Feb 14, 2013
Executives
David Dunnewald - Vice President of Global Investor Relations
Analysts
Ian Shackleton - Nomura Securities Co. Ltd., Research Division
Operator
Welcome to the Molson Coors Brewing Company Fourth Quarter 2012 Follow-Up 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 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. I would now like to turn the call over to Dave Dunnewald, Vice President, Investor Relations.
David Dunnewald
Thanks, Candace. Hello, and welcome everybody.
On behalf of Molson Coors Brewing Company, thank you for joining us today for our Fourth Quarter 2012 Follow-Up Earnings Conference Call. Our goal on this call is to address as many additional earnings-related questions as possible following our regular earnings conference call with Peter Swinburn, Gavin Hattersley and our business unit CEOs 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 Heather Pollard, Investor Relations Manager; Spencer Schurr, Finance Forecasting Manager; Eric Mickelson, [ph] Manager of SEC Reporting; Mark Saks, Senior Director of Tax; and Zahir Ibrahim, Global Controller. Now as Peter Swinburn mentioned on our regular earnings call earlier today, lower fourth quarter underlying earnings were driven by a higher tax rate and cycling strong quarterly results the year before, including the 53rd week in our fiscal 2011 and some other onetime factors.
Full year results included higher underlying earnings and $865 million of underlying free cash flow generation. Our Central Europe business is being integrated very effectively and in a difficult retail environment and isn't performing very well.
In 2013, our focus will continue to be on the 3 pillars of our growth strategy and particularly, the first one, which is to grow profitably in our core businesses through brands and innovation. We also intend to pay down debt.
In combination with disciplined high return cash use, our growth strategy is designed to drive long-term profit and cash flow and total return for our shareholders. So with that, we'd now like to open it up for your questions.
Over to you, Candace.
Operator
[Operator Instructions] And your first question comes from John Faucher with JPMorgan.
Operator
We'll move to our next question. Your next question comes from Ian Shackleton from Nomura.
Ian Shackleton - Nomura Securities Co. Ltd., Research Division
Just a few questions. You gave us earlier some cost per hectoliter guidance, and I guess the one that was slightly higher was Canada.
I was just sort of thinking that threw a little bit, is that really a comment on sort of pack mix really? And I know you have this move towards cans from returnable bottles?
Is that the major factor there?
David Dunnewald
Yes. So our cost of goods guidance in Canada was mid-single digits for the year.
That does include a component of innovation and also -- and that does include the Aluminum Pint bottle, which we plan to roll out this year. We -- it also includes some high end or, call it, top of the category introductions as well.
Ian Shackleton - Nomura Securities Co. Ltd., Research Division
Perhaps just a follow-up here. In terms of sort of talking about further or giving some guidance on further cost savings, I think it was Peter implied that you might be able to come back with Q1 in terms of the Central Europe-U.K.
management merger. Is that realistic, we should expect something then?
And I guess, we were thinking more about getting news on the Investor Day in June on such things?
David Dunnewald
Yes, I think Peter mentioned something about our New York Investor Day that we would have more information on our cost savings programs. And that's really when we plan to, as you say, provide a bit more texture around that.
Ian Shackleton - Nomura Securities Co. Ltd., Research Division
So not with Q1, it's going to be in June really when we get that?
David Dunnewald
Yes, that's right. The meeting this year is in June.
The reason we moved it out is so that we'd have more specifics we can provide you around peak season programming. For example, we had feedback that if we moved it from March to sometime around May or June, we could show more of the peak season advertising and retail promotions and those types of things.
So that's why the timing change this year and along with that comes kind of the strategic view, including things like cost reductions.
Ian Shackleton - Nomura Securities Co. Ltd., Research Division
Okay. And just final question for me.
Obviously, you're indicating the low tax rate of 20% could last a few more years. And it's a difficult thing for us to analyze.
Is there any way you could sort of help us as to what is really helping hold that down a bit longer than perhaps was expected?
David Dunnewald
Yes, actually, we've been expecting it to take us a few years to get to our long-term tax rate. We've been -- that expectation is not new.
It's been going -- we've been providing that kind of, call it, texture around the long-term rate for over a year, maybe 1.5 years. So that's not new.
What is new is the level of the long-term tax rate, which did move down with the Central Europe acquisition. And then the individual annual tax rates have been lowered because of onetime benefits, certainly in 2012 and as I recall also in 2011, we had some onetime tax benefits that we did not expect to continue.
And that's another reason that we were in those specific years below the long-term tax rate.
Ian Shackleton - Nomura Securities Co. Ltd., Research Division
And I don't know if you're able to define a few years, but it sounds like this is certainly 3 or 4 years, but probably not 10, 15 years.
David Dunnewald
Yes, in my vernacular, a few tends to be 3 to 5. And so yes, we're not talking 10 years here.
We're just talking kind of a moderate progression over, as I say, 3 to 5 years. Oh and by the way, that progression -- sorry, just to be sure, to be clear, Ian, the progression to get to the long-term tax rate, we say -- we suggest that, that's gradual.
That would be assuming that there are no additional changes in tax laws or other onetime types of events. As we did actually see in the fourth quarter with the change in the Serbian tax rate.
Operator
[Operator Instructions] And we have another question from Ian Shackleton with Nomura.
Ian Shackleton - Nomura Securities Co. Ltd., Research Division
Well, David, there's nobody else. I've got a few more actually as well.
Obviously, the CapEx that you've raised for -- give us guidance for FY '13. Now on my calculation that is still running a reasonable amount ahead of depreciation.
I guess, really trying to think a bit further forward, I mean, should we expect it to be moving more towards depreciation then again in a couple of years' time?
David Dunnewald
Yes, the CapEx -- we're not going to provide forward guidance on that. But as you know, broadly speaking, CapEx and depreciation will tend to align over time just by their very nature.
The amortization piece may or may not. But anyway, I guess, I won't provide specific guidance.
But I guess, you probably understand the philosophical interaction between the two.
Ian Shackleton - Nomura Securities Co. Ltd., Research Division
Sure. No, just really so it's going to track in the 3 30 really, I mean, obviously we've just bought Central Europe.
There's clearly probably some things you're doing as a bit of a one-off. I just want to get a bit of a sense of should we really be using 3 30 as a base going forward, or is it a little bit of a one-off because of that first-time element?
David Dunnewald
Based on some of the capital activity that we had in 2012, specifically the, what we call, master plan in the U.K. where we have some ROI projects in, call it, the brewing footprint there.
That's a bit higher than it might normally be. I can't really predict for you or forecast for you what we will need to do in the years ahead.
But I would say that those are increasing, for example, the CapEx run rate in the last 12 months. And we're not done with that yet in the U.K.
And then in Central Europe, yes, I would say that we do have a bit of extra capital that we need to put in from a systems standpoint in the Central Europe business as well in the near term.
Ian Shackleton - Nomura Securities Co. Ltd., Research Division
And just another one, on the international side. Peter obviously indicated that we should be expecting the loss to be coming down this year.
Just remind me, do you have actually a target for getting to breakeven? Is there a date by which you are targeting that?
David Dunnewald
We're not providing a specific target date. What we are saying is that the business, currently, is in investment mode.
And the fourth quarter profit notwithstanding, those businesses are still in investment mode. And at the same time, though, the strategy is to grow the top line faster than the rate of investment because we've been investing extra dollars behind the brands in those markets, relatively little in bricks and mortar.
And as we grow the top line faster than the investment rate, then our intent is to bring those businesses to profitability over the medium term. But we'll see what that looks like.
Ian Shackleton - Nomura Securities Co. Ltd., Research Division
And just to be clear, medium term is different to near term that we were defining earlier on?
David Dunnewald
Yes. What I don't want to -- when I say medium term, I just mainly don't want you to come away with the impression that it's short term, which generally is considered in a year.
And so we're not talking about that sort of time frame.
Operator
[Operator Instructions] And we have no further questions at this time. I'll turn the call back to our presenters.
David Dunnewald
Okay. Great, thank you, Candace.
In closing, I'd like to thank you, all, 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 me on my direct line or at the main number here at Molson Coors, which is (303)927-BEER or 927-2337.
Thank you again, and have a great day. And happy Valentine's Day for those of you who celebrate it.
Operator
And this concludes today's conference call. You may now disconnect.