Business Wire

Becle, S.A.B. de C.V. Reports Fourth Quarter and Full Year 2020 Unaudited Financial Results

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 and full year ended December 31, 2020.

All figures in this release are derived from the interim consolidated financial statements of the Company as of December 31, 2020, and for the three and twelve-month period then ended, which are prepared in accordance with International Financial Reporting Standard (IFRS).

Fourth quarter 2020 highlights

  • Volume decreased 1.2% to 7.5 million nine-liter cases;
  • Net sales increased 2.8% to P$10,729 million pesos;
  • Gross profit decreased 2.4% to P$5,184 million pesos. Gross margin was 48.3%;
  • EBITDA decreased 41.8% to P$1,315 million pesos. EBITDA margin was 12.3%;
  • Consolidated net income decreased 35.7% to P$919 million pesos. Net margin was 8.6% and;
  • Earnings per share were P$0.26.

Full Year 2020 Highlights

  • Volume increased 7.0% (+6.0% reported) on an underlying basis to 23.7 million nine-liter cases;
  • Net sales increased 19.4% (+17.9 reported) on an underlying basis to P$35,037 million pesos;
  • Gross profit increased 16.5% to P$18,246 million pesos; Gross margin was 52.1%;
  • EBITDA increased 24.8% to P$7,607 million pesos. EBITDA margin was 21.7% an improvement of 1.2 percentage points year over year and;
  • Consolidated net income increased 38.6% to P$5,152 million pesos. Net margin was 14.7% and;
  • Earnings per share were P$1.43.

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

Management commentary

Becle ended 2020 with 3% year on year top line growth during the fourth quarter and 18% year on year top line growth for the year. This was driven by strong results in the United States and Canada which delivered 22% year on year volume growth and 33% year on year top line growth for the full year. This more than offset the challenges we faced in the rest of the regions in which we operate. Despite year on year input cost pressures, gross profit and EBITDA grew 17% and 25% for the full year, respectively. This led to full year net income growth of 39%.

As the year came to a close, we continued to face challenges in several of our markets as a result of the COVID-19 pandemic. Yet, as we did throughout the year, our management was able to adapt effectively to the rapidly changing conditions. This allowed us to continue to execute our business plan efficiently and end the year with sequential improvements in most of our categories. We remain hopeful that as the world comes to a recovery, some geographies will begin to recuperate from a social and economic standpoint towards the second half of the year. Although the current environment and outlook are unusually uncertain, we are confident we will continue to adapt successfully as circumstances evolve, as we did in 2020.

Fourth quarter 2020 results

Volume by region 4Q20 (in 000s nine-liter cases)

Region

4Q20

 

4Q19

 

(Var.% YoY)

U.S. & Canada

4,090

 

3,914

 

4.5%

Mexico

2,696

 

2,771

 

-2.7%

Rest of the World

693

 

883

 

-21.5%

Total

7,479

 

7,568

 

-1.2%

During the fourth quarter of 2020, total volume decreased 1.2% to 7.5 million nine-liter cases. The year over year growth is explained by a 4.5% volume increase in the U.S. and Canada, driven by strong depletions for our brands, mainly ready-to-drink (RTD) and tequilas, partially offset by a sequentially natural deceleration following a socially restricted holiday season. There was a 2.7% year on year volume decrease in Mexico due to the impact of COVID-19 restrictions, as well as a challenging macroeconomic environment. There was a 21.5% year on year volume decline in the Rest of the World (RoW) region mainly due to the impact of COVID-19 restrictions within the region.

Net sales by region 4Q20 (in MXN$, millions)

Region

4Q20

 

4Q19

 

(Var.% YoY)

U.S. & Canada

6,494

 

6,207

 

4.6%

Mexico

2,957

 

2,836

 

4.3%

Rest of the World

1,277

 

1,391

 

-8.2%

Total

10,729

 

10,434

 

2.8%

Fourth quarter 2020 net sales increased 2.8% year on year to P$10,729 million pesos. U.S. and Canada net sales increased 4.6% year on year, primarily reflecting a product mix skewed towards lower sales per case brands partially offset by the Mexican peso depreciation against the U.S. dollar on a year over year basis. In the same period, net sales in Mexico increased 4.3%, primarily due to year on year price increases in our portfolio which were partially offset by volume declines. Net sales for the RoW region decreased by 8.2% when compared to the fourth quarter of 2019, primarily reflecting volume declines partially offset by a better product mix as well as price increases in the region.

Volume by category 4Q20 (in 000s nine-liter cases)

Category

4Q20

 

4Q19

(Var.% YoY)

Jose Cuervo

2,089

 

2,644

-21.0%

Other Tequilas

1,386

 

1,373

1.0%

Other Spirits

1,728

 

1,785

-3.2%

Non-Alcoholic and Other

1,114

 

960

16.0%

RTD

1,161

 

806

44.1%

Total

7,479

 

7,568

-1.2%

Volume of ‘Jose Cuervo’ decreased 21.0% compared to the same period in 2019 and represented 27.9% of total volume for the fourth quarter of 2020. ‘Other Tequila’ brands represented 18.5% of total volume, with volume increasing 1.0% compared to the prior year period. ‘Other Spirits’ brands represented 23.1% of total volume in the period and experienced a 3.2% decline in volume over the fourth quarter of 2019. Volume of ‘Non-alcoholic and Other’ represented 14.9% of total volume and increased 16.0% compared to the prior year period. Volume of ‘RTD’ represented 15.5% of total volume and grew by 44.1% compared to the same period in the previous year.

Net sales by category 4Q20 (in MXN$, millions)

Category

4Q20

 

4Q19

(Var.% YoY)

Jose Cuervo

3,324

 

3,825

-13.1%

Other Tequilas

3,260

 

2,949

10.5%

Other Spirits

2,667

 

2,554

4.4%

Non-alcoholic and Other

452

 

437

3.6%

RTD

1,026

 

669

53.3%

Total

10,729

 

10,434

2.8%

Net sales of ‘Jose Cuervo’ decreased 13.1% compared to the same period in 2019 and represented 31.0% of total net sales for the fourth quarter of 2020. Net sales of ‘Other Tequila’ brands increased 10.5% compared to the prior year period and represented 30.4% of total net sales. ‘Other Spirits’ brands represented 24.9% of total net sales in the period and increased 4.4% compared to the fourth quarter of last year. Net sales of ‘Non-alcoholic and Other’ represented 4.2% of total net sales and increased 3.6% compared to the prior year period. Net sales of ‘RTD’ represented 9.6% of total net sales and increased 53.3% compared to the same period in the previous year.

Gross profit during the fourth quarter of 2020 decreased 2.4% over the same period in 2019 to P$5,184 million pesos. Gross margin was 48.3% for the fourth quarter of 2020 compared to 50.9% for the fourth quarter of 2019, reflecting year-over-year input cost increases.

Advertising, marketing and promotion (AMP) expenses increased 17.7% to P$2,537 million pesos when compared to the fourth quarter of 2019. This AMP expense increase indicates the reactivation and phasing of AMP investment opportunities across our regions as well as our brands strengthening in key categories and markets. As a percentage of net sales, AMP increased to 23.6% from 20.7% in the same period of the previous year.

Distribution expenses increased 52.7% to P$526 million pesos when compared to the fourth quarter of 2019, driven by higher volume and increased logistics costs.

Selling and administrative (SG&A) expenses increased 24.6% to P$1,006 million pesos when compared to the fourth quarter of 2019. As a percentage of net sales, SG&A increased to 9.4% from 7.7% in the same period of 2019, primarily driven by a higher accrual for variable based compensation, reflecting strong yearly results.

Operating income during the fourth quarter of 2020 decreased 44.0% to P$1,141 million pesos compared to the same period of 2019. Operating margin decreased to 10.6% compared to 19.5% in the same prior year period.

EBITDA in the fourth quarter of 2020 decreased 41.8% to P$1,315 million pesos compared to the fourth quarter of 2019. The EBITDA margin was 12.3% for the fourth quarter of 2020 versus 21.6% for the fourth quarter of 2019.

Net financial result was a loss of P$7 million pesos during the fourth quarter of 2020 compared to a gain of P$17 million pesos in the same period of 2019. This loss was mainly derived from net interest expenses as well as the Mexican peso appreciation versus the U.S. dollar when compared to the third quarter of 2020, partially offset by the recognition of the fair value of the Company’s call option to acquire 51% of the equity interests of Eire Born Spirits LLC (EBS).

The Company has a call option to acquire 51% of the equity interests of EBS. According to IFRS 9 and IAS 32, as of December 31, 2020, the 51% option is classified and measured as an asset (financial instrument) on the consolidated statement of financial position and is classified and measured at Fair Value through Profit and Loss (FVTPL). The FVTPL resulted in a $304 million pesos gain in the changes in the fair value of financial instruments within the net financial results line in the consolidated income statement.

As a result of its exposure to the exchange rate risk between the U.S. dollar and the Mexican Peso, as of January 1st, 2020, the Company has designated its US$500 million Senior Notes as a hedge against its net investments in its U.S. operations. As a result of this adoption, all foreign exchange gains and losses associated with the Company’s Senior Notes have been recognized as a P$1.2 billion pesos gain in the other comprehensive income line (which will be reflected in the Company’s equity on the consolidated statement of financial position and on the consolidated statement of comprehensive income) and not on the consolidated income statement for the three months ended December 31, 2020 (see IFRS 9; IFRIC 16: Net Investment Hedge Disclosures).

Consolidated net income in the fourth quarter of 2020 decreased 35.7% to P$919 million pesos, compared to P$1,429 million pesos in 2019. Net margin was 8.6% for the fourth quarter of 2020, compared to 13.7% for the fourth quarter of 2019. Earnings per share were P$0.26 in the fourth quarter of 2020, compared to P$0.40 in the same period of the prior year.

Full Year 2020 Results

Volume by Region for Full Year 2020 (in 000s nine-liter cases)

Region

2020

2020 PF*

2019

2019 PF*

(Var.%

YoY) PF*

(Var.%

YoY)

U.S. & Canada

15,230

15,230

12,460

12,269

24.1%

22.2%

Mexico

6,237

6,237

7,297

7,294

-14.5%

-14.5%

Rest of the World

2,187

2,187

2,560

2,549

-14.2%

-14.6%

Total

23,654

23,654

22,317

22,112

7.0%

6.0%

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

During the full year of 2020, total volume growth was 7.0% to 23.7 million nine-liter cases on an underlying basis (+6.0% reported). This increase reflects an underlying 24.1% increase in the U.S. and Canada (+22.2% reported), a 14.5% underlying and reported decrease in volumes in Mexico and a 14.2% underlying decrease in the RoW region (-14.6% reported).

Net Sales by Region for Full Year 2020 (in MXN$, millions)

Region

2020

2020 PF*

2019

2019 PF*

(Var.%

YoY) PF*

(Var.%

YoY)

U.S. & Canada

24,631

24,631

18,514

18,176

35.5%

33.0%

Mexico

6,619

6,619

7,248

7,245

-8.7%

-8.7%

Rest of the World

3,787

3,788

3,943

3,927

-3.5%

-4.0%

Total

35,036

35,037

29,705

29,348

19.4%

17.9%

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

Net sales during the full year 2020 increased 19.4% to P$35,037 million pesos on an underlying basis (+17.9% reported) compared to the same period in 2019, driven by volume growth and higher average net selling prices per case. This reflects the favorable region mix toward the U.S. and Canada. Net sales in the U.S. and Canada increased by an underlying 35.5% (+33.0% reported) versus the same period in 2019, driven by both volume growth and Mexican peso depreciation against the U.S. dollar on a year over year basis. Mexico net sales decreased 8.7% year on year on an underlying and reported basis due to volume growth and higher average net selling prices per case mainly as a result of price increases. Net sales for the RoW region decreased 3.5% on an underlying basis (-4.0% reported) over the full year of 2019, also reflecting volume declines partially offset by a higher sales mix of premium spirits brands and price increases.

Volume by Category for Full Year 2020 (in 000s nine-liter cases)

Category

2020

2020 PF*

2019

2019 PF*

(Var.% YoY) PF*

(Var.% YoY)

Jose Cuervo

7,325

7,325

7,296

7,296

0.4%

0.4%

Other Tequilas

3,684

3,684

3,574

3,574

3.1%

3.1%

Other Spirits

4,341

4,341

4,452

4,452

-2.5%

-2.5%

Non-alcoholic and Other

3,364

3,364

3,929

3,724

-9.7%

-14.4%

RTD

4,940

4,940

3,067

3,067

61.1%

61.1%

Total

23,655

23,654

22,317

22,112

7.0%

6.0%

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

Volume of ‘Jose Cuervo’ grew 0.4% versus the previous year and represented 31.0% of total volume for the full year of 2020. The Company’s ‘Other Tequila’ brands represented 15.6% of total volume and increased 3.1% compared to the prior year. The Company’s ‘Other Spirits’ brands represented 18.4% of total volume in the period and decreased 2.5% over the full year of 2019. Volume of ‘Non-alcoholic and Other’ represented 14.2% of total volume, declining 9.7% on an underlying basis compared to the prior year (-14.4% reported). Volume of ‘RTD’ represented 20.9% of total volume and increased by 61.1% compared to the prior year period.

Net Sales by Category for Full Year 2020 (in MXN$, millions)

Category

2020

2020 PF*

2019

2019 PF*

(Var.% YoY) PF*

(Var.% YoY)

Jose Cuervo

12,771

12,771

10,697

10,697

19.4%

19.4%

Other Tequilas

9,045

9,045

7,463

7,463

21.2%

21.2%

Other Spirits

7,228

7,228

6,765

6,765

6.8%

6.8%

Non-alcoholic and Other

1,476

1,477

2,273

1,916

-22.9%

-35.0%

RTD

4,515

4,515

2,507

2,507

80.1%

80.1%

Total

35,036

35,037

29,705

29,348

19.4%

17.9%

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

‘Jose Cuervo’ reported an increase in net sales of 19.4% compared to 2019, representing 36.5% of total net sales for the full year of 2020. The Company’s ‘Other Tequila’ brands increased net sales 21.2% compared to the prior year representing 25.8% of total net sales. The Company’s ‘Other Spirits’ brands represented 20.6% of total net sales in the period and reported a 6.8% increase in net sales compared to the full year of 2019. Net sales of ‘Non-alcoholic and Other’ represented 4.2% of total net sales with net sales declining 22.9% on an underlying basis (-35.0% reported) compared to the prior year. Net sales of ‘RTD’ represented 12.9% of total net sales and reported an increase of 80.1% compared to the prior year.

Gross profit for the full year of 2020 increased 16.5% versus the same period in 2019 to P$18,246 million pesos. Gross margin was 52.1% for the full year of 2020 compared to 52.7% for the full year of 2019. Gross margin was negatively impacted primarily by increases in input costs and lower production efficiencies; reflecting the impact of higher demand of super premium tequila along with the industry-wide sourcing of younger agave plants, affecting our distilling efficiency, but partially offset by a favorable regional mix towards the U.S. and Canada region.

AMP expenses increased 4.1% to P$6,688 million pesos compared to the full year of 2019. As a percentage of net sales, AMP decreased to 19.1% from 21.6% in 2019, in line with the Company’s investment strategy.

Distribution expenses increased 32.5% to P$1,380 million pesos when compared to 2019. As a percentage of net sales, distribution expenses increased to 3.9% from 3.5% in 2019.

Selling and administrative (SG&A) expenses increased 14.5% to P$3,377 million pesos when compared to the full year of 2019. As a percentage of net sales, SG&A expenses decreased 30 basis points to 9.6% from 9.9% in 2019, driven by firm cost control and supported by an acceleration in sales.

During the full year of 2020, operating profit increased 27.4% to P$6,893 million pesos compared to the prior year. Operating margin increased to 19.7% compared to 18.2% in 2019.

EBITDA for the full year of 2020 increased by 24.8% to P$7,607 million pesos compared to P$6,096 million pesos for the full year of 2019. The EBITDA margin increased to 21.7% compared to 20.5% in 2019.

Net financial result was a loss of P$38 million pesos for the full year 2020. This loss was mainly derived from interest expenses as well as the Mexican peso appreciation versus the U.S. dollar when compared to the third quarter of 2020, partially offset by the recognition of the fair value of the Company’s call option to acquire 51% of EBS.

The Company has a call option to acquire 51% of the equity interests of EBS. The 51% option is classified and measured as an asset in the consolidated statement of financial position and is classified and measured at Fair Value through Profit and Loss (FVTPL). The FVTPL resulted in a $304 million pesos gain in the changes in the fair value of financial instruments line in the consolidated income statement. As a result of its exposure to the exchange rate risk between the U.S. dollar and the Mexican Peso, as of January 1st, 2020, the Company has designated its US$500 million Senior Notes as a hedge against its net investments in its U.S. operations. As a result of this adoption, all foreign exchange gains and losses associated with the Company’s Senior Notes have been recognized as a P$551 million pesos loss on the other comprehensive income line (which will be reflected in the Company’s equity on the consolidated statement of financial position and on the consolidated statement of comprehensive income) and not on the consolidated income statement for the twelve months ended December 31st, 2020 (see IFRS 9; IFRIC 16: Net Investment Hedge Disclosures).

Consolidated net income for the full year of 2020 was P$5,152 million pesos, a 38.6% increase compared to the prior year period. Net margin was 14.7% for the full year. Earnings per share were P$1.43 compared to P$1.04 in 2019.

Financial position and cash flow

As of December 31, 2020, cash and cash equivalents were P$7,646 million pesos, and total financial debt was P$9,956 million pesos. During 2020, the Company generated net cash from operating activities of P$3,746 million pesos, and the Company used P$5,070 million pesos in net investing activities. Net cash used in financing activities was P$1,318 million pesos for the twelve-month period ended December 31, 2020.

Increase in equity participation of Eire Born Spirits

On February 23, 2021, the Company provided notice of the exercise of its call option to acquire 51% of the equity interests of EBS.

IFRS 9; IFRIC 16: Net investment hedge disclosures

Financial instruments to hedge net investments in foreign operations

Beginning January 1, 2020, the Company designated its US$500 million senior notes as a hedging instrument for its net investment in Sunrise Spirits 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 translation effects line, 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 consolidated 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. E.T.) on, Thursday, February 25, 2021, to discuss the Company’s fourth 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 http://public.viavid.com/index.php?id=143336 or www.becle.com.mx.

Fourth Quarter 2020 Unaudited Financial Results Conference Call and Webcast Details

Date:

Thursday, February 25, 2021

 

Time:

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

 

Participants:

Juan Domingo Beckmann (CEO)

 

 

Fernando Suárez (CFO)

 

Dial-in:

 

 

 

Mexico Toll-free

01 800 522 0034

 

U.S. Toll-free

1-877-407-0792

 

Toll/International

1-201-689-8263

Conference ID:

13715883

 

Webcast: http://public.viavid.com/index.php?id=143336 or www.becle.com.mx.

*Those joining via 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. Becle’s portfolio strength is based on 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 over 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 an alternative 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.

Contacts

Investor Relations Contact:

Mariana Rojo

[email protected]

Alfredo Rubio

[email protected]

Corporate Affairs:

Alfredo López

[email protected]

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