Molson Coors Beverage Company

Good day and welcome to the Molson Coors Beverage Company first quarter fiscal year 2021 earnings conference call. You can find related slides on the investor relations page of the Molson Coors website. Our speakers today are Gavin Hattersley, President and Chief Executive Officer, and Tracy Joubert, Chief Financial Officer. With that, I'll hand it over to Greg Tierney, Vice President of FP&A and Investor Relations.

Thank you, Operator, and hello, everyone. The following prepared remarks from Gavin and Tracy will take your questions. Please limit yourself to one question, and if you have more than one question, please ask your most pressing question first and then reenter the queue to follow up. If you have technical questions on the quarter, please pick them up with the IR team in the days and the weeks that follow. And today's discussion includes forward-looking statements. 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. Gap reconciliations for any non-U.S. gap measures are included in our news release or otherwise available on our website. And also, unless otherwise indicated, all financial results the company discusses are versus the comparable prior year period and in U.S. dollars. So with that, over to you, Gavin.

Thank you, Greg, and thank you all for joining us today. Let me start by stating the obvious. The first quarter was not the quarter we expected to have. That reality was driven by three events, cybersecurity incident that caused the global system outage, a freak winter storm in Texas that forced utility companies to shut off power to major businesses, including our Fort Worth brewery, and government pandemic restrictions that shut down the entire on-premise channel in the UK and severely restricted much of the on-premise in Canada. To say that all of these events happening in a single quarter is unprecedented would be an understatement. But while we can't control the weather, across the business we executed well on what was in our control. That's true of how we responded to each event. Our team quickly implemented contingency plans to boost production and get our core brand back to a stable inventory before Memorial Day. Right now we are shipping over 1 million barrels a week in the United States for the first time in nearly a year. But most importantly, it's true of how we are executing on our revitalization plans. During the first quarter, Coors Light and Miller Light outperformed the combination of Bud Light and Nickelode Ultra in U.S. industry share performance versus the prior year, according to IRR. Our U.S. above premium portfolio grew brand volumes versus the prior year and continued to gain industry share, according to IRR, and we took substantial steps towards our hard sell for ambition. Our Trust Joint Ventures non-alcoholic cannabis beverages are holding strong as the number one dollar share spot in the entire Canadian cannabis beverage market. As expected, the availability of our 12-ounce standard cans returned to normal levels. And we continued working to protect the environment through two significant initiatives in the United Kingdom. So let's look deeper at each area. That starts with our core, where we continue to see improving brand volume trends for Coors Light and Miller Light in North America over the past quarter, dovetailing off strong performance in 2020. But the performance is even more impressive when you look at our biggest brand and our biggest family of brands. Coors Light finished the quarter with its strongest category share performance since Q1 of 2017. And Coors Banquet posted its best quarterly volume performance in over four years in the United States. We're building on that strong performance in the Coors family of brands with the launch of Coors Pure in March, our first USDA-certified organic beer brand. And we had a strong Q1 in Panama, with over a 50% increase in brand volumes, with Coors Light's explosive triple-digit growth leading the way. Now, when it comes to our plans to aggressively grow our above premium portfolio, as you know, we have big ambitions for hard seltzers this year, and the first quarter was a big one. And as we sit here today, our share of the U.S. hard seltzer segment is over 50% higher than it was at the beginning of the year. In a single week, Topo Chico Hot Salsa jumped to a 3.2 share of the U.S. Hot Salsa category, despite only launching in 16 markets, and it achieved a 20 share in Texas. Now, I know it's early days, but that is a stunning fact that speaks to the opportunity with this brand. And it's not alone in our portfolio. Lizzie was our top 10 U.S. industry growth brand in Q1. We are building on that with the brand's second variety pack, which launched in March, and the new Vizzy Lemonade, which launched several weeks later. They are both performing well. And in fact, Vizzy Lemonade is the second fastest-turning hard lemonade seltzer in the market. We made significant headway with our hard seltzers in Canada and in Europe as well. After just over a month in market, Vizzy and Coors Seltzer are top five hard seltzer brands for some of the leading Canadian retailers. In the UK, our new three-fold hard seltzer brand is launched, while our new brand Whey in Central and Eastern Europe is launching in the coming weeks. In above premium beers, Blue Moon Light Sky, the number one new item in U.S. beer last year, is currently the number one share gainer in U.S. craft beer in 2021. And Hock Valley has made its official national debut in the U.S. and Canada. It's our first national IPA in the US, and we believe it will be another driver of growth for our above-premium portfolio. When it comes to our plans to expand beyond beer, last year we made a lot of news as we took on a number of partnerships to build a competitive portfolio. This year, it's all about executing on those plans. Zoho gives us a strong entry into the $16 billion US energy and performance space and is positioned to take a meaningful share of the category within a matter of months. It's just now beginning to hit shelves, but by Memorial Day, we expect Zoho will have over 80,000 points of distribution, and by the end of summer, that number is expected to climb to nearly 150,000. Bacalan gives us the number one above premium player in the RTD coffee space, and I'm excited to report that we are ahead of plan on all of our distribution targets. Plus Canada, a Canadian cannabis joint venture with Hexo, is holding strong as the number one dollar share position with six of the top ten cannabis beverage SKUs in Canada. And our Trust USA joint venture is building on that through their first lineup of hemp-derived CBD beverages in Colorado. And we have now entered the fast-growing RTD cocktail space through an exclusive equity and distribution agreement with Superbird and above premium tequila-based Paloma. This entire lineup represents tremendous growth for our business and is helping us drive our emerging growth division towards a $1 billion revenue business by 2023. Last but certainly not least is how we are investing in our capabilities, our people, and our communities. We have long been recognized as a leader for our environmental efforts. Several weeks ago, we became the first major UK brewer to operate entirely by renewable energies. Soon, every one of the 1 billion pints of beer we produce annually in the UK will be made with 100% renewable energy. And we didn't stop there. We're removing plastic rings from all of our major cracks across the UK. In the US this month, we announced our investment in True Colors, a North Carolina-based brewery that was founded on the premise that aligning rival gang members under the same roof with a common goal can both mitigate street violence and create economic opportunity. We're excited to share our knowledge on brewing, brand positioning, and supplier relationships. And we are excited to be part of a business that is driving positive change and creating economic opportunity. Now, I can assure you the events of this quarter are not lost on any of us. But as the quarter came to a close, there is land on the horizon. The on-trend gradually began to open back up in the UK. Our industry standard can inventory normalize, and our weekly shipments in the U.S. top one million barrels for the first time in nearly a year. We are making progress on the things that are within our control, and we are delivering against our revitalization plan. And that is what gives me the confidence to reaffirm our guidance for the full year. That is what gives me confidence in the current expectation that the board will be in a position to reinstate a dividend in the second half of this year. That is what gives me confidence that we'll achieve long-term top-line growth. And that is what tells me the future of Molson Coors is bright. Tracy?

Thank you, Gavin, and hello, everyone. Despite the challenges Gavin mentioned, we are proud of our operational agility and resilience as we adeptly manage through these challenges while still continuing to execute our revitalisation plan. Now, let me take you through our quarterly results and provide an update on our outlook. Consolidated net sales revenue decreased 11.1% in constant currency, principally due to lower financial volumes, which declined 12%, while brand volumes declined 9.1%. We delivered net pricing growth in North America and Europe, as well as positive brand mix in the U.S. as we continue to premiumize our portfolio. However, this was more than offset by the on-premise restrictions due to the coronavirus pandemic and the corresponding negative channel mix, as well as the unfavorable shipment timing in the U.S. related to the cybersecurity incident and the Texas winter storms. Net sales per hectolitre on a brand volume basis increased 1.8% in constant currency as the net pricing growth more than offset the negative mix effects in Canada and Europe. Underlying COGS per hectolitre increased 5.6% on a constant currency basis, driven by cost inflation and volume deleverage, partially offset by cost savings. Driving cost inflation was higher transportation costs due to the continued tightening of the freight market in North America, as well as higher can sourcing costs as we continue to source additional aluminum cans from all over the world to address the significant off-premise demand for our core brands. MG&A in the quarter decreased 15.9% on a constant currency basis, driven by lower marketing spend and discretionary expenses, as well as cost savings. While the timing of our marketing investments was adjusted in areas impacted by the pandemic, We continue to invest as planned behind our core brands and key innovations. As a result, underlying EBITDA decreased 20.2% on a constant currency basis. Underlying free cash flow was the use of $271 million for the quarter and increasing cash use of $54 million from the prior year period driven by lower underlying EBITDA and unfavourable working capital, driven by the timing of payments related to lower volumes, prior year non-income tax deferrals due to governmental programs related to the coronavirus pandemic and incentive payments, partially offset by lower capex spend. Capital expenditures paid were $103 million for the quarter, which were largely focused on our previously announced Golden Brewery modernisation projects. Capital expenditures were lower in the quarter compared to the prior year, primarily due to project timing. Now let's look at our results by business unit. In North America, our markets experienced varying degrees of on-premise restrictions. In the U.S., our largest market, we saw progressive reopenings, and while there has been sequential improvement in the on-premise channel, we are still not back to pre-pandemic levels. In Canada, we saw significant restrictions and closures, while in Latin America, we saw restrictions easing. North American net sales revenue was down 6.3% in constant currency due to financial volume declines of 9.4%, reflecting lower brand volume due to the on-premise restrictions and fasting the March pantry loading in the prior year, as well as unfavorable shipment timing in the U.S. In the U.S., brand volumes decreased 7.3% compared to domestic shipment declines of 9.5%, driven by the economy and premium segments. However, our U.S. above-premium brand volumes grew versus the prior year, and the segment reached a record-high portion of our portfolio relative to any prior year first quarter since the creation of the Miller-Cruz joint venture. Canada brand volumes declined 10.8%, primarily due to the on-premise closures, while Latin America brand volumes grew 10.8%. Net sales per hectolitre on a brand volume basis increased 2.4% in constant currency. In the U.S., net sales per hectolitre on a brand volume basis increased 4.1%, driven by positive brand mix led by innovation brands Busy, Topo Chico Hard Salsa, and Zoa. In Canada, negative channel mix more than offset the net pricing increases, while Latin American net sales per hectolitre on a brand volume basis increased due to positive sales mix. North America underlying EBITDA decreased 13.3% in constant currency due to the lower net sales revenue and higher COGS per hectolitre, partially offset by a 14.4% decrease in MG&A in constant currency. The increase in COGS per hectolitre was driven primarily by inflation, including higher transportation and packaging material costs, volume deleverage and mixed impacts from premiumisation, partially offset by cost savings. The NG&A decline was mainly due to lower marketing spend and discretionary expenses as well as cost savings. We increased marketing investment behind core innovation brands such as Queer Salsa, Busy and Blue Moonlight Sky. And we increased media spending behind our iconic core brands, Queer's Light and Miller Light. These increases were more than offset by lower spend in areas impacted by the pandemic, such as sports and live entertainment events. Europe net sales revenue was down 39.5% in constant currency, driven by volume declines and negative geographic and channel mix due to on-premise restrictions, most meaningfully in the UK, given the on-premise lockdown for the full quarter. Europe financial volumes decreased 22% and brand volumes decreased 17%, driven by a significant decline in brand volumes in the UK. However, our central and eastern European business has performed fairly well and was able to deliver comparable volumes versus the prior year period. Net sales per hectolitre on a brand volume basis declined 10.4%, driven by unfavourable geographic channel and brand mix, particularly from our higher margin on-premise focused UK business, partially offset by positive pricing. Underlying EBITDA was a loss of $38 million compared to a loss of $4.1 million in the prior year, driven by gross margin impacts of lower volumes and unfavorable geographic and channel mix as a result of the pandemic, partially offset by lower MG&A expenses driven by cost mitigation actions. Turning to the balance sheet, net debt was $7.7 billion, down $1.1 billion from March 31, 2020. And we ended the first quarter with a strong borrowing capacity, with no outstanding balance on our $1.5 billion U.S. credit facility as of March 31, 2021. As for our U.K. COVID corporate financing facility, it was closed on March 23, 2021, and we had no outstanding borrowings at that time. Turning to our financial outlook, we are reaffirming our 2021 annual guidance provided on February 11, 2021. We expect to deliver mid-single-digit net sales revenue growth on a constant currency basis. We are working aggressively to build inventories and expect domestic shipment trends in the U.S. to begin to exceed brand volume in the second half of the year. For the year, we maintain our current year goal of shipping to consumption in the U.S. In the U.S., we expect improving on-premise trends in the second quarter as we left essentially full closures in the prior year. While in Canada, we have seen increasing on-premise restrictions continuing to pressure the on-premise channel. In Europe, we've seen a gradual... opening of the UK on-premise beginning in mid-April to outdoor consumption only, and we expect further phased on-premise reopening later in the second quarter, resulting in year-on-year improvement versus the prior period. We anticipate underlying EBITDA will be flat compared to 2020, as growth is expected to be offset by COGS inflationary headwinds, but more significantly from increased investment to deliver against our revitalisation plan. We intend to increase marketing spend to build on the strength of our core brands and support our successful 2020 launches, including Blue Moon Light Sky, Vizzy and Queer Salsa, and new innovations like Topo Chico, Hard Salsa, and Zoa. With this in mind, we expect significant year-on-year increases in marketing spend over the balance of the year, and most notably in the second quarter. We expect second quarter marketing spend to be higher than the second quarter 2020 levels and to approach second quarter 2019 levels. We also continue to anticipate underlying depreciation and amortization of $800 million, net interest expense of $270 million plus or minus 5%, and an effective tax rate in the range of 20% to 23%. It also bears reminding that in 2020, our working capital benefited from the deferral of approximately $150 million in tax payment from various government-sponsored payment deferral programs related to the coronavirus pandemic, of which we currently anticipate the majority to be paid this year as they become due. Our efforts in 2020 positioned us with greatly improved financial flexibility, better enabling us to execute our capital allocation priorities, to invest in our business to drive top-line growth and efficiencies, pay down debt and return cash to shareholders in 2021. We plan to continue to prudently invest in brewery modernization and production capacity and capabilities to support new innovations and growth initiatives, improve efficiencies and advance towards our sustainability goals. Driven by commitment to maintaining and in time upgrading our investment grade rating, we expect to continue to pay down debt and reaffirm our target net debt to underlying EBITDA ratio of approximately 3.25 times by the end of 2021 and below three times by the end of 2022. And in line with our fourth quarter 2020 earnings comments, we currently anticipate that our board of directors will be in a position to reinstate a dividend in the second half of this year. Now we are pleased with our ability to adapt and overcome despite the incredible challenges we faced in the first quarter. Our continued progress against our revitalisation plan, the agility of our organisation in the face of challenges, and the commitment and resilience of our people give us the confidence we can continue to successfully execute our revitalisation plan, driving long-term sustainable revenue and underlying EBITDA growth. And we look forward to updating you on our continued progress. So with that, we look forward to taking your questions. Debbie?

We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. Our first question comes from Vivian Acer with Cowan. Please go ahead.

Hi, thank you very much. Gavin, you called out the reopenings in the UK. It sounds like Ireland made some announcements in addition this morning about outdoor. That's certainly encouraging given how much exposure you have to the UK market. As we look at the comps, the shape of the year is clearly going to be lumpy. But in order to kind of solidly get that business you know into growth you know considering the the year-over-year compares on a full year basis for covid do you need full indoor reopenings or do you think just you know outdoor if outdoor can hold that's enough to get you guys to positive volumes um for the year thanks good morning vivian um thank you yes look um as you rightly say the uk did open um

on April the 12th, I think it was, for outdoor dining at pubs and restaurants. We've seen about 30% to 40% of the establishments reopen. And our volume in those establishments for the UK is up double digits in the sort of first few weeks of April. I think the next step is on May the 17th when indoors opens completely, and then we have June the 22nd, there'll be a full reopen. So, you know, so far, just a few weeks into the burn, it's actually been pretty positive. Thanks. Debbie?

Yes. The next question is from Bill Kirk with MKM Partners.

Hey, thanks for taking the question. I have a follow-up on Topo Chico, Hart Seltzer. It seems that after the sell-in that the shelves have been a little slow to replenish. So I guess the question is, are you or contract partners having any difficulty keeping up with demand? And if so, how does that impact your decision on how geographically broad to offer the product?

Thanks, Bill. Good morning. Yes, you're right. I mean, we had a spectacular launch of Zoho. We got to almost a 20 share in Texas, and we got pretty close to a 7 share of the overall Seltzer market in its first week of performance. And as you rightly point out, we've had very strong reorders of Topo Chico. We're working with Coke to increase our supply of Topo Chico, and I think it'll be a little constrained as we meet the huge unexpected demand for that brand. But as the weeks progress, I think you'll see progressively those shelf spaces being filled. I think it was the right decision for us to go to, you know, the limited number of markets that we did, and we won't be expanding that until we're quite comfortable that we can meet the substantial demand that we've had in its existing markets.

Thanks, Gavin.

The next question comes from Lawrence Grande with Guggenheim. Please go ahead.

Yeah, so a quick one to start with about the Topo Chico phenomenon. Just a photo from this one. I'm not sure I understand how Coke can help here. Is it because you don't have enough flavoring and nutrients, kind of the concentrate, or is Coke helping you in terms of finding capacity to manufacture it? I thought you had all manufacturers from the contract manufacturer. So help me understand here the role COVID is playing in fulfilling the capacity. And my second question is more for Tracy. What makes you believe that the board would be willing to increase the dividend in the second half? And what are the KPIs that they are looking for and that we should pay attention to?

Thanks, Lauren. Look, it was always our intention with Topo Chico that we would take over the relationship and supply chain which Coca-Cola had established ahead of us entering into our agreement with Coca-Cola. And so we work closely with Coca-Cola and the third-party contractors. I think we've said in the past that it's our intent to sort of keep that relationship at least until the end of the year. I mean, we certainly have enough seltzer capacity in our Fort Worth brewery, given the 400% increase that we made towards the end of last year. So that's the role Coke played. The original relationship was between Coke and the third party, and we just worked closely with Coke and the third party. Trace?

Yeah, so hi, Lorraine. So just in terms of, you know, our confidence around our guidance, so we did reaffirm the guidance, as we've said. You know, the actions that we took in 2020 greatly improved our financial flexibility, which better enabled us to execute against our capital allocation priorities, you know, including investing behind our brands and our business to grow top-line businesses. to pay down our debt. And as we've said, we've paid down $1.1 billion since March of 2020. And so, you know, the next lever is to return cash to our shareholders. And, you know, as we see, consistent with our Q4 2020 earnings comments, we do currently anticipate that our board will be in a position to reinstate the dividend in the second half of the year. And, you know, we are having those discussions with them as to when and how we will reinstate that evidence.

Thanks, Lauren. Thank you.

The next question is from Andrea Tawera with JP Morgan. Please go ahead.

Thank you. So I just want to follow up first on the MG&A, the ability to control, and you had an impressive reduction in the leverage to pull through the end of the year to keep your FX neutral EBITDA flat. So I'm wondering how long and how many levers you can pull in order to fund the additional marketing spend and still nevertheless have opportunities to reduction in and basically everything else. I'm assuming T&E and all the other synergies that you have been pulling. So if you can help us kind of bridge that gap, I guess that's the question for Tracy. And then also on a follow-up for the dividend, is that the way we should be thinking is that as you go into the second quarter and you basically go through this plan, you're waiting, the board is waiting to see if you don't need to revise anything by the second quarter in order to instate the dividend? Is that the way... should be thinking here?

I'll tell you what, Andrea, I'll take the marketing side of your question, and then Trace, if you can handle the G&A and the dividend side of Andrea's question. Our revitalization plan, one of its core tenants was that we were going to spend more money behind our core brands, behind our above premium brands, and also to you know, extend beyond the beer aisle with above premium. In the first quarter, we actually did increase our spend behind our innovations, and we also increased the spend behind media on our core brands. In fact, we didn't make any adjustments to our marketing plan in Q1 as a result of the cyber security incident or the Texas storm. You know, we spent what we were planning to spend, particularly behind, as I said, our core brands and our innovations. We didn't plan to spend a lot of money in Europe because of the on-premise closures, and we certainly didn't spend any money, as Tracy said in her opening remarks, on live sports or live concerts in the USA or Canada, because there weren't any. We do expect a substantial increase in marketing, particularly in Q2, returning pretty close to the 2019 levels as we fuel the tremendous momentum that we've got behind brands like Busy, Topo Chico, our core brands of Miller Lite and Coors Lite. And obviously, as Europe starts to reopen, we'll be increasing our marketing spend in Europe in Q2 and beyond as well. Trace, do you want to take G&A and then the dividend?

Yeah. So, Greg, from a G&A point of view, You know, obviously there are things like T&E, you know, that we're just not spending behind with the restrictions in travel. And, you know, other targeted cost savings, for example, in the UK, you know, the on-premise was locked down for the entire quarter. There were obviously, you know, savings related to that as well from a G&A point of view. I also want to remind you that we do have the cost savings program that we announced last year. $600 million over three years. In 2020, we achieved $270 million of that $600, and we expect to achieve in sort of roughly in equal portions the balance in 2021 and 2022. So there is the cost savings, which we are continuing to track very well against, that will provide some relief and enable us to carry on with our revitalization plan and invest behind our brands to grow that top line. As it relates to the board, as I said, we are having conversations with the board. We are assessing exactly when and how we will be recommending to the board to reinstate the dividend. So I can't say much more than that, but more to come.

Thank you, Ambassador. The next question is from Chris Carey with Wells Fargo Security. Please go ahead.

Hi, everyone. I guess I'm just trying to understand a little bit how this year is going to play out, just given what you have kind of mentioned, which I think basically is shipments will exceed depletions, but not until the back half of the year. So that's really where the inventory replenishment starts, a Q2 more in line with consumption. So maybe not getting back all the volume that you lost during the incidence in Q1 in the quarter, in Q2 that is. And then you have expectations for marketing spending. I'll just use MG&A as a proxy, and Q2 being up year-over-year and sort of in line with 2019 levels or a little bit below. I think that's what I heard. And I guess if I'm putting all that together, I mean, you could see something like, know mgna up 500 basis points in north america for example and ibadah implied um up you know kind of double digits in the back half of the year to get to the flat even and i know i'm throwing a lot of numbers out there but but the general concept here is that um q2 a slow recovery if you have the you know significantly accelerated spend what happens if the recovery is a little bit slower do you pull back on that And then just confirming this dynamic that it seems like to get to the flat EBITDA, it's really about, you know, just delivery in the back half of the year. Apologies for, you know, more of a financial question. But, you know, if that kind of makes sense, you know, I appreciate any perspective on that. Thanks.

Thanks, Chris. Okay, there's a lot in that question, right? So, I mean, obviously, we're not going to give quarterly guidance. You know, the numbers, the guidance that Tracy has given you are for the full year, and we'll let that stand on by themselves. You know, from a recovery point of view, you know, we pretty quickly put a plan in place. We're prioritizing our core brands of Coors Light, Miller Light, Coors Banquet, Blue Moon, Miller High Life, Keystone Light, and Lani Kugel's Summer Shandy. So that's our primary focus at the moment. We've discontinued or deprioritized slower-moving brands and packs. Most of that is in the economy space, but also some cider. Now, the plan is designed to make sure that we recover our core brands to be in a much better place by Memorial Day. and ultimately for Europe. The self-service and innovation supply, frankly, wasn't affected by the cybersecurity incident at all. Can suppliers return back to normal, producing 12-ounce bottles, women-punched kegs at full capacity? I guess to try and get a little bit closer to your question, obviously with us really only focusing on the core brands, that will imply that the slower moving and some of the deprioritized brands will only really be picked up in the second half of the year from a volume perspective. From a marketing spin perspective, you know, we've got a lot of momentum behind some really exciting innovations which have landed well, and we'll be fueling those. And, you know, Kurzlight's and Millerlight's performance, as I said in my opening remarks, is strong. Campaigns are working, and we'll be putting the necessary firepower behind those two brands. Did you want to add anything, Trace?

No, I think you covered it.

That was good.

Thanks, Chris. Thanks for the perspective. Thank you.

The next question is from Steve Powers with Deutsche Bank. Please go ahead.

Yes, thank you. And I guess, can we maybe hone in on the impacts of the February storms and the cybersecurity event in a bit more detail and just how you size those impacts in the first quarter? In the final analysis, what amount of those impacts represent effectively lost sales versus volume you expect to recoup over the balance of the year, as you just described in response to Chris's question. Just understanding that dynamic in a bit more detail would be great. And maybe as part of that, if you could just characterize how thin U.S. channel inventories were exiting March relative to consumer demand run rates. And what I'm really trying to figure out is just what the what the catch-up is now that I presume you're shipping to full capacity as we sit here end of April. Thank you.

Thanks, Steve. Let me see. So, you know, towards the end of March, we did file an okay, which laid out what we thought was going to be the impact of the cybersecurity attack. If my memory serves me correctly, you said 1.82 million hectoliters and, you know, a shift of EBITDA of about $120 to $140 million. Okay. Now, I would tell you that the recovery plan, our supply chain team just did a tremendous job in sort of back end of March. So, you know, I would say by the end of March, we were a couple of hundred thousand barrels ahead of where we were expecting to be. So I think, you know, you can assume that the impact was a little bit less than what we've said in our 8K. As we sit here today, I think it's the 29th of April, we've continued to meet the recovery plan and, in fact, exceeded a little bit. So I think our breweries are well on track with that recovery plan. We have seen sequential improvement in our core brand's inventory, but we're not where we want to be just yet. We expect to be much closer to where we want to be with those brands by Memorial Day and then fully recovered on the core brand towards in the sort of back end of the second quarter. And then we can focus in on those brands that we have paused beyond that. I think that's about as far as I'm going to go on the impacts, Steve.

Okay, fair enough. Maybe just on the February storms, was there a material net impact there, or was that more a delay intra-quarter and the real kind of carryover effect of the cybersecurity events?

You know, Texas hurt because, you know, the Texas brewery was closed for almost 11 days. You know, the government just shut the power down on us. And, you know, it obviously has knock-on impacts because there are some of our input material suppliers in Texas as well. So, you know, it did have an impact further up the eastern sea borders as well. So I would say certainly it did impact and was part of the 1.82 million hectolitres which we announced. The lion's share was obviously the cybersecurity incident, but the Fort Worth shutdown was not immaterial. Understood. Thank you very much.

The next question comes from Kevin Grundy with Jefferies. Please go ahead.

Great. Thanks. Hello, everyone. Gavin, a few related questions, if I could, on the market share progress that you called out on Coors Light. And, of course, this has been a priority for the company. So three related questions, if I could. One, if you could just spend a moment talking about the strategic shifts around marketing and positioning of the brand, given some of the pressures on the light beer segment. Two, what your growth expectations are for light beer broadly sort of coming out of the pandemic here. And then lastly, just how you think about maximizing incrementality to the overall portfolio as you lean in on a multi-brand seltzer strategy, given that light beers have been a source of demand for seltzers. So your comments there would be helpful. Thank you.

Thanks, Kevin. Okay, a lot going on there. Let me try and knock them off. So I'll start with your final point, right, which is actually, you know, more than half of the seltzer growth is actually coming from outside of the peer category. You know, we've tested that number multiple times over the last year, and it's pretty consistent. So, you know, obviously premium lights are losing some element to seltzers, but it certainly is coming from Other places, including Kraft and, ironically, Economy. Less so, actually, premium lights, which may surprise you, but it's what the data says. We have seen continued positive trends for Coors Light and Miller Light over the past quarter, thus tailing off the strong performance which we had in 2020. And, you know, the focus that we're placing on the health of our core brands is is paying off, specifically our ambitions to connect with new drinkers and giving them a real reason to reach for Miller Lite and Coors Lite and kind of break through that big beer advertising clutter with fresh, creative approaches. And we're seeing the benefits of it. For example, in Coors Lite, we're up significantly in key brand health metrics like consideration and like you know, household penetration, positive impressions amongst 21 to 34-year-olds, which is a key target market for us. And, you know, so far in 2021, we're seeing an increase in both consideration and positive impression. You know, I can go on in quite some more detail on how the, you know, the Coors Light campaign has has turned a corner since the 2019 launch of Made to Chill. Brands growing segment share in premium lights every quarter since we had that launch. We've cut our share loss in the total category by more than 70%, I think it was. Quiz lights continuing to establish itself as the as the brand consumers buy when they're ready to chill. So the campaign for Coors Light is resonating strongly with our core market, but also our growth targets, for example, the Latino drinkers. So, you know, our revitalization strategy required us to invest behind our core brands, and we're doing exactly that, and we are seeing the benefits of it from a... From a share point of view, I think I gave you some of the stats in our opening remarks. I don't know if I mentioned that Above Premium is also gaining industry share. Blooming Life Sky is doing particularly well. And, you know, I haven't talked much about Visi, but, you know, we think we've got a real winner with Visi. It's achieved, you know, almost a 3% share in 2020 with only one skew. And that skew moved faster in Q1 than all Bud Light Seltzer variety packs put together. We're expanding our footprint with new packs. We've got a second variety pack, the Lemonade pack, and we've got a third new variant launching in summer. Our variety pack number two is already turning faster than our variety pack number one. And, you know, Vizzy Lemonade is the second fastest-turning Lemonade Seltzer in the market. Vizzy actually had a record sales week – last week. So, you know, you gave me a lot of questions. I've tried to give you a lot of answers and give you a little bit of color. I hope that helps, Kevin.

No, Gavin, that's fantastic. So congrats on the quarter and good luck here. Thank you.

The next question is from Brian Spilland from BOA. Please go ahead.

Hey, thanks, operator. Good morning, everyone. Gavin, I had a question about on-premise in North America, and I guess more specifically the U.S. As on-premise reopens, how different do you think it might look going forward, given Seltzer is a much bigger portion of the category and growing today? Some accounts may be looking for you know, ways to have reduced touches, you know, kind of on a sanitizing type, you know, thought or, you know, just thinking about sanitation. So I guess I'm just trying to think that could on-premise potentially look different in the future than it did pre-COVID? And if so, does that create any opportunities for Molson Coors to gain some share in on-premises?

Yes, I think the answer to both of your questions, Brian, is yes. During the pandemic, we certainly saw an increased demand for large trusted brands, and that's particularly true in the on-premise, as your question is directed at. We also saw it in the off-premise, but it's particularly true in the on-premise, where on-premise owners are sticking to fewer, faster-moving brands, and that obviously benefits brands like Miller Lite and Coors Lite, It also helps us from a, you know, from a Blue Moon point of view as well. I mean, Blue Moon is the largest craft brand, as you know, and it's disproportionately focused on the on-premise. So, you know, the reopening of the on-premise and the move to large trusted brands is helping us particularly with Miller Lite Coors Light and Blue Moon. And we've seen that tick up a couple of points in our share in the on-premise as the on-premises has reopened. You referenced Celsius on-premise, and certainly in packaged form, I think that that is absolutely right. I mean, we've actually had triple-digit growth in our placements this year, and You know, retailers are reaching out to us, asking for Topo Chico as quickly as possible, given its spectacular launch and the demand that's been created by that. Distribution of seltzers and velocity for us in the on-premises is actually increasing, and it's going to give us a real opportunity to do large-scale sampling opportunities, particularly through our alliances, because we know we've got great tasting products when we get consumers to to try them, they're sold. And that also, you know, applies to innovation like Blue Moon Light Sky. We're launching two draft seltzers on a regional basis through our craft companies, and we'll see how that plays out. But certainly we're seeing big uptick in demand for our seltzer packaged brands in the on-premise. I hope I got all of that right.

Yeah, no, that's great. It's hopeful perspective. Thanks, Gavin.

Thanks.

The next question is from Rob Autenstein with Evercore. Please go ahead.

Great. Great. Firstly, just a quick follow-up and then the main question. So just wondering kind of where you are in terms of the current run rate in the U.S. on STRs. You know, they're kind of running down low double-digit in the scanner data, but obviously the on-premise is offsetting that. So just trying to get a sense of where the business actually is. That would be helpful. And then my main question really is on the hard seltzers, Gavin. You know, it sounds like you're doing better than expected with Topo Chico, better than expected with Vizzy. Do you have maybe increased confidence that you'll get to that double-digit share of the category by the end of the year? And then you also referenced some work that you're doing on the international side with hard seltzers. How do you see those European markets developing for hard seltzers? Do you think there's a chance it can be as big as it is in the U.S., or is it very different given a different consumer? Thank you.

Thanks, Rob. Okay, let me take the first question first. Look, as you know, we don't normally give these updates anymore, but I think given the cybersecurity incident, I'll make an exception and give you some flavor for how April's going. You know, you referenced scanner data. I mean, obviously that needs context, right? I mean, the four-week data, scanner data is including data that massive loading that we had in the off-premise from March of last year. And so it doesn't take into account any shift into the on-premise. You know, over the last four weeks, our sales to retailers in the United States are up but single digits, Rob. So quite different to what you're seeing in the scanner data. We're shipping over a million barrels a week in the USA, as I said in my prepared remarks. And know the uk volumes um of double digits um despite only as i said 30 to 40 of of on-premise being open um and only for for um outdoor dining uh your second question around around seltzers you know um heading towards our goal of of of double digits or 10 by the by the end of the year i mean you You're right. I mean, we had a spectacular launch of Topo Chico in the very limited markets in which it's in. It's only in 16 markets. So I think we've got a clear winner here. It will continue to fuel the potential of this brand. And, you know, based on the reaction in those 16 markets, I think it's got strong national potential. And we'll look to roll that out to future markets when we – when we're confident that we can meet the, you know, unexpectedly very high demand that we had in its rollout markets. You're right on Vizzy. I think we believe we have a real winner with Vizzy. I won't repeat the stats I just gave. I think it was to Brian or Kevin. But, you know, I think particularly exciting for us is the fact that Vizzy Lemonade is the second fastest turning company lemonade seltzer. And as I said, we had a record sales week for Vizzy last year. You know, we've pleased the performance. We had a singular skew last year. We only launched in April and we had inventory challenges. Well, we're meeting all the demand for Vizzy now that we've got the capacity up and running in our Fort Worth brewery. So it If that means that we're more confident to get to our 10% target, we certainly think we've got the brands in the seltzer space to do that, and now we need to execute. You know, I think that early data in the European market suggests that seltzer is going to be good. I'm not sure yet that I'm ready to tell you that it's going to be as good as it is in the United States. We don't have any data to support that, but You know, certainly threefolds has landed well in the United Kingdom, and Y is already in a couple of markets in Central and Eastern Europe, and we'll be rolling it out more fully towards the – in this month. So I hope that helps, Rob.

Great. Thank you, Gavin.

The next question is from Bonnie Hertzog with Goldman Sachs. Please go ahead.

Thank you. Hello, everyone. I just wanted to quickly circle back to the cost pressures you're facing this year. I know you guys touched on this, but maybe you could just give us a little more color on how you expect this will evolve through the balance of the year. And really, what are some of the key levers that you have to mitigate some of these pressures? Maybe touch on a little bit further on any kind of hedging you have in place. And then I'd love to hear how you're thinking about pricing. as a potential lever to offset some of these cost pressures. Thanks.

Now, Bonnie, so I'll take the cost question. our underlying COGS in the quarter increased 5.6%, and 470 basis points of that was inflation, with just under half of that related to the transportation. So, you know, as I think everyone knows, the freight market was really tight. We spoke about this in Q4, and we said we expected to continue to be tight in Q1. It did start showing improvements in January and the beginning of February, but then that changed with all the winter storms, and that caused major disruptions to the entire transportation network. So we expect to continue to see that tightening in the freight market. And then as it relates to us, sourcing cans from four continents has also actually added to that inflation. In terms of levers to mitigate that, I did mention our cost savings program. So we delivered $270 million of the $600 million in 2020. We expect to deliver the balance of that in 2021 and 2022, roughly in equal portions. And so far, we're tracking well to achieve those savings. And the majority of those cost savings are focused on COGS. So in addition to the cost savings program, as you mentioned, we have really robust hedging programs. We hedge all our commodities where we can. I don't want to get into the detail of how we hedge, but our hedging programs are robust, and that will help to mitigate some of the inflationary pressure that we are seeing.

Thanks, Trace. On the revenue side, Bonnie, look, in terms of pricing, we don't give forward pricing guidance. Rather than using pricing to offset prior cogs, we've got hedging programs in place, which Tracey mentioned, and we have the cost savings programs in place as well. And I don't know, Trace, did you mention the fact that our guidance does actually include any cost savings? any cost pressures which we may have. We factored that into the guidance which Tracy gave earlier on. Thanks, Bonnie.

Thank you. Helpful. The next question is from Sean King with UBS. Please go ahead.

Great. Thanks for the question. Yeah, a broader question about distributor receptivity to some of the beyond beer moves that you're making. Like, how has that impacted your relationships with distributors? And then a second question on top of that would just be any update you can provide on progress with the Yingling JV.

Thanks, Sean. Yeah, look, my excitement on Zola got ahead of me when I was answering a Topo Chico question earlier on. Zoho has been extraordinarily well received by retailers and by distributors alike. And, you know, we've got a very strong partner in Dwayne Johnson. He's not just a celebrity partnership. He's actually an owner of the business together with us. And, you know, frankly, every time he puts something out on Instagram, he reaches 231 million followers in a nanosecond. The true test of how innovation lands is what do the distributors order? We just had our order window for the very first order close. I think it was either last night or the night before. The orders are strong, and that tells you how the distributors feel about it. The retailers are particularly excited about it as well. you know, we're just getting into the market with it now, so I don't want to get ahead of myself, but, you know, where it has been in the market with some of the vitamin stores and GNC and online, it's been, the results are tremendous. So, you know, short story, very excited about Zoho from a retailer and a supplier and consumer point of view. Like alone, we've already hit our distribution targets. We had distribution targets with our with our partner, La Cologne, that was set for the full year, and we're in April, and we've hit them. So that is an illustration of how our distributors have executed in C stores and the drug chain. So, you know, short answer is very good, Sean. From an England point of view, a tremendous amount of work has gone into getting that ready to launch in the fall of this year in, In Texas, they've made tremendous progress, the joint venture hiring folk, setting up the distributor relationships, awarding the brand to the various distributors in Texas and gaining commitments, talking to the chain. So, you know, I would say we're exactly where we thought we'd be with the England joint venture.

Great. Thank you very much. All the best.

Thanks, Jordan.

The next question is from Camille Jarawalla with Credit Suisse. Please go ahead.

Camille Jarawalla Hi, everybody. Thanks for taking the question. A question on Celsius and guidance perhaps together and then Celsius and profitability. In your guide for mid-single digits for the full year, What are you incorporating for the contribution for Seltzer? I've heard a lot of positive comments, but how big do you expect it to be? Is it big enough? Is it a point of the five points? Is it three? If you could maybe just give some context on how you're thinking about it there. And how should we think about profits and the impact on profits from many of these products? As you mentioned, Zola, obviously there's more than one owner there with Topo Chico. You're online with Coke and rolling it out. Can you just maybe give us a context on maybe if the revenue contribution looks different from the profit contribution? Thank you.

Well, look, I'm not going to break down the sort of brand contribution to our NSR. I'll give you two points, though. One is that our Celsius and our Almost all of our innovation operates in the above premium space and some in the super premium space and some of our innovation actually operates even above the super premium space. There's a lot of profit to go around for both ourselves, for our suppliers, for distributors and for retailers. These are all above premium brands and they're all going to contribute to the bottom line over time. As far as contribution to NSR is concerned, I mean, essentially we had one brand in the market for eight months of the year last year with Vizie and, you know, I think we exited the year at close to a full share of seltzers. You know, we're closer to seven share now than we were at a full share. You know, we've got the plans, we've got the marketing muscle to put behind ourselves for the balance of the year. I'm not going to be repetitive and bore you on all the excitement around Vizi and both Topo Chico. Proofpoint's just launched into the market. So these brands are coming off a fairly low base from a contribution point of view in 2020 to our business. And so we would expect them to be a much more meaningful contribution to our business in 2021. I hope that's helpful, Carmel.

Got it. Thank you.

The next question is from Lauren Lieberman with Barclays. Please go ahead.

Hi. Sorry. I'll keep it tight. My question was just on cybersecurity and just thinking about go-forward costs, investments you might need to make to kind of shore up your systems. the company has been through several years of very, very, you know, tight times. And so just thinking about the degree to which maybe there's been some underinvestment and there's a need to kind of catch up and the degree to which that's kind of already factored into this year or next year's thought process on spend. Thanks.

Yeah, so just in terms of the, let me start with the cyber incident. In Q1, we, as we said in our earnings release, we did incur a net expense of $2 million, right? as it relates to various consultants and experts that helped us and are helping us with the investigation. Actually, I don't want to talk too much about it because it still is an open investigation around the incident. But just in terms of investment, we have spent a significant amount of capex funds upgrading our systems in North America. You know, we've spoken about U.S. for a number of years, our BP&S systems. And at this stage, we are also upgrading our systems for Canada, where we're actually taking the Canadian systems and putting it onto our U.S. systems. So, you know, more than that, Lauren, you know, I really don't want to give, because it is an open investigation. Just in terms of Q2, though, as it relates specifically to the incidents, we do anticipate some further minimal, really immaterial costs as we sort of put this to bed. Okay. That's great. Thanks so much.

Thanks, Lauren.

This concludes our question and answer session. I'd like to turn the conference back over to Gavin Hattersley for any closing remarks.

Thanks, Debbie, and thanks, everybody, for participating in our call. There may be additional technical questions which you have, and, you know, please feel free to follow up with our investor relations team. And, you know, we look forward to talking with many of you as the year progresses. So with that, thanks, everybody, for participating in today's call, and have a great day.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.