US/CANADA: One-off costs hammer Molson Coors in H1
Molson Coors has posted a marked drop in profits for the first half of this year, as one-off charges made their presence felt.
The North American brewer, which combined its US operations with SABMiller into MillerCoors earlier this year, said today (5 August) that net profit for the six months to the end of June fell to US$118m from $189.4m in the corresponding period a year earlier. Operating income was also down, to $234.4m from $280.5m, despite sales inching up to $20.73bn from $20.38bn. Volumes were flat in the half year, hitting 20.7m barrels compared to 20.4m in H1 2007.
For the second quarter, net income plunged to $80.9m from $184.9m, with operating income down to $156.7m from $227m. Sales and volumes improved in the three-month period, however, up to $1.76bn from $1.68bn and to 11.6m barrels from 11.5m.
During the second quarter, Molson Coors said, net special charges were reported of $103.9m, due to the planning, integration and employee retention costs of $33m related to MillerCoors, along with transition costs of $12m to outsource the company's shared services to a third-party supplier.
The company also posted a $51m non-cash impairment of the intangible asset related to the Molson brands sold in the US. "Molson brands that are marketed and sold in the US by Coors Brewing Company have been declining in recent years," the company said. "Most recently, increases in packaging and freight costs on imported products, combined with continued volume declines, have significantly impacted the overall profitability of the brands in the US.
"While management continues to believe that the Molson brands play an important role in the MillerCoors brand portfolio, it was determined that the value of the intangible brand asset has been impaired. The company therefore recognised a $50.6m non-cash charge in the second quarter to reduce the carrying value of the Molson brands in the US."
In Canada, sales-to-retail decreased by 0.8% during the second quarter. The slip was driven by weak industry performance reflecting unusually wet weather across most of the country, the company said. Canada sales volumes decreased by 11.7% in the quarter, due almost entirely to the transfer of volume to the Modelo Molson joint venture and the termination of the US production contract for Foster's. In the US, the company saw sales-to-retail rise in 47 out of 50 states. Total sales volume to wholesalers grew 7%. Cost of goods sold per barrel in the country increased by 4.9%, however, due primarily to increased fuel prices and packaging material costs.
In the UK, meanwhile, underlying pretax income almost halved, to $21.5m in the quarter compared to $40.5m in the same quarter last year. The fall was blamed on higher input inflation, higher pension costs and lower volumes. During the second quarter, the UK beer industry continued to suffer from weakening economic conditions, smoking bans, and accelerating commodity and materials inflation, the company noted.
"Across our company, our top brands continue to outperform the industry in the second quarter, and we achieved net pricing gains and substantial cost savings in each of our core markets," said Molson Coors' president and CEO, Peter Swinburn. "At the same time, however, energy and commodity inflation has become a bigger challenge for our company and for the global beer industry. This cost inflation, combined with our higher tax rate, drove lower after-tax income for our total company in the quarter.
"In the face of challenging economic conditions, we continue to implement value-adding strategies that will allow us to build our brands, achieve positive pricing, reduce costs, and grow profits and cash for our shareholders. The fundamentals of our business remain strong."
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