Molson Coors Beverage Co (TAP) 2009 Q4 法說會逐字稿

Thank you all for attending Molson Coors Brewing Company 2009 fourth quarter and year-end earnings conference call.

I would now like to read a prepared statement. Before we get started, we 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 this -- to it's 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 any obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise.

Regarding any non-US GAAP measures that may be discussed during the call, please visit the Company's website - www.molsoncoors.com - for a reconciliation of all of these measures to the nearest US GAAP results.

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

Thank you, Jim. Hello and welcome everybody and thanks for joining us today. With me on this call are Stewart Glendinning, Molson's CFO, Leo Kiely, CEO of Miller Coors, Gavin Hattersley , the CFO of MIller Coors, Dave Perkins, CEO of Molson Coors Canada, Mark Hunter, the CEO of Molson Coors UK, Sam Walker, Molson Coors Chief Legal Officer, Bill Waters, Molson Coors Controller, and Dave Dunnewald, Molson Coors Vice President of Investor Relations.

This morning I also want to extend a special welcome to Kandy Anand, who has joined Molson Coors as President of our International Business in Asia, Continental Europe and Latin America. Kandy brings with him more than twenty years of global brand and marketing experience, most recently with Coke and Unilever and we're delighted to have him on board with the Molson Coors team.

On the earnings call today, Stewart and I will take you through highlights of our fourth quarter and full-year 2009 results for Molson Coors Brewing Company. Along with some initial perspectives on 2010, and then as usual, we will open it up for questions.

So, we will get started. Underlying earning for our Company increased more than 85% in the fourth quarter versus a year ago, driven by a one time reduction in tax rate. Behind the headline number, our results were affected by weak volumes across all markets, cost inflation in the US and UK, and grand investments in Canada.

Overall, consumer demand remains sluggish and we see these conditions continuing to impact volume and mix in the near term. Our strategy remains consistent, however, as we are focused on investing on innovation in our brands and ensuring we remain a strong balance sheet so that when market positions improve, we are better positioned to accelerate our growth and capitalize on opportunities.

Our performance in the quarter and over the past year has benefited from this strategic focus. While our underlying earnings in the fourth quarter were aided by a one time reduction in our tax rate, it's important to point out that we grew or held our net pricing and market share in both the US and Canada.

Our Canada share performance represented a significant trend improvement from previous quarters. In the UK, we continue to forgo low-profit volume and share, which helped us drive positive pricing on margins.

For the full-year, we expanded our brand portfolios in Canada and the UK, exceeded our goals for cost savings and maintained price discipline, all of which contributed to a significant increase in our full-year underlying earnings.

Looking at the regional headlines for the fourth quarter, our Canada team launched three new products and new ad created for Molson Canada, as well as accelerating promotional activity behind our sponsorship of the Vancouver Winter Olympics. These brand investments and the addition of Granville Island volume, helped us to increase our market share a quarter of one point versus a year ago.

Our share performance in the fourth quarter was particularly encouraging in the Eastern provinces, which represent nearly three-quarters of our Canada volume. A weak economy and industry, along with the cost of the new brand investments resulted in a 5% decline in underlying Canada earnings in the quarter, but our brand work is beginning to give us the platform we require to improve share and revenue performance in Canada going forward.

In the US, Miller Coors fourth quarter results reflect a significantly weaker beer industry than expected. Consumers reduced overall volume of beer purchasers and favored value over convenience in their choices. As a result, all major channels saw a worsening of sales trend in the fourth quarter versus earlier in 2009. In line with our overall strategy, our US team continue to invest heavily in brands and maintain market share and a declining industry. In fact, five out of six of our US focus brands grew share in the fourth quarter. Nonetheless, lower volume and adverse sales mix had a substantial negative impact on our US financial results in the quarter with segment income declining nearly 9% from a year ago, despite delivery of cost synergies.

Our UK team achieved another strong performance in the fourth quarter with 20% growth in underlying earnings driven by continued price management and solid brand building. Performance was particularly encouraging in the independent on-premise channel and with the Cobra brand, which we acquired in 2009. The results in the UK show what can be achieved with high equity brands such as Carling. Stewart will take you through the details, but we are pleased with the progress of our businesses and the progress they made in building brands, managing price, reducing cost, generating cash and becoming a stronger competitor in each of our markets.

Before we discuss the fourth quarter in detail, I want to share with you some important accomplishments for 2009. For the full-year, we continue to make great strides in our brands, our competitive position, cost reductions and cash generation, but we gave back a lot to weak industry volume, unfavorable currency movements and commodity inflation, particularly in the US and the UK.

Globally, we reported underlying earnings of $707.4 million, up 40.7% from a year ago, on earnings per share increased $1.10 per share to $3.81 per share. Positive results were driven by a lower effective tax rate price discipline and cost reductions.

Free cash flow for 2009 reflected net cash generation of $691 million, which was made up of $824 million of operating cash flow, plus $58 million of proceeds from asset sales minus capital spending of $125 million and $66 million of investing cash contributed to Miller Coors. If we exclude a one time cash usage by Miller Coors to capture synergies, along with the return of collateral cash related to Miller Coors commodity hedges, our underlying free cash flow totals $725 million for the full-year in 2009. As a result we exceeded our 2009 underlying free cash flow goal, which was $575 million, by nearly 27%.

We exceeded all of our cost reduction goals and announced our next generation of cost reduction called RFG2, which are planned to capture at least another $100 million of annualized cost savings over the next three years. Also, Miller Coors delivered $245 million of the $500 million synergy reduction in 2009. Additionally, Miller Coors delivered $26 million of it's $200 million of next generation cost savings in 2009. And we have of course, benefit from 42% of these Miller Coors cost savings.

In Canada, the leadership team lead by CEO Dave Perkins is accelerating our strategy of brand development and innovations. Late in the year, we introduced the first new Molson trademark brand for five years, called Molson M, along with a low-calorie extension of Molson Canadian, and the introduction of Rickard's Dark. These introductions have exceeded our expectations and have contributed to our share performance.

We also strengthened our Canada asset base by selling our interest in the Montreal Canadian's hockey club and agreeing to buy Granville Island Brewing Company. The Granville Island acquisition, which we expect to close in the first half of 2010, further increases our presence in the highly profitable upper premium segment.

Miller Coors exceeded it's synergy targets and announced another $200 million of cost-savings reductions to be delivered by the end of 2012. The US team also invested heavily in building brands and sales capabilities. Despite the toughest US beer market in decades, Miller Coors grew underlying income by more than 18% and greatly increased it's cash generation in 2009.

Miller Coors was formed a year and a half ago to make us a stronger competitor and improve our financial performance in the US and this team is delivering on that promise.

In the UK, we drove volume on the back of the Carling brand strength, delivered solid Coors Light growth, purchased a controlling interest in the Cobra brand, grew Magners draught cider and completed the ramp up of our contract brewing arrangements. We leveraged these strategic initiatives to balance price and volume priorities effectively.

Additionally, we closed our defined benefit pension scheme to all future accrual of retirement benefits, which will reduce the growth of these liabilities in the future.

Our international team enhanced it's capabilities and continued to invest in developing markets in Asia, Europe and Latin America. Due to our focus on cash generation to strengthen our balance sheet, our cost-savings success, and our increased investment in brands and innovation, we enter 2010 a stronger, more competitive Company than we were a year ago. We will continue to build a strong portfolio of brands so that we are able to deliver share and revenue growth to go with our cost-savings successes.

So, with that as an overview, I'll turn it over to Stewart to review fourth quarter financial results and trends, and then we'll cover the outlook for 2010.

So, Stewart over

Thanks, Peter. Hello, everyone. I'll start with the fourth quarter financial highlights. Worldwide beer volume for Molson Coors declined 4% from a year ago, driven by overall industry weakness, as well as our pricing strategy in the UK. On the bottom line, underlying after-tax income of $190.3 million or $1.02 per diluted share was 85.5% higher than the fourth quarter a year ago. Driven by the favorable resolution of unrecognized tax positions and the favorable year-over-year currency movements.

Underlying pre-tax income declined 6%, due to weak industry conditions in the US and Canada, along with cost inflation in the US and UK.

It is important to note that our fourth quarter underlying earnings excludes some one time gains and losses and expenses primarily related to the sale of our 19.9% interest in the Montreal Canadian's hockey team, changes in the value of our Foster's cash-settled total return swap, an income tax rate change in Ontario, and Miller Coors integration costs, as well as net special charges of $11.1 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, underlying pre-tax income and local currency decreased 12% in the fourth quarter from a year ago, excluding the impact of foreign currency hedges in other income.

Lower production costs in the quarter were more than offset by increases in brand investments, higher incentive compensation expense, and the impact of deconsolidating our interest in the beer stores in Ontario known as BRI, Brewers Retail, Inc., beginning in the first quarter of 2009.

Based on the strength of our brand investments and innovations, we grew market share while maintaining net pricing versus the prior year. In US dollars, Canada underlying earnings of $94.5 million in the fourth quarter, decreased 5.3%, which reflects the benefit of a 15% year-over-year increase in the Canadian dollar versus the US dollar. The stronger Canadian dollar this year, increased Canada segment underlying income by approximately $11 million in the quarter. To provide more comparable results in our Canada discussions today, as we have done on our previous earnings call, we will exclude the sales and costs related to exporting beer to Miller Coors as well as the reporting effects of deconsolidating BRI.

So, let's review some highlights. Our Canada sales to retail or STOs for the calendar quarter ended December 31, decreased 1.2% versus a year ago. Coors Light continued to show growth and our new product launches are exceeding expectations. The Molson Canadian Dry and Export brands declined versus prior year. Total Canadian beer industry sales to retail declined an estimated 1.9% in the calendar fourth quarter. As a result, our estimated Canada market share increased about one quarter of a share point in the fourth quarter versus a year ago, driven by our portfolio building innovation and investments that our team rolled out last fall.

In the fourth quarter our market share performance was strongest in Ontario, Quebec and the Atlantic provinces, especially later in the quarter as our brand-building initiatives gained momentum.

Our Canada sales volume was 2.1 million hectoliters in the fourth quarter, unchanged from a year ago. Comparable net sales per hectoliter were virtually unchanged in local currency versus a year ago as favorable front-line pricing was offset by continued price discounting activity.

Cost of goods sold per hectoliter in the fourth quarter decreased approximately 3% on a comparable basis in local currency driven by the net effect of three factors. First, a decrease of about 1.5% was due to declines in commodity and packaging material input costs, partially offset by increases in distribution and pension costs. Second, savings from our resources for growth initiatives reduced cost of goods sold per hectoliter by about 3%, and third, these decreases were offset by about 1.5% due to ongoing product mix shifts.

Comparable marketing, general and administrative expense in the quarter increased 14.2% in local currency, driven by higher brand investments, as well as an increase in incentive composition expense. Underlying other income decreased $8 million in the fourth quarter due to lower Montreal Canadians equity income this year, along with cycling prior year gains from foreign currency hedges. Note that this underlying result excludes a one time $46 million gain on the sale of our interest in the Canadians hockey club in the fourth quarter.

Moving to our US segment, underlying pre-tax income declined 8.9%, to $51.2 million in the fourth quarter as weak US beer industry conditions drove lower volumes and significant cost deleverage in our business. These negative factors were partly offset by favorable pricing, synergies delivery, and reductions in marketing, general and administrative costs in the fourth quarter.

Looking at the total Miller Coors P&L. Fourth quarter underlying net income decreased 21.6% to $106.1 million versus a year earlier. The difference in trend between Miller Coors income and our US segment income is due to a $17 million increase in share-based compensation expense for Miller Coors in the fourth quarter of 2009, which was driven by strong appreciation in the SAB Miller stock price versus a year ago. Note that this expense is attributable to higher mark-to-market values for stock-based grants existing prior to the formation of Miller Coors and not the issuance of new grants. Share-based compensation expense related to SAB Miller stock price is excluded from our US equity income.

Miller Coors domestic sales-to-retailers, STRs declined 3.6%, primarily due to poor industry and economic conditions. In a weak industry, our US business held market share in the quarter. Domestic sales-to-wholesalers, STWs, declined 4.2% driven by lower STRs and a reduction in contract brewing volumes.

Miller Coors total net revenue decreased 1.6% to $1.71 billion, versus the prior year. Pricing remains strong in the fourth quarter as domestic net revenue per hectoliter, which excludes contract brewing and Company-owned distributor sales, increased 2.3%.

Cost of goods sold per hectoliter increased 5.6% versus the prior year, as savings from Miller Coors cost-performance initiatives were more than offset by significant increases in brewing and packaging material costs, including glass and aluminum, along with volume-related cost deleverage.

Marketing, general and administrative cost decreased 2.7% driven primarily by synergies and other cost savings. This decrease would have been about 6%, excluding the impact of increased share-based compensation expense. Higher information technology costs also had an impact.

Moving to our UK business in the fourth quarter, underlying pre-tax earnings increased nearly 15% in local currency from a year ago. This strong performance was driven by positive results from the strategic actions of our UK team that they have taken in the past year, including leveraging our contract brewing arrangement and brand-building efforts, which allowed us to forgo a low-margin volume. These earnings drivers were partially offset by lower volume and higher incentive compensation expense in the quarter. In US dollar terms, fourth quarter UK underlying pre-tax profit increased 20.3% to $36.8 million versus a year ago. These results include the benefit of a 4% increase in the valuation of the British pound versus the US dollar, which increased UK earnings by approximately $2 million in the quarter.

Looking at fourth quarter highlights, our UK-owned brand volume decreased 9.3% in the quarter due to declining industry volume and the Company's strategy to forgo low-margin volume. UK beer industry volume declined approximately 4% in the fourth quarter.

Comparable net sales per hectoliter of our own products increased 18% in local currency driven by two factors. First, 10% was due to higher pricing in all channels, as we benefited from our strategy to forgo low-margin volume. And second, eight percentage points were due to positive sales mix, predominantly due to growth in draught Magners Cider and Cobra. Comparable cost of goods sold per hectoliter of our own products increased 12% versus 2008 in local currency predominantly driven by the following. 5% was due to input cost inflation, with increases in can metal, barley, bottles and utilities. 5% was mix, driven by growth in draught Magners cider and Cobra, 3% was due to the cost deleveraging impact of lower owned brand volumes.

These factors were partially offset by a 1% cost reduction related to a mark-to-market adjustment on natural gas hedges, which partially reverses a charge in the third quarter.

Marketing, general, and administrative expense in the UK increased 11% in local currency due to higher incentive compensation and investments in information systems, along with the cost of adding the Cobra sales force this year.

In the International and Corporate segment, the underlying loss for International Markets and Corporate combined was $58.1 million pre-tax in the fourth quarter, 7% higher than a year ago. Our international team grew volume more than 14% in the fourth quarter off of a small base, driven by sales in China, Europe, and Latin America. MG&A expense for International was $15.8 million in the quarter, an increase of $5.5 million versus a year ago, as we increased investments in our priority international markets.

In addition, corporate, general and administrative expense increased $2.5 million to $25.7 million primarily due to higher incentive compensation expense. Fourth quarter corporate net interest expense increased $2 million from a year ago, with about $3.6 million of this increase attributable to foreign currency movements. Partially offset by approximately $2.3 million related to the deconsolidation of BRI.

Note that interest expense for the fourth quarter has been increased by $4 million retroactively in accordance with the new accounting rules for convertible debt.

Corporate other expense increased $3.3 million, driven by a non-cash, mark-to-market loss related to the total return swap we arranged with respect to Foster's common stock. As usual, mark-to-market gains and losses on the Foster's swap are excluded from our underlying earnings.

Now, highlights of our cost-reduction initiatives. In the fourth quarter we captured an incremental $24 million of cost savings as part of our three-year, $250 million Resources for Growth or RFG cost reduction initiative. For full-year 2009, we achieved $92 million of savings. As a result, we closed out our three-year RFG program with a total of $270 million in permanent cost reductions, which significantly exceeds our original commitment of $250 million for the program. In addition to our RFG savings, Miller Coors delivered $62 million of incremental cost synergies in the fourth quarter. Miller Coors also delivered $26 million of cost reductions against it's new $200 million cost savings program to be delivered by the end of 2012. These new cost initiatives are additional to the original $500 million three-year synergy committment. As with Miller Coors, 42% of these new cost savings accrued to Molson Coors.

Moving beyond operating business unit performance, our fourth quarter effective tax rate was negative 65% on a reported basis and negative 54% on an underlying basis. These tax rates are well below our long-term rates due to the favorable resolution of unrecognized positions in the fourth quarter. Total debt at the end of the fourth quarter was $1.71 billion and cash and cash equivalents totaled $734 million, resulting in net debt of $0.98 billion.

Looking forward, we expect full-year 2010 MG&A expense in the Corporate and International Market segment of approximately $180 million, plus or minus 5%. We anticipate full-year 2010 corporate interest expense to be approximately $105 million at today's foreign exchange rates.

Turning to our effective tax rate, we expect our full-year underlying tax rate for 2010 to be in the range of 18% to 22%, assuming no further changes in tax laws. We continue to expect our normalized long-term tax rate to be in the range of 22% to 26% after this year. Our 2010 capital spending outlook is approximately $150 million for the full-year, as usual, this guidance excludes Miller Coors.

At this point, I'll turn it back over to Peter for a look ahead to 2010. Peter?

Thanks, Stewart. In 2010, well, we'll continue to focus on brand-building, reducing costs and generating cash.

In Canada, we began to implement against our commitment to include the brand portfolio with the launches of Rickard's Dark, Molson M and Molson Canadian 67, a low-calorie option for consumers. We have seen favorable volume strength in the latter part of the fourth quarter as a result.

This focus has continued into 2010 with the first quarter launch of Keystone Light and Keystone Lager into the Ontario and Western regions, as well as a redesign of our Carling packaging to reflect the visual appeal of the biggest beer brand in the UK.

Both of these portfolio enhancements leverage our global brand-set and are designed to strengthen our value offerings in the Canada regions, where we have faced significant challenges, specifically from the smaller brewers who have been the market share beneficiaries for the past several years.

In the US, we are investing behind our brands, which we demonstrated late last year, with our stepped up advertising for MGD 64 and national TV advertising for Blue Moon. We believe we have the right positioning for our brands and we are investing aggressively in big ideas in marketing and innovation to bring them to life. You'll see it in this spring with Miller Light and Coors Light as we roll out home draught. You'll see it as we expand distribution of the Miller Light aluminum pint and later this year, introduce Coors Light aluminium pint.

We also plan to roll out Blue Moon variety packs and introduce a new advertising campaign for Keystone Light and start a big push for Miller High Life Light. Finally, you will see stepped up investment behind MGD 64, as we prepare for some new competition in the ultra light beer market.

In the UK, the business is now on much firmer footing and has made substantial progress in improving profitability. During 2010, we expect incremental benefits to accrue from our Cobra brand, which we will be brewing during the year.

We're also in the process of implementing a new enterprise information system in the fall of 2010, and while we expect moderate implementation costs in the near term, this system will help drive efficiency in future years. You will recall, that we closed our UK-defined benefit pension plan in April 2009 with a view to minimizing future risk and exposure. Despite a recent improvement in the global economic outlook, pension-related interest rates have fallen to historic lows and equity values remain below peak levels of two years ago. As a result, we expect our 2010 UK pension expense to be approximately GBP20 million higher than -- GBP20 million higher than 2009. We do not expect this deterioration in funded status to have an impact on UK cash contributions in 2010.

Following are the most recent volume trends for each of our businesses early in the first quarter. In Canada, our sales-to-retail in January decreased at low single-digit rates, driven by continued weak economic conditions. In the first five weeks of the first quarter, our UK STRs decreased at a double-digit rate, impacted by the coldest January in more than two decades. In the US for January, Molson -- Miller Coors -- trading-day adjusted STRs declined at a high single-digit rate. It is important to note that after adjusting for the shift in the Super Bowl into February and the impact of the prior-year price increase in Puerto Rico, January STR trends were in in line with the fourth quarter. As always, please keep in mind that these numbers represent only a very small portion of the first quarter and trends could change in the weeks ahead.

In the areas of cost outlook by business. In Canada, we currently expect our 2010 cost of goods sold per hectoliter to decrease at a low-single-digit rate as we anticipate that cost inflation will be more than offset by continued delivery of RFP savings.

We expect 2010 cost of goods per hectoliter in the UK to increase at a mid-single-digit rate in local currency. Drivers include a shift in our sales mix towards high -- excuse me -- towards high-cost off-premise channel and product mix reflecting Cobra and draught Magnus volume. We expect cost of goods comparisons to be more challenging in the first half of the year than in the second.

In the US, Miller Coors delivered $250 million in synergies in 2009, bringing the total to $273 million since the beginning of operations in July 2008. The US team now expects to achieve $450 million of cumulative annual synergies by the end of 2010. We expect US cost per hectoliter to continue to increase early in the year and moderate in the second half of the year and these expectations are of course, highly dependent on what we see in commodity pricing and overall industry volume.

So, to summarize our discussion today, our fourth quarter and full-year 2009 results show the effect of weak industry volume along with continued cost inflation in the US and the UK, and increased brand-building investment in Canada. Most encouraging for the future, we grew or held net pricing and market share in both the US and Canada in the fourth quarter, and in the UK we drove positive pricing margins and profit on the back of Carling's brand strength.

Looking to 2010, we expect volume to remain challenging, especially in the first half, but we're focused on continuing to establish a strong brand base to our business to ensure -- that ensures we not only manage the current market, but that we take full advantage of the revenue upsides when momentum improves.

Now, before we start the Q&A portion of this call, a quick comment. Our prepared remarks will be on our website for your reference within a couple of hours this afternoon. Also, at 2:00 PM Eastern time today, our Investor Relations team, led by Dave Dunnewald, will host a follow-up conference call, which is essentially a working session for analysts and investors who have additional question regarding our quarter results. That call will also be available for you to hear via webcast on our website. So, at this point, Devon we can open it up for questions. Thank you.

(Operator Instructions). One moment for our first question. Our first question comes from Judy Hong of Goldman Sachs.

Thank, good morning, everyone.

Hi, Judy.

I guess my first question is on Canada and I'm wondering if you can give us some perspective on what the competitive dynamics look like in that market. Obviously we have seen your share improve in that market after some softness earlier in 2009 and I'm wondering whether there has been any changes to the competitive situation, so if you can update on that is my first question?

I will let Dave give you the detail on that. Sorry, Dave go on.

I was going to say, Judy, it's Dave Perkins. During Q4, we didn't see any meaningful change from the activity that we saw in Q3, so I would say there's stability there. We continue to have closed our meaningful price gaps, as we did through the second half, satisfied with where we're at, and so overall I would say reasonable stability from Q3.

Obviously, during the first quarter of 2010, if you see that same level of pricing activity, that will cause us some year-over-year comparison challenges related to pricing because of prior year, but I would say overall feeling stable and satisfied with where we find ourselves.

Okay. And then Stewart, the free cash flow generation that you saw in 2009, clearly exceeding your guidance of $575 million underlying, so can you give us what the delta was in terms of what drove that outperformance, and then how we should think about that number as we look out for 2010?

Yes, Judy, really, two big drivers for the outperformance, one was related to obviously our higher earnings year-over-year. The second piece was related to a slightly lower CapEx plus obviously some benefits coming from asset sales.

I think if you look at where we sit right now, we have got about $700 million in cash. This is a business that working capital-wise would take somewhere around $300 million to (inaudible). We are at the moment in a cash usage period of the year, and it's not obviously until we get into the second, and particularly the third quarter that we start to really generate cash, and at the same time, we do have a couple of opportunities to look at in terms of our balance sheet, specifically our liabilities, as it relates to the Brazilian tax credits.

Also, we later this year will have some debt maturing, and something that you will see in our 10-K is that we have a very large pension liability as a result of reduced discount rates, so you are looking at pension liabilities of somewhere in the almost $900 million range. So, we have got some fairly big items out there on the balance sheet.

Clearly as we move in to the back half of the year and we get to the cash generation phase of the year, we will have a little bit more flexibility to look at other alternatives which we have highlighted in the past which would include obviously growing our business and sharing some of that cash with shareholders.

Okay. And then Peter, just from a strategic perspective, we're in an environment where all of your three markets are seeing an industry volume decline, so if trends really don't get better anytime soon, do you think there is maybe a greater urgency to look at some of the more growth opportunities outside of these markets, whether it's an organic basis, or, looking at stream opportunities from an acquisition or M&A perspective?

We have been pretty consistent on this Judy. We are investing, not heavily, but we are investing in new markets and I mentioned the appointment of Kandy earlier. So, we are actually going into new markets as we speak with Coors Light, but that's not on an acquisition basis.

Our belief is that we can still work our businesses that we have got pretty effectively, and we will certainly not at this moment go for a heavy investment in any market that we don't really have the skill set to work in, and we don't yet feel we have that skill, it is something we are building up internally, but we're not there yet.

Okay. Thank you.

Thank you. Our next question comes from [Kaumil Gajrawala] of UBS.

Hi, guys.

Hi, Kaumil.

When we think about the new Canadian portfolio, could you give us a bit of the read of what your picture of success is now in Canada? Your results are a bit better than they were last quarter, but, if you could maybe give us a little bit context on volume or pricing or what you look at as the long-term goals for that market.

Yes, what we're working towards is really a brand portfolio that covers the broad spectrum of consumer occasions, so because we're not able to say with certainty what the trends across segments will be, I think it's important to have a portfolio that can deal with the movements we see going on these days. If you look at the super premium imports, we are well lined up with Corona, Heineken, and MGD. You think of about premiums domestic, we have the Rickards family, the addition of Rickards Dark is being well received. That is a strong brand for us.

The growth in the micro area, really gets covered for us with (inaudible) now moving towards Granville Island, which allows us to participate there.

Premium, which is really the significant segment in Canada, between Coors Light and Canadian, and now Molson M and Molson Canadian 67, we feel well positioned across consumer needs that we are seeing there. And then in value, we have recently made some packaging changes on Carling, which is being well received, but just as importantly we just introduced Keystone into Ontario and the Western markets, and that will enable us to play in the value segment.

So, as we look at our business overall in Canada, our strength is in the mainstream premium and the areas of development opportunity for us are at the top-end and in the value segment. The moves that we have made recently around our portfolio, whether through acquisition or innovation, have really helped line us up nicely against those segments. So, success for me looks like building our developments in above-premium and value while maintaining our strength in mainstream premium.

Got it. And then one more follow up on Canada, with the deconsolidation of the beer stores will that change the pricing dynamic at all in that market?

No. No, that would have no implication to that.

Okay. Great. Thank you.

Thank you. Our next question comes from John Faucher of JPMorgan.

Yes, thank you very much. I wanted to follow up on Canada, if I remembered correctly, you started off the fourth quarter relatively weakly and then rebounded, it appears, pretty dramatically, given the fourth quarter STR number, to the point where you must have been positive, potentially as you exited the quarter. So, I guess the question is, as we look at the weakness sequentially, I'm assuming in January, is there anything to that? Is that noise, has something gotten a little bit worse as we entered into the first quarter of the year, or it is something that we really shouldn't pay that much attention to? Thanks. And also what caused things to get better as we went through the fourth quarter? Thank you.

Let me start with the second question. What caused things to get better for us through the final quarter was really the innovation agenda and price competitiveness. So, we have been -- although it's early days on innovation, we're very pleased with what we're seeing there in terms of volume and share delivery, as well as obviously, the strategic strengthening of our brand portfolio.

As we look at January, I assume you're referring to the low single-digit volume decline, and we believe that is fully attributable to economy as opposed to anything that's happening within our business specifically if that answers your question.

So -- it does, I guess. But, given the fact that the economy was probably bad in the fourth quarter, it sounds like it is more noise than anything else? In terms of looking at how you exited the year versus how you started it. It sounds like it is just a bit of normal volatility, is that fair?

Yes, I think that is fair. I mean, we do see ups and downs in the industry, you'll remember, October was a difficult one.

Yes.

You go through all of 2009, you'll see several months that bounced around quite significantly, so I'm certainly not reading anything more than the normal volatility into where we are currently.

Okay. Great. Thank you very much.

Thank you. (Operator Instructions). Our next question comes from Carlos Laboy of Credit Suisse.

Good morning, everyone.

Hi, Carlos.

Hi. You referenced fixed cost absorption in the US in one of the releases. Do you have flexibility to scale back production capacity? Is that a consideration at this point? How are you thinking about that?

Peter, do you want to pick that one up?

Yes, excuse me, just coming off of mute here. I think the thing to remember about our capacity utilization is that we'll be full out starting the end of March through July, Carlos, because if you look at last year, we actually chased volume most of the year. So, our utilization rates will be great during the peak. What we have to prepare for is more flexibility on the shoulders. That's where we get deleveraged, that's where soft overall market volumes make us most vulnerable and that's what showed up in the fourth quarter.

So, are there ways to anticipate that better for next year than this year? I think there are, yes. We look at the plants that give us the most flex and the plant that gives us the most flex in our system today is Golden, but that's a decision we have to be prepared to take a really good look at come midsummer.

Do you see opportunity, maybe do more in Canada?

Not in the short-term. Just the pragmatics of cross-border costs, tariffs, et cetera, doesn't look to be a opportunistic short-term play. Perhaps in the longer term, that's something that would be on the game plan for North America, but, again, you are dealing with a much different scale and breweries and much different tax and tariff realities.

Thank you.

Thank you. (Operator Instructions). Our next question comes from Mark Schwartzberg of Stifel Nicolaus.

Yes, thanks. Hi, guys. Couple of technical questions, I guess. Could you repeat the corporate MG&A somebody, Stewart? What was your expectation for 2010?

Corporate MG&A for 2010, we had $180 million. That includes the international piece.

Got it. And then with Brazil, we have been hearing about that for a while, what is your best guess of when that gets resolved?

Yes, we don't have a specific date for that, Mark. We think we have got a good number that sits on our balance sheet as our best guide. We have ongoing discussions with them, sir, as it relates to this. The regulatory process has also been underway. There are a few moving parts. We're actively working on bringing it to resolution, but I don't have a date to share with you.

Great. Lastly, Dave, follow-up toe John's question about the volatility and the month-by-month volumes in Canada. Can you talk a little bit about innovation, how many points of growth you got from that in the fourth quarter? And is it right to think that that growth moderated in the month of January? Just trying to think -- trying to understand what the underlying trend for your business is.

Yes, it would be -- I wouldn't want to split out the growth that we got from innovation, just for competitive reasons, but I would say that innovation was a meaningful contributor, but the underlying trends on the business, we continued to see growth with Coors Light. With Rickards. We saw growth with our imports, the micros, and obviously through the innovation. Where we continued to see difficulties was Molson Canadian was a mid-single-digit decline, somewhat moderated from the first half, which is good news when you think of potential cannibalization issues, and other Molson trademark brands, that being X and Dry, primarily would have been high-single-digit declines. So, overall innovation played an important role for us, but the base business is still certainly the bulk of it.

How would you characterize it's role in January versus the quarter? Did it have a similarly, quote, meaningful impact?

Yes, I wouldn't characterize it as appreciably different than we saw through the last half of Q4 when those brands were in full effect.

Got it. Great. Thank you, guys.

Thank you. Our next question comes from -- excuse me if I pronounce this wrong [Ragabum Salvaratim] of Main First.

Hi, good morning. Just a question regarding the UK and competitive environment. You have obviously raised prices quite significantly in quarter four. What have you seen from your competitors? And I know you alluded to the fact that the poor weather in January lead to large drop in volumes. Was that also perhaps due to the large price increases we have seen?

Mark, do you want to pick that one up?

Yes, happy to do that. I think it's important to look at the context here. We have now had twelve quarters of price increase and certainly over the last five quarters our price increases have been in the double-digit range. Some of that by mix, some of it through our net selling price. You have got to remember that not all of those price increases find their way through to the retail level, so some of them are renegotiations with our major customers or have been absorbed by our customers. So, we have been pretty, I think consistent and resolute with the need in a shrinking market to try and grow value ahead of volume. I don't really want to comment on anything we are seeing in the marketplace from a competitive perspective. Pricing at retail continues to remain very, very competitive, because our customers remain very, very competitive with one another.

Clearly as we have come into January, things have been tough across retail and total. It's just been announced today that the retail industry in the UK had it's worst (inaudible) for fifteen years, so suddenly the two weeks of very, very bad weather has affected all of us. I wouldn't read too much into January or December in the last week or two, we're starting to see it rebound.

Thank you.

Thank you. Our next question comes from John Faucher of JPMorgan.

Yes, actually just a follow-up on a question from before, on Judy's question about cash flow. Did you provide cash flow guidance for 2010? I didn't get it. So, if you can give us an idea what the order of magnitude is going to be there. Thanks?

Thanks for that question. We have got given guidance yet. We expect that in three weeks at our Analysts Meeting in New York that we will give you some more clarity then.

Okay. Cool.

Thank you. I'm showing no further questions at this time, sir.

Okay. That's perfect timing. Thanks very much, everybody. Thanks -- sorry about the glitch early on, but thanks for hanging in there. And thanks for your interest in our Company and we'll see a lot of you I'm sure in New York in a few weeks time. Thanks a lot. Thank you, Devan.

Thank you. Ladies and gentlemen, thank you all for your participation in today's conference. This concludes your presentation. You may now disconnect.