Earnings Call: Q4 2020

Feb 11, 2021

Good day, and welcome to the Molson Coors Beverage Company 4th Quarter and Fiscal Year 2020 Earnings Conference Call. You can find related slides on the Investor Relations page of the Molson Coors website. Our speakers for today's call are Gavin Hattersley, President and Chief Executive Officer and Tracy 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 FP and A and Investor Relations. Mr. Tierney, please Go ahead. Thank you, operator, and hello, everyone. Following prepared remarks from Gavin and Tracy, we'll take your questions. If you have technical questions on the quarter, please pick them up with our IR team in the days and the weeks to follow. Today's discussions include forward looking statements and actual results or trends could differ materially from our forecasts. 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, I consider us lucky. The revitalization plan we put in place in October of 2019 positioned our company well to weather the storms of 2020. Our business was leaner and more nimble, which put us in a better position to conserve resources as the circumstances And you deploy them effectively as circumstances arise. The results bear that out. When you consider what we set out to do under our revitalization plan, we accomplished an incredible amount in 2020 and that has given us a tremendous springboard 2021. Our 2 largest brands Coors Light and Miller Lite are iconic core grew 6.1% 8.6% in the U. S. Our above premium brands in the U. S. Reached a record high percentage of the portfolio in the second half of twenty twenty. Beyond beer, our first foray into non alcohol cannabis beverages through the Trust joint venture has netted the number one dollar share spot in the entire 400% and we approximately doubled our annual investments in our hometown communities. That Here's the story of Myles and Coors in 2020. Now you may be wondering why I have such confidence, Especially if you only look at our consolidated top line results in the 4th quarter, but that number alone does not tell the full story. And if you only look at that piece of data, you'll miss it. Our top line results in the 4th quarter were overwhelmingly due to losses resulting from government To put it more bluntly, Europe alone accounts for 92% of our 4th quarter top line decline. But those results are not reflective of the performance we've seen across the rest of the business and the story is very different in our largest market. How different? In the Q4, Molson Coors grew net sales revenue in the United States. We grew the top line in the United States. Our plan is working. So let's look deeper at 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 iconic core. In the U. S, our largest beers Coors Light and Miller Lite delivered 6.1% 8.6% respective growth in the off premise. Again, grew share in the premium line beer segment and they finished 2020 with stronger brand health. We're pleased but not satisfied with those results. So in 2021, we're going to put even more marketing behind these 2 iconic brands And we're thinking big, as you may have noticed around the big game last weekend. And again, I want to point We are demonstrating our ability to grow in Solsys 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 core, Our growth in above premium and our expansion beyond beer. In the second half of twenty twenty, above premium products hit a record high portion of our U. S. Relative to any prior year comparable period. We doubled our share of Celsius in the U. S, moving towards our double digit Busy's incredible growth has been accomplished with basically just one pack. Within a few weeks, we plan to add more firepower to that brand with a second variety pack And a few weeks later, we plan to launch Vizzy Lemonade, a lineup we believe is tailor made for Vizzy 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, In 2021, we have strong plans to accelerate marketing support behind Coors Seltzer as well as its commitment to help save America's Rivers. And that's just the beginning. We are about to launch Topo Chica Hard Seltzer, which is getting a lot of attention from retailers and distributors alike. Topo Chico mineral water is beloved in the biggest markets throughout the United States, especially in Texas, a high potential market. Quickly on its heels, we plan to bring Topo Chico Ranch Water to market. And again, we see this brand is best positioned to take advantage of the Ranch Water craze that has been inspired by Topo Chico mineral water enthusiasts mixing up ranch water at home. And still to come is Proofpoint, our first spirited seltzer. When all 4 seltzers are in market later this spring, we believe we will boast the strongest, most And while we started behind others in the United States, in Canada and Europe, we are early entrants in the hard sell for category. In the next couple of weeks, we are taking both Vizzy and Coors Seltzer into Canada. In Europe, building on an existing brand partnership already in markets, The launch of our own 3 fold brand Seltzer is planned for March and we will be leading the development of the category across Central and Eastern Europe with an owned brand in the Q2. In above premium beers, we have high expectations for Blue Moon Light Sky, Which ended 2020 as the number one new beer in the United States for 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% per Nielsen in 2020, outpacing the craft segment once again. And next month, we will be taking HOP BEDY National in the U. S. And Canada. It's our 1st national IPA. We believe it will be another driver of growth for our above premium portfolio. And do not forget about Yingling. This fall, the newly formed joint venture plans Bring Yingling to one of America's biggest beer drinking states, Texas. The reception has already been incredible And there is significant upside potential with Yingling as the joint venture begins its Westwood expansion. At the beginning of last year, we changed our name to the Molson Coors Beverage Company and it wasn't just words. By the end of the year, our non alc strategy came into focus, We're piloting our own brands with our partner L. L. Livations. We've taken equity investments in other opportunities including 2 with legendary non Elk Innovator Lance Collins, we signed distribution agreements to enter the fast growing spaces like RTD Coffee It was like alone and energy drinks with ZOO through our new energy drink partnership with the leadership team led by Dwayne Farooq Johnson. Zohr is getting very positive reaction from retailers and distributors. Farooq isn't just putting his name on this. He's personally making calls to retailers. We're bringing that to market this spring. We think Zillow could be a game changer in the energy drink space. Trust Canada, our Canadian cannabis joint venture with HEXO, launched their beverage portfolio in August And by December, they jumped the number one dollar share position with 4 of the top 5 cannabis beverage SKUs in Canada. And Trust USA is building on that through their first lineup of hemp derived CBD beverages in Colorado, which entered the market in December. We are 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 into a $1,000,000,000 revenue business by 2023. And as a reminder, That ambition does not include our hard sales. And we recently announced our first entry into Fast growing RTD cocktail space through an exclusive equity and distribution agreement with Superbird and above premium tequila based Hello, Mike. Last year, we also made major investments to help our business grow the top line. We invested in our e commerce capabilities all around the globe with more staff and more robust digital capabilities And it paid off last year with 230% growth in e commerce in the U. S. Alone. We expanded our sulfur production capacity by approximately 400%. And we also expanded our LightSky production capacity by approximately 400 We completed a sleekan production line capable of manufacturing approximately 750,000,000 sleek cans annually. And on the topic of cans, I'm really pleased to say that our packaging material supply has vastly improved with glass bottles, paperboard And tall cans with all returning to normal material availability. In fact, our Coors Light can inventory is higher than it was at this point last year. And our industry standard can supply is improving. We have sourced cans from 4 continents and worked closely with our suppliers to We will continue investing in our capabilities throughout the year as we work to grow our ability to produce high margin above premium products. Last but certainly not least is how we are supporting our people and our communities. This one is particularly important to me. When I took over as CEO, I made it clear that I want Molson Coors to have a people's first culture. And that approach guided our decision making throughout the last year. The work in this space is never done, but we are making important progress. Last summer, we set a goal of increasing the representation people of color in the United States by 25% by the end of 2023 across the country among salaried employees and in leadership positions, Each way market availability 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, empowerment, racial justice and community building and provided nearly 3,000,000 meals to families in our hometown communities struggling with food insecurity. But we must do more. So today, I'm proud to announce not only will we recommit to matching last year's investments in our communities, we have also committed to spend a total of $1,000,000,000 with diverse suppliers over the next 3 years. This is a commitment that benefits all of us. A wider base of talented suppliers with different backgrounds and life experiences will be a benefit to our company And the diverse suppliers who earn our business will be able to turn in in turn hire more talented employees into their businesses. Last summer, we said that Molson Coors' response to addressing racial injustice would not just be a moment in time, passing things, set aside and forgotten as 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 fail. Even with the unforeseeable challenges of last year, we built on the strength of our iconic core. In the second half of twenty twenty, We achieved a record high portion of our U. S. Portfolio in 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 our top line. We're going to follow through on this and we're on the pathway there. Folks, this is our revitalization plan in action. I know there have been questions about whether or not we can execute all of this, but No one has to wonder any longer, but we're doing it right now today. And now I'll turn it over to Tracy who can provide you with more detail on our financial performance and our outlook for 2021. Chase? Thank you, Gavin, and hello, everyone. The corona The pandemic had a significant impact on our 2020 financial performance, primarily due to the on premise restrictions and lockdown. Our Europe business was the most impacted, particularly in the U. K, where our business skewed heavily towards the on premise and drove revenue and EBITDA declines in both the Q4 and for the full year 2020. In fact, Europe, which accounted Only 15% of our revenue in 2020 contributed to 61% of revenue decline and 83% of our EBITDA declined for the year and 92% of the revenue decline and 56% about EBITDA declines for the Q4. Despite these incredible challenges in 2020, we are Take you through our full year performance and then I'll touch on our quarterly results before moving on to our outlook. Recapping the year, consolidated net sales revenue decreased 8.7% in constant currency, of which North America was down 4.3%, While Europe was down 28.4 percent on a constant currency basis, while we delivered net pricing growth in North America and Europe as well as positive brand and package mix in the U. S. This was more than offset by volume declines and unfavorable channel mix, principally driven by varying degrees of on premise restrictions throughout much of the year due to the coronavirus pandemic, which also drove packaging material constraints due to the unprecedented scan demand. Brand volumes declined 7.8 percent and financial volumes declined 8.9%. North American shipment Trends improved in the second half of the year as certain packaging material constraints eased and we built distributor inventory. Net sales per hectoliter on a brand volume basis grew 1.1% in constant currency due to pricing growth in North America and Europe as well as positive brand and package mix in the U. S. The success of our above premium innovations, including Busy, Blue Moon LifeSky and Coors Delta helped drive U. S. NSF per hectoliter up 2.3% for the year. Underlying COGS per hectoliter increased 2.8% on a constant currency basis, driven by cost inflation, including higher transportation costs, volume deleverage and mix impact from premiumization in North America, partially offset by cost savings. Higher can sourcing costs in North America contributed to the higher cost inflation. After the onset of the coronavirus pandemic, we aggressively began sourcing additional aluminum cans from all over the world to support our core brands to address unprecedented Off premise demand. Also, we saw a tightening of the freight market throughout the year, which has led to higher transportation costs. Underlying MG and A decreased 9.9% on a constant currency basis As we quickly took action, servicing spend away from areas impacted by the coronavirus pandemic, particularly live entertainment events and sporting events due to or delayed seasons, such as the delayed start of the NHL season into 2021. In the second half of the year, we began to progressively increase marketing spend, particularly in social and TV media, Stepping up support behind our new innovations such as Vizzy, Voomoon Life Sky and Coors Seltzer in alignment with additional supply coming online as well as continuing to support our core Coors Light, Miller Lite and other iconic core brands. MG and A declines were also driven by targeted cost mitigation actions and significant cost savings in the 1st year of our revitalization cost savings program. In aggregate, we delivered approximately $270,000,000 across MG and A and cost of goods sold, facing us on track to meet our $600,000,000 target in total gross savings. These reductions were offset by innovation spend impacting lower incentive compensation and a non recurring vendor benefit in the prior year, which we referenced last quarter. As a result, underlying EBITDA decreased 10% on a constant currency basis. Underlying free cash and higher cash taxes, partially offset by favorable working capital. The working capital benefit was driven by the deferral of approximately $150,000,000 in tax payments on various government sponsored payment deferral programs related to the coronavirus pandemic, of which we currently anticipate the majority to be paid in 2021 as they become due. Capital expenditures incurred were $550,000,000 for the year. With improved liquidity and strong cash management, We were able to accelerate certain investments in expanding our production capacity and capabilities to support new innovations and growth initiatives. In addition to the strong free cash flow performance, we made tremendous strides in in 2020 and reduced our trailing 12 month net debt to underlying EBITDA ratio to 3.5x as we remain committed to maintaining our investment Great. Thanks. Now let's discuss the 4th quarter, where again Europe, due to the on premise lock Principally due to financial volume declines as a result of the on premise restrictions, 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 U. S. North American net sales revenue was down 1% in constant currency. However, in the U. S, despite increased on premise And we continue to build distributor inventory in the U. S. With brand volumes down 6.2% compared to domestic shipment declines of 2.3%. Growth in the U. S. Business was more than offset by lower volumes 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 39.4% in constant currency, driven by volume declines and negative mix due to increased on premise restrictions With the most meaningful in the U. K, which experienced a return to almost total on premise lockdown for November and the historically strong month of December, And with the subdued nature of many festive celebrations during the Q4, we did not see a big shift of volume into the off premise. Net sales select fleet on a brand volume basis increased 3.7% in constant currency, reflecting net pricing growth in North America and Europe, more than offsetting the negative mix effects of the various market dynamics and consumer shifts caused by the coronavirus pandemic. In the U. S, net sales to Victoria on a brand volume basis increased 4.2%, driven by favorable sales mix from new innovations and strong net pricing growth. While in Europe, net sales per hectoliter on a brand volume basis decreased 8.2% due to unfavorable mix, particularly driven by the higher margin UK business, which more than offset pricing increases. Underlying cost per hectoliter increased 6.4% on a constant currency basis as we saw a greater impact on freight inflation and U. S. Mix premiumization in Q4 compared to the full year. Our core brands and key innovations as well as backing lower incentive compensation and a non recurring vendor benefit in the Q4 of 2019. This was partially offset by cost savings and lower discretionary spend. As a result, underlying EBITDA decreased 33.6% on diversity of the impact of the coronavirus pandemic on our Europe business as well as the protracted recovery currently expected in certain on premise markets, We recognized a goodwill impairment charge of $1,500,000,000 in our Europe segment. We also recognized a 59 point $1,000,000 of asset impairment charges in our North American segment. These charges are non cash and are not included in the underlying results. This takes me to our financial outlook. As you may recall, on March 27th last year, we withdrew our guidance due to the uncertainty driven by the coronavirus pandemic. While uncertainty remains in an effort to help enhance visibility, We have determined to reinstate our practice of providing guidance. We have also determined to adjust the metrics provided, which includes adding guidance for net sales revenue, a metric which aligns with our revitalization TAM goals for driving top line growth, as well as net debt to underlying EBITDA leverage ratios given our commitment to remaining investment grade. We are very proud of our performance and Agily navigating the coronavirus pandemic and executing against our revitalization plan, but recognize that headwinds remain. The pandemic continues to impact our business due to on premise losses across all our and disproportionately so in Europe as well as Canada. We expect this domestic shipment trends in the U. S. To continue to be higher than Shifting to consumption in the U. S. In Europe, we continue to experience significant lockdowns and expect Q1 volumes will be materially impacted versus the prior year period, similar to what was experienced in the Q4 of 2020. For 2021, we expect to deliver mid single digit net sales revenue growth. 2021 is intended to be a year of investment as we continue to deliver our revitalization plan and drive towards long term growth. This entails increasing year over year marketing spend to build on the strength of our core brands and support our successful 2020 launches, including Blue Moon Life Science, Busy and Coors Sulfur and new innovations to come as well as investing in further expanding our capabilities to drive Productivity and Efficiency. We expect significant increases in spend beginning in the Q2 versus the prior year comparable quarter. While we continue to expect revitalization plan savings, as I discussed, given this increased investment, Along with cost headwinds related to higher inflation, including transportation costs and continued premiumization of our portfolio, We anticipate 2021 underlying EBITDA to be approximately flat compared to the prior year. We anticipate underlying depreciation and amortization of $800,000,000 net interest expense of $270,000,000 plus or minus 5 percent and an effective tax rate in the range of 20% to 23%. We entered 2021 with greatly improved financial flexibility, better enabling us to not only continue to invest in our business, but to Exposition by $1,100,000,000 in 2020 and reduced our leverage ratio to 3.5x as of December 31, 2020. We are proud of this progress and are establishing a target net debt to underlying EBITDA ratio of approximately 3.25x by the end of 2021 and below 3x 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 are doing all of this while continuing our commitment to maintaining any time upgrading our investment grade 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 united to successfully navigate and overcome challenges posed by the coronavirus pandemic. While these challenges have created some near term fluctuations in financial and operating results, we are confident we are on the right path of driving towards long term revenue 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. The first question today comes from Andrea Teixeira with JPMorgan. Please go ahead. Hey, good morning, guys. It's actually Kojo on for Andrea. Just at a high level, we're just wondering if you could provide a little bit of color on how depletions have trended quarter to date In both North America and Europe. Look, we don't provide guidance In month depletion, lots of ups and downs. But from a European point of view, as Tracy said in her opening remarks, the on premise remains In lockdown, and so we expect the Q1 volumes in Europe and particularly in the United Kingdom to be challenged. From a US point of view, the lockdowns remain, although it does vary From state to state, and we do see a loosening of on premise restrictions both in North America and In Europe as we progress into Q2 and further on into the year. From a supply point of view, just reiterate my comments in the Script that our Coors Light can supply is much improved and our inventory levels are actually higher than they were at the same time last year. Thanks, Greg. The next question comes from Kevin Grundy with Jefferies. Please go ahead. Great. Thanks. Good morning, everyone. I wanted to spend some time on Europe, just given the impact in the quarter. So obviously pretty challenging both from a revenue and profitability perspective. Understanding that the impairment charges is non Cash, it naturally signals a less confident outlook and ability to return to levels of profitability, perhaps you previously thought At least within a reasonable amount of time when you're doing the discounted cash flow model. So Gavin, it would be good to get your updated views on your outlook for this business, Strategic fit within the portfolio and how you're thinking about the cost structure given this less constructive outlook? And then Tracy for you relatedly, 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 2nd quarter was worse than the 4th, but the margin performance was Clearly a lot more pressure. The decremental margins in the second quarter, about 25% closer to 60% in the 4th quarter. It just seemed like there is a better ability to sort of flex down MG and A in the 2nd quarter than there was in the 4th. I think it'd be useful for folks if you could maybe spend a little bit of time on that. So thank you both. I'll pass it on. Thanks, Kevin. I'll talk about Europe and performance specifically. Look, I mean, the on premise Restrictions in Q4 were fairly draconian. There was somewhat of a scattergun approach Across Europe, which is made a little harder for us to plan and react to particularly on the cost line. When you compare Q4 versus Q2, the impact for Q4 was particularly pronounced because December has historically been a very strong month On premise in the UK given the holidays and of course you can't be outdoors that much comfortably in the Q4 as much as It can be in the Q2. It's also a seasonally lower trading period in Central and Eastern Europe. So We saw similar declines in the second and fourth 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 plan. Certainly, the lockdowns, as I said earlier, have continued into the Q1. We did make some conscious decisions in Q4 though Kevin to invest behind our core brands, not only in the United States, but also in Europe and in particular In Central Europe, we've got some strong brand strong healthy brands and we wanted to make sure positioned ourselves for sustainable recovery in 2021. So that explains why the MG and A in Europe was a little higher than you might have been expecting. You're investing behind our brands. What Question there? Yes. So, Kevin did ask about the strategic outlook. Okay. Yes, look, I mean, Kevin, our top priority as a company as a whole Just to make sure that we emerge strong coming out of the pandemic when the on premise returns to more normalized levels and this includes Europe, which we continue to view as a strategic asset. And then maybe If I can just jump in on the margins. So, yes, in Europe in Q4, we focused our marketing investment on specific brands End markets, we had capacity, and we needed to ensure that we were competitive in the context of share of voice and brand health Metrics, and so the investments that we made in Q4 in Europe were to support the ongoing performance of our national Champion brands and our premiumization. And then also just to note, we were cycling comparatively much lighter spend in Q4 of 2019 in Central Europe. So that would account for some of the margin differences. Okay. Thank you very much. A bunch of questions, and I'll pass it on. Thank you. The next question comes from kumai Jagalala with Credit Suisse. Please go ahead. Hi, good afternoon everybody. Can you talk a bit about your expectations for the on premise for 20 'twenty one as it relates to what you've incorporated into your guidance and what sort of and specifically to the U. S, 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 know that over the course of 2020, large pack sizes Started took a larger degree of share from the rest of what was being sold at proved retail that obviously will look very When we get to an on premise, a more normalized on premise environment. So, is that a net are you a net share beneficiary as the on premise turns back on? Does it work the opposite direction? If you could help us with some details there, that would be helpful. Thank you. Thanks, Komal. Yes, a lot in there. Let me try and give you some context. Obviously, the reality is the situation remains fluid and it's various markets by market. In the Q3 of last Yes. We did see some on premise reopenings pretty much across the board in the countries in which we operate in. And during the Q4, we saw a return to much more severe On premise restrictions as most countries went back into strict lockdowns and there was no benefit of outdoor dining Given the climate, in terms of our major markets in the UK, the government operated a tiered system of restrictions in October, then they followed that up with a National lockdown in November, they've returned to a tiered system in December, but pretty much the UK is Lockdown 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 varied pictures across the United States Depending on which state. So from an on premise performance point of view in the United States, it's been Fairly stable for a while now. There's no big spike up or down. In terms of market share, We think that the consumer moving to big and trusted brands will benefit us in all the markets in which we operate And where we have seen reopenings, we've seen that play through from a market share point of view. So I think we will be net Beneficiaries when that takes place. I mean, obviously in our both premium portfolio, we were very pleased with our performance They're both premium in the Q4 and that's in the face of Blue Moon and Peroni, which is strong on premise brands being obviously challenged because of the lack of on premise. So we When the on premise comes back more fully that those two brands will be big beneficiaries of it. If you look at UK, which is our largest which is the market which has the largest on premise exposure, we demonstrated A sustained track record of growing our share in the on premise in the UK for at least 5 years pre pandemic, we've grown our share in the on premise As we've driven to be 1st choice for our customers, in fact, just learned this week that we were number 1 again with Customers in the Net Promoter Score survey across the trade in 2020. So we've got contracts to supply Many of our competitors in both the retail and wholesale models, our customers value the service that we bring through our Owned Brands and also our wholesale brands. And so we believe we're well positioned to gain share in the UK market When it reopens. I think I got all your questions there, Kamal. You did and it was probably unfair. It was a lot If I can so I may ask 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, can you give a best guess of what your portfolio break It's likely to look at look like by the end of the year. Is it still likely to be about 2 thirds premium lights, So followed by high end and then I don't know how much non alc will be as part of it, but Maybe just give some idea of if we put all of these deals together, how your portfolio may look different as we move forward with the rollouts of these products in the next 12 months? Let me try and give you some color there, Carmel. Obviously, we've been very clear about the objective in our revitalization plan of driving our above premium Portfolio and our Beyond beer portfolio. Almost all of the deals we've done come at above premium margin. So that was 2 of the 5 focus areas in our revitalization plan that we announced in October Of 2019. And we're going to continue building on that. You could see the results of that in both the Q3 and the Q4 with our Positive mix which we generated. We generated another quarter above 200 basis points of positive mix, which is Continuing to reflect our growth and performance in above premium. For Nielsen, we actually grew share of above premium Despite the on premise challenges which brands like Blue Moon and Peroni have experienced, we think that Yes, we obviously put out the ambition of getting to $1,000,000,000 revenue for our Emerging Growth division, which It's going to require that many of our partnerships that we've just announced like our Zohr partnership, like Alarm and so on Are successful and they're coming off a standing start of 0 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 where Concerns have been expressed about our ability to execute. We grew the top line in the Q4 despite all these Deals that we've done and 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 ZOHA And Coca Chico, a lot of excitement and that 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. I guess my question is, with hard seltzer becoming a larger portion of the mix and I guess the growth story going forward, Can you just kind of take us the gross margin profile of that business for you and how that could change over time? Now the hot seltzer 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 seltzers. We think we've got one of the strongest portfolios of hard seltzers with each brand having a very unique perspective on the category. By the time that we have all 4 of our hard seltzers in markets this year, we think it's differentiated, provides differentiated offering for our consumers and I think we're well placed. Seltzers do operate at the upper end of the above premium price points and therefore operate at the sort of upper end Of our margin structure, we don't give it out publicly specifically, but you can be assured That it's 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 to the growth that you've seen there and certainly you're 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 and certainly in 2021, if the recovery of the on premise is a bit slower than what might happen, just trying to understand sensitivities What's needed to occur in the off premise in order to get you to this top line growth algorithm? Thanks. Certainly believe that there will be some sustainability to the off premise demand. I think consumers have learned new behaviors and New occasions have been created. So I think there will be some sustainability of it. Now obviously, we don't believe that it's going to continue to grow at 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. So I think when the on premise is more readily open, I think we'll see a strong pent up demand from consumers. The other behavioral change which we've obviously experienced in 2020 is the growth of e commerce Sales, many consumers of alcoholic beverages that didn't realize you can buy beer online and they do now and we've seen You know, 2 30% increase in our online sales and I think that that trend will stay and that's why we're making investments in our The next question comes from Lonnie Huiz with Goldman Sachs. Please go ahead. Thank you. Hi, everyone. I guess I'd like to hear a little bit more color on how you're thinking about balancing your investment needs Between your recent innovations and some of the launches with marketing and support behind your core brands, I guess what I'm Still maybe struggling with is how you plan to stabilize or maybe even improve your core business if a lot of your stepped up Investment spend and attention is going to be focused behind all these new initiatives. And then, Gavin, 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 and some of the goals you put out there for all these new and citing brands and partnerships? I think that would be helpful. Thank you. Thanks, Bonnie. Look, I mean, our revitalization plan, Which we announced in October 2019 required us to do both and that was our that's our plan and it remains our plan. Investing behind our iconic core brands and investing behind our both premium and investing behind our beyond is the plan. Tracy mentioned in the guidance approximately flat EBITDA and that's really the revitalization planning Coming to life with our big investments behind both Miller Lite and Coors Light, which will see more spend this year. We'll put more spend behind our above premium portfolio with Blue Moon Light Sky and Blue Moon. We'll put more money behind Seltzers. We will have 4 Seltzers in market this year. We only had 2. 1 was launched in April, the other one was launched in This year we're going to have 4 as we strive to get to the 10% market And we're going to be investing behind our new ventures like Zoa and L'Accolon And also our Yingling joint venture. In terms of actual performance, Bonnie, Coors Light and Miller Lite have performed really well In spite of the headwinds which they've got, we've made numerous pivots from a marketing Point of view to meet the changed circumstances and where necessary we put marketing money behind it in the Q4 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 creative which has resonated with consumers. We've actually created 40 pieces of new creative since March. A lot of that has been behind Miller Lite And Coors Light, I mean, just some examples of that would be our Farewell Work Holiday Party for Miller Lite and then I campaigned to get Tom Flores into the Pro Football Hall of Fame with Coors Light and you can see the benefits of that for With both of those brands, I mean Coors Light drove significant share growth in the first half of the year. It did slow down in the Q3 because of the inventory Supply constraints which we had which we are now through because our inventory is higher than it was at the same time last year for Coors Light. And in December, we saw the best industry share trend we've seen in years outside of the pantry loading for March for Coors Light. So The Made to Chill campaign platform is working and we're excited about it and Miller Lite's Share trends have been strong. Now, obviously, as I said in my opening remarks, we're not satisfied with the performance until And we intend to put more money behind it. So that's a very long winded way of saying, it's both, it's 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 it because The market where we've had the most concern about our execution capability is the US and we've grown our top line, we grew our margin, Strong pricing, strong brand mix. This is the revitalization plan in action. It's So not a series of one offs. It's all part of a single strategy and that's the revitalization plan which It was specifically aimed to drive top line growth and we believe we will do that in 2021. The next question comes from Rob Ottenstein with Evercore ISI. Please go ahead. Great. Thank you very much. Gavin, 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 in terms of share buybacks At some point, I know you talk about very significant deleveraging, bringing the dividend back. How does the potential for share buybacks play into this if this disconnect continues? And also maybe, Tracey, 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 or lower level? Thank you very much. Thanks, Rob. Good morning. Look, I mean, we as I said earlier on, we announced our revitalization plan in 2019 and we're executing that revitalization plan. I'm very pleased with the platform that we laid in 20 And I think it gives us a really good springboard for 2021, which is why we've felt confident With the guidance that we've put out there. So I understand there's skepticism around our ability to execute, but we wouldn't I'd be putting guidance out if we didn't believe that we would achieve it. Tracy was very clear about our leverage goals. I'll If you'd comment on our capital allocation, Trish, which I think was the underlying question that Rob had. Yes. So, hi, Rob. So, yes, obviously, we are having ongoing conversations around our capital allocation with our Board. Our focus has been on improving our leverage ratio because Obviously, commitment to maintain our investment grade rating as well as investing in our business to deliver the revitalization plan, which is around top line growth. So As always, we'd look at our capital allocation bucket, have a look at what gives us the highest or What gives our shareholders the highest rate of return? We run through everything to our pack model to make those decisions. But Our intention is to continue to pay down our debt to improve our leverage ratio. And as I see in the prepared remarks, it is important for us and we said this on the Q3 call as well, as soon as Appropriate to reinstate the dividend and as I said in the guidance, that's something that we do anticipate our Board will be in a position So just in terms of the tax cash Yes, we do still get a benefit from the step up as we We did with the Medicours acquisition. And that does still run for another few years, Rob, But, Can you remind us what exactly that rate what you expect that what that rate was in 2020 and what you expect it to be in 'twenty one? Yes. So we don't actually give that guidance and we didn't other than giving the guidance That is given you now on the consolidated effective tax rate for 2021 being between 20% 23%. But isn't the cash tax rate half that? Yes. That's work in progress, but it is it does reduce the tax rate pretty significantly, Rob. The next question comes from Bryan Spillane with BOA. Please go ahead. Hey, good morning, everyone. 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 What you're 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 would be helpful as well. Yes. So Brian, we looked at our metrics, our guidance metrics for this year to really align with our Strategy around our revitalization plan goals and then also looked at metrics which aligned with our commitment to maintain and over time in predine business grade rating. So we haven't given CapEx And we haven't given free cash flow because we do believe that the target leverage ratio Matrix is more meaningful and more aligned to our strategy. But would I have to put a CapEx estimate into our cash flow statement? I mean, is it Is 2020 a reasonable sort of guide to use? Just any kind of help at all just to get Some sense of what we should be flowing in there. I would say the guidance that we gave back in 2020, which we Simply with Drew, would be the sort of range of CapEx that you'd expect. There is nothing significant that we've got I'm chained at this stage. Okay, great. Thank you. The next question comes from Laurent Garde with Guggenheimer. Please go ahead. Yes. Good morning, everyone, and thanks for squeezing me in. Got a question regarding the B and B Air. So many on that front, there is almost not a week without And 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 There is some uneven comfort on that front in terms of execution. And secondly, you mentioned you should reach about $1,000,000,000 in our sales By 2023 and that doesn't include our sales there. So could you please help us frame how you get there because it's Kind of 3 years to get to $1,000,000,000 from 1 or 0. So that would be super helpful. Thank you very much. Thanks, Lauren. Look, a couple of things in there. From a we've been pretty consistent about one thing, right, is our revitalization plan requires us Do more than one thing at a time. It does both. And I think our Q4 is a fine example of that. We grew our top line in the U. S, we grew 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 put in place in our company was designed to deal with complexity. We've got a team that focuses on the core brands and very pleased with what they've done With Coors Light and Miller Lite and our other legacy iconic brands and then we've got a team that focuses on Beyond Beer that's executing against that. 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 $1,000,000,000 revenue ambition for emerging growth, It does encompass a number of areas in the emerging growth. So we're not coming from a standing start. We do have all our craft Companies in that area, we have our non ALK division, we have our cannabis, GHC infused beverages, RGDs and our CBD business. It also includes all of our Latin America Exports and license markets. So in order to get to $1,000,000,000 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 are coming off. So hopefully that's helpful, Lauren. The next question comes from Steve Powers with Deutsche Bank. Please go ahead. Hey, thanks and good morning. Yes, just one more question for me On the Beyond Beer topic, Gavin, I mean you've highlighted a lot in 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 or margins, especially when it comes to the distribution deals that you've been Tacking on, you mentioned ZOWA a couple of times with enthusiasm, for example. I'm just curious if you can clarify how those relationships are structured from the perspective Of the Molson Core shareholder? I mean, as though it truly is a game changer in the energy market, that would be great. But I guess how are those Yes. Thanks, Steve. Look, I mean, each deal that we've done has been done differently and structured differently. I think it's safe to say that they all operate In the above premium space from a revenue point of view, some of these deals we've taken equity stakes in and some bigger than others. But we wouldn't be going into this if we weren't intending to make money on these deals. We've got such a route to market advantage from our perspective. The biggest channel for energy drinks to On Zillow, is C Store, nobody serves the C Store channel better than their distributors. So we think we've got some real structural advantages there. But we're not going to break down each and every deal that we've done. Rest assured that our intention is that these are above premium products and that we will make money on them and that 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, but 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, it's actually better than I thought would be the case. Obviously, in dollar terms, the basis is lower because of the Q4. But just putting that thinking about that in the context of The timing with which you'll be kind of pulsing marketing spending back in, and I'm not asking for quarterly guidance, it's more of a conceptual conversation I'd like to have. Is it kind of investing ahead of recovery? Is it investing concurrent with? But just how you're thinking about marketing versus Revenue growth and supporting some of the newer initiatives could be some helpful and interesting perspective. Thanks, Lauren. Let me try and give you some color Without giving you our quarterly budgets, I think you can expect that the Q2 would be a meaningful increase in marketing and sales spend because There was such a dislocation in the Q2 last year where we so much just didn't happen and we were pivoting and still trying to figure out So I think it's safe to say that our marketing spend in Q2 will be quite a lot higher than it was in Q2 of last year. Beyond that, we'll be investing behind our innovations and again behind Miller Lite and Coors Light At the appropriate times of the year, but I think the biggest piece of guidance I can give you is Q2 will be a meaningful increase. This concludes our question and answer session. I would now like to turn the conference back over to Greg Tierney 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 This conference has now concluded. Thank you for attending today's presentation. You may now disconnect.