BECLE, S.A.B. de C.V. Reports Second 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 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 source version on businesswire.com: http://www.businesswire.com/news/home/20170724006315/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
BECLE, S.A.B. de C.V.
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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