Molson Coors Beverage Company (TAP) — Q1 2015 Earnings Call Transcript

Thank you, and hello and welcome, everybody, to the Molson Coors earnings call. And many thanks for taking the time to join us today. With me on the call this morning from Molson Coors, we have Gavin Hattersley, our CFO; Stewart Glendinning, our Canada CEO; Simon Cox, our CEO for the European business; Kandy Anand, our International CEO; Sam Walker, our Chief Legal and People Officer; Brian Tabolt, our Controller; and Dave Dunnewald, VP of Investor Relations; and we also have Tom Long, CEO of MillerCoors, joining us today. Now as you know, a few months ago, we announced Tom's plan to retire at the end of June, and I'd like to take this opportunity to both recognize Tom's contribution since joining the U.S.A. business and in particular, his leadership since being appointed as MillerCoors CEO around four years ago. So many thanks for your leadership and we wish you well, albeit you still have a full agenda through to the end of June. Now while we are well into the search, we do not anticipate that we will have Tom's successor in place by the end of next month. As a result, the MillerCoors board has asked their own, Gavin Hattersley, to step in on an interim basis to lead the MillerCoors team while we complete the search for Tom's replacement. Gavin is an outstanding and trusted leader with ideal qualifications for the role. His extensive beer industry knowledge and experience in the U.S. and on the global stage, along with his unique experience of having held top leadership positions with both parent companies and MillerCoors, makes him the right choice to take the business forward with integrity and a strong sense of purpose. Equally important, Gavin is not leaving MillerCoors, as he will continue in his CFO role here as well. So with that, let's talk about our quarterly performance. Our results for the first quarter reflect continued volume pressure in our largest markets and, as expected, a significant impact from foreign currency movements, a higher tax rate, and terminations of business contracts, all of which we discussed on our last earnings call. Now despite this backdrop, we remain absolutely resolute in our focus on building our brand strength, achieving positive pricing, transforming our portfolio to the Above Premium segment, improving commercial execution, and embedding Profit After Capital Charge throughout our organization. Our first quarter performance headwinds are as follows: our net sales per hectoliter increased 1.8% in constant currency, driven by strong global pricing and revenue management initiatives. Constant currency net sales decreased 3% due to lower volume in Europe and Canada, and by adding an additional effect of foreign currency, reported net sales declined 14.2%. We grew Coors Light volume 0.6% globally, driven by double-digit growth outside of the U.S. and Canada. Our global strategic trust portfolio grew volume mid-single-digit rate in the quarter. Worldwide volume declined 3.5%, driven by Europe, Canada, and the U.S. Underlying pretax income on a constant currency basis increased 0.6%, driven by positive net pricing, along with results of cost-saving initiatives. The underlying performance of the business was stronger than this result indicates, as we cycled a particularly strong quarter last year when pretax income nearly doubled. Including the effect of unfavorable currency, underlying pretax earnings declined 4.2% on a reported basis. Underlying EBITDA in the quarter was $228.6 million, a 9% decrease from a year ago, partially due to foreign currency movements. Underlying after-tax income decreased 15.8%, with nearly all of this driven by unfavorable foreign currency and a higher tax rate that was cycling a large discrete tax benefit a year ago. Our board approved a double-digit percentage increase in our quarterly dividend and a new stock repurchase program in the first quarter. We began to implement this new buyback program with $50 million of cash used early in the second quarter for Class B common stock repurchases. We also completed the Mount Shivalik Breweries acquisition last month in India. This bolt-on acquisition gives us strong leadership positions in three states in India, one of the fastest-growing beer markets in the world. It also adds strong regional fundable brands to our portfolio and gives us a platform to expand our international brands in these states. Now in terms of regional highlights, U.S. underlying earnings increased 5% due to higher pricing, positive sales mix, and strong cost control. Volume was lower in the weak first quarter for the U.S. beer industry. We continue to grow our largest Above Premium brands while also making strides towards restoring growth to our Premium Light brands. Coors Light declined, but improved its trend versus last year. Miller Lite again grew share of the Premium Light segment and Coors Banquet continued to grow volume and share. In Above Premium, Blue Moon grew at mid-single-digit rate in the quarter, while Leinenkugel increased at high single-digit rates, and both Redd's and Smith & Forge Cider achieved strong double-digit growth. In Canada, underlying earnings declined 12.5%, driven almost entirely by unfavorable foreign currency and the impact of terminating our Modelo joint venture a year ago. Canada sales-to-retail or STRs declined 3.7%, with nearly one-third of this decline due to the loss of the Modelo brands. In Coors brands, the Coors Light sales trend improved versus last year, benefiting from more retail programming and new advertising. The combined Coors brand family grew Canada market share, partially due to the addition of Coors Altitude. In Above Premium, Coors Banquet delivered strong volume and share growth in the first quarter, as did Mad Jack Apple Lager, Molson Canadian Cider, and we delivered mid-single-digit growth from our Creemore and Granville Island Craft brands. Our Europe business faced weak consumer demand in some of our higher revenue and profit markets, and an industry mix, volume mix shift to the Economy segment, and we deliberately chose to pursue value ahead of volume. Our first quarter result reflect positive pricing in most of our Europe markets, lower volume and negative sales mix. These factors, along with the loss of the Modelo brands in the U.K. in 2015 contributed to lower volume and market share in Europe in the first quarter. Nonetheless, we maintained our focus on building our core brands and Above Premium portfolio, including Crafts, as well as revenue management and price discipline across the region. The Craft and Above Premium brands performed well, with Coors Light, Doom Bar and Staropramen outside of the Czech Republic growing strongly. Our International business delivered double-digit growth in volume in the first quarter with continued momentum from Coors Light in Latin America and strong double-digit volume growth in India. Due to unfavorable foreign currency movements and increased marketing investments, our loss for the quarter increased by $2.4 million. Now I'll turn over to Gavin to give additional first quarter financial highlights and perspective on the rest of 2015.

Thanks, Mark, and hello, everybody. Underlying free cash flow for the first quarter of 2015 totaled a cash use of $162.2 million. This represented $97.6 million more cash used versus a year ago and was driven by lower net income and a decreased benefit from working capital timing, including higher cash paid for taxes. Our underlying free cash flow result in the first quarter excludes a $227.1 million discretionary contribution to our U.K. pension plan earlier this year. Net free cash used in the first quarter of the year is normal in this seasonal business, but this is the lowest cash generating part of the year. Our first quarter free cash flow included the following factors: $202.6 million of negative operating cash flow and $221.6 million of net add-backs for the discretionary pension contribution minus the cash impact of special items. Invested cash outflows included $73.7 million of capital spending. Our underlying free cash flow included $310.4 million of cash distributions and $417.9 million of cash invested in MillerCoors. The detailed reconciliation of our first quarter underlying free cash flow is available in our earnings release distributed this morning. Total debt at the end of the first quarter was $3.251 billion and cash and cash equivalents totaled $317.6 million resulting in net debt of $2.934 billion, which is $521.4 million lower than a year ago. Please see the earnings release we distributed earlier this morning for a detailed review of our business unit financial results for the quarter. Looking forward to the balance of 2015, we are lowering our full year outlook for capital spending to approximately $300 million, down from $330 million provided on our last earnings call. This improvement is driven primarily by continued weakness of various currencies against the U.S. dollar, coupled with value engineering of some planned capital projects after running them through our PACC model. All other full-year forward guidance is unchanged from last quarter, such that our annual target for underlying free cash flow is $550 million, plus or minus 10%, at April 30th's foreign currency rates. We expect cash contributions to either fund benefit plans to be in the range of $300 million to $320 million in 2015, including our 42% of MillerCoors' contributions. We anticipate 2015 pension expense of approximately $27 million. We expect our 2015 MG&A expense and Corporate to be approximately $110 million. Our consolidated net interest expense to be approximately $120 million, which is based on FX rates and hedging positions at the end of the first quarter and our 2015 underlying effective tax rate to be in the range of 18% to 22%. After this year, we expect our underlying tax rate to be near the low end of our long-term range of 20% to 24% for the next few years, assuming no further changes in tax loss, settlement of tax audits, or adjustments to our uncertain tax positions. In 2015 cost outlook, we continue to expect MillerCoors's cost of goods sold per hectoliter to increase in the low single-digit rate for the full year and International business cost of goods sold to decrease in the low double-digit range per hectoliter. In local currency, we still expect Canada cost of goods sold per hectoliter to increase in the mid-single-digit rate and Europe to decrease in the mid-single-digit rate. And finally, regarding the profit and cash headwind from foreign currency that we expect this year, we would apply foreign exchange rates at the end of April to our results for the last three quarters of 2014. It would reduce our underlying pretax earnings for that period by more than $50 million, and the impact on cash would be even larger. If we add the $5.1 million of foreign exchange impacting the first quarter this year as set out in our earnings release, our full-year foreign exchange estimated impact will be more than $55 million or approximately 6% to 7% on consolidated results. We have taken steps in recent years to mitigate some of our foreign currency exposures by our debt structures and hedging. So at this point, I'll turn it back over to Mark for outlook, wrap-up and Q&A.

Thanks, Gavin. As we discussed in our last earnings call, we continue to expect our 2015 results to be challenged by negative foreign currency, determination of three major business contracts, and a higher effective tax rate. Additionally, our Canada results will be affected by new framework agreement that was announced by the Ontario government last month, although we expect much of the impact to be phased in over the next four years. We will continue to work with the government and our fellow beer store owners to implement the recommended changes. Despite these challenges, we will continue to drive our strategy of building a stronger brand portfolio, strengthening our core brand positions, and increasing our share in Above Premium, Craft, and Cider. We will have a relentless focus on delighting our consumers and our customers to ensure we are the first choice brewer in the geographies and segments where we choose to play and we will selectively build our international brands and strengthen our world-class commercial capability. We'll do this while ensuring we have a fit-for-purpose cost base and a deeply embedded discipline and PACC-led capital allocation process. Besides including PACC performance measures in our long-term incentive plan this year, we have been rolling out interactive training with each of the country teams to embed our value-driving PACC model from top to bottom in the organization. Regionally, in the U.S., we intend to lead the beer industry with innovations like Redd's and Smith & Forge Cider, with the latest expansions being Redd's Green Apple and Wicked Mango, and we'll introduce drinkers to new styles and flavors in our Craft portfolio with offerings like Blue Moon White IPA and Leinenkugel's Grapefruit Shandy. We'll continue to bolster Miller Lite with a new national advertising campaign and we'll complete the total refresh of Coors Light that will expand across all consumer touchpoints that has started with new packaging emphasizing its 'born in the Rockies' heritage. The brand also dedicates new national television advertising in March designed to emphasize Coors Light's unique refreshment, and we'll launch additional new television advertising in June. Last month, we also reintroduced the Summer line extension, Coors Light Citrus Radler with a new name and packaging. Finally, we'll continue to build first choice customer partnerships. Working with our distributors to bring more resources to the on-premise with our 'building with beer' retail strategy, which leverages the higher velocity and broad appeal of our American light lagers. In Canada, we continue to invest in our core brands and Above Premium, including Craft, imports, and flavored malt beverages. In early March, Molson Canadian introduced the next chapter of its Beer Fridge campaign, and in April, launched an NHL promotion nationally. We also introduced a new advertising campaign behind Coors Light in early March. In Above Premium, consumer demand remains strong for Coors Banquet, Molson Canadian Cider and Mad Jack Apple Lager, which will be rolled out nationally in the second quarter after a successful launch in Ontario and Québec in 2014. The national launch of Coors Altitude is proceeding well, as is our expanded partnership for the marketing and distribution at the Heineken, Dos Equis, Sol, and Strongbow brands. We're also launching Rickard's Radler as a new seasonal offering for summer. In Europe, although some of our largest markets continue to be weak this year, our segment-leading core brands will receive incremental investments in local currency in the remainder of 2015. We also intend to continue the strong momentum of our Above Premium Craft and Cider portfolio, including expanding Carling British Cider to more European markets, introducing new Sharp's brands into the U.K. and adding the Modelo brands to our International Premium brand portfolio in Central Europe this year. We're also taking important steps in the first half of this year to ensure that our U.K. supply chain is fit-for-purpose, including entering into an agreement in January to sell our Burton Malting operations in the third quarter. In March, we purchased the brewing and kegging operation of Thomas Hardy's Burtonwood brewery in the north of England, which will give us greater capability and flexibility to grow our U.K. Craft business further. Meanwhile, following the termination of our U.K. contract brewing arrangement with Heineken at the end of April, we're closing our Alton brewery this month to ensure that our supply chain capacity is aligned with the needs of the business. Our International business will focus on growth and expansion in new and existing markets. We'll continue to drive strong momentum on Coors Light and Coors 1873 in Latin America, along with growth in our India business. Our recent India acquisition is in line with our strategy to grow our regional brand portfolio and adds two breweries in two large Indian states and more than doubles our brewing capacity there. This acquisition gives us a powerful combination of industry-leading brewing expertise, brand reach, and operational efficiency that will allow us to grow our brands even further in India, one of the fastest-growing beer markets globally. Finally, here are the most recent volume trends for each of our businesses early in the second quarter. In the U.S., through April 25, STRs decreased to a low single-digit rate. In Canada, through April 30, STRs were down low double digits. Excluding the Miller brands last year, our Canada STRs were down high single digits in part due to year-over-year shift in the timing of Easter. In Europe, through April 30, sales volume is down mid-single-digit, partially driven by the loss of the Modelo brands in the U.K. this year and the timing of Easter. Our international sales volume including royalty volume increased at double-digit rate in April. Now as always, please keep in mind that these numbers represent only a portion of the current quarter and trends could change in the weeks ahead. To summarize our discussion today, Molson Coors results for the first quarter reflect a number of headwinds, but we remain resolute in our focus on building brand strength, achieving positive pricing, transforming our portfolio to the Above Premium segment, improving our commercial execution, embedding profit after capital charge in our organization, and delivering total returns to our shareholders. Now before we start the Q&A portion of the call, just a quick comment. As usual, our prepared remarks will be on our website for your reference within a couple of hours this afternoon. And also, at 1:00 p.m. Eastern time today, Dave Dunnewald will host a follow-up conference call, which is an opportunity for you to ask additional questions regarding our quarterly results. This call will also be available for you to hear via webcast on our website. Additionally, in the next two months, we hope to see many of you at three events. Firstly, Gavin will present at the Goldman Sachs Global Staple Summit in New York on Tuesday, May 12. Secondly, we'll hold our Annual Meeting of Stockholders on Wednesday, June 3, at our brewery in Montréal. And thirdly, we'll host our annual New York Investor and Analyst Day at the New York Stock Exchange in the afternoon of Wednesday, June 17. So at this point, if we could open up the lines for questions, please. Thank you.

I want to talk a little bit about the COGS guidance here and if we look at the impact of transactional FX, it seems like it should be a negative in both Europe as well as Canada. So can you talk a little bit about the differential there in COGS guidance, given the much tougher COGS environment you're seeing in Canada versus Europe?

John, thanks for the question. I'll let Gavin pick that up.

John, thanks. Look, I mean, the guidance we gave is in local currency. So the one that's directly in U.S. dollars is MCR. So from a Canada point of view, we've obviously got a lot of moving parts in Canada. We've got the growth in the import brands, which would be Coors Banquet, Heineken and FEMSA, and we've also got a lot of really nice innovation going on there, plus there's the changes of the termination of the Corona contract. And in Europe, we've got brand mix going on there with no Corona, well, that's coming out and we've got the lowest contract brewing volume as well. And from an MCR point of view, it's mostly geographic and PACC mix changes between the vast number of territories in which we operate. All of that is offset to a degree by our cost savings programs, which we've got in place.

Okay. So it sounds like the way we should think about this is at least with Canada, it's actually positive mix from higher-priced products that's driving the piece of that as opposed to, let's say, underlying cost increases?

Well, there are underlying cost increases as well in there, John, yes, but growth in import brands...

It's not just that, yes.

I have a couple of questions. First, in Europe, you mentioned a decision not to pursue profitable or unprofitable volume in the press release. Could you provide some insight into the promotional environment? From what I understand, it became much more promotional in the U.K. during the first quarter, so could you elaborate on that?

Bryan, thanks for the question. I'll ask Simon to pick up some of the detail. I mean, just a couple of context points. Firstly, we've started seeing a couple of markets shift into the Economy segment as consumers make choices about where their constrained disposable income is going to be used. So that's just one dynamic that started to emerge and the team are cognizant of and are obviously reacting to. And to your second point, from a promotional perspective, there's no real news there; I mean, the European market remains competitive. But Simon, do you want to give a little bit more color to specifically what's happening?

Yes, Mark. I think you've covered the headlines. Thanks for the question, Bryan. As Mark mentioned, there is some movement driven by consumers facing economic challenges, especially in certain markets following the flood. Some consumers are shifting towards the economy and value segment in these areas. We have decided not to engage aggressively in those parts of the market. Regarding the U.K., promotional intensity can be quite volatile, but Q1 has been a bit more intense on the promotional front, particularly within the multiple growth channel. Again, we have opted not to participate in some of the more aggressive deals, which is what we are referring to with our headline results.

Okay. And then, just one other question on the Alton brewery. Can you quantify at all how much that will contribute or how much savings you might be able to generate this year from that?

Brian, we haven't provided a specific number on that yet.

Okay. But fair to think that it will be some sort of positive offset or positive contribution this year?

Bryan, yes, it will be a positive contribution, but I'd point you back to our guidance that we have of $40 million to $60 million worth of cost savings in this financial year. We obviously have a lot of moving parts, things that move around, so that guidance has remained unchanged.

So in the earlier MillerCoors call, we got a little bit of color from Tom just in terms of the MillerCoors board's decision on Gavin's appointment as an interim CEO. So maybe, Mark, just kind of share your perspective on the process and the rationale for having Gavin as an interim CEO? And then, just in terms of his responsibility in managing sort of the both roles, how should we think about that and the potential for this becoming more of a permanent position over time? What are some of the things that you're focused on as you make that decision and really finding the permanent replacement?

Thanks, Judy. I think there was a multiple number of questions in your question there, I'll try and cover them all. I mean, to the most important thing, in terms of the decision around Gavin, it's because Gavin is absolutely the best person for the job and we're delighted that we're able to ask Gavin to step up and he's accepted to do that. I mean, that's some of the easiest part. In terms of the process, I mean, Tom indicated towards the end of last year his intention to retire, and we publicly announced that earlier this year ahead of our distributor convention. We've had a search process in place. And I think, from our Chairman, Pete, Alan Clark and myself, we are absolutely clear that we want to find the best possible leader for the MillerCoors organization, that's what the organization requires and deserves, and we will take our time and be thoughtful. As I'm sure you're aware, these type of searches sometimes take time. We're well into the process, but it's clear that by the end of June, it's unlikely we'll have a new full-time replacement or permanent replacement in place, and we're in a privileged position with Gavin, someone who knows both of the shareholders well, has worked for both companies and has actually operated at a very senior level within MillerCoors. So he'll hit the ground running. And whether Gavin is there for one month, three months or six months, he'll be leading that business to compete, play to win, and win in the U.S. beer business. That's the agreement, and Alan and I are absolutely clear on that. So that's where we are and we'll keep everybody updated as the process develops over the coming weeks and months. Gavin is going to be busy in the meantime, so please try not to distract him.

That's helpful. And then, I guess, my second question is maybe just on the business and switching gears to Canada. Just the industry volume looks a little better in the first quarter. I think it was up a little bit. Obviously, your share performance is still pretty soft there. The April trend, I know there's an Easter impact, seems like that the volume was pretty weak. So just some broad perspective on kind of what are you seeing in terms of the industry perspective and your effort to really put your market share position in a better footing, how much traction are you getting there? Do you think there's more spending that really needs to go to drive that? Just some color there would be helpful.

Yes. So Judy, I'll ask Stewart to talk in a little bit more detail shortly. Let me just give you a couple of headlines. I mean, Stewart and the team are in the middle of a very significant transformation of our business in Canada in terms of total restructuring of our supply chain, a big cost-down program, and ensuring that our portfolio is fit for future. From a Canada perspective, in the first quarter, I was personally pleased with the progress Stewart and the team made on pricing. The Coors Light trends improved versus 2014 that we saw strong growth in Coors Banquet and with our Above Premium portfolio, and we've been encouraged by share growth position in both Alberta and Québec, which are critical markets for us. Headline level, I would say, overall, we're disappointed with our total performance and we'll certainly ensure far more effective and ruthless execution of our plans in the balance of the year. Take it from me, we'll be running even harder and faster in Canada. We've got a great set of plans and it's very much about the quality of execution of those plans for the balance of the year to build on some of the strong points that are emerging in our Canadian business. But Stewart, do you want to just jump a little bit deeper into some of the detail in Canada, as per Judy's question?

Yes, not a lot I can add to it. I mean, Judy, I think that the quarter was a bit better for the beer industry, no question about it. The shift, I think, from Easter from Q2 into Q1 was absolutely a help. If you look at the marketplace, the market trends were not dissimilar to what we saw last quarter in the sense that the West was much stronger than the East. And so part of our underperformance came from geographic mix. Part of it came from cycling the big promotion of Molson Canadian around the Winter Olympics last year and part of it came from just underperformance. On the underperformance side, we've got a very clear view on what's driving that and we're working very aggressively to change those things. Probably it's also worth mentioning, just looking at the big picture of things, our goal is to grow share and our goal is to grow the profit. And we've been focusing against this strategy of overhauling the portfolio, driving our cost base down, and improving our executional capabilities, and I think we've made good progress on all of those, as Mark commented. If you look back at last year, we saw improving share trends for the first three quarters of last year and the last two quarters have been more challenged. But as I say, I think we've got a clear line on where the underperformance is coming from and we'll be working to address that.

A couple of questions. One is just a more technical one. In the U.S., when you gave us that April update, is it fair to think that the Easter shift hurt April, so to speak, the way it hurt in Canada?

I believe that's the case, yes, Mark.

Okay. You've been involved in India for some time now and have made a good acquisition there. As you look at the long-term potential and your company's strategy for addressing that, could you share your thoughts on the importance of capital, particularly larger investments, compared to these smaller acquisitions and organic growth methods for tapping into that potential over the coming years?

Yes, I mean, I'll give you a little bit of context and I'll ask Kandy to talk specifically about the opportunity that we see in India. But I think I've been pretty clear that as we look at building our international brands, really along the double act of the Coors trademark in Staropramen, we're looking to drive that business principally on a license and export model with exception of a couple of markets where we believe that we can invest really for the medium to long term, and India fits really nicely there. I think we did our apprenticeship in India through our initial foray into the country, and we see a very clear path to strong position across these states. And when you think about the population in these states, across the three of them, we're talking 150 million to 200 million people. So these are big markets with real long-term potential, so we'll be selective with our international cash investments, as I say, principally on a license and export model, with a small number of markets where we can see long-term growth potential. On India itself, Kandy, do you want to just give a little bit more color to where we are in the marketplace?

Thank you, Mark. Building on what Mark said, we view India as an appealing long-term market. Currently, the market size is between 23 million and 24 million hectoliters, and it has been experiencing steady double-digit growth. However, the per capita beer consumption is only 2 liters per person per year, which indicates that we expect continued growth in this market over the long term. Our strategy in India focuses on establishing strong leadership positions within key states. Following our successful first FDR and recent acquisition, I believe we are aiming to do that in two additional states to secure leading positions. Our approach will be to succeed in these states and gradually implement our strategy rather than pursuing a Pan-India strategy. Moreover, we have local brands, and this acquisition introduces us to the Thunderbolt brand, which is very strong. It also provides us with an opportunity to build our global brands alongside these regional brands. This outlines our overall strategy in India.

I mean, obviously, any investment in any of our international markets goes through our PACC model and we will be very judicial in our use of cash as per the framework that I think we've described on a very consistent basis. We're certainly very excited about the medium to long-term potential around the geographical platform we've now given ourselves in India.

That's great. And on that, Mark, that's good to hear, and I've got confidence in that. We all know the history of Brazil and China, so that's kind of what's driving my questions about India, but PACC and the approach you're taking, I think, is different. One last one is it pertains to Gavin's appointment and just all of us trying to better understand what's going on here? And I proposed on the earlier call that you would have a bias for an internal candidate. By internal, I mean someone within the larger SABMiller and Molson Coors system as opposed to someone within the broader beer industry. And of course, Gavin's appointment kind of is consistent with that, but is that a fair understanding of how you're approaching this? Is that a fair understanding of who's coming to you, so to speak? Are you seeing much interest from outside of those two companies? I'm just trying to understand, trying to get a read on where this is ultimately going to go? And then, the second question is, SAB is the majority owner here, but you have some special rights because of the nature of the situation, I think, contractually. So can you just give us a flavor about how that dialogue works with SAB in terms of ultimately choosing the person to be the permanent CEO?

I mean, to take the second part of your question first, we have a 50-50 governance model within MillerCoors, so the board is constructed with equal directors from both SAB and from Molson Coors. And it's fair to say, I think, Alan Clark and myself are absolutely aligned on what we need to get done in the U.S. business. We both harbor the same ambition to build a winning beer business in the U.S., and we both hold the intent of ensuring that we have a great leader to lead the MillerCoors organization. We are looking broadly for a new leader. I don't want to get into the detail of the process; the process is well underway. And I think people are just going to have to be patient. I mean, asking an executive from one of the shareholders to step in and run one of the businesses is not unusual in any organization, so I don't think we're doing anything unusual in it. I would really encourage people not to read anything beyond the headlines into this. We have an interim requirement. We have an interim solution and the process for a permanent leader continues.

Can you remind us what your target date was again in terms of having the International business go to breakeven and whether you think you're still on target with that given current results and the evolving strategy in India?

Let me pick that up. So what we said was as we moved towards the end of 2016, we expect our International business to be at least a breakeven if not in profit. We still believe that we will deliver that when you put to one side impact of FX that's clearly impacted the business since we made that statement back at the end of 2013. We expect the FX impact relative to our plan at that point in time to affect us by mid to high single-digit millions of dollars. So when you include that, it will make it challenging to get to breakeven. When you exclude that impact of FX, we're still very confident that we'll get to breakeven, FX excluded.

Terrific. And then not to kind of go back to Canada again, and I don't want to overdo it, but can you talk a little bit about the competitive environment there, pricing, and whether SAB's entrance in April looks disruptive?

Okay. Stewart, would you like to pick that up and...

Yes, I'm happy to address that. To start, SAB entered the market in the last 30 days, so I can't really comment on that yet. We have a strong portfolio and are prepared to handle competition. The beer market is competitive and there are more brewers as the market expands, but I don't see any significant changes in the last quarter. Regarding pricing, it has generally aligned with inflation across the country. Any increases beyond that can be attributed to a favorable mix, as both Above Premium import and Above Premium domestic segments have grown. Specifically, pricing was weakest in Québec and strongest in Ontario and the West.

Just going back onto Canada again, perhaps you can just talk a little bit on how the beer framework changes in Ontario, what that actually means? And my view is obviously building a solid morale is probably a good thing. Do you potentially lose some control of that, which may not be such a good thing? Is that a simple view?

Well, I'm not sure, really. That is true only in that beer stores will continue to operate and will continue to be run by our board as it is today and they will continue to exist in a format that provides opportunities for any brewers to get their beer to markets. So in that sense, I don't think anything changes. As you will have read, there are a lot of changes that are coming to Ontario, but there's not a lot I can add to what has already been announced publicly.

And I think it was mentioned in the call about a four-year period. I thought 2017 was the important year, but could you just explain why four years is important?

Yes. So a couple of things, so maybe mixing two things there. On the pricing side, the province has instituted some restrictions on pricing for a period that ends in 2017, but the beer tax, which at the beginning of the process looked like it could all come in one year, will be phased in over four years.

And Ian, just to be clear, that four-year period begins November of this year, so really think about 2016, 2017, 2018, and 2019 as the four-year periods.

As a follow-up, in Canada, the 3.8% price mix is likely the best we've seen in quite some time. You've mentioned some factors related to this, but is it truly sustainable? I'm also curious about how the Heineken brands, particularly the extension of the Heineken brand, are contributing to this.

Well, I don't think the Heineken brands have dramatically changed our NSR mix. I mean, we brought other Heineken brands on board, they tend to be much smaller, but just to give you a sense of the split. When you look at that 3.8%, about two-thirds was driven by net price and the remainder was from mix.

I do. Thank you. I'd just like to thank everybody for joining us today and for your interest in Molson Coors Brewing Company. We look forward as a senior team to meet with many of you in New York on June 17. And just finally, best wishes again to Tom and also to Gavin as we work our way through this transition. Thanks for your interest this morning and see you soon.