Q4 2020 Molson Coors Beverage Co Earnings Call
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Good day and welcome to the Molson Coors beverage company fourth quarter and fiscal year 2020 earnings Conference call. You can find related slides on the Investor Relations page of the Molson Coors website.
Speakers for today's call are Gavin Hattersley, President and Chief Executive Officer.
And Tracey Joubert, Chief Financial Officer.
Please note that this event is being recorded with that I'd like to turn the call over to Greg Tierney, Vice President of S. T N E and Investor Relations Mr. Shan Li Please go ahead.
Thank you operator, and Hello, everyone.
On your prepared remarks from Gavin and Tracey, we'll take your questions. Please limit yourself to one question and if you have more than one question. Please ask your most pressing question first and then reenter the queue to follow up.
On your technical questions on the quarter, please pick them up with our IR team in the days and weeks that follow.
These discussions include forward looking statements and actual results or trends could differ materially from our forecast for more information. Please refer to the risk factors discussed in our most recent filings with the SEC.
We assume no obligation to update forward looking statements.
GAAP reconciliations for any non U S. GAAP measures are included in our news release or otherwise available on our website.
Also unless otherwise indicated all financial results. The company discusses are versus the comparable prior year period and in U S dollars.
And with that over to you Gavin.
Thank you Greg and thank you all for joining us today.
2020 was an incredibly challenging year for everyone Molson Coors included.
But in many respects a consider us lucky.
The revitalization plan, we put in place in October of 2000 on key positions our company well to weather the storms of 2020.
Our business with leaner and more nimble, which put us on the better positioned to conserve resources as the circumstances dictate it.
Deploy them effectively expenses about.
The results bear that out.
When you consider what we set out to do on our revitalization plan, we accomplished an incredible amount from 2020 and that has given us a tremendous springboard for 2021.
Our two largest brands Coors light Miller on a chronic coal grew $6, one and eight 6% U S off premise respectively.
Our above premium brands in the U S reached a record high percentage of the portfolio in the second half of 2020.
Beyond beer, our first foray from non alcohol cannabis beverages through the trust joint venture has made it the number one dollar share spot in <unk>.
Tier Canadian cannabis beverage market.
We increased our production capacity for our fast growing sales by approximately 400%.
And we approximately doubled our annual investments in our hometown communities.
Net.
Is the story of Molson Coors from 2020.
Now you may be wondering why I have such confidence, especially if you look at our consolidated top line results from the fourth quarter.
Net number alone does not tell the full story.
If you only look at debt piece of data you'll miss it.
On top line results from the fourth quarter were overwhelmingly due to losses, resulting from government restrictions in European on premise channel.
To put it more bluntly Europe alone accounts for 92% of our fourth quarter topline decline.
But those results from not reflective of the performance we've seen across the rest of the business and the story is very different from our largest market.
On how different.
In the fourth quarter Molson Coors grew net sales revenues in the United States.
We grew the top line in the United States.
Our plan is working.
So let's look deeper in our results in 2020, and what we have in store for 2021.
Our first pillar under the revitalization plan was to build on the strength of our clinic co.
In the U S. Our largest coors light's on meadowlark delivered $6, one and eight 6% expected growth in the off premise.
Again grew share in the premium light segment.
And they finished 2020 with stronger brand health.
We are pleased but not satisfied with those results.
So in 2021, we're going to put even more marketing behind these two iconic brands and we're thinking big as you may have noticed around the big game last weekend.
And again I want to point something on chip, we are demonstrating our ability to grow in shelters and expand beyond beer, while strengthening our core brands. We are demonstrating we can do both.
The revitalization plan was specifically designed to free up resources. So we can meaningfully invest behind our coal our growth in above premium and our expansion beyond <unk>.
And the second half of 2020 above premium productivity record high portion of our U S portfolio relative to any prior year comparable period.
We doubled our share of Celsis from us moving towards a double digit share goal by the end of this year.
Disney has been a top tier growth plan from nearly six strength.
But he has incredible growth has been accomplished with basically just one thing.
Within a few weeks, we plan to add more firepower to that brand with a second variety pack and a few weeks later, we pledged loans. This eliminate lineup. We believe is tailor made for <unk> given its unique antioxidant vitamin C attributes.
And we are excited about the opportunity for Coors, Seltzer, which launched at the end of September.
We are seeing promising signs, including repeat grades that are stronger than Bud light seltzer and Corona seltzer same points during their loans.
From 2021, we have strong plans to accelerate marketing support behind Coors Seltzer as well as its commitment to help save Americas derivatives and Thats just the beginning.
We are about to launch type of Chico hard seltzer, which is getting a lot of attention from retailers and distributors alike.
Type of Chico mineral water is beloved and the biggest pockets throughout the non space, especially in Texas high potential market.
Quickly on Appeals, we plan to bring temperature co Ron Schwartz to market.
Again, we see this brand is best positioned to take advantage of the <unk> credit that is being inspired by type of Chico mineral water and Ccs mixing our branch water at home.
And still to come as proof points are first spurt itself.
With all force stealth deserted market later this spring we believe we will bust the strongest most differentiated cell to lineup in the United States.
And while we started behind other than the United States, and Canada and Europe. We are early interest in the hard Seltzer category and.
In the next couple of weeks ago, taking both busy and Coors Seltzer is Canada.
In Europe building on an existing brand partnership already in market. The launch of our own three fold brand sales as planned for March and we will be leading the development of the category across central and Eastern Europe with an owned brand in the second quarter.
In above premium bids we have high expectations for Blue Moon Light Sky, which ended 2020 is the number one <unk> in the United States per Nielsen.
We've expanded its production capacity by approximately 400%, we're putting more marketing muscle behind it and we believe this is a brand that's going to continue to rise for quite some time.
Our regional craft portfolio in the United States grew 17% from Nielsen in 2020, outpacing the cross segment once again.
Next month, we will be taking hop valley national in the U S from Canada.
Our first national IPA, we believe it will be another driver of growth for our above premium portfolio.
And do not forget about getting this.
This fall the newly formed joint venture plans to bring <unk> to one of America's biggest beer drinking states, Texas.
The reception has already been incredible and there is significant upside potential with getting the joint venture begins.
It's Westwood expansion.
At the beginning of last year, we changed on down to the Molson Coors beverage company and it wasn't just words.
By the end of the year on non Alco strategy came into focus.
We're piloting our owned brands without talking to elevations, we've taken equity investments and other opportunities, including two with legendary non innovative loans column.
We signed distribution agreements to enter the fast growing spaces like RTD coffee with la <unk> and energy drinks with xylem.
Net energy partnership with the leadership team led by Glenn.
Mark Johnson.
Zara is getting very positive reaction from retailers and distributors.
The Rockies and just putting his name on this he has personally making close to retailers, we're bringing debt market. This spring, we think that it could be a game changing the energy drink space.
Trust, Canada, our Canadian cannabis joint venture with Hicks launched the beverage portfolio in August.
And by the timber that jumped to the number one dollar share position with four of the top five candidates beverage Skus in Canada.
And trust USA is building on that through the first lineup of hemp derived CBD beverages in Colorado, which entered the market in December.
We're learning a lot about the exciting category following the launch.
This entire lineup is a tremendous growth opportunity for our business. It will be a driving force behind our goal to build our emerging growth division.
Through a $1 billion revenue business by 2023 and.
And as a reminder.
That ambition does not include a hard seltzer.
And we recently announced our first entry into the fast growing RTD cocktail space through an exclusive equity and distribution agreement with Super Bowl and above premium Tequila based Hello, Mark.
Last year, we also made major investments to help our business grow the top line with <unk>.
And on E commerce capabilities, all around the globe with most off and more robust digital capabilities.
And it paid off last year with 230% growth E commerce in the U S alone.
We expanded our seltzer production capacity by approximately 400%.
And we also expanded our Alaska production capacity.
Approximately 400%.
We completed a seat can production on capable of manufacturing approximately $750 million annually.
And on the topic of Ken I'm really pleased to say that our packaging material supplies vosky improve with glass bottles paperboard and toll tags with all returning to more material availability.
In fact on Coors light cat inventory is higher than it was at this point last year.
And our industry standard can suppliers improved cash from four continents and work closely with our suppliers to keep up with the very high range of consumer demand and we expect to return to normal material availability by the end of this quarter.
We will continue investing in our capabilities throughout the year net.
Work to drive on ability to produce higher margin above premium products.
Last but certainly not least is how we are supporting on people and on communities.
One is particularly important to me.
When I took over as CEO I've made it clear that I wont most inclusive of a people first culture net approach guided our decision making throughout the last year.
The work in this space, we've never done, but we are making important progress.
Last summer, we set a goal of increasing the representation of on people of color of United States by 25% by the end of 2023 across the country among salaried employees and in leadership positions each way market available on these shows we have room for improvement.
We have made progress towards that goal and we expect to continue to do so.
We also increased our support for organizations dedicated to equality Harman racial justice and community building and provided nearly 3 million meals for families in our hometown communities struggling with food insecurity.
But we must do more.
So today I'm proud to announce the non annual we recommit to matching last year's investments on our communities. We are also committed to spend a total of $1 billion with diverse suppliers over the next three years.
This is a commitment that benefits all of us.
A wider base of talented suppliers with different backgrounds and loss experiences will be a benefit to our company.
And the diverse suppliers to earn our business, we'll be able to turn in in turn hire more talented employees into the businesses.
Last summer, we said that Molson Coors response to addressing rationally justice with not just the momentum pump passing thing set aside and forgotten. There's other priorities took over that would be unacceptable.
Our commitment to investing in our communities and striving for equal opportunity for all people will not flow.
Okay.
Even with the unforeseeable challenges of last year, we both on the strength of our iconic core the <unk>.
Second half of 2020, we achieved a record high portion of our U S portfolio of above premium products, we expanded beyond the Bureau, we invested in our capability, we supported our people and our communities and we are not about to stop now.
When I took over this role I told you that we plan and invest to grow on top line, we're going to follow through on that and we are on the pathway day.
This is on a revitalization plan of action on those.
There have been questions about whether or not we can execute all of this but no one has to wonder any longer because you're doing it right now two day.
And now I'll turn it over to Tracy you can provide you with more detail on our financial performance and our outlook for 2021.
Yeah.
Thank you, Kevin and Hello, everyone.
The Corona virus and indicate a significant impact on our 2020 financial performance, primarily due to the on premise restrictions and lockdowns.
On Europe business, plus the net impact, particularly in the UK.
Business skewed heavily towards the on premise and cloud revenues and EBITDA declined in the fourth quarter and for the full year 2020.
In fact, Europe, which accounted for only 15% of our revenue in 2020 contribute.
One we think operating at the time and 83% of our EBITDA at a ton per day, yes.
92% of the revenue decline and 56% of our EBITDA at the time for the fourth quarter.
Despite these incredible challenges in 2020.
Part of a resilient financial performance as we have mitigated these unprecedented time.
Now let me take you to our full year performance and then I'll touch on our quarterly results before moving on to Africa.
Recapping the year consolidated net sales revenue decreased eight 7% in constant currency average North America was down four 3%, while Europe was down 28, 4% on a constant currency basis.
While we delivered net processing clients in North America, and Europe, as well as positive brand and package mix in the UK. This was more than offset by volume declines and unfavorable channel mix, principally driven saving degrees of unclaimed. This restriction to act on.
Much of the year due to the coronavirus pandemic, which also great packaging material constraints due to the unprecedented 10 demand.
Brand volume declined seven 8% and financial volume declined eight 9%.
North American shipments improved in the second half of the year.
Packaging material constraints ease and we both distributor inventory.
Net sales per hectoliter on a brand volume basis decreased.
One 1% in constant currency Q2 processing plant in North America, and Covid as well.
It's a brand and package mix in the UAE.
This is based on that premium innovation, including Cindy daily not guidance, Chris Carlson <unk> any thoughts on if you need to act to 3% per day yet.
Underlying co op city.
The increased two 8% on a constant currency basis, driven by cost inflation, including higher transportation costs volume deleverage and net impact from premium amortization and North America, partially offset by cost savings.
Hi, Ken hosting costs in North America contributed to the higher cost inflation.
After the on state of the Coronavirus pandemic, we are great to be begin, forcing additional aluminum cans from all over the world to support our co plan to create unprecedented famous demand.
Also re forecasting of the freight markets throughout the year, which should lead to higher transportation cost.
Underlying G&A decreased nine non 15th on a constant currency basis as we quickly took action. So this thing has been away from the areas impacted by the coronavirus pandemic, particularly not entertainment Keybank and 14 day Bank GT shortened season.
The delayed starts on the NHL season into 'twenty 'twenty one.
In the second half of the year, we began to press release that the increased marketing spend, particularly in social and TV media stepping up support behind our new innovations such as Wendy seemingly not Scott and Chris Thompson in alignment with additional supply coming online as well as continuing to support Apple Coors Light Miller.
<unk> and other iconic co brand.
In G&A declines were also driven by targeted cost mitigation actions and significant cost savings in our fifth year of a revitalization of cost savings program.
In aggregate, we delivered approximately $270 million in G&A and cost of goods sold placing us on track to meet our $600 million.
In total gross savings.
These reductions were offset by innovation, Spain, and factoring no incentive compensation and a non recurring theme the benefit in the prior yet, which we referenced last quarter.
As a result underlying EBITDA decreased 10% on a constant currency basis.
Underlying free cash debt was $1 $3 billion per day, yet a decrease of $104 million from the prior year, driven by lower underlying EBITDA and higher cash taxes, partially offset by favorable working capital.
The working capital benefit was driven by the deferral of approximately $150 million in tax payments on.
From various government funds debt payment deferral programs related to the coronavirus pandemic on.
On which we currently anticipate the majority to be paid in 2021 as they become key.
Capital expenditures incurred with $560 million for the year with improved liquidity and strong cash management, we were able to accelerate 50 basis, expanding our production capacity and capability to support new innovation and growth initiatives.
In addition to the strong free cash flow performance, we made tremendous strides in improving our financial flexibility, including continuing to pay down debt.
<unk> maintained our <unk> revolving credit facility and suspending our dividend in may for the remainder of 2020.
We reduced on Nick.
<unk> by $1 $1 billion in 2020, and reduce debt trailing 12 months net underlying EBITDA ratio to three and a half times as we remain committed to maintaining our investment grade rating.
Now, let's discuss the fourth quarter, we regain unit on.
On claims Lockdown had a significant and disproportionately negative impact on our results.
Consolidated net sales revenue declined eight 3% in constant currency, principally due to financial bonding to comps as a result of the on premise jurisdictions.
Along with corresponding negative channel mix, partially offset by net pricing growth in North America, and Europe, as well as positive brand and package mix in the UV.
North America net sales revenue was down 1% in constant currency.
However, in the U S increased on premise restrictions and aluminum cans. The conference strength, we delivered net sales revenue growth of one 9% in the quarter.
We continue to both distressed distributor inventory in the UAE with brand volume was down six 2% on page two domestic shipment declines of two 3%.
Whereas in the UAE business was more than offset by lower volume and negative mix in Canada and to a lesser degree Latin America as a result of the on premise restrictions.
In Europe net sales revenue was down 69, 4% in constant currency driven by volume declines and negative mix due to increased on payments restriction with the most meaningful in the UK, which experienced a return to almost total on premise locked on for November and the historically strong months at the same day.
Yes.
And with the subdued nature of many faiths of celebration during the fourth quarter, we did not get big shift of volume into the off premise.
Net sales per hectoliter on a brand volume basis increased three 7% in constant currency, reflecting net pricing growth in North America, and Europe, moving off taking the negative mix effect of the various market dynamics and consumer shifts caused by the coronavirus pandemic.
In the U S net sales to hit on a brand funding basis increased four 2% driven by favorable sales mix from new innovation and strong net constant growth.
While in Europe net sales per hectoliter on a brand volume basis decreased eight 2% due to unfavorable mix, particularly driven by the higher margin U K business, which more than offset pricing increases.
Underlying cogs per hectoliter increased six 4% on a constant currency basis, as we saw a greater impact on price inflation and unit mix premium amortization in Q4 compared to the full year.
And G&A in the quarter increased five 8% on a constant currency basis.
Hi obtained marketing to support our co brands and key innovation.
As well as back in low incentive compensation and a non recurring gain the benefit in the fourth quarter of 2019.
This was partially offset by cost savings and lower discretionary spend.
As a result underlying EBITDA decreased 33, 6% on a constant currency basis disproportionately driven by year end.
Given the length and severity of the impacts of the coronavirus pandemic on our Europe business as well as the protracted recovery currently expected in Seaton on premise market, we recognized a goodwill impairment charge of $1 5 billion in our Europe statements.
We also recognized a $59 6 million of asset impairment charges in our North American statements Steve.
These charges are noncash and are not included in underlying results.
But it takes me to our financial outlook.
As you May recall on March 27 from last year, we withdrew our guidance due to the uncertainty driven by the coronavirus pandemic.
Balance sheet as we remain in an effort to help enhance visibility we have determined to reinstate our practice of providing guidance.
We are also determined to adjusted metrics provided which includes adding guidance for net sales revenue and metric, which aligns with our revitalization plan calls for driving top line growth.
As well as MC day to underlying EBITDA leverage ratios, given our commitment to remaining investment grade.
So we are very proud of our performance and agility navigating the coronavirus pandemic and executing against our revitalization plan.
It's not that headwinds from May.
The pandemic continues to impact our business due to unplanned losses across all our geography and disproportionately in Europe as well as Canada.
We think big domestic shipment trends in the UAE to continue to be higher than brand volume trends in the fifth quarter as we continue to build inventory heading into the peak season.
For the year, we maintain our annual goal of shipping to consumption in the UAE.
In Europe, we continued to experience significant lockdowns and expect fourth quarter volumes will be materially impacted based on a five year period similar to what was experienced in the fourth quarter of 2020.
For 2021, we expect to deliver mid single digit net sales revenue growth.
2021 is intended to be a year of investments as we continue to de lever, our revitalization plan and track towards long term growth.
Listing sales decreasing year over year marketing spend to build on the strength of our co brands and support our successful 2020 launches, including Blue Moon mascot busy and crude output and new innovations to come as well as investing in further expanding our capabilities to drive productivity and efficiency.
Yes.
We expect significant increases in fee beginning in the second quarter versus the prior year comparable quarter.
While we continue to expect revitalization plan savings at this debt given this increasing basin, along with cost headwinds related to higher inflation, including transportation cost.
And continued premium amortization of our portfolio, we anticipate 2021 underlying EBITDA to be approximately flat compared to the pie yes.
We anticipate underlying depreciation and amortization on $800 million Nick.
Net interest expense of $270 million, plus or minus 5% and an effective tax rate in the range of 20% to 22%.
We enter 2021 with greatly improved financial flexibility based on enabling us to not only continue to invest in our business is to continue to pay down debt and return cash to shareholders in 2021.
As I mentioned, we significantly reduced our net debt position by $1 $1 billion in 2020 and reduced our leverage ratio to three and a half times as of December 30, <unk> 2020.
We are proud of this progress in establishing a target make day to underlying EBITDA ratio of approximately three to five times by the end of 2021 and below three times by the end of 2022.
And we currently anticipate that our board of directors will be in a position to reinstate a dividend in the second half of this year.
We're doing all of this while continuing our commitment to maintaining anytime upgrading on based on credit rating.
Given the operating environment, we are pleased with our 2020 financial performance, which underscores our strong progress against our revitalization plan and the resilience of our company and our people who have been knocked us to successfully navigate and other challenges posed by the coronavirus pandemic.
While these challenges have created from near term fluctuations in financial and operating results. We are confident on the rock cost of driving towards long term revenues and underlying EBITDA growth.
We look forward to updating you on our continued progress.
So with that we look forward to taking your questions operator.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on you touched on zone Youre using a speakerphone. Please pick up your handset before pressing on Keith.
Your question. Please press Star then two please limit yourself to one question. The first question today comes from Andrea Teixeira with Jpmorgan. Please go ahead.
Hey, good morning, guys, it's actually co Joe on for Andre.
Alright, just at a high level.
Hey, how are you just at a high level. We're just wondering if you could provide a little bit of color on how the accretion have trended quarter to date in both North America and Europe.
Look we don't provide guidance on.
Yes.
In months Depletions lots of ups and downs, but from a European point of view as Tracy said on their opening remarks.
On premise remains in lockdown so.
So we expect the first quarter volumes in Europe, and particularly in the United Kingdom to be.
To be challenged.
From a from a U S point of view on the Lockdowns remain although it does vary from from state to state and we do see a loosening of on premise restrictions both in North America and in.
In Europe, as we progress into Q2 and further on into into the year from a from a supply point of view just reiterate mark comments in the script about Coors light can supply much improved and our inventory levels are actually higher than they were at the same time last year that we are well positioned to.
To take advantage of this.
The brand health and strength of Coors light.
Yeah.
Thanks, Greg next question comes from Kevin Grundy with Jefferies. Please go ahead.
Great. Thanks, good morning, everyone.
I want to spend some time on in Europe, just given the impact.
The impact in the quarter, so obviously pretty challenging both from a revenue and profitability perspective understanding of the impairment charge is non cash it naturally signals are less confident outlook and ability to return to levels of profitability, perhaps you'd previously thought at least within a reasonable amount of time when you do on the discounted cash flow mom.
<unk>.
Good day.
To get your updated views on your outlook for this business strategic fit within the portfolio and how youre thinking about the cost structure given this less constructive outlook and then Tracey for you Relatedly NAV.
And not to get too much in the weeds with this but I'm just trying to understand the margins in the quarter. So the top line pressure in the second quarter was worse than the fourth but the margin performance was clearly a lot more pressure the decremental margins in the second quarter.
About 25% closer to 60% in the fourth quarter. It just seem like there is a better ability to sort of flex down and G&A in the second quarter and there wasn't a fourth I think it would be useful for folks if you could maybe spend a little bit of time on that so thank you Paul and I'll pass it on.
Thanks, Kevin.
I'll talk about.
Europe and performance, specifically look I mean, the on premise restrictions in Q forward, we're fairly draconian.
There was somewhat of a scattergun approach across across Europe, which expanded a little harder for us to to plan and react to particularly on the on the cost loans.
When you compare Q4 versus Q2, the impact for Q4 was particularly pronounced because.
<unk> historically been a very strong month for the on premise in the U K given given the holidays and of course.
You can't be outdoors debt much comfortably.
In the fourth quarter as much as you can be in the <unk>.
In the.
On the second quarter results from seasonally lower trading period.
In central and Eastern Europe.
Yeah.
We saw similar declines in the second on four quarters from a volume perspective, but the on premise restrictions in the second quarter were more uniform. So it made it easier for us to to plan certainly be the lockdowns as I stood entered a continued into the into the first quarter. We did make some conscious decisions in Q4 that Kevin to invest behind our core bras.
And not only on the United States, but also in Europe in particular.
In Central Europe, we've got some strong brand.
Strong healthy brands.
And we wanted to make sure we position ourselves for sustainable recovery in 2021.
That explains why the MD&A in Europe was a little higher than you think that you might have been expected you're investing behind.
On our brands.
<unk>.
What are those.
Christian.
Kevin.
The strategic outlook, Okay, Yes look I mean, Kevin.
Priority as a company as a whole.
Is to make sure that we emerge strong coming out of the pandemic when the on premise returns to more normalized levels. On this includes Europe, which we continue to view as a strategic asset.
And then Kevin can be.
If I can just jumping on the margin.
In Europe in Q4, we focused our marketing investment on specific brands and markets, where we have capacity and we needed to ensure that we're competitive in conflict of share of voice in brand health metrics.
And so on the basis that we made in Q4 in Europe to support the ongoing performance of our National champion brands and our premium amortization.
M&A also just cannot be restocking comparatively much locked sustained in Q4 of 2000 and non team in central Europe.
Could account for some of the margin differences.
Okay. Thank you very much of a bunch of questions, but I'll pass it on thank you.
The next question comes from Kumar <unk> with Credit Suisse. Please go ahead.
Hi, Good afternoon, everybody came from can you talk a bit about your expectations from the on premise for 2021 as it relates to what you've incorporated into your into your guidance on what sort of I think specifically to the U S. On.
At what rate do you expect it to recover how much does that contribute to your numbers and then if you could also maybe help us with.
Mechanically what that means for your business I believe your shares are higher off premise, we kind of no debt over the course of 2020 large pack sizes.
Started to take on larger degree of share from the rest of what was being sold at food retail that obviously will look very different when we get to an on premise in a more normalized on premise environment. So.
Is that a net net share beneficiary is the on premise turns back on does it work the opposite direction. If you could help us with some details there that'd be helpful. Thank you.
Thanks, Cobo unaudited NAV that we try and give you some context.
The reality is the situation remains fluid in various markets.
By market.
In the third quarter of last year, we did see some on premise reopening it's pretty much across the board in the countries in which we operated in during the fourth quarter, we saw a return to much.
Much more severe on premise restrictions as most countries, we are expecting to strict lockdowns and there was no benefit of outdoor dining given day given the climate.
In terms of our major markets in the U K the government operator, the tiered system or restrictions in October than they followed that up with a national Lockdown.
In November.
Let's turn to the tiered system in December but.
Pretty much.
As lockdown as we as we speak.
In North America, Canada was particularly.
It impacted more than the U S from a lockdown point of view it was a stricter lockdown and then we really did see daily pictures across the United States.
Depending on which states from an on premise performance point of view in the United States, It's been fairly.
Fairly stable for a while now.
There's no big Spike up.
Pulled down in terms of market share, we think that the consumer moving to dig.
Big and trusted brands will benefit us in all the markets in which in which we operate and where we have seen reopening we've seen that flow through from a from a market share point of view. So I think we will be Nick.
Beneficiaries when that takes place obviously on our above premium portfolio. We were very pleased with our performance and above premium in the fourth quarter, a net in the face of Blue Moon and variety, which is strong on on premise bank brands being obviously challenged because of the lack of on premise that we expect between the on premise comes back more fully that those two.
Brands will be.
Big beneficiaries of it.
If you look at the UK, which is our largest.
Which is the market, which has the largest on premise.
Exposure.
We've demonstrated.
Our sustained track record of growing our share on me.
In the on premise in the U K for at least five years pre pandemic, we've grown our share on the on premise.
As we've driven to be first choice for our for our customers. In fact, just this week that we were number one again with our customers on the net promoter score survey across the trade.
In 2020.
We've got contracts to supply on menu of our competitors in both the retail and wholesale models.
Our customers.
Value the service that we that we bring through our own brands and also our wholesale brands and so we believe we're well positioned to gain share in the UK markets when it when it reopens.
Since I got all your questions there Cabo.
You did and it was probably unfair was a lot of questions in one.
So I would ask is just a follow up on the portfolio.
And maybe your best guess you've announced.
A series of deals over the last number of months. If you were to maybe give us an idea could you can you give a best guess.
What your portfolio breakdown is likely to look at look like by the end of the year is it still likely to be about two thirds premium lights.
Followed by <unk>.
Followed by <unk>.
High end and then I don't know how much.
Non op will be as part of it but maybe just give some ideas.
Put all of these deals together on your portfolio May look different as we move forward with the rollout from these products in the next 12 months.
Let me try and give you some color the Canada, obviously, we've been very clear about the objective in our revitalization plan on driving our above premium portfolio and our beyond beer portfolio.
All of the deals we've done.
On the bus premium margin so that was.
Two of the five focus areas and our revitalization plan that we announced in October of 2019.
On the continued building on that you could see the results of that in both the third quarter and the fourth quarter with or without <unk>.
Positive mix, which we generate interest we generated another quarter of above 200 basis points of positive mix, which is which is continuing to reflect on.
Our growth and performance from above premium per Nielsen, we actually grew share of above premium despite the on premise challenges, which brands like Blue Moon and peroni.
<unk> experienced.
We think that.
Yes, we are.
Obviously put out the ambition of getting to $1 billion revenue for our emerging growth division, which is going to require.
Any of our partnerships that we've just announced block zone.
I can ship luck alarm on so on are are successful.
Coming off of a standing start of zero, because we didn't have them before.
I'd also point you to the fact that we actually grew the top line in the very market.
Concerns have been expressed about our ability to execute we grew the top line in the fourth quarter. Despite all these.
Deals that we've done on the challenges that we faced and we're going to build on that.
In 2021, there is a lot of excitement from retail and from our distributors with the deals that we've done.
Particularly brands like La.
<unk> Zara.
Total chica, a lot of excitement and debt will continue to improve our above premium mix.
That's helpful. Okay, great. Thank you.
The next question comes from Sean King with UBS. Please go ahead.
Hi, good afternoon.
Yes. My question is with hard seltzer, becoming a larger portion of the mix and I guess the growth story going forward, but can you discuss I guess, the gross margin profile of that business for you and how that could change over time.
Now the hot sauce, there has been a very strong growth category. We believe that's going to continue in 2021, and we're excited about our opportunity for hot sauces.
We think we've got one of the strongest portfolios of high.
Phelps's.
With each brand, having a very unique perspective on the category.
By the time that we have all four of our hotels in markets. This year, we think it's differentiated from what's differentiated offering for our consumers and I think we will place.
Celsis do operate at the upper end of the above premium price points and therefore operating fees.
Sort of upper end of our of our.
Margin structure, we don't give it up.
On publicly specifically, but you can you can be assured that debt.
That is high.
Great. Thank you very much.
The next question comes from Chris Carey with Wells Fargo. Please go ahead.
Hi, good morning.
I guess just conceptually.
Trying to understand how you think about the off premise channel in 2020.
Certainly.
There was more strength there.
As there was a channel shift, but I guess I'm also hearing that it sounds like you think there is some sustainability.
On the growth that you've seen there and certainly youre going to be investing behind that and so and I guess underlying the question is.
I'm trying to understand what you think might be sustainable coming out of this year.
Certainly in 2021 is from.
If the recovery of the on premise is a bit slower than.
What might happen just trying to understand sensitivities around what's needed to acquire the in the off premise in order to get you to this top line growth algorithm. Thanks.
Okay.
Certainly believes that there will be some sustainability to the off premise demand I think consumers.
<unk> new behaviors.
New occasions have been created so I think there will be some sustainability of acknowledged.
We don't believe that it is going to continue.
To grow at the same at the same level, but there certainly will be sustainability to the underlying trend. There is a very large pent up demand for on premise from consumers and so I think when the on premise is more readily.
Open I think you'll see us a strong pent up demand from.
Consumers the other behavioral change, which we've obviously experienced in 2020 as the growth of E. Commerce sales. There are many consumers of alcoholic beverages that didn't realize you could buy beer online than they do non we've seen.
230% increase from our online sales and I think the Vectren.
We will stay and that's why we're making investments in on.
E Commerce capabilities.
Thanks, Chris.
The next question comes from Bonnie Herzog with Goldman Sachs. Please go ahead.
Thank you hi, everyone.
I guess I'd like to hear a little bit mark color on how youre thinking about balancing your investment needs.
Clean your.
Recent innovations on some of our launches with marketing support behind your core brands I guess, what I'm still may be struggling with is how you plan to stabilize or maybe even improve your core business.
A lot of your stepped up investment spend and attention is going to be focus behind all these new initiatives and then.
Kevin maybe you could help frame for us some of your targets or ambitions for your core business similar to how you're framing the opportunities on some of the goals you put out there for all of these new and exciting brands on partnerships I think that would be helpful. Thank you.
Thanks, Bob look I mean, our revitalization plan, which we announced on October 2019 required us to do both and net was our that's our plan on it remains on plan.
On investing behind on our credit co brands.
And investing behind above premiums and investing behind our beyond core tier.
Their portfolio is is the plan trace.
Tracy mentioned in the guidance.
Approximately flat EBITDA net.
Really the revitalization plan income coming to life with a.
Big investments behind both Mueller co 's language will see more spin this year, we will put more spend behind our above premium portfolio with moving lot Scott.
On Blue Moon will put more money behind <unk>, we will have full sales was in market. This year. We only had two one was launched in April. The other one was launched in September. This year, we are going to have full as we strive to get to the 10%.
Market share and we're going to be investing behind.
Our new ventures like.
Zola, and Luckily <unk> and <unk>.
And also our Yingli joint venture in terms of actual performance on a unit Coors Light's on Metalogic performed really well.
As part of the.
The headwinds, which they've got.
Made numerous pivots from a from a marketing point of view to meet the changed circumstances, and where necessary, we put marketing money behind us in the fourth quarter for example.
From a media perspective, we shifted our media to.
Places like social gaming podcasts online video and so on and from a creative point of view.
We've created.
New credit, which has resonated with consumers.
We've actually created 40 pieces of new creative.
Since March.
That has been behind Miller Lite, and Coors lots and just some examples of there could be I'll say well work on it at party for Formula Lags and then on a campaign to get from Florida into the Pro Football Hall of Fame.
With Coors light and you can see the benefits of of debt with both of those brands I mean co.
There is lot drove significant share growth in the first half of the year. It did slow down on the third quarter because of the inventory.
Supply constraints, which we had which were now through because our inventory is higher than it was at the same time last year for Coors light and in December we sold the best industry should trend we've seen in years outside of the country.
Loading from March for Coors light.
It's the made to Chill campaign platform is working and we're excited about it.
<unk>.
Shaped range of beam has been strong now obviously as I said in my opening remarks, we're not satisfied.
With with the performance from toll.
And we intend to put more money behind it. So that's a very long winded way of saying.
Its both its not either or we're not sacrificing one for the other we believe that we can.
Do more than one thing at one time, and we believe that we've demonstrated because.
With the market, where we've had the most.
Certain about it.
<unk> co, but let's use the U S and we've grown our top line we grew our margin.
<unk>.
Yes.
Strong pricing strong brand mix.
This is the revitalization plan in action, it's not a series of one offs.
It's true.
So part of a single strategy and Thats. The revitalization plan, which is specifically aimed to drive topline growth and we believe we will do that.
In 2021.
Okay. Thank you so much for all of that is it was helpful. I appreciate it.
Tony.
The next question comes from Rob on that side with Evercore ISI. Please go ahead.
Great. Thank you very much.
GAAP and obviously a lot of tremendous initiatives.
That you have for 2021.
And clearly you're very optimistic.
In terms of the firm's trajectory.
However, obviously, there's a bit of a disconnect in terms of how the public markets are viewing.
Your outlook and prospects.
Just wondering what your thoughts are.
Terms of share buybacks at some point I know you talked about very significant deleveraging.
Bringing the dividend back.
How does the potential for share buybacks play into this.
Disconnect continues and also maybe Tracy remind us.
About.
Your cash tax rate.
Which I believe remains very advantaged kind of roughly what that level is and how long it stays at that depressed our lower level.
Very much.
Thanks, Rob good morning.
Look I mean.
We had debt.
As I said earlier on we announced a revitalization plan in 2019, and we're executing that revitalization plan.
I am very pleased with the platform that we laid in 2020 and I think it gives us a really good springboard.
For for 'twenty, 'twenty, one which is why we felt confident with.
With the guidance that we've that we've put out there so I understand the skepticism around our ability to execute but we wouldn't be putting guidance out if we didn't believe that we would achieve it.
Tracy was very clear about our leverage goals.
And if you'd comment on them.
Capital allocation choice.
Which I think was the underlying yes Christian debt Rob here.
Yes.
And so.
Yes, obviously.
We are having ongoing and.
On the patients on <unk>.
Around our capital allocation with our board on.
Our focus has been on <unk>.
Moving on leverage ratio because of the.
Our commitment to maintain an investment grade rating as well as investing in our business.
Okay.
To deliver the revitalization sandwiches around top line growth.
And.
As always we had.
Look at our capital allocation and that's it.
Have a look at what gives us the highest.
Does she holds the highest rate of attain we ran fee and everything to a pet model to make those decisions but.
And our intention is to continue to pay down on.
<unk>.
We improved our leverage ratio.
And as upbeat inappropriate mark.
It is important for us and we see this on the Q3 call as well.
As soon as appropriate.
Dividends and net adjusted.
Updating the guidance that's something that duties.
Anticipate our board will be net position.
Sales in the back half of this year.
Okay.
In terms of the cash and questions that <unk> will get a benefit from the feedback.
And we did with the <unk> acquisition.
And Doug.
Debt to run for another few years.
Rob.
Yes can you remind us what exactly that right what you expect debt what that rate was.
2020, and what you expect it to be in 'twenty one yes.
Yes, so we don't actually give that guidance and we didn't other than giving the guidance that we've given you now on the consolidated effective tax rate for 2021 being between 20 and 23%.
Yes.
But isn't the cash tax rate.
Yes.
<unk> progress.
But it is it does reduce the tax rate.
<unk> significantly Bob.
Cash point of view.
Okay, Alright, thank you very much.
The next question comes from Bryan Spillane with BLA. Please go ahead.
Hey, good morning, everyone.
Could you just maybe a follow up question on cash flow I don't think I saw it but Tracy could you help us a little bit with <unk>.
What youre expecting for capital spending for this year and also.
Maybe tied to that.
How we should think about free cash flow.
Conversion in 'twenty, one are there any sort of big moving parts that we should consider in terms of.
Free cash flow and again, some help with capex would be would be helpful as well.
Yes.
Brian we looked at on matrix on guidance metrics for this year to really align with our strategy around our revitalization plan goals.
And then also looked at matrix, which aligns with our commitment to maintain.
And at the time with preventive based on great ratings that.
We haven't given capex.
And we haven't given free cash.
Because we do believe that.
The target leverage ratio metric is more meaningful and more land.
Strategy.
But we're going to have to put our capex estimate into our into our cash flow statement I mean is it.
As 2020, a reasonable sort of guide to use just any any any kind of help at all just to get some sense of what we should be flowing in there.
No I would say and the guidance that we gave back in 2020, which we subsequently with fee and would be the sort of range of Capex that you'd expect day. There is nothing significant debt with Cox and planned at this stage.
Great. Thank you.
The next question comes from the line per day with Guggenheim. Please go ahead.
Yes, good morning, everyone on that thanks for squeezing me in.
Got a question regarding the <unk>.
Dnb are so so many on that from there is almost not a weak result.
Net new products showing up so key question from investors is about your ability to prioritize and not to disrupt your core business. So could you please give us.
So many of them on comfort on that front.
Execution and secondly, you mentioned you should reach about $1 billion enough sales.
By 2023 and that doesn't include <unk> sensor so could you. Please.
It does frame how you get there because it's kind of three years to get to when begin from normal zero. So.
That would be super helpful. Thank you very much.
Thanks Laurent.
Couple of things in the from a.
We've been pretty consistent about one thing Rob is our revitalization plan requires us to more than one thing at a time, which does but and I think of our fourth quarter is there is there is a fine example of debt. We grew our top line in the U S. We grew R. R.
Our net sales revenue per hectoliter meaningfully we had positive brand mix and we demonstrated that we could deal with.
Complexity I mean.
The structure that we've put in place in our company was designed to deal with complexity we co.
On a keener purchases on our core brands and very pleased with what they've done with Coors light and Miller Lite on our other legacy iconic brands and then we've got a team that focuses on beyond beer, that's executing against debt. So.
It's exactly as we laid out.
The revitalization plan and we're demonstrating that we can do that in our largest market in terms of the $1 billion revenue ambition for emerging growth.
It does it does encompass a number of areas in the emerging growth. So we're not coming from a standing start we do have all of our craft companies in that area.
On a non al.
The division we have on Canada.
THC infused beverages rgd's in our CBD business. It also includes all of our Latin America exports and licensed markets.
In order to get to $1 billion, we're going to have to grow our top line for the emerging growth division by 50% to give you. Some idea of the base that we're that we're that we're coming off so.
Hopefully that's helpful.
Yes. Thank you very much good luck guys.
Thank you.
The next question comes from Steve Powers with Deutsche Bank. Please go ahead.
Hey, Thanks, and good morning.
Yes, just one more question from me on the on the beyond on beyond beer topic Kevin.
I mean, you've highlighted a lot on this call, but I guess I'm, hoping you could talk a little bit more about the economics of that beyond beer push whether in terms of penny profit margin, especially when it comes to.
On the distribution deals that you've been you've been talking on you mentioned zone a couple of times.
For example, I'm just curious if you can clarify how those relationships are structured from a perspective of the Molson Coors shareholder.
I mean zelle it truly is a game changer in the energy market.
That would be great, but I guess, how are those profits to be split between you and your distribution partners.
Brand on our itself. Thanks.
Yeah. Thanks, Steve look I mean, each deal that we've done has been done differently in structured differently I think it's safe to say that they all operate in the above premium space from a from a revenue point of view some of these deals we've taken equity Stakes.
Some bigger than others.
But we wouldn't be going into this if we werent intending to make that to make money on these on these deals. We've got a we've got such a route to market advantage from us on a perspective.
The biggest channel for for energy drinks.
On zone.
<unk> is C store nobody serves the C store channel.
Other than their distributors. So we think we've got some real structural advantages day.
But we're not going to break down each and every deal that we've done.
Sure that on our intention is that these are above premium products on that we will make money on them and we will have equity in.
Most of the deals that we've done.
Okay. Thank you very much.
The next question comes from Lauren Lieberman with Barclays. Please go ahead hi.
Thanks, Good morning, I think to some degree you've kind of covered this.
My question was really just thinking about.
The EBITDA outlook for 'twenty one.
If I just think about it in terms of rate of growth flat versus 'twenty.
Better than I thought would be the case. So obviously in dollar terms or basis is lower because of the fourth quarter.
But just putting that thinking about that in the context of the timing with which will be kind of posting marketing spending back on I'm not asking for quarterly guidance. Its more of a conceptual conversation I would like to have.
Is it kind of investing ahead of recovery is it investing concurrent with so.
But just how youre thinking about marketing versus revenue growth and supporting some of the newer initiatives could be helpful. On interesting perspective. Thanks.
Thanks, Laura let me trying to these from color.
Without giving you on quarterly budgets.
I think youre going to expect that the second quarter would be a meaningful increase in marketing and sales spend because.
There was such a dislocation in the second quarter last year, where we are.
So much just didn't happen and we were we were pivoting from still trying to figure out what the pandemic.
I think it's safe to say that our marketing spend in Q2 will be quietly.
Quite a lot higher than it was in Q2.
Last year.
On that we'll be investing behind our innovations and guidance behind Miller Coors light.
At the appropriate times of the of the year, but I think the biggest piece of guidance I can give you is is Q2 will be it will be a meaningful increase.
Thanks, Thanks Lauren.
This concludes our question and answer session I would now like to turn the conference back over to Greg Kenny for any closing remarks.
Thank you operator, I appreciate everybody joining us today and I know there may be additional questions, we weren't able to answer.
Please follow up with me and our IR team.
And with any of those questions and we look forward to talking with many of you.
The year on.
On bolt.
Thanks, everybody for participating in this call and talk to you all soon thank you.
Okay.
This conference has now concluded. Thank you for attending today's presentation, you may now debt.