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Molson Coors Reports Higher Net Sales and Lower
Underlying After-Tax Income for the Fourth Quarter 2012
For Full Year, Molson Coors Reports Higher Net Sales and Underlying After-Tax Income and $865 Million of Underlying Free Cash Flow Generated
Fourth Quarter 2012 Highlights
- Underlying after-tax income: $126.1 million, down 28.4% ($0.69 per diluted share, down 28.9%)
- Net income from continuing operations attributable to MCBC: $60.1 million, down 65.1% ($0.33 per diluted share, down 65.3%)
- Net sales: $1.03 billion, up 9.9%
- Worldwide beer volume: 14.1 million hectoliters, up 15.3%
Full Year 2012 Highlights
- Underlying after-tax income: $710.5 million, up 1.3% ($3.91 per diluted share, up 4.0%)
- Net income from continuing operations attributable to MCBC: $441.5 million, down 34.5% ($2.43 per diluted share, down 32.9%)
- Net sales: $3.92 billion, up 11.4%
- Worldwide beer volume: 55.1 million hectoliters, up 13.9%
- Underlying Free Cash Flow: $864.7 million, up 39.8%(1)
DENVER, Colo., and MONTREAL, Quebec – February 14, 2013 – Molson Coors Brewing Company (NYSE: TAP; TSX: TPX) today reported a 15.3 percent increase in fourth quarter worldwide beer volume and 9.9 percent higher net sales in the fourth quarter of 2012 due to the addition of Molson Coors Central Europe (MCCE) operations in 2012. Underlying after-tax income declined 28.4 percent for the fourth quarter 2012, driven by a higher underlying effective tax rate and the impact of cycling strong quarterly results the year before. Net income from continuing operations attributable to MCBC (a U.S. GAAP earnings measure) decreased 65.1 percent due to the factors mentioned above, as well as higher special charges and the impact of a 50 percent increase in the Serbian statutory corporate income tax rate in the quarter.
Underlying after-tax income in 2012 increased 1.3 percent to $710.5 million, or $3.91 per diluted share, due to the addition of MCCE operations on June 15, 2012. Full-year income from continuing operations decreased 34.5 percent to $441.5 million due to costs associated with the acquisition of MCCE. Underlying free cash flow increased to $864.7 million from $618.4 million a year ago, driven by an increase in operating cash flow primarily due to the addition of Central Europe and improvements in working capital.
Molson Coors president and chief executive officer Peter Swinburn said, “In the fourth quarter, our worldwide volume and net sales increased due to the addition of our Central Europe business, while underlying after-tax income declined 28 percent, driven by a higher tax rate this year and cycling strong quarterly results the year before, including an additional week in our fiscal 2011 and some other one-time factors that did not repeat.”
Swinburn added, “For the full year 2012, the biggest news was the acquisition of our Central Europe business, which we expect to strengthen our company, enhance our growth profile and increase shareholder value in the years ahead. We have begun implementing plans to capture synergies, leverage best practices and pay down debt related to this new business. This acquisition helped our worldwide volume grow by 14 percent, net sales by more than 11 percent, and underlying earnings per share by 4 percent. Also, Molson Coors generated $865 million of underlying free cash flow, up nearly 40 percent from 2011.”
The Company’s fourth quarter results include the impact of favorable foreign currency movements from the British Pound and Canadian Dollar, which increased underlying pretax income by approximately $5 million. For the full year, foreign currency movements from the British Pound and Canadian Dollar decreased underlying pretax income by approximately $9 million.
Effective Income Tax Rates
The Company’s fourth quarter effective income tax rate was 54 percent on a reported basis and 18 percent on an underlying basis. The increase in the quarterly reported rate was primarily due to an increase in the Serbian statutory corporate income tax rate from 10 percent to 15 percent, effective January 1, 2013. As a result of differences between the book and tax bases of intangible assets purchased in the Central Europe acquisition, we increased our deferred tax liability by $38.3 million because of this tax rate change.
The Company’s full year 2012 effective tax rate was 26 percent on a reported basis and 18 percent on an underlying basis. The Company estimates that its underlying effective tax rate will be in the range of 16 percent to 20 percent for full year 2013, assuming no further changes in tax laws.
Total debt at the end of the fourth quarter was $4.668 billion, and cash and cash equivalents totaled $624 million, resulting in net debt of $4.044 billion.
Fourth Quarter Business Segment Results
The following are the Company’s fourth quarter 2012 results by business segment:
Canada underlying pretax income decreased 22.2 percent to $101.0 million in the quarter. In local currency, underlying pretax income decreased 25 percent, driven by the impact of lower volume, a mix shift toward higher-cost products, and higher pension expense, along with cycling an extra week and approximately $10 million of positive one-time adjustments in 2011. The 53rd week in fiscal 2011 provided an estimated $12 million of underlying pre-tax profit in Canada in the fourth quarter. A 3 percent increase in the Canadian dollar versus the U.S. dollar drove an approximate $3 million positive impact in the quarter.
Sales-to-retail (STRs) decreased 13 percent in the fourth quarter primarily due to a weak Canadian market and cycling the 53rd week in 2011. Excluding the 140,000 hectoliter impact of the 53rd week, STRs declined 7 percent, driven partially by a more than 20 percent increase in Quebec beer excise tax rates in November and the National Hockey League lockout, which ended in January. Our Canada market share declined approximately one share point from a year ago on an estimated industry volume decline of 5 percent, excluding the 53rd week. Fourth quarter total sales volume in Canada for Molson Coors decreased nearly 12 percent.
Net sales per hectoliter increased nearly 2 percent in local currency driven by continued positive pricing.
Cost of goods sold (COGS) per hectoliter increased approximately 13 percent in local currency, driven by fixed-cost deleverage from lower volumes, input inflation, higher pension expense, a mix shift toward higher-cost packages and brands, and the impact of cycling positive accounting and employee-related adjustments from 2011 that did not repeat in 2012, partially offset by strong cost savings.
Marketing general and administrative (MG&A) expense decreased nearly 17 percent in local currency, resulting from lower marketing and sales investments, partially related to fewer NHL opportunities, along with the benefit of general and administrative savings initiatives.
United States Business (MillerCoors)(2)
Molson Coors underlying U.S. segment pretax income decreased 5.4 percent to $80.9 million in the quarter.
Operating and Financial Highlights
MillerCoors underlying net income for the quarter, excluding special items, decreased 4.2 percent to $185.8 million, driven by increased marketing investment.
MillerCoors domestic STRs declined 1.1 percent, on a trading-day-adjusted basis. Domestic sales-to-wholesalers (STWs) decreased 1.3 percent.
Domestic net revenue per hectoliter, which excludes contract brewing and company-owned-distributor sales, grew 2.9 percent primarily due to strong net pricing and favorable mix. Total company net revenue per hectoliter, including contract brewing and company-owned distributor sales, increased by 2.9 percent. Third-party contract brewing volumes were down 0.4 percent.
COGS per hectoliter increased 1.6 percent driven by commodity inflation and packaging innovation, partially offset by cost savings.
MG&A expense increased 6.4 percent, driven primarily by increased marketing investments.
Depreciation and amortization expenses for MillerCoors in the fourth quarter were $70.3 million, and additions to tangible and intangible assets totaled $178.5 million.
Central Europe Business – Pro Forma (3)
Central Europe underlying pretax income decreased 12.2 percent to $12.9 million in the quarter. In local currency, underlying pretax income decreased 5 percent, driven primarily by the volume impact of year-on-year destocking of distributor inventories in Serbia and Romania. Unfavorable foreign currency movements reduced earnings approximately $1 million versus the pro forma quarter a year earlier.
Central Europe sales volume decreased 5 percent driven almost exclusively by the inventory destocking and a focus on maintaining price growth in all markets. Overall regional market share declined slightly in the fourth quarter as the company decided not to participate in the low-margin value segment in Romania and maintained margins in Hungary.
Net sales per hectoliter increased 2 percent in local currency due to strong revenue management driving positive net pricing, along with value-enhancing innovations.
COGS per hectoliter increased nearly 4 percent in local currency, driven by input cost inflation, particularly grains.
MG&A expenses decreased approximately 1 percent in local currency, due to ongoing focus on overhead cost management.
United Kingdom Business
U.K. underlying pretax income decreased 35.1 percent to $22.6 million in the quarter, due to lower volume and higher input inflation and pension expense, partly offset by positive brand and channel mix, the benefit of cost saving initiatives and lower marketing expense. These results reflect no significant impact from foreign currency movements.
U.K. STRs decreased 19 percent due to a weak U.K. market, a strong fourth quarter performance in 2011 and cycling the 53rd week in 2011. Excluding the 165,000 hectoliter impact of the 53rd week, STRs declined approximately 14 percent.
Net sales per hectoliter increased 14 percent in local currency, driven by favorable brand mix, higher on-premise pricing, and mix shift toward factored (non-owned) products, partially offset by lower off-premise pricing.
COGS per hectoliter increased nearly 22 percent in local currency, driven by brand mix, input inflation, fixed-cost deleverage from lower volumes, and mix shift toward factored products, partially offset by cost savings initiatives.
MG&A expenses decreased 16 percent in local currency, due to cost saving initiatives and cycling higher marketing expense and the 53rd week in the fourth quarter of 2011.
International Business (4)
The International segment posted underlying pretax income of $0.3 million in the fourth quarter, up from a $7.5 million loss a year ago due to improved performance in Japan, the inclusion of Central Europe global export and license business results, overhead cost reductions, and the elimination of losses in our China joint venture, which was deconsolidated in the third quarter. The Central Europe global export and license business contributed underlying pretax income of $2.7 million in the fourth quarter.
International STRs increased 45 percent due to the addition of the Central Europe global export and license business. Net sales per hectoliter increased nearly 8 percent, driven by mix shift to higher revenue-per-hectoliter geographies and brands. Cost of goods per hectoliter decreased nearly 14 percent due to brand mix and the addition of Central Europe export volume. International MG&A expense decreased 17 percent.
Underlying Corporate pretax expenses totaled $63.8 million for the fourth quarter. This $11.5 million increase was due to $20.1 million of higher net interest expense related to financing our Central Europe acquisition this year, partially offset by lower employee compensation and project expense. Foreign currency movements favorably impacted Corporate underlying pre-tax results by approximately $2 million in the quarter.
Special and Other Non-Core Items
The following special and other non-core items have been excluded from underlying pretax earnings.
During the quarter, Molson Coors special items resulted in a $22.8 million pretax charge driven by $19.7 million of restructuring charges in Canada, the U.K., Central Europe, International and Corporate, and $2.8 million of other employee-related charges.
Other non-core items resulted in a $3.9 million pretax gain, which was due to a $3.6 million unrealized mark-to-market gain primarily related to fair value and foreign exchange adjustments to our EUR 500 million convertible note, along with a $4.9 million net gain driven by the sale of water-rights . These non-core gains were partially offset by $4.6 million of MCCE acquisition and integration related costs. In addition, the Company recognized a $38.3 million non-core charge for the tax effect of a Serbia statutory corporate income tax rate increase.
During the quarter, MillerCoors reported a $15.4 million write-off of information systems assets related to the Business Transformation project. This equates to $6.5 million at Molson Coors’ 42 percent economic ownership share.
2012 Fourth Quarter and Year-End Earnings Conference Call
Molson Coors Brewing Company will conduct an earnings conference call with financial analysts and investors at 11:00 a.m. Eastern Time today to discuss the Company’s 2012 fourth quarter and full year results. The Company will provide a live webcast of the earnings call.
The Company will also host an online, real-time webcast of an Investor Relations Follow-up Session with financial analysts and institutional investors at 2:00 p.m. Eastern Time. Both webcasts will be accessible via the Company’s website, www.molsoncoors.com. Online replays of the webcasts will be available until 11:59 p.m. Eastern Time on May 7, 2013. The Company will post this release and related financial statements on its website today.
(1) The Company calculates non-GAAP underlying after-tax income and underlying free cash flow by excluding special and other non-core items from the nearest U.S. GAAP performance measures, which are net income from continuing operations attributable to MCBC and net cash provided by operating activities, respectively. For further details regarding these adjustments, please see the section “Special and Other Non-Core Items,” along with tables for reconciliations to the nearest U.S. GAAP measures. Unless otherwise indicated, all $ amounts are in U.S. Dollars and all quarterly comparative results are for the Company’s fiscal fourth quarter ended December 29, 2012, compared to the fiscal fourth quarter ended December 31, 2011. Additionally, all per-hectoliter calculations exclude contract brewing and non-owned factored beverage volume in the denominator but include the financial impact of these sales in the numerator, unless otherwise indicated.
(2) MillerCoors, a U.S. joint venture of Molson Coors Brewing Company and SABMiller plc, was launched on July 1, 2008. Molson Coors has a 42 percent economic interest in MillerCoors, which is accounted for using the equity method. Molson Coors’ interest in MillerCoors results, along with certain adjustments under U.S. GAAP, is reflected in “Equity Income in MillerCoors.” This release includes reconciliation from MillerCoors Net Income to Molson Coors Brewing Company Equity Income in MillerCoors and Non-GAAP U.S. Segment Underlying Pretax Income (see Table 6).
(3) Unless otherwise indicated, all $ amounts are in U.S. Dollars, and quarterly comparative results are for MCCE’s actual fiscal fourth quarter ended December 31, 2012, compared to the pro forma fiscal fourth quarter ended December 31, 2011. The pro forma statements of operations include adjustments directly attributable to the acquisition of StarBev. Pro forma amounts include the results of operations for Central Europe, excluding the Central Europe global export and license business, for the periods indicated on each statement. These amounts also include pro forma adjustments as if MCCE had been acquired on December 26, 2010, the first day of our 2011 fiscal year, including the effects of on-going acquisition accounting impacts and eliminating operating costs and expenses directly related to the transaction, but do not include adjustments for costs related to integration activities following the completion of the Acquisition, cost savings or synergies that have been or may be achieved by the combined businesses. Pro forma amounts are not necessarily indicative of what the results would have been had we operated the businesses since December 26, 2010, and do not purport to be indicative of future operating results.
(4) Beginning July 1, 2012, our Central Europe export and license business (“Central Europe export”), is reported in our MCI segment. For periods prior to this date, this business was included with the Central Europe business, which we acquired on June 15, 2012.
Overview of Molson Coors
Molson Coors Brewing Company is one of the world’s largest brewers. The Company’s operating segments include Canada, the United States, Central Europe, the United Kingdom, and Molson Coors International (MCI). The Company has a diverse portfolio of owned and partner brands, including signature brands Coors Light, Molson Canadian, Staropramen and Carling. Molson Coors is listed as the beverage industry sector leader on the 2012/2013 Dow Jones Sustainability World Index (W1SGITRD), the most recognized global benchmark of sustainability among global corporations. For more information on Molson Coors Brewing Company, visit the company’s web site, www.molsoncoors.com.
This press release includes estimates or projections that constitute “forward-looking statements” within the meaning of the U.S. federal securities laws. Generally, the words “believe,” expect,” intend,” anticipate,” “project,” “will,” and similar expressions identify forward-looking statements, which generally are not historic in nature. Although the Company believes that the assumptions upon
its forward-looking statements are based are reasonable, it can give no assurance that these assumptions will prove to be correct. Important factors that could cause actual results to differ materially from the Company’s historical experience, and present projections and expectations are disclosed in the Company’s filings with the Securities and Exchange Commission (“SEC”). These factors include, among others, our ability to successfully integrate StarBev, retain key employees and achieve planned cost synergies; pension plan costs; availability or increase in the cost of packaging materials; our ability to maintain manufacturer/distribution agreements; impact of competitive pricing and product pressures; our ability to implement our strategic initiatives, including executing and realizing cost savings; changes in legal and regulatory requirements, including the regulation of distribution systems; increase in the cost of commodities used in the business; our ability to maintain brand image, reputation and product quality; our ability to maintain good labor relations; changes in our supply chain system; additional impairment charges; the impact of climate change and the availability and quality of water; the ability of MillerCoors to integrate operations and technologies; lack of full-control over the operations of MillerCoors; the ability of MillerCoors to maintain good relationships with its distributors; and other risks discussed in our filings with the SEC, including our Annual Report on Form 10-K for the year-ended December 31, 2011, which are available from the SEC. All forward-looking statements in this press release are expressly qualified by such cautionary statements and by reference to the underlying assumptions. You should not place undue reliance on forward-looking statements, which speak only as of the date they are made. We do not undertake to update forward-looking statements, whether as a result of new information, future events or otherwise.
Reconciliations to Nearest U.S. GAAP Measure
Pretax and after-tax underlying income and underlying free cash flow should be viewed as supplements to, not substitutes for, our results of operations and cash flow presented on the basis of accounting principles generally accepted in the United States. Our management uses underlying income and underlying free cash flow as measures of operating performance to assist in comparing performance from period to period on a consistent basis; as measures for planning and forecasting overall expectations and for evaluating actual results against such expectations; and in communications with the board of directors, stockholders, analysts and investors concerning our financial performance. We believe that underlying income and underlying free cash flow performance are used by and are useful to investors and other users of our financial statements in evaluating our operating and cash performance because they provide them with additional tools to evaluate our performance without regard to special and other non-core items, which can vary substantially from company to company depending upon accounting methods and book value of assets and capital structure.