Becle SAB de CV
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Good day, everyone, and welcome to the Jose Cuervo Fourth Quarter 2017 Earning Results Conference Call. Today's conference is being recorded.
At this time, I'd like to turn the conference over to Mr. Luis Carlos de Pablo. Please go ahead, sir.
[Foreign Language], and good morning, everyone. Thank you for joining us to discuss the results of Becle S.A.B. de C.V., commercially known as Jose Cuervo, for the fourth quarter ended December 31, 2017. I am Luis Carlos de Pablo, and I'm joined today by Juan Domingo Beckmann, our Chief Executive Officer; Daniel Elguea, our Chief Financial Officer; Mark Teasdale, President and Chief Executive Officer of Proximo Spirits; and Luis Felix, Managing Director of Mexico.
Before we begin, I would like to remind you that the figures discussed in this call were prepared in accordance with the International Financial Reporting Standards, or IFRS, and published in the Bolsa Mexicana de Valores. The information for the fourth quarter of 2017 is preliminary and is provided with the understanding that once financial statements are available, updated information will be shared in the appropriate electronic formats.
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 our use of terms and phrases such as anticipate, believe, could, estimate, expect, intend, may, plan, predict, project, will, goal, target, strategy and similar terms and phrases and may include reference 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.
I would now like to turn the call over to Juan Domingo Beckmann, CEO of Jose Cuervo.
Good morning. It is my pleasure to speak with you today to discuss Jose Cuervo's fourth quarter results. I would like to make some brief comments, and then I will ask Mark Teasdale and Luis Felix to update you on our regional performance. Daniel will then walk you through our financial results.
We had a strong fourth quarter with growth across each of our geographical regions. Fourth quarter net sales grew in spite of the difficult comparisons created by the buy-in prior to the price increase on Jose Cuervo-branded product, that took effect in January 2017.
For the quarter, we generated 4% volume growth and 13% consolidated net sales growth. Additionally, we reported improved margins and finished the year optimistic about our outlook for 2018. During 2017, we had many accomplishments. We completed our initial public offering early in the year, raising capital to support our strategy of building a global spirits company. We established our own route to market in Australia. We also announced our first acquisition using the IPO proceeds during the fourth quarter when we agreed to purchase the Pendleton Whisky brand, and we have recently completed this acquisition.
Throughout 2017, we have seen the benefits of our vertical integration strategy, which we believe is a competitive advantage in the tequila market. The tequila category and our families of tequila brands had another strong year of growth. For full year 2017, we produced over 6% net sales growth, and we are proud of this performance. We are well positioned across our regions and categories, with a strong financial position to support our growth, goals and long-term strategies.
I will now turn the call over to Mark Teasdale to discuss our U.S., Canada, EMEA and APAC businesses.
Thank you, and good morning, everyone.
We are very pleased with the fourth quarter performance in the U.S. and Canada. Considering the buy-in ahead of the January 2017 price increase, our true underlying volume growth this quarter was significantly higher than 1% reported volume increase. We are confident that we have fully absorbed the price increase, which is evident in our margin.
Net sales were up 10% during the quarter, driven by volume growth, the price increase, improved mix of products and continued growth of our premium brand. Our focus on premiumizing our overall portfolio is continuing to bear fruit as our average net sales per case increased 9%.
In U.S. and Canada, we continue to see strong performance on tequila. For example, 1800 net sales were up 16% on volume growth of 12%, which brought the brand over 1 million case annual volume mark for the first time in the U.S.
Across the portfolio, net sales of our 100% agave sales were up 16% for the year. On Jose Cuervo Especial, we continue to see good growth in Silver, which grew volume by 15% to over 1.1 million cases for the year. Silver now accounts for 33% of Especial, up 29% from last year.
Just a brief overview on our new acquisition, Pendleton Whisky. We see considerable opportunity. In line with our previously discussed acquisition criteria, the brand is premium and scalable. It's growing in the U.S. and will add scale and scope to our portfolio by supplementing our whiskey offerings.
Turning to the EMEA and APAC region. We continue to see strong trends for Bushmills in Europe, where depletions were up 20% in 2017. Kraken Rum continues to be a great story, and we are excited about its continued growth globally. In fact, over half of Kraken volume is now outside of the United States where the brand was originally created and launched. The global success of Kraken is a powerful example of our brand innovation capacity, which complements our track record of successful acquisition and organic brand growth.
As the scale and scope of our portfolio grows, we will see increased influence to distributors in the EMEA and APAC region. We expect all these factors to drive further growth of the Jose Cuervo and Bushmills brand in the EMEA and APAC region going forward.
In summary, we finished the year feeling optimistic about 2018, with healthy depletion, normalized inventory and proper levels of investment in our brand throughout the U.S., Canada, EMEA and APAC.
Now let me turn the call over to Luis Felix to discuss Mexico.
Thank you, Mark. Good morning, everyone.
We have a good quarter in Mexico. Recall that our fourth quarter is the most important quarter, representing about 40% of annual sales. We reported 3% volume growth and 14% net sales growth and saw good depletions in both major channels. The net sales growth was driven by the volume increase as well as both pricing and favorable mix. We took a price increase in August, which was our second increase of the year, consistent with increase across the broader market.
Our tequila business was up 6.4% in volume, with better margin, and drove growth during the quarter while we continue to take market share. We had strong growth across our premium tequilas, including Maestro Dobel, Centenario and 1800. We also launched line extensions to some of our premium tequilas in this quarter, such as Centenario 40 and Maestro Dobel 50, an ultra deluxe line.
We generated growth in other spirits during the quarter as well. Kraken was up 29% in volume, and our vodka business was up 5%, with all vodkas performing well.
Boost, our energy drink, the volumes were softer in the quarter due to reduced promotion and lower volumes at a couple of retailers. At the end -- we ended the year with 10% growth in depletions and have started the new year with healthy inventories.
Turning briefly into Latin America. We ended the year with flat volume and are focusing on Colombia and Brazil where depletions have exceeded shipments. We're looking for growth in these markets in 2018.
We're optimistic about 2018, and we'll continue to drive market share in tequila. Another price increase was announced this month. Our competitors are also taking price increases to reflect the higher agave prices, which reaffirms our vertical integration strategy and should help margin.
I will now turn the call to -- over to Daniel Elguea, our CFO, to discuss the second quarter (sic) [ fourth quarter ] results in greater detail.
Thank you, and good morning, everyone.
I am pleased to discuss our fourth quarter results with you today. Jose Cuervo continues to be in a solid financial position. We finished 2017 with good results. We are well positioned in the global spirits industry and have substantial financial resources available to us.
Let me walk you through the fourth quarter financial results. During the fourth quarter, the company reported 13% net sales growth to MXN 8.3 billion. This was driven by 4.3% consolidated volume growth to 6.4 million 9-liter cases. The growth was broad-based across all regions. Net sales in the U.S. and Canada increased 10% on 1% volume growth. Net sales in Mexico increased 14.3% on 2.9% volume growth. And net sales in the Rest of the World region increased 48 -- 47.8% on 28.5% volume growth, the latter including the new route to market in Australia. Mentioned results were achieved by a MXN 5.6 appreciation to the dollar quarter-over-quarter.
Looking at category net sales and volume performance. Net sales of Jose Cuervo increased 5% driven by 3.4% volume growth. Jose Cuervo represented 1/3 of net sales already. Other Tequilas reported 35.5% net sales growth on 18.8% volume growth. Net sales of Other Spirits increased 23.6% on 7% volume growth. Ready-to-drink net sales increased 11.7% on 7.7% volume growth. And finally, Non-alcoholic and Other net sales declined 2.4% on a 10.1% volume decline.
As for gross margin, during the fourth quarter of 2017, gross profit was MXN 4.9 billion, up 18.7% as compared to the prior year. As a percentage of net sales, the gross profit margin increased 280 basis points to 58.4%. The increase in gross profit margins was primarily driven by pricing and favorable mix while our vertical integration strategy is mitigating higher input costs. We continue to perform in line to our vertical integration strategy this year and continue to target reaching 90% during 2019. While third-party agave costs showed continued upward pressure, we were able to deliver on our cost of goods sold strategies.
Overall, A&P investment was accelerating, in line to our original strategies. Fourth quarter A&P as percentage of net sales was 22%, in line to our full year results, which closed at 22% as well.
Operating profit increased 31.7% quarter-over-quarter to MXN 1.9 billion, mainly driven by the higher gross margin. EBITDA increased 25% to MXN 2 billion or 24.6% of net sales, up 240 basis points.
Net comprehensive financing result this quarter was positive, closing at MXN 660 million, mainly reflecting the noncash benefit of quarter-to-quarter Mexican peso exchange rate devaluation on cash on hand held in U.S. dollars. The latter parts of the offset in H1 unfavorable result derive from an opposite currency exchange rate behavior.
Full year net comprehensive financing closed at MXN 773 million, minus 17.4% versus a year ago. Q4 consolidated net income increased to nearly MXN 2.5 billion or MXN 0.68 per share. Consolidated net income in the fourth quarter was benefited from favorable noncash onetime tax impact.
These tax impacts, which represent a net benefit of MXN 766 million, respond to: a, tax loss generated in Becle behind exchange rate and inflation effects on cash position; b, the enactment of the U.S. tax reform, which resulted in the reevaluation -- revaluation of our net deferred tax liability of our U.S. affiliates; and c, partially offset from changes in the estimation of tax receivables. Net of noncash onetime tax impacts, full year net income grows 26% year-on-year.
During the quarter, we repurchased 4.9 million shares under our MXN 3.3 billion stock repurchase authorization. We believe that current stock price is undervalued, but we remain being opportunistic with respect to stock repurchases, balancing support for the stock price while maintaining a healthy free float. Our primary use of cash remains behind potential acquisitions.
The company's cash balance as of December 31, 2017, was MXN 20 billion. This compares to total debt of MXN 9.8 billion. We ended the fiscal year in a very strong financial position, with significant surplus cash and the capacity to add additional debt leverage if acquisition opportunities are to materialize.
I want to thank you for your interest in Jose Cuervo. And I will now turn it back -- turn the call back to our operator to begin the question-and-answer session.
[Operator Instructions] And our first question will come from Luis Miranda of Santander.
Mark, the question for you is in terms -- you mentioned 1% growth adjusting for the buy-in for fourth quarter 2016. I was wondering if you could give us some additional color in terms of the performance of the Jose Cuervo and the premium brands and market share during the last quarter, if you're seeing any material change and especially if you're starting to see price gap narrowing with your main competitors from what we have seen in the mid of 2017.
Thank you, Luis. Basically, we're in pretty good shape. I think if you remember back when we estimated it was about 560 throughout 63,000 cases were in 2017. So actually holding the volume growth or growing 1%, our organic growth is actually much higher, probably 3 or 4 points. The reality on the trends is, with the latest Nielsens, we're actually up a couple of points as we absorb that price increase. I think you questioned about the superpremiums. We're feeling pretty good about our 2 entries in superpremium, Dobel and Gran Centenario. Both were up double digit for the year. We took some pricing a year ago on that -- on both brands, so we're a little slow in the beginning of year. But actually, for the fourth quarter, both Dobel and Gran Centenario were up over 30% in depletions. So it's real positive momentum. I think you asked about pricing. We still have about a $4 to $5 gap to the popular tequila brand that competes against Jose Cuervo Especial, but we still have maintained our 73% share mix, though, over the last 2 periods, which is still up about 3 share points from the previous importer despite that price increase and despite that widening gap with the player there who's not being named in the popular tequila segment. Does that cover most of your questions there?
No, no, that's clear. And just a follow-up question in terms of A&P. Daniel, you were mentioning it was below the target of close to 23%. How should we see this number going into 2018, going back to the 23%? Or are we seeing a new level in terms of A&P?
Yes. On the long run, Luis, we'll continue to target around 23% of net sales value moving forward. This year in particular, we have accelerated [ SB ] growth behind both volume and premium mix on our product, so -- and A&P didn't pace at the same rate. But we continue to target around 23%. We strongly believe on continue supporting A&P investment to drive our brand, and that doesn't change from the original comments that we shared with you guys at the IPO moment.
And our next question will come from Andrea Teixeira with JPMorgan.
So I wanted to go back, Mark, if you can update us on the quarter-to-date trends in the U.S. as we see it in the beginning of the year. And I just wanted to clarify, you were saying before -- I think Daniel was saying that there could be some of the -- your key competitors following some of the price increase because of agave. But specifically in the U.S., I think you had one of your major competitor on kind of the mainstream segment for Especial did not follow. So if you can give us a state of the union situation in terms of pricing and competition and across -- and depletions across all channels.
Sure. I guess, Andrea, I guess you're referring to -- first, I guess you're referring to Sauza as the key competitor there, which is pretty good, it's pretty good, which is about $4 or $5 below us. They don't seem to have followed us. Their promotional activity has been heavy. But candidly, it's kind of not our focus. We see ourselves as a premium brand that competes more with things like Jack Daniel's across different categories. So we talked about tequila share, but a lot of our competitors really are these 100% agave brands, such as el Jimador and other brands that have, over the 24-peak week period, 26-week period, actually reduced price to be more competitive with Jose Cuervo Especial. But taking the pricing, which had not been done in a long time, absorbing that price, we feel confident as we move into this quarter, which I think was your question, about the trends that are happening. The Nielsens are trending our way despite -- we've talked about that for Nielsen, California is kind of [indiscernible] for us. A lot of our growth has been in the smaller sizes, which are underrepresented in Nielsen. And those are growing double digits, and they're big net sales value drivers. And a lot of good growth in the on-premise. So overall, we're pretty solid. Like I said, our 16-week trend is about 6% and 52, a little less than that. But overall, pretty solid. So I'm cautiously optimistic going into this year that having taken the first price increase in many, many years, despite the agave pressures that others may come under this year, I think we're well situated for continued positive growth.
Andrea, this is Luis Felix. I think the comment was made for Mexico that we -- just to give you -- we just announced a price increase, and we have seen in market that Brown-Forman, Pernod, Diageo and others are also announcing price increases here in Mexico.
Oh, I appreciate the clarification, Daniel. I guess you were referring more to the domestic market. So you're seeing -- in the price increase, can you quantify how much it was at the trade and how much you would see as a price per case for Cuervo?
In Mexico, the price increase that we just announced, it's a weighted average increase of about 3% across different brands.
And our next question will come from Antonio Gonzalez with Crédit Suisse.
I just have 2 quick questions. The first one, perhaps for Daniel, we saw that your inventories increased over 20% year-on-year. And my understanding is you are taking advantage of opportunities in the spot market to smooth the pressure that we're seeing in the agave market. So I just wanted to see if you can give us a little bit more color regarding how far in the year 2018 are you covered in terms of advanced purchases of agave and what kind of pressure, if any, you expect in terms of gross margin as a result of these dynamics in the agave market in Mexico. So that's the first question. And then secondly, perhaps more on the strategic side, I wanted to ask if you guys can share with us whether your M&A perspectives have changed at all strategically. Obviously, we've seen a couple of transactions in the ultra premium space in tequila, specifically in the U.S specifically, that arguably are coming at a valuation that is on the relatively expensive side. So I just wanted to ask if for you, these changes being at all -- whether strategically you'd rather allocate your time and effort in other categories outside tequila or other geographies or, quite frankly, you're not seeing a material change in the M&A opportunities going forward.
Thank you for participating on the call. On the agave question, which is your first question, yes, as we were mentioning, throughout the year, we've seen -- throughout the year, and I referred to 2017, we've seen the third-party agave costs being under pressure and on the spike. We started the year at around MXN 13 to MXN 14 per kilogram, ended the year at around MXN 22 per kilogram. We've -- as you've seen in our results, we've been very focused quarter-on-quarter to manage tactically, strategically our performance on the buying of third-party agave. And as we were talking, we did perform this end of quarter some -- we closed some contracts that allow us to buy some tequila bulks at a very favorable price. And that has been opportunistic in order to ease off pressure on 2018, and that's why you see the inventory spike already. So what we're doing is we're continuing to manage on a very short leash fine-tuned detail how we acquire our third-party agave composition. All this with continued work on our vertical integration strategy, which continues to be on point to deliver 90% during 2019. As to how much we've been able to advance and cover from 2018, I would like not to comment, but -- for obvious reasons, but I can tell you that we are managing very closely the exercise of the year. We believe that throughout all 2018, third-party agave prices will continue to be under pressure, and we continue to manage our purchasing strategies upon that belief. And we believe that we will continue to see a pressured third-party market all throughout the year. As for your second question on M&A strategy, I would like to defer to Mark to expand on that one for you.
The -- I guess, basically -- and just first on the first part about the other tequilas transaction, some of the ones in the superpremium. I think it just validates our strategy and confirms that there's a great global interest in tequila and kind of supports our point that tequila is a part of the future, both globally and in the U.S. So I think some of the premium space for those transaction just kind of validates there's a great interest in our category. On the most recent transaction that we closed last week, Pendleton, we're -- we've been consistent. We've told the -- your group there that our objective is to find brands that are premium and scalable, and Pendleton is a great whiskey brand. North America whiskey is a growing category, and it's a big category. Pendleton starts at about $25 a bottle, so it's in that premium area. Supply is not an issue, so we think we can grow this brand quite nicely across the United States and upward as well. So we'll start to investigate some global pockets for it. But I think it is a rich, rich opportunity for us just in the United States alone. So we're pretty happy with it. As we go back to talking about our M&A strategy, we talked about Bushmills being ideal from both the global diversity as well as category diversity. And this just also strengthens our category diversity with Pendleton. So excited about this move in North America within a big opportunity for us right now.
And our next question will come from Benjamin Theurer of Barclays.
Wanted to focus on the other spirits because we have touched on them. If you could elaborate a little bit on the growth dynamics within the different segments on other spirits, volume versus pricing, how you've been doing with Bushmills, how you've been doing with the rum and with the other categories, gin, et cetera. Just get a little bit of a sense where you think you can go in 2018 in terms of volume and price growth in those categories as they've become more and more meaningful and now represent almost the MXN 2 billion of sales in the quarter, that would be much appreciated.
It's Mark here, Benjamin. I guess I'll kind of walk through the categories. From the standpoint of rum, we've really -- I'll touch on rum, a little bit about whiskey and touch on white spirits because it seems to be the hot button these days. From a rum standpoint, Kraken really is performing extraordinarily well. As mentioned, more than half the volume now coming outside of the United States. In Europe, Kraken was up 30%. Asia, it's doing really, really well. It's up about 65% in Australia. As you know, we bought our own route to market last year in Australia to form Proximo Australia, and that's delivering all the benchmarks that we've set out for it. So we're pretty excited about that. And the Kraken net sales values in Europe are really strong. So I think that's an area, when you ask about pricing, we can continue to improve upon. From the standpoint of whiskey, also some strong performance. U.S., I think, was up about 8% or 9%. Europe, Bushmills, which is the biggest whiskey market for us, Bushmills depletions for Europe and EMEA...
That -- just that 8% or 9%, that's volume or sales?
Depletion, volume.
Oh, okay.
Yes, yes. So our volume for Bushmills in EMEA was actually up 20%. APAC is pretty small. So overall, the Bushmills brand is moving really nicely and premiumizing as well. As you know, we came out with a new variant called Red Bush. We continue to develop new innovations off of that. Sexton is a single malt that seems to be performing very well for us in early days in the U.S. So we're pretty excited about that. Our American whiskey, Stranahan's, TINCUP are growing well. TINCUP is an American whiskey about $25 a bottle, grew 30% in depletions of volume last year. And we expect it to do about 100,000 cases this year. White spirits. Gin is doing well. Boodles is doing well. Our sensitive spot is Three Olives. Three Olives is not immune to the troubles that flavored vodkas are having in the U.S. It was a little soft this year in volume. But the good news is for the fourth quarter, we had month-on-month growth, 3 months in a row, and Three Olives was actually up 3% for the fourth quarter last year. Then in the year, we closed out some novelty flavors and have really focused on our unflavored and more traditional fruit flavors. So from a volume standpoint, pretty good shape in rum, whiskey and white spirits. Pricing opportunities in whiskey may come apart, but there's nothing on the books now.
Your next question will come from Brett Cooper of Consumer Edge Research.
First question. Just given the transactions we've seen in tequila, I was just wondering if you could offer your perspective on, I guess, the puts and takes of greater competition at the high end, along with what would seem to be increased emphasis on building tequila in markets outside of the core U.S.-Mexico piece.
The transactions, I think, are pretty self-explanatory. I think everybody has their opinions on the premium space and the superpremium tequilas. We're quite happy with the 2 brands that we have, Dobel and Gran Centenario, as I mentioned, growing double digit with even increased growth recently. We've been very pleased with some of our tequila growth outside of North America. In Japan, for example, we're growing double digit there on Jose Cuervo. And actually, Japan became our #3 market on tequila for Especial behind U.S. and Mexico. Australia, with our reinforced own route to market there, we're also seeing some high double-digit growth. So I think there's a lot of runway, Philippines, Indonesia, on tequila. Asia has had a lot of opportunity, we believe, going down the road. Europe, we are getting -- I think we are -- in EMEA, we're up about 9% on depletions of volume on Cuervo. Germany was up 55%, Italy up 26%. We refined some of our route-to-market strategies there over the last 2 years, and now they're really starting to pay off for us. So pretty good growth outside of United States or North America on tequila. The premium competition or the superpremium competition, I think, given the lower barriers to entry for people to get into superpremium, has actually the most number of entries. But we're also thinking that as agave pressure increases, it'll be more difficult for investments up there. Certainly, the consolidation of the last transaction, you'll see the route to market not change a lot there. We're in a lot of the same places with Patron and Bacardi. We'll be watching to see any shifts in marketing from a consumer standpoint, but we'll keep our eyes open on that one.
Great. And if I can just follow up, first one on the price increase, seems to be pretty positive. I think there were some conversations that you will skip a price increase this year and look for one for '19. I mean, given your comments on agave pricing, would that still be the plan, to look at pricing in tequila in '19 in the U.S.?
We have not communicated any pricing strategy on that. I don't know if, Daniel, if you want to comment on that, but I don't think the agave pricing has affected our consumer strategy.
No, no. No further comments on that particularly. What we mentioned back at the IPO is that every 2 years, we might be considering to increase the price. That would be the plan. But that obviously is subject to a lot of market dynamics from the competition landscape to the cost structure landscape, and it would be assessed as we move forward.
[Operator Instructions] And our next question will come from [ Jorge Huerta ] of [ JBM ].
It is related to Rest of the World. We see volumes and revenues that are growing in an outstanding way. Can you give us more color on the geographies that are outperforming and the brands that are growing within these geographies?
Oh, okay. Was that on Europe you're asking specifically or just Rest of the World?
Rest of the World.
For both, I'll give you both. I will give you both, how about that? Yes, there's a lot of good growth internationally. The 2 big stars, I think we've had high single-digit growth on Cuervo, but really, the double-digit growth has been on -- and sometimes triple-digit growth has been on Kraken, which have very high net sales values, as I mentioned before. It's really a real true global brand, Kraken is right now. We have triple-digit growth in Germany and Italy. U.K., where Kraken is actually our largest brand and bigger than Cuervo, is growing at 15% at a very high net sales value per case. And that's a big, big driver. EMEA overall for us is up 30% on Kraken. On Cuervo -- excuse me, on Bushmills, which has really been a shining star for us as well, it's a fairly mature market or a mature brand, Bushmills is in Europe. So to see 20% growth in depletion of volume is exciting. Some of the highlights there. Russia, up 90% for the year; Poland, up 60%; France, 42%; Germany, up 30%. So we've really found another year in terms of volume and value and growing the Bushmills brand in Europe. Bushmills in Asia is a little slower. Kraken is the driver there. Australia, as I mentioned, really hitting another gear as we form Proximo Australia. But the Cuervo group growth in Europe about single digit, and Asia, as I mentioned, pretty solid as well. But overall, pretty solid performance. I did touch, I think, a couple of times on Cuervo in Japan, now breaking almost 130,000 cases, but good growth in net sales value. But again, Kraken is the shining star, with Bushmills as rising fast and particularly exciting about Bushmills given that it's a brand that's been around for a long time, a very, very long time.
And we do have a follow-up question from Andrea Teixeira of JPMorgan.
I just wanted to -- perhaps if, Mark, you can comment on the distributors in the U.S., the new ones, how those 8 distributors compare in terms of performance against the more established ones and if there is any additional potential changes that you may have given the successes that you've had on this transition. And any other -- I mean, another question. The Rest of the World for Proximo, any other place -- you mentioned Russia, you mentioned Germany and Japan. Any other places where there are low-hanging fruits where you can basically establish distribution or purchase -- do a new agreement outside and continue to grow?
Sure, sure, Andrea. On distribution, we're very pleased with the changes that we made in the U.S. As you mentioned, it was back in April, so we had a couple of months of transition there, but it really bore fruit in the latter half of the year. As you would imagine, with the new distributor network, we moved up in priority. And from the standpoint of where we fall in the pecking order of those suppliers, I think we're actually #2 still. From the standpoint of improved term, that helped us a great deal. So it worked out really nicely. As far as further distributor changes in the U.S. going forward, it's something we don't discuss, but we're very happy with our partnerships, and they really are doing outstandingly well for us. For the Rest of the World, as you know, we have Proximo Canada, we have Proximo UK, we have Proximo Republic of Ireland and now Proximo Australia. We do have a couple on the radar, but our objective is not to plant flags just for planting flags where we want to be. We are currently putting 97% of our business through our own route to market. That number has gone up over -- dramatically over the last 8 or 9 years. So we feel pretty good that we have control of our route to market, which gives us the vertical integration of profit but, more importantly, helps prioritize our brand within the network. So there are markets that we have a keen interest in continuing to build the number of Proximos we have to get that benefit of focus and vertical integration of profit. I don't see us announcing any in the next 6 months, but it clearly has been a real driver of not only focus, but you also get a real benefit from net sales value as you start to sell more to the customer. And that's something we're going to continue to explore on a regular basis.
And just to clarify -- that's very helpful. But to clarify this #2 position, obviously against all the spirits suppliers, right, within the distributors?
Yes, spirits, sorry about that.
And we do have another follow-up question from Luis Miranda of Santander.
Just in terms of the growth we're seeing in tequila and also in Bushmills, I don't know if you could give us an update in terms of your installed capacity and expansion program?
Yes. If -- Mark, if you want to pick that one up, Daniel here. Yes, we continue to move forward with expanding capacity on tequila. We're expanding nearly 30% of additional expansion capacity as we speak. We are building a new distillery in Tequila, Jalisco. Likewise, for Bushmills, we continue to move forward with our plans of expanding 100% of additional capacity in Ireland for whiskey. So those are our 2 main CapEx and capacity expansion projects that are well underway.
Daniel, the expansion in Tequila, it should be ready from second half of this year?
No, it should be ready by 2019.
And it does appear we have no further questions at this time. I'll turn the conference back over to our presenters for any additional or closing remarks.
I would like to thank you again for your continuing interest in Jose Cuervo. We remain extremely confident in our family of brands and our prospects for continued growth. Have a great day.
That does conclude today's teleconference. Thank you all for your participation. You may now disconnect.