Molson Coors Beverage Co (TAP) 2016 Q3 法說會逐字稿

Good morning and welcome to the Molson Coors Brewing Company third-quarter 2016 earnings follow-up session conference call.

(Operator Instructions)

I will now turn the call over to Dave Dunnewald, Local Vice President of Investor Relations for Molson Coors. Please go ahead, sir.

Thank you, Laura, and good morning everyone. On behalf of Molson Coors Brewing Company, thank you for joining us today for our third quarter 2016 follow-up earnings conference call. Our goal on this call is to address as many additional earnings-related questions as possible following our regular earnings conference call with Mark Hunter, Mauricio Restrepo, and our business unit CEOs earlier today.

We will use a standard question-and-answer format and we anticipate that the call will last less than an hour. Before we begin, I will paraphrase our Safe Harbor language. Some of our discussions today may include forward-looking statements.

Actual results could differ materially from what we project today so please refer to our most recent 10-K and 10-Q filings for a more complete description of factors that could affect these projections. We do not undertake to publicly update forward-looking statements, whether as a result of new information, future events, or otherwise. You should not place undue reliance on forward-looking statements, which speak only as of the date they are made.

Regarding any non-US GAAP measures that we may discuss during the call, and from time to time by our executives in discussing our Company's performance, please visit our website, www.molsoncoors.com and click on the financial reporting tab of the Investor Relations page for a reconciliation of these measures to the nearest US GAAP results.

Also, unless otherwise indicated, all financial results we discuss are versus the comparable prior year period and in US dollars. So let's get started with an introduction of the team with me on the call today. First of all we have Mauricio Restrepo, CFO, Kevin Kim, Investor Relations senior manager, Alex Going, finance forecasting manager, Eric Michelson, technical accounting senior manager, Ryan Table, Controller, Mike Rumley, Treasurer, and Mark Saks, VP of Tax.

Regarding quarterly results, as Mark Hunter mentioned on our regular earnings call this morning, in the third quarter we continued to focus on our first choice ambition and on building a stronger, broader and more premium brand portfolio, underpinned by incremental sales and marketing investments as we have discussed all year.

Business highlights for the quarter and year-to-date included increasing net sales revenue per hectoliter on a constant currency basis in all of our businesses for the quarter and for the year-to-date. Increased investments in our brands globally, at Coors Light and Miller Lite again gained share in the US premium light segment for the quarter, including the highest segment share gain in three years for Coors Light.

A 1.2% global volume growth for Coors Light year-to-date, with growth of more than 14% year-to-date outside of North America. Fast growth innovations in key markets including Henry's Hard Sodas in the US and Mad Jack in Canada. And global growth year-to-date in above premium.

For example, Doom Bar and other Sharp's craft brands in the UK, Creemore Springs and Belgian Moon in Canada, and four newly acquired brewers in the US. And above premium also included strong growth by Staropramen across Europe outside of its home market, and cider volume increases with Rekorderlig in Europe and Strongbow in Canada.

On an overall basis, we continued to strengthen our business through improvements to our sales execution and revenue management capabilities, increased efficiency of our operations, and implementation of common global systems. This is a historic time in the evolution of Molson Coors.

Three weeks ago we completed our acquisition of the remaining 58% stake in the Miller Coors joint venture, along with the Miller global brand portfolio. We emerge as the world's third-largest brewer, bringing together Molson Coors, and MillerCoors into a bigger, better, organization.

As one company with an expanded portfolio of iconic brands, we intend to leverage our increased scale, resources and synergies, as well as combined commercial experience to accelerate our first choice agenda and deliver long-term shareholder value. On the earnings call early this morning, Mauricio also shared perspective regarding three new performance measures: transactions adjusted EPS, an all-in multi-year cost savings target, and an early view of our combined Company underlying free cash flow target for 2017.

In addition to any earnings related questions you may have, we would be happy to answer any questions you have regarding these new or updated performance metrics. And finally, for your reference please note that we have posted full-year 2015 and year-to-date 2016 pro forma financial statements on our website that give effect to the MillerCoors acquisition and the related financing as if those were completed on January 1, 2015.

With that is an introduction, I'd like to turn it over, or open it up for questions. Over to you, Laura.

(Operator Instructions)

Judy Hong, Goldman Sachs

Thank you. Hi, everyone. This is the long-anticipated follow-up call, where we get clarification on the free cash flow guidance? I guess what everyone is trying to reconcile, is you've got $6.11 of transaction-adjusted EPS in 2015 that translates to roughly $1.32 billion? In terms of the implied cash flow number and, Mauricio, you were guiding to $1.1 billion?

It seems like there's a pretty big step down, even after adjusting for cash restructuring charge? So, can you just help us reconcile how we go from 2015 to 2017 in terms of free cash flow?

Yes. Let's see. Let me give you some headlines around that. I don't think I'll be able to reconcile it point by point, Judy, but I would say is first of all, we are really dealing with two different measures here. And a sense it's accrual accounting versus cash accounting.

Said more directly, the free cash flow guidance of $1.1 billion, is truly a cash performance measure. The transaction-adjusted EPS number is not a cash performance measure. It actually starts with underlying book EPS and then makes two cash adjustments, two kinds of amortization or cash benefits.

They really are not directly comparable. The type of differences that you'd see between those two numbers would be things like, pension contributions, cash versus expense. So obviously the pension cash would be directly reflected in the free cash flow number, but the pension expense number would be reflected in the underlying EPS which is the base for the transaction-adjusted EPS.

Another example would be capital expenditures versus depreciation and amortization. Third example would be cash taxes versus book taxes. And we've talked about the more than $275 million of cash tax benefits associated with the transaction, but we have not provided guidance on other cash taxes or on book taxes.

Now, those are included in the pro formas, but you don't have a specific view from a cash standpoint for the free cash flow. And then, finally, capital expenditures needed to capture synergies. As Mauricio mentioned on the earlier call, we do anticipate some incremental CapEx related to capturing synergies.

Those will tend to be loaded more toward the first two years of the three-year timeframe that we talked about as far as cost savings go. So that then we can capture the synergies, again, as he mentioned predominantly in years 2 and 3 for those.

Although I would hasten to mention that the other cost savings we mentioned, non synergies in other words, actually are skewed more toward years 1 and 2 of the three-year time period. Does that give you at least some headlines of why there might be some differences between those two numbers?

So if I can maybe follow-up? So you would start in 2015 to $4.64 of underlying booked EPS as the starting point? And then you would add the $2.75 of the cash tax benefit?

Right. The $4.64 per share is a pro forma full-year 2015 number. And then, yes, we would add back the transaction related amortization. Call it a non-cash item. Add that back, plus cash tax benefits of $275 million.

So that gets to $1.3 billion roughly? And what do we take out from there?

Sorry, this is Mauricio. Again, remember, when you were talking to the $4.64 and then you add those two items to get back to $6.11, you're not talking about cash flow EPS. You're not talking about cash flow per share. You're talking about an EPS per share that's been adjusted by those two items.

If that gets you to $1.3 billion, well then $1.3 billion is not a cash flow number. It would just be an earnings transaction-adjusted number. But it's not a cash flow number. The $1.1 billion is a cash flow number.

Yes, these are really apples and oranges. To bridge this, Judy, you would really need to know what our pension cash contributions would be, what the CapEx is going to be. Clearly, we're going to have some incremental CapEx in the early years here as well as things like cash taxes that I mentioned earlier.

Yes -- what I was going to add is if you conceptually think about it, the starting point for both numbers is obviously the same because you start from operating income. But then operating income, what you do is, when you want to calculate your cash flow number, then you have to add back all the non-cash, the depreciation, your CapEx, et cetera, et cetera, et cetera, to get you to a cash flow number.

To get to the earnings number, you go down the P&L and you get to an earnings number. So those two aren't comparable.

Okay. So we will always see the similar gap between the transaction-adjusted EPS number versus the actual free cash flow number? So the 2017 is the new norm from a free cash flow perspective, and we should think about rolling off of that going forward? Or does the 2017 free cash flow number depressed by either one time cash outflow items or underlying operating income being significantly lower year over year?

Yes. Thanks, Judy. Two points on that. One, yes, there are some, or there will be some one-time cash use items in 2017. We've highlighted CapEx to capture synergies as an example.

But second of all, the factors that essentially drive the difference between a free cash flow number and a transaction-adjusted EPS number will move over time. So I can't tell you whether or not the gap will stay similar to that in the future. What I can say is we do have some one-time cash uses in 2017.

Okay. That's fair, but the issue is, we're looking at your transaction-adjusted EPS number to value or at least get a good feel for your underlying earnings power, but if there is a big gap that exists between your EPS versus free cash flow, the transaction-adjusted EPS number becomes less meaningful, I think, on people's views?

So I think that's sort of the issue that we're trying to reconcile with -- is this the new norm, or over time we will get to an underlying free cash flow number that more resembles the transaction-adjusted number that we can then assess your underlying free cash flow generation?

Yes. And I think without some of the one time cash uses in 2017, there may be more consistency between the two but I'm not going to forecast those for you and whether they will increase or decrease at any particular timeframe. We don't give earnings guidance.

And again, and this is Mauricio, Judy, let me just reemphasize. Definitely the one time effect of the 2017 CapEx required to deliver the synergies, well, that's something that's not going to be recurring so that's going to obviously increase the free cash flow going forward if you assume all else being equal from a 2017 base.

And then going forward, obviously, all of the accounting and accrual adjustments versus cash adjustments. The idea of showing the transaction-adjusted EPS was simply to give a reflection of the earnings capability of the business. Once you take that underlying earnings per share and you adjust it for two items that are not evident when you go back in time and look at the pro forma.

Of course going forward, the $275 million of cash tax benefit will be hitting your earnings. It's just that as we went back, and we were looking at the earnings in 2015, that's one adjustment we had to make. So, at the end of the day, again, one is an accrual and an accounting measure and the other one is a cash flow measure.

Now, in that cash flow of the $1.1 billion, you will have the impact of the additional interest expense, of the additional taxes that are being paid, et cetera.

Brian, did you have something to add as well?

Hi, Judy, its Brian Tabolt, Controller here at Molson Coors. The one thing I wanted to clarify, when you're looking at the transaction-adjusted EPS, if you recall when we announced the acquisition last year, one of the key things that we indicated is that the cash tax benefits of now the $275 million, that will not impact our EPS on a go forward basis.

So that's why, one of the reasons why we wanted to give the transaction-adjusted EPS. To give you visibility of those tax benefits that otherwise won't come into the competition of our EPS number.

And they provide real value to the Company and our shareholders. Go ahead, Judy.

Okay. I think it's a little clearer. And just on the transaction-adjusted EPS? The $6.11 now assumes interest expense of $250 million, that's lower than what you had indicated at the September conference? Is that one difference where now the interest expense is the $250 million, and that's what we should be using going forward from an interest rate perspective?

Yes. That's right. If you look at the pro formas on the website you will see that there's transaction related interest expense of $250 million that are included in the pro formas. And that is a very different number from the interest expense that we gave you in the May 12 pro formas, which is the last time we filed them. And that's what I was referring to earlier on the earlier call when I mentioned the bridge financing.

However, compared to the Boston Conference pro forma number of, what was that, $572 million, as I think you mentioned, Judy, there is a $0.39 change. And actually that was due to three main factors. One of them is the increase in the cash tax benefits that we're seeing. That's about $0.12.

Were also seen an adjustment to both amortization and depreciation, but as you know we strip out book amortization for transaction-adjusted EPS. However, depreciation we do not strip out and that actually was a $0.10 improvement via the purchase accounting work that the accounting team has been doing here.

And then the rest of the difference is related to other purchase accounting adjustments, including valuation of assets and liabilities, things like pension and other property, plant and equipment. They will continue to do their work and will actually in all likelihood see additional adjustments, albeit they may be a bit smaller but additional adjustments in future quarters, until in fact, the opening balance sheet is locked down one year from the close of the transaction.

Got it. Okay. And lastly just on the $550 million all-in cost savings? The phasing of that it sounds to me like it's evenly spread out over three years, with the first part being more skewed to the legacy cost savings and then year two and three more from the cost synergies perspective? Is that the understanding?

Well, what you're saying is not inconsistent with what we said on the earlier call, which is that, right, the synergies are loaded more or skewed a bit more toward years two and three. And the pre-existing cost programs are skewed more toward years one and two. And they are roughly equal size between those two buckets.

So it's one third, one third, one third in terms of the phasing of the total number?

I'm not going to narrow down the specifics by year but, as I say, what you said earlier is not inconsistent with what we said on the earlier call.

Okay. I'll get back into queue. Thank you.

Thanks, Judy. Appreciate the question.

Priya [Arigutta], Barclays

Great. Thank you so much for the question. I was hoping you could help us to understand how we should think about your deleveraging plan? In terms of when we should or what sort of level we should think about when determining when you could potentially restart your dividend growth or even maybe consider some share buybacks?

Sure. Let me give some headlines and then we'll see whether Mauricio or Mike want to add some color to that. Our deleveraging plan, obviously that is our primary focus for capital allocation over the next 2-3 years -- debt paydown. We want to reduce our debt levels in order to maintain our firm commitment to investment-grade ratings. And we have a specific plan with the rating agencies to maintain that investment-grade rating.

What I would say as far as specific leverage ratios go, we have not provided one of those publicly. What we have said is that our goal over time is to get to solid investment-grade ratings, which are roughly BBB even. Sorry, there was one other thing, Priya, you asked about dividends and buybacks.

The dividends, the exact wording that we've used around that is that we will consider our dividend policy again. Right now it's being held even on a per share basis per quarter as we pay down debt. And when debt paydown is well underway, then we've said that we will be willing to revisit our dividend policy.

Buybacks, we've said that we're not going to consider those until our leverage ratios are considerably lower than they are right now. We haven't put a specific timeframe around either one of those.

So, how should we think about debt paydown being well underway? I think that's kind of what I'm trying to understand?

So, I can't give you a specific outlook on that. What I can't say is that, for example, last time we did a substantial transaction, that would be the Staropramen transaction in 2012, in that instance we had roughly the same language around buybacks and dividends.

And if I recall correctly, about a year and a half after we completed the transaction we actually did increase the dividend and put in place a dividend payout ratio. And then buybacks came later, about three years, I believe, later essentially.

Yes. And in that interim time, we experienced a double upgrade in our credit from S&P. It all went hand-in-hand with regards to the pace at which we were deleveraging versus when we were evaluating an increase in our dividend. And share buybacks.

That's a good add from Mike Rumley, Treasurer. Yes, as we do today, back in 2012 we had a timeline and a schedule and a commitment with our rating agencies around debt paydown and deleverage. And we exceeded that timeframe and to Mike's point, received a double upgrade, for example from S&P in a year or two after the transaction.

Is fair to think about the deleveraging tracks that S&P and Moody's have put out as a base scenario that we should view as possible in terms of how to think about your deleveraging?

What I would say is that we have specific arrangements and commitments with the rating agencies and we will let their communications stand on their own. From our standpoint, we intend and we do have a firm commitment to investment-grade ratings, and so we obviously understand how important that is and we intend to meet this commitments.

Okay. Thank you.

Thanks, Priya.

Mark Swartzberg, Stifel Nicolaus

Good morning again, guys. First, a mea culpa? That $1.1 billion you given us for free cash flow next year is not clear to me? That, as you said, has one-time costs and CapEx, whereas transaction-adjusted EPS doesn't? So I was mixing apples and oranges so I wanted to acknowledge that?

Understood. Appreciate the question there.

This is Mauricio. I want to -- again, it is very, very important for us to ensure that this is absolutely clear. So both the transaction-adjusted EPS and the free cash flow number that we gave you, both of those contain these one-time items or these adjustments that have to be done because of purchase accounting.

It's just that the $6.11 per share is an accounting number based on accrual. It's based on the P&L. And the $1.1 billion is a cash flow number. So we start from operating income and we make all sorts of adjustments to that number to reflect the actual cash inflows and outflows.

So you get to a number of cash flow which, as you know, the cash flow number is not necessarily the same as the underlying earnings number. So the per share number of those two will not be the same.

Understood and appreciate that. And that's the heart of the matter. The way we're going to look at this stock is ultimately about the cash flow. So $1.1 billion, not that you've said this, but call it $1.3 billion when you add back these savings-related expenditures you were making.

My question is, can you point us to anything else, or is there anything else of any size that's one-time in nature, that's a cash expenditure, occurring in calendar 2017 that is in that $1.1 billion number? Because, again, this transaction-adjusted EPS, as much as we will all put it on [Facts Said] and First Call and so forth, is not going to determine how your stock is valued ultimately? It's the free cash flow.

Were trying to understand if there's anything else besides the money you're spending to get the $550 million in savings, the $350 million you are actually spending and cash out lay? Is there anything besides that in that $1.1 billion that you can call out to us, whether it's a pension contribution or something unusual in the way of working capital increases?

Is there anything else you can call out to us or is it indeed just your best guess on an underlying operations basis?

That's the billion dollar question -- yes (laughter). Well done. Actually, Mark, short answer is no. I can't provide any specifics but you will, and I'm not going to front run our annual guidance that we normally provide on our February earnings call. And so you may see some additional detail around that because that's what we're providing.

Not just cost guidance but also some of the CapEx guidance also, pension cash and expense plans for the year. Those types of things. At this point I think I would just leave it where I talked about earlier.

There are things like pensions, CapEx, depreciation -- versus depreciation, I should say -- that will come into play at least to some extent. But we're not going to provide any numbers around what that looks like. But you may get some additional clarity on the fourth-quarter call.

Fair enough. Great. Okay. That's what I was looking for. Thank you, guys.

Bryan Spillane, Bank of America

Good morning, everyone. Just a shift, some clarity or clarification on the $6.11 of transaction-adjusted EPS for 2015? The way I was looking at it, if I take the first three quarters of 2016, add the 4Q of 2015 to it, I get to a trailing 12 months of $6.36? And inside that number now, we have the capital structure and the cost of the capital structure is included in there?

The new effective tax rate for the NewCo? And what's not in there is whatever incremental costs there may be, related to the MillerCoors international and taking in the Miller brands? And then obviously whatever other underlying growth and-or whatever underlying savings there are?

We're just trying to bridge how we should think about the pieces to move going forward off of a base? Is that the right way to think about it or is there something else that needs to be included or excluded?

Yes. That's all I can think of except for one addition, if anyone around the table here can think of anything else, it also would not include the Miller international brands profit, whatever that looks like. And to your point, the costs as well.

And just to add one other element that's not included in that transaction-adjusted EPS is the deal related synergies.

Right, right, so we would effect it for underlying growth, what we think happens to synergies? And I guess in terms of the Miller brands there are two pieces? We don't see the profits but we don't see whatever incremental costs there may be associated with it?

Yes, that's right. And I think that the appropriate way to think about it. As we've said, essentially we are setting up, we have three different approaches to the Miller international brand in the existing areas, geographies, or in geographies where we have existing infrastructure like Canada and the UK.

It's pretty clear what we're going to do there where we have strong existing partnerships. That's relatively easy to sort out as well. And then on some of the new markets where we don't have infrastructure or existing partners, then, essentially, you are building a route to market, a supply chain and everything. So what that P&L looks like is something -- it's a work in progress.

And one other question related to free cash flow and more conceptually? Mauricio, is there anything about the two Companies having been separate and now merged that would create any potential working capital benefits? Or maybe to put it a different way, was there something about the way things were structured previously that made working capital less efficient? And maybe there is room for cash savings and working capital improvements going forward?

Thanks, let me give a couple of headlines and then Mauricio may have some additional texture around that. Only partly because I have a history. MillerCoors -- we have a pack model here. Molson Coors, MillerCoors doesn't strictly speaking have the pack model but they are getting it soon.

Gavin was one of the primary implementers and developers of that in Molson Coors. But they've had their own approach to return on invested capital and return on marketing investments and so forth. So there's not a dramatic difference there but we will do some alignment as with a lot of other pieces of the business.

There are also some relatively limited differences in working capital between the two Companies and as you can imagine we will be exploring any improvements we can make there. Mauricio, is there anything you would add to that?

The only thing I would add is to say, there's really three ways by which we can improve our free cash flow going forward. That's additional earnings obviously, improvements in working capital and then just a detailed evaluation of discretionary CapEx. Which we always do through our pack lens.

And with respect to working capital I don't think really that there was anything that wasn't there because the companies were separate. Nevertheless, and as Dave correctly points out, there's always room for improvement in working capital. We are looking at some specific initiatives, working very closely with the US team, with MillerCoors and hopefully there will be some interesting benefits coming out of that.

Can you give us a sense, just as a starting point, if you were to even benchmark it versus other companies or other peer companies -- is the working capital or cash conversion in the middle better, worse than what you see as you benchmark it?

Bryan, I guess I wouldn't answer that specifically but what I would say is we care deeply not only about debt paydown, but therefore free cash flow in cash available to pay down debt and so we do look at benchmarks. We do look at best practices. And we will address or go after any opportunities that we think are appropriate for our business. But, no, I wouldn't put a specific number on it.

Okay.

And the one thing that I would add to that is, it's not enough to simply -- I guess as you are looking at the numbers and comparing to other companies, it's not really enough to look at what companies do with respect to working capital. Because there's always a financial component to that. Especially if you think about your payables or your receivables.

You would have to be able to understand what the other side of the equation is. That it's not hitting your balance sheet, but actually hitting your P&L. In the sense that you may think, for example that in your the way you manage your payables, you're being very inefficient but that's not the complete picture until you understand what is the financial benefit that the company would be attaining in so doing.

And often times there is a trade-off between the length of terms and the cost of terms.

Okay. That's helpful. I will get back into queue. Thanks, guys.

Brett Cooper, Consumer Edge Research

Just quickly, we've been talking about cash flow? Is there something that has structurally changed in the business if you look at the past five years versus going forward in terms of productivity? Whether you start from operating income or start from net income? This isn't a 2017 question --(multiple speakers)

The ability to turn operating income, or pretax income, or net income, into cash flow is there -- and I'm not asking specifically to 2017, but if I'm thinking past five years, next five years, is there something that has changed in terms of being able to turn, if you start with operating income into cash flows?

One thing that comes to mind is the substantial improvement in our working capital that we've done since 2012. Particularly if you're just looking at, if you're looking at the P&L versus the cash flow statement. Amortization expense is very different today than what it was a few years ago. Obviously we're trying to help you with that with the transaction-adjusted EPS number.

Yes. And let me add something here that I'm hoping for all of you on the call will be useful in painting a mental picture of the cash flow. And this analysis I will do off the top of my head again. The back of the envelope analysis.

If you look historically at the capacity to generate free cash flow of the Molson Coors business, and then you look at the capacity to generate cash flow of the MillerCoors business and you put the two together historically and you say, okay, well, that roughly gives me between $1.3 billion, $1.4 billion.

Obviously you guys are looking and saying, Jesus, but these guys are reporting $1.1 billion, so what's happening there? Just back of the envelope analysis. You take the $1.3 billion, $1.4 billion, you add the $275 million of benefit that you're getting there. You're getting around $1.6 billion of cash generation.

But now we are paying $250 million per year more of interest so you have to deduct that from the $1.6 billion to get to $1.35 billion. Okay? And in addition you're paying more taxes because we own the other 58% of MillerCoors. So of your $1.35 billion, deduct another $200 million. That gives you about $1.15 billion.

There you go. That's roughly from a cash flow perspective how I would look at, how does the $1.1 billion compare to what should be the quote-unquote, normalized cash flow generation potential of the two separate businesses if you just added the two together.

Okay. Thank you.

(Operator Instructions)

Vivien Azor, Cowen and Company

Mauricio, that walk through that you just did I think was incredibly helpful and I think probably what everyone was looking for. Just to double-click on that, if we think about that math, and it would seem that from a 2015 pro forma free cash flow, how would that look?

They're in the --

Is it in the disclosure, we haven't gone through the whole thing yet?

Yes. And that's understandable. They are in those very detailed spreadsheets you will see on our website.

Okay. Perfect. Thank you for that. And then, Dave, a separate question? Beyond the cost savings, it seems pretty clear to me that the profit target in terms of getting local currency profits flat on a per hectoliter basis for Molson Coors international is off the table, given what's happening in India? But how do we think about that heading into 2017, please?

Yes, the MCI business has not, we've not said anything additional about MCI getting to flat profits this year beyond what we said on our last earnings call. Which is if you exclude the hard alcohol prohibition, which nobody expected, starting in April of this year as well as the FX since 2013 which we've been talking about for years, then the MCI businesses goal for 2016 was to get the profitability, excluding the Miller international brand. And we have not changed that guidance.

Okay. Perfect. Thank you very much.

Bharat Garg, Goldman Sachs. Your line has been opened. Is it possible your phone is on mute?

It's actually [Rudikarra Garg] on for Bharat. We have question on the tax rate, that you're saying you're paying higher taxes? Presumably MillerCoors was paying taxes by buying the rest of the operations, the free cash flow would not add higher taxes in the operations? Could you maybe clarify those extra taxes you're about to pay and actually would get some relief because of the higher leverage?

Yes. Thank you for the question. Actually, and I'm glad you asked that because it may not be obvious to a lot of folks. When we bought the other 58% of MillerCoors, that increases significantly our exposure in profits and cash flow, although we are really talking about profits here because of the book tax rate we're talking about.

Increases our exposure to the US business and call it industry, and corporate income tax rate which is among the highest in the world. And so because of the simple migration of pretax income in the direction of US exposure, that results in a higher average blended tax rate. Now, to start with though, on the 58% of the MillerCoors business that we are buying, we did not pay corporate income taxes on that portion.

SABMiller out of London paid whatever taxes were due on that via their situation. We pay taxes on the 42% of the MillerCoors portion that we owned. Now our income tax rate on average, we expect to be somewhat higher.

In fact the guidance has changed from 18% to 22% for 2016 without the transaction, to 25% to 28% in future years all else being equal, no changes in tax rates and those types of things. So, 25% to 28% on a longer-term basis including the other 58% of MillerCoors. So you can tell its several percentage points higher than what we have with the pre-existing shape of the business.

So if you look, Kevin reminded me, if you look at the pro forma tables on the website, you can see a pro forma tax rate of around 25% for the 2015 full-year pro forma numbers. There you go. The effective tax rate in the pro forma is in that 25% to 28% range we've been talking about.

Thank you.

You're welcome.

Judy Hong, Goldman Sachs

Thanks for taking the follow-up. The Miller international contribution, I understand will not incorporate any profit contributions but just in terms of volume and revenue, because I think you have given the 2014 numbers but just wanted to get a better sense of what the run rate is from a volume and revenue standpoint?

And then for Canada piece specifically, just given that you've got that extra volume going into that part of the business, do we actually assume better leverages from a margin perspective now that you can absorb more of the volume tier cost structure?

Yes. Good question, Judy. So Miller international volume we said is part of the transaction communication that was about 3.2 million hectoliters per year, and we have not changed that point of view. From a revenue standpoint we've never provided guidance because actually that would determine, or would be determined by the route to market of the brands in dozens of markets around the world.

So, for example, in a licensed market you have different revenue from a royalty market versus a wholly owned market -- the amount of revenue. So we have not provided a number on that one. I would put that in the bucket of To Be Determined, similar to some of the comments that Mark made on the earlier call today. From a Canada standpoint that is an interesting one.

When the brands were bought, the rights to the brands in Canada were bought from us a year and a half ago or so, all we said about the size of the Miller brands in Canada was mid single-digit percent of our Canada volume. We have not updated that and that would be subject to the performance of those brands over the last year and a half under SABMiller.

So, we will see what that looks like from a volume standpoint and would that provide additional leverage, specific to your question? We will see. We will see which brands will be produced locally versus imported or what. In other words, that will be one of the details that we will sort out with you over time.

Got it. Okay. All right. Thank you.

And one thing were not talking about the process, but Brian made a good point. We do have purchase price protection on the purchase of the Miller international brand, as they existed in the SAB system. The profit trailing 12 months EBITDA is less than $70 million for that 12 month time period, then there would be a purchase price adjustment that we would negotiate with ABI, and that is at a ratio of 11.3 times.

And this concludes our question-and-answer session. I would like to turn the conference back over to Dave Dunnewald for any closing remarks.

Great. Thanks, Laura. I think Mauricio had one additional comment and then we will close.

Thank you, Dave. Just as a final comment, and I think just going back to Vivien's question in terms of whether we have pro forma 2015 cash flows. In the pro forma you will find on our website, there is a lot of detail quarter by quarter since 2015, 2016. However, there is no pro forma 2015 cash flow that will tie to your $1.1 billion.

Nevertheless, because the information is there I want to just to make your life easier, you guys. It's an exercise that you can try to do yourselves in the sense that you know what the underlying free cash flow was for both businesses so the same exercise I did for 2017, you yourselves can do for 2015. Add the underlying free cash flows of both businesses with MillerCoors at 100% as well.

To that, you add the $275 million of annual tax benefits. From that, you deduct the $200 million of additional tax and the $250 million of additional interest. The only little piece that you wouldn't have is the CapEx that will be spent in 2017 to obtain the synergies. Other than that, the calculation is exactly the same -- so that's all I want to say, Dave.

Great. Thanks, Mauricio. In closing, I'd like to thank all of you for your interest in Molson Coors and for joining us today. If you have additional questions that we did not cover during our time today, please call Kevin Kim or me on our direct line or the main number here at Molson Coors which is 303-927-BEER, or 927-2337. Thank you again and have a great day.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.