Earnings Call: Q3 2020

Oct 29, 2020

Good day, and welcome to the Molson Coors Beverage Company Third Quarter 2020 Earnings Conference Call. You can find related slides on the Investor Relations page of the Molson Coors website. Our speakers today are Gavin Hadersley, President and Chief Executive Officer and Tracy Chobert, Chief Financial Officer. With that, I'll hand it over to Greg Tierney, Vice President of FP and A and Investor Relations. All right. Thank you, Danielle, and hello, everyone. Following prepared remarks from Gavin and Tracy, we will take your questions. And then reenter the queue to follow-up. And if you have technical questions on the quarter, please pick them up with me or Tracy Mangini on the IR team in the days weeks to follow. Today's discussion includes 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. And 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. Well, what a year it's been so far. If you're like most people, there are probably a lot of words that come to mind when you think of 2020. But from Molson Coors, this year can be summarized in 3 words: persistence, perseverance and progress. That is how 2020 has been defined by the Molson Coors Beverage Company as we drive for top line growth. We're very pleased with our performance in the Q3 as we beat top and bottom line expectations and made tangible progress on our revitalization plan. We had bold plans at the beginning of 2020 to build on the strength of our iconic core brands, aggressively grow our above premium portfolio, expand beyond the bear aisle, invest in our capabilities and support our people and our communities. Yet 2020 has presented new obstacles for everyone for which we've had to adjust. Like all other beverage companies, one of the biggest challenges this year has been packaging supply. To put into perspective the scope of the challenges, we sold 300,000,000 more cans of beer in the 1st 9 months of 2020 than we did in the same period in 2019 in the United States alone. And there have been times over the past few months when demand for tall cans was 4 times what it was 2019. I'm pleased to report that while work remains, inventory is steadily improving in the U. S. We are approaching historical levels of paperboard supply. We are confirming most orders for bottled beer and seeing steady improvements in supply. Our 12 ounce industry standard can supply is stabilizing and we anticipate it will continue to increase through the year as we return to full inventory. And we are starting to more fully cover demand for tall cans and expect steady improvement in inventory through the balance of the year. When 2020 has thrown us challenges like this, we've met each challenge head on and we have never lost sight of our plan. Now we're able to show what's possible as we execute that plan as we drive toward top line growth. Coors Light and Miller Lite grew 6% to 9.5% respectively in the U. S. Off premise so far this year. As of today, share has grown for 24 consecutive quarters. That is 6 straight years. And our aim now is to stabilize our biggest brands in the total beer category. Above premium products, a record high portion of our U. S. Portfolio since the business formed in 2,008 despite the on premise restrictions. By the end of 2021, we plan to capture a double digit share of the U. S. Seltzer market, backed by what arguably is the most complete seltzer portfolio in the business. Truss, our Canadian joint venture has quickly become a market share leader of ready to drink cannabis beverages in Canada. The company estimates market share of over 50% in key markets such as Quebec. And we believe that our emerging growth division can become a $1,000,000,000 business in revenue terms in 3 years' time. We are expanding our production capacity for Celsius by over 400% and for Blue Moon Light Sky by approximately 400%. We will continue prioritizing capital projects that will allow us to further expand our seltzer and innovation production capacity. We redefined our company values, set out to increase representation of people of color at all levels of our company and redirected some social media spending to support organizations dedicated to social justice, equity and empowerment. We will continue to take tangible steps to build a brighter future for our people and our communities. I want to pause here. I know there are questions about the complexity of our revitalization plan and about our ability to execute. But not only can it be done in the future, we are already doing it today. As you can see, we are building on the strength of our core while growing our above premium portfolio and planting the seeds for future growth beyond beer. And we're investing in our capabilities and our people to make it all possible. I want to drill down on each of these a little more. As I mentioned earlier, it's a great sign of strength of our core brands that Coors Light and Miller Lite grew 6% and 9.5% respectively in the U. S. Off premise so far this year. And the combined segment share of our 2 largest U. S. Brands has grown for 6 straight years. And Coors Light again achieved a record high segment share in the U. S. Since the business formed 2,008 per Nielsen. And our market research shows Coors Light has seen the biggest year to date improvement in consideration across the category, especially with 21 to 34 year old consumers. In Canada, Molson Ultra has performed very well this year, up 32% so far and has surpassed a large competitor in share of grocery in Quebec based on the recent 4 week data per Nielsen. Our national champion brands in Europe saw significant trend improvement as a large percentage of the On Trade had already reopened at the beginning of Q3. In 2020, we have increased our number of major sports alliances across all of North America and while we aren't spending money against a lot of them this year during the pandemic, these partnerships should benefit our biggest brands for years to come. We have also seen great progress in growing our above premium portfolio. Above premium products grew in the 3rd quarter and have reached a record high portion of our overall portfolio in the United States since the business was formed in 2,008. Blue Moon Light Sky which launched in February has sold over 1,600,000 cases through the end of the Q3 and is 20 20s top selling new beer in the United States per Nielsen. And LifeSky is highly incremental to the Blue Moon brand. Blue Moon Belgian White, the largest craft brand in the United States has seen the 3rd highest growth in the off premise among all craft brands in 2020 according to Nielsen. With the life guide number 1, the Bloomin family has easily achieved the highest off premise growth in 2020 among all craft franchises, according to Nielsen. And this progress in above premium beer extends to Europe. In Europe and outside of its home market, the Star of Pramen brand grew by 9% in volume in the quarter. And our export and license team grew volumes by 3% in the quarter thereby expanding the footprint and size of our premium positioned brands across the wider European segment. Turning to seltzers, VIZIYA has risen to number 8 on the Nielsen top 10 growth brands chart in 2020, selling over 2,500,000 cases since its April launch and it is seeing the highest repeat purchase rate amongst all seltzers made by the major beer suppliers. And we are incredibly excited by the early results for Coors Seltzer which has matched Wizzy's hot sales in its 1st months on shelves. In some key retailers, the Coors Seltzer variety pack is outselling the Bud Light Seltzer variety pack. Folks, we are building out arguably the deepest, most diversified portfolio of hot seltzers in the industry. We came into 2020 with an under 2 share of the segment. We are now 4 share and by the end of next year we plan to capture a double digit share of the U. S. Seltzer market. That is possible because of the depth and differentiation of our seltzer portfolio. We believe Vizzy with its acerola cherry high antioxidants from vitamin C is the best positioned product on the market in the better for you space. We believe Coors Seltzer can become the number one beer brand in the segment through the strength of its name and its social mission around restoring America's waterways. Topo Chico Hard Seltzer has something no other product offers, the benefit of the massive following of The Coca Cola Company's Topo Chico sparkling mineral water in a number of major markets across the United States. Proofpoint will also launch next year differentiating itself with premium ingredients like real spirits. And I would remind you that with our distribution deal for Bodega Bay Hard Seltzer in the U. K. And Ireland, Molson Coors is an early mover among European hard seltzers. We have even more above premium growth opportunities coming in 2021 when we bring Yingling Westwood under our new joint venture. There are 25 states open for expansion under the JV, all with 0 Yingling distribution today and tens of millions of legal age drinkers. That is a significant growth opportunity for our company and for Yingling. Our emerging growth division has been doing a great job planting the seeds for future growth opportunities beyond the BRL. Earlier in the year, we launched Movo, our first canned wine and the Trust joint venture launched very well CBD and THC drops in Canada. And in the Q3, we stepped it up. Truss launched its 1st ready to drink cannabis beverages in Canada partway through the quarter and already it has become a market share leader. The company estimates market share of over 50% in key markets like Quebec. We launched a new line of non alcohol products created in the beverage incubator elevations. We took a minority stake in Zen Water by noted beverage innovator Lance Collins and we launched Vine Botanical Hot Water in Canada. In Europe, we signed an exclusive agreement with Miami Cocktail Company distribute their growing brands in the United Kingdom and Ireland. This is really just the beginning for us. We're learning in some of the spaces a capital efficient way, I would add, and we'll apply what we learn to future growth opportunities beyond beer. That is why I'm confident that altogether, our emerging growth division can become a $1,000,000,000 business. For as much activity as you've seen in the past few months, you can expect to see more coming. In the next few weeks, our U. S. Trust joint venture with HEXO will launch its first CBD based products in Colorado, making us an early mover in this area. And soon Molson Coors will distribute of La Colome's incredible lineup of ready to drink coffees in the off premise starting with drug and convenience store channels, another great example of how we can leverage our strengths to find meaningful profitable top line growth. And to achieve growth under our revitalization plan, we can't just rely on our stellar marketing team. We are investing in our capabilities to make it happen. We intend to expand our hard seltzer production capacity by over 400% by the end of this year. By early 2021, we expect to complete a project to expand Blue Moon light sky production capacity by approximately 400% as well. We just turned on a new sleek can production line at the Rocky Mountain Metal Company, a joint venture with Ball Corporation capable of producing 750,000,000 cans a year. We're modernizing our brewery in Golden, making it easier to brew the beverages of the future. During the coronavirus, we have improved online sales in the U. S. By approximately 200% through the 3 tier structure, while also developing new e commerce and direct to consumer channels for our business in Canada. These investments will help power our business forward and we will continue prioritizing capital projects to continue expanding our production capacity for seltzers and innovations in 2021 2022. I've talked a lot about how the revitalization plan shapes our business actions and it's also shaping how we support our people and our communities. That started earlier this year when we redefined our company values, starting with putting our people first. We built from there all year long. Just this month, we held our 1st week of inclusion, full week of forums, presentations and conversations about how to be more inclusive, how to be allies to our teammates, how to hold ourselves accountable. We set out to increase representation of people of color at all levels of our company and in the early months have shown a business that is growing more diverse. We redirected social media spending to 25 national and local organizations working to address issues of equality, empowerment, racial justice and community building. We launched a new scholarship program, supporting people of color and LGBTQ plus students seeking degrees in brewing or fermentation sciences. We have the opportunity and the responsibility to drive change and we are doing just that. We're not going to slow down. When complete, the modernization project in Golden will significantly reduce CO2 emissions from the brewery. It will reduce energy usage by 15% and it will reduce our water usage by 100,000,000 gallons per year. Look, we've made a lot of news over the past 2 months from our continued investments behind our core brands the expansion of our seltzer production capacity to our joint venture with Yingling to our new line of non alcohol beverages to the launch of Coors Seltzer to the addition of Topo Chiqua Hot Seltzer to the distribution deal with La Colome. These are not a series of 1 offs. They all represent parts of one single strategy to drive our business to top line growth. Now we face a lot of criticism over the years about the shape of our portfolio in the U. S. Where it is too heavily weighted towards our 2 premium light brands. I understand the viewpoint, but I believe our core is our strength. And as I've outlined, a key part of our plan is to build on the strength of our iconic core brands. And yet interestingly, under the strategy, as we roll out plans to aggressively grow our above premium portfolio and expand into fast growing above premium beverages beyond the Bireau. There have been questions as to whether these actions add too much complexity or distraction and we should stick to our core. But to suggest that we must focus only on our core brands or only on innovations is a false choice. It's not binary, it's both. Part of our revitalization strategy, we organized our business to do exactly that. The progress we are making is promising. Our 2020 above premium innovations have already delivered an incremental 5,700,000 cases for our business. The health of our iconic core brands continues to improve and we are planting the seeds for new growth opportunities beyond the Bear Isle. That is the plan we announced last October. That is the plan we're executing. And that is the plan we believe will deliver top line growth for this business. And now I'll pass it over to Tracy for the financial highlights. Tracy? Thank you, Devin, and hello, everyone. I will first cover the quarter on a consolidated and regional basis and then move to our outlook. So to recap the quarter, net sales revenue decreased 3.6% in constant currency, a significant improvement from our 2nd quarter performance. In the 3rd quarter, we saw volume decline, principally in the on premise channels, along with the corresponding negative channel mix implications across all major markets. These impacts were partially offset by higher net pricing as well as the U. S. Overcoming channel mix challenges to deliver positive brand mix behind strong performances in Busy, Blue Moon Light Sky and Coors Seltzer. North America shipment timing was positive in the 3rd quarter, but remained impacted by the packaging material constraint. Net sales per hectoliter on a brand volume basis increased 2.1% in constant currency, reflecting positive net pricing in the U. S. And Canada, more than offsetting negative mix effects globally due to the various market dynamics and consumer shifts caused by the coronavirus pandemic. While a significant number of the on premise establishments were opened throughout the quarter, those that were opened were not operating at full capacity. This had an adverse impact, albeit improving from 2nd quarter levels on mix globally. As many of our higher end products are skewed towards the on premise, closures or restrictions in this channel has an unfavorable impact on our brand and channel mix. Worldwide brand volume decreased 5.2%, while financial volume decreased 5%. Underlying COGS per hectoliter increased 1.5% on a constant currency basis, driven by inflation and volume deleverage, partially offset by cost savings initiatives. Underlying MG and A decreased 7.6% on a constant currency basis, driven by reduced marketing spend, partially offset by slightly higher G and A as we cycled onetime benefits related to long term incentive compensation reversal in the Q3 of 2019. This was largely offset by revitalization cost savings and lower discretionary spend. As a result, underlying EBITDA grew 0.5% on a constant currency basis. Underlying free cash flow of $1,160,000 for the 9 months ended September 30, 2020, was $275,000,000 favorable to the prior year period, driven by favorable working capital. The working capital benefit was driven by the deferral of over $200,000,000 in tax payments from various government sponsored payment deferral programs related to the coronavirus pandemic, of which we currently anticipate approximately half to be paid in the Q4 of 2020, while the remaining amount to be paid beyond this fiscal year. In North America, net sales revenue decreased 0.8% in constant currency, driven by financial volume declines of 4%, reflecting lower brand volume. North America brand volumes decreased 5.2% as the on premise closures or limited capacity reopening during the quarter more than offset the strength in both the U. S. And Canada in the off premise. Also contributing to the decline was packaging constraints, which primarily impacted the economy and premium segments as we prioritize higher margin SKUs. In the U. S, brand volumes decreased 5.3% compared to domestic shipment declines of 3.9% in our efforts to address the year to date under shipment position attributed to the aluminum can supply constraints. Net sales per hectoliter on a brand volume basis increased 3.6% in constant currency, driven by net pricing increases in the U. S. And Canada and favorable brand and package mix in the U. S, partially offset by negative brand and channel mix in Canada attributed to the shift of volume from the on premise to the off premise. In the U. S, net sales per hectoliter on a brand volume basis increased 4.6%, driven by favorable sales mix and net pricing. The U. S. Delivered its best quarterly sales mix performance in the last decade and the best brand mix performance since the Q1 of 2014. In Canada, negative mix more than offset the net pricing increases, while in Latin America, net sales per hectoliter on a brand volume basis was largely consistent with the prior year. Underlying EBITDA increased 2.5% in constant currency as MG and A reductions more than offset unfavorable gross profit from lower financial volumes and comps inflation. The MG and A reductions were driven by lower marketing spend in areas impacted by the coronavirus pandemic, such as sports, events and festivals. We also adjusted the timing of marketing investments behind brands and packs for which we experienced supply constraints. However, media and advertising spend ramped up sequentially within the quarter and increased compared to the prior year period as we supported core brands and key innovations. Also contributing to the MG and A reduction were other cost mitigating actions and the continued progress in realizing cost savings related to the revitalization plan. All of this was partially offset by cycling lower incentive compensation in the prior year period, largely due to the wait time benefits from long term compensation reversals in the Q3 of 2019, as mentioned earlier. For Europe, which is more heavily skewed towards the on premise, net sales on a reported basis decreased 15.3% in constant currency due to lower volumes and lower net sales per hectoliter, reflecting the impact from the coronavirus. Net sales per hectoliter on a brand volume basis declined 5.9% in constant currency, driven by unfavorable channel, brand and geographic mix, particularly in a high margin U. K. Business, partially offset by slightly higher net pricing. Financial volumes decreased 7.7% and brand volumes decreased 5.4%, a significant improvement from the year on year declines experienced in the Q2 as more on premise accounts were opened, even though many were not operating at full capacity in the quarter. We have also greatly improved our capacity levels to meet the highest levels of demand in the off premise. Europe's underlying EBITDA decreased 8% on a constant currency basis versus the prior year, driven by gross margin impacts of volume declines and unfavorable geographic and channel mix, partially offset by lower MG and A expenses as a result of cost mitigation actions to navigate the coronavirus pandemic. Which takes me to our financial outlook. On March 27, we withdrew our guidance due to the uncertainty driven by the pandemic. With the rise in the new virus cases in both North America and Europe, governments are mandating new closures or imposing lockdowns to varying degrees and thus that uncertainty remains. As a result, we have not reinstated guidance, but are providing additional visibility on forward trends and a perspective on how we believe we will be impacted by the coronavirus. We do not expect to continue to give this visibility once conditions have stabilized or we resume guidance. And we are very proud of our performance and agility navigating the coronavirus pandemic and executing against our revitalization plan. But recognizing there are still headwinds ahead. The pandemic continues to impact our businesses due to on premise losses across all our geographies and disproportionately in Europe. Also, we continue to face supply constraints. However, we do expect to return to full inventory of 12 ounce industry standard cans by year end, and we're making progress on remediating constraints for the Coors Light Tool can. As a result, we expect domestic shipment trends in the U. S. To be higher than brand volume trends in the 4th quarter as we continue to build inventories. For MG and A, we expect marketing investment to increase in the Q4 from the prior year as we build on the strength of our core brands and ramp up support for key innovations like Blue Moon Light Sky, Vizzy and Coors Seltzer in alignment with additional supply coming online. We will continue to be nimble, adapting to the environment to ensure we are achieving the highest possible return on our marketing investments, while supporting strong brand equity. Therefore, as of the Q3, some of our anticipated 4th quarter spend will be dependent on factors, including the occurrence of live sports and events. And finally, as discussed on our Q2 call, in the Q4, we will file for lower incentive compensation and a nonrecurring vendor benefit, which occurred in the Q4 of 2019 and totaled approximately $27,000,000 In response to the coronavirus pandemic, we have shifted our focus to ensure adequate liquidity for the near term, while positioning the business for medium and long term success. This included a desire to maintain our investment grade rating, which is important for all of our stakeholders. Being investment grade rated reduces our cost of debt, improves our access to capital markets, including commercial paper, and gives us more operational flexibility to execute against our strategy. As previously discussed, we have significantly improved our liquidity position by favorably amending the covenant terms of our $1,500,000,000 revolving credit facility, adding a £300,000,000 commercial paper facility for our U. K. Business, which is incremental to the borrowing capacity under the $1,500,000,000 facility suspending the dividend in May for the remainder of 2020, reducing previously planned capital expenditures by around $200,000,000 for 2020 and generally reducing discretionary spend where possible. And in the Q3, we continued to reduce our debt position with the payment of CAD500 million that was due using a combination of cash and commercial paper. As of quarter end, we had reduced our net debt position by just over $1,200,000,000 since we began the revitalization program. And we have maintained strong borrowing capacities on both our facilities. As of October 29, 20 20, we had $1,400,000,000 under our U. S. Facility and a full £300,000,000 under the U. K. Facility in available capacity. So, we invested in our business to support medium and long term growth objectives. In addition to necessary safety and maintenance projects, we are making capital investments that deliver cost savings and high return growth initiatives, such as our significant investment behind hard sauces and innovations in our Fort Worth and Milwaukee breweries. Over the next few years, we plan to prioritize capital investment to include 100 of 1,000,000 of dollars to add significant capacity for our innovation, including seltzers and slim can capacity. Given the operating environment, we are very pleased with our Q3 financial performance, making another quarter of progress on our revitalization plan to drive long term value creation. We achieved solid financial and operating results and again exceeded top and bottom line expectations. And we did so while navigating the continued challenges posed by the coronavirus pandemic, further improving our liquidity and investing in efforts to advance our long term goals. We are mindful of the challenges and continued uncertainty ahead and remain focused on doing what is best not only in the near term, but positioning the business for medium and long term success. And we look forward to updating you on our continued progress. And with that, we look forward to taking your questions. Operator? The first question comes from Bill Kirk of MKM Partners. Please go ahead. Thanks for taking the question. Gavin, I guess this one's for you. As aluminum can supply improves, what are the brand priorities? Do you reintroduce some of the economy brands and packs? Or do you put the cans toward the premium offerings? And I guess I'm asking it in the context of what you expect from consumer spending strength going forward? Thanks, Paul, and good morning. Look, our 12 ounce industry, Kent's supply is stabilizing. And we've really seen it increase incrementally over the last 4 to 5 weeks and we expect that to continue incrementally increasing through the balance of the year. We've had 2 constraints particularly. One would be the tall can for 12 ounce which is what Coors Light and Keystone might go into primarily. And then obviously the 12 ounce tall slim can. That's been more driven by the success of Busy and Blue Moon LightSky than it has necessarily been by shortages. In terms of prioritization, obviously Coors Light gets first priority for us when it comes to the to the tall can and we've made some adjustments on slow moving products that have been packaged in that can to make sure that we can fulfill Coors Light. To your second question, from a trade down point of view, but we haven't actually seen that at this point in time. In fact, we're seeing quite the opposite both in the U. S. And in Europe as well as Canada is. I think consumers are finding their dollar stretches a little further in the off premise than it does in the on premise. We're actually seeing the opposite. That's super helpful. I'll jump back in the queue for a follow-up. Thanks, Paul. The next question comes from Lauren Lieberman of Barclays. Please go ahead. Great. Thanks. Good morning. Gavin, I mean, it was great that in your prepared remarks, you addressed the complexity conversation. But I would like to just go maybe a step further to understand how you're evolving the organization to handle the increased complexity? And then with regard to distributor relationships and how do you work with them to prioritize to set priorities, I guess, and to manage sort of what's working, what's not, how long do you give some of the activity to click into, okay, this one's got some legs, let's really push it. Because the activity has been tremendous and obviously looking at the price mix this quarter, it's helping and mattering and it's getting attention. But there will be a point where resource allocation and having to make choices comes into play and I'd love to know a little bit more about that. Thanks, Lauren, and good morning. Look, it depends what lens you look at this through, right? So it's sort of through 3 lenses. From a retailer point of they're well prepared for innovation. They're hungry for it and expecting it. So I see no issue there. From a distributor point of view, 80% of them already carry non alcohol products and 50 of them carry wine and spirits already. So they're actually ahead of us. We're playing catch up with them. They manage and deal with tons of complexity. And Lauren, I would tell you the vast majority of them are very excited about the moves that we're making and can't wait to have these brands in their houses. And then you look at our business. And that's exactly why we structured ourselves as we did at the time of the joint venture and formed this emerging growth team under Pete Marino's leadership. It's a small team of passionate and very dedicated specialists in their field. And Lauren, arguably there is even more focus behind the course since we actually made this Of course, we're going to continue to leverage capability through the CCOE Of course, we're going to continue to leverage capability through the CCOE and back office. But there's little additional complexity for our sales and marketing groups that focus on our core business and our above premium business. And then from a supply chain point of view, these products are not going through our breweries. They had no complexity to our breweries at all. We are expanding our warehouse capacity and obviously they use the same ordering systems and tools. And then the final point I would make is these things are although we announced them all within a tight probably 2 months period, These things are all the timing of them is all different. Yingling will come in the back half of next year. La Colome will come in the front half of the first quarter. Topachica Hot Seltzer will be in the second back in the first quarter early in the second quarter. So from a timing point of these things are not all landing at the same time. So I think obviously there are questions about it, but we're managing it now and we're managing it effectively. Okay. That's great. And then with regard to sticking with portfolio with some of the bigger brands, obviously the work on Blue Moon really rejuvenated that franchise. But as you're thinking about adding, is there anything in the portfolio that you're also looking at in terms of trimming? Because we still get back to the question of some bigger brands that have still been slower to turn and maybe to the point at which we say the new is way better use of our resources and we need to kind of cut our losses on some bigger brands in the portfolio. Is that part of the thought process as well? Well, some of the can shortage in the coronavirus pandemic have forced us into making decisions around slower moving brands and SKUs, Lauren, and we've done that. And I would expect some of those SKUs won't come back. So from a complexity point of view, from a brewery point of view, I would expect that we will have less SKUs coming out when we come out of this pandemic than we did coming into the pandemic. Okay. That's great. I could keep going, but Greg said we're willing to ask one, so I'm passing it on. Thank you. The next question comes from Laurent Grandet of Guggenheim. Please go ahead. Hey, good morning, everyone. Good morning. Great for a strong quarter. My question will be about the sales category. I mean, you mentioned you were you are planning to achieve double digit market share in the sales category next year. Our math, I mean, gets you to 8% next year. So could you give us a bit more granularity or color as to how you get there and build the level of confidence probably for investors? And also, I mean, within that, I mean, how are you planning to motivate or incentivize your wholesalers who in most part already carry brands like Truly or White Claw? So I'd like to understand this a bit more. Thank you very much. Thanks, Lauren. Look, I mean, we've got what we think is arguably the strongest portfolio of Celsius for both consumers and for our distributors. If you look at Wizzie, we're positioning Wizzie to lead for the better for you space. We're aiming for Coors Seltzer to become the number one beer brand in this segment. The addition of Topo Chico is going to help drive meaningful scale for us with a portfolio approach. It's known and loved by a very large number of consumers in the United States. And then Proofpoint, we expect to lead spirits based seltzers. So we think we've got a highly differentiated very powerful and very attractive seltzer portfolio for consumers and our distributors are getting behind them. You can see that in the performance of Vizzy. You can see it in the performance of Coahu Seltzer. And I've not seen them as excited in a while around Topo Chica, mineral water does so well for the Coca Cola Company. So we think we've got the portfolio and we think we've got the distributor buy in. Thanks, Gavin. And if I may add on Celzerne, is the manufacturing, I mean, as you are contract manufacturer for Topo Chico, something we should expect just for this coming year as are building up your capacity in sensor and we should think about you repatriating this in house from 2022? Thank you. In 2021, it will be primarily outsourced and in 2022 and beyond, it will be in sourced, Lauren. So you got that right. Okay. Thank you very much. I'll pass it on. Thanks. The next question comes from Andrea Teixeira from JPMorgan. Please go ahead. Thank you. Good morning. So I was hoping if you can give us an idea of the cadence of the FTRs in 3Q and particularly your exit rate in September? And if you can help us with October FTRs, how it shaped up in the U. S. And also in Europe in light of the new lockdowns? And I would say if we step back broadly, how do you feel inventory levels, if the inventory levels normalized at the trade at this point? Trish, why don't you take the sort of shipments and STIs for Q4 and then I'll take Europe? So let me start with Q3. So as we said, the shipment outpaced brand volume trends in Q3 as we expected. When we look at September year to date on the U. S. Shipments, shipments were down 6 0.1%, our brand volume was down 3.8%. And for Q4, we expect shipments to outpace brand volume trends as well as we build inventory during the balance of the year. So we do expect a further reduction in this gap. As it relates to giving STRs for Q4, we actually moved away from that a couple of quarters ago, Andreas. So I'm not really going to comment on that. Gavin? Yes. Andrea from an overall environment point of view, the off premise in North America continues to remain strong and the on premise seems to have settled down at sort of roughly 60% of historical levels from a sales point of view. So down roughly 35% to 40% on an ongoing basis and we haven't seen much move on that recently. So that's sort of North America. From a Europe point of view, in Central and Eastern Europe, we saw about 85% of outlets reopen. I would point out that the 4th quarter is on premises less of an impact for Central and Eastern Europe because there's much less tourist activity during that time period that takes place more in the second and third quarters. In the U. K, for the Q3, we had good weather. They were supported by the government's program to eat out at on premise outlets. And so we saw much better performance from an on premise point of view in the Q3. And obviously, as we head into the Q4, there's a lot of uncertainty around that because it has obviously spiked in the U. K. And there are localized lockdowns. So we'll have to I guess see how the quarter in the U. K. Progresses. Your third question there was around inventory levels and certainly our 12 ounce industry standard can supply stabilizing. It has improved consecutively for the last 4 or 5 weeks and we see it continuing to improve into the balance of the year. The shortage for some of our exciting innovations like Vizzy and Blue Moon Light Sky is driven by the strong success of those two brands and we would expect to see the inventory for both of them improve meaningfully as we head into the 4th quarter and that new capacity comes online in Milwaukee and Fort Worth. And obviously the shortage would be more pronounced for the 12 ounce tall cans and we are seeing that stabilizing and starting to improve. Super helpful. Thank you so much. Sure. The next question comes from Shaun King of UBS. Please go ahead. Hi, thanks for the question. I guess looking into 2021, what metrics or cash generation levels would you need to see to consider returning the dividend? Rose, do you want to take a dividend question? Yes. So hi, Sean. Look, as you know, we suspended our dividend in May for the remainder of 2020. The situation remains fluid. And we're having ongoing conversations with the Board. So we cannot really comment on our dividend policy beyond 2020. What I can tell you though is the company has got a very long history of paying dividends and we fully intend to reinstate the dividend as soon as appropriate. And right now, the current focus is to ensure we have adequate liquidity. And as I mentioned in the prepared remarks, we've made great improvements to our our liquidity. We've reduced our net debt by $1,200,000,000 as I said, since we announced the revitalization plan. And we continue to reduce our net debt to EBITDA ratio quarter after quarter. So that's about as much as I can tell you until we have the further discussions with the Board. Thank you very much. The next question comes from Bryan Spillane of Bank of America. Please go ahead. Hey, good morning, Gavin and Tracy. Thanks for taking the question. Gavin, I guess my question is just around the Seltzer portfolio and like what it will take to support the market share ambition that you articulated earlier. And so maybe if you could just give us a little bit of color in terms of how you're approaching that. Is it will it come with significantly increased like amounts of advertising? Is there will it require spending to get product on the shelf? Just seems like it's there's a big opportunity, but there's also a lot of brands trying to get into the market next year. I'm just trying to understand kind of what resources it will take to really differentiate what looks like a pretty good product lineup for next year? Thanks. Thanks, Brian. Look, I mean, from a focus point of view, next year as we look at marketing spend, obviously, we've got a big focus on our core brands, Miller Lite, Coors Lite and Blue Moon. And then we've got a really big focus on our CELTA portfolio. So we will be giving the required investment behind Vizzy and Proofpoint and Topo Chico and Coors Seltzer next year that they need in order to be successful. In the Q3, we actually spent we doubled our media spend from Q2 behind Coors Light, Miller Lite and our 2 big bets, Wizzie and LightSky. And in the Q4, you can expect to see a ramp up of support for both of those seltzers and Blue Moon Light Sky as the additional supply comes online. So those are our 2 primary focus areas, our core brands and our Seltzer portfolio. Brian will put the necessary money behind it to make sure they're successful. The early signs are good. They're very differentiated. They're clearly resonating with consumers and lots of excitement from the distributors as well. Gavin, is there any sign that just their competitors are spending to get shelf space? Just trying to understand if there's anything that we should be thinking about there in terms of is slotting or just any is it getting expensive to get product on the shelf? Yes, Brian, in the alcohol space, it's illegal to pay sliding fees. So they wouldn't be in the United States. So they wouldn't be doing that or if they were, that would be a problem for them. Certainly from a media and national spend point of view and the strength of our chain teams and our selling teams that's how you get shelf space in the U. S. And we're confident we're going to get it for our 4 brands. Thanks, Kevin. The next question comes from Steve Powers of Deutsche Bank. Please go ahead. Yes. Hey, thanks. So, I'm not sure if this is disclosed somewhere that maybe I overlooked today, but can you talk about where the above premium part of your portfolio sits as a percentage of the total in the U. S. At least? I know you said it was at an all time high, which makes sense. I'm just wondering if you can give us an order of magnitude. And more importantly around that, just given all the learnings you've had and all the new initiatives that you've developed in that space, seltzer inclusive but not limited to seltzer. How are you thinking about the aggregate above premium opportunity going forward? I mean, how much can above premium growth contribute to total Molson Coors portfolio growth over time? Thanks. Thanks, Steve. Look, our above premium share of our portfolio in the U. S, which I think was your question, is just north of 10%. And as you rightly point out, what we pointed out, it grew very meaningfully in Q3. As far as the potential is concerned, look, we've tried to give you some indication of where we think the above premium portfolio can go. We do believe we can get 10% or double digit market share of the seltzer category. We think that that is a big category and it's despite some of what you might have read recently, we don't see it slowing down meaningfully. I mean 50%, 75%, 100% growth in 2021. There isn't another part of the beer category that or industry that has that kind of growth potential. I think everybody's always said that it's not going to grow 300% forever. So I'll take 50%, 75% or 100% anytime from an overall segment point of view. And we believe that our differentiated portfolio can get double digit share of that which would have a meaningful impact on our above premium share of our portfolio. And then of course there's the Beyond beer space in the emerging growth division which all of it really is in the above premium space from a price point of view. And from a revenue point of view, we can see that getting to $1,000,000,000 in the next 3 years. Yes, I think those are your questions. Yes, that's good. I can work with that. Thanks so much. Thanks. The next question comes from Rob Ottenstein from Evercore. Please go ahead. Great. Thank you very much. So I want to kind of focus on the core brands, Coors Light, Miller Lite, and kind of two questions on those. Can you give us a sense of how you feel about kind of where you are on the creative marketing side of things, whether you're getting the kind of the right message across now, are you happy with that, happy with how the brands are differentiated and how you're segmenting the business or the brands and maybe any data on brand health would be helpful. And then tied to that and kind of back to prior questions on complexity, how do you keep the distributors focused on those when they've got so many additional brands that they need to get placed and put on the shelf? And are you going to have to kind of adjust some of your terms with distributors to make sure that you get their mind share given the incredible proliferation of innovation and brands that's going on right now. I mean, got to be absolutely overwhelming for a lot of distributors. Thank you. Good morning, Robert. Yes, a lot in there. Let me try and pass that out. Let's start with Coors Light. I mean, we feel really confident in the brand's direction. We're seeing strong health improvements, particularly amongst the 21 to 34 year old consumers, which is really good. Coors Light's improvement in consideration amongst 21 to 34 year olds is higher than any other brand in the category that we track. So I feel very good about the direction of the Coors Light brand health. The team continues to reinvigorate the brand. We launched a refreshed and modern packaging design across all of our SKUs in early August. And based on the testing that we've seen, we find that consumers find that the new design is much more refreshing, it's memorable, it's unique, particularly when you compare it to Coors Light's competition. And based on the early results that we've seen, we're seeing volume and velocity gains as a result of that new packaging. And I think it will be fully in retail through probably already there if it's otherwise it will be there in the next week or so. From the Made to Chill campaign, we've had new assets that we've put out, plus we have that new brand campaign promoting an all expenses paid trip to your video conference background, which has been well received by the consumer base. So overall, feel very good about Coors Light. We saw in Q2 the brand drove significant share growth premium lights and it continued to gain share of the segment in Q3 and we'll build on that as we head into Q4. From a Miller Lite point of view, it's also accelerated both from a segment point of view and an industry point of view. It's share we're very proud of the 24 consecutive quarters of share growth that we've had. It's 6 years of growth. And we think it's got a nice opportunity to continue to accelerate. We've launched new creative, particularly around its calorie message and targeting a competitor. And we believe that Miller Lite's proposition can strongly challenge that competitor. And we also have big plans to continue to build Miller Lite during the key beer moments, including football. We've launched the Cantina. We're leveraging our NFL partnerships. And in November, I think it is, we'll launch a larger than ever holidays program behind Miller Lite. So overall, Robert, in this environment, we're very pleased with the strength and the share gains that both of those brands have gained. And from a distributor mine share point of view, Coors Light and Middle Light are really big meaningful parts of our distributors' houses. They like what we're doing on those two brands and that's reflected in their ordering profile. So I don't have concerns with our distributors placing focus on Coors Light and Miller Lite. It's the sort of foundation that many of their distributorships. So want to make sure I summarize this. So at this point now because it's been a little rocky obviously over time, You believe that the creative is where it needs to be and the brand health trends are going in the right direction and you kind of like how the 2 brands are segmented? Yes. Great. Thank you very much. The next question comes from Kevin Grundy of Jefferies. Please go ahead. Great. Thanks. Hello, everyone. Gavin, question for you on the Yingling joint venture. So 3 of them, if I may. 1, how quickly do you intend to roll out the brand into new territories? Question number 2 would be, are you prepared to comment at all on the financial impact, level of spend or earnings accretion? I suspect not, given the guidance is off the table altogether for the company. But I think sort of weaving that in with the focus on the core within your portfolio and seltzers, it doesn't sound like Yengling is going to be a huge priority in terms of investment, at least for next year, but maybe you can correct me on that. And then just lastly, it'd be helpful, I think, if you could comment on the potential for cannibalization given the overlap with premium and premium lights in your existing portfolio. So thanks for all that. Thanks, Kevin. Look from an economic point of view, it's a fifty-fifty ownership structure. So 50% of the benefit will come our way and 50 have Yingling out in its first market in the second half of have Yingling out in its first market in the second half of next year. We'll be in a position to advise which market that's going to be soon and we'll roll out in a deliberate pace beyond that. If you look at where Yingling has traditionally sourced its volume from when it's gone to a new territory, it has not primarily come from our brands. Its source market share has come from one of our largest competitors and we wouldn't expect that to be any different as we roll out into new territories. We'll be accounting for it on the equity method, But you can be assured that we wouldn't have entered into this joint venture if we didn't believe that it was going to be accretive to our profit and our earnings. Okay. Very helpful. Thanks for the color. Sure. The next question comes from Kamil Gajwala from Credit Suisse. Please go ahead. Good afternoon, everybody. You gave a lot of puts and takes on MG and A and I just want to make sure I understand. I believe you're looking for the MG and A for the full of the second half to be up. However, obviously, it was down in this particular quarter. I'm just curious if that has changed and is maybe 4Q intended to be a catch up from these numbers perhaps coming in later in the Q3? And then if you could drill down a little bit on that MG and A number. Gavin, you provided some insights on your advertising spend. However, just curious if you can give maybe a little bit more on what your ad spend was in its entirety for the Q3 and maybe where you expect it to go for 4Q? Thank you. Thanks, Kobal. Look, I mean, I'm not going to give you specific numbers. We just don't do that. But I can give you some color. From a media and advertising spend point of view, it ramped up significantly within the quarter and compared to prior year. In the Q3, we actually spent more in U. S. National local media than the year previously. And as I said earlier, we doubled our media spend from the Q2 on Coors Light, Miller Lite and our Big Bet and LightSky. Our media spend in Canada was also higher in Q3. We really have been focused on trying to be nimble given the environment and particularly with areas like sports events and festivals. We have the lack of sports events and the lack of perhaps effective sports events in some cases has allowed us to renegotiate payment requirements and thus we've taken less expense in the Q3 based on those very successful renegotiations that we've had. In terms of the Q4 marketing spend, we do expect our marketing investment to increase from the prior year as we continue to build on marketing spend behind our core brands and the strength of the brand health of both Miller Lite and Coors Light. And we are going to ramp up spend on Blue Moon Light Sky, Visi and Coors Seltzer in alignment with when the additional supply is coming on in the Q4. But of course, we'll monitor what's going on. We'll monitor the environment and we'll be fluid and nimble if we have to be. But our plan is to spend more in marketing in the Q4. From a G and A point of view, Tracey, is there anything you want to add to what you'd said originally? Yes. I mean, I think for quarter 3, we were broadly flat versus the prior year on the G and A side. We've spoken about our revitalization savings and we're delivering well against those targets. And as well as we're targeting other sort of discretionary type spend due to the environment, as Gavin says, that we're operating in. When we look at Q4, I do want to remind you that we have got some unfavorability versus prior year that we we'll be cycling off some one off items, which related to a onetime vendor benefit and then also lower incentive accruals in the prior year. And we've given that number. That's roughly about $27,000,000 in the quarter that we're going to be cycling. So hopefully that helps a little bit on the G and A side. Okay. Got it. Thank you. And second, first of all, congratulations, you've announced quite a few deals in recent weeks or I suppose recent months. If we were to think about all of these deals collectively, is there any insight you could give us on how much of an incremental contributor perhaps all of these new initiatives, JVs, product launches, how much they could contribute to the at the group level? Yes. Let me answer that question this way, Komal. I said in my prepared remarks that we expect the emerging division under Pete's leadership to get to $1,000,000,000 in revenue in time. And so under Pete's leadership, we've got the cannabis joint ventures in Canada, we've got the new cannabis joint venture in Colorado. We've got the non alc space, which is primarily at our libations. We've got the Wine and Spirits Group, which has got Movo in it at the moment. It's also all our regional craft and export and license and distribution businesses fall under Pete. To be more specific maybe to get to $1,000,000,000 we will have to grow that division by about 50% over the next 3 years. Hopefully that helps. It does. Thank you. The next question comes from Bonnie Herzog of Goldman Sachs. Please go ahead. All right. Thank you. Good morning. I actually had a follow on question from just a few of the earlier ones, but maybe ask a little differently. I guess I'm wondering how willing you guys are to let margins come under pressure as you potentially ramp spending overall behind all of your different initiatives in an attempt to revitalize your business. I guess I'm wondering if you might be entering a period of lower margins and maybe slower earnings growth again as you try to pivot your business. Is that a reasonable expectation maybe for the next year or 2 until your top line accelerates to some of the goals you did call out such as the double digit share in Hart Seltzer, the $1,000,000,000 from your emerging growth portfolio, etcetera. And I guess I'm thinking about in the context that there might not be a lot of scale from each of these different initiatives for some time. Thanks. Hey, Bonnie. Good morning. Look, I mean, from a scale point of view, I'd guide you to the $1,000,000,000 I just spoke about and the fact we grow that division by more than 50% to get there. As we I'll put you back to the revitalization plan, the revitalization strategy which we're executing against and you're starting to see the benefits of that coming through on the mix line certainly and very profitable brand mix improvements. In the U. S. Alone, we increased our brand mix favorability by 260 basis points in the Q3. I'm not sure we've seen a level that high in quite some time. Our revitalization strategy was designed from a structure point of view to take cost out of our business so that we could actually invest in marketing. So what you're seeing now is a delivery of that exact strategy which we put in place, change the structure, eliminate some office locations, make the necessary changes in order to deliver the firepower that we needed to execute above premium and beyond beer and at the same time and importantly supporting our core brands. So it's all it's coming through as we had planned. All right. Thank you. There's a follow-up question from Lauren Lieberman. Please go ahead. Great. Thank you. Sorry, I lost my place. I just was in the you've talked about a strategic review since late last year. And I just was wondering with that specific language around a strategic review, is there anything you can talk about in terms of what's been looked at, where that process stands? And maybe where a refresh might be needed in terms of strategy or footprint? Thanks. Well, I haven't talked about a strategic review, Laurence. I'm not necessarily sure what you're referring to. All I've talked about is the revitalization strategy and what we're doing on the revitalization strategy, where our focus is, where we're trying to build capabilities and where we're trying to take cost out of the business. And we tried to lay it out in the earnings release very clearly all the actions we've taken under those 5 pillars of our revitalization strategy. And that's our focus. And are all very pleased with the progress we've made right in the middle of a pandemic. So feeling good about it. Great. Okay. Thanks so much. This concludes the question and answer session. Would like to turn the conference back over to Mr. Tierney for closing remarks. All right. Thanks, operator. Appreciate everybody's attendance and all the questions. If you do have additional questions that we weren't able to that you weren't able to ask today, please follow-up with our Investor Relations team. And then Tracy and I will look forward to taking you through as the year progresses. With that, thanks very much and thanks for attending today. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.