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BECLE, S.A.B. de C.V. Reports Second Quarter 2018 Financial Results

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BECLE, S.A.B. de C.V. ("Cuervo", "BECLE" or the "Company") (BMV: CUERVO)
today announced financial results for the quarter ended June 30, 2018.

All figures in this release are derived from the Interim Consolidated
Financial Statements of the Company as of June 30, 2018 and for the
three-month period 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 2018 Highlights

  • Net Sales increased 3.6% to P$7,177 million pesos;
  • Volume decreased 5.9% to 5.5 million nine-liter cases;
  • EBITDA decreased to P$1,787 million pesos. EBITDA margin decreased to
    24.9%, and
  • Consolidated net income increased to P$1,451 million pesos, resulting
    in earnings per share of P$0.40.

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

Management Commentary

Depletion growth was strong across all regions, including continued
positive depletions in the U.S. throughout the second quarter. We also
continued to generate market share gains in both tequila and the spirits
category in Mexico. Net sales increased 4% during the second quarter,
driven by continued favorable sales mix as a result of the strength of
our premium spirits offerings that offset lower reported volumes
compared to the prior year. Volume was lower than the second quarter of
2017 as a result of reduced distributor inventory levels. Our recent
acquisition of Pendleton Whiskey performed well and we will continue to
review opportunities for additional acquisitions across the global
spirits industry. We remain well positioned in each of our markets and
categories, and remain in a strong financial position with significant
capital to successfully execute our long-term growth strategy.

Second Quarter 2018 Results

During the second quarter of 2018, total volume declined 5.9% to 5.5
million nine-liter cases. The year-over-year decline reflected a 7.0%
decline in the United States and Canada, a 2.4% decline in sales volumes
in Mexico and a 6.1% decline in the Rest of World (RoW) region. Volume
decreased in the United States and Canada as a result of reduced
inventory levels across the supply chain and the comparison to a
temporary distributor inventory increase during the second quarter of
2017 related a distributor transition. In Mexico, the volume decline
reflected the comparison to an initial pipeline fill at the Company's
new energy drink distributor during the second quarter of 2017.

Volume by Region 2Q18 (in 000s nine-liter cases)

REGION     2Q18   2Q17   (VAR.% YOY)   1Q18   (VAR.% QOQ)
US & CANADA     3,603   3,876   -7.0%   1,799   100.3%
MEXICO 1,312 1,344 -2.4% 1,119 17.3%

ROW

543

579

-6.1%

515

5.5%

TOTAL 5,459 5,799 -5.9% 3,433 59.0%
 

Net sales increased 3.6% to P$7,177 million pesos compared to the same
period in 2017. Net sales in the United States and Canada decreased 0.4%
versus the same period last year as a result of the lower volumes,
partially offset by favorable sales mix and the positive impact of
foreign currency given the relative strength of the US Dollar vs. the
Mexican Peso. In the same period, Mexico net sales increased by 17.1%
over the prior year period as a result of strong volume growth across
tequila and other spirits categories, partially offset by lower B:oost
energy drink volumes, as well as favorable sales mix. Net sales of the
RoW increased by 11.9% over the second quarter of 2017.

Net Sales by Region 2Q18 (in MXN$ millions)

REGION     2Q18   2Q17   (VAR.% YOY)   1Q18   (VAR.% QOQ)
US & CANADA     5,058   5,080   -0.4%   2,588   95.4%
MEXICO 1,242 1,060 17.1% 981 26.5%

ROW

878

784

11.9%

738

19.0%

TOTAL 7,177 6,924 3.6% 4,307 66.6%
 

Volume of Jose Cuervo decreased 12.1% compared the same period in 2017
and represented 30.2% of total volume for the second quarter of 2018.
The volume decline of Jose Cuervo primarily reflected lower channel
inventory. The Company's Other Tequila brands represented 12.9% of total
volume with volume increasing 4.5% compared to the prior year period.
The Company's Other Spirits brands represented 16.0% of total volume in
the period and experienced a 1.4% increase in volume over the second
quarter of last year. Volume of Non-alcoholic and Other represented
22.6% of total volume and volume declined 11.4% compared to the prior
year period as a result of the comparison to the prior year's initial
pipeline fill to the Company's distributor of B:oost energy drinks in
Mexico. Volume of ready-to-drink (RTDs) represented 18.3% of total
volume and grew by 0.3% compared to the prior year period.

Volume by Category 2Q18 (in 000s nine-liter cases)

CATEGORY     2Q18   2Q17   (VAR.% YOY)   1Q18   (VAR.% QOQ)
JOSE CUERVO     1,647   1,874   -12.1%   1,022   61.2%
OTHER TEQUILAS 706 675 4.5% 506 39.5%
OTHER SPIRITS 874 862 1.4% 713 22.5%
NON-ALCOHOLIC & OTHER 1,235 1,395 -11.4% 780 58.4%

RTD

997

994

0.3%

412

142.2%

TOTAL 5,459 5,799 -5.9% 3,433 59.0%
 

Net Sales of Jose Cuervo decreased 5.0% compared the same period in 2017
and represented 36.2% of total net sales for the second quarter of 2018.
Net sales of the Company's Other Tequila brands increased 8.0% compared
to the prior year period and represented 20.7% of total net sales. The
Company's Other Spirits brands represented 19.3% of total net sales in
the period and reported a 20.2% increase in net sales compared to the
second quarter last of year. Net sales of Non-alcoholic and Other
represented 12.0% of total net sales and reported a decrease in net
sales of 0.8% compared to the prior year period. Net sales of
ready-to-drink (RTDs) represented 11.8% of total net sales and reported
an increase of 6.9% compared to the prior year period. The lower net
sales of Jose Cuervo and Non-alcoholic & Other categories reflected the
lower volumes previously noted, partially offset by higher average net
selling prices.

Net sales by Category 2Q18 (in MXN$ millions)

CATEGORY     2Q18   2Q17   (VAR.% YOY)   1Q18   (VAR.% QOQ)
JOSE CUERVO     2,601   2,738   -5.0%   1,342   93.9%
OTHER TEQUILAS 1,486 1,376 8.0% 908 63.6%
OTHER SPIRITS 1,383 1,151 20.2% 1,105 25.2%
NON-ALCOHOLIC & OTHER 861 868 -0.8% 622 38.4%

RTD

846

791

6.9%

330

156.6%

TOTAL 7,177 6,924 3.6% 3,433 109.1%
 

Gross profit during the second quarter of 2018 decreased 7.5% over the
same period in 2017 to P$4,387 million pesos. Gross margin as a percent
of sales was 61.1% for the second quarter of 2018 compared to 68.5% for
the second quarter of 2017. Gross margin was negatively impacted by the
Company utilizing a lower percentage of internally sourced agave and the
change in treatment of certain promotional and sales support expenses.

Advertising, marketing and promotion (AMP) increased 5.8% to P$1,721
million pesos when compared to the second quarter of 2017. As a
percentage of net sales, AMP increased to 24.0% from 23.5% in the prior
year period. The increase reflects the planned timing of AMP spend
relative to the timing of AMP spend in the prior year period.

Operating profit during the second quarter of 2018 decreased 23.0% to
P$1,661 million pesos compared to the same period last year. Operating
margin as a percentage of sales decreased to 23.1% as compared to 31.2%
in the prior year period, reflecting lower gross margin, and higher AMP
and distribution expense, partially offset by lower selling, general &
administrative expenses (SG&A), all as a percentage of net sales.

EBITDA in the second quarter of 2018 decreased to P$1,787 million pesos
compared to P$2,261 million pesos during the second quarter of 2017.
EBITDA as a percentage of net sales was 24.9% as compared to 32.6% in
the prior year period.

Net Comprehensive Financing result was a positive P$367 million pesos
during the second quarter as a result of the appreciation of the US
Dollar vs. the Mexican Peso during the quarter and the related impact on
the Company's net cash balance, which is primarily held in US Dollars.

Consolidated net income in the second quarter of 2018 was P$1,451
million pesos, compared to P$1,000 million pesos the prior year period.
Earnings per share were P$0.40 in the second quarter of 2018 compared to
P$0.27 in the prior year period.

Balance Sheet and Cash Flow

As of June 30, 2018, Net cash was P$3,541 million pesos, reflecting cash
and equivalents of P$13,438 million pesos relative to total debt of
P$9,897 million pesos. The Company's total debt primarily reflects the
Company's $500 million U.S. dollar bond due in 2025.

During the second quarter of 2018, the Company invested P$116 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 Thursday, July 26, 2018, to
discuss the Company's second quarter 2018 financial results. Interested
parties may also listen to a simultaneous webcast of the conference call
by logging onto the Company's website at www.becle.com.mx
in the Investor Relations – Standing News section.

Second Quarter 2018 Earnings Conference Call Details:

Date:   Thursday, July 26, 2018
 
Time: 8:00 a.m. Central Time (9:00 a.m. Eastern Time)
 
Dial-In: Mexico Toll-free 01 800 926 9157
 
U.S. Toll-free 1-855-493-3490
 
Toll/International 1-720-405-2153
 

Conference ID: 9764668

 
Webcast:

https://engage.vevent.com/rt/beclesadecvao~9764668
or www.becle.com.mx

*Those participating via the webcast will be unable to participate in
live Q&A

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 spirits 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 potential,
to target the world's largest and most profitable alcoholic beverage
markets and to anticipate key consumer preferences and tendencies. The
portfolio strength of Becle is based in the profound legacy of its
iconic internally developed brands such as Jose Cuervo®, combined with
complementary acquisitions such as Three Olives®, Hangar 1®,
Stranahan's®, Bushmills®, Boodles® and Pendleton®, as well as a
relentless focus on innovation that has driven Becle to create and
develop famous brands such as 1800®, Maestro Dobel®, Gran Centenario®,
Kraken®, Tincup®, Authentic Jose Cuervo Margaritas® and B:oost®. Some of
Becle's brands 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 an 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 press release contains certain forward-looking statements which are
based on Becle's current expectations and observations. 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 Becle or by any of its
legal representatives, either in writing 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. Becle
undertakes no obligation and does not intend to update or review any of
such forward-looking statements, whether as a result of new information,
future developments or other related events

Profit and Loss Statement

     

Second Quarter Ended
June 30, 2018

Second Quarter Ended
June 30, 2017

Year over Year
Variance

(Ps$ in millions, except per share amounts)    

% of net
sales

   

% of net
sales

$   %
Net Sales 7,177 6,924 252 3.6
Cost of goods 2,790 38.9 2,181 31.5 610 28.0
Gross profit 4,387 61.1 4,744 68.5 (357) (7.5)
Advertising, marketing & promotion 1,721 24.0 1,626 23.5 95 5.8
Distribution 312 4.4 234 3.4 78 33.5
Selling and administrative 631 8.8 686 9.9 (55) (8.0)
Other (income) expenses, net 62 0.9 40 0.6 22 54.6
Operating profit 1,661 23.1 2,158 31.2 (497) (23.0)
Financial results, net (367) (5.1) 699 10.1 (1,066) (152.5)
Equity Method 0 0.0 (5) (0.1) 5 NM
Profit before tax 2,028 28.3 1,464 21.1 564 38.5
Total income taxes 577 8.0 464 6.7 113 24.3
Consolidated net income 1,451 20.2 1,000 14.4 451 45.1
Non-controlling interest 1 0.0 0 0.0 NM NM
Net income to equity holders of the company 1,451 20.2 1,000 14.4 452 45.2
 
Depreciation & Amortization 126 103
EBITDA 1,787 24.9 2,261 32.6 (473) (20.9)
 
Earnings per share 0.40 0.27
 
Shares (in millions) used in calculation of earnings per share 3,584 3,650
 

Balance Sheet

     
(Ps$ in millions,) June 30, 2018 December 31, 2017
   
Assets
 
Cash and cash equivalents 13,438 19,996
Accounts receivable, net 5,253 7,260
Inventories, net 8,119 7,419
Other current assets 3,061 1,923
 
 
Total Current Assets 29,872 36,598
 
Non-current inventories 5,829 3,878
Property, plant and equipment, net 5,169 5,280
Deferred tax Asset 424 944
Intangible assets and trademarks, net 14,550 11,365
Goodwill 6,163 6,274
Other assets 561   593
 
Total Long-Term Assets 32,696 28,335
   
Total Assets 62,568 64,933
 
Liabilities & Stockholders' Equity
 
Current installment of notes payable to Banks 49 48
Trade accounts payable 1,880 2,106
Accruals 1,165 2,087
Other liabilities 327 862
 
Total current liabilities 3,421 5,103
 
Long term debt, excluding current interest payable 9,849 9,781
Environmental reserve 123 125
Other long-term liabilities 203 119
Deferred income taxes 2,252 2,820
 
Total Long-Term Liabilities 12,427 12,844
 
Total Liabilities 15,848 17,947
 
 
Total controlling interest 46,671 46,931
Non-controlling interest 49 54
 
Total Stockholders'' Equity 46,720 46,985
   
Total Liabilities and Stockholders' Equity 62,568 64,933
 

Cash Flow Statement

 
(Ps$ in millions,)

First Half Ended
June 30, 2018

First Half Ended
June 30, 2017

   
 
Operating Activities
Income before income taxes 2,206 2,103
Items relating to investing activities:
Depreciation and amortization 244 214
Loss on sale of property, plant and equipment 16 9
Equity investment in associate 0 (5)
Net financial income or loss 7 6
Items relating to financing activities:
Interest income (83) (47)
Interest expense 209 200
 
Subtotal 2,599 2,480
Changes in:
Accounts receivable 2,006 1,450
Related parties - 64
Other receivables (606) (782)
Inventories (2,651) (1,260)
Prepayments (479) 49
Trade accounts payable (226) (779)
Other assets 98 (38)
Other liabilities (574) 136
Accruals (921) 404
Income taxes paid (673) (884)
Employee statutory profit (14) (8)
Changes in direct employee benefits (59) 5
(4,099) (1,643)
 
Net cash provided by operating activities (1,501) 837
 
Investing Activities
Investment in property, plant and equipment, net (150) (215)
Investment in intangible assets, net (3,104) -
Investment in associate (7) -
Other Stockholders´ movements - (30)
Interest Collected 83 47
Proceeds from sale of property, plant and equipment 2 4
 
Cash surplus to be applied in financing activities (3,177) (195)
 
 
Financing Activities
Dividends paid (1,819) (2,600)
Repurchase of shares (63) (191)
Cash inflow from increase in capital stock - 1,722
Share premium - 16,275
Interest paid (202) (207)
 
Net cash provided by financing activities (2,084) 14,999
 
Net increase in cash and cash equivalents (6,762) 15,636
 
Impacts due to the fx rate on cash 204 (1,588)
 
Cash and cash equivalents:
At beginning of the period 19,996 5,128
 
At end of period 13,438 19,171

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