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

MEXICO CITY--(BUSINESS WIRE)-- BECLE, S.A.B. de C.V. (“Cuervo”, “BECLE” or the “Company”) (BMV: CUERVO) today announced financial results for the quarter ended September 30, 2017.

All figures in this release are derived from the Interim Consolidated Financial Statements of the Company as of September 30, 2017 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).

Third Quarter 2017 Highlights

• Net Sales increased by 24.3% to $5,765 million pesos;
• Volume increased 15.2%, with United States and Canada volumes growing 17.0%;
• Gross profit increased 20.7% to $3,292 million pesos;
• Operating profit decreased 5.3% to $1,143 million pesos due to pressure on production costs related to third party agave purchases, as well as the lower AMP in the prior year due to seasonality experienced during the third quarter of 2016. Operating profit during the first nine months of 2017 increased by 15.5% against the same period last year, which represents 27.2% of net sales.

• EBITDA decreased 6.4% to $1,243 million pesos. This resulted in an EBITDA margin of 21.6%. EBITDA year to date as of September grew 15.2%, which represents 29.0% of net sales value; and
• Consolidated net income increased 13.1% to $856 million pesos, resulting in earnings per share of $0.24.

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

“We delivered strong third quarter net sales growth of 24.3% on volume growth of 15.2%. Volume growth was strong in all major regions and across categories. The US and Canada reported significantly accelerated growth as sales trends have begun to normalize after the effects of the price increase earlier this year, while Mexico growth remained robust. We are well positioned for the seasonally strong fourth quarter.”

Third Quarter 2017 Results

During the third quarter of 2017, volume growth was driven by 17.0% growth in the United States and Canada, a 6.3% increase in sales volumes in Mexico and a 36.3% increase in the Rest of World (RoW) region. Volume growth in the United States and Canada benefited from the normalization of sales trends following the January price increase, which had impacted volume during the first half of fiscal 2017. As a result, consolidated third quarter sales volumes were 4.7 million nine-liter cases, up 15.2% from 4.1 million nine-liter cases in the same period last year.

Volume by Region 3Q17 (in 000s nine-liter cases)

REGION			3Q17		3Q16		(VAR.% YOY)		2Q17		(VAR.% QOQ)
US & CANADA			2,688		2,298		17.0%		3,876		-30.6%
MEXICO			1,479		1,391		6.3%		1,344		10.0%
ROW			537		394		36.3%		588		-8.7%
TOTAL			4,704		4,083		15.2%		5,809		-19.0%

Net sales increased 24.3% to $5,765 million pesos compared to the same period in 2016, driven by the selective price increase and volume growth in all regions. In the third quarter of 2017, the US and Canada region represented 63.2% of total net sales for the Company. Net sales in this region increased 28.5% versus the same period last year, largely explained by volume growth and the January price increase, partially offset by the unfavorable effect of foreign exchange. In the same period, Mexico represented 22.6% of total net sales and net sales in the region increased by 22.8% over the prior year period. Finally, net sales of the RoW represented 14.2% of total net sales and increased its net sales by 10.4% over the third quarter of 2016.

Net Sales by Region 3Q17 (in MXN$ millions)

REGION			3Q17		3Q16		(VAR.% YOY)		2Q17		(VAR.% QOQ)
US & CANADA			3,645		2,837		28.5%		5,080		-28.3%
MEXICO			1,304		1,062		22.8%		1,060		23.0%
ROW			816		739		10.4%		784		4.1%
TOTAL			5,765		4,637		24.3%		6,924		-16.7%

Volume of Jose Cuervo increased 24.3% compared the same period in 2016 and represented 33.4% of total volume for the third quarter of 2017. The Company’s Other Tequila brands represented 15.3% of total volume with volume increasing 14.3% compared to the prior year period. The Company’s Other Spirits brands represented 18.3% of total volume in the period and experienced a 15.8% increase in volume over the third quarter of last year. Volume of Non-alcoholic and Other represented 21.3% of total volume and volume increased by 6.7% compared to the prior year period. Finally, volume of ready-to-drink (RTDs) represented 11.8% of total volume and increased by 8.4% compared to the prior year period.

Volume by Category 3Q17 (in 000s nine-liter cases)

CATEGORY			3Q17		3Q16		(VAR.% YOY)		2Q17		(VAR.% QOQ)
JOSE CUERVO			1,571		1,264		24.3%		1,888		-16.8%
OTHER TEQUILAS			717		628		14.3%		705		1.8%
OTHER SPIRITS			860		743		15.8%		829		3.6%
NON-ALCOHOLIC & OTHER			1,002		939		6.7%		1,398		-28.3%
RTD			553		510		8.4%		989		-44.1%
TOTAL			4,704		4,083		15.2%		5,809		-19.0%

Net Sales of Jose Cuervo represented 36.7% of total net sales for the third quarter of 2017 and reported an increase in its net sales of 32.4% compared the same period in 2016. The Company’s Other Tequila brands represented 23.1% of total net sales and increased its net sales 18.6% compared to the prior year period. The Company’s Other Spirits brands represented 20.4% of total net sales in the period and reported a 25.7% increase in net sales compared to the third quarter last of year. Net sales of Non-alcoholic and Other represented 12.7% of total net sales and reported an increase in net sales of 21.6% compared to the prior year period. Finally, net sales of ready-to-drink (RTDs) represented 7.1% of total net sales and reported an increase of 7.9% compared to the prior year period.

Net sales by Category 3Q17 (in MXN$ millions)

CATEGORY			3Q17		3Q16		(VAR.% YOY)		2Q17		(VAR.% QOQ)
JOSE CUERVO			2,115		1,598		32.4%		2,735		-22.7%
OTHER TEQUILAS			1,333		1,124		18.6%		1,355		-1.6%
OTHER SPIRITS			1,175		935		25.7%		1,169		0.6%
NON-ALCOHOLIC & OTHER			733		603		21.6%		871		-15.8%
RTD			407		378		7.9%		794		-48.7%
TOTAL			5,765		4,637		24.3%		6,924		-16.7%

Gross profit during the third quarter of 2017 increased 20.7% over the same period in 2016 to $3,292 million pesos. Gross margin as a percent of sales was 57.1% for the third quarter of 2017 compared to 58.8% for the third quarter of 2016. Gross margin was negatively impacted by higher input costs partially offset by a favorable pricing effect traceable to US and Mexico price increases, product mix and translation effect.

Advertising, marketing and promotion (AMP) increased 41.0% to $1,267 million pesos compared to the third quarter of 2016. As a percentage of net sales, AMP increased to 22.0% from 19.4% in the prior year period. The increase was primarily due to lower base of third quarter last year due to seasonality.

During the third quarter of 2017, operating profit decreased 5.3% to $1,143 million pesos compared to the same period last year. Operating margin as a percentage of sales decreased to 19.8% as compared to 25.9% in the prior year period. The decreased in operating margin reflects pressure in production cost due to third party agave purchases as well as the seasonality of AMP partially offset by decreases in selling and administrative (SG&A) costs and distribution costs, both as a percentage of revenue.

EBITDA in the third quarter of 2017 decreased by 6.4% to $1,243 million pesos compared to $1,328 million pesos during the third quarter of 2016. Year to date, EBITDA grew 15.2% when compared the prior year.

Net financial results and other were a benefit of $114 million pesos during the third quarter, mainly due to Mexican Peso devaluation against the US Dollar on the company’s cash position.

Consolidated net income in the third quarter of 2017 was $856 million pesos, a 13.1% increase compared to the prior year period. Earnings per share were P$0.24 in the third quarter of 2017.

Balance Sheet and Cash Flow

As of September 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 $9,547 million pesos at September 30, 2017, reflecting cash and equivalents of $18,677 million pesos relative to total debt of $9,130 million pesos.

Company’s total liabilities as of September 30, 2017 amounted to $16,009 million pesos, a decrease of 9.2% compared to December 31, 2016. This decrease is primarily explained by a reduction in trade accounts payable during the third quarter of 2017 (seasonality) as well as the changes derived from the peso appreciation.

During the third quarter of 2017, the Company invested $146 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 Friday, October 27, 2017, to discuss the Company’s third 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 in the Investor Relations – Standing News section.

Third Quarter 2017 Earnings Conference Call Details:
		Date:	Friday, October 27, 2017
		Time:	8:00 a.m. Central Time (9:00 a.m. Eastern Time)
		Dial-In:
			Mexico Toll-free	001 800 514 5965
			Mexico City Local	+52 55 4777 2674
			U.S. Toll-free	1-888-359-3627
			Toll/International	1-719-457-2085
			U.K. Toll-free	0 808 101 1147
			U.K. London Local	+44 (0) 20 8150 0794
		Conference ID:	3963652
		Webcast:	http://public.viavid.com/index.php?id=126845 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 complementary 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
		Third Quarter Ended September 30, 2017					Third Quarter Ended September 30, 2016					Year over Year Variance
(Ps$ in millions, except per share amounts)					% of net sales					% of net sales		$			%
Net Sales		5,765					4,637					1,127			24.3
Cost of goods		2,473			42.9		1,911			41.2		562			29.4
Gross profit		3,292			57.1		2,727			58.8		566			20.7
Advertising, marketing & promotion		1,267			22.0		898			19.4		369			41.0
Distribution		182			3.2		168			3.6		13			7.9
Selling and administrative		594			10.3		574			12.4		20			3.5
Other (income) expenses, net		107			1.9		(121)			-2.6		228			NM
Operating profit		1,143			19.8		1,207			26.0		(64)			(5.3)
Financial results, net		(114)			-2.0		81			1.7		(195)			NM
Profit before tax		1,257			21.8		1,126			24.3		131			11.6
Total income taxes		401			7.0		369			8.0		32			8.6
Consolidated net income		856			14.8		757			16.3		99			13.1
Non-controlling interest		(1)			0.0		0			0.0		NM			NM
Net income to equity holders of the company		857			14.9		757			16.3		101			13.3
Other comprehensive income, net of income tax		(586)			-10.2		585			12.6		(1,171)			NM
Net comprehensive income		271			4.7		1,342			28.9		(1,071)			(79.8)
Depreciation & Amortization		100					121
EBITDA		1,243			21.6		1,328			28.6		(85)			(6.4)
Earnings per share		0.24
Shares (in millions) used in calculation of earnings per share		3,596

Balance Sheet
(Ps$ in millions)					September 30, 2017		December 31, 2016
Assets
Cash and cash equivalents					18,677		5,128
Accounts receivable, net					4,726		6,396
Inventories, net					7,095		5,943
Other current assets					2,952		2,258
Total Current Assets					33,449		19,725
Non-current inventories					3,548		3,178
Property, plant and equipment, net					4,486		4,641
Intangible assets and trademarks, net					10,755		11,771
Goodwill					5,699		5,992
Other assets					386		380
Total Long-Term Assets					24,875		25,963
Total Assets					58,324		45,688
Liabilities & Stockholders' Equity
Current installment of notes payable to Banks					132		53
Trade accounts payable					1,829		2,407
Accruals					1,955		1,708
Other liabilities					296		288
Total current liabilities					4,211		4,457
Long term debt, excluding current interest payable					8,998		10,207
Environmental reserve					115		118
Other long-term liabilities					104		95
Deferred income taxes					2,581		2,759
Total Long-Term Liabilities					11,798		13,179
Total Liabilities					16,009		17,636
Total controlling interest					42,285		28,022
Non-controlling interest					31		30
Total Stockholders' Equity					42,316		28,052
Total Liabilities and Stockholders’ Equity					58,324		45,688

Cash Flow Statement
	(Ps$ in millions,)											Nine Months Ended September 30, 2017		Nine Months Ended September 30, 2016
	Operating Activities
		Income before income taxes:										3,360		3,642
		Items relating to investing activities:
			Depreciation and amortization									314		285
			Loss on sale of property, plant and equipment									28		(10)
			Investment in associates									(5)		0
		Items relating to financing activities:
			Interest income									(76)		(18)
			Interest expense									297		274
						Subtotal						3,919		4,174
		Changes in:
		Accounts receivable										1,671		1,626
		Related parties										75		(209)
		Other receivables										(474)		(1,289)
		Inventories										(1,522)		(1,299)
		Prepayments										(263)		(394)
		Trade accounts payable										(579)		251
		Other assets										(11)		(105)
		Other liabilities										(23)		(301)
		Accruals										246		89
		Income taxes paid										(1,246)		(967)
		Employee statutory profit										(1)		(11)
		Changes in direct employee benefits										9		7
												(2,117)		(2,603)
				Net cash provided by operating activities								1,802		1,572
	Investing Activities
		Capital expenditures										(361)		(484)
		Other stockholders movements										(30)		0
		Interest collected										76		18
		Income from sale of property, plant and equipment										0		11
				Cash surplus to be applied in financing activities								(315)		(457)
	Financing Activities
		Dividends paid										(2,600)		(2,202)
		Treasury Stock										(1,789)		0
		Cash inflow from increase in capital stock										1,722		1,206
		Share premium										16,275		0
		Interest paid										(218)		(178)
				Net cash provided by financing activities								13,390		(1,173)
				Net increase in cash and cash equivalents								14,877		(59)
				Impacts due to the fx rate on cash								(1,328)		1,411
	Cash and cash equivalents:
	At beginning of the period											5,128		4,139
	At end of period											18,677		5,491

EBITDA Reconciliation
	Quarter ended
(Ps$ MM)	September 30, 2017		September 30, 2016
Net Income	856		757
Plus: Depreciation and Amortization	100		121
Plus: Income taxes	401		369
Plus: Interest expense	107		87
Minus: Interest income	(29)		(7)
Plus: Foreign exchange loss (gain), net	(192)		1
EBITDA	1,243		1,328

View source version on businesswire.com: http://www.businesswire.com/news/home/20171026006719/en/

BECLE, S.A.B. de C.V.
Investor Relations
Luis Carlos de Pablo
[email protected]
or
Gilberto Tonello
[email protected]
+52 55-5803-2954
or
ICR Investor Relations
Scott Van Winkle
[email protected]
+1 617-956-6736
or
Media
Carlos Humberto Suarez
[email protected]
+52 55-5258-7000
or
ICR Media Relations
Anton Nicholas
[email protected]
+1 646-277-1255

Source: BECLE, S.A.B. de C.V.

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