Tracey Joubert
Chief Financial Officer at Molson Coors Beverage
Thank you, Gavin, and hello everyone. In 2022, on a constant-currency basis, we grew net sales revenue 7%, exceeding our guidance and underlying pretax income 7.6%, delivering our guidance. This performance resulted in record underlying pretax income levels for the fourth quarter, which many questions, we could achieve. But we delivered with underlying pretax income at 51.1%. We did this despite the challenging global macroeconomic environment and softer beer industry, all while continuing to invest in our business and enhancing our financial flexibility, and returning cash to shareholders.
Now before I take you through our results in [Indecipherable] as a reminder we discuss our business performance on a constant-currency basis. However, currency impact from the strong U.S. dollar did have a meaningful impact on our topline and resulted in a net sales revenue headwind to reported results of $89 million in the fourth quarter and $298 million for the year.
Now let's talk about some of the drivers of the fourth quarter performance. Our ability to take strong global mix pricing and deliver positive sales mix across both business units led to 11.4% net sales per hectoliter growth. Financial volumes declined 6.9%, the biggest drivers were lower brand volumes in the Americas given the industry softness as well as cycling a significant prior year distributor inventory build-in the U.S. Conversely, EMEA and APAC financial volumes increase resulting from the fairly resilient consumer in the U.K. and cycling Omicron-related restrictions in the prior year period.
Turning to costs, as expected, inflationary pressures continue to be a headwind in the quarter, driving underlying COGS per hectoliter at 11.5%. As you can see from the slides we back COGS into three areas. Cost inflation other, which includes cost inflation, depreciation, cost-savings, and other items, mix and deleverage. The cost inflation bucket drove approximately 2/3 of the increase and was mostly due to higher material, energy, and transportation costs. Cost-savings provided some offsets and we are pleased to report that we completed another successful cost-savings program delivering over $600 million in targeted savings from 2020 to 2022.
Now we also have an extensive hedging program, and it has helped to mitigate some of these cost pressures. But remember, certain costs like freight and raw materials, conversion costs, and third-party manufacturing contracts, cannot be hedged, and our January linked inflationary indexes like PPI. And these costs tend to be the two contributors to COGS. Other COGS per hectoliter drivers were mix and volume deleverage. Mix was about 23% of the increase and it was largely due to premiumization. And while premiumization is a negative for COGS, it is a positive for gross margin per hectoliter.
Turning to marketing, as planned, it was down for the quarter. That said, we continued to put strong commercial pressure behind our core brands and innovations and the Year-over-Year comparisons simply reflects the significantly higher spend in the prior year period when investments exceeded fourth Quarter 2019 levels.
Now, before I move on to our business unit performance, I'll ask you call-out to other assets on our P&L in the quarter. We had a $15 million discrete tax benefit, which resulted in a lower-than-anticipated underlying effective tax rate for the quarter and for the full year. We do not expect this to repeat. Also, we recorded an $845 million non-cash partial impairment charge in America due to macroeconomic factors like rising interest rates and increased cost inflation that reduced our future expected cash flows in the near-to-medium term. This charge was a result of our annual goodwill impairment reduced and is excluded from our underlying results.
Now let's look at our quarterly results for our business units. In the Americas, net sales revenue was up 0.4%, while underlying pretax income grew 29.8%. Americas net sales per hectoliter increased by 12.1% benefiting from strong net pricing growth and a favorable U.S. brand mix. Financial volumes declined 10.5%, this was the result of lower brand volumes, which were down 6.6%. They were also down due to cycling significant distributor inventory, both in the U.S. in the prior year period we discussed last quarter.
Taking a deeper look at brand volumes by region, the U.S. account 6.8%. Now, we had some timing items that impacted this performance. First, there was one less trading day-in the quarter. So the trading day-adjusted basis U.S. brand volumes were down 5.4%. Additionally, as with any price increase, we experienced volume load-in from the full-price increase that shifted volume out-of-the fourth quarter. Looking at U.S. brand volume by-product segments our economy and premium portfolios were down high-single-digits on a trading day-adjusted basis, despite industry trend improvement in economy and industry share gains in premium. But our best premium brands grew in the quarter, up low-single digits.
In Canada, industry softness resulted in brand volume declines of 5% and in Latin-America they were down 6.9%. On the cost side, Americas underlying COGS per hectoliter increased 11.4% while MG&A decreased 12.6%. The drivers would [Indecipherable] to those discussed for the consolidated results.
Turning to EMEA and APAC net sales revenue increased 20.3% and underlying pretax income increased 515% or over $23 million. Positive net pricing, favorable sales mix and record premiumization, fueled by the strength of brands [Indecipherable] and positive channel mix drove net sales for hectoliter growth of 14.9%. Financial volumes grew 4.7% on the space of premium portfolio, including the benefits of cycling Omicron related restrictions in the prior year period. Brand volumes declined 1%.
While brand volumes grew in the U.K. and Central and Eastern Europe, they were more than offset by declines in our license and export business in-markets, impacted by the Russian war in Ukraine. On the cost side, underlying COGS per hectoliter increased 16.5%. This is largely due to cost inflation mainly higher material, transportation and energy costs as well as mix from premiumization.
Now let's look at the full-year. Net sales per hectoliter were at 9.3% on strong global traffic and positive sales mix across both business units. Financial volumes declined 2.1%, essentially in-line with brand volumes, which were down 2%. Financial volume declines were [Phonetic] due to the Americas where brand volumes declined 3.3%, on-top to [Indecipherable], and Canada beer industry and also the Quebec labor strike that impacted the second and third quarters of 2022. Conversely, financial and brand volumes were up in the U.K., given the resilience of the U.K. consumer in the quarter and cycling prior year-on premise restrictions.
Turning to profitability, underlying cost per hectoliter increased 11% and when looking at our costs back, that's the biggest driver was cost inflation, which was over 60% of the increase and due to similar drivers as in the fourth quarter. And this was followed by mix, which contributed to nearly 30% of the increase. Notably, underlying COGS per hectoliter increased very significantly by business unit. With the Americas at approximately 10% and EMEA and APAC [Technical Issues]. MG&A increased 3.7%. This is mainly due to higher people-related G&A costs marketing spend declined for the year, but we continue to invest strongly behind our core brands and key innovations. And in fact the marketing business was up for the full-year when excluding discontinued brands. We delivered underlying free-cash flow of $853 million the year. This was down $130 million, primarily due to unfavorable timing of working capital and higher cash capital expenditures, partially offset by lower cash taxes. Underlying free cash flow was below our guidance range, largely due to unfavorable movements in working capital compared to our initial expectations. We do not expect these working capital movements to impact us in 2023.
Turning to capital allocation, our priorities remain to invest in our business to drive top-line growth and efficiencies, reduced net debt and return cash to shareholders. Capital expenditures paid was $661 million for the year, up $139 million, as we continue to expand our capabilities as Gavin discussed. We continued to improve the health of our balance sheet by reducing net debt by $562 million during the year.
We ended the year with net debt of $6 billion, which is essentially all FX rate. Our exposure to floating-rate debt is limited to commercial paper and revolving credit facility, which had a zero balance outstanding as of year-end. We achieved a net-debt to underlying EBITDA ratio guidance of under three times coming in at 2.9 times at year end. This is a dramatic improvement from the 4.8 times in 2016 at the time of the MillerCoors acquisition.
We remain committed to maintaining anytime, improving our investment-grade rating and strive towards a longer-term leverage ratio target of approximately 2.5 times.
And we continued our long history of returning cash to our shareholders with a quarterly cash dividend of $0.38 per share paid in the fourth quarter. And on February 20th, our Board declared a quarterly cash dividend of $0.41 per share, an increase of 8%. This is our second increase since we reinstated the dividend in 2021, and it aligns with our intention to sustainably increase the dividend.
Now, let's discuss our outlook and recall that we provide a year-over-year growth rate in constant currency. Our 2023 guidance anticipates continued growth despite softness in the beer industry and the impact of continued global inflationary cost pressures. We expect low-single-digit growth for both net sales revenue and underlying pretax income and underlying free cash flow of $1 billion, plus or minus 10%.
Now, let me walk through some of the underlying assumptions. On the top line, we expect growth to be more rate than volume driven as we continue to benefit from the strong global net pricing that we took in 2022 as well as premiumization. As a reminder, in 2022 in the U.S., our largest market, we took an average 5% increase in the first quarter and another 5% beginning in September and into the fourth quarter.
In terms of cost, we expect inflation to continue to be a headwind. But, with our ongoing cost savings efforts -- pricing and continued premiumization, we expect to grow gross margin per hectoliter in both business units. We also remain comfortable with our hedge commodities coverage in 2023. But again, there are certain costs, as I discussed, that cannot be hedged and can be material contributors to COGS. We also expect to continue to strongly support our core brands and key innovations and plan to increase marketing dollar investments in 2023 versus the prior year.
As for our secondary guidance metrics, we expect capital expenditures incurred of $700 million, plus or minus 5%; underlying depreciation and amortization of $690 million, plus or minus 5%; net interest expense of $240 million, plus or minus 5%; and an underlying effective tax rate in the range of 21% to 23%.
In closing, we are proud of our accomplishments in 2022, particularly amidst significant global inflationary pressures. We remain focused on continuing to navigate the dynamic macroeconomic environment. And we are pleased to have a strong portfolio of brands that play across all price segments and the financial flexibility that enables us to continue to invest prudently in our business to support long-term growth.
With that, we look forward to answering your questions. Operator?
