Q2 2023 Compañía Cervecerías Unidas SA Earnings Call

[music].

Good day, everyone and welcome to Ccu's second quarter 2023 earnings Conference call.

Please note that today's conference is being recorded.

At this time I would like to turn the conference over to Claudia Elisa.

The head of Investor Relations. Please go ahead Sir.

Thank you.

Welcome everyone and thank you for attending Ccu's second quarter 2023 conference call.

Today with me are Felipe.

Chief Financial Officer.

Yes.

Working.

Okay.

Well it is pretty cool.

Financial planning and Investor Vision market, you haven't seen a copy of the company's consolidated second quarter 2023 result.

Philippe will now review, our overall performance and we will then move onto a Q&A session.

Before we begin please take note of our cautionary statement.

Statements made in this call that relate to future performance or financial results are forward looking statements, which involve known and unknown risks and.

Uncertainty that could cause actual performance or results to materially differ.

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 Exchange Commission.

Annual report submitted to the CNS and available on our website.

It is now my pleasure to introduce Mr pretty good way.

Thank you Claudio and thank you all for joining us today during.

During the second quarter of 2023, CCU post a strong set of results in a tough economic environment, expanding consolidated volumes by four 8% and EBITDA by 45, 1% from last year.

The growth in volumes and EBITDA.

6% and 96, 2%, respectively. When we exclude the wine operating segment, which is facing a particularly challenging scenario due to a sharp decrease in export volumes in line with the Chilean wine industry.

The performance of the quarter show scatter will therefore set initiatives to recover our profitability framed.

We cannot play alkali 2023 are in the right path. However, we are aware that more airports are needed in order to consolidate this positive trend.

Accordingly, looking ahead, we will continue focusing on the <unk> of 2023 number one maintain vehicles GSK number two strengthening filing an amendment to the lower for longer three enhance the TCU promotional program.

You get efficiency gains number for optimized capex and working capital and number four focus on core brands and high voltage margins.

Innovations and fixed continue investing in our brands.

In quarter, two 2023, our revenues expanded to 8% boosted by four 8% rising volumes, while average prices in Chilean pesos contracted one 9%.

The expansion in volumes in the quarter allow us to be on track to maintain business of scale in 2023 in line with pillar number one.

Okay.

The lower average prices in Chilean pesos were largely explained by a negative translation effect in Argentina, although in local currency evolves in line with inflation.

And in the Chile operating segment average price.

Grew high single digits during the quarter in spite of a negative mix effect.

Gross profit jumped at 10, 7% and gross margin improved from 43% to 43, 4% related driven by the higher revenues, but also associated with more favorable cost in relevant marketing materials and the application of the.

Chilean peso versus the U S dollar impacting positively our U S dollar denominated costs in line with pillar number to escalate.

<unk> expenses increased three 6% versus last year.

As a percentage of net sales were practically flat due to efficiency through all our operating segments.

In line with peers.

Number three of Iqos in EBIDTA was up too.

By 545, 41% and net income totaled a loss of 3000 943 million Chilean pesos versus a negative result of <unk> thousand 455 million Chilean pesos last year.

Additionally in quarter, two 2023, we get delivering a strong cash generation versus 2022.

As of June 2023, net cash inflow from operating activities expanding our net cash outflow from investing activities decreased during the same period in line with pillar number four of escalators.

In addition, we reduced our portfolio complexity and recorded a strong brand preference indicators being key to gain or maintain market share in our main categories in line with peer Atlanta five undertakes opex per day.

In summary.

Consolidated volumes increased four 8% driven by a four 7% expansion in the Chile operating segment.

Eight 1% growth in international business operating segment, partially compensated by 15, 4% contraction in the wine operating segment net sales were up two 8% and gross profit increased 10, 7% consolidated EBITDA reached 40.

<unk> 7000, 136 million Chilean pesos, a 45, 1% increase EBITDA variation that operating segment was as follows.

86% jump in our Chile core operating segment at.

74, 9% expansion in the international business operating segment.

Contraction of 44, 5% in the wine operating segment finally, as I said, we have a.

An increase in our results at net income level.

Now I will be glad to answer any questions you may have.

Thank you very much for the presentation, we will now be moving to the Q&A part of the call. We had knowledge all the questions already into Q. If you have any additional questions. Please press star two.

Start to on your keypad and wait for your name to be called you May also ask a voice or text question.

Youll have dialed in via the web.

I'll now give a moment or so further questions to come in.

Okay.

And we will take the first question from Mr. Philippe <unk> from Scotiabank. Please go ahead Sir.

Thanks, operator, and good afternoon, Felipe if I can.

Claudio.

<unk>.

I think also there is also a nice rebound from a year ago I wanted to ask questions about.

The changes that you think will be implemented.

Distribution in Argentina.

And how it seems that a piece of the portfolio might be might be leaving from the coke system.

Wondering if you could give us any details around that hopefully something like which brands you're planning to move or what percentage of volumes youre trying to move out of the system.

And also I wanted to know what's what's the plan once you're out of the system is going to be to create your own distribution network with finding another third party that you thought it would do a better job on coke.

Any details you can give us around those would be great.

Yes.

Thank you.

Therefore, your question regarding the our distribution now the changes we are doing in our distribution in Argentina.

Before let me give you some background.

To be to have our own distribution.

In the vast majority of the country.

So last year, we had a.

To Coca Cola bottlers.

Erica.

Not distributing in particular.

Areas of geography, such as the North Africa and solve blouse.

The other regions.

Sure.

The Coca Cola system.

Accounted for more than.

20% of our board.

Volumes.

But as we said in our in our press release the distribution agreement that we have in some regions with Coca Cola Bottlers that are you already mentioned expiring June .

So in those regions, we have implemented a new distribution network.

That is a joint distribution of Dear.

With our recently.

What that business acquired of the participation we have in the JV with Denali in Argentina.

So practically in all the countries.

<unk> network.

<unk> implemented that thus is combining.

Right.

The wine lead cores, but also now the water business okay.

As we said at the same time, we are negotiating a potential new distribution agreement with Coca Cola Bottlers, which would.

Include some of the brands of our portfolio.

Some brands of our portfolio could go with the distribution.

Sure.

The Coca Cola bottlers, but so far we are still negotiated.

Lisa.

A potential agreement with that.

But.

In summary, the new distribution level.

<unk> successfully implemented now in Argentina.

So we we we.

We went live with all the system integrating the water business to our.

Systems.

<unk> systems.

I would like to 11.

<unk> also been successful implementation.

Okay Philippe.

No that's very clear fleet, so that means that while you're negotiating new distribution with Coca Cola you are already distributing in your own system is that correct.

No we are distributing now with our own system.

I want to be clear the Coca Cola only distributing particular areas.

<unk> agreement finish.

Okay.

We are negotiating that they could disagree with some of our branch offices, all youre may be a potential honeymoon period.

Okay.

Very clear and the second question I wanted to ask you just wondering how you feel the temperature of the Chilean consumer.

What's the what's the sentiment of the consumer through underground actually.

Yes.

What we had.

A good expansion.

Volumes in Chile viewing what the tool as you know piece of four points.

7% growth.

As we said this is a speed above pre pandemic threats.

So that's a little figures okay.

So.

So that's it's a good growth to be honest.

However.

The column of quarter, two was easier done the ground for quarter, one of last year because quarter one of them. He as you know we had the influence of government aid blast.

Withdrawal of the pension folds in Chile that boosted consumption.

I would say.

We are happy with the evolution of the industry in order to maintain our business of scale.

We were also very clear in saying that the economy.

It has been decelerating.

Therefore consumption the facilitate suspicion.

In the last four quarters, I would say, but from quite a bit.

We've seen growth.

I'll start what categories are more resilient to the purchase power.

Reduce the purchase power of two of the consumer.

So.

In summary.

In terms of the evolution of the consumer we are.

I would say we are confident that we will be able to maintain our business scale.

In the following quarters.

Very clear and just a follow up on that chilly question is.

Premium the premium segments of the portfolio now stabilized.

Yes.

I would say.

As we stated during the quarter in our release.

A portion of our revenue management efforts were offset by.

Yes.

By the mix.

Our portfolio, let's say so we are really just you know were a record in terms of premium mix, especially in beer category, but also in wine also unique horse.

During at the end of 2021 and the beginning of 2020.

Okay too. So I would say is there has been established in quarter, two with a reduction compared to last year.

In waiting fact.

Who is growing more in the mainstream brands, especially in beer, but also in wine.

Okay.

That's that's all very clear thanks, a lot for the comments.

Thank you Philippe and have a wonderful day.

Thank you very much for the question. Our next question comes from Mr. Fernando Olvera from Bank of America. Please go ahead Sir.

Great. Thank you good afternoon, everyone.

Thanks for taking my questions.

Just to follow up Felipe regarding Chile.

Sorry.

At the beer segment I mean can.

Can you comment on how your market share behave during during the quarter.

And my second question is regarding the international business and if you can comment what were the main drivers of volume growth and what is your outlook for the second half of the year. Thank you.

Yeah regarding the beer.

I'd say is <unk>.

<unk> been in the last quarter, we have had a stable market share.

You could gain 1.1 miles in the later one reduced by half a point so.

And our market share in the last I would say.

Six quarters Okay.

In beer regarding your question on international business.

The comps.

We're a little bit.

Especially in that in terms of being that last year the comps were.

No.

So.

Feline factor.

Volumes have been a challenge in the last quarters.

The high level of inflation is affecting consumer purchase.

Purchase power.

Mhm.

We add in let's say in Uruguay, particularly an extraordinary situation linked get to the draught conditions during the summer.

We added scarcity awful of public water, let's say and that boosted our water sales in Uruguay.

During quarter two.

Our loan loss, so very good performance in Paraguay rolling into volumes high single digits.

Yeah.

That is encouraging.

Our resulting in pattern.

In the case of <unk>, we are very depressed volumes.

In Bolivia, so going forward what are you pregnant collection segment as you know.

The big participation Hudson filler.

But we think Argentina has had a negative trend in terms of awful off.

Of volume.

And we could see some decrease.

But a lot of pain in terms of volume.

In the next.

Looking forward.

Yeah.

Great. Thank you Philippe.

Yes.

Okay. Thank you very much.

Next question comes from Mr. Henry Cabo starting from BTG Pactual. Please go ahead, Sir your line is open.

Hi, Hello, Philippe <unk>, Thanks for taking my question.

I would like to explore a little bit more to the recovery in profitability in Chile going forward two to historical levels.

If you could break it down from two different perspectives. The first one coming from cost right.

How should we think about Cogs in the second half of the year compared to what we deliver now in the first half.

Especially now that we see maybe you know a slightly weaker Chilean peso and an overall stable commodity prices and the second one on the pricing front as you mentioned pricing has been very strong over the past two years.

Even with some negative mix impact, but do we see the results in your net revenues per hectoliter and the industry performance you know, even though it's not growing as much volume has remained pretty strong relative to pre pandemic. So the question I think he is how much room do you see for additional price hikes on the on the back half of the year.

That could help you know bring margins back to those levels from from pre pandemic. Those are the two questions. Thank you.

Thank you.

Thank you Angeliki, yeah. So part of I think decided the first steps in order to deal with.

Globally.

Margins.

As you pointed out we have had a massive.

You compare all of the enrollment pdl's compared to the pre pandemic level.

I'll give you just one example aluminum prices in 2019 was eighth.

<unk> hundred dollars per tone, and now has the top of life of $2400.

So that's a significant incur.

The increase between 25% to 30%, yes, we had a very high aluminum prices.

Right after.

Russia, and innovation to Ukraine, where it jumped to 30 30, having it dollars per ton now it's stabilized at a lower level, but still much higher than.

Then the levels. We saw this is a low pass in all of them because as we said these kind of business you're gradually.

Corporate margin and this is what we have been buying especially for what the fall of last year.

And now part of this too.

You pointed out.

We have with the differences in terms of like of interest rates between reduction between the two.

Ed.

And.

The Chilean Central Bank, we have seen.

Increase of.

Your second play bass, a devaluation of the Chilean peso that certainly impact our cost.

So one thing I think maybe.

It's for sure that the.

This should be.

Cost of debt in our pricing strategy.

Back up.

Say it will be paid on competition it will depending on many factors.

Affordable upcoming Ralph So Idaho, I don't want to do.

But let's see above that.

On the other hand.

Cost perspective, I think Walmart.

More or less stable and we have high.

Cost pressure will show better.

You too.

Supply and demand global conditions, especially into doing so.

There we have pressure.

Another good news.

Yeah, I think Oh.

Sure.

Three calls that we are high elevens of inventions are you saw in our cash generation that we have been reducing our raw materials inventories. According to normal levels that we had before the last year.

So also this would help children into our cost.

But to be honest, we always we pay.

Stable, while lapping the exchange rate.

The aim is to gradually.

With our prepaid lending margins, okay and forget.

That's clear thanks Philippe.

Okay. Thank you very much just a reminder start to for any additional questions. Our next question is from.

Martin <unk> from fundamental capital to <unk>.

Question should we expect cost per liter in kidney to be negative year on year, given high comparables in commodities and FX or should we expect it to be positive but below inflation. Thank you.

Thank you thank you martijn.

And to restrict possibility and typically like I think young here you've been at HEICO pairing.

Yes of course.

Especially in.

In the in the last two especially the third quarter last year, we practical experience.

<unk> thousand pesos per dollar exchange rate that we stabilize it stabilized the last two weeks, let's say.

And with 50, so that we have some benefits as I mentioned in the previous question.

Okay.

The cost pressure.

Heath exact for sugar prices.

Compared to last year.

So answering your question.

It should be.

Negative, especially in quarter three.

Okay. Thank you very much.

It looks like we have no further questions at this point.

Ill pass the line to CPU team for the concluding remarks.

Yeah.

During quarter two 2023.

Consolidated a recovery path.

And to the south in a tough economic environment. The later was mainly driven by the implementation of <unk> 2023.

Although we are aware that more airports I alluded to keep improving profitability.

In order to do so during the second the second semester.

We will keep executing our strategy to deliver profitable and sustainable growth.

I wish you all a wonderful afternoon.

Thank you very much. This concludes today's conference call will now be closing old lines. Thank you and goodbye.