Tracey Joubert
Chief Financial Officer at Molson Coors Beverage
Thank you, Gavin, and hello, everyone. As Gavin highlighted, 2021 was a year of tremendous progress against our revitalization plan. Despite the challenges that we and so many other companies face, we achieved our top line guidance of mid-single-digit growth for the year, delivered strong free cash flow, enabling us to further reduce our leverage ratio and return cash to shareholders. We continue to execute our revitalization plan, building a strong foundation for future growth and we issued fiscal 2022 guidance that underscores that progress. Before I take you through our quarterly, our full performance and our outlook, I would like to update on a couple of naming convention changes in our business unit reporting. This does not change our reported results for these statements and was done for the names better reflect the geographies within the statement. As of December 31, 2021, our reporting statements are the Americas, formerly called North America and EMEA and APAC, formally called Europe. Now let's discuss the fourth quarter. We delivered strong top line and EBITDA performance. While we benefited from cycling significant on-premise restrictions in the prior year, we were still impacted by the rapid emergence of the Omicron variant in mid-November, which resulted in overall on-premise softness compared to the third quarter. In December, the U.S. on-premise net sales revenue was approximately 86% of December 2019 net sales revenue, down from third quarter levels of approximately 88%. Canada was approximately 60% of December 2019 net sales revenue, down from third quarter levels of approximately 80%. And the U.K. was below 80% after being close to 100% in the third quarter. Consolidated net sales revenue increased 13.7% driven by EMEA and APAC growth of 56.5% and Americas growth of 7.1%. Consolidated net sales revenue growth was driven by higher financial volume, positive global net pricing and favorable brand and channel mix due to premiumization and fewer on-premise restrictions versus the prior year.
In fact, consolidated net sales revenue increased 4.3% compared to 2019. Consolidated financial volume increased 7.4% as we rebuild U.S. domestic inventories and group brand volumes 2.3%, driven by EMEA and APAC, Canada and Latin America. This was partially offset by lower U.S. economy brand volumes as a result of our economy SKU deprioritization and rationalization program. In the U.S., we grew net sales revenue 6.3%, with domestic shipments up 3.3%, reflecting our efforts to build distributor inventories due to supply disruptions in 2021. U.S. brand volumes declined 3.8%, but this was driven entirely by the economy portfolio which was down double digits, while our premium portfolios grew low single digits and the Above Premium portfolio was up double digits for the quarter. In Canada, our net sales revenue increased 9.9% on strong brand volume growth of 6%, while Latin America net sales revenue increased 15.9% on brand volume growth of 12.4%. EMEA and APAC net sales revenue grew 56.5%, driven largely by Western Europe, but also growth in Central and Eastern Europe. Strength in our core brands and new innovations like Madri led to double-digit growth in Above Premium and premium volume, partially offset by double-digit declines in economy. Net sales per hectoliter on a brand volume basis increased 3.8%, driven by global net pricing growth and positive brand and channel mix with premiumization delivered across both business units. Underlying COGS per hectoliter increased 5.2% driven by cost inflation, including higher input and transportation costs and mix impacts from premiumization. So we benefited from volume leverage due to higher production volumes and continued progress on our cost savings program. Underlying MG&A in the quarter increased 2.4% as we continue to invest behind our core brands and innovations across both business units, while G&A was flat. As planned, we increased marketing investments in the quarter to levels above the fourth quarters in both 2020 and 2019, providing strong commercial support behind our brands as of 2022.
As a result of these factors, underlying EBITDA increased 21.9%. And recapping the full year, consolidated net sales revenue increased 4.7%, with Americas up 2% and EMEA and APAC up 19.6%. Top line growth was driven by global net pricing, favorable brand and channel mix from premiumization and fewer on-premise restrictions and EMEA and APAC volume growth. This was partially offset by lower financial volumes in Americas. Consolidated financial volumes declined 0.5%, while brand volumes declined 1.7%. Americas brand volumes declined 3.2% as a result of the economy's SKU deprioritization, which began in the second quarter of 2021 and rationalization program, which was announced last July. EMEA and APAC brand volumes were up 3%. Net sales per hectoliter on a brand volume basis grew 3.8% due to global net pricing growth and favorable sales mix. In the U.S., net sales per hectoliter on a brand volume basis was up 4.4% for the year, driven by net pricing growth and the succession of Above Premium products, including Vizzy, Topo Chico Hard Seltzer, the Blue Moon family and Peroni. Underlying COGS per hectoliter increased 6.9%, driven by cost inflation, including higher input and transportation costs, mix impacts from premiumization and volume deleverage. However, with the benefit of our robust hedging and cost savings programs, we were able to mitigate some of the inflationary pressure. Underlying MG&A increased 2.9%, largely due to higher marketing investments versus 2020. In the second half of 2021, we began to progressively increase marketing spend with the resumption of more sports and live events. MG&A increases were also driven by lacking targeted cost mitigation actions in 2020 due to the coronavirus pandemic and were partially offset by our cost savings program. In 2021, we delivered approximately $220 million across MG&A and cost of goods sold in our three-year $600 million cost savings program.
Over the 2020 through 2021 period, we have delivered an aggregate $490 million, taking us well on track to meet our $600 million target in total gross savings by the end of 2022. As a result of these factors, underlying EBITDA decreased 3.5%. This was slightly below our guidance of approximately flat and was driven by the on-premise softness as a result of the Omicron variant. However, underlying net income before income taxes was approximately flat for the year as a result of lower interest and depreciation, 5.6% underlying EPS growth compared to the prior year. Underlying free cash flow was $1.1 billion for the year, a decrease of $183 million from the prior year. This decline can be wholly attributed to the repayment of approximately $100 million of taxes related to various government-sponsored deferral programs related to the pandemic, which benefited the prior year free cash flow by $150 million, creating a negative swing factor of about $250 million on our 2021 free cash flow. Excluding these changes, net working capital movements were favorable to the prior year. Capital expenditures paid were $523 million this year, down from $575 million in 2020 and focused on expanding our production capacity and capability programs such as the previously announced Golden Brewery modernization project, our new Montreal Brewery, which opened during the fourth quarter and expanding our hard seltzer capacity in Canada and the U.K. We have continued to make great progress strengthening the balance sheet and improving our financial flexibility. We reduced our net debt by nearly $1 billion in 2021 and our trailing 12-month net debt to underlying EBITDA ratio is 3.14 times better than our guidance of approximately 3.25 times and down from 3.5 times as of the end of December 2020 and down substantially from 4.8 times in 2016 at the time of the MillerCoors acquisition. We ended the year with strong borrowing capacity with no borrowings outstanding on our $1.5 billion U.S. revolving credit facility.
That takes me to our outlook, which calls for both top and bottom line growth in 2022 for the first time in over a decade. Before we go through the guidance, I wanted to note that year-over-year growth rates are in constant currency basis. We are adjusting the metrics providers to best align with the goals of our revitalization plan. Also and consistent with our historical commentary, uncertainty as it pertains to the coronavirus and its variants remains to varying degrees by market, if on-premise restrictions are increased and/or reinstated in some of our larger markets, this could have a significant impact on our financial performance during that period. For 2022, we expect to deliver mid-single-digit net sales revenue growth. We expect to deliver high single-digit underlying income before income taxes growth and underlying free cash flow of $1 billion plus or minus 10%. This guidance implies that we will ship to consumption in the U.S. for the year. In terms of phasing, recall that we will start latching the economies to deprioritization and rationalization in the second quarter of 2022. In addition, we expect to face continued inflationary pressures, including transportation and material costs. While we have levers to offset inflation, including pricing, mix from premiumization and our cost savings and hedging program, these headwinds are expected to continue to pressure gross margin that have been built into our guidance. And we expect to continue to invest behind our core brands and key innovations, which entails increasing the level of marketing investment from the prior year. Given the on-premise restrictions in the first half of 2021, we expect greater year-over-year increases in marketing spend in the first half of 2022. We also intend to invest behind our capabilities with cash, capital expenditures anticipated to return to more normal pre-pandemic levels. Other guidance metrics include underlying depreciation and amortization of approximately $750 million, plus or minus 5%; reported net interest expense of $265 million, plus or minus 5%; and an underlying effective tax rate in the range of 22% to 24%.
Turning to capital allocation. Our priorities remain to invest in our business to drive top line growth and efficiencies, reduce net debt and to return cash to shareholders. We are maintaining our target net debt to underlying EBITDA ratio of below three times by the end of 2022, and we have a strong desire to maintain and, in time, upgrade our investment grade rating. And on February 22, 2022, the Board declared a dividend of $0.38 per share, an increase of 12%. Also on February 17, 2022, the Board of Directors approved a share repurchase program, authorizing the company to purchase up to an aggregate of $200 million of our company's Class B common stock through March 31, 2026, with repurchases primarily intended to offset annual employee equity award grants. In closing, 2021 was a volatile year, but it did not deter us from executing our plan. The progress we have made has laid a strong foundation to achieve our goals of sustainable long-term top and bottom line growth and our 2022 guidance demonstrates our confidence we are on the right path.
And with that, we look forward to answering your questions. Operator?
