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Molson Coors Brewing (NYSE:TAP)

Q4 2013 Earnings Call

February 13, 2014 11:00 am ET

Executives

Peter S. Swinburn - Chief Executive Officer, President and Director

Gavin Hattersley - Global Chief Financial Officer and Chief Accounting Officer

Stewart F. Glendinning - Chief Executive Officer

Mark Hunter - Chief Executive Officer of Molson Coors Europe and President of Molson Coors Europe

Krishnan Anand - Chief Executive Officer of Molson Coors International and President of Molson Coors International

Analysts

Judy E. Hong - Goldman Sachs Group Inc., Research Division

Ian Shackleton - Nomura Securities Co. Ltd., Research Division

Dara W. Mohsenian - Morgan Stanley, Research Division

Bryan D. Spillane - BofA Merrill Lynch, Research Division

Mark D. Swartzberg - Stifel, Nicolaus & Co., Inc., Research Division

Robert E. Ottenstein - ISI Group Inc., Research Division

John A. Faucher - JP Morgan Chase & Co, Research Division

Operator

Welcome to the Molson Coors Brewing Company's Fourth Quarter 2013 Earnings Conference Call.

Before we begin, I will paraphrase the company's Safe Harbor language. Some of the discussion today may include forward-looking statements. Actual results could differ materially from what the company projects today, so please refer to its most recent 10-K and 10-Q filings for a more complete description of factors that could affect these projections.

The company does not take -- does not undertake to publicly update forward-looking statements whether as a result of new information, future events or otherwise. You should not place undue reliance on forward-looking statements, which speak only as of the date they are made.

Regarding any non-U.S. GAAP measures that may be discussed during the call and from time-to-time by the company's executives in discussing the company's performance, please visit the company's website, www.molsoncoors.com, and click on the Financial Reporting tab of the Investor Relations page for a reconciliation of these measures to the nearest U.S. GAAP results. Also, unless otherwise indicated, all financial results the company discusses are versus the comparable prior year period and in U.S. dollars.

Now I would like to turn the call over to Peter Swinburn, the President and CEO of Molson Coors.

Peter S. Swinburn

Thank you, Rob. Hello, everybody, and welcome to the Molson Coors earnings call. Thank you for joining us today.

With me on the call this morning are Gavin Hattersley, Molson Coors' CFO; Tom Long, CEO of MillerCoors; Stewart Glendinning, CEO of Molson Coors Canada; Mark Hunter, CEO of Molson Coors Europe; Kandy Anand, CEO of Molson Coors International; Sam Walker, Molson Coors' Chief Legal and People Officer; and Dave Dunnewald, Molson Coors' VP of Investor Relations.

On the call today, Gavin and I will take you through highlights of our fourth quarter 2013 results from Molson Coors Brewing Company along with some perspective on 2014.

In the fourth quarter, Molson Coors increased underlying pretax earnings 6.5%, expanded pretax margins and generated substantial underlying EBITDA and free cash flow. Underlying after-tax income declined less than 1% due to a higher tax rate in the quarter.

For full year 2013, we grew underlying after-tax earnings and EBITDA and exceeded our targets for cash -- for cost saving, cash generation and debt reduction. Our focus on building our core brands, growing the above-premium segment of our portfolio and driving sales revenue from innovation was instrumental in delivering these results.

Coors Light grew more than 30% last year in the U.K. where it is now our second biggest brand. In Mexico and in Latin American markets, it grew even faster. Coors Light also gained segment share in the U.S., but underperformed in Canada, an issue in which we will focus in 2014. Miller Lite remained challenged in the U.S.

Carling, the U.K.'s #1 brand, reaffirmed its leading position by growing both volume and share in a soft U.K. market. A reinvigorated Molson Canadian brand increased both volume and share in Canada in 2013. Meanwhile, Coors Banquet achieved its seventh year of growth in the U.S. and has sold well ahead of expectations across Canada following its launch there in the third quarter.

Staropramen grew share in its home Czech market and increased volume by strong double-digits in the rest of our European business.

Our brands grew share in Bulgaria and achieved record shares in Croatia and Czech Republic. And in the second half of the year, we returned Romania to share growth as well. The loss of share in Serbia is being addressed by a new management team, and the loss in Hungary was planned as we gave up low margin private label production.

We grew our above-premium brands at a double-digit rate globally, contributing to mix-related NSR per hectoliter growth of 1.4% in the U.S. and 1% in Europe on a comparable basis in both currency. We continue to learn and progress in the craft sector through Tenth and Blake in the U.S. and Six Pints in Canada. As a result, we accounted for 29% of the 2013 Craft Beer growth in the United States according to Nielsen, and we saw our Six Pints volume in Canada increase nearly 13%.

And finally, our innovation pipeline had its best year so far and delivered nearly 6% of global net sales. Our focus on innovation remains a top priority as we extend the reach of our portfolio to bring in new drinkers to our brands.

In summary, our overall brand performance was strong and strategically, we are gaining momentum in the areas that will have the most impact on our financial results as markets begin to improve.

Regionally, we grew U.S. 2013 pretax earnings on the strength of positive net pricing, strong sales mix and significant cost reductions. Although overall industry volume declined, we held share in the Premium Light segment according to Nielsen, and we led the industry in above-premium share growth. Our above-premium portfolio now represents nearly 14% of our total net revenue, up more than 3 percentage points from 2012.

In Canada, we gained share in the value segment, which has been a source of share loss for some years, and we delivered strong cash and cost saving results, but overall performance was poor. We are reducing our cost base in the same way as we did in the United Kingdom and as a result, we will be increasing our capital spend in Canada by approximately CAD 40 million this year, with resulting benefits beginning to accrue in 2015. As in the U.K., we expect to reinvest most of these benefits back into our brands.

In Europe, as well as the brand performance as already mentioned, we also delivered growth in net pricing, earnings and cash flow. Underlying income grew at double-digit rates for the fourth quarter and the full year.

As in North America, our craft business is performing well and posted record volumes with Doom Bar becoming the biggest selling cask ale in the United Kingdom on vendors channel.

Our international business rationalized its cost base and migrated sales mix towards more profitable business in 2013. As a result, we reduced the underlying international loss by nearly half versus 2012, and are on track to our goal of profitability by 2016.

Internationally, the portfolio is led by Coors Light but has been reinforced by Staropramen and, increasingly, Blue Moon, with Carling being used tactically.

Overall, in 2013, our U.S. business improved results, especially late in the year, Europe performed well in a difficult environment, Canada struggles and international made significant progress towards its goal of profitability by 2016.

Now I'll turn it over to Gavin to give fourth quarter highlights and the perspective of 2014. Gavin?

Gavin Hattersley

Thank you, Peter, and hello, everybody. Molson Coors fourth quarter underlying pretax earnings increased 6.5% to $163.9 million, driven by higher earnings in the United States and Europe along with reduced underlying interest expense. These positive factors were partially offset by lower performance in Canada and international. Underlying aftertax income decreased 0.2% to $125.8 million, or $0.68 per share, driven by our higher underlying tax rate this year.

Our fourth quarter tax rate of 23% was higher than expected due to an out-of-period adjustment of $12 million in uncertain tax positions related to prior years. This adjustment increased our fourth quarter underlying tax rate by approximately 7 percentage points.

Foreign exchange movements had no significant net impact on pretax results in the quarter. Worldwide beer volume for Molson Coors increased 0.1% due to higher volume in Canada and Europe, offset by lower volume in the U.S. and international.

In the fourth quarter, our U.S. GAAP aftertax income more than doubled to $131.2 million due to a lower U.S. GAAP tax rate, higher non-core gains and higher pretax earnings in the U.S. and Europe. These positive factors were partially offset by the impairment of our Miller brand's distribution contract in Canada and onetime Tradeteam contract termination fees in Europe.

As we have in previous quarters, I will provide an overview of our results with MillerCoors presented as if it were proportionally consolidated. This is a non-GAAP approach, but we believe it provides a useful view of some key performance metrics for our business. On this basis, total company net sales increased 0.3% from the prior year, as higher volume and positive pricing and mix were largely offset by unfavorable foreign currency movements. On a per-hectoliter basis, net sales increased 0.1% driven by pricing growth across all regions and improved mix in the United States.

Underlying cost of goods sold per hectoliter increased 0.4% due to higher COGS per hectoliter in the U.S. and international.

Total company gross margin was 37.4%, 10 basis points lower than a year ago, primarily due to gross margin contraction in the U.S. and international, partially offset by gross margin expansion in Europe and Canada.

Underlying marketing, general and administrative expenses increased 0.4% driven by increases in Canada and Europe that were partially offset by declines in the U.S. Underlying operating margin was 10.9%, down 10 basis points from a year ago due to margin contraction in Canada and international, which more than offset improvement in the U.S.

For the full year, we increased proportionally consolidated operating income 2.3% to $1.03 billion on underlying basis driven by income growth in Europe and the U.S. and lower losses in international.

Our underlying EBITDA, or earnings before interest taxes, depreciation and amortization, was $313.8 million in the fourth quarter, 2.4% higher than a year ago. For the full year, underlying EBITDA grew 5.1% to $1.47 billion. See the earnings release we distributed earlier this morning for a detailed review of our business unit financial results in the quarter.

Also important to note that our fourth quarter underlying results excludes some special and other non-core gains, losses and expenses that net to an $18.6 million pretax charge. These exclusions from our U.S. GAAP results primarily relate to the termination of our Tradeteam distribution joint venture in United Kingdom and impairment of our Miller brand's distribution contract in Canada, along with the restructuring-related costs in Canada and Europe. These charges were partially offset by gains from the sale of non-core assets.

Special and other non-core items are described in detail in this morning's earnings release.

In the area of cost savings, we exceeded our 2013 goals by achieving more than $70 million of cost reductions across our company versus our goal of $40 million to $60 million for at least a 5-year period beginning last year. These cost reductions came primarily from the U.K., but we expect cost savings over the next few years to accelerate in Canada. This result excludes MillerCoors, which provided another $43 million of savings in 2013 at our 42% ownership rates. In the fourth quarter, our Board of Directors approved the resolution to change the company's fiscal year from a 52- or 53-week fiscal year to a calendar year. As such, our 2013 fiscal year ended on December 31, 2013, rather than on December 28. This change aligns our fiscal year and interim reporting periods with our Central Europe business as well as MillerCoors, both of which already use a regular Gregorian reporting calendar.

A few additional days in fiscal year 2013 did not have a material impact on our consolidated financial results.

We also decided to discontinue sales accretive accounting for our marketing and sales expenses on Canada, Europe and international businesses beginning in 2014. This change will have no effect on the total amount of annual marketing and sales spending reported, but it will affect the quarterly phasing of the spending. This change in accounting policy will be presented retrospectively, so we will reclassify prior periods to reflect the new treatment.

For 2013, the elimination of sales accretive accounting is the effect of increasing MG&A expense by approximately $9 million and $15 million for the first and second quarters, respectively, and decreasing these expenses in the third and fourth quarters by approximately $17 million and $7 million, respectively.

In the next few weeks, we plan to provide you with specific 2013 quarterly impacts for each of our business units and all the way down to the EPS level for consolidated results.

Note that MillerCoors does not use sales accretive accounting, so its historical results will not be affected by this change.

We are also very pleased with our focus on cash, and profit after capital charge resulted in us exceeding our underlying free cash flow goal for 2013 by generating a total of $892 million of free cash, an increase of $27.3 million, or 3.3%, versus 2012. This result exceeded our original guidance for January 2013 by almost $200 million, and was primarily due to strong working capital management, particularly in Canada and Europe.

Underlying free cash flow in 2013 was made up of the following factors: $1.17 billion of operating cash flow, which includes $539 million from MillerCoors, plus $58 million of net add-backs, mainly cash paid for restructuring activities; investing cash outflows with $294 million of capital spending; and $41 million of cash invested in MillerCoors.

Total debt at the end of 2013 was $3.8 billion, and cash and cash equivalents totaled $442 million, resulting in net debt of $3.36 billion, approximately $127 million lower than 3 months earlier and $687 million lower than a year earlier.

For the full year, the fund status of our defined benefit pension plans improved by $448 million, including our portion of the MillerCoors plans. And we paid down net out of the money cost currency swap positions totaling $113.9 million.

In January, we also paid off the remaining outstanding cost currency swaps for $65.2 million. Part of the credit for our strong cash and debt performance in 2013 goes to efforts to implement our PACC model. We will continue to drive organizational focus on cash generation, raising the terms on capital and growing total shareholder return. We are also still early in the implementation process for PACC, but we grew TSR for the company in 2013 at a faster rate than other global beer companies and the S&P 500.

Also in recognition of the substantial progress we have made in paying down debt, our board has authorized an increase in our quarterly dividend from $0.32 per share to $0.37 per share beginning in the first quarter. This 16% increase results in an annual dividend amount of $1.48 per share, which represents a payout ratio of 18.4% of 2013 underlying EBITDA.

Equally important, I'm pleased to announce that our company is adopting for the first time a dividend payout ratio target of 18% to 22% of prior year underlying EBITDA. We anticipate that linking the dividend payouts to our underlying EBITDA, which has been strong and steady for many years, will keep our dividends in a competitive range with global beer companies for the foreseeable future.

Now looking forward to 2014. Our annual target for underlying free cash flow is $700 million, plus or minus 10%. This goal is $192 million lower than our 2013 results for these 2 primary factors: higher capital spending, driven by efficiency initiatives planned for our Canada supply chain; and we will not be able to replicate the tremendous reduction of working capital we achieved in 2013. We did plan to reduce working capital over time, but not expect it at the same rate as last year.

Currently, we expect cash contributions to our defined benefit pension plans to be in the range of $60 million to $90 million in 2014, down from $156 million last year. Meanwhile, we anticipate approximately $35 million of pension expense in 2014 down from $52 million last year. Note that all of these pension numbers include our 42% of MillerCoors.

The overall fund of status of our defined benefit pension plans, again, including MillerCoors, improved 8 percentage points from a year ago to 92% at the end of 2013. This improvement was driven by contributions globally, strong plan asset returns in Canada and the United Kingdom and moderate increases in long-term interest rates in 2013.

Our 2014 capital spending outlook is approximately $330 million, up from $297 million last year. We expect our 2014 MG&A expense in Foster's to be approximately $110 million. Our consolidated net interest expense outlook for 2014 is approximately $145 million.

We expect our 2014 underlying effective tax rate to be in the range of 16% to 20%, assuming no further changes in tax loss, settlements of tax orders or adjustments to our uncertain tax positions.

Our 2013 underlying rate was 15% due to onetime benefits of tax law changes in Canada.

We continue to expect our long-term tax rate to be in the range of 20% to 24%, but we anticipate that it will take a few years to move to that range.

As far as our cost outlook is concerned, in the United States, we expect MillerCoors cost of goods sold per hectoliter to increase at a low single-digit rate for the full year 2014. In Canada, we expect our 2014 cost of goods sold to increase with a low single-digit rate per hectoliter in the local currency.

In Europe, we anticipate a low single-digit decrease in cost of goods sold into this year in local currency. Our international business anticipates COGS per hectoliter to increase at a mid single-digit rate for the full year.

In each of our businesses, we anticipate higher costs related to product and packaging innovation.

At this point I'll turn it back over to Peter for outlook, wrap up and the Q&A. Peter?

Peter S. Swinburn

Thanks, Gavin. So regionally, in the U.S. we are addressing the weak market by migrating our portfolio towards the high-margin and fast-growing above-premium segment on the strengths of -- on the strength of Redd's, Leinenkugel’s and Blue Moon. We will also introduce Miller Fortune and Smith & Forge to augment the portfolio. In Premium Lights, the reintroduction of the original Miller Lite can has exceeded our expectations and will be extended through September.

Coors Light will be introducing new packaging designs adding some improved line extension debuting on Memorial Day.

Our profit performance in Canada this year will be impacted by our decision to accelerate the termination of the joint venture that controls the Modelo brands in Canada. These brands provided approximately USD 18 million of pretax profit for our Canada business in 2013, and they will only provide 2 months of income in 2014. We will, however, be paid CAD 17 million of compensation by Anheuser-Busch InBev when it assumes control of these brands on February 28, 2014. Note that this cash inflow will be excluded from our underlying free cash flow for 2014.To become a more competitive business, the Canada team in 2014 will continue the work it started last year to transform and streamline its cost base. We will introduce new advertising and increased activity to improve the performance in Coors Light, along with rolling out our proprietary vented can for this brand and Molson Canadian. Molson Canadian will also benefit from strong programming led by the Winter Olympics. We will build on the successful launch of Coors Banquet and we'll accelerate our cost performance to primo [ph] Granville Island.

In Europe, total industry volume in the markets in which we operate declined more than 3% in 2013. But in those markets, we grew share by nearly 1/2 point. Some economies in the region are forecast to improve slightly driven by export trends, which will take time to translate into consumer spending, but there will eventually be a benefit to our business. We also expect the continued growth of value segment and low margin channels and package configurations to be headwinds in 2014.

In this challenging market, our strategies for core brands, above-premium and innovation are driving solid share in most of the region. For 2014, we plan to rollout innovative new packaging of above-premium beer mixes and other products to new markets in Europe.

Our International business in 2014 will increase its focus on driving top line growth to Coors Light, Carling, Staropramen and Blue Moon, along with other brands unique to the international markets. This, together with lower MG&A expense per hectoliter, is expected to deliver a profitable business, as promised, by 2016.

Finally, here are the most recent volume trends for each of the businesses early in the first quarter. For the U.S. -- in the U.S. for January, STRs decreased low single digits. For our other businesses in January, on a comparable basis, our sales-to-retail in Canada decreased at a low single-digit rate. Our sales volume in Europe increased at a mid single-digit rate, and our international sales volume, including royalty volume, increased at a low single-digit rate. As always, please keep in mind that these numbers represent only a portion of the coming quarter and trends could change in the weeks ahead.

So to summarize our discussion today, in 2013 we grew underlying aftertax earnings, EBITDA and earnings per share. We implemented our profit after capital charge model for our company to drive focus on the key value drivers of this business. We drove working capital performance company-wide and exceeded our 2013 free cash flow goal by nearly $200 million. We've over-delivered against our cost savings and we reduced our net debt by nearly $700 million. The funded status of our pension plans improved by $440 million, including our portion of MillerCoors, and we paid down $114 million of cost currency net liabilities. Particular challenges included Miller Lite in the U.S. and Coors Light in Canada, along with commercial performances in Serbia. Nonetheless, our focus on building our core brands, growing in the above-premium segment of our portfolio and driving sales revenue from innovation delivered significantly improved results in the year. We are gaining momentum in the areas that will have the most impact on our financial results as market begins to improve.

Now before we start the Q&A portion of the call, a quick comment. Our prepared remarks will be on the website for your reference within a couple of hours this afternoon. Also at 2:00 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.

So at this point, Rob, we would like to open it up for questions, please.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Judy Hong from Goldman Sachs.

Judy E. Hong - Goldman Sachs Group Inc., Research Division

So first, in Canada, so it's nice to see you focusing on cutting cost in that market. So just wanted to get a little bit more color just in terms of your initiatives to reduce your cost base more. And then if this is beyond sort of that $40 million or $60 million of cost savings target that you've talked about in the June analyst meeting, you've clearly exceeded that number in 2013. So is there just more upside to that numbers for the next few years, particularly as you focus in the Canadian cost base restructuring?

Peter S. Swinburn

Well, I'll take it, the general point, Judy, and I'll pass it on to Gavin for the specific on the cost savings. Yes, I think the -- so we're talking impactful as this, we've been through a number of business units, specifically, lately in the U.K., so we're very confident that we know what we're doing, both in the G&A and the supply chain perspective. It is going to be a 3- to 4-year project for us. So we're just flagging at the moment the fact that there will be increased capital spending in Canada as we start that journey. But Gavin, do you want to pick up the other bit?

Gavin Hattersley

Sure, Peter. Judy, the Canada cost savings are included in the $40 million to $60 million guidance that I gave you, which is over the next 5 years with the -- us expecting to be at the higher end for the first couple of years. In 2013, the balance of those cost savings were predominantly from the United Kingdom and Europe, and the balance will shift towards Canada in the years ahead.

Judy E. Hong - Goldman Sachs Group Inc., Research Division

Okay. Got it. And then on the dividend payout target that you're setting now, so we're at 18.4% of EBITDA. So, I guess, there's a little bit more room to go to, at least the midpoint of that and perhaps more. So can you perhaps help us in terms of, is this going to be more of an annual gradual increase to get to the target? Should we expect to see more of a dividend ramp-up more quickly? And does this impact at all in terms of how you're thinking about the leverage targets or your broader capital allocation strategy and looking at M&A, buyback, et cetera?

Peter S. Swinburn

So obviously, Judy, we've given a range between 18% to 22%. We've done that for that purpose. We do -- we're currently at the lower end of that range, and our intention would be, obviously, to move up from there. It will vary year-by-year depending on what are the costs we've got on our cash by definition. As far as our debt position is concerned, we are still very much focused on getting to the levels that we promised the rating agencies, and that's our first priority. Once we get there, we will then decide with our board how we best want to allocate whatever cash we might have, and that will be consistent with the way that we've done it in the past in terms of looking at our balance sheet, giving [indiscernible] share that's all indeed, looking at other opportunities to invest it. So I think it will be pretty consistent with the message that we've given you up to date.

Judy E. Hong - Goldman Sachs Group Inc., Research Division

Got it. Okay. And then my last question, just maybe for Stewart. Just looking at the Canada market, I guess, the volume challenges still remain in that market with fourth quarter, and then January sales-to-retailer is down low single digits. Just can you help us understand, just from a broader macro perspective, as well as competitive perspective, any changes that you're noticing there? What can you really do to drive Coors Light volume to improve in 2014? And how do you think that the competitive environment will really evolve in the near term?

Peter S. Swinburn

So again I'll just take it generally, I'll let Stewart answer the specific, but the Canadian -- on the surface, the Canadian economy is doing all right. But if you look at the areas where we get 70% of our profit from, which is in Quebec and Ontario, those 2 markets, actually, the GDP of those 2 markets have been extremely lackluster, and the unemployment rate is quite a bit higher than the United States. And so the markets -- the specific markets that drive our profit performance have been quite challenged. Coors Light, I think, we didn't pay enough attention to last year. But Stewart, I'll pass that over to you to talk about what we're going to do with our brand in 2014.

Stewart F. Glendinning

Yes. Perfect. Judy, look, as it relates to the market, I would just -- before I get to Quebec, just point out that I think we have done a really good job of growing our above-premium brands. We also have seen share gain in both above-premium and value. So we're starting to move the ball, Molson Canadian has performed very well as against its history. Against Coors Light, as I said last quarter, we simply have not had enough news. And I think if you looked at this year, you'll see better copy coming out and you'll see better activation. Last year, we struggled in our execution. And as we started off this year, we've got TV ad copy now running around our vented can innovation, which we shared with you, you'll see new copy coming out in the middle of the year, and then reinforced efforts around activation, so. One thing, Judy, I would just also raise, I should have included this, but Coors Banquet, of course, will be going to the market. Peter talked about that in the earnings script. But in -- just in terms of the health of the family and in terms of the health of the trademark, Coors Banquet is going very, very well, and we think there's a good halo and interworking relationship between the 2 brands.

Operator

And your next question comes from the line of Ian Shackleton from Nomura.

Ian Shackleton - Nomura Securities Co. Ltd., Research Division

Two questions around Europe. You've got a major point, you had a little savings in Europe in '13. Is that all done now? Is there still stuff coming out and regional StarBev pot announces the merger -- popped between the U.K. and the Europe? My second question was really around the shape of the revenue going forward. Sales revenue per hectoliter's pretty strong, and I remember at the beginning of the year, it's certainly weakened. I mean, how do you see the balance of revenue going forward into '14 then?

Peter S. Swinburn

So I'll let Mark take the second one in particular and certainly comment on the first. But the savings in Europe, just to clarify, there were 2 pieces. We did say we got $15 million in synergies out of the Staropramen business. We're well on track to do that. The $40 million to $60 million savings, as Gavin intimated, quite a bit of that came out of the restructuring we did -- I mean we are already doing in effect to the U.K. supply chain base and then some MG&A, you have to have some G&A expense savings as well. So they are 2 different issues here. Mark, do you want to build on that?

Mark Hunter

Yes, sure. Ian, it's Mark Hunter here. Just in terms of adding to Peter's comments around overall savings. I think 2 continuing opportunities in Europe: one is the transfer of ZBB as a framework approach [indiscernible] we've made from the Central European business across into the U.K. and that's extracting further value of the U.K. business. And some of the learnings from the operational excellence around supply chain, again, we're kind of reversing that back into the U.K. And then there are some further opportunities, building on the back of the capital investment programs that's been running in the U.K. for 3 years to [indiscernible] supply chain. So there's still more for us to extract within the U.K. business, which is good news. The Central European business is already running pretty lean, as you would expect. In terms of the top line, I have to say I've been pretty pleased with our management and focus of the top line. Our total revenues went downward because of the lackluster demand we've seen and overall volume sluggishness. And we're conscious that this is an area of focus for us going forward. And what we have done in 2013 is really step change to revenue management capability, grow an additional resource, extend it [indiscernible] our thinking. And it's clearly one of the key levers from a PACC management perspective. So there's lots of [indiscernible] and increased capability around the revenue management performance going forward.

Ian Shackleton - Nomura Securities Co. Ltd., Research Division

And could I just follow up with the Tradeteam agreement having gone, what was the rationale for that? And presuming from a distribution point of view, you are still using effects of the Tradeteam structure, are you?

Peter S. Swinburn

Mark?

Mark Hunter

Yes. So the Tradeteam joint venture was formed back in the mid-90s when all of the assets from what was Bass Brewers business transferred across through DHL to foreign trading. As we move forward almost 20 years, we felt it was appropriate for us to remove ourselves from that joint venture, and that's been handled very effectively. It made sense for us, it made sense for DHL. So it's closed and dissolved the joint venture and we now have what we believe to be very competitive market rates on arms length, commercial arrangement, [indiscernible] Primary and secondary distribution arrangements. So we're still using Tradeteam assets but underwritten by DHL overall. And based on all the benchmarking we've done we feel we're in a very good place there, so competitiveness around our logistics costs.

Operator

Your next question comes from the line of Dara Mohsenian for Morgan Stanley.

Dara W. Mohsenian - Morgan Stanley, Research Division

I was just hoping for a bit more clarity on Canada. From a brand standpoint, is it mainly just the Coors brew or are there other pieces of the portfolio that are under pressure here? Because it seems like a pretty dramatic slowdown in the last couple of quarters. And then do you think you're investing enough back behind that business and marketing, given the MG&A declines this year? And what are the plans with marketing going forward as we look out to 2014 and beyond?

Peter S. Swinburn

Stewart, do you want to pick that one up?

Stewart F. Glendinning

Yes, happy to do that. I mean, look -- and go back to the point that I made with Judy. I mean, we expect to see more news, better copy and strong activation around Coors Light. So put that on the one side. Is it more than Coors Light? Yes, Coors Light, by and large, is the biggest chunk. The slowdown you saw at the end of last year, you should reflect on the fact that in the prior year, we had the launch of Coors Light Iced T and we were lapping that. So pull that out, that's at least 1/3 of the impact of the Coors Light performance last year. In addition to Coors Light, we've got a couple of tail brands that are pretty large brands for us in Québec, not unlike other CPG companies, you will have some of those trade brands. We'll be pursuing some tactics there, not dissimilar to what we did in value to make sure that we optimize what we're getting out of those brands. So I don't know if that covers it, but...

Dara W. Mohsenian - Morgan Stanley, Research Division

Okay. That's helpful. and then from a marketing perspective...

Stewart F. Glendinning

Sorry, you did ask on the investment. Just back to the investment. Do I think we're investing enough behind the brand? The answer is yes. One thing to keep in mind is that this year, there has been a re-class of some of the impact promotions that we've seen. So we've seen more impact promotions in the marketplace. Those impact promotions are recorded as cost of goods sold and not as marketing. We've reallocated those funds simply because of our move to more impact. So I wouldn't look just at the MG&A line trying to understand how much we're spending against marketing.

Peter S. Swinburn

And, Dara, if I can just try and conceptualize all this for you. I mean, if you think about what we've laid out consistently, we've said we want to grow market share with our core brands, develop above-premium, be strong in innovation. If you look at what's happened in Canada, we've turned most in Canadian around in the last 3 years, we grew share this year. Above-premium, we've had a good year with Six Pints, some of the weakest brands. Innovation is being good this year, it's not being spectacular but we've been exceptionally well with cider, and we've got a very good innovation program coming through. Additionally in Canada, we have -- you'll see where we were losing share in value, we put that right this year. So yes, there's more stuff going on, but when you strip it all back, it does really come back to getting Coors Light motoring again. And we're pretty confident we understand what we've got to do, to do that.

Operator

Your next question comes from the line of Bryan Spillane from Bank of America Merrill Lynch.

Bryan D. Spillane - BofA Merrill Lynch, Research Division

A couple of questions. First, just in Canada -- or the capital spending in Canada related to the projects related to efficiency, is that spending connected to the $40 million to $60 million of overall cost savings that you've outlined previously? Or will the benefit you get from that capital investment over time sort of be on top of your already articulated cost savings?

Peter S. Swinburn

Yes. I think we might have answered that earlier. I'll just check with Gavin.

Gavin Hattersley

Yes, Bryan. The capital spending, which we're putting into kind of the extra amount, is associated with the cost savings of $40 million to $60 million. And we're using our PACC model to make sure that the decisions we're making up there are driving the right returns for us from a shareholder-return point of view.

Peter S. Swinburn

Overall, Brian, our capital spending isn't going up by the full $40 million. It's going up by about $32 million, I think.

Bryan D. Spillane - BofA Merrill Lynch, Research Division

Okay. And then the second question is -- just is, we're kind of looking at covering some of the COGS-per-hectoliter inflation on a local basis. Just conceptually, how much is -- will some of that be covered with price increases? Or are you expecting productivity to cover that as you go into '14?

Peter S. Swinburn

Well, I mean, there's a number of things that will affect it obviously. But Gavin, do you want to go through the detail?

Gavin Hattersley

Yes, sure, Bryan. I mean, we've got a lot of things that change a cost of goods sold. So from a negative point of view, our cost of goods sold increases because of our increased focus on the above-premium sector and innovation. So that does add cost to -- to COGS. But the expectation, obviously, is that when we do innovation in above-premium that we're going to draw value at the top line and a favorable overall mix. Certainly, our cost saving programs are included in our cost of goods sold guidance, although not all of it is in there. There is a decent portion that comes in the MG&A line. So it's a combination of factors, Bryan.

Bryan D. Spillane - BofA Merrill Lynch, Research Division

All right. So I guess I might have misunderstood. The COGS per hectoliter inflation you're expecting for '14 is not just simply like commodity costs or packaging cost increases. There's also a mix component there.

Gavin Hattersley

Right. It's digital in number for us. I mean, in MCI, for example, you would have an impact on COGS based on the nature of the business, whether it was export business or license business or whether it was in Asia or whether it was in Europe. So there's -- that's -- all of those factors are all in our cost of goods sold guidance.

Bryan D. Spillane - BofA Merrill Lynch, Research Division

Okay. And then just the last question relative to the PACC model. And if you could just maybe give us a little bit more description on -- last year, 2013 was the first real year where you've implemented it, and there was some benefit or some result from that implementation. And then so as you move forward into '14 and it's more fully ingrained or implemented even further, like do you expect a step-change benefit in terms of having it become more ingrained? So I'm just trying to -- because you had a pretty good early return, so I'm just trying to understand, do you expect to see even more benefits from it as you move into '14?

Peter S. Swinburn

I mean, at the top line, Bryan, we've nearly gone down. So we've been talking about it and really, we came out with it last year. But we've been talking about it and implementing quite a bit of it in the organization prior to that. So it's not a big flash-bang that we introduced it last year and got results from it last year. So there was a sort of a lead in. The -- really, what we're trying to do is ensure that we've got a very robust internal measurement that helps us actually focus totally on total shareholder return. And that's just going to be ongoing. But Gavin, do you want to talk specifically about 2014?

Gavin Hattersley

Yes. Sure, Peter. I mean, we did get some significant benefit out of it in 2013. And we focused in on the senior levels of our management team, Bryan. We will, obviously, be pushing it out further. Probably it takes years to really ingrain it in an organization. So I would expect it to take several years to get it right through the organization. And yes, I do expect some benefits coming forward in 2014. Obviously, we had a step-change improvement in our working capital in 2013. We don't expect to repeat that in '14, but we still expect to drive working capital savings out, and we expect to continue to drive total shareholder return monthly, as Peter said, on all the decisions we make, whether it be capital expenditure or new package innovation as examples.

Operator

Your next question comes from the line of Mark Swartzberg from Stifel, Nicolaus.

Mark D. Swartzberg - Stifel, Nicolaus & Co., Inc., Research Division

A couple of cash flow-related questions, but I do have to ask, you went into this in Gregorian calendar in Canada. My question there is what came before that?

Peter S. Swinburn

The next question, Mark?

Mark D. Swartzberg - Stifel, Nicolaus & Co., Inc., Research Division

So, no, on the cash side of things, you're -- a couple of things. Firstly, cap spending for the total company, I didn't catch that. What's your thinking for '14 on cap spending?

Peter S. Swinburn

On capital spending, about $330 million, Mark.

Mark D. Swartzberg - Stifel, Nicolaus & Co., Inc., Research Division

Great. And then you're selling non-core assets. Two questions there. You had a $22 million gain in the quarter. I didn't catch what that was, can you speak to what that was? And then more broadly, where do you think you are in this exercise of selling non-core assets?

Peter S. Swinburn

Well, the specific on that particular one which you've raised was, it's predominantly our sale of our stake in the Colorado Rockies. And as part of the PACC model, we're turning over all our assets to see if they meet our desired shareholder returns. And when they don't, we take action on it, Mark. So it is an ongoing exercise. Either we improve the return out of the assets or we dispose of it.

Mark D. Swartzberg - Stifel, Nicolaus & Co., Inc., Research Division

Got it. And can you speak, Gavin, to the size of the assets that are still kind of eligible for that consideration, something to give us some sense of potential scale?

Peter S. Swinburn

We can't really, Mark. And again, this isn't something that we just sort of discovered. We've been down this -- going down this road a long, long time. And certainly in Europe and the U.K., we stripped just about everything that's sellable on 2 of those businesses. Canada, there might be something there, and some stuff around in the U.S. But it's not going to be seismic.

Gavin Hattersley

And Mark, we stripped that out of underlying. So we wouldn't include that in our underlying results.

Operator

Your next question comes the line of Rob Ottenstein from ISI.

Robert E. Ottenstein - ISI Group Inc., Research Division

Was there a comment earlier on in the call about Miller brands in Canada? I seem to have thought I heard the word impairment, but I can't recall.

Peter S. Swinburn

Yes, it was in the script which Gavin referred to about taking an impairment in the fourth quarter. What exactly is the question, Robert?

Robert E. Ottenstein - ISI Group Inc., Research Division

Well, okay. So is there -- can you just tell us what exactly is going on there? And is that related to the lawsuit with SAB?

Gavin Hattersley

Yes, Robert, it is. It is related to the value of our Miller intangible up in Canada. In the quarter, we updated our probability weighted range of possible outcomes. And of course, there are many, many items of that situation out there. We updated our probability rated model and determined that we needed to impair our intangible asset up there by around $18 million.

Robert E. Ottenstein - ISI Group Inc., Research Division

Okay. But no actual decision's come down yet on the lawsuit, isn't that correct?

Peter S. Swinburn

That's correct.

Robert E. Ottenstein - ISI Group Inc., Research Division

Okay. Can you talk a little bit, I know it's small, but just I'd like to get a better understanding of what your strategy is for Australia, and why, in particular, you're focusing on that market now?

Peter S. Swinburn

Well, Australia has always been a market of interest for us because it's a heavily branded market and it's a market we understand. And we think we're very fortunate to have landed such an excellent partner with such a great track record in Coke Amatil. But on the -- Kandy, did you want to talk about the detail?

Krishnan Anand

Sure, Robert. Yes, as Peter said, we're delighted to have entered Canada with a very powerful partner with Coca-Cola Amatil. We launched Coors and Blue Moon in the market just about 2 months ago, so it's early days. But our lead is out, we're very, very happy with. The distribution of all those brands are well ahead of plan. The consumer uptick initial days are good. It's early days to predict where that's going to lead to, but we are very confident that our partnership with Coca-Cola Amatil will be very fruitful for us in the years to come.

Operator

[Operator Instructions] The next question comes from the line of John Faucher from JPMorgan.

John A. Faucher - JP Morgan Chase & Co, Research Division

Yes, I wanted to talk a little bit about the Canada profit situation as we look into 2014. So it looks like you're going to have the winding down of the JV progress, and you said -- I guess, and then probably you're going to have some transactional FX along with the fall in the Canadian dollar. So it seems like the negatives are out there. Is there something more positive from that standpoint that can offset some of the pressures that we're expecting to see there in 2014?

Peter S. Swinburn

Okay. So first of all, the Modelo JV, yes. In terms of ongoing earnings, it will impact this year. But we have actually got the profit from that in cash for the rest of the contract. So we don't -- we've extracted the value, which is the important thing, and we're pleased with that. FX at the moment, yes, we'll see which way FX goes, it could be for benefit one year, it's not a benefit the next. So it's a bit like the weather, to be honest with you, that washes around. In terms of the overall business in Canada, as I outlined earlier, the provinces on which we rely overly, are we struggling into economically. Having said that, and this is a bit of a roundabout way of answering the question, we're pretty upbeat about the U.S. environment and we do think the U.S. environment is improving. It'll take time to come through. And that will benefit those provinces we're talking about, specifically Ontario. So if you look forward 2 to 3 years, we're much more upbeat about consumer demand coming through over that period of time. Within that, within Canada, our core activities, they were exactly the same, we wanted to drive up above-premium. We're really pleased with the way Six Pints are developing, much as Tenth completed in the U.S. We've got strong double-digit growth from there and we're encouraged by that, and we think this year will be a good year. In terms of core brands, we've talked about Molson Canadian's done exceptionally well, we will turn around Coors Light. And in terms of above-premium, as I've said, we -- Coors Banquet is selling at an index well above 100 of Coors Light. We've got a very strong innovation program coming through for Canada this year, which you'll hear more about later in the year. So really, it is going back to the core strategies of focusing on our brands, which as I said earlier, across most of our markets we've done actually very successfully during 2013. So I don't know if that answers your question, John, but that's...

John A. Faucher - JP Morgan Chase & Co, Research Division

It does. I mean I think, I guess, what you're saying is, I mean, 2014 could be a tough profit year, but you feel like you're taking a lot of good steps, particularly in terms of getting the productivity going, et cetera, that you think you'll be in better shape as we look a little bit farther out. Is that a fair statement?

Peter S. Swinburn

That's a fair statement. We'll have a more efficient cost base from which to move from, over the period and, you pick your number, 2 to 3 years, we do believe by the end of that, consumer confidence will have improved. And if you look at what we've done, if you take it outside of Canada, look what we're doing in Europe, again really tough environment. You would have read other reports on how people have done in Europe. We do -- in a tough environment, we've gained half a share point in the markets in which we operate and we're doing that because our core brands are strong, because we've invested in them. We're moving above-premium and our innovation program is strong. So it's the same strategy across the piece.

John A. Faucher - JP Morgan Chase & Co, Research Division

Got it. And hopefully -- I've seen a couple of new stories about the beer fridge over in Sochi. So hopefully, you're getting some good PR on that as well.

Peter S. Swinburn

I think you're one of many, many, many millions of people across the world who have seen that. It's pretty -- that was a great coup.

Operator

And we have no further questions at this time. I will turn the call back to our presenters.

Peter S. Swinburn

Okay. Well thank you, everybody, for joining us today and for your interest in the business. And I look forward to seeing you at the -- some of the script call at the end of the first quarter. Thank you.

Operator

Ladies and gentlemen, thank you for your participation. This concludes today's conference call, and you may now disconnect.

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