Q4 2022 Compania Cervecerias Unidas SA Earnings Call
<unk> on our website. It is now my pleasure to introduce Felipe and limit.
Thank you cloud more Saint <unk>, you all for joining us today.
In 2020 tool, we faced a particularly challenging year for the profitability of the business, especially in Chile.
Consolidated EBITDA dropped 19, 6%, while EBITDA margin visitor basis.
Almost 17, 9% to 13, 2%.
<unk> financial results were mainly affected by negative external effects coming from the depreciation of our main local currencies against the U S dollar and higher prices and rollout <unk> packaging and <unk>, Inc.
Our cost.
The later was partially offset with prices and efficiencies net income contracted 14, 7%.
In spite of the digitalization of our results I would like to comment on the actions that we took in 2022, which put us in a position to look for profitability improvement in 2023.
First we were able to preserve business escape as volumes decreased one 1%. Despite a high comparison base from last year and a weaker consumption environment.
Secondly, we overall capture market share in our core categories third we are strengthening our portfolio of brands by region and storyteller storytelling brand equity level in our main segments in the region.
And fourth we implemented revenue management initiatives in all our geographies to mitigate cost ratio with prices in line with inflation in our main categories by the end of the year, especially boutique.
All of these will be enhanced this year by the implementation of <unk> 2023.
The recovery profitability plan, which encompasses six peanuts maintained our business escape segment.
Strengthening our revenue management efforts and hence the CCU transformation program to deliver efficiency gains in cost and expenses Focalize and optimized capex together with optimizing working capital focus on core brands and high volume margin innovation.
And continue investing in our branding I would like to mention that by the end of the year. We started to see some positive trends from these especially in Chile reflected on prices, which expanded in line with inflation and efficiency cost and expenses.
From a quarterly perspective in quarter four 2022, we continue operating in a tough economic environment, which impacted consumption.
Top line decreased six 6% driven by a five 5% drop in volumes, however, 10% growth versus quarter, four 2019, and a one 1% decrease in average prices in Chilean pesos EBIT.
EBITDA contracted 21% and EBITDA margin decreased from 18, 9% to 16%. The later mainly associated with the same negative external effects that impacted us during the year.
Net income fell 36, 4% caused by a lower operational results explained.
A greater loss in non operating results, mainly driven by higher financial expenses due to a larger debt.
In terms of our segment in the senior operating segment's top line grew three 6% in quarter four 2022 due to a 12, 4% growth in our prices, partially compensated by seven 8% lower volume.
Wherever we growth again water for 2019, we grew 12, 7%, mostly due of course, we had a very high comparison base in 2021.
EBITDA decreased 24%.
Margin decreased from 19, 4% to 14, 2%.
In International business operating segment, which includes Argentina, Bolivia, Paraguay, and Uruguay net sales dropped 27, 6%, mainly as a result of a contraction of 26.
7% in average prices as CSP, although the increase in local currency in line with inflation white volumes contracted one 1%.
Both against what the Fortinet team was four 7%.
EBITDA went down 19, 7% negatively impacted by exchange rate translation effects in Argentina related hyperinflation accounting.
In the wine operating segment revenues were up three 2% mainly explained by a five 7% growth in average prices, partially offset by two 4% contraction in volumes.
Eight 4% growth versus quarter 490.
As a consequence of this the improved 18, 5%.
Regarding our main joint ventures, and associated business in Colombia, where we produce and distribute beer and more with postal bonds topline growth almost 20% in <unk> 2022, driven by volumes and average prices. Thus, we continue expanding business of scale during the year in <unk>.
Bina, our recently acquired water business, where we have a joint venture with Danone showed strong top line growth led by by volumes and higher prices, allowing a recovery in financial results. Both Jv's represented seven 4 million Hectoliters Asaf.
December 2020.
Now I will be glad to answer any questions you may have.
Thank you very much for the presentation I will now be moving to the question and answer part of the call. If you have any questions. Please press star two on your keypad that start to and you'll keep had to wait for your name to be called if you 1000 via the web you May also ask a voice or text question.
We will now give a moment or so further questions to come in.
Thank you very much our first question comes from Mr. Felipe <unk> from Scotiabank. Please go ahead, Sir your line is open.
Thank you I'll ask Philippe Carlos Thanks for the space.
Let me start with the normalization of trends.
Last few quarters have seen a.
A bit of a reversal of the incredible realization that you guys saw over the previous two years.
I think locations and channels have also been normalized so that's been a little bit of a headwind just wondering if you could give us an idea of how far we think you are.
Reaching a stable level.
Level on those metrics.
Good morning, Felipe. Thank you for your question.
What I can say is that we have experienced throughout the year in 2022, especially from quarter two quarter three and now were before if you compare what before against the two previous quarters, we saw a sequential improvement.
In our results.
So because for example in quarter two quarter three our margin contraction was for example at consolidated level 700 basis points.
Especially in Chile was a 1000 basis points of the contraction in margins from quarter to quarter. Three. So this was the bottom in terms.
But results.
What I can say is that being through quarter four.
Duration of the of the margin was half of.
Of what we experienced in quarter, two quarter, three and especially in Chile, So <unk> improve.
<unk> is in the right frame to improve demand.
The margin so.
As we said in previous.
In previous calls.
Take time to recover.
The profitability, but all the actions are in claims so first prices as you saw.
Especially in Chile, we were able to catch up inflation, mostly catch up inflation.
Towards the end of the year. So that's good news.
And on the other hand, we are a more favorable exchange rate in Chile, so that Samsung should impact our cost our cost base.
But.
Nevertheless, I think the big risk is about the industry volumes.
We are receiving more even growing market share the last high levels of the last measurement with market share of the end of the year and beginning of the year are very good for CCU, especially in Chile.
In all the categories beyond nonalcoholic unwind.
However, we are seeing an industry deterioration so at the end.
We will see along the time sequential improvement as we experienced in quarter four compared to quarter three in terms of our results.
By saying that all although these world is very volatile today, where experience INR 100 vessels less exchange rate band.
<unk> III for example.
However, the scenario is volatile.
That I could say.
But all this through our actions are taken.
Understood any any details you can give us on <unk>.
My attention.
How close are there too.
Normalized level, yes.
These of course, we reach it.
Not only are ready high comparison volume as we discussed several times in 2021, especially because of the exceptional consumption growth that we experienced last year, but also.
Premium recession in many categories, especially in alcohol products. So today, we are experiencing a decrease in terms of.
Premium mix volume the consumer more pool, the mainstream brands. However, I would like that is steel.
<unk> higher the premium mix that in 2019, so there is some sort of normalization or some legislation.
Thus we are experience.
So this of course this also drove our diets and it will be the price efforts.
However, we are confident that it will stabilize along the year at higher level than the one we are.
Pre funded.
In terms of channel I think you asked about channel.
It's still the on premise channel in Chile is.
<unk> is less of what.
It was in 2019, so has not fully.
Recall.
But.
I would say.
It's.
Uh huh.
Has recovered but not at the level of 2019.
Okay.
Excellent bumps that's really good color thanks for the space.
Thank you very much our.
Our next question comes from Mr. Lucas Ferreira from Jpmorgan. Please go ahead, Sir your line is open.
Hi, everybody thanks for participants to ask questions.
I was just wondering if.
Regarding prices as you can get into more details regarding new initiatives in places in the different markets.
So.
Is there something ongoing where any new price hike that you plan to implement in the next few months.
Part of this more monetization we can see.
And the second question.
It's about the cost so you mentioned that the effects.
Helpful. There too.
<unk>.
The costing.
But if you can comment on the raw.
Cereals housing are you seeing them.
Uh huh.
The numbers that we see in the fourth quarter, how much of the decline for instance in the aluminum prices we saw through.
The beginning of the second half of last year, how much of that is already.
In your Cogs lines, or if there's something else to come in to come in in the first quarter or the second quarter. Thank you.
Hello Luca. Thank you for your question regarding pricing of became four has been done as we announced in previous calls in quarter four as you saw especially in Chile, where we were behind in prices because the other big markets such as Argentina, We were all the time.
In line with inflation, but in Chile, we.
We really attack.
On the.
On the on the last quarter of the year of you saw the Chile operating segment price per hectoliter increased 12, 4% practically in line with inflation.
Our strategy on one of the pillars of our weather.
Our plan is to continue with our revenue management efforts and this is not only pricing, but also rationalized promotions. So and also working a lot on pack mix price architecture.
In order to optimize our revenue.
Electronic so we'll continue to be central certainly.
Regarding cost.
Yes.
It was very helpful.
The.
The FX tailwind that we had experienced.
You will recall you 70% of the cost cost of goods sold.
Our new cash to the U S dollar.
So now if you compare.
Quarter, four was 915 vessels for the U S dollar and nowadays today spot prices.
Close to between a targeted cancer therapy has been in the last two weeks. So this is this is very good at in terms.
Off of.
Let's say.
Easing the cost pressure.
In terms of raw material commodity cost.
Medium prices are stabilized.
Walk.
In $2400 per day.
Two two.
<unk> 2300 U S dollar per ton aluminium.
When you compare with the average of 2022. This is for having a ball are less.
So practically.
15 or between 10.
10%, 15% of the combination of less halloumi fries.
A.
A lower exchange rate would certainly self our cost, especially in packaging materials. This is moura automatically say because we don't carry out too much inventory.
Regarding the range also.
Prices have decreasing.
In the international markets. We are let's say cost of course modeling prices, we are finishing up the harvest this day in Chile and Argentina.
However, we are carrying.
A little bit more inventory than usual and this was a risk measure we took.
After the Ukraine wall, where are we.
We increased our supply.
And we will be carrying out little bit carryon inventory that would be dilutive or depleted.
Along the year.
Also in PT in restaurants so.
Also.
A new electric contract in place, but certainly would help to reduce our energy cost.
So all in.
We saw a more favorable cost.
Equation, let's say.
And along with the price increases we already deep.
Okay.
That would be vertical, but by saying that our cost base electrolysis is much higher than in 2019, so although the U S. Dollar is lower than the 2022.
Higher than 2018 cost at all from Atlanta, Nike, So all the price actions that.
Two would be very welcoming to compensate the trend in commodity prices and exchange rate, we have experienced in the last year. So as I said sequentially announced as you.
You are seeing in quarter four we are in the <unk>.
<unk> path.
Perfect. Thank you very much.
Thank you very much. Our next question comes from Mr. Somewhat dagga from HSBC. Please go ahead, Sir your line is open.
Sure. Thanks, Thanks for giving me this place I have two questions. Please if I may.
First can you comment on the premium side up to be a portfolio in Chile, and how are you viewing the segment profit.
Folio, especially when I look at brand Heineken and compared with some decline in particular brands like brand Corona.
And then maybe a bit on revenue management side.
Can you comment on how you're managing the trade discounts and share some insights trade discount management has gotten better over the last few years have you seen the prospects to be at least claims.
Thank you.
Okay.
So product good morning, and thank you for your question regarding the via portfolio.
In especially in the big markets Hudson of Argentina, Athena will manage the full range of price points.
Sure.
And positioning.
Regarding different brands.
We are the leaders in craft in Chile.
Very successful bond our style.
<unk> model.
Also we are the leaders as you add up in the international brands with Heineken and solid so the.
I would like to say that evolution.
Solar in Chile.
Outstanding.
Gaining share gaining volume very good performers.
So.
And also tightening Kim is doing is it's works, but at a lower rate of growth.
On the other we we had a very good positioning on ROI on gas, which is a local energy premium brands, which also has had a tremendous growth all over the last 10 years I would say with very good Brian .
And also the mainstream brands are preserving at least or even increasing in the last panel there Brian .
We are very very happy with the portfolio.
In beer and we are reaching.
In the of the last 10 year.
Hey.
The highest.
Brian This is Doug.
We measured through the preference of the consumer and this is very important because this led us to your second question at the end because when you have a very strong brand equity.
Even you do less promotions than competition.
And hence fewer price. Therefore, you have more pricing power with Chelsea portfolio in terms of the brand equity.
And this is key so despite what do we do in terms of measuring promotion effectiveness of new.
Revenue management efforts the key and this is very important in our beer portfolio is that we are entering the year with a very good.
<unk>.
Level, which assured us that we could maintain our our price points and propositions and also as a consequence rationalize promotions and discounts.
Sure.
It does.
On the revenue management side, just to follow up on.
On the <unk>, how about the premium how about the mainstream and on the soft drinks too if you can.
Help us with.
Okay.
Look we have clear strategies for premium mainstream each brand has its role in a complex market of the Chilean winter.
Also we do in each of the brands.
Part of this strategy.
Price points.
Position.
Overall your question Nasopharynx is the same also the brand equity in soft wings is very healthy, especially with good evolution of Pepsi.
So also our our brand equity in.
<unk>.
And softening sell Pos also to be silent this surprise us texture.
And in order to cover.
<unk> portfolio I'm talking 50 per policy portfolio, where you need less promotions in order to be.
Our wire to be.
Bought by the consumer up yet.
And this is with advanced so it's the base of everything the SLC the brands and we are brand builders not discounted ops.
Sure that's helpful. Thank you.
Okay. Thank you very much. Our next question comes from Mr. Henrik We're starting from BTG Pactual. Please go ahead, Sir your line is open.
Good morning, everyone. Yeah, two questions from my side both of them in Chile. The first one I would like to hear a little bit more on what are your expectations for the size of the market alcoholic beverages in nonalcoholic beverages.
Into into 2023, given the comparison base is in total volumes of each when we compare to pre pandemic.
They remained quite strong.
And also on volumes if you could just comment on how this brand equity, which is the highest level mantra that you mentioned.
How does that compare to the market share volume share does it have to do in Chile.
And the second one is regarding margins if you could just comment on how the profitability Chile evolved throughout Q4.
The idea here is to short of God, John on what Youll see is your run rate going into Q1, especially following the price hikes narrowed it.
So those are the two points I would like to address thanks very much.
Thank you Richard.
But I will try to do mine.
<unk>.
As I mentioned, we are experiencing a consideration of the industries.
Compared to 2022 and of course through 2021, no doubt of that.
We are still.
If you want to see how much would be these the facilitation of the industry, because while maintaining market share building.
During the quarter four we experience.
Kris.
Following a quality product, but also in oncology, but in our.
Colleague was.
What's a little bit more the decrease in terms of the of the of the industry.
I would say it was.
Mid single digit or practical double digit in alcoholic products.
However, in our colleague was mid mid single.
This decrease however is.
Steel, we are talking about high single digit growth against 2019.
Sure.
<unk>.
So how much would decrease in the upcoming.
Quarters. This is the big question.
I would say.
But we are experiencing this is a consolidation for for sure.
Because we reached very high volumes in 'twenty one.
And a big portion of the 22.
Regarding market share. This is the good news, we are with high level of not only brand equity as I mentioned, but also.
Growing market share, especially in Chile, both I'll call ink and nonalcoholic products.
Which is good because at the end we have been doing.
Big efforts in revenue management, so increasing market share while doing EF 14 revenue management as a good news.
So that's it.
Regarding the margin as I can.
Mentioned and I will try to explain again.
Quarter to quarter, three where the bottom of the game.
Thank you Kelly.
The margin reduction in both quarters.
Was up to sell some basis points in EBITDA margin.
In quarter four you saw by Congress.
Was the.
The reduction by 100 basis points more or less the reduction on EBITDA margin.
And with sequential improvement throughout the month of the quarter October November and December because we took in every month price actions.
And also with an improvement of.
Cost, especially due to the exchange rate.
So.
We are more positive.
That this trend of sequential improvement should continue in the upcoming what the risk.
Is the volume increase.
That's a decrease because of the acceleration of the industry, especially in our quality costs as you pointed out.
That's clear thanks very much.
Thank you very much.
We are going to be going through the next question is now we have a couple of <unk> questions. The first one comes from Maria <unk> from <unk> Securities Hello, everyone. What is your vision of the each CRE bond covenant the covenant change is not achieved.
Yeah.
Yeah.
Hey, Michael could you repeat the question please.
<unk>.
Although volume for once again, thank you sure sure sure.
Question.
The addition of the HCV Bank Covenant.
And just not achieved.
Alright.
We expect to achieve the change of the government in order to align with all the other more local bonds that we have.
If it is not achieved.
We will take is surely actions on this bond, but nothing panel, we prefer tool and we expect to achieve the the.
The change of the covenants.
While the timing.
Okay. Thank you very much. Our next question comes from Mr. Fernando Olvera from Bank of America. Please go ahead, Sir your line is open.
Hi, good morning.
Thanks for taking my question.
Very quickly.
My first question is Paul <unk>.
And if you can give us a breakdown of how much of top line growth came from pricing how much from volume and also how do you expect.
This top line to behave in 2023.
It would be great and and also.
Can you share what will be your capex. This year on the main projects in which you are going to invest.
Yes.
Yes.
The Colombia it wasn't each year, we started very well in the first quarters and then we have experienced some industry. This acceleration.
I would say that most of the top rankings from price.
As our volumes.
Well, we're a little bit.
Lower than expected however, it still building escape that.
Going forward, we are looking at repositioning.
Of some brands such as for example, the Kathy.
With a new value proposition in the market.
And also continue to.
Improve or increase the brand equity of.
While sustaining the performance of Highland.
Thus for.
Regarding your question on Capex.
Our capex of politically too was the COVID-19 billion pesos.
The capex level to be reduced to be reduced going forward.
This year on one of the main project is the construction of the building and construction of Av.
In addressing recycling bottle recycling.
<unk> has to be built in.
And some gap.
This is.
Up to $40 million. This is the main capex projects in order to fulfill.
Sure.
The sustainability of that.
Absolutely.
The single use plastic low by 2025.
So this is a key project on one of our main projects for.
For the year the construction of that.
Rising recycling glass.
In Chile, with an investment up to $40 million.
Great. Thank you Felipe.
Hey, Thank you very much just a reminder, once again start to for any additional questions. We have one more tax question here from Mr. Sergio Winter from Telecom asset management.
Do you know if the competition in Chile has followed the price increases you did in the fourth quarter. The price increases you did in Chile, where the beginning mid or end of the quarter.
I think the question I would answer the question in that.
Maybe different way, let's say.
Have increased prices in all our categories.
At the same time, we increased market share from November .
Let's say, we're adding a positive driver of market share. So it seems that the OE industry increased prices in the in the last.
In the last month.
Okay. Thank you very much we'll get another few seconds for any additional questions or comments.
Yeah.
Okay. It looks like we have no further questions at this point I'll pass the line back to the CCU team for the concluding remarks.
But outstanding.
Sorry.
Thank you all for attending this conference call in the last quarter of 2022, we're still suffer from the impact on our cost and expenses from negative external effects and also a high comparison base in terms of volumes and financial results. However, like set against previous quarters, we are expanding.
<unk> seen a sequential improvement.
We are entering 2033 in a good shape in terms of prices businesses scale and brand equity.
This together with the adequate 2023 plan will be the key drivers to recover profitability.
Finally, I would like to take the opportunity to all <unk> employees for their effort and dedication in a particularly challenging year I.
I am confident that we will continue putting all our effort to recover the path.
Of profitable and sustainable growth.
A wonderful day.
Thank you very much. This concludes our conference call today, we will now be closing all the lines. Thank you and good day.
Yeah.
Okay.