Molson Coors Beverage Company (TAP) Earnings Call Transcript & Summary

All right. Good morning, everyone. Welcome to the UBS Global Consumer Retail Conference here in New York City. My name is Peter Grom, the UBS U.S. beverages and household product analysts. And we are very excited to have joining us this morning, Gavin Hattersley, President and Chief Executive Officer; and Tracey Joubert, Chief Financial Officer, joining us from Molson Coors. Thank you so much for being here. So Gavin and Tracey, you both have been very integral parts of the Molson Coors turnaround over the past several years and were instrumental to the company's revitalization plan with the goal of delivering sustainable top and bottom line growth longer term. So I'd love to kind of go over that today. But just for all of you aware, for those that are listening, I've a series of questions that I plan to run through. [Operator Instructions] But before we start, I am required to read a legal disclaimer. As a research analyst, I'm required to provide certain disclosures relating to the nature of my own relationship and that of UBS with any company on which I express view on this call today. These disclosures are available at www.ubs.com/disclosures. Alternatively, please reach out to me, and I can provide them to you after the call.

So just to start, I want to go back to the revitalization plan. And before we kind of think about the path ahead, I think it would be helpful to just kind of take a step back and look at the evolution of Molson Coors over the past few years. And I think this is a question for the both of you, right? And I think when you look at kind of the 5 pillars of the strategy, what has worked well? What needs improvement? Like what are you most proud of? And conversely, is there anything you and the team think you could really do better?

Yes, it's a great question. Thanks for having us. Peter, I'll take this, I think, first part of that, you can take the second part. We launched our revitalization plan, say, 3 years ago. And we had the goal of driving top and bottom line growth, which is something that as an organization we hadn't been able to do for a very long time. So if you -- there's a lot on I'm proud of the team of, but I'm most proud that we actually got to that goal within the 3-year timeframe, particularly given everything that we had to face over the last 3 years, which I think you're all well aware of all the challenges that we faced. The first thing we did was, we restructured our organization. So we went down from 4 business units to 2. We took a lot of complexity out of decision-making. We took a lot of bureaucracy out. We narrowed the lines between the decision makers in the field and the actual decision maker, and we just got to market a whole lot quicker. We also wanted to take a chunk of cost out of our business, $150 million at the time. And so I would say that worked really, really well, and we are through that now. We've realized all those cost savings. Then if you look at the rest of the pillars, there was our core brands, and the team have done an amazing job there of improving the health of our core brands. Not -- we talk a lot about Miller Lite and Coors Light. We don't probably talk enough about Molson Canadian up in Canada, which has turned around and Carling in the U.K., which remains our #1 brand in the U.K. And then each market has got their #1 core brand, whether it's Ozujsko in Croatia or Staropramen in the Czech Republic and so on. So I think the health of all of those brands are substantially better now than it was 3 years ago, and we can talk more about that later on, if you'd like. And then our push into above premium was a core component of the plan. We were -- had a relative disadvantage to our competitors in the above premium space. When we started this journey, I think we were at about 23% of revenue came from above premium. We're now at 28%. We've set a medium-term goal of getting that to 33%. And we're playing in spaces that we hadn't played in before. The seltzer -- the hard seltzer space as an example. We've had a an amazingly successful launch of Madri in the U.K., probably the best innovation that we've ever come up with certainly from a standing start to where it is today. And then we pushed into the beyond beer space, categories and spaces that we just haven't been in, whether that was the energy drinks or hard liquor with Five Trail whiskey company. So that's from a brand point of view. Maybe you want to talk about the capabilities and culture and people.

Yes. I mean cost savings is really important. So as Gavin mentioned, we delivered on our cost savings. We had a $600 million cost savings program for 3 years and $150 million of that came with the revitalization. So we've delivered on that. But as part of that, we've invested in our business. So we've invested in capabilities in our breweries. We've modernized our top breweries. So we've got 2 new modern breweries up in Canada, one just outside of Vancouver and one just outside of Montreal in Longdale. We are modernizing our Golden Brewery, and we've built capabilities in our breweries like in Fort Worth. We now have sulfur capacity. We brought this production of Simply Spiked into our Fort Worth brewery as well. And then we're also doing things like building variety packer lines instead of sending our brands out to repack. We now do it in-house, and so that's delivered capabilities that also has contributed to our cost savings. And then another capability building that we really are proud of is, we've brought a lot of our creative agency work in-house. So that delivers speed to market as well as cost savings and our analytic capabilities, we've built as well coming out of revitalization. So yes, we're typically proud of those 2 areas as well.

Okay. That's really helpful. And I guess, maybe despite all that, the top line has improved, right? But your stock price has kind of been range bound over the last 3 years. And I think, I guess it just kind of based on the questions that I get, it seems like some are less convinced that the turnaround is sustainable, right? And it's more of a function of the current environment. And I guess what gives you confidence that, that's not the case?

Yes, I mean there are the skeptics out there, right? They were the skeptics out there when we started this journey 3 years ago, and we hit what we said we were going to do. There were a ton of skeptics around there -- out there about the fourth quarter, and we hit that. We've now delivered top line growth 2 years in a row, 2021 and 2022. We've got guidance out there that says that we're going to deliver it again this year. That feels like a trading period. From a bottom line point of view, we delivered last year, and we plan to deliver again this year. I think the health of our brands are much stronger than they were 3 years ago. As I said earlier, our innovation pipeline is full. We've launched some really strong innovations last year, both in Europe and in the United States, which we're going to build on this year. Our capabilities, as Tracey mentioned, are stronger. Our balance sheet is certainly in a significantly better place now than it was 3 years ago. So the progress we've made over the last 3 years, notwithstanding everything, sets us up really nicely for the future.

Yes. That makes a lot of sense. I mean, I guess, one of the things that has evolved, I think, during your time as CEO, has kind of been the shift away from volume and kind of more total revenue focused. And we've seen kind of similar transitions in beverages. Carbonated soft drinks is a category that kind of comes to mind. So can you just talk about that shift in focus? And I guess, I know this year from a top line perspective, it's expected to be more price, more rate driven. But I guess, can the company get back to volume growth as you look out beyond '23?

You're right. I mean our focus has been on the revenue, the top line. That was, first and foremost, important for us because, as I said, we haven't done it before in any meaningful way or certainly not consecutively. So that was important for us, and that required us to make some tough decisions, narrowing our focus in the economy space, for example. We just had too many brands that were just not relevant anymore, but took up a lot of time, took up a lot of energy, took a lot of space in the brewery. And so narrowing our economy portfolio into the 4 focus brands that we've got now was important. Driving into the above premium space was and still is really important for us. Making the tough decisions around contract brewing, which is not necessarily beneficial for us for a variety of reasons and obviously, impacts in this instance, both volume and revenue was something we wanted to do. But we want to ultimately get to volume growth. There is -- that is certainly something that over the medium to long term, we want to be at. But right now, our focus was on revenue and profit.

And when you think about that volume growth, is that you just need to kind of improve the mix of above premium to kind of get back there? I know it's kind of at 28%. Then you have a target of 33%. Is that kind of really just the underlying driver? Or are there kind of other avenues, if you will, that would drive that return to growth from a volume perspective?

Well, certainly, almost all of our innovation is focused in the above premium space and the innovation comes both from a created brand from our perspective, like Madri or Blue Moon LightSky or it comes from some of the partnerships that we entered into with Coca-Cola, for example, with Topo Chico and Simply, not a partnership in the legal sense of the word, but in a relationship. Growth is going to come from innovation. It's going to come from a above premium. It's going to come from the new spaces that we're not in at the moment. And then, of course, it's going to come from the existing brands which we've got, which are powerful. I mean, Blue Moon, for example, the #1 craft beer in the country. Obviously, had a little bit of a tougher time during the early stages of the pandemic as the on-premise close, and it's a very on-premise focused brand, but has now regained its footing. And then the same comments without being repetitive around our core portfolio, healthy and gaining share. Collectively, Coors Light, Miller Lite in the fourth quarter is now bigger than Bud Light from a share point of view. And so I think we've laid the foundation to get there.

No, that's really helpful. And I guess going back to the above premium move, the 500 basis points you've kind of captured in your portfolio from 2019 to today, can we just take a step and walk back and just understand the components of that? How much of that just simply from faster growth? How much was it just from exiting economy SKUs? Just kind of help us bridge from that 23% to 28%. And then I guess, going from the 28% to 33%, what are the building blocks to that, right? And I guess, is there any sort of timeline that you have in terms of getting to that 33%?

Yes. Look, I mean, just because of math, right, taking out a bunch of economy SKUs did help that ratio. But the much bigger part of that 500-point swing has come from the new innovation and the focus on brands like Blue Moon, like Peroni in the U.S. 3 years, I said, it's just been a phenomenal success in the U.K., probably the best innovation that we've ever had from a time point of view. I mean it's -- distribution and velocity is amazing, quite frankly, and that plays in the above premium space. And then, of course, we're in spaces we weren't in any meaningful way 3 years ago. I mean we're standing start with our seltzer portfolio with Vizzy and Topo Chico. We launched Simply last year. We've got some new innovation coming. So it's across the board.

Okay. And then, Gavin, during the fourth quarter earnings call, you mentioned that you expect medium-term growth to exceed the targets you've outlined in 2023. Can you maybe just elaborate on that a little bit? Does that kind of imply mid-single-digit top and bottom line growth? And I know there's a -- this is a multi-part question, so I apologize. But I just would be curious, what really drove the inclination to offer that perspective, right? Going back to an early report, there's still a fair amount of investors that are skeptical of kind of just low single-digit growth. So just kind of any -- I think it would be helpful to understand why you wanted to offer that and maybe kind of the building block if mid-single digit is what you were trying to point to?

Yes, we thought it would be helpful actually to state the obvious, right? Which is, I mean, our revitalization plan was designed to deliver not top and bottom line growth in one year and then move on from there. But to deliver it consistently into the future. So we thought it would be helpful. It also directionally says that this year is -- it's a little bit of an uncertain year still cost pressures which we don't see in the out years. So certainly, offering up that over the medium term, we do see top and bottom line growth as well as we thought would be helpful for the market.

Okay. That's very helpful. I guess maybe shifting gears to more recent performance. It was clear based on some of the public data, the 4Q was a bit more challenged in -- and you've said that relative to your expectations. You talked about the industry-wide impact on volumes from the price increases. And I guess just on that pricing, is that similar to what we've seen in the past where you've seen these outside pricing increases and you see an initial shock and then it kind of comes back. And then, I guess, you mentioned on the call that trends have really improved in January and the data has kind of suggested that that's kind of continuing to a degree. What's really driving the improvement, I guess? Is it just kind of that initial sticker shock and the consumers are getting over it? Is it some sort of from an anomaly perspective? Is it like easier comps in January a year ago? It's -- I know California has been challenged from a weather perspective, but except in the past few weeks, it's been pretty warm across most of the country. So just how would you frame kind of the improvement and the drivers of that?

Yes. There's a lot going on in both in the question and in the answer. We haven't put such big price increases into the beer space probably for as long as I've been in the U.S. So that was -- we didn't really have any particular comparison to look at. And certainly, the spring price increase, we saw that. We saw a little bit of softness post the price increase, and we saw the same again in the fall. And that could be driven by loading ahead of the price increase, and so we certainly saw the same effect coming out of the fall price increases we did out of the spring price increase. Yes, in the United States, the January was, from a comp point of view, a little easier, mostly in the on-premise because if you remember, last year, we had the Omicron scare which drove people out of the on-premise in January and a little bit of February. We didn't have that this time around. So that certainly helped. You don't actually see that data in the track data because that's -- it's not really tracked very much. So that was where more of the benefit took place. And yes, you're quite right. I mean, California has been a little difficult from a weather point of view. That certainly has made that challenging. So a lot going on.

Yes. And then I guess, just going back, you mentioned that you were actually gaining share despite that weaker volume. Can you maybe just unpack that a little bit? Or are people just simply drinking less total alcohol?

From a dollar point of view, the overall alcohol space went up by about 3 points, as I recall, 3%, 300 percentage -- 300 point, 3%. Beer went up a little bit more than that. Hard liquor went up a little bit more than beer, and wine was the loser. Wine actually declined from a dollar sales point of view. So certainly, from an overall alcohol space, yes, we grew a little bit of share and so did hard liquor at the expense of the wine guys.

Okay. So Tracey, kind of U.S. pricing, right? You kind of touched on '23 revenue growth being more price driven rather than volume. Can you just remind us of the building blocks of that? How much of that is rollover from 2022? Do you expect further pricing actions? I think the answer to the latter is, yes. But can you just maybe talk about how the external environment kind of may impact your thought process? I mean there's just a lot of volatility day-to-day, right? So how does the external environment impact your ability or willingness to take further price?

I think if we look at last year, let's just go back to last year. I mean, we took a 5% increase in the spring, and then we took another 5% increase in the fall. And Gavin has spoken about the sort of volume impact and the consumer impact. So that pricing was significant. I mean we haven't seen that kind of pricing in the beer industry forever, I think. But the consumer has been pretty resilient. Even if we look at our outside of the U.S. market, U.K. has -- the consumer there has returned to the on-premise. We took pricing there as well. On-premise is back to sort of pre-pandemic level. So -- and the consumer -- the beer consumer is proving to be quite resilient, as I say. In terms of -- as we look at this year, we wouldn't take the spring increase like we did previously. There's some small markets where we didn't take an increase last year. And so you may see in some markets a bit of an increase. And then as we get to the fall, we'll evaluate what the consumer is doing, what our competitors are doing. I mean there's still a lot of uncertainty as it relates to the consumer. So we'll visit that as we sort of get closer to the fall.

Okay. And then Gavin, you alluded to this earlier, Coors Light and Miller Lite performing exceptionally well. It's been that way for several years at this point. But I guess -- and I know this is a question you used to get a lot, but it was harder for to see the brands to kind of grow share at the same time. It was one versus the other. And I guess what has allowed them to kind of both perform well at the same time?

Yes, it's a great question. I mean I think our marketing and sales teams have done an amazing job, bringing those 2 brands to life. Our marketing team has done a nice job of differentiating Miller Lite and Coors Light. Coors Light standing for refreshment and chill and everything that goes around that. And then Miller Lite standing for what tastes like a beer, beer taste has been its focus, and they've done a nice job of single-mindedly driving those 2 particular tracks. I think the other important thing is that we've done that consistently. If you had a level criticism against us in the past, I would say that, that would be it right. In some cases, the consumer don't really understand what the brand stood for because you would move from this campaign to that campaign to this campaign. They're all quite different. The marketing team has been really, really solid on how they've brought those 2 brands to life, and they've been very consistent about it. So that's a big driver for us, making it really relevant with the different age demographics that are so important to each of those 2 brands. And then we've driven really strong execution through our distributors and our sales team from a feature and display point of view. And in fact, that accelerated in the fourth quarter on the publicly available data, and both those brands outperformed their biggest competitor by light from a feature and display point of view. So it's the total package and consistency. And you can see that in everything we do, even March Madness, getting big [ Fatal ] to chill when he's not exactly known to be a chill guy. It's just another way of bringing that to life.

That makes a lot of sense. Shifting to below premium and kind of the economy skews. I mean, the data has kind of suggested that the category -- this segment of the category seems some solid momentum over the past few months. I mean where do you think this incremental volume is coming from? And do you kind of expect this -- if you want to call it a trade down dynamic, do you kind of expect it to continue as you look out over the next few months?

We haven't seen much of a trade down, frankly. I mean, certainly, premiumization has slowed, primarily driven by the seltzer space. But we haven't seen a lot of trade down from a brand point of view. We have from a pack point of view, particularly with lower income households to driving down into the smaller pack sizes, but on the other side, the higher income households are driving up into the larger pack sizes. So a little bit of less in the sort of mid-sized packs. From our perspective, the focus that we brought to our economy portfolio by getting rid of so many SKUs and so many brands and now focusing just on the 4 core economy brands, Keystone Light and Miller High Life, Steel Reserve Alloy Series and the Icehouse has really reaped the benefits. From our perspective, we've been able to have more focus on them. We've been able to put more investment behind them. There's more consistency in supply, and it's just all around been solid for us.

Great. And then I guess shifting to beyond beer and maybe specifically, Topo Chico and Simply Spiked. Can you just talk about the partnership with the Coca-Cola Company, and how these brands are kind of performing versus your expectations? And I guess just from your perspective, is there -- we've seen a lot of these brands that are traditionally nonalcohol move into the alcohol space. So is there further opportunity to add more traditional nonalcoholic brands?

Yes, a lot of questions in that question. So look, our relationship with Coke is strong. We work very well together with them, and we're very pleased to have Simply and Topo Chico as 2 of the brands in our portfolio. The way we're looking at this space is more from a flavor point of view. So there's much talk about hot sales is coming off, but at the same time, the spirit side of it is lifting up and flavored malt beverages, which has actually been around for a long time, is also starting to perform better. And we've got brands in each of those 3 spaces. To your question about how have they performed? I mean, honestly, they performed better than our expectations, much better, particularly with Simply. I mean we launched Simply out of cycle in late June of last year and the response was very, very positive to the extent that we couldn't meet demand. Now we've brought the brand in-house so we're producing it in-house, which is 2 benefits: one is, it improves the margin; and secondly, we control supply, and it can be more stable. So we're looking forward to a really strong summer with Simply. Topo Chico, we had a 2-pronged launch. We launched in some specific markets a couple of years ago, and then we expanded in January of last year to the whole country. And because of that, we obviously had a lot of load-in in January, and we're cycling those now, and we're through that and the brand is positive coming out of that. From a growth point of view, we've got new innovation coming around Simply with the new peach flavor. We've got Topo Chico Spirited, which is going to play more in the spirit side of the flavor house. And then we've got complete refresh of the visual identity of Vizzy and a more focused approach there. So beat our expectations, love the innovation we've got coming. Relationship with Coke is strong. We think it's going to be a meaningful driver to the 33%.

Great. I mean I guess you kind of alluded to this in your -- the initial portion of that response. But I'd be curious, how you think about kind of the relationship between hard seltzers and F&B. And I guess what's kind of striking to me is just the number of new brands and SKUs that are coming into F&Bs. And it almost feels very similar to what happened in hard seltzer, right, to some degree where the consumer got a little confused and consumers kind of maybe went back to traditional alcohol beverage categories like beer. So I mean, I guess, do you view that as a risk as you kind of look ahead with just all these new products and all these brands kind of coming to go after the share in F&Bs or ready to drink cocktails?

I would see it as an opportunity more than a risk because if you've got strong brands that are meaningful to a consumer and you've got brands which they like the taste of because taste is really important in this space. You can be a winner. And notwithstanding the fact that seltzers has slowed down a lot, it's still a very big space. It got to about 10% from a value share point of view, and that's dropped off to about 8-ish. But there are going to be some clear winners in that space, and there are going to be some clear losers, and we plan to be one of the winners with Topo Chico and Vizzy primarily. And then the other reason why we've structured ourselves around flavor is that, is the consumer does move around between these flavors. So if you look at that whole flavor space, it's growing. So there's a lot of focus on our seltzers being down. But when you look at the total space, it's still growing, and it's a big space. And so I see it as an opportunity as opposed to a risk.

Okay. So we spent a lot of time talking about the U.S. Maybe shifting gears to International. Maybe kind of give a state of the union in terms of what you're seeing in some of your core markets, maybe the health of the consumer? And have you seen any meaningful shifts in kind of demand or whatnot results a few weeks back?

Yes. Look, I mean, from a U.K. point of view, it's remained resilient, somewhat surprisingly, given the economic environment there and the level of labor activity, which has taken place there, but it's remained resilient. On-premises remained resilient. I don't want to oversell Madri, but it is doing remarkably well and is 1 of our top 5 above premium brands in the world now and still growing strongly. Can't really say the same for Central and Eastern Europe. It's tougher there. Disposable income from consumers is being eaten up by the high gas, energy prices, food prices and so on. So a little bit more challenged there. A small part of our business, U.K. is more -- much more important to us than from a volume and value perspective than Central and Eastern Europe. So a bit bifurcated.

Okay. So Tracey, let's just shift the profitability. You outlined expectation for inflation this year, albeit at a lower rate, can you just maybe walk through the building blocks of that outlook? And kind of where do you have visibility? And where do you kind of still see the biggest pressures at this point?

Yes. So we did say that we expect inflation to continue to be a headwind this year, but sort of moderate slightly towards the back half of this year. A couple of things that goes into our profitability. So we've spoken about the pricing and our premiumization, the mix of our portfolio moving more to the above premium space. So that obviously drives top line. From a COGS point of view, there's a couple of things that obviously is really important to be focused on. One is commodities and the hedging. So we got really good visibility to that and also be comfortable with our hedging levels for 2023. And then we've got cost savings. So I've mentioned a lot of the investments that we've been making in the business over the last couple of years is going to drive the cost savings. It's driving efficiencies. It's driving capabilities and capacities that we didn't have before that helps margins. So we'll continue to really drive efficiencies and cost savings. Now having said that, there are some areas of COGS input costs that we can't hedge. So freight is one, but we are seeing the freight markets coming down a little bit. So that's certainly helping. And then some of our third-party co-manufacturing costs are linked to indices like PPI. So that's not hedgeable, and obviously, it could be a significant input. But we have given guidance out there that we expect our gross margin per hectoliter for 2023 to increase, and we've also said, over the medium term, to have both top and bottom line growing but bottom line growing at a faster pace or a higher rate than the top line.

Okay. And then maybe building on that last point. I mean for the gross margin expansion, is that simply that there's just enough pricing to offset the degree of inflation? Or is there kind of just cost savings that's also helping that?

It's both. And over the medium term, we kind of are expecting inflation to sort of get back to more normalized levels. Obviously, the last couple of years with COVID and the supply chain challenges and the Russian war in Ukraine has driven a lot of that inflation. But hopefully, over the medium term, we can kind of get to a more normalized type of inflation levels. So that's what we've been putting into our assumptions.

Okay. And then just on cost savings, the company has a tremendous track record there, but we've kind of reached the end of the official programs, if you will. So how do we think about cost savings and productivity moving forward?

Yes. Look, it's just a way of life at Molson Coors. I mean we're always looking at cost savings. We're always looking at efficiencies. And as I said, some of the investments we've made over the last couple of years is going to continue to drive those efficiencies and cost savings, whether it be our new breweries, more automation and some of the things that we've done with a variety packer in Fort Worth and bringing some capacity from outsourced into in-house that obviously helps margins. So it's just something that we always got to focus on, and I think we're pretty good at delivering the cost savings. So we're not going to just stop.

All right. Yes, that makes a lot of sense. So I kind of wanted to shift to kind of marketing and reinvestment a little bit. The guidance clearly embeds, I guess, some degree of higher SG&A, if you have low single-digit top line growth and gross margin expansion and kind of low single-digit profit growth. So can you maybe just walk through where you see the biggest opportunities for reinvestment?

So from a marketing point of view?

Yes. Or even supply chain or whatever.

I mean we have said that for 2023, we do plan on investing -- increasing our investment in marketing and will be behind the areas that Gavin's spoken about. So our core brands continuing to build on the strength of our core brands. Also around innovation. So he mentioned some of the stuff that we've got in the pipeline, but we're also becoming a lot more efficient with our marketing spend. So driving a lot more return on marketing because of trips that we've made into digital space, where more than 50% of our investment now is in the digital space. But bringing some of the in-house -- sorry, bring in some of our agency and creative work in-house is helping drive that as well. So yes, in terms of investment, we'll continue to invest where it makes sense. I don't know if you mentioned, we had an opportunity to invest in the Super Bowl this year. It's not something that we were planning on this time last year, but we are able to sort of shift the investments. We invested behind the Super Bowl this year. Last year in Q4, we had an opportunity to invest against Spanish language TV against the World Cup, and so we took that opportunity. So we don't look at marketing on a sort of month-by-month investment, but I mean we have enough flexibility that we can take advantage of opportunities that are given to us. So we'll continue to invest where it makes sense and where we get the highest return.

Okay. And then last -- I have one more and then we can open it up to questions or see if there's anything on there. But there's just kind of a lot of discussion in the industry around normalization of earnings versus kind of reinvestment as you look out beyond it. And I guess I just would be curious, if some of these external challenges become more favorable, whether it be FX, commodities, how do you think about the potential benefit to the bottom line? In other words, how do you balance kind of letting some of these savings and potentially flow through to earnings versus kind of maybe taking some of that favorability and reinvesting it back into the business?

Yes. So we've got these capital allocation priorities that we focus on. So 3 buckets. One is investing in the business. So whether that be in our breweries, building capacities or around cost savings or investing behind our brands or maybe small bolt-on M&A. Gavin has spoken about a string of pearls approach. So we look at that. We look at strengthening the balance sheet. We've done a really good job, I think, in paying down our debt to getting to the leverage ratios that we are at now. We've given a target leverage ratio of around 2.5x. And then returning cash to shareholders. So we look at those 3 buckets, but we do it in a very disciplined way. We've got models that we run all of our investment decisions through and look at where we're going to give the highest return to our shareholders, and we have those discussions with the Board. So models help us make those decisions for sure, but those are the 3 buckets that we look at.

Okay. I don't see any -- are there any questions in the room? If anyone wants to, like can ask or -- all right. Well, I...

There is another one there too.

Yes.

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Look, I think in a world where moderation is becoming more important to folk, taking share from hard liquor is definitely something that we would focus on. And certainly, over the last while and wine has been bleeding share to the overall beer space and actually hard liquor as well. So I do think from an overall -- if you look at the overall alcohol category, there is an opportunity for beer to take an increasing share, absolutely.

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Look, I think the highest priority we've got is to make sure our core brands are as healthy as they can be and as stable as they can be. And so that's where we put a lot of time and effort. It's well known that it's 2/3 of our volume profitability, give or take, right? It's sort of in that ballpark. So it's important that we are successful with those brands. So we spend a lot of time focusing there. And then growing into spaces where we haven't necessarily been, has been another focus area for us, and that falls into the above premium bucket. From a capability point of view, as Tracey said, we sometimes learn as we go. And with any innovation, of course, we're going to make some mistakes and course correct and improve. And I would say that it's certainly the case for us as well. We also can be a little cautious, right? So I think you mentioned the variety packing, but that's an area where we weren't 100% sure we wanted to invest meaningful amounts of capital. But as it became apparent, we were going to be very successful in this space. So we were willing to invest the capital and of course, correct from that perspective.

All right. Well, I have a couple more, assuming there is -- is there any more? Okay. So Tracey, just going back to the leverage, right? And obviously, the company has a strong history of generating significant free cash flow, and you're getting very close to your leverage target. Can you just outline uses for cash from here? And maybe specifically, share repurchases?

Yes. So again, we look at the capital allocation in those 3 buckets. Obviously, as we get down to the target of around 2.5x, there's more options for us. But we would -- the third bucket, I guess, is your question around returning cash to shareholders. So firstly, we've increased our dividend twice since we reinstated it back in '21. And as we look at dividends, the target is to sustainably increase that dividend. So that's the one area. In terms of share buybacks, we've got a small share buyback program, which is really an anti-dilution program from the sort of stock options that we give to employees. But in terms of bigger buybacks, again, we'll make that decision through our models, through discussions with our Board and making sure that any capital allocation is going to give our shareholders the highest return as possible.

Okay. That makes a lot of sense. And I guess last question, and we'll kind of leave it here, is just kind of, Gavin, I guess it's for you. Just nonalcoholic beer, right? And I know you're making investments. You're innovating around it. We get this question a lot, just the younger demographic just doesn't seem to consume alcohol to the same degree. And I guess how would you frame that from for Molson Coors. Is that a risk than an opportunity? And I guess how quickly do you -- or how big do you think nonalcoholic can be really over time?

Yes. Certainly, we see the same data as you're seeing, right? The new legal drinking age consumer is increasingly drinking in the nonalcoholic space, and that's one of the reasons why we pivoted to becoming a total beverage company. It was one of the underpinning reasons for that is to make sure that we were relevant to all consumers. And so obviously, beer is going to be a big part of our focus and always will be. Hard liquor will be as well because we didn't play in that space, and we've got the Five Trail whiskey company, which has got off to an amazing start, given that we've only been doing it for a couple of years, winning awards in all the whiskey festivals. But then nonalc is equally important to us, and that's on both the beer side and outside of beer. So we do have some nonalc beers. Coors Edge would be an example, but we've -- recently, and I mean literally recently in the last few weeks, launched Peroni 0.0, which has done very well overseas, matches very closely the taste profile of the alcohol version of Peroni. So we have just launched that. We have high hopes for that as well. I mean Peroni, the mother brand is doing extraordinarily well. Now that it's -- the on-premise is reopened because it is primarily an on-premise brand. And then we've got this sort of non-beer side of nonalc, whether that's in energy drinks, which is the new space that we've got into with ZOA and our relationship with Dwayne Johnson. And after tremendous start given the competition which it's facing in a very, very big space, a very, very big category. So really excited about the potential that ZOA can bring to our business. And then getting into new and different spaces for us, like nonalc cocktails. We've recently launched in a number of markets in the U.S., a brand called Roxie, which is focusing on person who wants to drink a cocktail, but nonalc version. So it is definitely a space we're getting into. It's definitely space our innovation team is focusing on. How big it can get? That's a hard question to answer because we don't know, but it's certainly a space that we want to be in. It's got a much bigger relevance in our European markets, and so we've got offerings there in all of our markets that we operate in. So yes, big focus for us. I see there's an opportunity actually not at risk, and the very reason why we went to being a total beverage company as opposed to just a beer company.

Great. Well, thank you for that. Well, we're kind of out of time. So Gavin and Tracey, thank you so much for joining us today. We thought it was incredibly helpful and insightful, and we wish you nothing but the best of luck moving forward.

Thank you.

Thank you.