Q3 2023 Compañía Cervecerías Unidas SA Earnings Call

Okay.

Yeah.

Good day, everyone and welcome to Ccu's third quarter 2023 earnings conference call on the 19th of November.

Today's conference call is being recorded at this time I would like to turn the conference over to Claudia Let pass the head of Investor Relations. Please go ahead Sir.

Welcome everyone and thank you for attending Ccu's third quarter 2023 conference call today with me is Mr. Felipe <unk> Chief Financial Officer.

You have received a copy of the company's consolidated third quarter 2023 results.

Felipe will now review our overall.

Performance and 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's future performance or financial results are forward looking statements, which involve known and unknown risks and uncertainties that could cause.

The 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.

20-F on file with the U S Securities and Exchange Commission and in the annual report submitted to the CNS and available on our website. It is now my pleasure to introduce Mr. Philippe <unk>.

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

During the third quarter 2023, CCU continued making progress to recover financially sell some profitability in a challenging and volatile economic environment. The later is shown that operation at the operational level, increasing consolidated EBITDA by 27, 7% and improving to calculate our <unk>.

Nine basis points EBITDA margin.

The performance of the quarter shows that the path to improve our profitability and of the original plan <unk> is moving forward. However, stronger efforts are needed in a context of economic deceleration on volatility in exchange rates.

And commodity prices.

This drives us to focus on the pillars of Atlas.

First maintain business SK <unk>.

<unk> revenue in the electrical efforts delivered efficiency gains through our transformation program, optimizing capex and working capital focusing on core brands and high volume multi innovations and continue investing in our value.

In quarter, three 2023, our revenues expanded 0.4% explained by five 1% leasing volumes more than offset by a five 7% expansion in average prices in Chilean pesos lower volumes, where it goes by we kept consumption in Chile.

And worst weather, especially Chile, why holding market share and a contraction in wine exports.

The higher average prices in Chilean pesos were a consequence of revenue medical efforts across all our operating segments gross profit jumped at eight 9% and gross margin growth 362 basis points. The later explained by the higher average prices and flat average cost of goods sold.

It was last year.

With 87, DNA expenses increased two 9% as a percentage of net sales grew 94 basis points, mainly as a consequence of higher marketing activities. The later to keep enhancing branding in all EBITDA reached 86340 $4 million.

In pesos up by 37, 7% net income dropped 44, 9% total I think again all.

A gain of 9490 9 million Chilean peso.

The P&L peso during the quarter and second 88.

<unk> thousand 8600, 65 million Chilean pesos of nonrecurring expenses related with the route.

The integration of the route to market of our JV.

Argentina, we felt.

Our that knowledge into our beer and cider operation.

In terms of cash generation, we delivered another robust quarter. Thus as of September 2023, net cash inflow from operating activities satellite.

Congress five Celsius fixed hangar at an 81 million Chilean pesos vessels that negative cash inflow of 21 fell eight calculated on 71 Julien.

Purchase intent.

22, why net cash outflow from investment activities reached 111050 1 million Chilean pesos decreasing from the 175001, Hank 168 million Chilean pesos during the same period in 2020.

In addition, we have decreased our portfolio complexity and recorded a strong brand equity indicators being key to call back to Chad in our main categories.

In the Chile operating segment, our top line expanded 5.1% explained by four 7% decrease in volumes being more than offset by a 10, 2% growth in average prices.

Higher average prices were explained by a robust revenue management initiatives that we have taken from.

End of last year.

Lower volumes were explained by challenging financial.

Some shallow environment, along with an unfavorable weather although in line with the industry as market share remained stable.

Gross profit expanded 17, 4% due to top line performance, a lower cost pressures and some D&A expenses were $12, 3% higher and as a percentage of net sales could you calculate and 37 basis points, mostly due to higher marketing activities in all EBITDA reached.

52000, 618 million Chilean pesos growing 38, 7% and EBITDA margin increased 320 basis points.

Russia business operating segment, which includes Argentina, Bolivia, Paraguay, and Uruguay net sales recorded a $2 four.

<unk> contractual in Chilean pesos as a result of four 3% drop in volumes, partially offset by 2% increase in average prices in Chilean pesos volumes were negatively impacted by a weaker consumption environment in Argentina, partially compensated like volume expansion and all the other genre.

Gross profit expanded one 1% and <unk> expenses decreased 6% and as a percent of net sales improved 167 basis points due to efficiencies compensating high inflation and other cost pressures, especially in Argentina.

EBITDA reached 25780 5 million Chilean pesos or 32% expansion from last year.

The wine operating segment continue facing a tougher business environment during the quarter revenues were down four 7%, mostly explained by 17, 3% contraction in volumes, while average prices increased three 1% due to revenue management in the domestic.

Market, partially compensated with negative mix effects.

The lower volumes was explained by both.

14, 4% fall in exports from Chile, and a 14, 8% drop in the Chile domestic market.

Gross profit dropped eight 1%, but gross margin improved to Congress and 96 basis points due to higher average prices and a decrease in cost per ton.

Due to a more favorable cost of Hawaii.

<unk> expenses were flat versus last year and as a percentage of net sales increased 429 basis points associated with a lower originations in on EBITDA reached 11600 619 ambitious is 'twenty one complexion.

So in terms of our main jv's and associated business in Argentina volume, So our water business decreased low double digit mainly impacted by a challenging consumption environment. Also we successfully continue with the route to market integration of this business.

In Colombia volumes contracted low singles day.

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

Thank you very much for the presentation will not be moving to the Q&A part of the call.

If you have any questions. Please press star two on you'll keep that that start to on your keypad and wait for your name to be called.

If you have dialed in via the web you May also ask a voice or text question.

We will now give a few moments for questions to come in.

Thank you. Our first question comes from Mr. Philippe <unk> from Scotiabank. Please go ahead, Sir your line is open.

Thanks, operator, and good morning principal and team thanks for the space for questions.

First let me start with volume.

Clearly the volumes were not excellent in the quarter. When you look at the third quarter of each year for the past few years, you've been coming down from a peak of eight point too I think in 2021 and $7 922 now seven six do you think the post pandemic correction as we say.

Thinking about normalized volumes for Huron out or do you foresee the third is a little more pain had.

Given what's happening with consumption in Chile.

Hello, Philip how are you.

First of all.

Comparing volumes nowadays.

Nowadays volumes with 2021.

And maybe 'twenty two.

2021, especially.

It is not the right comparison, because you have 55 billion of pension fund withdrawing T in Chile.

A boom in consumption, so as well as 2020 was the year of the pandemic of the Lockdowns 2021 was the party in consumption in Chile due to the pension withdrawal.

So I like especially to do a comparison with pre pandemic volumes disease from 2019 and.

Total TCU volumes compared to 29 <unk> to.

So 2019, 14% more.

And compared to <unk>.

Third third quarter.

<unk>.

23 against third quarter 2019 is 10%.

So the first pillar of equal air coolers is to preserve escape to maintain scale both.

Yeah relative to escape and.

Absent this game and I think in the stack in this task, we are adding new stuff.

Regarding the third quarter volumes of course, we have gained from a volume and.

A reduction in volume.

One of three 4%, but we were still comparing with a very high comparison in quarter one of two anti Tau because it had the effect once again of the pension fund withdraw then we had an excellent growth in 2020 in the second in the second quarter growing four point data volumes and minus five.

And coming to Chile of course, we decreased the volumes in quarter. One minus one also because of the big comparison with a very good volume.

What did we grew four 7% and now we decreased four 7% of course I think there is two factors. The first factor has to do.

Temperatures, we have got a very rainy which is very good for Chile. The country of course to have a good level of rain.

Because we have dropped conditions. So it's very good.

So we got a lot of rain during July August and you start of the spring and also cold temperatures. So.

Decreasing volumes in Chile.

Kelly explained by temporary on the other hand of course. The thesis is this acceleration in terms of of consumption and this week, we have been always predictable on that because it is about maintaining escape. So overall if you look at all they don't result in Chile.

We are maintaining more or less risky in absolute terms as we are.

Practically bank volumes, our volumes in Chile are minus 0.7% less than last year, so overall maintaining GSK.

In terms of relative escape that take into account the market share, we're holding even growing some categories our market share positions.

This headache go.

Going forward is difficult to predict we will continue to face.

Think of very.

At least in the next few workers maybe this acceleration.

Not necessarily.

I don't see a further consolidation volumes I see that we will be able to maintain the scale I don't see it.

Some things.

Given that.

What is going on quite a bit of it will depend on where that would depend on temperatures.

Possible to forecast, whether you know there are some people have said that we have a very hot summer.

But I don't know.

I think methodologies is difficult.

It's a difficult science.

But in a nutshell is is what we see in terms of consumption.

Okay, that's very helpful.

How should we think that your.

More or less a new baseline for the company right.

Maybe if I can do a follow up for costs.

You know after you've had some very good quarters of improvement on costs.

And in recent times and it seemed that cost didn't provide that much of a tailwind in this quarter. What's your outlook for the next few quarters.

Sure.

Yes, Luke Luke.

In terms of cost I think.

I think we had a son.

Good news, but also some bundling.

I think we have bad news regarding the non alcoholic business, especially the non credit business given the sugar prices start at historical level.

And also a orange juice or jewelry.

The tailwind very Buck for Orange juice.

Sure.

In terms of grains is a question of carryover of inventory as I said in previous communications.

This conference call last year, we benefit of pre Ukraine.

ISS for badly.

Of course in the global markets Bally has been reducing the prices. However, we still have in this year now we benefit a lot of the pudding Ukraine.

Hmm.

But because of the opposite season led to shop with.

With Europe.

In general during the year, we see a stable cost unit the unit cost.

And a lot of pressure in nonalcoholic beverages, given sugar prices.

Orange juice.

Okay. That's fine that's very clear I'll get back on the Q4, a few more questions. If theyre not asked thanks, a lot for libre.

Thank you and have a wonderful day.

Okay. Thank you very much. Our next question comes from Thiago <unk> from Goldman Sachs. Please go ahead Sir.

Yes, hi, Thanks, Philippe Claude you for taking the questions and good afternoon, everyone. So I'll, let I'll, let you follow up.

Now on SG&A right I see your efficiency ratio has marginally deteriorated and it seems that most of the pressure was due to marketing right.

Parallel to these we see Chile demand has been volatile.

Plenty keeps pushing prices higher.

Putting everything in perspective, I am wondering how much more marketing would you need tune fast in order to keep the scale, it's a very volatile demand backdrop right and.

The first part of the question and the second part of the question assuming.

Marketing will.

Likely continue to be an important driver for you to keep volumes, how much more efficiency day, Eric <unk> cordis, attracting not airlines eventually to partially offset this and protect your EBITDA margin and that's my question. Thank you very much.

Alright.

I would say.

Alright that does it.

Suddenly in a increase.

And then a little bit in terms of Oh for percentage of let's say I would say will recover to normal levels of marketing spend this year.

Compared to 2022, but it was very tough year in terms of results all right. So and one of the pillars for forklifts pillar number six is about protecting or increasing our brand equity and this is what this is we are having because.

Without brand equity you you kind of have good revenue with revenue management pricing.

And sustainable volumes and this is what we and we think youre investing for the long long long term.

So adding up also the manufacturing expenses were practically flat.

So for all of.

<unk> expenses as percentage of net sales our overall accumulated through the year. So we will continue to support our brands while searching efficiencies also take into account that.

We have we have had high levels of inflation at the beginning of the year and that was more control.

For me for Us.

We are just recovering the level of Oh, marketing that where we should where we should be.

Also wholesale indicator of percentage of let's say, although we have been doing a really robust price effort has been a little bit diluted by luxe effect. So at the end these things affect also contributed.

Being you know having an.

An increase on this ratio.

Look towards thank you very much.

Okay. Thank you very much.

Our next question comes from Mr. Fernando Olvera Bank of America.

Hi, good afternoon, and thanks for taking my questions.

The first one is related to Chile, and returning back to volumes.

Can you comment what was the performance by channel no what beer and soft drinks. If there was a difference.

And my second question also in Chile.

How are you thinking about your pricing strategy for next year.

Thank you so much.

Thank you Fernando.

To your question yes.

Regarding the split between beer and nonalcoholic <unk> or very similar.

Please.

In Chile the.

The volumes are rolling five.

5.57% instead of a four 7% which was the decrease in volume.

Was four four it was practically the same in India.

Nonalcoholic and beer.

Because we are maintaining market share so it was industry in both.

The temperature effect, both categories are non alcoholic <unk>.

And we here on the macro is affecting equally both categories.

Also the mix is.

Equally equally affected in both categories.

So overall, that's what these patients and the second question was about.

<unk>.

Okay, how about you.

Your pricing strategy for next year.

We have a we have increased again prices. So we are working on revenue management, but I always working revenue management initiatives.

Looking at our promotional.

Last year legislation or promotional activities, but also we have increased pricing I would've thought.

In some categories.

Especially non alcoholic given the prices, but will not improve of some commodities as I said sugar and orange juices that are putting a lot of pressure in the P&L. So.

Regarding for next year, we expect at least increased prices with with inflation.

Lisa.

Great. That's very helpful. Thank you so much.

Okay. Thank you very much. Our next question next question from Mr. Martin Zetsche from fundamental capital.

And prices should we expect CCU to push increase this north of inflation do you see space for that entering 2024.

Yeah.

Okay.

Prices will depend on many factors what do you plan on input cost as I said setback, none I'll call. It we we should go beyond inflation, even in input cost.

And ensure that that is probably enough for your reference sugar prices are the double compared to 2019. So that is a piece is a lot or enjoys more than doubled compared to 2019. So.

So I barking will depend on competition and will depend on many factors, how our brand equities, but of course, if there are opportunities both Jan inflation, we would go for it.

Okay.

Okay. Thank you very much. Our next question comes from Mr. Enrique <unk> from BTG Pactual. Please go ahead Sir.

Hello, Felipe Claudio. Thank you thanks for taking my questions.

I have two.

One the first one you mentioned that you reduced portfolio complexity right in the in the in your remarks.

If you could give a little bit more details on that in terms of you know, which categories, where where did that take Bart.

Yes.

Hello.

We lost you.

Hi can you hear me.

Sorry, I think we lost you for a second do you mind just repeating your question. Please.

Yes sure. It's it's the first one is in terms of the portfolio complexity that it means that.

You wrote that it has been reduced.

Just wondering if you could give more details in terms of the categories that it happened how relevant is might've been poor volumes.

And if it's achieving the intended results you planned or is it.

And the second one on the beer industry and Sheila This is more of a long term one but we saw very strong growth in beer volumes in Chile over the past many years.

As you mentioned Philips volumes, you know they they remain well above pre pandemic and when we look at per capita consumption is now approaching the levels of other markets that were more mature for beautiful Samsung right. So I just wanted to hear a little bit more for them.

Terms of how do you see.

The beer industry performing chiller in the in the long run right. If if growth you know should sustain the levels of the past.

<unk> already seen it might be closer to antique.

Yeah.

Okay no. Thank you for your question my opinion.

I'm thinking.

So if you got any complexity, yes. The program is about to focus on high volume and high margin Skus. So if an HQ has no the right margin and its not pre virus providing.

In that volume.

Simply we believe so we added the meeting about 5% of your Skus and I think this in typically in these programs this should not have especially and impact on margins.

So.

And we should run rate, we should have a lot of discipline, especially when with innovations leveraging innovation. If this provides a better brand equity is.

It's providing better matching is providing.

High volumes, Okay, you have an entry ticket to enter into the system to launch it but if you don't provide okay.

Yeah.

Our strong.

Sure Brian equity it doesn't provide.

Additional volume that can provide better margin.

We will not launch it right so.

But that's in a nutshell what is about the complexity.

Regarding your question in view of course as I mentioned for the first question our levels of consumption.

You know <unk> is about 270 scale and this is what we are doing because if I compare the accumulated volumes of the Chile operating segment, we are talking.

The very strong volume compared to pre pandemic volume steel.

We think that the growth has slowed down or would be maybe in the next few quarters zero percent growth.

As I highlight that quarter three was exceptional because of.

Low temperatures, okay. The whether we can do nothing about it.

The weather.

So, but we think the consumer has reacted.

In a good way because do not consider that we have increase in Chile the prices.

More than 13%.

Of course, we have a mix effect on that.

The prices the net prices.

Only increased 10% because three points.

Were lost because of mix effect, but overall.

Consumers there the consumption is there and we are maintaining.

The level of consumption.

We had.

Last year right and also you know growing against.

19. So if you took 40 years 'twenty three 'twenty to 'twenty, one 'twenty two and the base of 19, we are growing in beer and nonalcoholic exactly the same 19, 3% compared to 29 D. So.

So if you divide it by.

By four years.

More than GDP.

So an entire impacts of economic deceleration.

Our products.

You know are in the wallet of the consumer so.

Maybe people.

Not consume.

All other kind of items nondurable, but beverage.

Feel the market is.

Is that.

That's very clear flip it thank you.

Okay. Thank you very much we have a question from Mr. Jacob Guzman from BTG Pactual asset management. Please go ahead Sir.

Hi, Thanks for taking my call my questions.

I have two questions.

Do you specified that you did.

Price increases in October.

On alcohol.

So I suppose maybe that this is vishal Shah.

Better pricing trends.

You also mentioned that.

Cost outlook is a bit more pressure to do so.

Mixing these two things, which one of the business do you think that.

Better margin.

Sure.

Gross margin.

Maybe in the next six months or so.

And the second question is.

This is regarding the <unk>.

Non operational expense.

It's an operational expenses.

We see it in the Nonoperational result.

Uh huh.

Itself.

We can pass on something that's grown that.

And do you have maybe a.

Okay.

Hey, Rocco please.

Internal rate of return or what have you.

Fair enough.

Sure.

Economic rent because their companies.

Thank you.

Yes.

Okay.

Okay.

There is someone that has opened Microsoft okay. Thank you turn on turn off.

So your first question if I understood was.

About prices, yes, I'll say, it's sad.

Currently we have more pressure.

Because we have more commodity price pressure.

Our non alcoholic commodities, such as sugar and especially Orange juice.

Our beer business has better margins than the.

<unk> done.

Colleagues maybe.

<unk> not I'll call it a year, although it's more linked to the U S dollar and so we expect to do.

That would be in both categories of course require at least inflation.

But a.

Callie request more than inflation price increases to compensate this cost pressure.

Regarding the nonrecurring expenses in Argentina. This is related to the integration of the Danone, what their business into our sales and distribution network.

So this is a nonrecurring effect as you highlighted up off a proxy but the.

Pardon me this is the the.

The impact of our P&L, you said nonoperating because these are.

It is a JV that do not consolidate and thus it has an impact in our non operational results.

Regarding the payback of that is very dear is adding to our network.

Between 5 million Hectoliters Mona less of volume.

But certainly we provide us.

A better scaling Argentina.

In the future.

And especially in very <unk>.

Difficult times in Argentina is very good proceeding that jive.

Both these people Shouldnt networks.

One that we have for beer.

The one four gigawatt.

As well as our acquisition, but we need.

Last year.

And then now this year, we've gone to a very successful integration of both business not only in sales and distribution, but also in in head office in financial services.

And other overheads are functioning so would provide us you know.

A stronger P&L.

Tina.

Okay.

Okay.

Sure.

You mentioned that both businesses will try to be a run inflation, maybe not quantitatively, but which of.

Which business do you see I.

I saw a better trend in margin normalization beer or nonalcoholic.

No.

No no no big difference this year.

I think.

Because we had last year you know.

Very high aluminum prices on the onetime affair.

The beer business very high rising prices that affect the normal.

Got it business.

Very high multiple writers.

So again I think.

As of today.

Both businesses are in the same range of normalization in terms of on average.

The point is looking forward.

Always have estimates, but given what we had.

The Dayton, which out of the commodity costs certainly the nonalcoholic business has more.

Cost pressure.

Uh huh.

The VA business.

Okay. Thank you.

Yeah.

Hey, Thank you very much. Our next question comes from Mr. Carlos Laboy from HSBC Securities. Please go ahead Sir.

Okay.

Yes, Hello, everybody I was hoping you could give us.

More more insights into how things are going in Colombia.

Market share.

Not just the auto insurance market share how your how your brands are doing in the marketplace et cetera.

Okay.

Yeah.

In Colombia, we do have.

Maybe a little reduction in the <unk> in terms of market share.

They were recovering, especially in the last few months, especially in in September.

We have also we are being are recuperating 19 also because of input cost again, we have a very.

Situation in input costs in 2022, but along the time has been recovering D.

So still work to do especially.

In enhancing our brand equity for all four of our brands.

And in <unk>, especially.

And also and also the other thing that is important to improve our sales effectiveness, there, but the last silos or in the last quarter, especially in September in terms of market share.

Got it.

Thank you.

Okay. Thank you very much just a reminder, star to for any additional questions. We have a follow up question from Mr. Philip <unk> from Scotiabank. Please go ahead Sir.

Thanks, operator, yes, filipe, if I could just one more just wondering if you could comment a little bit on what's going on and why and what you expect going forward. Obviously, there's been a lot of pain and it's not just paying for cc you its industry pain.

With Destocking and wholesale channels around the world, but just just wondering if you could give us your take on how you think the next few quarters with Walter why thank you.

Yeah.

He's having industry pain as you highlight that.

Due to this.

Destocking that will not repeat myself previous dialogues.

Dialogues that we have got one.

On these but I.

B.

A little bit more optimistic now.

Because the export because especially next books.

In the first semester of the year, our export volumes from Chile decreased 19%, which was better than industry, but.

It was about 19% in the third quarter. The reduction was 14% which is better but what is good is that now in October.

We have for the first month in the in the year increased by.

Mid single digit our export volumes. So is the first positive month of the year. So going forward, we expect a recovery in terms of growing seems that you're stocking should stock let's say.

On top of that we are working on brand preference a lot. We are working on in in enhancing our relationship with good thoughts also our commercial offices that we have in the U S and China and in the U K should enhance our commerce.

Shall effectiveness in those market so.

Maybe it's too early to call Philippe, but we have had good news in October in terms of also in the in the in the third quarter.

It is less.

The first semester, okay and.

First positive sign up in the top.

Going forward, we should.

We should expect.

Finally recovered in terms of volume.

That's that's very clear thanks, a lot.

Okay. Thank you well just give another couple of seconds plenty of additional questions to come in.

Okay. It looks like we have no further questions I'll pass the line back to the management team for the concluding remarks.

Yeah.

Thank you. Thank you to all for attending today during quarter. Three 2023, we continue making progress to recover our financial results and profitability in a challenging and volatile economic context.

Our initiatives on the air quality are showing positive outcomes through through the year, allowing us to recover our operational results hold business of scale and market share improve margins.

And a strengthening especially our cash generation Nonetheless.

We are aware that more efforts are needed to improve profitability further, especially when the visitor scenario will remain challenging.

In order to do so we will keep executing our strategy to deliver profitable sustainable growth.

Wish you a wonderful.

Dave.

Thank you very much. This concludes today's conference call will now be closing all the lines. Thank you and have a good day goodbye.