Welcome to the Molson Coors Brewing Company First Quarter 2017 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] 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 U.S. -- 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 website -- 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 and in U.S. dollars, and the consolidated and U.S. segment results are presented versus pro-forma results a year ago, which reflects the acquisition of MillerCoors as is, and the related financing had occurred January 1 of 2016. Now I'd like to turn the call over to Mark Hunter, President and CEO of Molson Coors. Please go ahead sir.

Thank you, Denise. Hello and welcome everybody to the Molson Coors earnings call. Thank you for joining us today. With me on the call this morning from Molson Coors, we have Tracey Joubert, our Global CFO; Gavin Hattersley, the CEO of our U.S. business; Fred Landtmeters, our Canada CEO; Simon Cox, the CEO of our Europe business; Stewart Glendinning, our international CEO; Sam Walker, our Global Chief Legal and Corporate Affairs Officer; Brian Tabolt, our Global Controller; and Dave Dunnewald, the VP of Investor Relations. On the call today, Tracey and I, will take you through highlights of our first quarter 2017 results for Molson Coors Brewing Company, along with some perspective from the remainder of 2017. First quarter underlying earnings were lower than last year, primarily due to higher brand amortization expense and weaker January and February volumes in the U.S. this year, and because we're cycling strong earnings comparators from last year. First quarter underlying after-tax income in 2016 increased more than 35% from the year before on a pro forma basis, partly due to the benefit of inventory dynamics and the timing of the Easter holiday. We've also made incremental investments this year to strengthen our global business and capabilities. Despite a softer start this year, volume trends have improved since January and February. We're making great progress with our First Choice agenda in each of our businesses, and we're confident of delivering our full year business plans. With the completion of the MillerCoors transaction late last year and the changes we're making to align and enhance our organization, 2017 will be a transition year as we build a larger, stronger company. Consistent with this, our results today reflect increased investments in the building blocks that will drive top-line growth, cost savings, profit growth, cash generation, debt…

Thank you, Mark. And hello everybody. As a result of the MillerCoors transaction, today's results for the consolidated company and U.S. business are being presented in comparison to 2016 pro forma results, which are presented as if the transaction and its financing had been completed at the beginning of 2016. The segmental results for Canada, Europe, international and corporate are not being presented on a pro forma basis. With that in mind, following are our consolidated financial headlines for the first quarter versus pro forma results a year ago. Net sales were down 0.5% in U.S. dollars in the first quarter, primarily due to lower U.S. sales volume and unfavorable currency movements, which were partially offset by the release of the indirect tax provision in Europe. On a consistent currency basis, our net sales per hectoliter increased 3.9% in the quarter, driven by growth across all our businesses. On a U.S. GAAP basis, we reported net income from continuing operations attributable to Molson Coors of $201.9 million for the first quarter, down from $257.4 million of pro forma net income a year ago. This decrease was driven by lower special and other non-core items this year, along with lower U.S. volume, mix shift toward higher cost products, and higher global corporate costs. Our first quarter underlying after-tax income was $165.6 million or $0.76 per diluted share, which was 12.1% lower than the prior year, driven by lower income in the U.S. and Canada, as well as higher global corporate costs. Additional brand amortization expense of approximately $10 million in Canada was primarily related to changing the Molson brands to definite life in the fourth quarter last year. Underlying EBITDA in the quarter was $514.9 million, 3.6% lower than the pro forma results from a year ago. Underlying EBITDA in constant…

Thanks, Tracey. In 2017, we will play to win via our First Choice consumer and customer agenda. So regionally looking forward, our U.S. goal of flat volume in 2018 and growth in 2019 has not changed, we will continue to invest in our flagship runs with Coors Light and Miller Lite plus Coors Banquet central to our investment focus. Miller Lite has begun rolling out new creatives as an extension of the successful Spelled Different, Brewed Different campaign. With the tagline Hold True, Miller Lite is defining how the beer has not compromised on taste and emphasizing the product credentials make it the original light beer. We are also investing in Above-Premium and Redd's and Blue Moon Belgian White recently introduced new aluminum pint packaging. Leinenkugel's has introduced new packaging and its limited-edition lager, a collaboration with Germany's Hofbräu München to celebrate the company's 150-year anniversary, and that will be available in six packs in June. And finally, the much-anticipated return of Zima will take place in time for the July Fourth holiday. And our First Choice for customer agenda, our fact-based Building with Beer tool is driving value for our retail customers in the on-premise and convenience channels, and we're expanding its reach in grocery and liquor this year. Tenth and Blake, the craft and import division of MillerCoors, will continue to focus on integrating and rapidly expanding the geographic reach of our craft acquisitions. Saint Archer, which had the fastest growth rate among the top 20 craft brewers selling in California, is expanding to Arizona, Oregon, Hawaii, Alaska and Washington. Hop Valley will extend its footprint this year to Nevada, Arizona, Colorado and Alaska. And Revolver, which is the number two regional craft brand in North Texas, is going to fill out its footprint across Texas in anticipation…

[Operator Instructions] We have a question from Vivien Azer from Cowen.

So, Mark, can I just follow-up on your commentary around the improvement that you've seen in the U.S. post soft January and February, can you quantify the rate of improvement?

Thanks, Vivien. I can't quantify the rate improvement, but I mean if you look at the scanner data, then we've certainly seen momentum improved through March and into April, a little bit interrupted by some of the horrific weather we saw in the U.S. over the course of the last week. But certainly feel good about the way momentum has built through March and again into April, and specifically in areas like our above premium portfolio, there is a lot of effort going into changing this trajectory on Redd's, and we're seeing that have a positive impact, the Blue Moon trajectory continues to be positive, alongside improvements that Gavin and his team have made on our below-premium portfolio, and the continuing share gains for our Premium Light, so -- but beyond that, I refer you really to the scanner data to check in for specifics.

And just a follow-up to that. In terms of the net revenue per hectoliter in the U.S., would you be able to unpack that in terms of pricing versus the drag from negative mix? Thanks.

So, Gavin, do you want to pick that up specifically and just talk to a bit more detail on our top-line performance?

Sure, Mark. Good morning, Vivien. There are lot of factors that go into the makeup of our net sales, virtually the growth, Vivien, as you say, right, front line pricing, price motions and mix being the largest drivers. And if you stand back for a second there from a portfolio strategy point of view, just remember we play across the entire beer category, and you can break that down into the three segments of premium, above-premium and economy. And Mark touched on how we're doing with the various brands in his opening remarks, so I won't repeat that. Our performance in the first quarter impacted mix, which was negative about 30 basis points. But let me just remind you that, we were going up against significant launch volumes for Henry's Hard Soda and we had a very strong mix performance in the first quarter of last year as a result of that loading. We're through that comparison now, Vivien, and Henry's Hard Soda velocities are increasing steadily as we head into the summer months. Our economy strategy is working and that's not necessarily positive from a mix point of view, but it's really important part of defending our share in economy to ensure that we don't become irrelevant in a very large segment and we also need to recruit new millennial drinkers into our portfolio in the beer category as a whole. Some of the other factors that make up price movement is, obviously frontline pricing, which in the first quarter was impacted negatively by the differential between sales to wholesales and sales to retail, which we've talked about on past calls. And just to remind you that our top line revenue is driven by sales to wholesalers, but our price promotions are driven by sales to retail, so that knocked a few points of our pricing in the quarter and that generally comes back over the full year. We had a little bit of noise from price promotions in the quarter, as distributors caught up with reconciliations and then obviously freight and fuel retail operations and timing of the federal excise tax to actually draw back, so also other elements that kind of drive overall NSR per hectoliter. And I guess my final comment on NSR, just to remind you, it's only one quarter, it's our smallest quarter. And so, some of the factors which I just described can have a little bit of a disproportionate impact. Pricing environment doesn't feel a whole lot different than it was last year. Hope that helps, Vivien.

Hey, Vivien, just to finish with a full stop [ph] on that, I mean, if you look at our pure net pricing, it was up about 0.5% in the quarter.

And our next question is from Andrea Teixeira from JPMorgan.

Good morning, everyone. Thanks for taking my question. I just wanted to follow-up a little bit over Vivien's question. Are you implying that over the quarter you're having a little bit of de-stocking with the price increase or – and we should be seeing better sequential improvement into -- as you come out of the first quarter, just want to clarify how the trends are. And as I said, you're comping against a very tough innovation calendar. So is that something that again, you're going to be seeing as a more normalized impact, and if you can comment on how the trends are between sales to distributors and sales to retail as we speak? Thank you.

Yeah, Andrea. Thank you. There was quite a few questions in your question there. So, if I start with your last point, which is around STWs and STRs, you got to remember that as we left 2016, demand generally across the beer industry in CPGs in the U.S. was really quite weak in December, which meant that we started 2017 with higher than anticipated stock within our wholesalers and that's why you're seeing a differential between STWs and STRs. If you just look at overall consumer demand though as we've come through the first quarter, it was sluggish to start the year. And as I mentioned in my prepared remarks, that certainly improved as we exited February and come into March, and then further into April notwithstanding that, a little bit of whack we got last week, due to some of the weather across the U.S., but generally our STRs have improved consistently as we've come into March and April. With regard to the innovation agenda, I think Gavin mentioned the fact that we had a heavyweight innovation agenda in the first quarter of last year, with a lot of stock moving into the trade on the back of the Henry's Hard Soda launch. We've got further innovations coming into our business. Now we’ve come into April, some of it new packs, and I also mentioned the fact that we're rolling Zima into our portfolio as well and that will come through in the second quarter. So I think to Gavin's point, now kind of [ph] balance itself out as we go through the year, so I wouldn't get too concerned on a one quarter basis, particularly as it's the smallest quarter of the year.

The next question is from Judy Hong from Goldman Sachs.

So Mark, I mean I know this is a small quarter and there are a lot of moving parts here. But this is the first quarter since -- the first full quarter since the MillerCoors deal closed. I think the investors have been waiting to see the progress that you are making on cost saves and the margin progression and certainly we didn't see that in the quarter. So, what would you say to those people who are really concerned, that all of your cost savings are going to get competed away or eaten up by volume deleverage and really won't see the profit growth improving?

Thanks for the question, Judy. I mean let me give you a couple of headline perspectives here. So there is a lot of noise in the quarter. I think when you cut to the chase in the quarter if you come all the way down to EBITDA and constant currency were flat year-on-year, our free cash flow guidance has been enhanced. So as Tracey mentioned, we now anticipate being right at the top end of the guidance we gave you on the last call. And myself and the executive team remain confident on our full year plan. We have a lot of change taking place in our business and just from a context perspective, the volumes were softer in January and February in the U.S. We are lapping about 35% after-tax performance growth in first quarter of last year. And we're driving a lot of change across our business, but on the very positive side, we saw a strong worldwide brand volume growth. We saw global priority brand growth. We saw positive NSR per hectoliter improvements across all of our BUs. And my perspective is, we're making very, very good progress on the integration of our businesses both culturally and operationally. One of the things you have seen in the first quarter is that clearly we're investing in a couple of specific areas, which I think will stand the business in good stead, as we look out over the medium to long-term. One is the global commercial growth area, led by Kandy, which you're aware, I've put in place, and that now houses some of the significant investment that we'll be putting behind our global brand development as we look out through 2017 and beyond. And then secondly, we're further investing behind taking our world class supply chain capability to the next level and that's very important to really underpin in a sustaining way, the drive for productivity and efficiency in our business. So in the cost savings number that we've given you, the $550 million over three years, we had already accounted for what I described as dis-synergies associated with the global growth team and the world class supply chain investments with clearly the majority of the synergies pick up through 2018 and 2019. So, just remember the phasing associated with that so, we're investing ahead here to set the business up to build momentum, but actually, we're very good about both integration and the synergy planning and synergy delivery to date, as part of our overall cost savings. So I would just keep the context of this as one quarter, Judy.

Just couple of follow-ups to that, so the increment – the investments that you are calling out, the couple of investments, are there any incremental in nature versus what you had thought to spend at the time of the closing of the deal or just really upfront investments and it's going to take some of the -- some time to get the synergies, so it's more of a timing issue.

Yeah, it's more of a latter, Judy. So there is nothing that's come as a surprise as we pulled our businesses together, we'd already anticipated and flagged the establishment of our global growth group and investment that would be required there, and taking more cost supply chain to the next level was again part of our thinking. The other thing that we have done as well, certainly from a corporate perspective, is we have moved some G&A from some of the businesses into corporate centers to really drive centers of excellence approach, so whether that's an HR, treasury, tax, really to drive much more of a one-way approach. And again, over the medium term to long-term that will give us enhanced productivity and efficiency in our business. So, we got to put that in upfront, then derive the benefits as we go through 2017 and then step change in 2018 and 2019.

My last question, just the breakout of the Miller international brand contribution on volume, revenue and EBITDA, any color you can provide there? And why doesn't free cash be higher than even the high end of that $1.1 billion, just because now you're including the Miller brands internationally?

I'm not sure the Miller brand internationally can export free cash flow, but Tracey do you want to just talk to the free cash flow guidance?

Yeah, so it's just a couple of things Judy to consider as we look at our free cash flow forecast. So, we do have incremental CapEx and some of that is to deliver the synergies and cost savings. And we also have higher pension contributions, because we now have the 58% of MillerCoors contributions as well as we have incremental interest, because of the much higher stakes that we took on. So if you take those into account, they are sort of headwinds to our free cash flow

And Judy, sorry, this is Dave Dunnewald. I think your question on the free cash flow maybe now that we have more of the Miller global brands numbers flowing through why doesn't that have an effect on free cash flow? Actually we already had an estimate or we'd included Miller global brands in our guidance for free cash flow for 2017 when we gave it last quarter.

Okay. And are you breaking out at all the volume and revenue or your EBITDA contribution or those trends?

No, we're not, Judy. I mean, that's not embedded in our businesses, and we'll report in aggregate both at segment level and then in relation to our total worldwide brand volumes, and our global priority brands.

The next question is from Laurent Grandet from Credit Suisse.

I've got two quick questions. The first one is really a follow-up. So it's about deflation and shipments. So shipments declined by 4% in the quarter in the U.S. where deflation were down 2%. Now in Q4, deflation were down 2.8%, and shipments were only down 0.9%. So does it mean that we are now back to the right level of inventory with your distributors, and we should expect deflation and shipments to be more aligned going forward? So that's my first question. The second one is about the marketing spend. You increased by about $25 million in the quarter, your marketing, general and administration, especially outside of the U.S. So how should we think about A&M spend going forward and will you continue to add them as a similar percent of sales? And also I mean could you explain what brands are receiving most support and what are the marketing initiatives you implement? Thank you.

Thanks, Laurent. Again it was a lot in there. So, I think on your first question to keep it simple and Gavin may want to add some color to this. Our philosophy in the U.S. is to ship to demand. The only addition to that is making sure there is enough stock to ensure that from a customer service or distributor service perspective that we ensure that we don't have any other stock situations, but there has been a philosophy, and Gavin I think it's fair to say we'll remain our philosophy.

Yeah, Mark. You're quite right. I mean with this point in time, we do expect to ship more or less the consumption for the full year, but making sure that we do maintain service levels and our distributors did place increased orders at the backend of December, which did as you rightly point out increase our year-end distributor inventory by couple of days. And because of that, we didn't need to ship as much volume in the first couple of months of Q1, and that drove the difference which you highlighted. Our Q1 distributor inventory level at the end of the quarter, Laurent, was a little higher than last year's, we began our peak season inventory bode little earlier than normal to compensate for the Eden brewery closure, but as Mark says, our current expectation is to ship to consumption within the year.

Okay. Thanks, Gavin. And then Laurent, just to the second part of your question, when you look at the MG&A number, some of that is pure G&A relating to transfers of some people from the business units into corporate center or global roles. On the marketing side or the commercial side, one of the things I established when I came into the role and appointed, Kandy to lead this team as our global growth group, really focused on our commercial excellence agenda. So the investments, they are really going to cross five or six specific areas, building our insight capability, so we've just rolled up a global segmentation model to further direct how we build our portfolio, for global brand building. So there is a significant chunk of investment associated with the Miller trademark in making sure that we get that brand up and running positively. One of the examples of that I just pointed to is that, we're changing all of the packaging on Miller Lite aligned with the U.S. packaging that had not been done ahead of our acquisition, that's a big initiative and we'll roll across all the markets towards the end of this year. So the funding for that is an example centrally. The other three areas are really are on building our digital capability and B2B, B2C in particular and commerce. Disruptive innovation and we've now got a small team focused on innovation as part of that building our craft brands internationally and I mentioned in my opening remarks, that we've now our opened our first Blue Moon pub in Valencia, this is the first of what will be many. And then the final areas are under our customer excellence area focused on net promoter scores, category management and really driving stronger partnership, so that investment in the areas to support our intention and our capability right across our organization and it is more efficient for us to hold that potentially and to drive that kind of a cohesive approach. So, back to Judy's question, that's very much investing ahead of the curve to build the capability and performance of the business from medium to long-term.

Our next question is from Mark Swartzberg from Stifel, Nicolaus.

A couple of U.S. questions, and sorry, good morning Tracey too. On the economy side, Gavin, you're seeing some nice improvement with Miller High Life, you mentioned Milwaukee's Best is not doing well. When you think about what's going right and what can’t go right from a larger economy perspective, how are you thinking about that? And then my second question for either of you Mark or Gavin is, the reasons to believe, you're sitting here with the view that volume will -- you're aiming for volume to be flat in 2018 and grow after that in the U.S., and obviously it's a deliberately challenging objective. But when you think about what you're seeing in your business today, and what can happen in light of your plans whether for economy or other parts of your portfolio, what's at the top of your list of reasons to believe that that will happen?

So Gavin, do you want to pick-up the economy question first, and just bring Mark and everybody else on the call up to speed with progress.

Yeah, sure, Mark. Good morning, thanks. Yeah. We've got several thrust on our economy strategy, Mark. Our overall objective from the beginning though was to hold that decline rate and get back more in line with where the economy industry portfolio share was going. And we've made really nice progress in the first quarter, which is really our first full quarter we're having the strategy in place. The start of the show at the moment quite frankly are Miller High Life and Keystone Life as Mark stated in his opening remarks, they both had excellent performances that they haven't had for seven and eight years. And Miller High Life has been centered around the campaign, if you've got the time, we've got the beers, focusing on the iconic glass bottle and the sort of heritage of this brand, which has been around since 1903. Keystone Light is focused on the new visual identity, which really modernized the brand and it's been well received by our customers and consumers. We've replaced the 12 pack with a 15 pack, which has driven a nice share gain for us and we are leveraging off the stone's nickname. We've also introduced Hamm's into the opening price point area. It's an area we didn't have a brand before and that brand has been around since 1865 and the early signs are encouraging. We've taken Mickey's back to the 40 ounce glass bottle. We've done and continued to accelerate Steel Reserve Alloy Series with a few additional flavors, which are doing nicely. And I'd say the area we need to do more work on is Milwaukee's Best. Not all of the changes we made to Milwaukee's Best have landed well with the consumers and we're of course correcting on that. So, I think as I evaluate how we are doing, we are off to a nice start and --

And can you remind --

Sorry, Mark?

No. Sorry. I didn't mean to interrupt you, Gavin, Sorry.

I was just going to say I have confidence this strategy is going to work as the year progresses.

And it sounds like it is. I guess, two quick follow-ups. Milwaukee's Best, getting that right. How impactful is that? Just to remind us where it is as a portion of your economy mix? And then can you remind us like what the rule of thumb is when you -- in terms of profitability of your economy portfolio either versus your regular portfolio or the entirety of your portfolio, just a comparative profitability at the contribution level?

So, I will answer the first question, which was Milwaukee's Best, I mean it is the third largest of our economy brand. So the largest are obviously Miller High Life and Keystone Light and those were the two that are really working very well. So it's the third largest market. In terms of overall profitability, I'm not sure we've ever shared that, and you know for competitive reasons, I don't think I'd like to do that now either.

And Mark, the fact that the other part of your original question, which was you described as reasons to believe, so I think you’re quite right to say that, we have set [ph] stretching ambition in Gavin's call to action is very appropriate, because it changes the mindset in our organization. It's a mindset which is not about managing decline, but building for growth. I do want to reiterate though that it is not a volume at any cost aspiration, so we want to improve our volume trajectory, get back to flat and then growth and do that in the right way from our P&L perspective and continue to manage our investments through our pack lens, so that remains really business critical for us in the U.S. But I think the reasons to believe are when you really look across three big segments, the Below-Premium, Premium and Above-Premium, Gavin has explained what we're doing in Below-Premium and that was long overdue. It was a leaky bucket and we're making good progress, as steady as she goes in Premium Light and Coors Banquet and ideally we would have our two light brands in absolute volume growth territory. We touched that a couple of times, doing it consistently makes a big difference to our business. And then in our Above-Premium portfolio, if you think craft imports and FMBs, making really good progress on crafts and import and more work to do on FMBs particularly REDD's. And as I have mentioned, a lot of work has taken place through April, which is starting to have an impact on that brand, and we'll continue to look for opportunities to build out our Above-Premium portfolio. We talk in Molson Coors about buy, build and borrow across our portfolio. So, Gavin, myself and the exec team are looking at further opportunities to further enhance our Above-Premium portfolio for the medium to long-term. So, I think the important thing is, where our biggest volume areas are, we've made really good progress on the momentum building there. To use Gavin's language primarily, we still have some more work to do in Above Premium, particularly in FMBs, but we're all over that at the moment.

Our next question is from Andrew Holland from Société Générale.

Thanks for taking the question. Just a couple, just no one mentioned your increase in your transaction tanks, up to $390 million and you've just said that's front-end loaded. Can you give us a bit of a clue as to whether it goes back down to $275 million next year or does it stay at this sort of level? And I'm just also wondering what you think is the reason why on a day when you increased your cash tax expectation so dramatically, even though, perhaps it's been a slow start to the year, your shares go down 4%. Can you give us any insight as to how you are looking at that transaction tax question, and whether there is any likelihood that you're going to include that in your sort of normal tax charge?

Yeah, so Tracey, do you want to take the first part of that question?

Yes. So, Andrew, what we did say is that our cash tax benefit would be around $275 million on average over 15 years. We did say that it would be frontend loaded. So, hence the nearly $390 million in 2017. We are not giving guidance as to the next few years, but to the asset part of that 15-year period, that cash tax benefit will fall below the $275 million. So, I can't give you more details than that other than saying it will be frontend loaded for the first few years and then below $275 million for the best part of the year. I'm not sure how to answer the share question. If I'm you I probably wouldn't be sitting here and give the market share performance. So, Mark, I don't know if you have any?

Yeah. I mean I struggle with the second part of your question, Andrew, I mean, what we can do is report transparently how our business is performing and give you a sense of confidence in how we see the business over the medium to long term. Investors will make up their mind on the basis of that information. I feel very good about the fact that we are guiding direct [ph] towards the top end of our free cash flow guidance. And we look to update on a quarterly basis if that changes again. So, beyond that, I can't really comment. You probably got hypothesis, which is just valid as mine or anybody else.

Well, I'm puzzled as to why and when you're expecting 15 years. As I look at my model, I'm afraid it's not going out to year 15, but most investors are interested in the sort of shorter term, I would suggest, by which I mean perhaps the next three years. And that number is a very considerable swing factor in your likely reported earnings. And the reason I'm puzzled is that some of your competitors who have also had sort of time-delineated tax benefits have just taken that as part of the normal tax charge rather than as effectively and as exceptional item.

Let's ponder that perspective and feedback and then decide whether there is anything we would want to do differently. I really appreciate your perspective, Andrew.

Big swing in Europe, was that just the $50 million, was that just a Q1 effect, the release of that provision or is there more to come in future quarters?

So, Simon, do you want to just pick up at both that specific question, and maybe just give a little bit more color on our, let’s call, our underlying performance in Europe?

Yeah, Andrew, to answer you specific, if you remember, we made a provision in Q4 of last year based on what we concluded at that time was a range of loss that was deemed probable. We've subsequently been to court, and actually won on all counts and therefore, we've taken the decision to reverse that provision. So it was a provision we made last quarter, if you recall, and it's been reversed out this quarter. So, it's a straight in and out, if you like. In terms of the underlying performance in Europe, we were pretty happy with it. We've managed to grow volumes pretty significantly, and we've done that at the same time as growing our net sales revenue per hectoliter and I think any quarter where we can grow volumes and revenue per hectoliter in Europe, we will classify as a good one. Within the volumes, there is a mix of stuff that we've inherited from the Miller brand and from exports and license, but there's also strong encouraging underlying growth and particularly in the areas where we're making our marketing investments in Above Premium. So Staropramen has been performing well across the quarter; Coors Light continues to grow well, our craft portfolio the Sharp's, Franciscan Well and increasingly Blue Moon is doing well. So where we're putting our marketing investments and where we're focusing on our Premium and Above Premium portfolio it's working nicely and we're pleased with the quarter.

Our next question is from Brett Cooper from Consumer Edge Research.

Good morning, guys. A couple of questions from my side. I'm not sure if you're going to give an actual number, but I was wondering if you could either give us kind of a relative sense of the incremental investments you've made that are sort of embedded in your quarter relative to the savings you've delivered. I think the actual numbers are just sort of bigger than a breadbox, smaller than a car type thing. And then, I don't know if the broader question on revenue synergy that you're seeing from the deal or see possible from the deal and then particular interest in, I mean, is there a need to play in the price point between mainstream and where you typical crafts sells, given that two of probably the most successful brands in the U.S. kind of play in that price point? Thanks.

So, Brett, just on the second part of your question, be more specific, because –

Sure. I mean, Especial and Mich Ultra sells over a 30% price premium to mainstream, right. You guys do obviously have a significant craft portfolio that sells at whatever 60% premium, you obviously have a significant mainstream, but there is nothing in that, call it that 25% to 30% price point.

Okay. So, Tracey, do you want to give some thought to the first question just on how the incremental investment and savings weigh against each other, knowing that you won't give a number but give us some thoughts. And then just to your second part of your question, Brett. On revenue synergies, again, I'll come back to the language I used earlier. We think about how we look at building our portfolio from a buy, build and borrow perspective. So buy, are there opportunities like we've done with our craft acquisitions in the U.S. or with Sharp's, as an example, build is create something from scratch. The Redd’s was created from scratch a few years ago as was Henry's. Our borrow means moving brands from one market to another, so I think we're confident that we have now identified a number of opportunities where we can actually start to shift some brands from one market to another and Miller High Life is a good example in terms of the transfer between the U.S. and Canada and that's something that's very much work in progress. Now there are others as well, but I'm not going to talk to them specifically, because I think it's competitively sensitive. With regard to the GAAP in our portfolio that you described, again I'd come back to my earlier comments, which is Gavin and the executive team are actively working on a range of options across buy, build and borrow further enhances our Above Premium portfolio in the U.S. and we'll talk to those in due course. So they’re central to our thinking, we are working through a range of options and we'll update when we've got firm news that we can share. Tracey, do you want to talk to the first part of the question?

Yeah. So, Brett, I'm not going to give you specific numbers, but maybe just a little bit of context. So in terms of cost savings, what we have said is we're going to be targeting to deliver more than $175 million of cost savings in 2017. In terms of incremental investments, I mean it's all according to plan. Our brand investments have increased across all of the BUs except for MillerCoors in the first quarter and Gavin just touched on effect that we had the Henry's launch last quarter, which was quite a significant launch. So and brand investments increased across all BUs. Our G&A was on plan and we did mention that there is some incremental investments that we are building in the corporate center around our customer excellence, around supply chain, as well as moving some cost to the center to provide global value-added services such as our global business services and some IT. But you know more than that, we're not going to give numbers.

Our next question is from Pablo Zuanic from SIG.

I have two questions, but I guess, Mark, given that you asked why you're -- I will take the liberty to answer if you don't mind. You have promised $550 million of cost savings over three years. You have not told us how much of that is going to flow to the bottom line, so we're all left to make assumptions. But we assume 30% can flow, 50%, 70%. But this is a quarter where your EBITDA in the U.S. was down $54 million. And I work out that your savings quarterly should be about $30 million. So savings are supposed to be $33 million at MillerCoors per quarter. There is no seasonality in cost savings I suppose. And your EBITDA is down $54 million. So that's why the stock is down 5%. Now I have two questions, okay. One, maybe I'm overly simplistic in my analyses but to be honest, when it comes down to Molson Coors as a stock, right, obviously, I don't look at what happens in London or Croatia. I look at two metrics. I look at your STRs in the U.S. and I look at your EBITDA in the U.S. I mean EBIT this quarter was distorted because of your increased brand amortization as you explained and bill-related amortization, so I can't look at EBIT. On STR front, your STRs being down 2% this quarter. It's actually great news. The comps get easier and everything you've told us toady makes us believe that numbers will improve. If it was just based on STRs, your stock would be up 5% today. So the question I have for Gavin and then I'll move back to my EBITDA question is that typically for all the brewers whether it's [indiscernible] Constellation Brands, yourself, Anheuser-Busch, STRs are normally below the scanner data, and you've been 1 points to 2 points worse, and that's normally because liquor stores, bars and restaurants are doing worse than the mass major channel. But this quarter your STRs has actually been down 2% surprised me when this kind of data was telling me for the quarter down about 4%. So my question, Gavin, and you've talked already about the value brands and the number of initiatives you've said, can you give me any explanation or any color in terms of what's happening in liquor stores, bars and restaurants and major channels for MillerCoors that will explain why your STR is only down 2% in the quarter where this kind of data would imply something much worse. And I have a follow-up on the EBITDA question, but if you can answer that first, please? Thanks.

Okay. Thanks, Pablo. Thanks for the setup as well. So Gavin, do you want to talk about perspective on STR specifically?

Yeah, sure. Pablo, good morning. Look I mean, I'm not going to get into all the mechanics of why sometimes STRs don't match up with Nielsen or IRR, but what I can tell you is that, actually the on-premise volume trend in the first quarter was better. And that obviously is a little different to where it has been over the last four quarters at least of 2016. So that would be one of the drivers that would be causing you to have perhaps over estimated decline in our STRs. Our estimates are that we are closing the gap with the sort of industry trends on-premise. I would attribute some of that to our very successful Building With Beer Program on the on-premise which really is a fact based tool as Mark said in his opening remarks, that help our sales folk and our distributors sell to onpremise retail customers. So, that's probably the best answer I can give you for explaining some of that difference.

That's very helpful. So, Mark, then the second question is on the EBITDA front. Yeah can I?

Just before you enter the question, you mentioned a number on MillerCoors EBITDA and I don't recognize the number. So if you want to just kind of reiterate that and I hope I can clarify.

Right. Okay. Unless I'm looking at the wrong number, I thought the EBITDA -- for underlying EBITDA for MillerCoors was $442 million. And this quarter and in the quarter last year, the pro forma EBITDA number was -- sorry, the EBITDA, yeah and I'm looking at -- it was $323 million, right, and last year it was about $345 million, right, that's the MillerCoors EBITDA number, correct?

No. So the EBITDA number there...

No, I'm sorry, I'm looking at the pre-tax, I'm sorry, I want to repeat. I'm sorry, is what I said at the beginning, the EBITDA, the underlying EBITDA for MillerCoors for the quarter was $442 million and in the quarter last year was $459 million, correct?

Yeah. So it's down about 3.7%. And last year had grown by almost 18%. So, we're cycling what was an 18% increase in EBITDA in 2016. So I would describe as becoming a bit more normalized to use that language in 2017.

So a follow-up. So it's about an $18 million and $20 million decline. So, the question is very simple. I'm just trying to understand whether there is any one-offs or factors that would explain why there was an EBITDA growth in the quarter when you are supposed to have these cost savings coming through. I mean, obviously your shipments were down 4%, so that explains part of the fact, the issue. Your pricing apparently was not enough to cover the higher costs, right. So, the question, I guess, I can just boil it down to very simple. Cost savings $175 million for the year. I calculate $130 million for MillerCoors. That's about $33 million per quarter. Was there anything in the first quarter that will make us think that there wasn't a lot of cost savings realized yet at MillerCoors in the first quarter and that we should see more of that as the year progresses ? Maybe Tracey, you can answer that. And the last question, and it's related to the same subject, it's more at the corporate level. Again, if I'm looking at the right numbers, if I look at your EBITDA by division including corporate, corporate EBITDA went from minus $25 million in the first quarter last year to almost minus $50 million this year, still increased, although we are supposed to be in a cost savings program here? So those are my two questions, Tracey, if you can answer? Thank you.

So, just in terms of MillerCoors and I'll ask Gavin to jump in. But the MillerCoors did deliver cost savings and we are not going to detail it by BU but they did generate fairly significant cost savings, but the biggest driver on the EBITDA was the volume, so no specific one-off, but the volume did account for all of the sort of negative drivers.

Yeah. I think, I mean, the only other thing to add would be if you look at our COGS performance in the U.S. in Q1 of last year, our COGS were down about 5%, our COGS this year in the U.S. increased by 1.7%, so there was a number of very positive tailwinds we had in the first quarter of 2016, some of which are not repeated in 2017. So probably some more of that detail would be worth taking up on the follow-up call today, probably. And then, your question on corporate, I mean, I think I've dealt with that which is that some of that relates to us investing ahead of the curve in commercial and supply chain and also transferring some cost of the business season to the center, so we can drive a more of a consistent approach and drive efficiency and productivity over time. So I think you should start to see that kind of stabilize and get comfortable with as we go through the year. Obviously, we've had to kick things off and invest ahead of the curve as we establish our new organization.

That's very helpful. And if I may, just one last one for Gavin. So you’ve talked about a number of metrics in the U.S. business in terms of volumes. Can you just talk about the Light, what you call the Premium Light beer segment, Coors Light, Miller Lite, Bud Light, as a segment, is that beginning to stabilize now that space for craft is not being expanded at retail and that bars and restaurants, does that help Light in any way? Does it help it stabilize? What are you seeing there at the category level? I realize that you're gaining share in that segment specifically. Thanks. That's all.

From an overall category point of view, Pablo not much change. Where the change has come is obviously with our share within Premium Light, which has grown for the last 25 straight months and so that's a fairly prolonged period of share growth. So I'm pleased with the performance of both the Coors Light and Miller Lite. It's not driven by pricing tactic, it's in our view driven by the superior product and the marketing campaign, so they are really resonating with the consumers. I think overall though, to cut to the chase of your question, Premium Lights are still declining in total volume, and fairly consistently.

Our next question is from Bryan Spillane from Bank of America.

So just one question from me, and I guess, probably it may tie back to a little bit of how you just answered the previous question. But I think, one of the questions, we've fielded this morning a few times is just if you take out the net effect of the gain, that the tax reversal in the UK netted against the bad debt provision, if you stripped that out of the EBITDA, you're at like, EBITDA down like 12% on an underlying basis in the first quarter. And, I guess, it's got people kind of confused with, if anything you've kind of raised the free cash flow guidance, understanding that some of that is coming from the change in the tax piece. But, I think, people are trying to reconcile how EBITDA could be down that much, and yet there is no change to the rest of the year. And so, I guess the question is just, are there some other things that you compare to the rest of the year, where EBITDA should be better year-over-year than what we saw in the first quarter? If you could just kind of reconcile those, I think that would be helpful?

Sure. I mean, I think, it's going to play into some of the comments already made, Bryan. The first quarter is a small quarter. We're investing ahead of the curve in two or three areas, which I have already mentioned to you. There were a couple of headwinds as well for example about debt provision that we flagged as well. So I think, some of it is timing, some of it's the fact that this is a small quarter, some of it's the fact that we're getting the business ready for delivering on the growth agenda, and our First Choice agenda. I remain confident in our business plans on a full year basis. So, there is certainly some noise from, I would describe as a phasing and a timing perspective and we're lapping a very significant, very successful launch in the U.S. last year as well with Henry's as we have talked to. We've got the Canada amortization as well which flows through as a headwind on the business. So, there is a few puts and takes, but the important thing is, when you start right at the top of our P&L and we've seen strong global brand volume growth, we've seen our global priority brands grow and we've seen our NSR per hectoliter grow as well across all of our business units, even when you net out the benefit associated with the release of the provision, you still have NSR per hectoliter growth in each of the BUs. So, I always feel good if the top of the P&L is in the right shape, because then everything below that's a decision for management to make. So, I remain confident about the position of our business and our outlook relative to our plans for this year.

Thanks for that. And I guess, I just wanted to make sure I was interpreting it correctly, but what I sort of interpreted today was that, if you look at the top-line with the exception of the U.S. being soft in January and February which was unexpected, it sounds like, generally, the rest has been in line or even better than maybe what your expectations were going into the quarter, is that fair?

I would say, more in line with expectations, I mean it's great to be able to reference the fact that we've seen our top-line in Canada and our volume and our market share grow. As Simon pointed out, we've seen strong volume growth on NSR per hectoliter growth in Europe. Our international business took a big step forward in the first quarter. But clearly as we go through the year, there'll be some more volatilities [indiscernible] some of the TSAs, et cetera, but that's very encouraging and in the U.S., as I think we've tried to identify January and February were slower than anticipated trends through March and most of April have come back much more positively. So, if you look at the fundamentals of our business, if you look at the commitment we've made on a three-year basis on cost savings and flexibility that that gives us, then I don't think anything material has changed from where we were as we left 2016 and how we started 2017.

Yes, sir, I have Robert Ottenstein from Evercore. Please go ahead.

I am trying to get at some of the questions, we've been asking it maybe a different way. You've mentioned I believe that you're going to have $175 million of costs that will run through the P&L this year to take out the synergies. Can you tell us how much of that $175 million went through the P&L this quarter?

Yes. So just to be clear, Robert, what we said is the cost to get the synergies, we said that's about $350 million over three years, about half of that is OpEx and half of that is CapEx, but that's over three years. We've never said that that was a one year number in 2017.

Well, can you tell us how much was spent in the quarter to achieve the synergies?

No. It's not a detail we go into, I mean I think we've given you the guidance on $550 million of combined savings, about $350 million incremental to get those and sustain them split 50:50 between CapEx and OpEx. And as we've mentioned pretty consistently the synergies tend to ramp up and accelerate as we get into 2018 and 2019. So Tracey, I don't know whether you would add some color.

Robert, I'm not sure if you're confusing the cost savings synergies that we've given guidance for this year at $175 million. So, we expect to deliver $175 million of cost savings in 2017, not spending.

Okay. What I'm trying to find out is how much you spent in the quarter to achieve the synergies. And I think Mark said that you're not going to disclose that number?

No.

We understand the question, but Dave?

Yeah, Robert, we're not going to disclose the specific number, buy you can look at page 10 of the earnings release and see a line in there that gives you acquisition and integration related costs that have been excluded from our underlying results. And that would be a part of the cost achieved synergies, call it operating expense if you like, it does not tell you what the CapEx, and it also doesn't tell you about some of the other areas where we're enhancing in our business that Mark talked about earlier, where we're spending there as well.

So you've got that one bucket of costs that are highlighted on page 10, and then you've also mentioned this other bucket of costs in which you're investing ahead of the curve, can you tell us what that number is for either the quarter or the year?

No, the $550 million number we've given, Robert, over the three years is net of the, let's call it, the dis-synergies, but we haven't broken either by line item or by timing. So the $550 million number is net of that. What you've got the difference in phasing, so I'll make it real for you, Kandy and his team are now in place and they're working on lots of initiatives, one of which I mentioned earlier, which is the rollout of Miller Lite packaging globally later this year. So that’s -- and it's real and it's happening now. Some of the synergies which then start to offset the dis-synergy flow through towards the end of 2017 and then really ramp up in 2018 and 2019. So you've just got a difference in timing and phasing of these things, that are either feathered into the business or the cost is removed from the business. In a perfect world, it would all start on day one and it would flow seamlessly in a complementary nature, it doesn't operate like that, which is why –

No, I appreciate that. So, key takeaway, the gross cost take-out is well over $550 million, the $550 million is a net number?

Yes, that's correct.

And in terms of this investing ahead of the curve, so to speak, how much of that are things that are going to be people costs, that are going to be a permanent part of the cost base and how much is more one-time items like the cost to switch the packaging, is there any way to kind of give us a sense of that?

Well, I mean, I can't get into that level of detail. Clearly, things that are one-off are going below the line from a U.S. GAAP perspective and we've identified those on our release. There are some things like our world-class supply chain capability, some of our centers of excellence, our global growth team which are here to sustain our business over the medium to long-term, so they will be embedded in our business going forward. Because it makes sense as we build our business, but the synergy and cost saving number we've given you is net of those incremental costs.

And then finally, I understand you're not giving us the investment cost for the year, and you're not giving us the cost to achieve the synergies for the year. But, I mean, has most of it been incurred this quarter, what's the kind of general cadence you expect for those investment items or cost items throughout the rest of the year?

Again, Robert, I mean, you're trying to push me again to specifics not quarter-by-quarter basis, I'm just not going to go there, because this is quite volatile depending on the nature of the initiatives and, if I start doing now, it becomes very difficult from a comps perspective. I think you want to look at the $550 million over the three years, look at the $350 million spread across OpEx and CapEx, form an opinion as to what that should look like from a phasing perspective and I really don't want to get below that level of detail. End of Q&A

And this concludes today's question-and-answer session. I would like to turn the conference back over to Mark Hunter for any closing remarks.

Okay. Thanks, Denise, and just for me many thanks for your time and interest in the Molson Coors Brewing Company. Thanks for bearing with us through what's become an extended call, and we look forward to either seeing you at our AGM later this month or Analyst and Investor Meeting in New York in June. So, thanks again everybody and look forward to seeing you soon. Bye for now.

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