Market Overview

BECLE, S.A.B. de C.V. Reports Second Quarter 2017 Earnings

Share:

BECLE, S.A.B. de C.V. ("Cuervo", "BECLE" or the "Company") (BMV: CUERVO)
today announced financial results for the quarter ended June 30, 2017.

All figures in this release are derived from the Interim Consolidated
Financial Statements of the Company as of June 30, 2017 and for the
three-month and six-month periods then ended and are prepared in
accordance with International Accounting Standard 34 "Interim Financial
Reporting" of the International Financial Reporting Standard (IFRS),
which have been published in the Bolsa Mexicana de Valores (BMV).

Second Quarter 2017 Highlights

  • Net Sales decreased by 8.1% to $6,924 million pesos;
  • Volume decreased 6.4%, with Mexican volumes growing 18.4%;
  • Gross profit increased 1.6% to $4,744 million pesos;
  • Operating profit increased 17.2% to $2,158 million pesos; and
  • EBITDA increased 18.2% to $2,261 million pesos. This resulted in an
    EBITDA margin of 32.6%.

First Half 2017 Highlights

  • Net Sales decreased by 4.2% to $11,855 million pesos;
  • Volume decreased 8.0%, with Mexican volumes growing 10.2%;
  • Gross profit increased 4.3% to $7,960 million pesos;
  • Operating profit increased 24.1% to $3,656 million pesos; and
  • EBITDA increased 24.4% to $3,870 million pesos. This resulted in an
    EBITDA margin of 32.6%.

All abovementioned increases and decreases have been determined in
comparison to the corresponding period in the precedent year.

"Sales volumes continued to be pressured by the impact of the January
price increase. However, strong volumes in Mexico, along with a
favorable gross margin and spending levels on target with plan drove an
18.2% increase in EBITDA during the second quarter. We remain confident
with our growth plan and opportunities for 2017."

Second Quarter 2017 Results

During the second quarter of 2017, volume growth of 18.4% in Mexico
partially offset a 13.0% decrease in sales volumes in the United States
and Canada and a 4.4% decrease in the Rest of World (RoW) region. These
volumes continued to be impacted by the price increase on January 1,
2017, which led to higher volume shipments during the fourth quarter of
2016 as customers purchased in advance of the price increase, as well as
consumer adjustments to pricing and lower volumes in Other Spirits
category. As a result, consolidated second quarter sales volumes were
5.8 million nine-liter cases, down 6.4% from 6.2 million nine-liter
cases in the same period last year.

Volume by Region 2Q17 (in 000s nine-liter cases)

REGION   2Q17     2Q16     (VAR.% YOY)     1Q17     (VAR.% QOQ)
US & CANADA   3,876     4,456     -13.0 %     2,166     79.0 %
MEXICO 1,344 1,136 18.4 % 956 40.7 %

ROW

588

615

-4.4

%

441

33.2

%

TOTAL 5,809 6,207 -6.4 % 3,563 63.0 %

Net sales decreased 8.1% to $6,924 million pesos compared to the same
period in 2016, primarily reflecting the impact of the January 1, 2017
price increase and volume growth in Mexico. In the second quarter of
2017, the US and Canada region represented 73.4% of total net sales for
the Company. Net sales in this region decreased 12.2% versus the same
period last year, largely explained by the impact to volumes of the
January price increase, partially offset by higher prices and the
favorable effect of foreign exchange. In the same period, Mexico
represented 15.3% of total net sales and net sales in the region
increased by 7.2% over the prior year period. Finally, net sales of the
RoW represented 11.3% of total net sales and increased its net sales by
2.7% over the second quarter of 2016.

Net Sales by Region 2Q17 (in MXN$ millions)

REGION   2Q17     2Q16     (VAR.% YOY)     1Q17     (VAR.% QOQ)
US & CANADA   5,080     5,783     -12.2 %     3,346     51.8 %
MEXICO 1,060 989 7.2 % 960 10.4 %

ROW

784

764

2.7

%

624

25.7

%

TOTAL 6,924 7,536 -8.1 % 4,930 40.4 %

Volume of Jose Cuervo decreased 5.0% compared the same period in 2016
and represented 32.5% of Total Volume for the second quarter of 2017.
The Company's Other Tequila brands represented 12.1% of Total Volume
with volume increasing 1.7% compared to the prior year period. The
Company's Other Spirits brands represented 14.3% of total volume in the
period and experienced a 22.0% decrease in volume over the second
quarter last year. Volume of Non-alcoholic and Other represented 24.1%
of Total Volume and volume increased by 5.5% compared to the prior year
period. Finally, volume of ready-to-drink (RTDs) represented 17.0% of
Total Volume and decreased by 13.0% compared to the prior year period.

Volume by Category 2Q17 (in 000s nine-liter cases)

CATEGORY     2Q17     2Q16     (VAR.% YOY)     1Q17     (VAR.% QOQ)
JOSE CUERVO     1,888     1,988     -5.0 %     1,123     68.2 %
OTHER TEQUILAS 705 693 1.7 % 499 41.3 %
OTHER SPIRITS 829 1,064 -22.0 % 666 24.5 %
NON-ALCOHOLIC & OTHER 1,398 1,325 5.5 % 767 82.1 %

RTD

989

1,136

-13.0

%

506

95.6

%

TOTAL 5,809 6,207 -6.4 % 3,562 63.1 %

Net Sales of Jose Cuervo represented 39.5% of Total Net Sales for the
second quarter of 2017 and reported a decrease in its Net Sales by 2.1%
compared the same period in 2016. The Company's Other Tequila brands
represented 19.6% of Total Net Sales and increased its Net Sales 1.0%
compared to the prior year period. The Company's Other Spirits brands
represented 16.9% of Total Net Sales in the period and reported a 12.6%
decrease in Net Sales compared to the second quarter last year. Net
sales of Non-alcoholic and Other represented 12.6% of Total Net Sales
and reported a decrease in net sales of 27.2% compared to the prior year
period. Finally, net sales of ready-to-drink (RTDs) represented 11.5% of
total net sales and reported a decrease of 8.1% compared to the prior
year period.

Net sales by Category 2Q17 (in MXN$ millions)

CATEGORY   2Q17     2Q16     (VAR.% YOY)     1Q17     (VAR.% QOQ)
JOSE CUERVO   2,735     2,795     -2.1 %     1,706     60.4 %
OTHER TEQUILAS 1,355 1,342 1.0 % 999 35.7 %
OTHER SPIRITS 1,169 1,337 -12.6 % 948 23.3 %
NON-ALCOHOLIC & OTHER 871 1,197 -27.2 % 841 3.6 %

RTD

794

863

-8.1

%

436

81.8

%

TOTAL 6,924 7,536 -8.1 % 4,930 40.4 %

Gross profit during the second quarter of 2017 increased 1.6% over the
same period in 2016 to $4,744 million pesos. Gross margin as a percent
of sales was 68.5% for the second quarter of 2017 compared to 61.9% for
the second quarter of 2016. Gross margin was positively impacted by an
approximate $200 million pesos benefit from the adjustment for
unrealized profit for inventory transferred from Mexico to the US,
reversing a previously accrued negative impact in the fourth quarter of
2016, along with elimination of profit in transfer pricing.
Additionally, a favorable pricing effect traceable to US and Mexico
price increases, product mix and translation effect all benefitted gross
margin.

Advertising, marketing and promotion (AMP) stood on target, decreasing
18.6% to $1,626 million pesos compared to the second quarter of 2016. As
a percentage of Net Sales, AMP declined to 23.5% from 26.5% in the prior
year period.

During the second quarter of 2017, operating profit increased 17.2% to
$2,158 million pesos compared to the same period last year. Operating
margin as a percentage of sales increased to 31.2% as compared to 24.4%
in the prior year period. The increased operating margin reflects
increases in gross margin as well as reduced AMP as a percentage of
revenue, partially offset by higher distribution and selling and
administrative costs, both as a percentage of revenue.

EBITDA in the second quarter of 2017 increased by 18.2% to $2,261
million pesos compared to $1,913 million pesos during the second quarter
of 2016.

The continued appreciation of the peso versus the dollar during the
quarter impacted both monetary and non-monetary assets, which
contributed to a $699 million pesos negative impact to consolidated net
income. As a result, consolidated net income in the second quarter of
2017 was $1,000 million pesos, a 9.7% decline compared to the prior year
period. The main driver of the above mentioned impact is the effect of
peso appreciation versus the US dollar on the IPO proceeds and excess
cash that are kept in US dollars, which is modestly offset by debt that
is also dollar denominated.

First Half 2017 Results

During the first half of 2017, the volumes were impacted by the price
increase on January 1, 2017, which led to higher volume shipments during
the fourth quarter of 2016 as customers purchased in advance of the
price increase. As a result, first half of 2017 sales volumes were 9.4
million nine-liter cases, down 8.0% from 10.2 million nine-liter cases
in the same period last year. Volumes were also impacted by lower
volumes in the Other Spirits category and Tequila ready-to-drink
segment. The volume decline was primarily driven by a 14.5% decrease in
Sales Volumes in the United States and Canada and a 0.4% decrease in
rest of world (RoW) region partially offset by 10.2% growth in Mexico.

Volume by Region 1H17 (in 000s nine-liter cases)

REGION   1H17     1H16     (VAR.% YOY)
US & CANADA   6,042     7,066     -14.5 %
MEXICO 2,300 2,086 10.2 %

ROW

1,029

1,034

-0.4

%

TOTAL 9,371 10,187 -8.0 %

Net Sales decreased 4.2% to $11,855 million pesos compared to the same
period in 2016, primarily reflecting the impact of the January 1, 2017
price increase. In the first half of 2017, the US and Canada region
represented 71.1% of Total Net Sales for the Company. Net Sales in this
region decreased 8.9% versus the same period last year, largely
explained by the impact of advanced purchases ahead of the January price
increase and volume declines in the Other Spirits category, partially
offset by higher prices and the favorable effect of foreign exchange of
the Peso against the Dollar. In the same period, Mexico represented
17.0% of Total Net Sales and net sales in the region increased by 12.1%
over the prior year period. Finally, Net Sales of the RoW represented
11.9% of Total Net Sales and increased its net sales by 6.1% over the
first half of 2016.

Net Sales by Region 1H17 (in MXN$ millions)

REGION   1H17     1H16     (VAR.% YOY)
US & CANADA   8,426     9,249     -8.9 %
MEXICO 2,021 1,803 12.1 %

ROW

1,408

1,326

6.1

%

TOTAL 11,855 12,378 -4.2 %

Volume of Jose Cuervo represented 32.1% of Total Volume for the first
half of 2017 and decreased its volume by 8.0% compared to the same
period in 2016. The Company's Other Tequila brands represented 12.8% of
total volume and decreased its volume 1.5% compared to the prior year
period. The Company's Other Spirits brands represented 16.0% of total
volume in the period and experienced a 13.8% decrease in volume over the
first half of last year. Volume of Non-alcoholic and Other represented
23.1% of total volume and the category decreased its volume by 4.9%
compared to the prior year period. Finally, volume of ready-to-drink
(RTDs) represented 16.0% of total volume and its volume decreased by
10.9% compared to the prior year period.

Volume by Category 1H17 (in 000s nine-liter cases)

CATEGORY   1H17     1H16     (VAR.% YOY)
JOSE CUERVO   3,011     3,274     -8.0 %
OTHER TEQUILAS 1,204 1,223 -1.5 %
OTHER SPIRITS 1,496 1,735 -13.8 %
NON-ALCOHOLIC & OTHER 2,165 2,276 -4.9 %

RTD

1,495

1,679

-10.9

%

TOTAL 9,371 10,187 -8.0 %

Net Sales of Jose Cuervo represented 37.5% of Total Net Sales for the
first half of 2017 and reported a decrease in its net sales by 1.9%
compared to the same period in 2016. The Company's Other Tequila brands
represented 19.9% of Total Net Sales and increased its net sales 2.0%
compared to the prior year period. The Company's Other Spirits brands
represented 17.9% of Total Net Sales and reported a decrease in net
sales of 6.5% compared to the first half last year. Net Sales of
Non-alcoholic and Other represented 14.4% of Total Net Sales and
reported a decrease in Net Sales of 14.6% compared to the prior year
period. Finally, net sales of ready-to-drink (RTDs) represented 10.4% of
Total Net Sales and reported a decrease of 3.5% compared to the prior
year period.

Net Sales by Category 1H17 (in MXN$ millions)

CATEGORY   1H17     1H16     (VAR.% YOY)
JOSE CUERVO   4,441     4,527     -1.9 %
OTHER TEQUILAS 2,354 2,307 2.0 %
OTHER SPIRITS 2,117 2,263 -6.5 %
NON-ALCOHOLIC & OTHER 1,713 2,006 -14.6 %

RTD

1,230

1,275

-3.5

%

TOTAL 11,855 12,378 -4.2 %

Gross profit during the first half of 2017 increased 4.3% over the same
period in 2016 to $7,960 million pesos. Gross margin as a percent of net
sales was 67.1% for the first half of 2017 compared to 61.7% for the
first half of 2016. Gross margin was positively impacted by an
approximate $200 million pesos benefit from the adjustment for
unrealized profit for inventory transferred from Mexico to the US,
reversing a previously accrued negative impact in the fourth quarter of
2016, along with elimination of profit in transfer pricing. Gross margin
was also positively impacted by higher pricing traceable to US and
Mexico price increases, product mix and translation effect.

Advertising, marketing and promotion (AMP) spending stood on target,
decreasing 17.5% to $2,552 million pesos compared to the first half of
2016.

During the first half of 2017, operating profit increased 24.1% to
$3,656 million pesos compared to the same period of last year. Operating
margin as a percentage of sales increased to 30.8% as compared to 23.8%
in the prior year period. The increased operating margin reflects
increases in gross margin as well as reduced AMP as a percentage of
revenue, which collectively exceed increases in SG&A as a percentage of
revenue.

EBITDA in the first half of 2017 increased by 24.4% to $3,870 million
pesos compared to $3,111 million pesos during the first half of 2016.

The appreciation of the peso versus the dollar impacted both monetary
and non-monetary assets, which contributed to a $1,557 million pesos
financial results impact to consolidated net income during the first
half of 2017. As a result, consolidated net income in the second quarter
of 2017 was $1,437 million pesos, an 18.5% decrease compared to the
prior year period. The main driver of the above mentioned impact is the
effect of peso appreciation versus the US dollar on the IPO proceeds and
excess cash that are kept in US dollars, which is modestly offset by
debt that is also dollar denominated.

Balance Sheet and Cash Flow

As of June 30, 2017, the Company did not experience material changes in
its debt position, maintaining as the only long term debt the $500
million U.S. dollar bond due in 2025. Net cash was $10,325 million pesos
at June 30, 2017, reflecting cash and equivalents of $19,171 million
pesos (which includes IPO proceeds) relative to total debt of $8,846
million pesos.

Company's total liabilities as of June 30, 2017 amounted to $15,838
million pesos, a decrease of 10.2% compared to December 31, 2016. This
decrease is primarily explained by a reduction in trade accounts payable
during the second quarter of 2017 as well as the changes derived from
the peso appreciation.

During the second quarter of 2017, the Company invested $215 million
pesos in capital expenditures.

Conference Call

The Company plans to host a conference call for investors at 8:00 a.m.
Central Time (9:00 a.m. Eastern Time) on Tuesday, July 25, 2017, to
discuss the Company's second quarter 2017 financial results. Interested
parties may also listen to a simultaneous webcast of the conference call
by logging onto the Company's website at www.ircuervo.com.mx
in the Investor Relations section.

Second Quarter 2017 Earnings Conference Call Details:

 
    Date:     Tuesday, July 25, 2017
 
Time: 8:00 a.m. Central Time (9:00 a.m. Eastern Time)
 
Dial-In:  
Mexico Toll-free 001 800 514 1067
 
Mexico City Local +52 55 4777 2674
 
U.S. Toll-free 1-800-946-0706
 
Toll/International 1-719-325-4818
 
U.K. Toll-free 0 800 404 7655
 
U.K. London Local +44 (0) 20 8150 0794
 
Conference ID: 2754138
 
Webcast:

http://public.viavid.com/index.php?id=125380
or www.ircuervo.com

For those unable to participate during the live broadcast, a replay of
the webcast will be available for approximately 30 days following the
call.

About the Company

BECLE, S.A.B. de C.V. is a globally renowned Company in the spirits
industry and the world's largest producer of tequila. Its extraordinary
portfolio of over 30 spirit brands, some of them owned, some of them
agency brands distributed only in Mexico, has been developed throughout
the years to participate in key categories with high growth perspective,
serving the world's most relevant alcoholic beverage markets and
attending key consumer preferences and tendencies. The portfolio
strength of Cuervo is based in the profound legacy of its iconic brands
internally developed as Jose Cuervo®, combined with
complimentary acquisitions such as Three Olives®, Hangar 1®,
Stranahan's®, Bushmills® or Boodles®,
as well as a key focus on innovation, that during the years has helped
Cuervo to internally develop renowned brands such as 1800®,
Maestro Tequilero®, Maestro Tequilero® Dobel®,
Centenario®, Kraken®, Jose Cuervo® Margaritas
and B:oost®, among Cuervo's brands, some of them are sold and
distributed in more than 85 countries.

EBITDA

EBITDA is a measure used in the Company's financial analysis that are
not recognized under IFRS but are calculated from amounts that derive
from the Company's Financial Statements. We calculate EBITDA as net
income plus depreciation and amortization, income tax expense, and
interest expense, less interest income, plus foreign exchange loss
(gain).

EBITDA is not a IFRS measure of liquidity or performance, nor is EBITDA
recognized financial measures under IFRS. We believe that EBITDA can be
useful to facilitate comparisons of operating performance between
periods on a combined basis, but these metrics may be calculated
differently by other issuers. EBITDA should not be construed as
alternatives to (i) net income as an indicator of the Company's
operating performance or (ii) cash flow from operating activities as a
measure of the Company's liquidity.

Disclaimer

This report contains certain forward-looking statements which are based
on Cuervo's current expectations and observations. Actual results
obtained may vary significantly from these estimates. The information
related to future performance contained in this press release should be
read jointly with the risks included in the "Risk Factors" section of
the Mexican prospectus filed with the Comisión Nacional Bancaria y de
Valores (Mexican National Banking and Securities Commission). This
information, as well as future statements made by Cuervo or by any of
its legal representatives, either written or verbally, may vary
significantly from the actual results obtained. These forward-looking
statements speak only as of the date on which they are made, and no
assurance can be made as to the actual results obtained. Cuervo
undertakes no obligation and does not intend to update or review any of
such projections and estimations, whether as a result of new
information, future developments and other related events.

 

Profit and Loss Statement

         
Second Quarter Ended June 30, 2017 Second Quarter Ended June 30, 2016 Year over Year Variance
(Ps$ in millions, except per share amounts)     % of net sales     % of net sales $   %
Net Sales 6,924   7,536   (611 )   (8.1 )
Cost of goods 2,181   31.5 2,869 38.1 (688 ) (24.0 )
Gross profit 4,744 68.5 4,667 61.9 77 1.6
Advertising, marketing & promotion 1,626 23.5 1,997 26.5 (371 ) (18.6 )
Distribution 234 3.4 200 2.7 34 17.0
Selling and administrative 686 9.9 595 7.9 91 15.3
Other (expenses) income, net 40   0.6 34 0.5 6   17.0  
Operating profit 2,158 31.2 1,841 24.4 317 17.2
Financial results, net 699 10.1 267 3.5 432 161.5
Other non-recurring income (loss) 0.0 0.0 0 NM
Equity method (gain) (5 ) -0.1 0 0.0 (5 ) NM  
Profit before tax 1,464 21.1 1,574 20.9 (110 ) (7.0 )
Total income taxes 464   6.7 466 6.2 (2 ) (0.5 )
Consolidated net income 1,000 14.4 1,107 14.7 (108 ) (9.7 )
Non-controlling interest 0   0.0 0 0.0 NM   NM  
Net income to equity holders of the company 1,000 14.4 1,107 14.7 (108 ) (9.7 )
Other comprehensive income, net of income tax (586 ) -8.5 825 10.9 (1,411 ) NM  
Net comprehensive income 413 6.0 1,933 25.6 (1,519 ) (78.6 )
 
Depreciation & Amortization 103 72
EBITDA 2,261 32.6 1,913 25.4 347 18.2
 
Earnings per share 0.27
 
Shares (in millions) used in calculation of earnings per share 3,650
 

Profit and Loss Statement

     
Six months Ended June 30, 2017 Six months Ended June 30, 2016 Year over Year Variance
(Ps$ in millions, except per share amounts)     % of net sales     % of net sales $   %
Net Sales 11,855   12,378   (524 )   (4.2 )
Cost of goods 3,895   32.9 4,746 38.3 (851 ) (17.9 )
Gross profit 7,960 67.1 7,633 61.7 327 4.3
Advertising, marketing & promotion 2,552 21.5 3,091 25.0 (540 ) (17.5 )
Distribution 434 3.7 398 3.2 36 9.0
Selling and administrative 1,272 10.7 1,112 9.0 159 14.3
Other (expenses) income, net 46   0.4 84 0.7 (38 ) (45.1 )
Operating profit 3,656 30.8 2,947 23.8 709 24.1
Financial results, net 1,557 13.1 430 3.5 1,127 262.1
Other non-recurring income (loss) 0.0 0.0 NM NM
Equity method (gain) (5 ) 0.0        
Profit before tax 2,103 17.7 2,517 20.3 (413 ) (16.4 )
Total income taxes 667   5.6 755 6.1 (88 ) (11.7 )
Consolidated net income 1,437 12.1 1,762 14.2 (325 ) (18.5 )
Non-controlling interest 0   0.0 0 0.0 NM   NM  
Net income to equity holders of the company 1,436 12.1 1,762 14.2 (325 ) (18.5 )
Other comprehensive income, net of income tax (2,082 ) -30.1 865 7.0 (2,946 ) NM  
Net comprehensive income (646 ) -9.3 2,626 21.2 (3,272 ) NM
 
Depreciation & Amortization 214 164
EBITDA 3,870 32.6 3,111 25.1 759 24.4
 
Earnings per share 0.42
 
Shares (in millions) used in calculation of earnings per share 3,421
 

Balance Sheet

     

(Ps$ in millions,)

June 30, 2017 December 31, 2016
   
Assets
 
Cash and cash equivalents 19,171 5,128
Accounts receivable, net 4,947 6,396
Inventories, net 7,132 5,943
Other current assets 2,967 2,258
 
 
Total Current Assets 34,216 19,725
 
Non-current inventories 3,249 3,178
Property, plant and equipment, net 4,358 4,641
Intangible assets and trademarks, net 10,678 11,771
Goodwill 5,502 5,992
Other assets 418 380
 
Total Long-Term Assets 24,205 25,963
   
 
Total Assets 58,422 45,688
 
Liabilities & Stockholders' Equity
 
Current installment of notes payable to Banks 46 53
Trade accounts payable 1,628 2,407
Accruals 2,112 1,708
Other liabilities 457 288
 
 
Total current liabilities 4,243 4,457
 
Long term debt, excluding current interest payable 8,846 10,207
Environmental reserve 102 118
Other long-term liabilities 106 95
Deferred income taxes 2,542 2,759
 
Total Long-Term Liabilities 11,595 13,179
 
Total Liabilities 15,838 17,636
 
 
Total controlling interest 42,554 28,022
Non-controlling interest 30 30
 
Total Stockholders'' Equity 42,583 28,052
   
Total Liabilities and Stockholders' Equity 58,422 45,688
 
 
EBITDA Reconciliation Quarter Ended
(Ps$ in millions) June 30, 2017   June 30, 2016
Net Income 1,000 1,107
Plus: Depreciation and Amortization 103 72
Plus: Income taxes 464 466
Plus: Interest expense 105 99
Minus: Interest income (28 ) (5 )
Plus: Foreign exchange loss (gain), net 622 173
Minus: Equity Method (5 ) 0  
EBITDA 2,261 1,913
 
First Half Ended
(Ps$ in millions) June 30, 2017 June 30, 2016
Net Income 1,436 1,762
Plus: Depreciation and Amortization 214 164
Plus: Income taxes 667 755
Plus: Interest expense 200 187
Minus: Interest income (47 ) (11 )
Plus: Foreign exchange loss (gain), net 1,404 254
Minus: Equity Method (5 ) 0  
EBITDA 3,870 3,111

View Comments and Join the Discussion!