Molson Coors Beverage Co (TAP) 2015 Q2 法說會逐字稿

Good afternoon and welcome to the Molson Coors Brewing Company second-quarter 2015 earnings follow-up session conference call. Before we begin I will 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 and 10-Q filings for a complete description of the 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. 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 may be discussed during the call and from time to time by the Company's executives in discussing the Company's performance, please visit the Company's website at www.molsoncoors.com and click on the financial reporting tab of the Investor Relations page for a reconciliation of these measures the nearest US GAAP results. Also, unless otherwise indicated, all financial results the Company discusses are versus the comparable prior-year period and in US dollars. The Company also encourages investors to read SABMiller, PLC news releases, and trading statements that include financial and other information relating to the MillerCoors joint venture. I will now turn the call over to Dave Dunnewald, Global Vice President of Investor Relations for Molson Coors.

Thank you, Steven. Hello, everyone, and welcome. On behalf of Molson Coors Brewing Company thank you for joining us today for our second-quarter 2015 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, Gavin Hattersley 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. Let's get started with an introduction to the team with me on the call this morning. We have Kevin Kim, Investor Relations Manger; Ashley Walker, Finance Forecasting Senior Manager; Brian Tabolt, Controller. We have Jason Charpentier, Director of Treasury, and Steve Mack, Director of Tax.

Regarding quarterly results, this morning as Mark Hunter mentioned on our regular earnings call this morning, our second-quarter report reflects continued volume pressure in our largest markets, significant impact from foreign currency movements, a higher tax rate, and terminations of business contracts in the UK and Canada. We expect these headwinds to continue in the balance of this year, along with a significant step up in our brand investments across all of our businesses which we expect to negatively impact our short-term profit but provide longer-term benefits to our financial performance. Going forward we will continue to implement our strategy of driving brand-led profit growth, meaningful cash generation, and disciplined cash and capital allocation. Over time we expect this strategy will help us unlock opportunities for growth in Molson Coors Brewing Company's top line, bottom line, and long-term shareholder value. So with that by way of an introduction, I would like to open it up for your questions. So over to you, Steven.

Thank you.

(Operator Instructions)

Thank you. Our first question comes from the line of Ian Shackleton with Nomura. Your line is open.

Yes, good afternoon I think it is now, Dave and team. I'd like to ask a few questions around the special items in particular because there are quite a few of them.

And if we start with the Alton charge, is that everything in Alton? Is that the complete write off and all the redundancies, or is there more to come later?

Yes, let's just say that the brewery is closed. We had some charges associated with that. We -- how do you say, brewing operations are complex operations with lots of things involved in shutting them down, including people and equipment and so on.

So we may have additional charges in the future. But I am not going to try to estimate those, if any, at this point.

Okay. Thanks, Dave. And if we think about the Heineken payment, the 19.4%, if I remember right I thought you were going to be phasing that in over the remaining -- the period of the original contract.

Was I wrong? Is this really settling the whole contract in one go from an accounting point of view?

So from an accounting point of view we had a contract, brewing contract with Heineken and we've in essence accelerated the termination of the contract. And we were -- Heineken paid us some money for the privilege of doing that.

So you got the money and this is all sort of P&L effect that we're going to see from this? We are not going to see any more in Q3 or Q4?

Yes, Ian, it's Brian Tabolt. The recognition event is at the completion of the transition period. So the payment was dependent upon us completing the successful transition of continued arrangement with Heineken.

Now that we have completed that in the second quarter that is when we recognize it. There is nothing further to recognize relative to that arrangement.

Excellent. Thanks for clarifying that. And I asked the call in the start, the prominent call earlier, it's a very big number to get back with distribution rights what is not a very large brand at the moment.

Is there something else involved in that payment? Can you help me understand a little bit why it's such a big number?

Yes. We see a great deal of potential in the Staropramen brand and it's a high-end brand with a lot of great potential in our -- potential for our business in the UK.

As Mark and Gavin would say we ran that through our pack model and it's a very attractive investment, not just from a brand standpoint, but from a financial standpoint for our Company. So, yes, it's an appropriate investment for our shareholders.

Okay. Thank you. Just finally on the China front. You had a restructuring in China.

I am just wondering, I know you have the JV structure. And I think there was also separate Coors Light distribution. What has actually happened there?

Thanks for help clarifying that. The joint venture we closed last year or the year before. I know Brian would remember.

We no longer have a joint venture in China. But we did retain -- and that was in 2012 that we closed the joint venture.

But we retained a meaningful Coors Light business in particular, some other small brands but basically it's a Coors Light business, in China with a sales staff and so forth. And that's the remaining Coors Light business that we are in the process of substantially restructuring.

And is that totally your own business, or are you using somebody else to help distribute that? Is that 100% owned?

Well, before the restructuring, the Coors Light business in China was essentially all run by us. As I said, we had our own distribution and sales folks in China.

The new model going forward post-restructure is likely to -- well A, it will have a lot fewer people and B, it will likely have a partner involved or perhaps be a royalty or export arrangement. We don't know. But either way it will be lower cost and our intent is higher performance over time.

Great. Thanks for qualifying that. The last point for me. I think in the last call we talked a bit around the changes in the Ontario tax regime and the increase in the retail selling points, but also the fact that taxes will be going up.

Is there any more clarity on that? Has anything more happened on that?

I will get to that in a second. One thing that I should mention around China as well, the existing business that we have really has no bricks and mortar, no hard assets associated with it.

We did not own any breweries. The product there was contract brewed.

So it's a relative -- it's not an asset-heavy operation that we are restructuring. Then as far as asset reviews in the review panel in Ontario that you asked about they, as you probably know, came forward with their preliminary framework a few months ago and there are no real updates from that except that the timeline was to have more definitive, say, agreements and structures in place by the end of this year. That's about all we have at this point.

Very good. Dave, thanks for that.

Thanks, Ian. Really appreciate it.

Thank you. Your next question comes from the line of Vivien Azer, Cowen and Company. Your line is open.

Hi, Dave, team. How's it going?

Great. How are you?

Good, thank you. So just to follow up on Ian's question about the Staropramen in the UK, did I hear it correctly? Could you reiterate what the commentary was on the 350,000 hectoliters, please, in 2016?

Thank you for that. We mentioned that the Staropramen brand combined with Rekorderlig cider and both of those are of course in the UK. They would have a combined annualized volume of approximately 350,000 hectoliters.

Again that would be per year. The Rekorderlig brands were actually picked -- we have picked up as of middle of the year. So we're, how do you say, selling those brands now in the UK.

Staropramen on the other hand is -- virtually all of that hand-off will be at the end of this year. So there's a little bit of a timing difference.

Either way, both brands are worth approximately -- sorry, combined they're worth approximately 350,000 hectoliters to our UK business. Neither one, if you're wondering about relative size, neither one of those brands or brand sets are, how do you say, they are both significant within that number, is about as granular as I can get.

Got it. And just to clarify for Canada, the launch of Blue Moon, that's for this year? The Belgian White?

Yes, in fact as I recall it's this month.

This month? Okay.

And it's -- I meant to say it's Belgian Moon not Blue Moon in Canada.

Thank you. Excellent. And then just lastly, just revisiting my question from the MillerCoors call in terms of the incremental spend in the US that you're funding with the benefit of lower cogs outlook for the remainder of the year. Can you give us a sense of where we would expect to see that incremental investment spending deployed across your portfolio?

Yes. Now, the short answer is premium lights and above premium. As you know we are restaging sort of refreshing the visual identity of Coors Light.

That's clearly an area of opportunity for us. You have Miller Lite with a lot of A, better trends than we have seen in the past and also some opportunities around its authenticity positioning. And then if you look in the above premium space, Redd's and Smith & Forge and Blue Moon and Leinenkugel's all have great opportunity and have helped us to migrate the MillerCoors portfolio toward the above premium over time.

Got it. Sorry last, last one. On Jacob Leinenkugel's you called out was it the Grapefruit Shandy having been a nice success for you guys in the quarter.

And I think there was another a new product that you called out. If I think about the high single-digit growth that you saw for that brand, what would that have looked like on an organic basis or an underlying basis absent some of that new product innovation?

I don't want to break to out specifically. But I would say that Leinenkugel's even on an organic basis would be in positive territory.

Perfect. Thank you.

Thanks, Vivian.

Thank you.

(Operator Instructions)

Our next question comes from the line of Rob Ottenstein with Evercore. Your line is open.

Hi. Sorry if I missed this on the MillerCoors call or on other commentary, but just wondering if you could give us an update on how this year's innovations are doing in the United States, would be my first question?

Yes. Let me see if I can take you through a few of those. The Grapefruit Shandy, which Vivian just asked about, is doing extremely well. I would say that, let's see, the --

How about the Coors Radler?

Oh, yes. Coors Light Radler. I would say okay. Not an unconditional success, but it was -- yes, I would not call that as successful as Leinenkugel's Grapefruit Shandy or some of the Blue Moon line extensions that we've introduced.

For example Cinnamon Horchata is doing so well that we've been expanding the distribution of that brand. The Blue Moon IPA is also off to a very good start.

Great. And then just a second question. Can you give us a little bit more color on the strong July results in Europe? Is that mostly thanks to the easy comps?

Yes. So what you are seeing there is a couple of things. One, with the -- really across Europe the weather has been unusually good.

But at the same time right, in a few of those markets you do see the benefit of cycling those rather severe floods in Serbia, Croatia, and Bosnia last year. But as you can tell by the commentary around 10 out of 11 countries, more is going on than just cycling floods. It been relatively good weather really across -- and by the way, that includes the UK.

Terrific. And just can you talk a little bit about how Carling is doing in the UK?

Yes. Carling is doing well. We have seen some of the trends on the brand improve in more recent months relative to going back a ways.

We would also -- the brand is taking share in a category that, yes, while it benefited from the weather, still it's a challenging category. And one thing I should have mentioned about Europe.

We have seen -- the sales team has actually done a great job of execution in that market. It's not just about weather and cycling, cycling the floods from a year ago. But actually the Europe -- yes. So, anyway, I think that covers it.

Terrific. Thank you very much.

Thanks, Robert.

Thank you.

(Operator Instructions)

There are no further questions at this time. Mr. Dunnewald, I turn the call back to you.

Okay. Great. Thank you, Steven. In closing I would like to thank all of you for your interest in Molson Coors and for joining us today.

If you have additional questions we did not cover during our time this morning please call Kevin Kim or me on our direct lines or at the main number here at Molson Coors which is 303-927-BEER or 927-2337. Thank you again and have a great day.

This concludes today's conference call. You may now disconnect.