Q3 2019 Earnings Call
Please standby were about to begin.
Good day and Lucky this cc use third quarter two doesn't meet peak earnings Conference call. Today's conference is being recorded at this time I like to turn the conference over to Claudio loss.
Head of Investor Relations.
Please go ahead Sir.
Welcome everyone. Thank you for attending Cc use third quarter 2019 conference call today with me so deep into it and it Chief Financial Officer, Nicholas Novoa financial planning and Investor Relations manager I'm kind of renewable Douglas investors.
Relations senior annually.
You have received a copy of the company's consolidated third quarter 2019 result.
So the fit we review or overall performance and we will then move into Q and a session.
Before we begin please take note for cautionary statement.
Statements made in the school that relates to see see use future performance or financial results are forward looking statement, which involve known and unknown risk and uncertainties that could cause actual performance for me so to materially differ.
These men should be taken in conjunction with the additional information about risks and uncertainties sets forth NCC use I don't report in form 20-F, five with it you with security and Exchange Commission and the annual report submitted to the C M ATV and available on our website.
It is no my pleasure to introduce Felipe it wouldn't it.
Thank you all I'm, saying to you all for joining us today.
So what sort of 2019 in spite of the less dynamic economic sense that you see you go for me. They did volumes performed well CPV by growing 6% who bought despite operating segment.
Despite how you to boardings EBITA was down 6.8%, an EBITDA margin decreased 128 basis points to 16.3%.
The weaker financial resources were mainly explained by the depreciation of the Chilean peso and I didn't think based so against the U.S. dollar increasing our U.S. dollar denominated golf.
Yep, Geisha hyperinflation accounting and I've been theme that mainly affecting.
The goal foundation upon which I didn't think besides.
You do do it wouldn't be 8.7% devaluation or would be out in time.
So.
Again the team in place.
Six doesn't really affect Mobikwik golsen right did they not been being there were no significant <unk> Gulf and safety in the short term with efficiencies I'm right.
Huh.
We are.
Concentrate at all.
Consequently International operating segment they meet the dropped by then so some 433 I mean, you're looking at basis.
And then explaining the consolidated they'd be stuck on the actual well for so since excited on 47 million team in place.
But the team got away operating segment delivered positive EBITDA growth, even excluding nonrecurring operating gain of 3114.
Tienanmien paces in.
In the cleanup anything.
These gain was 40 all sit I admit didn't come 11 by a nonrecurring no no but anything else you know net income decreased by 55.5%.
He did you nobody segment, our topline rose, 5.6% with boardroom X. I'm being 6.5%.
So they didn't with respect to the first half of the.
I would it right were down 0.9% explained by promote sort of like BBB person compensated with revenue management exports.
That's about you dropped by 94.
Basis point, mostly due to high U.S. dollar denominated cost from the weekend.
Yeah, the peso against the U.S. dollar Amisom DNA.
Expenses, so suffice it to the open lets say.
Worsen, it's likely by 35 basis point, mainly due to the anticipation of marketing expenses as well should partially compensated by efficiency gains in these anymore.
You know it'd be expanded 8.1%.
Excluding the already mentioned nonrecurring operating gain from the signal for realistic dossett it'd be expanded 1.9% and maybe some odd didn't reached 19.5%.
And then there should be that's operating segment, which includes that didn't being I believe you why and part of why most of the 6.2% increasing volumes.
3.9% when excluding what do you.
Most of it even but you would go much combined Vietnamese not didn't be enough demonstrating the strength. So if I wouldn't board Oh, I wouldn't be a portfolio.
However, net sales declined 16.4% on gross margin contracted from 47.1% of 41.2% explained by no whatever that surprised to see Chilean pesos, mostly due to the negative impact off the charts, thereby depreciation of the I didn't think based so again the Chilean pesos.
During the what I'm sorry, so does meant that have not yet been enough to offset the effect of inflation on devaluation, you know what cost and expenses.
It's important to mention that he takes time to compensate for that impactful such magnitude and we expect to gradually do so by implement that by implementing revenue management initiative.
Accordingly, we increased prices by 25% by the end of September you know Janine.
You know it'd be thought was marginally positive doing quite a bit.
So why nobody thing second boasted is 3.3% increase in revenue explained by 4.8% how your volumes.
Actually offset by 1.4% drop navidad right to think TTM basis.
Well what prices seen Chilean pesos were mainly explained by negative mix effect in exports.
You.
Domestic I didn't I might get you do do can corporation Oh volumes from the recent yeah acquired brands in Argentina more than offset offsetting it supposed to get effect from a strong getting U.S. dollar on export revenue.
Your operating segment gross margin continue to recover these quite a bit we have proven a 428 basis point from 37.6%, 41.9% brightman associated with low what it cost of wine against last year.
Well together, if you stop expanded 29%, an EBITDA margin improved from 16.8% to 21%.
In Colombia, where do we have a joint venture with Boston, We continue to posted positive performance he volumes and policy shouldn't be now our local mainstream media.
That'd be sure we have successfully developing I would have strategy I don't know about to produce our premium beer portfolio Logan.
In the most particularly our recent launch, but I'm not too much basketball MOCVD.
During the third what did we continue on an upward commercial threatened by almost three putting our volumes.
So I was.
More than double I wouldn't I could relate that volumes, we will continue focusing on developing but I think we'd be I'm commercial execution with about 50 that involves new consumer experiences while it be any knowledge.
No I, we'd be glad to answer any questions you may have.
If he would like to ask a question signaled by pressing star one on your telephone keypad. If you are using a speaker phone. Please make sure. Your mute function is turned to like or signal to reach our equipment a voice problems on the phone line wanting to get when your line is open. Please state your name be Purposing.
Your question again star one to ask a question.
And we will take our first question.
Hi, good morning to flu contribution from Goldman Sachs 40, Philippe Good morning, everyone. Thanks for taking my question I I was hoping you could comment a bit more about some of the.
Indications you gave in the press release about the competitive evaluating Chile, a if you can specify you know what segments is that more.
Pronounced.
What do you think it's driving this as well as the fact, they seem to you've been able to counter those pressure at least when it comes to sort of volume resilience and a you know what part of being in what has proven more effective and how would you expect that due to to play out going forward also considering the reason.
Disruption in the market then you don't even if you can share some thoughts about that it would be helpful. Thank you.
Good morning, Good morning look I think you for you to afford your question.
The the competitive environment. It has not changed a in quarter three and a we are facing similar levels of competition. You noted that they go these uh huh.
Especially in a in a in soup automatic yet, but also in a in traditional in traditional Trey.
And in the US you mention.
We are very happy with our vote they have been receiving.
Okay and.
In all across the board in all categories.
Yeah, It's a fact in Chile, we do 6%.
During the quite a bit of being a b a growing high single BG I know not quarterly mid single digits.
So.
We serving or hobby is stable market Chad so.
We have stabilized our market Chad in an inordinate enormous capabilities. These how sick counterpart that these the level of promotional activities that impact or where the average price, but told me that as we pointed out in the into it.
In the press a in the press release.
During two the recent event in <unk> I do not.
The only comment I caught the during so fighting not when events. Our priority has been to ensure the security be all I would employees and collaborate doors on every as they call them from supply appliance and the community. Additionally, but I would too.
To emphasize the commitment or public company.
And to continue to operate.
Insight and couldn't be shows on what I can say dot we have been operating without any major incidence.
Going to sort of whatever no we do not provide in fourq.
I thought.
Yeah and indeed.
This is a and b statement of not providing a forecast right for said by the uncertainties.
So.
Understood if I could just to clarify one point about the particularly in the beer segment I guess you know other times, what we've seen a big.
[noise] promotional activity or competitive pressure, especially in the mother trade. It was a bit over there was definitely a bit of a market share gain there. So you know.
Considering the fact that you seem to have reacted quite a great. Since the first question would be if you'd be reacting to a competitive environment have you been driving it more competitive environment that you. So maybe some signs of a.
Promotional activity and given the fact that doesn't seem to have <unk> move a share.
Significantly you know what stand game here would you expect some stabilization given that it doesn't seem to be a driving meaningful changes in market share.
Yeah, I'll say I already mentioned in previous conference calls in quarter, four we experienced some dropping in market chatting, especially in beer. However, we have recover these seen in quarter, one and now what I can say the marketshare has been.
ER stabilize HM Okay. So you know a at 14 in branding and insight in successful launch off the us the new words, you know for all four of can be style to somebody shut off a.
Very good but for myself at school CD read all sold Royal God. These continued to perform very well on its way loss activity cease all anhang again so the.
The study station off market Chair is explained by several factors.
Okay understood. Thank you.
[noise] and we'll move toward next question.
Hi, Good morning, everyone. Thank you thinking forward to called.
My question is on on arginine.
That makes definitely the outlook has been that's been quite challenging and.
And you guys announced a price increase by the end of September if you could give us a little bit more color how that has been.
Thinking or how much data that the pressure youre seeing.
In terms of raw materials and the currency at least for Q4 and if we should expect.
Further price hikes going forward.
Thank you.
Your name. Please because you didn't mention your your name Oh I'm sorry.
Someone out there from Merrill Lynch Im sorry.
Hello, Good morning, Isabella [laughter], Okay. Thank you.
Okay, Yeah, the palm thinks I'm getting my mind Dnbi economic environment, I mean, I didn't see now has been particularly challenging, especially with the devaluation of the currency that the affect US you know eyewear to I would.
I would have U.S. dollar denominated.
Cost so the devaluation against the U.S. dollar child isn't it practically a whenever that she's a 77% devaluation off all four of the U.S. dollar or in it but peaks so so but.
[laughter] far above inflation and.
Far above our prices increases so, but the good news of the quad cities that the at the end of the work that we increased prices by 25% on these was implemented in October but you should be knotty now in order to Riegelwood Prophy Debbie.
So we will continue to focus on revenue management initiatives, nor that to gradually recall that these PWB alone Weve every efficiency. We can do you know whatever they shows in order to recover to profitability.
The business is very solidly dynetek himself, our portal or would it be a portfolio with very good to perform miles off of our brands specially made yet and it's nice that where do we had a very happy now of being disposed sort of the out in time and national being weak. It's now you that.
So and the point now as you pointed out eased up prices increases.
I will not be now, but the tension or foresees to gradually recover to profit W. me.
That's clear thank you very much.
The next question.
[laughter] feel everyone Nicholson from Dongbu Securities and my question is related to the original Colombia. It can you give us any guidance of the volume full day from here.
That's right.
It goes Hello, Thank you for <unk> Western together in Colombia, We did some guy down seemed a in a in the earnings release Dot So fighting to correlate that ER volumes, we are practically doubling our last year.
Volumes, but we saw necessarily nothing that age I mean that sort of what the where we have three beating the volumes. We it's that the last year that we sold off importantly years last year about half a million.
Starting to so a it is.
Easy to deduct that we really be or something between 1 million to 1.5 million.
The only that seen in Colombia.
Are these running right.
Okay and in terms of Lucky true it also their time, putting proof or.
<unk> Yeah of course of course, we had a gaining market share to because the industry is not growing at a decent right. We had we had a growing market chest Stephanie.
Well, thank you Brett.
And we'll take our next question.
Hi, guys. This is mohammed for for eastern here in Toronto I've.
Two questions for now and then I'll get back in queue for two more the to call first a question are there more longer term in nature, a little bit I'm. So if I look at the revenue growth in Chile between 2014 2016, it was close to 9% on average in those three years and in the last three years, including 2019 to growth socks.
Slow to about 5% consistently with varying mix of volume and pricing can you give us any color from a longer term perspective off any any structural change in demand dynamics either demographic or.
Or market share or industry position, where this wouldn't be a more sustainable level of growth going forward versus what was in the past.
And my second question is I believe Andina recently started distributing spirits and ER and there has been other talk by other bottlers off sort of combining a alcoholic distribution or increasing reliance on alcoholic distribution through their network does that structurally change.
The market from a distribution advantage or competitive positioning perspective. Thank you.
Oh, Yeah, we got to your first question I guess I I will do we don't provide any any any any future forecast on that but that you. If you. So always the aim oh well see you used to increased profit that meet the through.
Revenue management.
Volume grow I.
And also efficiencies.
So do come in so in sometimes even the competitive environment.
We added what able or not too.
Increase prices.
In the long term always where we'd be increasing prices. According to inflation in the indicative equity, however, TV and inflation.
It has been.
Has been a low income buddies along with other markets.
So on a sometimes it takes time to compensate the external chalks Oh, you know we have experienced also a big devaluation of the current seeing teeling 2014 aren't they.
Two years, he noted to compensate such effect we.
The two stuff we have in the business that these volume.
Innovation.
Fishing season, and pricing, but it takes time, but they cannot predict even because also we are in a competitive environment how.
How long would take to compensate the.
External effect.
Regarding your question, Oh, I'm being Ah I don't have any particular coming from that.
What what we saw into world is that there will be a moot because they already operate Asian Babbitt arch.
Yes. This is trading volumes and he's the model that you are hot.
For the long term.
So we have being opened 18, we had it wouldn't be got the equity beverage retrofit eight or.
So yeah I would remain one of our main competitors don't seem teed. It up as you mentioned some being Uh huh.
Are you seeing goulding, they wouldn't pick up they already in their operations and make sense at the end because.
You said model that provide folk synergies, but you need to be said with the default.
But I don't have any especially column in Tidy addition hurdle to.
Hey by mentioning Dot already N.V. now has a very significant gain in distribution and a and say it's already mm.
Yeah, I guess my concern is concern was more does that make DRG codes of product portfolio more competitive versus your or alcoholic portfolio basically.
Yeah, that's about it they we we have be we have had a very good performance. He now where a speedy portfolio that competes directly with the agile. We do have US you know do these people showing all for off but in order to GAAP.
So on and yet your has been on the hands. So if I'm being there for the last practically more than one year.
So it is not the recent change.
And okay throughout the last year, our where to speed portfolio has been performing very well.
Okay.
Thank you very much a I'll get back in Q.
And once again as a reminder, that star one for questions well take our next question.
Hi, Good morning, Felipe doesn't seem to do something new and salaries from credit Suisse.
A couple of questions on my side as well the first.
And Chilean markets I wanted to ask Philippe if you can in light of the a competitive environments that you disclosed earlier, if you can give us any if you can remind those the numbers off in broadly how much your portfolio.
Yes, it is broadened or diversified over the last I don't know five years, maybe if you can give us any indication of sole on high indicating that perhaps see in aggregate.
All of your premium brands everything excluding it's schooled on could you started maybe how much of the portfolio. If the deeds. These brands account for four or five years ago.
Ah how much do they account for now.
That's number one and then number two.
I wanted to ask I appreciate that you a do not make forward looking statements in but I want to ask qualitatively that the following question.
If you look at the start of the excellence program right.
We saw a number of years in Chile from perhaps 2014 opened the last year.
Is that your EBITDA margin was improving it consistently right every single year in Chile, perhaps with the exception of 2016.
And now year to date 2019.
They'll put it is happening rights, perhaps because you have captured some of the efficiencies from excellence, yet because of the competitive environment or any other reason that might be either so I. Just wanted to ask if you. If you can do you both side an assessment of going forwards.
Are you seeing the trajectory falls Mar improving margins can be it we cover no.
A going into the next two three years or roughly speaking given the competitive dynamics. He sees these sort of the new normal I guess, we should be thinking.
Okay Dawn you.
Let me answer your first question regarding the premium segment, yes, the premium segment has been growing.
All forward volume me.
The premium yes, so go read something when the 1% of the volumes now where they sit in the range of 24.
The 5% all the.
The the portfolio on.
For the can be seeking to the mainstream and undervalue devalue segment.
Oh, sorry, you'd or your question.
What I would say you mentioned 2016, I I see this year they seem to get out to 2016 2019, because we are experiencing.
Sharp devaluation of all the currencies not only the I didn't think base. So that these more but also the Chilean peso a in fact, the Chilean peso Uh huh devaluated, yet to date and 9%.
And now we have seen yet it Chilean peso in the range of seven southern kind of 40 750 in the last.
Three weeks.
So and this impact obviously, where the I'll, let 'em I would be I know.
Dickstein's to compensate how you can compensate us I already mentioned repricing efficiencies innovation on and we have the same strategy I think if you analyze the results Bhagwat in 16 as you mentioned, what's the see me, let's say scenario after the election of 2015.
Then you know the I didn't think personal experience is very sharp devaluation also the Chilean pesos uptime was devaluating, but we weren't able to recover on de lever in 17 and 18 going forward.
You already mentioned I kind of do it if the direction, so but I didn't hear studies there I didn't know what industry takes time to compensate de 6000 miles effect.
Okay. This is extremely helpful. If I may just very very quickly in Argentina. It. After you have increased prices seen September can you give us an indication of volumes at the moment are they still it's somewhat force. It before are the declining and if so you see meeting will be lower.
Single lead you to whats kind of reaction did you see too that price increase.
No. We we we are seeing a deceleration of all of the industry.
Throughout the last month and these continue to be but we're not seeing a collapse in volumes what I, what I can I can say, a we have seen or you know a.
Volumes in the range, all Oh, a low low single digit grow them. So oh.
Oh for awarded but I'll tell you mentioned the price increase does not mean app compensate being back the now what input costs.
<unk>.
Thank you so much Felipe.
Well take our next question.
Hi, its mohamad from voice and again just on Colombia.
If my numbers are correct you have a 2 million hectoliter brewery there is that correct.
No the Mohammed the capacity of the reality is properly continues to be Maionica, Tony if that's okay, sorry, 3 million Oh, okay. So I guess from that perspective.
When can we expect breakeven in Colombia.
You know a we will not do a formal it for them I will focus on that but the again.
Sure passing a one and a half million anecdotally there the deal, but they should at least that they'd be the 11 started to breakeven.
Okay excellent that's all I was looking for thank you very much.
Okay.
And there are no further questions at this time, but once again that star one.
And there are still no question.
And we just did get a question.
Hi, This is starting to college Carlos Laboy, how are you.
Hello Hello.
This is Tony Bucalo for Carlos just a calling out of the question.
Sorry.
Well you've heard that there's been a change at the top of the Colombian leadership recently can you give us any color on on what's happened and whether there will be any sort of significant change in strategy due to this.
No. There is no it changed strategy regarding the change of manager I think we we we appreciate the hike on people should all the former manager Oscar was completely key in the development of central set of I say that including the successful lunch and dinner under construction of the.
<unk>, Yeah, I'm completely sure that the new leadership will continue this Ah this positive Pos so the strategy continues to be the same.
Okay. So we shouldn't expect any major changes.
This is what I said.
Okay great.
Thank you.
And we'll take our next question.
Hello, Thanks for taking over 70 my question Nice just.
The last question regarding your fixed studies could you just remind us a hollywood dealing with that and especially with the with the depreciation were seen in the T. M. Pesa. So you would help us with that'd be great. Thank you.
So we talking the question.
You didn't mention value that you, yes, sorry about that ideas from sales can be done here in London.
Oh feminine Okay, you know from Pablo Nice to hear you Yeah I wouldn't get this topic, we don't catch flow, we don't do a speculative or hedging you know where it resolved we only do hedge im not worried about a steep pick that we're about to keep a nbcs our policy.
Okay, perfect and I don't know if you comment at the beginning because I I do it later in the cold, but he said we're supposed to get any guidance on what are you seeing intermodal volumes, yeah. That's out there whats happening today or it's too hard duck.
I say mention is very upset thing and and we all week before that we never get given the guidance.
Yes, I mean, given the uncertainty not up.
Uh huh.
Okay.
Okay understood. Thank you very much.
[laughter] and at this time there are no further questions.
Yeah.
Okay. Thank you all for attending a two day in the third quarter Tc U.S. able to believe at a solid performance even volumes in a highly competitive environment and challenging economic and social context to partially offset significant experimental effect mainly related to the devaluation of.
The currencies, we expect to continue focusing on delivering profitable and sustainable growth by implementing additional revenue management initiatives. Together, we thought were constant effort inefficiencies safe execution on service quality to our clients and consumers, having a very good day.
Ladies and gentlemen, this does conclude today's conference. We thank you for your participation you may now disconnect.