Molson Coors CEO Peter Swinburn says the brewer will undertake new efficiency and standardization measures to cut costs.SHAUN BEST/Reuters
Central Europe is proving to be a more difficult market than Molson Coors Brewing Co. originally thought it would be when it bought StarBev LP one year ago, but the North-America-based brewer has not yet given up on saying "na zdravi" – or "cheers" in Czech.
In a €2.7-billion ($3.6-billion) acquisition that concluded in June of 2012, Molson Coors secured the Prague company, which operates nine breweries in Central and in Eastern Europe.
"It is obvious that the macroeconomic circumstances are not as good as they were a year ago, so that has been a bit of a down side. But we didn't buy this business for a year. We bought it for the future," said president and chief executive officer Peter Swinburn in an interview following Molson Coors's annual meeting in Montreal.
Mr. Swinburn believes the third-largest brewer in Central Europe will drive Molson Coors's profit margins, as the region's gross domestic product per capita is projected to grow twice as fast as that of Western Europe. He believes the maker of the famed Staropramen is well positioned to tap into the thirst for high-margin premium beers, which account for only 10 per cent of total sales in the region, as opposed to more than 25 per cent in Canada and the United States. With that in mind, Molson Coors just introduced its Carling beer in Croatia.
StarBev is Molson Coors's second attempt to get out of its traditional and mature markets in Canada, the U.S. and Britain after a disastrous foray in Brazil more than a decade ago. And the brewer's last financial results underscore why this remains as important as ever.
Molson Coors reported sales of more than $828-million (U.S.) in its first quarter, 3-per-cent less than what analysts predicted, on average. Adjusted earnings fell 36 per cent to $54.6-million, or 30 cents a share. This was short of the 34 cents expected for the world's fifth largest brewer after Anheuser-Busch InBev SA, SABMiller PLC, Heineken NV and Carlsberg Group.
Acquisition costs for StarBev, higher raw material costs and poor weather – namely in the U.S., where its joint venture, MillerCoors LLC, claims a 29-per-cent market share – explained the disappointing results, the company stated. "It is really difficult to decide how much is the economy and how much is the weather. But we believe North America will improve very slowly in an uneven or bumpy fashion," Mr. Swinburn said.
Key to higher profits is Molson Coors's continued cost-cutting endeavours. The company achieved $200-million in annual costs savings, $50-million more than what it originally targeted, in its recently completed three-year program. It will now undertake new efficiency and standardization measures to further compress its administrative and back-office costs.
"There is a perception out there that our ability to take more costs out of the system is coming to an end. My point is that this simply isn't true," Mr. Swinburn said. Molson Coors will unveil its new objectives at its annual investor conference in New York on June 12.
With its latest financial results weighed down by acquisition-related costs, Molson Coors will also wait until its debt load comes down, which could take two years, before it considers any other acquisition of importance. Molson Coors's debt stood at $4.7-billion at the end of 2012, or a little more than $4-billion after its cash reserves are deducted. However, Molson Coors will continue shopping for some small acquisitions of brands or breweries in emerging markets where it is already present, such as India, Russia and China, in order to consolidate its position.
"We have put a number of stakes in the ground and we will grow from around that," Mr. Swinburn said.