Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Molson Coors Brewing Company (NYSE:TAP)

Q1 2009 Investor Relations Follow-up Call

May, 05 2009 2:00 pm ET

Executives

Dave Dunnewold - VP, IR

Gene Armstrong - Manager of Global IR

Mark Ingebritson - Senior Director of Global Accounting and Financial Reporting

Greg Snider - Group Manager of Global Forecasting and Analysis

Analysts

Mark Swartzberg - Stifel Nicolaus

Christine Farkas - Merrill Lynch

Lindsay Mann - Goldman Sachs

Andrew Kieley - Deutsche Bank

Barry Cohen - Knott Partners

Operator

Good day, ladies and gentlemen, and welcome to the Molson Coors Brewing Company 2009 first quarter investor relations follow-up conference. (Operator Instructions)

I would now like to turn the conference over to Mr. Dave Dunnewold, Vice President of Investor Relations. Sir, you may begin.

Dave Dunnewold

Thanks Mathew. I really appreciate it. Hello, and welcome, everybody. On behalf of Molson Coors Brewing Company, thank you for taking time to join us today for our first quarter 2009 follow-up Earnings Call. Our goal in this call is to address as many additional earnings related questions as possible following our regular earnings conference call with Peter Swinburn and Stewart Glendinning earlier today.

We will use a standard question and answer format and we anticipate that the call will last less than an hour. So let's get started. With me on the call are Gene Armstrong, Manager of Global Investor Relations; Mark Ingebritson, Senior Director of Global Accounting and Financial Reporting; Corey Marshall, Director of Strategic Finance; Greg Snider, Group Manager of Global Forecasting and Analysis; Jay Wells, Vice President Treasury and Tax; Kara Row, Group Manager of Tax; and Bill Waters, Vice President and Global Controller.

As Peter Swinburn mentioned on our regular earnings call earlier today, in the first quarter our strong brands, strategic initiatives, cost reductions and lower incentive compensation drove 75% underlying profit growth for our Company in the quarter. We also achieved positive pricing and local currency profit growth in each of our major markets.

These positive factors more than offset continuing commodity inflation, unfavorable currency movements, a higher tax rate and lower volume, particularly in the UK. We are pleased with the bottom line momentum that we have achieved leading into the peak summer selling season this year but we, nonetheless, remain cautious about the rest of the year due to the uncertainty around currency exchange rates and beer market volume trends plus continuing commodity price inflation.

For the balance of 2009, we will remain keenly focused on the fundamentals that drive results in this business. Our priorities are building great beer brands and growing revenue per hectoliter and we're also secondary focused on delivering cost savings, on or ahead of our commitments; third, generating substantial free cash and, fourth, and finally, growing long-term returns to Molson Coors shareholders.

With that, Mathew as an introduction, I think we would like to open it up for questions.

Questions-and-Answers Session

Operator

(Operator Instructions) Our first question comes from Mark Swartzberg from Stifel Nicolaus.

Mark Swartzberg - Stifel Nicolaus

On your D&A amount for the year, can you give us an idea of what's a good number there? I believe it was $44 million in the first quarter.

Dave Dunnewold

Yes. We don't tend to get a lot of variability around depreciation and amortization. So the first quarter is probably your best gauge for the year, obviously times for. That would be just for Molson Coors, Miller Coors is a separate question and you're probably aware that at their level to call it 100% level and we get 42% of that that does not flow through our depreciation and amortization line. They though reported $71 million in the first quarter.

Mark Swartzberg - Stifel Nicolaus

Then in terms of cap spending for Miller Coors, there were some exchange in your call on that given the cash flow statement you all provided for yourselves. I guess you put in $67 million in the quarter to the JV. Can you tell us, if you're the JV, what, in fact, did the JV spend in the way of CapEx in the quarter?

Dave Dunnewold

They reported additions to properties in intangibles of $97 million in the first quarter. The $67 million that shows up in our cash flow statement is a combination of our portion of those additions to properties as well as changes in working capital and other changes in investing activity cash.

Operator

(Operator Instructions) Our next question is from Christine Farkas of Merrill Lynch.

Christine Farkas - Merrill Lynch

I'm going to go back to a question I asked on the call that had to do with the amortization in the JV. If I were to look at what you reported with respect to $97.1 million of equity income from the JV, that includes about $3 million of ongoing amortization. These are the adjustments, I suppose, below the cap share of Miller Coors net income. There just seems to be a lot of variability on that number, and the fourth quarter was $31 million. Do you know what I'm referring to?

Dave Dunnewold

Yes. I'll take some headlines and then Mark Ingebritson can clean up anything that needs to be. He's the expert on that.

First of all, the depreciation and amortization I gave you works from a cash flow statement standpoint. On the other hand, when you're looking at page ten of our release this morning, you will see a reconciliation table that essentially takes you from net income attributable to Miller Coors and I'm sure this is what you're looking at. Then you have some add backs and so on to get down to equity income in Miller Coors. Part of that you'll see $3 million of amortization of basis difference between MCBC and contributed cost basis in the underlying equity in net asset.

Essentially that line item which has not moved around much, some of the other equity income pickup items have moved around a lot and I'll let Mark give you a couple of headlines on that in a second. The basis amortization, that $3 million there, really has not moved around and it will be with us for decades. Essentially it's offsetting most of some additional brand amortizations that we're doing with the Miller brands and the Miller Coors business that we were not doing prior to the joint venture and it largely offsets that. So, it's not one time. It's very much ongoing and it's offsetting an expense stream that we now have in Miller Coors that we did not have before the formation of Miller Coors.

Mark, could you give a headline or two on what some of the larger equity income pickup items were in the previous quarters. Before I hand it over, the only major one left is the $7.3 million you'll see in that chart and that is the adoption of FIFO accounting by Miller Coors instead of LIFO. This is actually the last quarter that you'll see that number. So, Mark, the bigger number we saw in previous quarters.

Mark Ingebritson

The accounting policy elections item; again, that reflects the impact or equity accounting of Miller Coors choosing a different accounting policy for various items when the JV formed on July 1. The $7.3 million that you see there for this quarter is the last time you're going to see a number in that category. The largest driver as Dave said was the conversion of LIFO inventory. The underlying inventory run out and their turns would tell you that they're completed here by the first quarter so we will not see an item like that from this point forward.

The basis amortization amount underneath, that's a long-term item. That's where we're really taking our basis and the joint venture book value, comparing it to the combined basis. So, it is kind of 42% versus what both put in on the book value basis. That's something we're going to be amortizing for years and years and years. Now, the question is why was there a large amount last year?

There are certain things that can happen that may cause variability to that number, and the biggest thing would be impairments, specific impairments. So last year there was a large impairment to the sparks intangible asset that Miller had contributed. Now, that impairment created a large expense at Miller Coors. And of course we would pick up naturally 42% of that expense.

Now, what these rules say we need to do is, if that asset was impaired and it was a Miller asset, then we essentially get a credit back and that adjustments reflect that that was a Miller asset that was impaired, not our asset. Now, that can happen in the future and that would cause variability. The flip side is, if there was a large impairment saying the future of the Coors contributed asset, we could have a large negative amount there.

Christine Farkas - Merrill Lynch

That's exactly what I was looking for not knowing whether that $30 million was more one time in nature or ongoing. So that's helpful.

Dave Dunnewold

I also wanted to add that $7.3 million is a one-time item. So if you look at the entire reconciliation table on page ten of our release, you'll see that we have actually adjusted that $7.3 million change in accounting policy from LIFO to FIFO. We've taken that out of our non-GAAP or underlying earnings measure so call it a clean number.

Christine Farkas - Merrill Lynch

Okay. That's helpful. If I can move to Canada, just, firstly, you were quite clear about the FX impact on the pre-tax to the profit line. Can you give us the FX impact on the top line; was it in fact 20 points in Canada?

Dave Dunnewold

Our hedging activity in our business does not focus on anything related to the sales line. So essentially it's a translation impact, or, yes, about 20%.

Christine Farkas - Merrill Lynch

Okay. So, looking at the revenue per [barrel] or revenue per hectoliter in the quarter and the rate, kind of leaves about 17 points of currency net of mix, which implies positive mix in the quarter. I'm just wondering what that might refer to in Canada, if I'm reading that correctly?

Dave Dunnewold

Yes. Greg is going to grab some numbers looking at the local currency view and see if we can't get you a little clarity around that.

Yes. Mix is essentially a largely flat item. What you're seeing really is, when you're looking at the P&L and you're seeing revenue per hectoliter, you're seeing the export of US brands that are produced in Canada to Miller Coors and that's fully consolidated in our P&L now and that has the affect of increasing net sales per hectoliter in the Canada business. Now, that effect has been taken out when we talk about comparable net sales per barrel or comparable cost of goods, same thing. So in both cases, we've taken it out for the comparable numbers. But the reported P&L, it is in there and that's what's driving the difference there primarily. It's not mix.

Christine Farkas - Merrill Lynch

Okay. And that looks like carry on through the four quarters of this year, or we will lap that in the third?

Dave Dunnewold

Actually we're going to lap it at the end of the second quarter and you'll actually see it flip in the back half of the year because a significant portion of that volume is no longer produced in Canada, it's now produced in the US.

Christine Farkas - Merrill Lynch

Okay. And the same goes for the cost of goods then? That was my next question.

Dave Dunnewold

That's right. It flips on both lines and it's specifically related to Blue Moon being produced by Miller Coors now instead of Molson Canada.

Christine Farkas - Merrill Lynch

And then my last question on Canada here is the BRI, is that the 10 million basically reduction on MG&A. How was that buried in the Canadian segment this quarter and for this year?

Dave Dunnewold

Yes. That's an important mapping question, if you will. As we've said in the past, there's no impact on the consolidated bottom line. But we can help you map it a little bit. The way BRI was set up over time, and let's talk 2008 numbers, essentially what you had was some debt outstandings. You had about CAD10 million of interest expense. The debt, therefore, flowed through the corporate interest expense line. So you have CAD10 million off in the corporate segment and that's Canadian, so you want to adjust that a little for FX. Then if you move to the Canada segment, you had some cost of goods, call them expenses that flowed through the cost of goods line in Canada related to BRI. So you have two expense items in different segment.

Those two expense items, as you know, BRI is operated as a non-profit entity. In essence, equalize out those two expense items, you had about CAD20 million of benefit flowing into MG&A in 2008. So if you take all of those together on our consolidated P&L, they net to zero or essentially zero. So you can tell in 2009, while there is no impact on volume or net sales, you will see a positive CAD10 million on cost of goods in Canada, a negative CAD20 million on the MG&A line in Canada and a reduction in interest expense in the corporate segment, all for a net of zero again and all related to this deconsolidation.

Let me give you one other point that Greg rightly mentioned. We deconsolidated at the beginning of March. So, in the first quarter, actually there's CAD10 million or CAD20 million, these numbers that I gave you, you may want to adjust those a little bit knowing that we started the deconsolidation two months into this year.

Christine Farkas - Merrill Lynch

Okay. But it was, in fact, reflected partially in your first quarter. One of the footnotes suggests it excludes the BRI adjustments. But these reductions and changes of CAD10 million and CAD20 million are, in fact, partially reflected in the first quarter reported numbers?

Dave Dunnewold

Yes. You'll see one month of effect of BRI deconsolidation in the first quarter. Now, to be clear, though, you'll see that in the reported numbers, the P&L that we provide for you. You will not see those changes that I just mentioned reflected in the numbers when we talk about our results and we say comparable cost of goods and comparable net sales. They're taking that effect out.

Operator

(Operator Instructions) Our next question is from Lindsay Mann of Goldman Sachs. Your line is open.

Lindsay Mann - Goldman Sachs

So do we have clean numbers for the June quarter prior year Miller Coors performance?

Dave Dunnewold

No, you don't. We have not provided pro forma results for the second quarter of 2008 for Miller Coors. We plan to present those when we report second quarter results in three months.

Lindsay Mann - Goldman Sachs

Okay. The numbers that you reported in terms of pro forma for the March quarter are actually different from what had you initially issued, I think around June that 8-K that you filed, so we're still a little bit confused as to what the proper base is.

Dave Dunnewold

Yes. The proper base are the numbers that we put out this morning. The 8-K was put out soon after the formation of Miller Coors. There is a difference of a bit over $30 million between the pro forma numbers provided in that 8-K and this is for the first quarter of '08 for Miller Coors alone. It is essentially driven by changes in accounting treatment for a few items, such as retention and pension expense as well as hops sales by Miller Coors. I think from a modeling standpoint, another important thing to know is that about a third of that, call it around $30 million, is related to the retention expense and that was classified as a special item in the first quarter of 2008, so it's not included in the underlying results that Miller Coors disseminated. So that reduces the difference that you're focusing on. Substantially all the balance would be considered ongoing.

All I'm saying is go ahead and use the pro forma that we put out this morning.

Lindsay Mann - Goldman Sachs

So does it turn out that the 12 month number is $20 million higher than what you initially said? If you're saying that there's a $30 million difference in the quarter and ten of it was a special item, $20 million is ongoing, is that a function of timing or is the base actually $20 million higher?

Dave Dunnewold

I'm essentially saying that if it's ongoing it's not a matter of timing. It is a change in the base.

Lindsay Mann - Goldman Sachs

In the corporate line, the corporate MG&A was quite a bit lower and you mentioned some of it was executive comp or other sort of compensation. Is that something that is ongoing for the full year?

Dave Dunnewold

That's a good question. Actually, when you look at our first quarter performance, you do see a lower expense versus prior year and the largest portion of that was long-term incentives a year ago. That does have implications actually for the balance of year. As you may recall, we closed out a substantial multi-year incentive plan in the first quarter of '08 which resulted in, call it relatively high, above run rate expense in that period. As you look at the spending on long-term incentives for the Company this year, you see relatively low expense in that area. You will also see a little bit lower spending in some areas like marketing and some of the business units and so forth.

If you take those pieces altogether, what you see is, based on essentially rolling out a new long-term incentive program in the second quarter of this year as well as ramping up some marketing spending in the balance of the year, you're likely to see some additional spending on both long-term incentive comp on balance of year versus a year ago as well as marketing spending. Our current view is that that could be worth about $10 million in the last three quarters on a year-over-year basis. So that is incremental expense balance of year in Molson Coors Brewing Company. By the way, that is separate from the timing of marketing spending that Miller Coors talked about in our earlier call today. They had relatively low marketing spent in the first quarter of this year and anticipate $15 million or $20 million at their level, not at our 42%, will be spent later in the year. So you'll see parallel trends in MG&A for Miller Coors and for Molson Coors where we spend a bit less in the first quarter and we anticipate we'll spend a bit more relative to prior year and the balance of this year.

Lindsay Mann - Goldman Sachs

Lastly, I was hoping maybe you could put some scope around the incentive discounting that you're seeing in Quebec. I know that Kevin mentioned that it moved to some of the independents. But are we talking about all packages being largely put at floor or is it mostly just cases and in some of the retail channel? Can you give us sort of a view on how much of your volume is actually being discounted to this extent?

Dave Dunnewold

I won't give you a percent. But I can give you some publicly available information. If you look at the flyer activity in Quebec, what you'll see is in the past between few and several weeks our brands instead of being several dollars per case above our competitor's brands in the largest retail chain in Quebec; they're actually now much more competitive. That means Coors Light, Molson Dry and Molson Export, depending on which week and so on and that is in the lead retail outlet in Quebec. That's a change. So we're more competitive in that chain and I think if you check the flyer activity in other retailers, you'll also see that we're quite competitive in those chains as well. So, it's really relatively widespread. As Kevin mentioned on the earlier call, we intend to be competitive this summer and we also intend to manage this situation for the long-term.

Lindsay Mann - Goldman Sachs

Was the activity focused primarily on cases or are you seeing it across the entirety of your package mix in those retailers?

Dave Dunnewold

Retail chains are about 40% of the beer business in Quebec. So that's a big chunk. Independents make up another 40%. So, if we're on deal in a high percent of those retail chains and at least a reasonable percent of the independents, that is a significant fraction, at least, of our volume. Because those are our lead brands in Quebec that I was mentioning earlier.

In a nutshell, we are going to be more competitive in Quebec. Clearly there is a cost associated with being competitive, it is called trade spend. There are lots of different words for it, but basically it costs money to be competitive in that market. We are adjusting our cost structure to address that as much as we can. As I mentioned, we're prepared to manage it for the long-term.

There is one other point I should point out as well. When we say manage it for the long-term, we're going to manage it in a way that does not reduce or in any way diminish the strength of our brands and the brand building activities that we have going on. We will not sacrifice those in an effort to offset the cost associated with being competitive. We'll adjust our cost structure instead in other areas.

Operator

Our next question comes from Christine Farkas of Merrill Lynch.

Christine Farkas - Merrill Lynch

Dave, the UK [cogs] per barrel rose 5% or 5 in change and your guidance is still for full year double-digit growth? Correct?

Dave Dunnewold

No. We said on this last call high single growth in UK cost of goods per hectoliter. That is made up of mid single digit inflation and the balance is, for example, the contract brewing arrangement and growing Magners Draught Cider in that business.

Christine Farkas - Merrill Lynch

It still does imply, though, more or accelerated inflation or adjustments in the rest of the year versus the first quarter, correct?

Dave Dunnewold

No, not really. Because when we gave our guidance, we said high single digit and that's actually what we reported in the first quarter, so it's actually consistent.

Christine Farkas - Merrill Lynch

So the comparable cost of goods sold per hectoliter for the owned brands was 5.2%? Your guidance then is not apples-to-apples to that number?

Dave Dunnewold

That's right.

Christine Farkas - Merrill Lynch

All the other factors?

Dave Dunnewold

Yes. When we give you guidance, we're going to make them comparable and take out some of the noise.

Christine Farkas - Merrill Lynch

Okay. Then just to back up on an earlier question, I wanted to clarify when you talked about BRI having a net of about CAD10 million in the Canadian segment, was that a CAD10 million increase to COGS and CAD20 million increase to MG&A? Which one was the offset? Which one was going up and which one was going down?

Dave Dunnewold

Let me give you the effect for '09 and we'll just step right past '08. In 2009 you should see a reduction in interest expense. Call it on an annualized basis because we did deconsolidate beginning of March, so you're two months in. In the annualized basis you have CAD10 million reduction in interest expense, you have a CAD10 million reduction in cost of goods expense and then you have a CAD20 million increase to offset all those (inaudible) in MG&A.

Operator

(Operator Instructions) Our next question is from Andrew Kieley of Deutsche.

Andrew Kieley - Deutsche Bank

I guess you said you're not going to give the pro forma second quarter numbers for Miller Coors; is that right?

Dave Dunnewold

That's right. We will but it will be in about three months. That's right.

Andrew Kieley - Deutsche Bank

Could you give us a full year '08 number?

Dave Dunnewold

If we could give you a full year '08 number, we would definitely give you a second quarter '08 number. So, no, can't provide that. There are some ways that you can work into your own estimate by starting with the full year '07 number that we provided in that 8-K on September 15, 2008. That provides pro forma income for Miller Coors. You can make some assumptions about growth rates and adjust for special or exceptional items if you want to and then you can put in what we have actually reported for the first, third and fourth quarters of '08 and you can come up with what probably would be a good estimate. You can get a full year number off of that and then back into the second quarter.

Andrew Kieley - Deutsche Bank

Okay. The first quarter pro forma numbers you get today, does that include the amortization step up that we're seeing this year or is that not present in the pro forma number?

Dave Dunnewold

The Miller Coors numbers at the top of that reconciliation table on page 10 that I was talking about does have additional brand amortization expense in it related to the Miller brands that we did not have pre joint venture. Then if you move down though that chart and get to our equity income pickup, that has the amortization backed out when you get down to actually US segment underlying pre-tax income; I shouldn't say backed out. It actually has largely offset by the basis amortization that Mark was talking about earlier. So the additional brand amortization mostly goes away by the time you get to the bottom of that chart and our reported numbers.

Andrew Kieley - Deutsche Bank

Right. But that amortization was not present in the end of pro forma first quarter '08 numbers?

Dave Dunnewold

In the income it is in there. It's just largely offset by basis amortization. I don't know whether it was in '08 or not. Mark?

Mark Ingebritson

The 8-K (inaudible) there was not an adjustment for that in the 8-K last September.

Dave Dunnewold

Do we have the numbers now?

Mark Ingebritson

No.

Dave Dunnewold

So that was a decision made after the 8-K was filed. That's one of the reasons we have a difference, to the earlier question, that is one of the reasons we have a difference in the pro formas from the 8-K last fall and the numbers we're providing for you today.

Andrew Kieley - Deutsche Bank

So it's not in there?

Mark Ingebritson

It's not in '08.

Dave Dunnewold

It's not in '08. It is in the pro forma numbers now though.

Andrew Kieley - Deutsche Bank

Okay. Then I just wanted to ask, in the $10.4 million adjustment that you have there for Miller Coors, just what exactly is in there?

Dave Dunnewold

Is that the special items that you're talking about?

Andrew Kieley - Deutsche Bank

Exactly.

Dave Dunnewold

In a nutshell it's related to the integration of the Company; [castering] synergies. But it is much more detailed than that. It seems like retention, severance, those kinds of expenses.

Andrew Kieley - Deutsche Bank

I guess what I was trying to get at is, are those all the adjustments that you would say were there in terms of expense for integrating the JV or are there other things that weren't captured in that 10.4?

Dave Dunnewold

Yes, there are some other expenses. They would be additional CapEx. I guess that is technically not an expense but cash use for CapEx in the business. The $10.4 million, is that at our 42%, Greg?

Greg Snider

No. That's 100%. You'll see somewhere in there the 42% becomes 4.4 on our schedule.

Andrew Kieley - Deutsche Bank

Do you have an estimate for what that would be full year in terms of integration expense?

Dave Dunnewold

No. But we have said that we're going to spend $450 million in incremental cash through Miller Coors to capture synergies. I believe 230 is severance and restructuring and those types of things. Things that would flow through the P&L and virtually always, if not always be considered as special item, because there is a limited time frame on these things. The other half, about $220 million, is incremental capital. That doesn't flow directly through the P&L, of course.

Then the last piece you need to model this is, we have said that about 90% of that $450 million of incremental cash used by Miller Coors will be spent by the end of this year. So if you kind of model in what they've spent so far, which we reported quarter-by-quarter, and then you can get kind of a year-end number and have a sense.

Andrew Kieley - Deutsche Bank

Okay. Last question I had, just in your cash flow statement, I'm wondering what that item deconsolidation of BRI, what exactly that represents?

Dave Dunnewold

Deconsolidation of BRI. Yes. Go ahead, Mark.

Mark Ingebritson

Yes. When we deconsolidate BRI, BRI had cash on its balance sheet. So that BRI cash was (inaudible) was in the beginning balance, it needs to come out somewhere. So, it comes out in our investing activities. There is BRI cash in the beginning balance; there is no BRI cash in the ending balance. That's the amount of cash they had on hand on the day of the deconsolidation.

Andrew Kieley - Deutsche Bank

That's basically a one-time item that is done with now?

Mark Ingebritson

Yes.

Operator

Our next answer comes from Barry Cohen of Knott Partners.

Barry Cohen - Knott Partners

Two quick questions if I could. One is, I wonder if you might be able to speak a little bit on your plans for Miller Lite? Then I'll ask a follow-up, please.

Dave Dunnewold

Miller Lite is, one of the top priorities of the Miller Coors business. This brand has we think great opportunity, great potential and we think that potential will be realized through aligning sales and marketing programs behind the brand equities that Miller Lite has, and that's all about great taste. The new ads which you may have seen carry that message. Unlike in the past, so does the rest of the sales and marketing programming around that brand. It has a relatively distinct consumer base that has less over-lap with, for example, Coors Light, then some other competitive brands, so that's a good thing. It gives us more upside as we work on, call it revitalizing the trends behind that brand. We think there is great potential in it and we intend to make the most of it.

You can also hear a little bit more directly more about Miller Lite directly from the people running that business on our webcast call from a few hours earlier this morning when Miller Coors CEO and also the Chief Commercial Officer were on the Miller earnings call earlier today, you can hear it directly off that webcast.

Barry Cohen - Knott Partners

Thank you. As a follow-up, you're doing really well and so I'm wondering why you haven't increased maybe your cost synergy guidance? I was wondering if you can kind of frame it for me and for the rest of the folks.

Dave Dunnewold

Well, first of all, you're right. Miller Coors is doing very well in capturing their original commitment of 500 million of synergies from creating that Company and they have been able to accelerate the cost saving within the three-year time frame, so that's good news. So, yes, could they increase the target, and the answer is actually they have locked down those synergies. They have pushed responsibility for them very specifically through the organization. That program is in a really good place. At the same time, though, they are going after additional cost savings in other areas of the business in other types of cost savings in what they're going to describe as their next generation cost savings that may or may not be directly related to putting the companies together. But they expect to have more details around that new program later this year.

Barry Cohen - Knott Partners

That's fantastic. Could you talk about the [Alberta tax] and your views on the [Alberta tax] situation?

Dave Dunnewold

Actually, that one goes a little bit far afield of my focus on the business and knowledge of it. I don't have any details on what's going on. It sounds though they passed a provincial excise tax increase and it's something that obviously we will deal with.

Operator

Our next question is from Mark Swartzberg of Stifel Nicolaus.

Mark Swartzberg - Stifel Nicolaus

Dave, I'm sorry to ask you to do this, but can you go back to the top on the BRI treatment again one more time?

Dave Dunnewold

So think about this year versus last year. When we deconsolidate BRI on an annualized basis, starting March 1, on an annualized basis you will see lower interest expense about CAD10 million and you will see cost of goods about CAD10 million lower, lower expense and then MG&A will be about CAD20 million higher in that 12-month period.

Mark Swartzberg - Stifel Nicolaus

So the way I look at that on a net basis, is you're implying if I'm hearing you right that that business had zero in profit? Am I interpreting that right?

Dave Dunnewold

Yes, you're interpreting it exactly right. The Brewer's Retail Inc. beer stores in Ontario are run as a non-profit operation. That is how it shows up on our P&L.

Mark Swartzberg - Stifel Nicolaus

Because I need to go back and check the transcript or my notes, but I thought in the fourth quarter call you had described the business as having, I believe, $8 million or $10 million in profit in '08. Does that ring a bell?

Dave Dunnewold

Yes, it does. The reason is when we said that, we were talking specifically about the Canada segment. And so if you note the way I mapped those out for you earlier, the CAD8 million of expense in interest is not in the Canadian segment. The net of the other two pieces, the cost of goods of negative 10 million and the MG&A of, increased expense of 20 million nets to a, last year profit of 10 million. This year it would be a Canada segment reduction in income of about CAD10 million, again, annualized numbers. So the difference is corporate interest expense going down.

Dave Dunnewold

You bet. And Jay corrected me. It's not a non-profit operation. It is a break-even operation which if you know legal stuff that makes a difference.

Operator

(Operator Instructions) I'm showing no further questions from the phone lines.

Dave Dunnewold

Okay. Great. Thanks Mathew. I think we're ready to wrap it up then. I just wanted to thank all of you for your interest in Molson Coors and for joining us today. If you have additional questions that we did not cover during our time this afternoon, please call Jane or me on our direct lines or at the main number here at Molson Coors which is 303-927-1300. Thank you, again, and have a great day.

Operator

Ladies and gentlemen, thank you for your participation in today's conference. That does conclude the program and you may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Molson Coors Brewing Company Q1 2009 Investor Relations Follow-up Call Transcript
This Transcript
All Transcripts