again, with the economy, can you talk maybe a little bit, Peter, about the trends in the C-stores or on-premise here, any acceleration in that traffic or deceleration in that traffic?

Yes, sure, Christine. Two sort of answers. First as far as the overall industry is concerned, yes, we have seen we have seen a downturn in the on-premise which has been probably the most significant change. No other real significant movements. As far as we are concerned, we have not really experienced any change in our trends from last year. We continue have quite strong a showing in all channels, specifically in drugstore convenience and specifically in the restaurant channel in the on-tray. So our on-tray business continues to do well. And then if you look at our individual brands, we are not seeing any significant changes within those brands either. So Keystone Light continues to grow at double digit rate, which is very much in line with where it was last year. Coors Light continues to be strong and certainly hasn't come off last year's momentum. And at the other end of the spectrum, Blue Moon again is still in high single digits -- sorry, double digits. So we are not really seeing anything within our brands that would suggest trading out or trading down.

And then if you were to extrapolate or isolate the distribution gains in your brands and you look at really just the core brands year-over-year or apples to apples basis, would you say similarly the growth is very much intact there across channels?

We are seeing velocity come back to the on-premise then we are seeing significant distribution growth, but in the quarter with we also saw velocity growth for all of our brands including Coors Light. And for Coors Light that was the first velocity growth to be seen for the last eight quarters.

Okay. Great. And then a couple of questions for Tim. The accelerated long-term incentive expenses, could you split that for us? Was it just in the U.S. and global or did that hit all segments?

It hit all segments.

And would you have a dollar amount just roughly of the $25 million, how much of that was in the U.S.?

The U.S. was about half of it.

Half. And would you -- based on your comments, it sounds like there's more of this to come in the remaining quarters of '08. Did I hear you correctly?

No we are done with this multi-year program. And my anticipation, and Leo can probably handle this better than I, but is the Molson Coors comp committee would probably be inclined to begin another cycle, but I don't think we've got detail on what that's going to look like. But again, if you go back if time three years ago, we anticipated that this, this very tough target would take three, four plus years to achieve and originally we thought this would be achieved maybe in mid, late '09 and as our businesses have gotten stronger and stronger, we've taken cost out, our momentum has accelerated, we realized we would be hitting it in this quarter which we did. And so that pushed basically three to four quarters work of expense into this first quarter. So for this program, no more this year.

Okay. That's done. And then finally in Canada, that JV equity income now, can you just remind the volumes come out of your top line, but the JV equity income, that comes in through your operating income in Canada or other income? Where does that come in?

It comes in operating income and the cost of goods.

And the cost of goods.

In the cost of goods, yes.

Okay.

Essentially it's in the margin.

Okay. And then just a clarification, Tim, in terms of the buy back plans or potential buy back plans for Molsons Coors, are you essentially waiting for the Miller Coors venture to be approved in looking at your overall statements before making a decision or could this be a separate decision for your board.

No update right now. I think we have gotten some of the markers that we said we wanted to collect in March in terms of CapEx spending and overall cash performance. I think we are on track with our analysis, but we have some more bases to touch before we take a decision.

Okay. Thank you very much.

Thank you.

Thank you. Our next question comes from Kaumil Gajrawala from UBS.

Thanks, good afternoon, everybody.

Hi, Kaumil.

First question, I think just missed it, but Leo, did you give an update on April STRs for the U.S.?

I did. Tim, what was that number?

The U.S. number was a high single digit.

Okay. Thanks. And then the next question, on the distribution increases, was there a period of time last year, maybe a quarter, where distribution really started to accelerate? Mainly I'm asking to see if we are coming into a period where you start to lap that and it is difficult to get incremental distribution from that point forward.

The distribution gains for last year were probably -- yes, they were weighted, so not probably, they were weighted into the second and third quarters. So in terms of lapping those, yes we are, but I'd still come back to the main point I made earlier, that there's really significant head room for us in terms of distribution compared to the competitive (inaudible). Certainly if we use Anheuser-Busch as the main, the main driver of distribution in terms of their brand. So we got plenty of head room, so lapping really isn't an issue for us. There's lots of for us to go for.

Okay. And then maybe if you could help us a little bit on what's behind the distribution gains. Is it that the key account program is now three years -- it's been about three years and it's got some momentum. Or is it that the brands are very strong in a few regions and then other regions are picking it up? Could you maybe help us with what's behind this?

Sure, I can, and the latter point is probably the correct one. It is not isolated to certain channels of certain geographies. This is happening right across the piece. So yes, our national account structure that we put in some years ago is really beginning to gain momentum now. But equally, the brands -- and I think we quoted it in the release that we gave you, over 90% of our portfolio is growing. So when you've got momentum like that, gaining distribution with retailers becomes much easier, confidence of the distributors to put these brands into distribution, new SKUs into distribution is really high because they are not concerned about having to pick it up at a later date. So we really are increasing distribution across geographies and channels and brands.

Okay. Great. And then last thing for the U.S. and for Canada if you could give us your views on the consumer and how you feel about the price increases that have gone through and whether the consumer can handle it, given what we are hearing related to the economy.

I will take it first if you like. I can you only tell you where we are. You have seen our net sales revenue figures, and you've seen what portion is pricing. That's gone into the market and you have seen our volume sales. So I think we've answered the question. Kevin?

Yes, I think from our standpoint, we did take pricing as I mentioned earlier, earlier in the year than perhaps previous years. There have been a lot of reports in newspapers about some of the brewers, particularly the small brewers facing increased pressure. I think right now the pricing that has gone into the marketplace has been relatively well received. The economy is slowing a touch, but I still think the Canadian economy is in pretty good shape. So we are confident with the position we're in.

Thank you. (OPERATOR INSTRUCTIONS). Gentlemen I show no further questions.

That's great, Matt. Thanks for being with us everybody today. And we will be back with further announcements when we have them. If not before, we will talk to you at the end of the quarter. Have a nice week, everybody.

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