Becle, S.A.B. de C.V. Reports First Quarter 2020 Unaudited Financial Results

MEXICO CITY--()--BECLE, S.A.B. de C.V. (“Cuervo”, “BECLE” or the “Company”) (BMV: CUERVO) today announced financial results for the quarter ended March 31, 2020.

All figures in this release are derived from the Interim Consolidated Financial Statements of the Company as of March 31, 2020, and for the three-month period then ended, which are prepared in accordance with International Financial Reporting Standard (IFRS).

First Quarter 2020 Highlights

  • Volume decreased 9.0% on an underlying basis to 3.4 million nine-liter cases;
  • Net sales increased 5.3% on an underlying basis to P$5,205 million pesos;
  • Gross profit decreased 3.4% to P$2,689 million pesos. Gross margin was 51.7%;
  • EBITDA decreased 40.0% to P$688 million pesos. EBITDA margin was 13.2%;
  • Consolidated net income decreased 0.8% to P$698 million pesos. Net margin was 13.4% compared to 13.3% and;
  • Earnings per share were P$0.19.

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

Management Commentary

Becle has responded quickly to the rapidly changing macro environment as a result of the COVID-19 global pandemic. We have worked closely with our supply chain and distribution partners developing plans to ensure we can continue to support our customers around the world. We are extremely appreciative of the efforts of all our employees and their dedication during these extraordinary and unprecedented times. Notwithstanding these challenges, during the first quarter, net sales increased 5% year-over-year on an underlying basis, despite a volume contraction for the same period. We will continue to closely monitor the situation and adapt to the changing environment and macro challenges.

First Quarter 2020 Results

Volume by Region 1Q20 (in 000s nine-liter cases)

Region

 

1Q20

 

1Q19

 

1Q19 PF*

 

(Var. %
YoY) PF*

 

(Var.%
YoY)

U.S. & Canada

2,117

2,168

1,990

6.4%

-2.3%

Mexico

748

1,252

1,249

-40.1%

-40.3%

Rest of the World

499

464

455

9.5%

7.4%

Total

3,363

3,884

3,694

-9.0%

-13.4%

 

 

 

 

* Pro forma for the non-renewal of the distribution agreement for the Cholula Food Company in April of 2019. For comparison purposes only.

During the first quarter of 2020, total volume decreased 9.0% on an underlying basis to 3.4 million nine-liter cases (-13.4% reported). The year-over-year decrease reflected a 6.4% increase in the U.S. and Canada on an underlying basis (-2.3% reported), driven by strong consumer take-away and depletion trends, led by continued strong performance of the Tequila category; a 40.1% decrease in Mexico on an underlying basis (-40.3% reported), mainly due to an excise tax introduction to energy drinks and product reformulation in one of the Company´s non-alcoholic beverage brands, as well as softness in the whole Tequila category resulting from adverse macroeconomic conditions; and an 9.5% increase in the Rest of the World (RoW) region on an underlying basis (7.4% reported).

Net Sales by Region 1Q20 (in MXN$ millions)

Region

1Q20

1Q19

1Q19 PF*

(Var. % YoY)
PF*

(Var.% YoY)

U.S. & Canada

3,520

3,382

3,063

14.9%

4.1%

Mexico

946

1,175

1,173

-19.4%

-19.5%

Rest of the World

739

720

707

4.5%

2.6%

Total

5,205

5,278

4,943

5.3%

-1.4%

 

 

 

 

* Pro forma for the non-renewal of the distribution agreement for the Cholula Food Company in April of 2019. For comparison purposes only.

First quarter 2020 net sales increased 5.3% on an underlying basis to P$5,205 million pesos (-1.4% reported). U.S. and Canada net sales increased 14.9% on an underlying basis (4.1.% reported), primarily reflecting the non-renewal of the distribution agreement for The Cholula Food Company, the strength of our largest brands within the region leading an increase in depletions and shipments, and the Mexican peso depreciation against the U.S. dollar on a year over year comparison. In the same period, net sales in Mexico decreased 19.4% on an underlying basis (-19.5% reported), primarily due to an excise tax introduction to energy drinks and product reformulation in one of the Company´s non-alcoholic beverage brands, but overall resulting in a better mix, as well as price increases in our portfolio. Net sales of the RoW region increased by 4.5% on an underlying basis (+2.6% reported) when compared to the first quarter of 2019.

Volume by Category 1Q20 (in 000s nine-liter cases)

Category

1Q20

1Q19

1Q19 PF*

(Var. % YoY)
PF*

(Var.% YoY)

Jose Cuervo

1,167

1,104

1,104

5.8%

5.8%

Other Tequilas

506

550

550

-7.9%

-7.9%

Other Spirits

735

791

791

-7.1%

-7.1%

Non-Alcoholic and Other

377

944

754

-50.1%

-60.1%

RTD

578

497

497

16.4%

16.4%

Total

3,363

3,884

3,695

-9.0%

-13.4%

* Pro forma for the non-renewal of the distribution agreement for the Cholula Food Company in April of 2019. For comparison purposes only.

Volume of Jose Cuervo increased 5.8% compared to the same period in 2019 and represented 34.7% of total volume for the first quarter of 2020. Other Tequila brands represented 15.1% of total volume, with volume decreasing 7.9% compared to the prior year period. Other Spirits brands represented 21.8% of total volume in the period and experienced a 7.1% decrease in volume over the first quarter of 2019. Volume of Non-alcoholic and Other represented 11.2% of total volume and volume decreased 50.1% on an underlying basis (-60.1% reported) compared to the prior year period primarily driven by the non-renewal of the distribution agreement for the Cholula Food Company brand in April of 2019, and an excise tax implementation and the product reformulation to one of the company´s brand in the Mexico region. Volume of ready-to-drink (RTD) represented 17.2% of total volume and grew by 16.4% compared to the same prior year period.

Net Sales by Category 1Q20 (in MXN$ millions)

Category

1Q20

1Q19

1Q19 PF*

(Var. %
YoY) PF*

(Var.% YoY)

Jose Cuervo

1,941

1,641

1,641

18.2%

18.2%

Other Tequilas

1,215

1,037

1,037

17.1%

17.1%

Other Spirits

1,253

1,385

1,385

-9.5%

-9.5%

Non-alcoholic and other

301

800

466

-35.4%

-62.4%

RTD

496

415

415

19.6%

19.6%

Total

5,205

5,279

4,945

5.3%

-1.4%

 

 

 

 

* Pro forma for the non-renewal of the distribution agreement for the Cholula Food Company in April of 2019. For comparison purposes only.

Net sales of Jose Cuervo increased 18.2% compared to the same period in 2019 and represented 37.3% of total net sales for the first quarter of 2020. Net sales of Other Tequila brands increased 17.1% compared to the prior year period and represented 23.3% of total net sales. Other Spirits brands represented 24.1% of total net sales in the period and decreased 9.5% compared to the first quarter of last year. Net sales of Non-alcoholic and Other represented 5.8% of total net sales and decreased 35.4% on an underlying basis (-62.4% reported) compared to the prior year period reflecting the non-renewal of the distribution agreement for the Cholula Food Company brand in April of 2019, and an excise tax implementation and the product reformulation to one of our brands in the Mexico region. Net sales of RTDs represented 9.5% of total net sales and increased 19.6% compared to the same prior year period.

Gross profit during the first quarter of 2020 decreased 3.4% over the same period in 2019 to P$2,689 million pesos. Gross margin, although sequentially improving quarter-over-quarter, was 51.7% for the first quarter of 2020 compared to 52.8% for the first quarter of 2019, primarily reflecting year-over-year agave price increases in COGS partially offset by a Mexican peso depreciation against the U.S. Dollar impacting our net sales.

Advertising, marketing and promotion (AMP) expenses increased 16.7% to P$1,243 million pesos when compared to the first quarter of 2019. This increase reflects AMP phasing as a result of an acceleration in depletions during the first quarter of 2020. As a percentage of net sales, AMP increased to 23.9% from 20.2% in the same prior year period.

Distribution expenses decreased 14.3% to P$188 million when compared to the first quarter of 2019. As a percentage of net sales, distribution expenses decreased to 3.6% from 4.2% in the prior year period, mainly driven by lower logistics and fuel costs.

Selling and administrative (SG&A) expenses increased 10.6% to P$765 million pesos when compared to the first quarter of 2019. As a percentage of net sales, SG&A increased to 14.7% from 13.1% in the same prior year period, driven by a base effect in the previous period related to variable compensation schemes.

Operating income during the first quarter of 2020 decreased 48.0% to P$513 million pesos compared to the same period last year. Operating margin decreased to 9.9% as compared to 18.7% in the same prior year period.

EBITDA in the first quarter of 2020 decreased 40.0% to P$688 million pesos compared to the first quarter of 2019. EBITDA margin was 13.2% for the first quarter of 2020 versus 21.7% in the same period of last year.

Net financial results were a gain of P$429 million pesos during the first quarter of 2020 compared to a loss of P$37 million pesos in the same period of last year. As a result of its exposure to the exchange rate risk between the US dollar and the Mexican Peso, as of January 1st, 2020, the Company has designated it’s US$500 million Senior Notes as a hedge against its net investments in its U.S. operations. Derived from this adoption, all foreign exchange gains and losses associated with the Company’s Senior Notes have been recognized as a P$2.3 billion pesos loss in the Other comprehensive income line (which will be reflected in the company’s equity in the Consolidated Statement of Financial Position and in the Consolidated Statement of Comprehensive Income) and not in the Income statement for the three months ended March 31, 2020 (see IFRS 9; IFRIC 16: Net Investment Hedge Disclosures).

Consolidated net income in the first quarter of 2020 decreased 0.8% to P$698 million pesos, compared to P$703 million pesos in the prior year period. Net margin was 13.4% for the first quarter of 2020, compared to 13.3% in the first quarter of 2019. Earnings per share were P$0.19 in the first quarter of 2020, compared to P$0.20 in the same period of the prior year.

Financial position and cash flow

As of March 31, 2020, cash and cash equivalents were P$9,862 million pesos and total financial debt was P$11,831 million pesos. During the first quarter of 2020, net cash from operating activities was P$30 million pesos used, and the Company used P$941 million pesos in net investing activities. Cash used in financing activities was P$167 million pesos for the period ended in March 31, 2020.

Increase in equity participation of Eire Born Spirits

On April 24, 2020, the Company completed the exercise of its option to acquire an incremental 29% stake in the equity interests of Eire Born Spirits LLC (“EBS”) and, as a result, reached a cumulative 49% stake in the equity interests of EBS. EBS owns and markets the Proper No. Twelve Irish Whiskey brand.

IFRS 9; IFRIC 16: Net Investment Hedge Disclosures

Financial instruments to hedge net investments in foreign operations

Beginning January 1, 2020, the Company designated a US$500 million senior notes as hedging instrument for its net investment in Sunrise Holdings, Inc., which is a sub-holding entity of the U.S. operations with the objective of mitigating the exchange rate risk arising between the functional currency of these operations and the functional currency of the holding company that has such investment.

The Company formally designated and documented the hedging relationship, setting the objectives, risk-hedging strategy, identification of the hedging instrument, hedged item, nature of the risk to be hedged, and effectiveness assessment methodology. Since the exchange rate hedging relationship is clear, the method the Company used to assess the effectiveness consisted of a qualitative effectiveness test by comparing the critical terms between the hedging instruments and the hedged items.

Accounting policy

Net investment hedge in a foreign operation

The Company applies hedge accounting to the foreign exchange risk resulting from its investments in foreign operations because of changes in exchange rates arising between the functional currency of that operation and the functional currency of the holding company, regardless of whether the investment is held directly or through a sub-holder. The change in exchange rates is recognized in other comprehensive income as part of the translation effect when the foreign operation is consolidated.

To this end, the Company designates the debt denominated in foreign currency as hedging instruments; therefore, the exchange effects arising from such debt are recognized in other comprehensive income, in the line of translation effects, to the extent that the hedge is effective. When the hedge is not effective, exchange rate differences are recognized in foreign exchange gain or loss in the income statement.

Conference Call

The Company plans to host a conference call for investors at 9:00 a.m. Mexico City Time (10:00 a.m. US Eastern Time) on, Thursday, April 30th, 2020, to discuss the Company’s first quarter 2020 unaudited financial results. Interested parties may also listen to a simultaneous webcast of the conference call by logging onto the Company’s website at public.viavid.com/index.php?id=139263 or www.becle.com.mx.

First Quarter 2020 Unaudited Financial Results Conference Call and Webcast Details:

Date:

Thursday, April 30, 2020

 

Time:

9:00 a.m. Mexico City Time (10:00 a.m. EST)

 

Participants:

Juan Domingo Beckmann (CEO)

 

 

Fernando Suárez (CFO)

 

Dial-In:

Mexico Toll-free

800-522-0034

 

U.S. Toll-free

1-(877) 407-0792

 

Toll/International

1-(201) 689-8263

Conference ID:

13702374

 

Webcast: public.viavid.com/index.php?id=139263 or www.becle.com.mx

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

About Becle

Becle 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, serving the world’s most important alcoholic beverage markets and attending 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®, Pendleton® and Boodles®, as well as a relentless focus on innovation that during the years has created renowned brands such as 1800®, Maestro Dobel®, Centenario®, Kraken®, Jose Cuervo® Margaritas and B:oost®, among others. 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 is not recognized under IFRS but is 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 gain (loss).

EBITDA is not an IFRS measure of liquidity or performance, nor is EBITDA a recognized financial measure 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. 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 Annual Report filed with the Comision 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 and other related events.

Consolidated Income Statements

 

 

First quarter
ended March 31,
2020

First quarter
ended March 31,
2019

Year over year
variance

(Figures in millions, except per share amounts)

(U.S. $)(1)

(Pesos)

% of
net
sales

(Pesos)

% of
net
sales

$

%

Net sales

221

 

5,205

 

 

5,278

 

 

 

(72

)

(1.4

)

Cost of goods sold

107

 

2,517

 

48.3

 

2,493

 

47.2

 

 

23

 

0.9

 

Gross profit

114

 

2,689

 

51.7

 

2,785

 

52.8

 

 

(96

)

(3.4

)

Advertising, marketing and promotion

53

 

1,243

 

23.9

 

1,065

 

20.2

 

 

178

 

16.7

 

Distribution

8

 

188

 

3.6

 

219

 

4.2

 

 

(31

)

(14.3

)

Selling and administrative

33

 

765

 

14.7

 

692

 

13.1

 

 

73

 

10.6

 

Other income-net

(1

)

(21

)

(0.4

)

(179

)

(3.4

)

 

158

 

(88.1

)

Operating income

22

 

513

 

9.9

 

987

 

18.7

 

 

(474

)

(48.0

)

Financial results

(18

)

(429

)

(8.2

)

37

 

0.7

 

 

(466

)

(1273.1

)

Income before income taxes

40

 

943

 

18.1

 

950

 

18.0

 

 

(8

)

(0.8

)

Income taxes

10

 

245

 

4.7

 

247

 

4.7

 

 

(2

)

(0.8

)

Consolidated net income

30

 

698

 

13.4

 

703

 

13.3

 

 

(6

)

(0.8

)

Non-controlling interest

0

 

0

 

0.0

 

(12

)

(0.2

)

 

NM

 

NM

 

Controlling interest

30

 

698

 

13.4

 

715

 

13.6

 

 

(18

)

(2.5

)

 

(1)

U.S. dollars translated at 23.51 Mexican pesos solely for the convenience of the reader

 

Consolidated Statements of Financial Position

 

 

 

 

March 31, 2020

December 31,
2019

(Figures in millions)

(U.S. $)(1)

(Pesos)

(Pesos)

 

Assets

 

 

 

 

 

 

Cash and cash equivalents

419

9,862

9,628

Trade receivables - Net

268

6,295

9,295

Related parties

8

188

103

Recoverable income tax

13

298

782

Other recoverable taxes and receivables

43

1,003

637

Inventories

541

12,725

9,438

Biological assets

51

1,197

915

Prepayments

55

1,292

851

 

 

 

 

 

 

Total current assets

1,398

32,859

31,650

 

 

 

Inventories

272

6,391

4,991

Biological assets

115

2,714

2,719

Investments in associates

14

333

267

Property, plant and equipment - Net

364

8,554

6,945

Intangible assets

741

17,430

14,230

Goodwill

318

7,487

6,253

Right-of-use assets

73

1,712

2,046

Deferred income tax

62

1,449

1,314

Employee benefits - net

11

258

251

Other assets

4

93

59

 

 

 

Total non-current assets

1,974

46,422

39,075

 

 

 

Total assets

3,372

79,282

70,725

 

 

 

Liabilities

 

 

 

 

 

 

Short-term Senior Notes

7

168

46

Trade payables

118

2,774

2,183

Related parties

3

82

68

Lease liabilities

22

513

446

Other accounts payable

121

2,849

3,945

 

 

 

Total current liabilities

272

6,386

6,687

 

 

 

Long-term Senior Notes

496

11,663

9,345

Lease liabilities

55

1,288

1,703

Environmental reserve

6

148

118

Other long-term liabilities

13

310

191

Deferred income taxes

201

4,733

4,089

 

 

 

Total non-current liabilities

772

18,142

15,445

 

 

 

Total liabilities

1,043

24,528

22,133

 

 

 

 

 

 

Stockholders’ equity attributable to Controlling interest

2,326

54,681

48,520

Non-controlling interest

3

73

73

 

 

 

Total stockholders’ equity

2,329

54,754

48,592

 

 

 

Total liabilities and stockholders’ equity

3,372

79,282

70,725

 

 

 

(1)

U.S. dollars translated at 23.51 Mexican pesos solely for the convenience of the reader

 

Consolidated Statements of Cash Flow

 

(Figures in millions)

Three months
ended March 31,
2020

Three months
ended March 31,
2019

 

(U.S. $)(1)

(Pesos)

(Pesos)

Operating activities:

Income before income taxes

40

 

943

 

950

 

Adjustment from items not implying cash flows:

Depreciation and amortization

7

 

175

 

160

 

Loss on sale of property, plant and equipment

1

 

32

 

3

 

Items not implying cash

3

 

74

 

0

 

Interest income

(2

)

(39

)

(50

)

Unrealized foreign exchange profit

(23

)

(545

)

(150

)

Interest expense

4

 

97

 

135

 

Subtotal

31

 

737

 

1,049

 

 

(Increase) decrease in:

Trade receivables

151

 

3,545

 

3,411

 

Related parties

(10

)

(230

)

33

 

Other recoverable taxes and receivables

(8

)

(182

)

37

 

Inventories

(108

)

(2,532

)

(1,893

)

Biological assets

(12

)

(276

)

15

 

Prepayments

(11

)

(261

)

(278

)

Other assets

(2

)

(51

)

1

 

 

Increase (decrease) in:

Trade accounts payable

15

 

361

 

(202

)

Other accounts payables

(66

)

(1,545

)

(609

)

Employee benefits

1

 

12

 

(3

)

Income taxes paid or recoverable

17

 

391

 

(290

)

 

Net cash from operating activities

(1

)

(30

)

1,271

 

 

Investment activities

Property, plant and equipment

(41

)

(974

)

(157

)

Intangible assets

(0

)

(5

)

0

 

Acquisition of minoritary interest

(1

)

(13

)

0

 

Interest income

2

 

39

 

50

 

Sale of property, plant and equipment

0

 

0

 

3

 

Net cash flows used in investing activities

(41

)

(954

)

(105

)

 
 

Financing activities:

Repurchase of shares - Net

(0

)

(0

)

47

 

Principal and interest lease payments

(6

)

(147

)

(134

)

Interest paid

(1

)

(19

)

(42

)

 
 

Net cash used in financing activities

(7

)

(167

)

(129

)

Net (decrease) increase of cash and cash equivalents

(49

)

(1,151

)

1,038

 

 

Cash and cash equivalents at beginning of year:

At beginning of the period

409

 

9,628

 

12,028

 

Effects of exchange rate changes on cash and cash equivalents

59

 

1,385

 

(277

)

 

Cash and cash equivalents at end of period

419

 

9,862

 

12,789

 

 

(1)

U.S. dollars translated at 23.51 Mexican pesos solely for the convenience of the reader

 

Supplemental Information (unaudited)

Quarterly 2019 The Cholula Food Company volume and net sales by region

Quarterly volume by region 2019 (in 000s nine-liter cases)

Volume

Q1

Q2

Q3

Q4

U.S. & Canada

178

13

-

-

Mexico

3

0

-

-

Rest of the World

9

2

-

-

Total

189

15

-

-

 

Quarterly net sales by region 2019 (in MXN$ millions)

Net Sales

Q1

Q2

Q3

Q4

U.S. & Canada

319

17

-

-

Mexico

3

0

-

-

Rest of the World

13

3

-

-

Total

334

21

-

-

 

Contacts

Investor Relations:

Mariana Rojo
marojo@cuervo.com.mx

Alfredo Rubio
alrubio@cuervo.com.mx

Contacts

Investor Relations:

Mariana Rojo
marojo@cuervo.com.mx

Alfredo Rubio
alrubio@cuervo.com.mx