Despite ‘challenging’ environment, Constellation Brands keeps building its Mexicali brewery

Despite ‘challenging’ environment, Constellation Brands keeps building its Mexicali brewery

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Constellation Brands, a company that holds the rights to distribute Cervecería Modelo brands in the United States, keeps ahead the construction work on its brewery in Mexicali, Baja California, despite a “challenging” political environment, company officials announced.

So far, the works have an advance of 45%, with brewhouse tanks already in place and warehouse and packaging buildings near completion. However, this situation represents a delay of two years. The firm originally planned to finish the facility last December, now it won’t be completed before the end of 2021.

According to a report by Expansion, the company will present legal arguments in the next two months in order to prevent the viability of its US$1.5-billion plant from being decided in a plebiscite consultation.

Part of the population opposes the factory for its presumed environmental impact, especially for the use of water, criticisms that the company denies.

“While the political environment in Mexicali has been challenging, Constellation has complied with all regulatory obligations in accordance with Mexican law, which has been verified by the Secretary of the Interior in Mexico,” said Bill Newlands, president and chief operating officer in a conference call.

Last week, the Electoral Court of Baja California ordered the State Electoral Institute to grant a hearing to Constellation Brands representatives, before issuing the opinion to approve or not a plebiscite on the construction of the plant. The final decision, which was initially scheduled for February 4, was delayed two months.

“One of the arguments we will present is that the State Electoral Institute does not have the legal competence to judge the environmental impact. They are not experts, then they would judge something they do not know, and we are claiming that this decision was already made by the Environment Secretariat of Baja California two years ago, and that is why we are now building,” commented Julio Portales, vice president of Constellation Brands.

The brewer is also verifying that the 20,000 signatures gathered by the State Collective Plebiscite Association to promote the consultation coincide with the voting ID’s to verify that they are legitimate.

In addition to the construction of the Mexicali plant, Constellation keeps ahead with aggressive expansion plans at the other two plants it operates in Mexico, one in Obregon, Sonora and another in Nava, Coahuila.

“We are currently putting the finishing touches on the final Nava capacity expansion, which we expect to be complete by this fiscal year end. This marks an incredible feat of expanding capacity to 30 million hectoliters over the last five years, on time and on budget, while providing ample supply to meet the growing demand for our beer portfolio,” said Newlands.

The Obregon brewery also keeps ahead with design, site work, and utility installations in various phases of completion. The company expects the new five million hectoliter expansion will be completed ahead of schedule by the end of fiscal year 2021, which is about one year ahead of the original time line for this project.

“In any event, upon completion of our planned five million hectoliter expansion project, Mexicali will only represent 10% of Constellation's total beer capacity in Mexico. The capacity we have built in Nava, plus Obregon when completed, will provide more than 400 million cases of beer, which is ample supply for several years to come,” Newlands added.

Aims for 9% growth in beer business

The company anticipates that for the 2019 fiscal year its beer business – which includes the production of brands such as Corona and Modelo in Mexico for the U.S. market – will report an increase in net sales of between 9% and 11%, with an operating margin of approximately 39%.

In the third quarter of 2018, the company revenues were of US$ 1.97 billion, which implied an increase of 9% compared to the same period of the previous year.

In its financial report, the company reports that it reached an operating margin of 37.3% in the third quarter of last year, for which beer production in Mexico contributed significantly.

The families of the Modelo and Corona brands allowed a distribution growth of 8%, which was accompanied by the most significant increase in market share in the U.S. during the third quarter.

According to Constellation Brands, both for Labor Day and for Thanksgiving, Corona Premier, Modelo Especial and Corona Familiar were the three brands that achieved the highest share of imported beer in that quarter.

“The beer business now expects net sales growth for fiscal year 2019 to be 9% to 11% and operating margin to be approximately 39%,” the company said.



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