Molson Coors Beverage Co (TAP) 2008 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Molson Coors Brewing Company 2008 fourth quarter earnings conference call. Before we get started I want to paraphrase the Company's Safe Harbor language. Some of the discussion today may include forward looking statements. Actual results could differ materially from what the Company projects today. So please refer to its most recent 10-K, 10-Q and proxy filings for a more complete description of factors that could affect these projections. The Company does not undertake to publicly update forward looking statements whether as a result of new information, future events or otherwise. Regarding any non-US GAAP measured that may be discussed during the call please visit the Company's website www.molsoncoors.com for a reconciliation of these measures to the nearest US GAAP results. At this time all participants are in a listen-only mode. Later we will conduct a question and answer session and instructions will be given 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. Peter Swinburn, President and Chief Executive Officer of Molson Coors Brewing. Sir, you may begin.

Thanks very much. Hello, and welcome, everybody, thanks for joining us today. With me on the call are Stewart Glendinning, Molson Coors CFO; Leo Kiely, CEO of Miller Coors; Gavin Hattersley, CFO of Miller Coors; Kevin Boyce, CEO of Molson Canada; Mark Hunter, CEO of Coors Brewers Ltd.; Dave Perkins, President of Global Brand and Market Development; Sam Walker, Molson Coors Chief Legal Officer; Bill Waters, Molson Coors Controller; and Dave Dunnewald, Molson Coors Vice President of Investor Relations.

On the call today Stewart and I will take you through some highlights of our fourth quarter 2008 results for Molson Coors Brewing Company, along with some initial perspective on 2009. As usual, we would include a review of financial results for Miller Coors and then we'll open it up for questions. Our fourth quarter financial results reflect the combined challenges of a strong US dollar versus a year ago, substantial commodity inflation and volume softness in our major markets. Foreign currency movements alone accounted for 55% of the year over year decline in fourth quarter pretax profit. Input inflation across all of our businesses added another $41 million of head winds in the quarter. And beer volume declined from a year ago due to softening industry conditions in each of our major markets. While this was a difficult quarter, we continue to make operational progress across our Company. In Canada we grew net pricing based on the strength of our strategic brand portfolio despite continued competitive prices counting in Quebec.

In the UK we also grew net pricing for the eighth consecutive quarter and began to see significant benefits from the launch of Magners draft cider and our new of contract brewing arrangement. Miller Coors in the US made great progress with its integration including reporting 22% growth in underlying earnings for the first two quarters of combined financial results. This is is the pro forma result a year ago. Miller Coors has also announced that it is accelerating its delivery of cost synergies during its first three years. Finally, we reduced corporate overhead and interest costs in the fourth quarter.

Before we go into the fourth quarter in detail. I want to share with you some important accomplishments from 2008. A year full of challenges but also transformation and progress for our Company. We made great strides on brand building, front line pricing and cost reductions, but we gave back a lot to commodity inflation, weak industry volume in key markets and unfavorable foreign currency towards the end of the year. On the bottom line, we reported underlining earnings of $512.6 million US dollars up 1% from a year ago, while earnings per share declined $0.04 to $2.76.

The completion of Miller Coors in the US led our transformational moves and integration is progressing well. In Canada we increased net pricing based on the strength of our strategic brand portfolio and secured the opportunity to grow the Modello brands across Canada for the long term. In the UK we grew market share for the full year in both on and off premise with both Carling and Coors Light outperforming the market in our respective segments. We also increased net pricing in all four quarters. We launched Magners draft cider and set up a contract brewing arrangement that will be beneficial to us for years to come. Globally we grew Coors Light volume 6% for the full year in 2008 and we exceeded all of our cost saving goals. Significantly funded our pensions and reduced the future size and volatility of our pension liabilities. We created a stronger global market development organization for future growth in the business. And we reduced interest and corporate overhead expense. All of these steps could put our Company on a firmer footing as we move into 2009.

So with that overview, I'll now turn it over to Stewart to review fourth quarter financial results and trends, and then we'll cover the outlook for 2009.

Thanks, Peter. I'll start with the fourth quarter financial highlights, worldwide pro forma beer volume declined 4.2% from a year ago driven by industry weakness in each of our major markets. Our underlying pretax income decreased 23.1% to $136.3 million.

As Peter mentioned, most of the decline was due to unfavorable foreign currency with the balance caused by a combination of weak industry volumes in key markets and continuing commodity inflation. Foreign currency moments decreased this pretax profit by approximately $23 million in the fourth quarter, driven by a 19% year-over-year depreciation of the Canadian dollar, and 23% depreciation of the British pound versus the US dollar. On the bottom line, underlying ops tax income of $105.1 or $0.57 per diluted share was 21% lower than the 4th quarter a year ago. It's important to note that our fourth quarter underlying earnings excludes some one time expenses, particularly related to Miller Coors and our Fosters cash settled total return swap as well as a net special credit of $2.1 million. These adjustments to our US GAAP results are described in detail in the earnings release we distributed this morning. Also, unless otherwise indicated, all financial results we share with you today will be in US dollars.

In segment performance highlights, starting with Canada. Our business faced strong head winds from unfavorable foreign currency, continued cost inflation, slowing industry volume and competitive price discounting in Quebec. These negative factors were partially offset by favorable net pricing as we implemented an additional price increase in most of Canada in the fourth quarter.

To provide more comparable results as I discuss Canada performance, I will provide year over year changes that exclude the reporting effects of discontinuing our Fosters US contract earlier in the fourth quarter of 2007 and of setting up the Modello Molson joint venture and the Miller Coors joint venture in 2008. Let's review the highlights.

Canada underlying pretax income was $99.8 million in the fourth quarter, 23% lower than a year ago. The weakening Canadian dollar reduced Canada's segment underlying income by approximately $18 million in the quarter. Excluding the impact of foreign currency moments, Canada underlying pre tax income in local currency was 5% lower than a year ago. Our Canada sales to retail or STR's for the fourth calendar quarter ended December 31, decreased 0.6% on a comparable basis versus a year ago as industry growth slowed in the fourth quarter. This reduction also reflects our decision not to fully participate in offpremise price discounting in Quebec in the fourth quarter. Low single digit growth of Molson strategic brands which represent more than 85% of our Canada FTR's was offset by lower sales of our nonsupport brands.

Strategic brand growth was fueled by double-digit growth of Coors Light and continued strong growth by Carling and Creemore. Comparable partner import brand volumes increased at a low single digit rate. Molson Canadian volume declined at a mid single digit rate compared to the prior year. Total Canadian beer industry sales to retail grew an estimated 0.5% in the calendar fourth quarter. This represented a deceleration versus earlier in 2008 and was driven by poor weather, a softening economy, and an acceleration of Quebec industry volume to the third quarter, ahead of a fourth quarter price increase. On a comparable basis our estimated Canada market share decreased less than one-half share point in the fourth quarter versus a year ago.

Our Canada sales volume was 1.8 million barrels in the fourth quarter down 2.1% on a comparable basis versus the prior year. Comparable net sales per barrel increased 3.5% in local currency, driven by 1.6% points of favorable net pricing led by front line pricing in Quebec and Ontario, partially offset by extensive discounting in Quebec. The balance of the NSR growth in the quarter was due to sales mix shift including increased sales volume in our higher cost partner import brands. Cost of goods sold per barrel in the fourth quarter increased 9.2% on a comparable basis in local currency. This underlying cost of goods increase was due to the net effect of three factors. First, higher commodity packaging material and other input costs drove a 6% increase combined with a 1.5% increase due to higher fuel and distribution costs. Two, these inflationary increases were partially offset by 2% of savings from our resources for growth cost initiative. Three, finally, an increase of about 3.5% was due to the ongoing shift in sales mix. Canada cost of goods sold per barrel reported in US dollars benefited from approximately $6 million of gains from currency forwards which offer a partial hedge of our Canadian dollar currency exposure. Comparable marketing, general and administrative response in the quarter increased 1.3% in local currency driven by higher pension and other overhead expenses.

Other income increased $4.5 million in the fourth quarter, due to pretax gains from foreign currency hedges. In the US underlying US segment pretax income decreased 21.2%, to $56.2 million in the fourth quarter, as a result of year over year timing differences in sales and marketing spending, along with the impact of changes in accounting policies. Note that US segment results include our share of fourth quarter 2008 Miller Coors net income and various equity income adjustments which are then compared to the year earlier results reported by our legacy Coors business.

Looking specifically at the total Miller Coors P&L and US GAAP which is compared to the prior year pro forma Miller Coors results, underlying net income for the fourth quarter increased 16.5%, to $135.3 million for the fourth quarter of 2008. This earnings growth was driven primarily by strong pricing in cost management which more than offset increases in commodity costs and a reduction in shipment volume. Miller Coors increased net revenue and pricing drove strong underlying income for the fourth quarter. Miller Coors domestic net sales per barrel which excludes contract brewing and Company owned distributor sales increased 8% versus the prior year, driven by strong front line pricing, reductions in discounting and favorable mix.

While our fourth quarter pricing actions fueled revenue growth this in turn affected our overall volumes, during the period, Miller Coors sales to retailers declined 2.3% reflecting an overall industry slowdown, and lower sales of Miller Light as well as softness in premium and above premium brands. Domestic sales to wholesalers dropped 4.3% driven largely by a reduction in distributor inventory levels and lower sales to retailers. Cost of goods sold per barrel increased by 5.2% as savings from performance initiatives Unicorn resources for growth and synergies were more than offset by increasing commodity costs. Fourth quarter results were only minimally improved by significant recent commodity price reductions as materials were largely hedged through calendar year 2008 and 2009 prior to the reduction.

Without going into our hedging strategy, I can say savings from the commodity price drop will not be significant through 2009. Marketing, general and administrative expenses increased by 6.1%, to $514 million. Driven primarily by integration costs of $10 million and higher spending on the launch of MGD64, Coors Light media and increased sales and tactical spending.

Moving to our UK business in the fourth quarter. Underlying pre tax income in local currency was essentially unchanged due to strong currency. pricing growth. The ramp up of our contract brewing arrangement and reduced marketing spending which offset the volume impact of a weak industry, higher input cost inflation, and higher pension and bad debt costs.

Looking at fourth quarter highlights, underlying pretax income of $30.6 million was $23.6 million lower than a year ago. This is a direct result of a 23% decline in the British pound versus the US dollar, which reduced underlying pretax income by approximately $9 million. Our UK owned brand volume decreased 9.4% year on year. Compared to a total industry decline of approximately 8.3%. Reflecting the impact of a weak economy in the UK. We grew share in the on premise channel in the quarter but we lost share in the off premise as we took a tougher pricing stance with customers, which is the right strategy for our bottom line. Parable net sales per barrel of our own products increased 10.4% in local currency. Nearly two-thirds driven by higher pricing in all channels as we implemented our second price rise of the year earlier in the fourth quarter.

The balance of the revenue per barrel increase was the result of a one time reduction in volume related payments to customers, and positive sales mix, partly the result of growth in draft Magners cider. This represents the eighth consecutive quarter of year-over-year pricing growth for our UK business. In the fourth quarter pricing grew ahead of input inflation, resulting in improved gross margins. Comparable costs of goods sold per barrel of our own products increased 6.8% in local currency in the fourth quarter, primarily due to higher energy and materials cost inflation, and higher pension expense partly offset by results of cost reduction initiatives.

Marketing, general and administrative expenses in the UK increased 5.2% in local currency. Marketing expense in the quarter decreased as we aligned spending with the trading environment. General and administrative expense increased due to higher bad debt charges and higher pension expense.

In the global markets and corporate segment, our corporate markets team continues to take a disciplined approach to building our brands in international markets such as China, Japan, Mexico and parts of Western Europe. This operating strategy is built around taking Coors Light and other high potential brands on a very selective basis to markets around the globe. Generally with a strong local distribution partner. Our brands add value to the partner's portfolio and we leverage their capability and resources. This helps to minimize our capital expenditure, allowing us to focus our investment on brand building rather than breweries and other infrastructure.

Looking at the fourth quarter results, global markets grew volume nearly 20%, driven by Coors Light in China and Western Europe. MG&A totaled $33.5 million in the fourth quarter including corporate general and administrative expense of $23.2 million which decreased $7.6 million from a year ago due to lower incentive compensation in project spending. Global markets MG&A was $10.3 million virtually unchanged from a year ago.

Fourth quarter corporate net interest expense declined $7.6 million from a year ago, with about $6.2 million of this reduction attributable to the depreciation of the Canadian dollar versus the US dollar along with lower average debt balances in 2008. Corporate other expense of $20 million was driven by a $17.9 million loss related to the cash settle total return swap we arranged with respective to Kosta's common stock. Kosta's stock price declined moderately during the fourth quarter, to the value of the swap position had a negative cash settlement value of approximately $1.4 million at the end of 2008. The underlying loss for global markets and corporate was $50.3 million pretax in the 4fourh quarter, and 21% decrease as a result of lower corporate G&A and interest expense in 2008.

Now, highlights of our cost reduction initiatives. In the fourth quarter, we captured an incremental $22 million of cost savings as part of our three-year $250 million dollar resources for growth or RFG cost reduction initiative. For the full year, we achieved $87 million of savings, which exceeded our 2008 goal by $10 million. These cost reductions included our 42% share of RFG cost savings initiatives that were assumed by Miller Coors in the back half of 2008. Our 42% share of these savings was $6 million in the second half. In addition to RFG savings, Miller Coors delivered $28 million of synergies in the back half of 2008 with nearly all of these achieved in the fourth quarter.

Moving beyond operating business unit performance. Our fourth quarter effective tax rate was 20% on a reported basis and 22% on an underlying basis. Free cash flow for the full year 2008 reflected net cash generation of $220 million, which was made up of positive operating cash of $412 million plus $39 million of proceeds from asset sales, minus capital spending of $231 million. A number of one-time and discretionary cash uses reduced our 2008 cash flow. These fall into four groups.

First, our portion of incremental cash needs related to Miller Coors totaled approximately $144 million during 2008. These cash uses included retention, yield completion, integration and restructuring costs along with additional capital spending to capture synergies. Second, Miller Coors also held incremental margin cash related to commodity hedges with our portion totaling $71 million. Which will come back into our free cash flow during the next 1 to 2 years as the hedges roll off. Third, we made $100 million voluntary contribution to our UK pension plan late in the year which I'll discuss in a minute. Fourth we paid approximately $22 million of one time cash for debt extinguishment early in 2008.

All of these one-time cash uses will increase our cash flows in the months and years ahead. If we exclude them, our 2008 underlying free cash flow was $557 million which is 1% above our original 2008 free cash flow goal of $550 million. We achieved this despite $21 million of unfavorable foreign currency impact on cash during 2008. Total earned debt at the end of the fourth quarter was $1.75 billion. Excluding approximately $82 million of nonearned joint venture debt. Cash and cash equivalents totaled $216 million at the end of the quarter, resulted in earned net debt of $1.53 billion.

Looking forward, we expect full year 2009 marketing, general and administrative expense in the corporate and global market segment of approximately $150 million plus or minus 5%. Our initial 2009 view of corporate interest expense is approximately $90 million at today's foreign exchange rates. Note that this view includes the net effect of new accounting rules for convertible debt and the deconsolidation of BRI.

Turning to our effective tax rate. We continue to anticipate that our underlying tax rates for full year 2009 will be in the range of 16% to 20%, assuming no further changes in tax laws. Because of the anticipated closing or settling of tax years this is about 6 percentage points below our long term range of 22 to 26%. Our capital spending outlook for 2009 is approximately $140 million. As usual this guidance excludes Miller Coors and self-funded capital spending by our consolidated joint ventures, primarily to beer stores in Ontario.

Now, I'll give an important pension update which includes our preliminary view of expense and cash for 2009. As some of you know we have recently implemented steps to reduce future liabilities, increase funding levels and lessen the volatility of asset returns for the majority of our traditional defined benefit pension plans. Since 2005, we've closed many of our qualified plans to either future benefit accruals or new participants in the US, Canada, and the U.K. Most recently we reached agreement to close our largest defined benefit plan which is in the UK to new benefit accruals it in the first half of this year. When we have closed plans, we have migrated employees to defined contribution plans, which reduces Company risks and volatility.

In 2008 we made cash contributions totaling approximately $230 million to our defined benefit plans for Canada, the UK and global teams. These included a voluntary contribution of $100 million late in the year for the UK plan. The timing of this substantial one time contribution was driven by attractive foreign currency rates and asset values late in 2008. This contribution also gives us flexibility to determine our contributions to the UK plan during the next 2 to 3 years. Due to the substantial voluntary contributions we've made in recent years, our initial forecast indicates a significant decrease in cash contributions this year versus last year. Potentially to less than $50 million for 2009.

Note that this view excludes pension plans with Miller Coors and other nonconsolidated joint ventures, we do expect Miller Coors to make cash contributions to its defined benefit pension plan in 2009, but the amount may not be determined until the second half of this year. Besides making extra contributions, we reallocated the assets supporting our qualified pensions in the second half of 2007 and early 2008 to reduce our equity exposure to less than half of the assets. This strategic derisking substantially lessened the impact of the recent stock market crash on these plans. Because our pension liabilities and assets are primarily denominated in British pounds and Canadian dollars the recent weakening of those currencies has reduced the liabilities and had a favorable impact on the underfunded positions of our largest pension plans.

As a result of these factors, our initial read on 2009 pension expense indicates no more than a minimal amount of defined benefit pension expense this year. Likely less than $5 million for all of 2009. As always, this view excludes Miller Coors and any one time curtailment gains or losses which are not included in our underlying results. We will present more information regarding 2009 pension expense and contributions in our 2008 10-K which will be filed later this month after our actuaries have completed their work, as well as during our annual New York analyst meeting in early March. At this point I'll turn it back over to Peter for a look ahead to 2009. Peter?

Thanks, Stewart. In 2009 we will continue to focus on building our strong band, as reducing costs in each of our businesses and generating cash. In Canada, as with other markets we will balance the priorities of price and volume with a bias to invest in and grow our brands. Price discounting activity has continued especially in the Quebec off premise channel. Recent price increases across the major Canadian provinces have offset some of the impact of competitive discounting. We will remain focused on balancing our strategic volume priorities and building the equity of our brands while ensuring that we continue to be price competitive on a market by market basis. Also late in 2008, Blue Moon production was moved from a Montreal brewery to Miller Coors, and we have taken action to reduce staffing levels and other costs to offset the negative financial impact of lower production levels.

In the US the Miller Coors integration is proceeding well. Talent selection was completed in the fourth quarter, and they bring the realization of significant organizational synergies. In addition, nonorganizational savings have been realized due to progress and (inaudible) optimization and opportunities to consolidate national media buying, regional distributor meetings and insurance. The US team is more confident than ever that they can deliver the $500 million annual synergies goal by the third year of combined operations.

We're brand builders so we're committed to improving the performance of Miller Light in 2009. Driving growth of both our premium light brands is critical to our success. Accordingly, later this month, we will launch a new marketing campaign for Miller Light that will relentlessly celebrate the brand's great taste. We will also focus on maintaining momentum for Coors Light and capturing new growth for the success of MGD64. And we will continue to build on the momentum of our craft and import brands Blue Moon and Peroni while leveraging the messaging and equity of our below premium brands Keystone Light and Miller High Life to take advantage of any consumer shifts towards value. The power of the Miller Coors portfolio is starting to be realized.

In the UK we anticipate a challenging trading environment to continue in 2009 due to the weak local economy. Commodity inflation will also be a challenge in 2009. Nonetheless, we believe that our UK business is on a much firmer footing as it benefits from our new contract brewing arrangements, the Magners ciders agreement and recent supply and renegotiations. Moreover, our brand strength has consistently supported positive pricing and we recently announced a 2009 price increase which will be effective in March.

Following our most recent volume results for each of our businesses early in the first quarter. In Canada, our comparable sales to retail in January declined at a mid single digit rate versus a year ago, due to continued soft industry volume and tough comp for comparisons compared to last year. In the five weeks of 2009 our UK sales to retail have decreased from a low double-digit rate of a year ago, mostly driven by high year end inventories in the offpremise channel. In the area of cost outlook, I'll start with our cost savings initiatives.

Looking to 2009, the final year of the RFG program, we continue to be confident that we can achieve our three-year resources for growth goal of $250 million. As we have emphasized previously, all RFG savings will be incremental to the $500 million of cost synergies to which Miller Coors is committed. Finally, for Miller Coors, the timing to achieve the original goal of $50 million in synergies in the first 12 months of operations has accelerated. The US team now expects to realize $128 million of synergies by June 30, 2009. By the end of calendar year 2009 we expect to achieve a total of $238 million in synergies surpassing our original forecast of $225 million. While the timing of synergy delivery has accelerated our goal remains $500 million of annual cost synergies to be delivered by the third year of combined operations.

Looking at the cost outlook by business. In Canada, we expect our comparable 2009 cost of goods per barrel in local currency to increase at a low single digit rate versus 2008, due to continued inflationary pressures, partially offset by anticipated reductions in certain commodity and fuel inflation rates in 2009. Along with continued delivery of our RFG savings initiatives.

In the first quarter of 2009 we expect that we will discontinue our consolidation of Brewers Retail Inc., or BRI which operates the Ontario Beer Stores. We will begin accounting for BRI results this year, using the equity method, because our interest in BRI has been reduced following Labatt's acquisition of Lakeport Brewing in Ontario. This change will decrease Canada pretax income and decrease -- sorry, this change will decrease Canada pretax income and decrease corporate interest expense a similar amount. Yielding no significant impact in consolidated net income. In 2008, for example, our BRI pretax income of about $10 million US was offset by BRI interest expense in corporate. We also may record a one-time gain or loss related to deconsolidation of BRI, due to new accounting rules this year, requiring companies to apply fair value accounting to deconsolidations. As we change this accounting presentation on a go forward basis, we will exclude these impacts to provide the comparable business impacts.

Our UK team is targeting substantial savings as part of the resources of growth program driven by supplier negotiations and operation efficiencies. In a challenging industry volume environment our preliminary view for 2009 is that UK owned brand cost of goods would increase at a low double-digit rate per barrel in local currency. This is driven by mid single digit inflation and product mix changes which are related to relative growth and contract brewing, Magners Ciders and off premise sales. Most of these mix changes also increase net sales per barrel and are voting neutral to gross profit.

Finally, with regard to currency impacts, if the Canadian dollar and British pound stay where they are today relative to the US dollar, we would face substantial currency translation challenges in the first three quarters of 2009. At current rates, Canadian dollar devaluation would present a Canada pretax earnings head wind of approximately 15 to 20% of prior earnings in each of the first three quarters of 2009 with minimal impact in the fourth quarter. It is important to note that we expect our debt structure and currency hedging programs to offset about 50 to 60% of this currency translation impact in 2009. British pound evaluation would negatively impact our UK pretax earnings by about 25 to 30% in the second and third quarters of the year. With a 10% impact in the fourth quarter. Our UK business generally incurs a small loss in the first quarter, so currency affects are minimized then, we have no significant currency hedges focused on the British pound.

To summarize our results and discussions today. 2008 posed many challenges for our Company. Particularly late in the year, due to a stronger US dollar along with volume softness in our major markets and substantial commodity inflation across the business. Nonetheless, in 2008 we continued to build our strategic brands, achieved revenue per barrel growth in all of our markets, exceeded all of our cost reduction targets, successfully launched Miller Coors, pursued strategic initiatives in each of our businesses, strengthened our global organization and grew underlying earnings in a weakening global economy. During the year we also reduced interest in overhead expenses, continued to improve our cost generating capabilities and strengthened our balance sheet. Looking forward we enter 2009 squarely focused on the fundamentals that drive results in this business in the good times or in bad, our priorities are to build great beer brands and to grow revenue per barrel, deliver cost savings on or ahead of our commitments, generate substantial free cash and grow long term returns to Molson Coors shareholders. We look forward to giving you a strategic update around these priorities during our annual analyst and investor meeting in New York on Wednesday March the 4th, and we hope to see you there.

Now, before we start the Q&A portion of the call, a quick comment. Our prepared remarks will be on our website for your reference within a couple hours this afternoon. Also at 2:00 p.m. Eastern time today our investor relation 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 will also be available for you to hear by webcast and recorded replay on our website. So at this point, I would like to open it for questions if that's okay with you.

(Operator Instructions) Our first question comes from Kaumil Gajrawala from UBS.

As it relates to some of the promotional activity in Canada, is it -- do you feel that this is something that was just hot pricing on a particular product for a couple months at a retailer? Or is this something that you feel might be more of a change in strategy from your competitor?

Kaumil, are you talking about Quebec now I assume?

Yes, Quebec.

This has been going on for -- the discounting started just prior to the summer. And it's not on one or two products at this point in time, so it's been fairly broad. I would say that the industry has been through these before, and the length of time that the discounting takes place varies from time period to time period, but we have, particularly in the fourth quarter as Peter mentioned, we did slightly pull back from our discounting and we were unsuccessful in changing the market conditions, we will continue to do what's right for both our brands and the Company though.

Okay. Is there -- as we think about the Montreal brewery moving Blue Moon out plus standing firm on pricing the impact of volumes that might have, is there a need for a -- maybe a broader pull back in capacity in that region?

What we did when we lost the Blue Moon volume. We made head count changes there, and we're in the midst of finalizing those, and actually we've been able to totally offset the cost we would have incurred with losing that volume. We don't foresee anything more at this point in time.

Thank you.

Thanks.

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

Kevin, I just wanted to follow-up on Canada. Because it sounds like the industry volume has softened and the competitive environment is still pretty intense and I'm just not sure what really gets better as you kind of think about 2009 and whether you're looking at perhaps reinvesting a lot more of potential cost savings to reinvigorate volume in that market?

It's a bit of a tough call right now, Judy. If you stand back and look at the industry in 2008, the industry actually grew 1.1%, so over the last 10 years it's grown 1%. That's been very consistent. There was some softness in the fourth quarter where it grew about a 0.5 point. That we believe was driven by a number of factors, but there was a very difficult weather season right around the Christmas time period which would have hurt the industry at a very important time. It's a bit of a hard read there, as we go into January what we're seeing is relative to a year ago, as Peter mentioned our shipments are down about mid single digits, but if you look at last year, as an industry and both our shipments as well. The anomaly is probably January 2008. If you go back to January 2007, 2006, the numbers in January of this year are pretty consistent with those. So we are paying very close attention to it, obviously with the economy and everything. It would be very hard to say though that the industry is soft as a result of the economy or any other factors right now, there are a lot of moving parts, but it's something clearly we're focused on. In terms of go forward and what we would do from a pricing perspective and promotion perspective. We think we have pretty solid plans in place, and we took pricing through many of the markets of the fourth quarter of last year. We enter this year from a pricing perspective in pretty good shape.

Then with the cost pressure easing in Canada in 2009 to low single digits. Is there concern that actually the promotional environment gets even more competitive in that setting?

There is that risk, what you're going to see is I think -- I can't speak for competitors, but for us, I think you're going to see that benefit taking place over the course of the year as certainly commodity pricings are coming down, but they're not going to come down all at once in the first or second quarter type of thing. But there is the risk, I would say that if you look at the rest of the country the promotions have been much more tactical than broad scale and I would see that continuing as well.

And then from Miller Coors' perspective, is there any way to quantify the potential pension contribution? I know you've talked about -- I mean, is it -- in terms of maybe not exactly giving us the number, but the size of potential contribution there and how we think about the free cash flow that flows up to the tap?

Do you want me to take the question?

Sure.

Judy, we are in the process of looking at that with our actuaries, the impact. We have up until late in the third quarter to make the call on exactly how much we will need to put into our plans.

Okay. All right, thanks.

Thanks, Judy.

Thank you. Our next question comes from Christine Farkas from Merrill Lynch.

Thank you very much, good afternoon, everyone. I wanted to get a little bit of color on the Fosters stake, if there's been any change there with respect to your view strategically on that potential down the road for one? And secondly, with respect to free cash flow in '09, you gave us a little bit of an outlook of CapEx for the Company. But I'm really trying to get some help in understanding the potential free cash flow available to Molson Coors post Miller Coors in terms of how you would -- and then how you would look at deploying that or priorities for your free cash in '09?

Okay. Christine, I'll take the first one on Fosters, and Stewart can pick up on the free cash flow.

Thank you.

I think the short answer to your question is no, there's no real change. What we said last time about Fosters really still holds, the exposure we're comfortable with given the size of our balance sheet. We're interested in the market, we're interested in the Company. We see them as interesting and we want to keep our options open and that's really where we are.

I'll pick up on the cash flow Peter. First of all, we're very pleased that we managed to hit the numbers for '08. We have given you some guidance with respect to capital spending this year, you're right. When we're at our analyst meeting in New York, we will share with you the details of our plans for '09 and some of those priorities, so you'll have to wait a couple more weeks.

Okay. Great, and then if I could follow-up on Canada, Kevin, just looking at the economy, getting a little bit softer there, can you talk a little bit about channel pressures and what you've seen in the past. Do you tend to see trade down from wine? Is there an opportunity here in both a product and a channel mix change?

Obviously there's been a series of announcements over the last few weeks with respect to unemployment and things, which is a concern in the economy here. I would say in the short term you are seeing softness in the on premise channel. It's a very hard short term read now to figure out whether or not we're seeing a trade down from wine to beer or within beer segments. I'd say at a top level, you are seeing some softness over the last months in the on premise channel. And in total, the industry looking a touch soft, and I do say just a touch, but it's a really hard read because of all the issues with weather and it is a softer time of the year, but if that were to happen, and I was told anecdotally that back in the early '90s when there was a soft time, there was some trade down. But we're not seeing in our numbers yet. By tradedown, I mean from wine to beer.

And would you expect to see a similar offset or uptick in the take home channels given the softening now in the on premise.

That would be the belief. We haven't built our plans on a massive tradedown, if you like, from one segment to the other, or from one category to the other. We are paying attention, we will adjust accordingly but we would expect that if there is a softness in on premise that people would continue to consume at home, have parties at home et cetera.

Great, thanks a lot.

Thank you. (Operator Instructions) Our next question comes from Mark Swartzberg from Steven Nicholas.

Thanks, good morning, everyone. Kevin, I was hoping we'd get a bit more granularity on how things are unfolding and how you expect they will unfold in the different regions of Canada along the two metrics of volume and profit. Obviously, Quebec's been challenging, it seems like Montreal and some other markets are to an extent offsetting that. But can you give us a little bit more granularity, just go around the country and tell us what you're seeing and how you see it unfolding?

Ontario which is our biggest market. Ontario is a very heavy industry market in the sense of big auto sector, et cetera. There is softening in the economy here, we are -- the market was a little -- it was under 1% growth last year, which -- it's very hard to judge year-to-year based on the market. But we are getting pricing in the marketplace. Pricing was taken in the October time period. Minimum price has moved up as well. There's some encouraging news there.

Promotionwise, you're not seeing an acceleration to be honest over the last 3 to 4 months, you're seeing a relatively constant heavy amount. But not what I would consider what's happening in Quebec. In the western part of the country again, pricing has been taken, particularly Alberta has been reliant on the energy industry and so it will be interesting to see with the softening in commodity prices and things like that, how our industry holds up, right now because of the way we've taken pricing year over year from one market to the next we're having a bit of a hard read, understanding how much of the changes in the industry are pricing, et cetera. But that's something we'll be keeping a close eye on. The Atlantic, which is about 7% of the market, continues actually to be a fairly good performer and we enjoy very good share growth there. And again from a discounting perspective, nothing that's tremendously out of the ordinary there.

Great and I think I called Montreal Ontario, sorry. But a question more specifically on Quebec, it seems like -- it doesn't sound like you're saying it got worse in the fourth quarter, are you saying got worse, and then what's to prevent it from getting worse from a pure share perspective if we accept that you're going to be disciplined on price, your competitors are choosing to be more promotional? What risk does that bring that your share performance gets worse?

I think we'd like to be disciplined but honestly it's going to be a point -- we're not prepared to not participate if all of our competitions are going to go that way, we're the leader in Quebec, and we think we're doing the right thing by not partaking in the early part of the quarter, but realistically, if the whole market wants to participate, we'll be there. When you look at the fourth quarter, I think the change from earlier quarters was probably a greater participation of discounting in the independent channel. The grocery channel was relatively consistent throughout the last 9 months of the year, and it was really, as it went from just a grocery channel into the independent channel, and that, we'll pay close attention to as we enter this year.

It sounds like you're not seeing any evidence of your main competitor changing their tactical approach to the market with the various retailers?

Not yet.

Great. Thank you.

Okay.

Thank you. (Operator Instructions) Gentlemen, I am showing no further questions.

Okay. Well, thank you, and thank you everybody for joining us, and showing your interest in Molson Coors, great to have you on the line and we look forward to seeing all of you in New York in early March, thank you.

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.