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Good morning, and thank you for joining Beckel's third quarter unaudited financial results call. During this call, you may hear certain forward-looking statements. These statements may relate to our future prospects, developments, and business strategies, and may be identified by use of terms and phrases. and may include references to assumptions. Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy, and other future conditions. Because forward-looking statements relate to the future, by their nature, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Our actual results may differ materially from those in forward-looking statements. For all the foregoing reasons, you are cautioned against relying on such forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Before we begin, we would like to remind you that the figures discussed on this call were prepared in accordance with International Financial Reporting Standards and published in the Mexican Stock Exchange. The information for the third quarter of 2024 is preliminary. and is provided with the understanding that, once financial statements are available, updated information will be shared in the appropriate electronic formats. At this time, we would like to remind participants that your lines will be in listen-only mode until the question-and-answer session. I will now turn the call over to Beckel's CEO, Mr. Juan Domingo Beckman.

Good morning, everyone, and thank you for joining us today as we discuss Bechler's third quarter 2024 results. In a challenging quarter, we managed to either maintain or strengthen our position in key markets, driven by the execution of our strategic initiatives and the continued strength of our brand portfolio. While consolidated volumes declined by 7.2%, We saw a 3.9% increase in sales, underscoring the effectiveness of our premiumization strategy and favorable foreign exchange effects. Across the U.S. and Canada, Tequila continues to lead our growth, and we remain focused on balancing shipments and depletions. EMEA and APOC saw a mixed performance, with Asia being a key growth driver, while Europe faced macroeconomic challenges. In Mexico, our premium brands continue to gain momentum, helping us mitigate broader market pressures. Despite the overall market contractions, we've been able to expand our market share and are starting to see initial signs of improvement in the region. Our gross margin expanded by 500 basis points and EBITDA margin improved by 830 basis points, driven by favorable raw material trends and foreign exchange benefits. As we approach year-end, our priority remains balancing shipments and depletions while continuing to execute our premiumization strategy across regions. I'm confident in our ability to close the year strong and position ourselves for growth in 2025. I will now turn the call over to Luis Felix to discuss our U.S. and Canada results in further detail.

Luis Felix- Thank you, Juan, and good morning, everyone. Before we dive into the results, please note that all figures mentioned are presented on a constant currency basis. The U.S. and Canada region faced some challenges in the third quarter due to market pressures, reduced consumer spending, and intensified competition. However, our focus on premiumization, particularly within tequila, helped us to navigate these headwinds, and we continue to strengthen our brand portfolio. Net sales value increased by 0.6% compared to the third quarter of 2023, driven by a favorable product mix and strong tequila sales, demonstrating the resilience of our strategy. While shipments decreased by 2.7% year over year, impacted primarily by the non-alcoholic and ready-to-serve categories, tequila volumes grew by 4.3%, partially upsetting the decline. Depletions fell by 8.1%, largely due to the continued slowdown in the categories, both in on- and off-premise. We're taking action to standardize inventory levels as we expect depletions to stabilize in the future, ensuring optimal inventory management. In terms of category performance, ready-to-serve cocktails saw a slowdown in demand. However, excluding ready-to-serve, our portfolio outperformed the broader spirits market. supported by a steady growth in the liquid and convenience store channels. Inflationary pressures have influenced consumer spending across all price tiers in the US, but we are proactively managing these dynamics. Our pricing strategy remains prudent with strategic adjustments to safeguard long-term value and profitability. Looking ahead to quarter four, We expect some short-term challenges as we focus on accelerating depletions. We will leverage our strong brand equity, favorable product mix, and focus on permutations to continue and to position us well for the long-term and market leadership. I will now turn the call over to Olga Limón to discuss Mexico and Latin American results.

Thank you, Luis, and good morning, everyone. Mexico remains a challenging region with microeconomic pressures contributing to a contraction across this great industry. However, in recent months, we have observed a positive trend across the industry. Within this environment, we have outperformed the market, maintaining our leadership by leveraging a diverse and strong product portfolio. Year to date, we've outpaced the market by over 100 basis points in both volume and value. While the spirits industry overall has experienced a downturn, we managed to slow the pace of decline. Our focus on premium tequila has been a key driver with good depletion trends in the premium segment, outperforming mainstream brands. In Q3 2024, shipments fell 14.6% year over year, while depletions declined only 4%, reflecting trade destocking. The difference between volume and net sales is mainly due to stronger performance from the lower-end brands. Aware of the market challenges, we have adjusted our inventory strategy to meet retailers' demand. To better meet consumer demand across all segments, we are enhancing our portfolio by addressing gaps across every price point, particularly in the growing cristalino category. While consumer purchasing power in Mexico remains pressured, we expect trends to improve, though the timing of a full market recovery is still uncertain. Latin America, though a smaller part of our global portfolio, continues to face macroeconomic pressures such as inflation and political uncertainty. Retailers are adjusting inventories, leading to a gap between shipments and depletion. However, our strong brand equity positions us to adapt to these challenges. As we head into Q4, we are cautiously optimistic. While market conditions remain difficult, we are seeing early signs of improvement. and expect a more favorable close to the year. Our focus will remain on maintaining market share and profitability while closely monitoring market dynamics. I will now turn the call over to Shane Hoyne, Managing Director of EMEA and APAC Region. Thank you.

Thank you, Olga, and good morning, everyone. Year-to-date depletions in the EMEA and APAC regions have slightly increased compared to 2023, with a 5% improvement in quarterly year-over-year. However, shipments were approximately 13% behind, driven primarily by Europe, where declines in tourism and cautious consumer spending impacted sales. Despite rising competitive pricing pressures, we maintained healthy gross margins by focusing on premium tequila and whiskeys and bolstering the Jose Cuervo brand through targeted promotions. Customer working capital pressures in Europe also impacted shipments, and ongoing conflicts in Eastern Europe and the Middle East add further uncertainty. Travel retail continues to be a challenge by reduced footfall in Europe, but despite a slow start, Proxima saw positive depletion growth in Q3, regaining momentum. Asia remains a bright spot, with stable inflation supporting growth in our key markets. Depletion rose by 33% year-over-year, driven by premium brands, even as shipments remained flat. Tequila depletions in EMEA and APAC grew by low single digits, while whisky saw high single digit growth. This success reflects our portfolio expansion in Asia and sustained demand for premium tequila and whisky in Europe. Despite economic headwinds in EMEA, we're confident in our ability to navigate the challenges ahead. Tequila is an emerging category with significant growth potential and we're well positioned to capture both volume and value growth. We anticipate continued strong performance in Asia and a gradual recovery in EMEA. I will now pass it over to Rodrigo de la Maza, who will talk you through the financial results.

Thank you, Shane, and good morning, everyone. I will now walk you through the financial results for the third quarter of 2024. The company reported a 3.9% increase in consolidated net sales, reaching 10.9 billion pesos. driven by favorable foreign exchange effects and our premiumization strategy. This growth was achieved despite a 7.2% decline in volumes. The focus on higher value brands and product mix optimization helped offset the impact of lower volumes. Although regional challenges persisted, increased depletions in key markets together with the strength of our brand portfolio and effective execution of strategic initiatives helped stabilized performance over the period. EBITDA for the third quarter increased by 82.7% year-over-year to 2.1 billion pesos, with the EBITDA margin expanding 830 basis points to 19.3%. This significant improvement resulted from several factors. A major contributor was reduced agave-related input costs, which boosted our gross margins. Our strategic sourcing and timing of purchases allowed us to continue transitioning through our older, higher-cost inventory. Additionally, favorable foreign exchange movements further improved the gross margin. Below the gross profit, we also benefited from reduced A&P spending, driven by careful prioritization of marketing efforts and a slowdown in certain markets' demand, enabling us to allocate resources more efficiently. In addition, distribution efficiencies contributed to margin expansion as we optimized the supply chain to reduce logistic costs while maintaining robust market penetration. However, this was partially offset by increased SG&A expenses as we expanded our infrastructure and strengthened organizational capabilities to support future growth. Despite this, overall operational improvements brought significant EBITDA growth and margin expansion, positioning us well for sustained profitability going forward. The net financial results for the third quarter of 2024 was negative 564 million pesos, compared to a loss of 604 million pesos in the same period of 2023. This reduction in the loss was primarily due to higher interest income, from our increased cash position, along with a lower foreign exchange loss. The latter was achieved by putting in place an additional $150 million investment hedge aimed at mitigating change rate risk on our U.S. dollar denominated debt. As of September 30, 2024, cash and cash equivalents stood at 9.1 billion pesos, an increase of 5.1 billion pesos versus the same period of the previous year, while total debt amounted to 26.5 billion pesos. During the first nine months of 2024, the company generated net cash from operating activities of 7.6 billion pesos, compared to a net use of 3.6 billion pesos in the same period of the previous year, marking a positive swing of 11.1 billion pesos. Over the past year, we've made significant progress in lowering our least adjusted net debt ratio from 3.2 to 2.3 times, bringing us slightly below industry standard. This reduction enhances our financial flexibility, allowing us to invest in our brands, pursue high return opportunities, and continue paying dividends. We continue to optimize our inventory, which generated an additional 963 million pesos in cash flow in the quarter. This positive outcome stems from a strategic drawdown of raw materials and finished goods inventories, significantly boosting the company's free cash flow. Regarding capital allocation, a cash dividend payment was distributed on August 6, 2024. Each outstanding share representing backless capital stock received a dividend of 39 cents of 8 pesos. Regarding guidance, we are now expecting full-year net sales value growth in the low single-digit range in 2024, assuming constant currency versus last year. Additionally, we estimate our AMP spend to be in the lower range of the 21 to 23% of net sales, and our 2024 capex to fall within the range of $110 to $130 million. I will now turn the call back to the operator for the questions and answers session. Thank you.

We will now conduct a Q&A session. If you would like to ask a question, please press the raise your hand button located at the bottom of the screen. We remind you that all lines been placed on mute. When it is your turn to ask a question, you will be given permission to speak. and you will then be able to unmute yourself and ask your question. We will now pause for questions. Our first question comes from the line of Ben Toro. Please state your company name and ask your question.

Yeah, good morning. This is Ben Toro from Barclays. Thanks for taking my question. Congrats on the results. Just a few quick ones. So first on the spending for marketing, which clearly came down versus last year when it was about 25% of sales and now more like 20% and also on the year-to-date, you're trending at these lower levels. You made some statements about aligning this to the industry conditions. So maybe help us understand a little bit how your thinking is around AMP, also maybe then into 2025, and how selective you think of spending the money here for marketing purposes as you need to align to these industry dynamics. That would be my first question.

Thank you, Ben. This is Luis Felix. In the case of the AMP, yes, we did see some reduction in Q3, but it's mostly facing. We will partially catch up in the fourth quarter. And however, we are strategically implementing AMP containment measures to ensure consumer responsible spending, not at the level that was reflected in this queue. So it will be it will be lower than, so there will be no reduction as you see in the third quarter and we will partially catch up in the fourth quarter.

Okay, perfect. And then as you think about just some of the consumer trends, and obviously we're still kind of in a weird environment, particularly in the U.S., Louis, as it relates to destocking and maybe even some just at the consumer level destocking. How do you think about and how do you think about the quality of the signs you're getting when you look at the shipment depletion dynamics? As you look into 2025 from what could be potential volume recovery, we had a good start, but it kind of like softened a little bit into third quarter. So when do you think we're going to be back in this famous volume should be growing mid single digit area?

Well, yes, we're seeing the consumer dynamics very challenging in the U.S. Not only, I think we believe that the macroeconomic pressure seems to be the primary factor now, but we also see some other disruptors in the category, like the broader health-conscious trends and disruptors like GLP-1, Ocembic, and things like that. We believe that... So if you look at the trends from different sources, the trend continues to go down in the third quarter in the U.S. So we believe that at some point the consumers will start going back to spirits. And we believe that next year we're planning to be on a single digit in terms of volume and NSV. But we will need to see what the Q4, which will be critical to determine what will happen in early 2025. But we're confident that our position and our brand portfolio and the investment that we do will pay back.

Okay, and then the very last one on the gross margin, maybe that's one for Rodrigo. If you look at the improvement on a year-over-year basis, can you help us bridge what was Agave, what was FX, what was regional mix?

Ben, hi, how are you? Your question was in regards to the quarter relative to last year.

Yes, like 3Q24 versus 3Q23 gross margin improvement of roughly call it 500 basis points, FX, region and agave.

Roughly, I would say it's a good question. And obviously, there's been significant improvements that we believe are sustainable. Most of the The benefits are the three you mentioned. FX benefits is helping us perhaps 40% of that expansion. Agave cost is also supporting close to the other 40%. And sorry, the other 20% is related to to mix improvements and portfolio management overall across the different regions, geographic and product mix improvement.

Perfect. Thank you very much. I'll pass it on.

Our next question comes from the line of Ricardo Alves. Please state your company name and ask your question.

Thanks everybody, can you hear me?

Yes, we can.

Okay, yeah, thanks for the call. I have also a question on gross margin, perhaps to Rodrigo, but on a quarter over quarter, on a sequential basis, if I may, when we think about the big picture drivers, Most of them, if not all of them, the ones that we can track showed potential for a higher margin versus what you had in the second quarter. The Mexican peso was significantly weaker. Agave has been lower and lower. The geographic mix was also a little bit better than the second quarter. So with those major boosters of profitability, we actually expected the gross margin to also improve on a quarter over quarter basis when it actually came down 100 basis points. So what is driving the sequential? What changed from the second quarter to the third quarter in spite of all of these tailwinds of margins that made the profitability come down? Was it more aggressive pricing or discount activity in Mexico? Or maybe there's something in the COGS that we don't have visibility. So any color that would be much appreciated. And then my second question is in the US. I mean, the US, perhaps this one's for Luis. The first half was pretty strong and in terms of top line, and then we saw this deceleration, which is kind of more in line with what Nielsen data is showing. What is your expectation for the fourth quarter? We have been seeing news and data pointing to more difficult competition. So this question is more on the competitive side. Do you see, and Cuervo has been pretty rational in terms of pricing and discipline in terms of pricing. How do you see the scenario in the U.S. right now, considering the tougher consumer, what we see as a tougher competitive environment? Do you see room to increase prices again in early 2025? Or is it actually the opposite trend? Do you see more room to some discount activity? Do you see room to adjust prices for a couple of brands in the U.S.? Sorry for the two long questions. Thanks for the time.

Thank you for your questions, Ricardo. This is Rodrigo. Regarding the first question on the sequential reduction of gross margin, if you look back at history, Q3 has always been, gross margin has always been impacted lightly by a seasonal product mix as we approach the year-end seasonality. And that's the main driver there. There is also some, as you know, pricing pressure on Mexico, as you mentioned. And we have, as Olga mentioned before, we've taken some tactical price adjustments on some of the lower end segments of our portfolio. And that's also contributing to that reduction that you're seeing in Q3 relative to Q2.

Thank you, Ricardo. This is Luis. In the In the case of the U.S. in the fourth quarter, we believe that the fourth quarter will continue to be really challenging. What we're seeing is very aggressive pricing moves in the market. And we've responded strategically with some tactical adjustments that have led very positive consumer reactions. So we will continue to be aggressive. watching some of the reckless pricing that we're seeing in different markets. And we will continue to adjust tactical. In terms of pricing for next year, I think it's too early to make that decision. Our approach will always remain consumer-led, and we will adjust pricing where appropriate, considering, of course, the brand health and the competitive environment. So I think it's too early, but... But we're doing some adjustments in some of the brands, tactical right now, and the fourth quarter will continue to be a challenge.

Thank you very much, Luis. Thank you so much, Rodrigo, as well.

Thank you, Ricardo.

Our next question comes from the line of Felipe Ucros. Please state your company name and ask your question.

Thanks, operator. Good morning, everyone. This is Felipe Ugros from Scotiabank. Perhaps my first question on agave opportunities. We're seeing very low prices right now. From prior cycles, you can infer that perhaps there will be some distress on the ground amongst producers of agave. Just wondering if you're expecting to take advantage of those challenges on the ground, perhaps any measures that can mitigate the effects of the cycle the next time that it comes around. Just wondering if there are any plans around that, perhaps, I don't know, switching from leasing to owning land or perhaps accelerating integration. Anything you can tell us about how you can take advantage of lower prices of agave? And then my second question is around the potential for tariffs in the US. Just wondering how you're thinking about that possible risk and how the company can prepare if anything like that came around. Thank you.

Thank you, Felipe. Would you be so kind to repeat the second question for us?

Yes, of course. The second one is around the potential of tariffs after presidential elections in the U.S. I'm wondering how you're thinking about the risk of potential tariffs, you know, given that tequila has to cross borders and how you can prepare for that potential. Thank you.

Okay. Thank you, Felipe. We understood the questions. On the first one, on agave, you know, we, as always, we will continue to take advantage of, you know, the more favorable strategy for us on agave. So we currently do take advantage of some of the agave price reductions that have been, that you have seen in the marketplace. And we will continue to do that. and manage the flexibility we need from the supply chain standpoint to optimize our costs, and a lot of it is related to agave. So no changes to strategy in that front going forward. In regards to tariffs, to be honest, we don't have full visibility yet. I mean, it's uncertain. We don't expect necessarily something negative that has been confirmed in this regard. So we will continue to monitor going forward.

Thank you.

Thank you, Felipe.

Our next question comes from the line of Ulises Argote. Please state your company name and ask your question.

Thanks for the space for questions. This is Ulises Argote from Santander. I just had one follow-up there around the CapEx guidance that you guys lowered. Just wondering if you could provide a bit more detail around there, any particular projects that are being impacted and you kind of cut around $50 million on the CapEx guidance. So just wondering if this is something we should expect to see moving towards 2025 or if or if these were just projects that were canceled all out, kind of given the current scenario. Thanks.

Thank you, Ulises. It's a combination of both, actually. We do have some CAPEX that have been canceled, given the current market conditions, which, as you see, are unfavorable. The rest is just a phasing, it's just some phasing on... on the new distillery, 1800, in which part of the project was re-phased to 2025. So we'll basically carry forward that investment to next year.

Okay. And into the projects that you're canceling, can you elaborate a bit more along what lines those projects were?

Of course. It's mostly barrels and, you know, growth, let's say, related investments that in this year, obviously, we didn't have. And so it's just minor projects that have been, that we don't actually see the need for them at this point in time. And we have made sufficient, let's say, efficiencies on the supply chain to be able to avoid some of these originally planned CAPEX.

All right, clear enough. Thank you very much.

Thank you.

Our next question comes from the line of Tiago Harding. Please state your company name and ask your question.

Yeah. Hello. Good morning. Here is Tiago Harding from Citi. Thank you for taking my questions. I have two points I'd like to discuss here. The first one is regarding the hedging policy, the additional hedging we saw. I'm just wondering what's the strategy behind this going forward, what we could expect for this inside Inset Cueva, right? And the second one, if I understood correctly in the initial remarks of the call, Asia has been having some interesting performance, specifically with whiskey, right? At least that was my understanding. So just wanted to pick your brain a little bit on this segment, understand what's the potential here. A little bit more information would be appreciated. Thank you.

Of course. Thank you, Thiago. Thank you. Regarding hedging policy, as you know, we've had that option open for us at this point in time. FX losses related to our U.S. denominated debt have been significant this year, impacting net income. We're basically just making use of that leverage, that hedge opportunity, as we see the... the different scenarios on FX and are trying to balance out our performance from a net income perspective. And this quarter in particular, we made that adjustment. We still have some flexibility going forward and we'll continue to evaluate the benefits or needs to continue doing the hedging going forward. But it's something we remain flexible on doing. And for the Asia question, Shane, do you want to address that?

Yeah, sure. Hi, Tiago, how are you? Yeah, so regarding Asia and our portfolio, you know, whiskey continues to perform strongly in the Asia region. And with our Bushmills brand, especially as we focus more on our single malt part of our brand, we are seeing a lot of growth. growth happening, but also growth potential as our unique position as really the only Irish single malt of scale starts to take traction. And that's really happening across the region. There are traditionally big whiskey markets, which obviously we play well in, but also we're seeing a growing emergent demand for premium and super premium whiskey across Asia. So we are really well positioned to play into that.

Fantastic. Thank you very much.

Our next question comes from the line of Antonio Hernandez. Please state your company name and ask your question.

Hi, good morning. Thanks for taking my question, Antonio Hernandez from Actimber. Just a quick one on other expenses beyond AMP. I mean, you already mentioned what are you expecting regarding AMP, but if you could also provide a little bit more light on our expenses and a quick follow-up on where across the different categories and regions regarding volume performance, are you seeing any improvement, at least sequentially? Thanks. Yeah.

Yes, Antonio, thank you. This was just particularly related to an early cancellation of a non-agave related raw material contract in Europe, which impacted us this quarter in particular.

And I'm happy to speak to some of where we're seeing growth in really from an emerging market perspective. We are seeing growth across the whole Asia region. As tequila is a relatively small category with fast underlying growth, we are leading the charge on that. And also, as I just mentioned, we are seeing really good growth across whiskey and the Asian markets as well. So again, coming off a relatively low base on tequila and coming in with a single malt proposition into a pretty well-established single malt whiskey sector in Asia, we are seeing some very good growth happening.

Thanks for that. And besides Asia, I mean, conditions, as you mentioned, in the U.S. are challenging. I mean, basically all over the place. But any other category and region besides Asia, of course, were you seeing any sequential improvement in terms of volumes? No. Okay. Perfect. Thanks for that and have a nice day.

Thank you, Antonio.

We have not received any further questions at this point. So that concludes today's call. You may now disconnect.