Compañía Cervecerías Unidas S.A. Q1 2023 Earnings Call

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Operator 2: Good day and welcome everyone to CCU's Q1 2023 Earnings Conference Call. Please note today's conference is being recorded. At this time, I would now like to turn the conference over to Claudio Las Heras, the Head of Investor Relations. Please go ahead, sir.

Speaker 1: Thank you.

Speaker 2: Good day and welcome everyone to CCU's first quarter 2023 earnings conference call.

Speaker 2: Please note today's conference is being recorded. At this time I would now like to turn the conference over to Claudio Las Geras, the Head of Investor Relations. Please go ahead, sir.

Claudio Las Heras: Welcome everyone, thank you for attending CCU's Q1 2023 Conference Call. Today with me are Felipe Dubernet Azocar, Chief Financial Officer, and Carlos Andante, Financial Planning and Investor Relations Manager. You have received a copy of the company's consolidated Q1 2023 results. Felipe will now review our overall performance, we will then move on to a Q&A session. Before we begin, as usual, please take note of our cautionary statement. The statements made in this call that relate to CCU future performance or financial results are forward-looking statements, which involve known and unknown risks and uncertainties that could cause actual performance or results to materially differ.

Speaker 2: Welcome everyone and thank you for attending the first quarter conference call. Today with me are Felipe Duernet, Chief Financial Officer and Carlos Anvante, Financial Planning and Investor Relations Manager. You have received a copy of the company's consolidated first quarter 2023 results.

Speaker 2: or financial results are forward looking statements, which involve known and unknown risks and uncertainties that could cause actual performance or results to materially differ. These statements should be taken in conjunction with the additional information about risks and uncertainty set forth in CCU's annual report.

Claudio Las Heras: These statements should be taken in conjunction with the additional information about risks and uncertainties set forth in CCU's annual report, in Form 20-F filed with the U.S. Securities and Exchange Commission, and in the annual report submitted to the CMF, available on our website. It is now my pleasure to introduce Felipe Dubernet.

Speaker 2: in Form 20F filed with the U.S. Securities and Exchange Commission, and in the annual report submitted to the CMF and available on our website. It is now my pleasure to introduce Felipe Duermet. Thank you, Carlo, Claudio, and thank you all for joining us today.

Felipe Dubernet Azocar: Thank you, Carlo, Claudio. Thank you all for joining us today. During Q1 2023, CCU posted a recovery in its financial results with a stable EBITDA from previous year in a tough economic environment. This better performance was mostly driven by our main operating segment, Chile, as a consequence of the implementation of our recovery profitability plan, Hercules 2023. The upward trend in results during the last quarters showed us that we are in the right path. Nonetheless, we are aware that the results of Q1 of this year are only the beginning. To consolidate this trend, we will continue focusing on the six pillars of Hercules 2023, which are, first, maintain business scale. Strengthening revenue management effort. Third, enhance the CCU transformation program to deliver efficiency gains. Number four, optimize CapEx and working capital.

Speaker 2: During the first quarter of 2023, CCU posted a recovery in financial results, with a stable EBITDA from previous year in a tough economic environment.

Speaker 2: This better performance was mostly driven by our main operating segment Chile, as a consequence of the implementation of our Recovery Profitability Plan, Hercules 2023.

Speaker 2: The upward trend in results during the last quarter showed us that we are in the right path.

Speaker 2: Nonetheless, we are aware that the results of the first quarter of this year are only the beginning and to consolidate this trend we will continue focusing on the six pillars of Hercules 2023, which are first Maintain Business Scale.

Speaker 3: Then, strengthening revenue management effort. Thank you.

Speaker 3: enhance the CCU transformation program to deliver efficiency gains.

Felipe Dubernet Azocar: Five, focus on core brands and high volume margin innovations. Six, continue investing in our brand equity. Before describing the performance of the quarter, it is important to mention that results from the Q1 2022 were still highly influenced by a particularly positive scenario for consumption in Chile, as consolidated volumes during that quarter were up 7.1% versus Q3 2021. After that, volumes contracted compared with the same quarter of the previous year, 2.9%, 2.8%, and 5.5% in the Q2, Q3, and Q4 2022 respectively. Therefore, in spite of decreasing volumes in the Q1 2023, we are still on track to maintain business scale in 2023, in line with our pillar number 1 of our regional plan, Hercules.

Speaker 3: 4. Optimize CapEx and Working Capital 5. Focus on Core Brands and High-Volume Margin Innovations 6. Continue Investing in our Brand Equity

Speaker 3: Before describing the performance of the quarter, it is important to mention that results from the first quarter 2022 were still highly influenced by a particularly positive scenario for consumption in Chile. As consolidated volumes during the quarter went up, the overall performance of the quarter

Speaker 3: 7.1% versus for cluster 2021.

Speaker 3: After that volume is contracted.

Speaker 3: compared with the same quarter of previous year, 2.9%, 2.8% and 5.5% in the second, third and fourth quarters of 2022 respectively.

Speaker 3: Therefore, in spite of decreasing volumes in the first quarter 2023, we are still on track to maintain business scale in 2023, in line with our pillar number one of our regional plan at U.S.

Felipe Dubernet Azocar: During Q1 2023, our revenues expanded 4.5%, boosted by 8.1% growth in average prices in CLP, partially offset by a low single-digit drop in volumes. The lower volumes were caused by contractions in all operating segments, mostly due to a high comparison base, as mentioned before, especially in Chile, a weaker consumption environment in Argentina, and lower wine exports. The better average prices in CLP were mainly explained by revenue management initiatives in all our main geographies and categories, despite negative mix effects, in line with pillar number 2 of our regional plan, Hercules. Accordingly, gross profit jumped 9.6%, and gross margin rose 227 basis points, the latter also associated with lower cost pressures as a consequence of more favorable cost in some key packaging materials.

Speaker 3: During first quarter 2023, our revenues expanded 4.5%, boosted by 8.1% growth in average prices in gerrymande, Pet Texas.

Speaker 3: partially offset by a low single digit drop in volumes.

Speaker 3: The lower volumes were caused by contractions in all the prepping segments, mostly due to a high comparison base, as mentioned before, especially in Chile.

Speaker 3: a weaker consumption environment in Argentina and lower wine exports.

Speaker 3: The better average prices in Chilean pesos were mainly explained by revenue management initiatives in all our main geographies and categories.

Speaker 3: Despite negative mix effect.

Speaker 3: In line with pillar number 2 of our regional plan, Eir

Speaker 3: Accordingly, gross profit jumped 9.6% and gross margin rose 227 basis points.

Speaker 3: The later also associated with lower cost pressures as a consequence of more favorable cost in some key packaging materials.

Felipe Dubernet Azocar: MSD&A expenses as a percentage of net sales deteriorated 317 basis points, mainly as a consequence of the low base of marketing expenses in the last year Q1 due to phasing and higher distribution expenses. This was partially compensated with efficiencies through all our operating segments, which will be more reflected during the rest of the year, in line with our third pillar of Hercules. In all, EBITDA reached a 0.2% increase, and EBITDA margin contracted 80 basis points. The slight expansion in EBITDA is surely a good start to recover our financial results, although more efforts are needed to consolidate the profitability improvement in an inflationary scenario. Regarding net income, it fell 9.6%, associated with a lower non-operating result, mostly due to higher financial costs and a higher loss in equity and income of JVs and associates.

Speaker 3: MS and DNI expenses as a percentage of net sales deteriorated 317 basis points, mainly as a consequence of the low base of marketing expenses in the last year first quarter due to FICI and higher distribution expenses. This was partial compensated with efficiencies through all our operating segments which will be more reflected during the rest of the year in line with our third pillar of FOMS.

Speaker 3: In all, EDITA reached a 0.2% increase.

Speaker 3: and EDITTA margin contracted hurt

Speaker 3: The slight expansion in the data is surely a good start to recover our financial results, although more efforts are needed to consolidate the profitability improvement in an inter-disciplinary scenario.

Speaker 3: Regarding Mes compass

Speaker 3: It felt 9.6% associated with a lower non-operating result, mostly due to higher financial costs and a higher loss in equity and income of the visa associated.

Felipe Dubernet Azocar: Additionally, in Q1 2023, we delivered stronger cash generation. Net cash inflow from operating activities expanded versus last year, while net cash outflow from investor activities were stable versus last year. This is in line with our fourth pillar of Hercules. Furthermore, we reduced our portfolio complexity while brand equity remained in high levels, especially in our core brands, and continue to be key to gain maintain market share in our main categories. This fulfills our pillar number 5 and 6 of Hercules. In the Chile operating segment, our results posed a positive turning point after four consecutive quarters of contractions in EBITDA. Topline expanded 6.4%, driven by 7.6% growth in average prices, while volumes dropped 1.1%. Prices were higher due to revenue management efforts in all our categories, partially offset by negative mix effects in the portfolio.

Speaker 3: Additionally, in the first quarter of 2023, we deliver stronger cash generation.

Speaker 3: Net cash inflow from operating activities expanded versus last year.

Speaker 3: while netcash outflow from investor activities were stable versus last year.

Speaker 3: This is in line with our fourth pillar of Air Force.

Speaker 3: Furthermore, we reduce our portfolio complexity while brand equity remains in high levels, especially in our core brands and continue to be key to gain maintain market share in our main categories.

Speaker 3: This fulfills our pillar number five and six of RUS. In the Gino rating segment, our result posed a positive turning point after four consecutive quarters of contractions in a build-up.

Speaker 3: Top line expanded 6.4%, driven by 7.6%.

Speaker 3: 7.6% growth in average prices while volumes dropped 1.1%.

Speaker 3: Prices were higher due to revenue management efforts in all our categories, partially offset by negative mix effects in the portfolio.

Felipe Dubernet Azocar: Volumes were resilient through the quarter, although decreased, mainly associated with the tough comparison base. Gross profit expanded 14.9%, and gross margin improved 350 basis points, also as a result of lower cost pressures and efficiencies in manufacturing costs. MSD&A expenses as percentage of net sales deteriorated 357 basis points, mainly by the lower comparison base in marketing expenses in the last year's Q1 due to pricing and higher distribution expenses. Consequently, EBITDA increased 6.8%, and EBITDA margin was stable. In the international business operating segment, which includes Argentina, Bolivia, Paraguay, and Uruguay, net sales recorded a 4.7% rate as a result of an increase of 13.9% in average prices in Chilean pesos, partially offset by a 8.1 contraction in volumes. Industry volumes were weaker in all the geographies, but mainly in Argentina as a consequence of a difficult economic context.

Speaker 3: Volumes were sealed through the quarter, although decreased mainly associated with the task comparison days

Speaker 3: Gross profit expanded 14.9% and gross margin improved 350 basis points.

Speaker 3: also as a result of lower cost pressures and efficiencies in manufacturing costs. MS&G expenses as percentage of sales, separated 357 basis points, mainly by the lower comparison basis market expenses in the last year's quarter due to facing and higher distribution expense.

Speaker 3: Consequently, EDITA increased 6.8% and EDITA margin was stable.

Speaker 3: In the international business operating segment, which includes Argentina, Bolivia, Paraguay and Uruguay, NetSight recorded a 4.7% rate as a result of an increase of 13.9% in average prices in Chilean pesos, partially offset by a 8.1% contraction in volumes. In the industry volumes, we are weakening all the geographies.

Felipe Dubernet Azocar: The better average prices in Chilean pesos were explained by prices increases in line with inflation in Argentina and revenue management initiatives in all the other geographies. Consequently, gross profit expanded 9.3%, and gross margin grew from 52.9% to 55.3%. MSD&A expenses as a percentage of net sales deteriorated by 161 basis points due to a lower scale in Argentina. Altogether, EBITDA expanded 7.9%, and EBITDA margin improved 53 basis points. The wine operating segment faced a particularly challenging scenario during the quarter. Revenues were down 17.7%, fully explained by weaker volumes. Average prices were flat as revenue management efforts in domestic markets were offset by negative mix effects in export volumes. The lower volumes was mostly attributable to exports, which contracted in the low 20s, associated with inventories adjustments from our clients and distributors. On the other side, domestic volumes in Chile dropped mid-single digits.

Speaker 3: but mainly Argentina, as a consequence of a difficult economic context.

Speaker 3: The better average prices in Chibán pesos were explained by prices increases in line with a structure in Argentina and revenue management initiatives in all the other geographies.

Speaker 3: Consequently, gross profit expanded 9.3% and gross margin grew from 52.9% to 55.3%.

Speaker 3: MSN DNA expenses as a percentage of net sales deteriorated by 161 basis points due to a lower scale energy increase.

Speaker 3: Altogether, EBITDA expanded 7.9% and EBITDA margin improved 53.6 points.

Speaker 3: The wine operating segment faced a particularly challenging scenario during the quarter. Rennings were down 17.7%, fully explained by weaker volumes.

Speaker 3: Average prices were flat as revenue management efforts in domestic markets were offset by negative mix effects in export volumes.

Speaker 3: The lower volume was mostly attributed to exports, which contracted in the low 20s.

Speaker 3: associated with inventories, adjustments from our clients and distributors.

Felipe Dubernet Azocar: As a result of all the above, gross profit deteriorated 32.5%, and gross margin contracted at 699 basis points. MSD&A expenses dropped 1.9%, although as a percentage of net sales deteriorated by 508 basis points due to lower revenues. In all, EBITDA reached CLP 3,496 million, a 69.5% fall. Regarding our main JVs and associated business, in Colombia, we started 2023 with a low single-digit decrease in volumes, while in Argentina, our water business with Danone showed a low teen expansion in volumes. Both businesses are relevant for our regional multi-category beverage strategy, being committed to continue gaining scale to build profitability in the future. Now, I will be glad to answer any questions you may have.

Speaker 3: On the other side, domestic volumes in Chile dropped mid-senior digits.

Speaker 3: As a result of all the above, gross profit deteriorated.

Speaker 3: deteriorated 32.5% and gross margin contracted 699x6.

Speaker 3: The emission DNA synthesis dropped 1.9%, although as per the data in the slide, the emission is determined by 508 basis points due to the lower revenue.

Speaker 3: enough to lower revenues.

Speaker 4: See you all.

Speaker 3: In all, EDITA reached 3,496 million trillion pesos and 69.5% fall.

Speaker 3: Regarding our main day visas and associated business, in Colombia we started 2023 with a low single digit decrease in volumes.

Speaker 3: While in Argentina, our water business with Danone showed a low pin expansion in bonds. Both businesses are relevant for our regional multi-category beverage strategy, being committed to continue gaining scale to build profitability in the future. Now I will be glad to answer any questions you may have.

Operator 2: Thank you very much for the presentation. We will now be moving to the Q&A part of the call. If you have any questions, please press star two on your keypad. That's star two on your keypad for any questions. If you are dialed in via the web, you may also ask a voice or a text question. We will now give a few moments for the questions to come in. Thank you. Our first question comes from Mr. Ferggote from JPMorgan. Please go ahead, sir. Your line is open.

Speaker 2: Thank you very much for the presentation. We'll now be moving to the Q&A part of the call. If you have any questions, please press star two on your keypad. That's star two on your keypad for any questions. If you are dialed in via the web, you may also ask a voice or a text question.

Speaker 5: We will now give a few moments for the questions to come in. We will now give a few moments for the questions to come in.

[Analyst] (JPMorgan): Hi. Thanks so much. Hi, Felipe, Carlos, Claudio. Thanks so much for the space for questions. I had two quick questions here. First, if you could maybe walk us through a little bit if there's any need for additional price increases, mainly in the Chilean operations, see how that dynamic is going, a little bit understand how the consumer and the market is reacting to those increases that you have been rolling out for some quarters now. The second one, maybe if you can walk us through a little bit on the plan that you have for the wine business. Obviously, it was a challenging quarter, any short-term actions that you have mapped out there to kind of have some relief there on the pressure that we saw during the quarter. Thank you so much.

Speaker 2: Carlos, thanks so much for the space for questions. So I had two quick questions here. So first if you could maybe walk us through a little bit if there's any need for additional price increases mainly in the Chilean operations, see how that dynamic is going, a little bit understand how the consumer and the market is reacting to those increases that you have been rolling out for some quarters now.

Speaker 2: And the second one, maybe if you can walk us through a little bit on the plan that you have for the wine business, obviously it was a challenging quarter, but any short-term actions that you have mapped out there to kind of have some relief there on the pressure that we saw during the quarter. Thank you so much.

Felipe Dubernet Azocar: Thank you, Ulises, for the question. Regarding pricing, yes, this is in line with our Hercules pillar number 2, to enhance our revenue management efforts. As we stated in previous calls, we entered 2023 in good shape in terms of prices, in order to compensate our cost inflation in our P&L. In Q3, prices evolved in line with the industry, and we did an additional price increase in both beer and non-alcoholic in Chile, during April. How the consumer is reacting to that, you notice a small decrease in terms of volume overall of 1.1%. I would say that our feeling is that the consumer is pretty resilient, let's say, given the price increases, because I would remind you the high comps that we had over last year Q1, when volumes grew, mainly in Chile.

Speaker 3: Thank you, Lisa, for your question.

Speaker 3: Regarding pricing, yes, this is in line with our Hercules Pillar No. 2 to enhance our revenue management efforts.

Speaker 3: As we stated in previous calls, we wanted 2023 in good shape in terms of prices.

Speaker 3: in order to compensate our cost inflation in our P&L.

Speaker 3: In quarter three prices have evolved in line with the industry.

Speaker 3: And we did an additional price increase in both beer and non-alcoholic in Chile during in April .

Speaker 3: So how the consumer is reacting to that, you notice a small decrease in terms of volume overall of 1.1%. So I would say that our feeling is that the consumer is reacting to that.

Speaker 3: pretty resilient, let's say, given the price increases, because I would remind you the high comms that we had over the last year.

Speaker 3: over last year for squarter when volumes grew mainly in Chile.

Felipe Dubernet Azocar: I would say, with together, pillar number two of Hercules, of enhancing our revenue management efforts, we were more or less able to fulfill also pillar number one, that is to maintain our absolute scale in the business. I would say, it's only the Q1 of the year. Going ahead, we need to see how this will evolve. Regarding the wine business, we need to enhance our Hercules plan within the wine business. For sure, our volumes are suffering in the export markets. As you notice, volumes dropped more than 20% in the export. This is mainly due to reduction of inventories of our clients and distributors in the Northern Hemisphere. How we will overcome of this situation, I would say we need to enhance our commercial efforts. In key markets such as England, such as US, such as China, especially China.

So I would say that we together, pillar number two of Hercules of enhancing our revenue margin efforts, we were more or less able to fulfill our so pillar number one.

that is to maintain our absolute scale in the business.

So I would say we have

It's only the first quarter of the year.

So, going ahead, we need to see how this will evolve.

Regarding the wine business, we need to enhance our ERCO's plan within the wine business.

For sure, our volumes are fascinating in the export market.

As you notice, volume dropped more than 20%.

in the export and this is mainly due to reduction of inventories of our clients and distributors in the North Hemisphere.

So how will we overcome this situation?

I would say we need to enhance our commercial efforts.

So in key markets...

such as England, such as the US, such as China, especially China. So, we need to work in our mix also, because also our mix is deuterated during the first quarter.

Felipe Dubernet Azocar: We need to work in our mix also, because also our mix deteriorated during the Q1. Improve execution, these are the tools. Certainly, we face a difficult global scenario, not only due to this inventory reduction, but also due to a lower wine consumption in the world. We need to, at the end, to compensate that also through efficiencies in the bottom line. This is in line with all the other units of CCU. That is to enhance our efficiency plan, particularly in wine. That would be our response. We face a complex scenario of the global wine industry.

So improve execution, these are the tools.

Certainly we face a difficult global scenario, not only due to this inventory reduction, but also due to a lower wine consumption in the world.

So we need to, at the end, to compensate that also through efficiencies in the bottom line, that this is in line with all the other units of CCU that is to enhance our efficiency plan.

particularly in the West. But that would be our response. We face them.

[Analyst] (JPMorgan): All right. No, that is perfect. Thank you so much for the color, Felipe. Congrats once again there on the very strong results.

a complex scenario of the global wine industry.

All right, no, that is perfect. Thank you so much for the color, and congrats once again there on the very strong results.

Operator 2: Okay. Thank you very much. Our next question comes from Mr. Henrique Brustolin from BTG. Please go ahead, sir, your line is open.

Thank you very much. Our next question comes from Mr. Enrique Bustolin from BTG. Please go ahead, sorry your line is open.

Henrique Brustolin: Hi. Hello, Felipe, Carlos, Claudio, thanks for taking my questions. The first one, in Chile, if you could comment a little bit, we saw this very good improvement in terms of your unit cost in the division, right? If you could comment a little bit how much of these lower commodity prices are already reflected into these Q1 results, or how much more you might still benefit from the current cost structure? That's the first one. The second one, also in Chile, you mentioned the negative mix effect. If you could just give more details in terms of if you mean by that the performance of beer versus non-alcoholic. Within beer, if you could comment a little bit on how was the product mix when it comes to the performance of premium brand versus mainstream core brands. These are the two questions.

Hi, hello, Felipe, Carlos, Claudio, thanks for taking my questions.

The first one in Chile, if you could comment a little bit, we saw this very good improvement in terms of your unitary costs and the division, right? So if you could comment a little bit how much of these lower commodity prices are already reflected into these Q1 results or how much more you might still benefit from the

you know the the current cost structure. That's the first one and the second one also in Chile you mentioned the negative mixed effect. If you could just give more details in terms of if you mean by that the the performance of beer versus non-alcoholic and within beer if you could comment a little bit on how was the product.

right when it comes to the performance of premium brand versus mainstream core brand, right?

Felipe Dubernet Azocar: Certainly, we are with good headwinds in terms of cost pressures, especially when we come from very tough quarters, such as Q2, Q3, and Q4 of last year. On a quarter-to-quarter base, quarter on quarter, exchange rate is flat. Still we are not benefiting, I would say, comparing quarter to quarter, with the exchange rate. Certainly, there are certain commodities that dropped their prices, especially in packaging materials, aluminum. Certainly, this is helping, mainly aluminum. However, we have bad news regarding our other key raw materials such as sugar. As maybe you know, India suffered a very poor harvest in terms of sugar. It's a high consumer globally of sugar. Sugar prices, the futures now are traded at more than $200 extra per ton, from $500 of last year to $700 or high $600 per ton in the international market.

These are the two questions.

Especially when we come from very tough at what the such as what the two or the three and what the four of last year.

But on a quarter to quarter base, quarter to quarter, exchange rate is flat. So still we are not benefiting, I would say, comparing quarter to quarter with the exchange rate. Certainly we have certain commodities. F

that dropped the prices, especially in packaging materials, aluminum. Certainly this is helping mainly aluminum.

However, we have a bad news regarding our other key materials such as sugar. As maybe you know, India suffers a very poor harvest in terms of sugar. It's a high consumer globally.

sugar so sugar prices are

The futures now are traded at more than 200.

extra US dollar per tonne from 500 of last year to 700 or high 600 dollars per tonne in international markets. So on the one side, maybe in the future, if

Felipe Dubernet Azocar: On the one side, maybe in the future, if the macros are maintained, especially exchange rate, we certainly will have, given the comparison, a better cost. Also, it's good to remind that in some key raw materials, we took a decision to increase inventory such as PET, such as MO, but this inventory is being depleted, is being reduced, and we expect that especially in PET, to benefit from slightly better prices in the second semester. Your commentary is okay in terms of facing lower cost pressure, especially in the next quarters, if the exchange rate of the Chilean pesos is maintained. Your question regarding mix. As I made the commentary, we review the volumes in the Chile operating segment reduced by 1.1%. I would say, we have a high comp in beer. Beer reduced volumes, low single digit, being non-alcoholic flat.

If the macros are maintained, especially extreme rate, we will certainly have, given the comparison, a better cost.

Also, it is good to remind that in some key raw materials we took a decision to increase inventory such as PT, such as MO,

but this inventory is being depleted, is being reduced and we expect that especially in PET to benefit from slightly better prices in the second semester. So, your comment is okay in terms of.

facing lower cost, especially in the next quarters, if the exchange rate of the GM pesos is maintained.

Your question regarding NICS, I made a commentary, we review the volumes in the Chile operating statement reviewed by 1%.

I would say we have a high comp in beer. Beer reduced volumes, low single digit, being what I call flat. As you can see we have some fire scene in Chile during February .

Felipe Dubernet Azocar: I would remind that we have some fires in Chile during February, a very unfortunate situation. High temperatures during March, this certainly affect the non-alcoholic business to be flat in terms of volumes. Within beer, the mix of beer, I would say, although we keep a momentum in terms of premium, however, it's lower than last year. The premium reduce its percentage within the whole mix compared to the mix. This is what we call the overall mix effect in the portfolio. Despite that, despite what I'm talking about the mix, net prices increase, I would say practically 8% during the quarter.

very unfortunate situation, these and high temperatures during March, these certain symptoms, the normal cause of business to be flat in terms of volumes.

And within the mix of beer, I would say although we keep a momentum in terms of cleaning, however it is lower than...

So the premium we use is the percentage within the whole mix compared to the next.

This is what we call the overall mix effect in the performance.

So, despite that, despite what I'm talking about the mix.

Net prices increased, I would say, by practically 8% during the quarter.

prices increase I would say practically 8% during the quarter. That's very clear, thanks very much.

Henrique Brustolin: That's very clear. Thanks very much.

Operator 2: Okay. Thank you very much for that question. Next question comes from Mr. Felipe Ucrós from Scotiabank. Please go ahead, sir. Your line is open.

Thank you very much for that question. The next question comes from Mr. Felipe Ucos from Scotiabank. Please go ahead, sir, your line is open.

Felipe Ucrós Núñez: Thanks, operator. Hola, Patricio, Felipe, thanks for the space for questions. Both of my questions were asked, let me do follow-ups on them. The first one on the mix, which Henrique just asked. You discussed beer versus NABS, you discussed premiumization. Just wondering if you can address packaging mix and channel mix, how those have evolved. My other follow-up would be on the wine question that was asked earlier on. What's happening is clearly global and industry wide. We're seeing a reduction in inventories everywhere, not just Chilean peers, we're seeing it with US peers as well. Just wondering what your view is on the duration of that inventory correction. Do you think most of it has already happened, we're sort of done? Also wanted to ask if you've seen that correction in inventories more pronounced in certain regions.

Thanks, operator. Hello, Patricia Felipe. Thanks for the space for questions. Both of my questions were asked, but let me do follow-ups on them. So the first one on the message, Enrique just asked, so you discussed deer versus knobs, and you discussed humanization. Just wondering if you can address.

packaging mix and channel mix, how those have evolved.

And then my other follow up would be on the wine question that was asked earlier on. So what's happening is clearly global and industry wide. We're seeing a reduction in inventories everywhere, not just Chilean piers, but we're seeing it with U.S. spirits piers as well. Just wondering what your view is on the duration of that inventory correction. Do you think most

Felipe Ucrós Núñez: Not sure if maybe China is picking up or other regions are reducing their inventories. Just wondering if there's a difference across regions. Thank you.

Felipe Dubernet Azocar: Yeah. Let me start by the last question regarding the wine. Inventory reduction is all across the board because, with high interest rates globally, and also because we came from very high levels of inventory, because you are aware that during the pandemic, clients and distributors increased their inventory policy given the shortage that we had in freight. This reduction of inventory has two main drivers. One, high interest rate. The second one is because they had a massive inventory increase in the past given the logistic problems. It's difficult to know how much is inventory. We know that it's inventory for sure as of today.

difference across regions. Thank you.

Let me start by the last question regarding the wine. Inventory reduction is all across the board because with high interest rate globally, Japan has been

And also because we came from very high levels of inventory, because we are aware that during the pandemic,

clients and distributors increase their inventory policy given the short touch that we had in Frank

So this reduction of inventory has two main drivers. One, high interest rate.

And the second one is because they had massive increase in the past given the logistics.

It's difficult to know how much is inventory, so we know that it's inventory for sure as of today, but also there is a reduction in the... but we don't have it because we exported more than 80 markets.

Felipe Dubernet Azocar: Also there is a reduction, but we don't have it because we export to more than 80 markets. To have an overall, certainly in the next months, we will have a clear picture in terms of a global industry reduction of wine consumption. That's the situation regarding wine. Regarding the mix, I think the mix effect in beer are mostly linked to brands. It is good to remind that we came from very high premium mix in the past. Certainly, the consumer has less money available at the end, less affordability. There is a number of consumer moving from premium brands to consume mainstream brands. However, I would like to say that before the pandemic, the premium mix was in the high 20s, let's say 30%, and it jumped at the peak after the pension fund withdraw in Chile, to a number above 50%.

to have an overall September in the next month we have a clear picture in terms of an industry reduction

global industry reduction of wine consumption. So that's the situation regarding wine.

Regarding the mix, I think the mix effects in beer are mostly linked to brands.

But it is good to remind that we came from very high premium mix in the past.

Certainly the consumer has less money available, at the end less affordability. So there is a number of consumer moving from premium brands to consumed mainstream brands.

However, I would like to say that before the pandemic, the premium mix was in the high 20s, let's say 30% and it jumped at the peak.

after the pension fund was withdrawn in Chile to a number above 50%. Now it moved to 40%. So still we have a higher premium mix.

Felipe Dubernet Azocar: Now it moved to 40%. Still, we have a higher premium mix than before the pandemic. Regarding the movement of channels, it moves, but not significantly.

than before the funding.

Regarding the movement of channels, it moves but not significantly.

Felipe Ucrós Núñez: Okay. That's very clear, Felipe. Thanks a lot for that. Maybe if I can ask just one follow-up on the wine issue. Would you say that the sell-out is as solid as it had been? Clearly, the weakness is on the selling. How's the sell-out performing?

Okay, that's very clear, Sunita. Thanks a lot for that.

Maybe if I can ask just one follow up on the wine issue, would you say that the sellout is as solid as it had been? I mean, clearly the weakness is on the selling, but how's the sellout performing?

Felipe Dubernet Azocar: Hello. Yeah, the sell-outs are not performing badly, let's say. As of today, it's mainly related to inventory reduction. However, in the first part of the quarter, sell-outs were solid. In the last month, it reduced its running rate, the sell-out.

The fillouts are not performing badly, let's say. So as of today, it's mainly related to inventory reduction.

However, in the first part of the quarter, the sellouts were solid, but in the last month, it's running great, the sellout. Okay, got it. Thanks a lot for the call. I really appreciate it, guys.

Felipe Ucrós Núñez: Okay, got it. Thanks a lot for the call. I really appreciate it, guys.

Operator 2: Okay, thank you very much for the question. We are going to read out a couple of text questions at this point. The first text question is from Vidi Vera from Goldman Sachs. Congratulations on the results. How is the demand and pricing in Chile shaping up this quarter?

Thank you very much for the question. We're going to read out a couple of text questions at this point. The first text question is from Vidi Vera from Goldman Sachs. Congratulations on the results. How is the demand and pricing in Chile shaping up this quarter?

Felipe Dubernet Azocar: As we said, we have increased prices, especially Q4 of last year. We entered with better prices in the quarter, the demand more or less, or the scale of the business in Chile was maintained, because reducing the volumes by 1.1% with a very high comp, because I would remind you that volumes last year in Q1 grew 7.1% overall for the overall business. In Q2, Q3, it start a reduction in terms of volumes. Given the price increase, I would say that the volumes, we feel that they are resilient. Of course, we will not grow at the rates that we grew in 2021 when we had the pension fund withdraw in Chile and a boost in terms of consumption.

As we said, we have increased prices, especially last quarter of last year, we entered with better prices in the quarter and demand more or less.

of the scale of the business interior was maintained because we do see the volumes by 1.1% with a very high comp because I would remind you that volumes last year in the first quarter has Maggie Giovanniz Islands suit. Video is making aes questionnaire in the US about sock independently, and I'm not an entrepreneur. Today's lecture is engineering what's working

blew 7.1% overall for the overall business. So that's the... But then in quarter two, quarter three, it starts a reduction in terms of volume.

So, given the price increase, I would say that the volumes are, we feel that they are resilient. Of course, we will not grew at the rate that we grew in 2021 when we had, you know, a lot

the pension fund withdraw in Chile and a boost in terms of consumption.

Operator 2: Okay, thank you very much. The next question comes from. We saw that there was a text and a voice question, so we just unmuted your line. Mr. Rodrigo Godoy from Credicorp, your line is open.

Thank you very much. The next question comes from, we saw that there was a text and a voice question so we just unmuted your line. Mr. Rodrigo Godoy from Credit Corp, your line is open.

Felipe Dubernet Azocar: Yeah. It's regarding the wine segment, if we saw the same trend in Q2 in terms of volumes as we have had in Q1. I think still we had a negative volume in April. Just in May, it improves, because the destocking of clients is finishing, but it would be very difficult to compensate all over the year the inventory reduction that impacted volumes during Q1. The other question is about the Chilean operating segment. Could you give some color in the recent trend in volumes in Q2 2023? Still we are in the middle of Q2. We increased prices in both non-alcoholic and beer in April, so we had a boost in volumes in April, but we think it would stabilize in May and June. Certainly. We don't do forward-looking. Still 50% of Q2 is not completed.

Yes, it's regarding the wine segment if we show the same trend in Quarter 2 in terms of volumes as we have had in Quarter 1. I think still we had a negative volume in April .

that impacted volume during the first quarter.

And then the other question is about the Chilean operating segment. Could you give some color in the recent trend in volumes in Cuarte 2023? We are still in the middle of the Cuarte.

It would be weekly prices in both, in non-alcoholic and DFB in A3. So we had a boosting volume in A3, but we think it would stabilize in May and June .

We would be winning these prices in both, in NOLAN, Coli, Cambier, and A3. So we had a boost in volume in A3, but we think it would stabilize in May and June . Secondly, we had a boost in volume in A3, but we think it would stabilize in May and June .

we don't do forward looking. Still 50% of the quarter is not completed.

Felipe Dubernet Azocar: We expect that we will grow volumes because Q2 of last year was the worst quarter in terms of confirmation.

But we expect that we will do volumes because water 2 of last year was the worst water in terms of consumption.

Operator 2: Okay, thank you very much. We will now give another moment or so for any additional questions to come in. Okay, the next question we have is from Fernando Olvera from Bank of America. Please go ahead, sir. Your line is open.

Thank you very much. We will now give another moment or so for any additional questions to come in.

Fernando Olvera Espinosa de los Monteros: Hi, good afternoon. Can you hear me?

Operator 2: Yes, we can.

Fernando Olvera Espinosa de los Monteros: Yes, Fernando.

Fernando Olvera Espinosa de los Monteros: Yeah, great.

Fernando Olvera Espinosa de los Monteros: Go ahead.

Fernando Olvera Espinosa de los Monteros: Thank you so much for the space for questions. I have two. The first one is related to Chile. How are you thinking about marketing expenses the remaining of the year, given a more modest demand versus last year? When do you expect the low base comparison to finish? I'll wait for the second question.

Hi, good afternoon. Can you hear me?

Yes, you can go ahead. Yeah, great. Thank you so much for...

for the space for questions. I have two. The first one is related to Chile. How are you thinking about marketing expenses the remaining of the year given a more modest demand versus last year? And when do you expect the low base comparison to finish?

Felipe Dubernet Azocar: Okay. It is very specific, your question. Let me first, strategically, pillar number six of Hercules state that we will enhance and protect our brand equity. Every efficiency we do in expenses, it is not at the expense of marketing expenses. We will continue investing behind our brands. Regarding the comparison, that was particularly Q1 of last year, marketing expenses due to pricing were particularly low. In this quarter, the marketing expenses are in the normal shape, let's say. Let me emphasize that we will continue investing aligned with our pillar number six of Hercules, behind the brands. Okay? Now I see you have, Fernando, a second question, right?

And I'll wait for the second question. Okay. It's very specific, your question. So let me first strategically, number six of our state that we enhance and protect our brand entity.

So every 360 we do in expenses is not a expense of marketing expenses. We will continue investing behind our brand. Regarding the comparison of the first quarter of last year.

market expenses due to facing were particularly low, so but in this quarter is the market expenses are in the normal shape, let's say. But let me emphasize that we continue investing aligned with our

pillar number 6 of Hercules behind the brands. Okay? Now I see you have a Fernando second question, right? Yes, my second question is related to the international business. Now if you can comment what was the performance between premium and non-premium beer brands and how do you expect volume?

Fernando Olvera Espinosa de los Monteros: Yes. My second question is related to the international business. Now, if you can comment, what was the performance between premium and non-premium beer brands, and how do you expect volume to behave the remaining of the year? Thank you.

Felipe Dubernet Azocar: Yeah. I think the situation in the international business is a little bit different than in Chile. Particularly, there are two markets where volumes are suffering, especially Argentina, given the high inflation. Certainly, the consumer has less money available. Bolivia also. Particularly Bolivia, also is suffering from an industry reduction. Uruguay is more healthy, and Paraguay was affected by this tropical disease during Q1. We hope it would be in better shape in the upcoming quarters. The volume reductions mainly in Argentina and Bolivia.

to behave the remaining of the year. Thank you. Yeah, I think the situation in international business is a little bit different than in Chile. Particularly, there are two markets where volumes are suffering.

especially Argentina, given the high inflation, certainly the consumer has less money available.

and Bolivia also. Particularly Bolivia also is suffering from an industry reduction. Uruguay is more healthy and Paraguay was affected by this tropical disease during the first quarter. So we hope it would be in better shape in the upcoming quarters.

But the volume reductions may be in Argentina and Bolivia. Okay. And what is your expectation, I mean, in terms of volume going forward after the decline we saw in this first quarter?

Fernando Olvera Espinosa de los Monteros: Okay. What is your expectation in terms of volume going forward after the decline we saw this Q1?

Felipe Dubernet Azocar: In international business, you mean?

Fernando Olvera Espinosa de los Monteros: Yes, the international business, Felipe. Thank you.

Felipe Dubernet Azocar: I would say Argentina has still the same fundamentals in terms of high inflation, a potential devaluation. I think we will not see a recovery in terms of volumes in Argentina, while pricing would be in line with inflation.

In international business, you mean?

Yes, at the International Business, Felipe. Thank you.

Yeah, I would say Argentina has still the same fundamentals in terms of high inflation, a potential devaluation. So I think we will not see a recovery in terms of volumes in Argentina while pricing would be aligned with inflation.

Fernando Olvera Espinosa de los Monteros: Got it. Great. Thank you.

Operator 2: Okay. Thank you very much. We see no further questions at this point. I'll pass the line back to the management team for any concluding remarks.

Thank you very much. We see no further questions at this point. I'll pass the line back to the management team for any concluding remarks.

Felipe Dubernet Azocar: Thank you all for attending today. In Q1 2023, we delivered a recovery in our financial results in a tough economic environment. The latter was mainly driven by the implementation of Hercules 2023. For the rest of the year, we will continue executing this plan. These are the first steps to deliver profitable and sustainable growth in a volatile context. Thank you, and have a wonderful day.

Thank you all for attending today. In the first quarter of 2023, we delivered a recovery in our financial results in a tough economic environment.

The later was mainly driven by the implementation of Hercules 2023.

For the rest of the year, we will continue secreting this time. These are the first steps to deliver profitable and sustainable growth in a volatile context. Thank you and have a wonderful day.

Operator 2: Thank you very much. This concludes today's conference call. We will now be closing all the lines. Thank you very much. Goodbye.