Q1 2024 Compañía Cervecerías Unidas SA Earnings Call
Claudio Heras: Financial Planning and Investor Relations Management. You have received a copy of the company's completed first quarter 2024.
Investor Relations manager.
Claudio Heras: You have received a copy of the company consolidated first quarter 2024 results.
Claudio Heras: Felipe will now review our overall performance, and we will then move on to a Q&A. As usual, before we begin, please take note of our cautionary statement. 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 actual performance or results to materially diminish. This statement should be taken in conjunction with the original information about risk analysis, set forth in CPUs ANA report in Form 20-F, filed with the U.S. Securities and Exchange Commission, and Indiana Reports submitted to the CMF and is available online. It is my pleasure to introduce our CFO, Mr. Felipe Nunez. Thank you, Claudio, and thank you all for joining us today.
Claudio Heras: Felipe will now review, our overall performance and we will then move onto a Q&A session.
Claudio Heras: Before we begin please take note of our cautionary statement.
Felipe Ucros Nunez: Statements made in this call that relates to Ccu's future performance or financial results are forward looking statements.
Claudio Heras: Which involve known and unknown risks and uncertainties that could cause actual performance or results to materially differ.
Claudio Heras: These statements shouldn't should be taken in conjunction with 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 General reports submitted to the CNS and is available on our website.
Claudio Heras: No.
Felipe Ucros Nunez: My pleasure to introduce our CFO, Mr Filippo to limit.
Claudio Heras: Yes.
Felipe Ucros Nunez: Thank you Claudio and thank you all for joining us today.
Felipe Ucros Nunez: Before moving into the performance of the quarter, I would like to mention that Quarter 1 2024 results indicate that the business environment in the region will continue to be challenging and volatile. In addition to the devaluation of the currency in Argentina, we face a low-20s beer industry contraction in that country. In Chile, the Chilean peso devalued 16.6% versus last year, negatively impacting our cost base. In this context, we continue with our six-pillar regional plan, Hercules, taking further actions in terms of revenue management efforts and cost and expenses control initiatives to continue the recovery path of our financial results and profitability. These efforts will be reflected in the following quarters during the year, helping us to gradually compensate for cost pressure.
Felipe Ucros Nunez: Before moving into the performance of the quarter I would like to mention that quarter. One 2024 results indicate that the business environment in the region will continue to be challenging and volatile. In addition to the devaluation of the currency in Argentina, we face the low twenty's via entities.
Felipe Ucros Nunez: Industry contraction in that country.
Felipe Ucros Nunez: In Chile, the Chilean peso devaluated 16, 6% versus last year negatively negatively impacting our cost base.
Felipe Ucros Nunez: In this context, we continue with our six pillar regional brand equities.
Felipe Ucros Nunez: Taking further actions in terms of revenue management efforts and cost and expenses control initiatives to continue the recovery part of our financial results and profitability.
Felipe Ucros Nunez: These efforts will be reflected in the following quarters during the year, helping us to gradually compensate cost pressures. It is worth noticing that the wine operating segment posted a turning point in volumes, especially in exports and financial results.
Felipe Ucros Nunez: It is worth noticing that the wine operating segment poses a turning point in volumes, especially in exports and financial markets. During Q1 2024, our revenues expanded 1.9% in GM pesos, driven by 6.6% higher average prices in GM pesos, while volumes dropped 4.4%. Average prices were boosted by revenue management initiatives in the oil and water operating segments and a weaker Chilean peso against the U.S. dollar, impacting federal export revenues of the wine business.
Felipe Ucros Nunez: During quarter, one 2024 hour revenues expanded one 9% in GM pesos, driven by six 6% higher average prices and TM peso, while volumes dropped four 4%.
Felipe Ucros Nunez: Average prices were boosted by revenue management initiatives in all our operating segment and a weaker Chilean peso against the U S. Dollar impacting February export revenues of the wine business.
Felipe Ucros Nunez: Lower volumes were largely caused by weaker consumption in Argentina. Gross profit was down 0.8% at the consolidated level and as a percentage of net sales, deteriorated 129 basis points, to 47.2%, due to higher cost pressures, mainly coming from the devaluations mentioned above, increasing our U.S. dollar denominated costs. Also, we have had higher sugar prices being partially offset by lower prices in aluminum and especially in P&T
Felipe Ucros Nunez: Lower volumes were largely caused by a weaker consumption in Argentina.
Felipe Ucros Nunez: Gross profit was down 0.8% at the consolidated level and as a percentage of net sales deteriorated 129 basis points to 47, 2% due to higher cost pressures, mainly coming from the devaluation mentioned from the devaluations mentioned.
Felipe Ucros Nunez: Above increasing our U S dollar denominated costs.
Felipe Ucros Nunez: Also we have cut higher sugar prices being partially offset by lower prices in aluminium and especially in 'twenty versus.
Felipe Ucros Nunez: MSMDNA expenses expanded 5.1%, and as a percentage of net sales, they deteriorated 107 basis points. In all, EBITDA dropped 8.3%, and EBITDA margin contracted 185 basis points to 16.6%. Regarding net income, it dropped 10.6% in line with lower operating receipts.
Felipe Ucros Nunez: <unk> expenses expanded five 1% and as a percentage of net sales deteriorated one hanging around seven basis points in all EBITDA dropped eight 3% and EBITDA margin contracted 185 basis points to 16, 6%.
Felipe Ucros Nunez: Regarding net income dropped 10, 6% in line with the lower operating results.
Felipe Ucros Nunez: In the Chile operating segment, top line expanded 2.9%, driven by 3.8% growth in average prices, while volumes dropped 0.9% with overall stable market share. Average prices were higher due to revenue management efforts in all our categories, partially offset by negative nuclear effects in the portfolio. In spite of higher cost pressures due to the devaluation of the Chilean peso, we were able to sustain this margin, which slightly decreased from 47.5% to 47.3%.
Felipe Ucros Nunez: In the Chile operating segment topline expanded two 9% driven by three 8% growth in RV.
Felipe Ucros Nunez: <unk> prices, while volumes dropped <unk>, 9%.
Felipe Ucros Nunez: Overall stable market share.
Felipe Ucros Nunez: Average prices were higher due to revenue management efforts in all our categories, partially offset by negative mix effect in the portfolio.
Felipe Ucros Nunez: In spite of higher cost pressures due to the devaluation of the Chilean peso, we waived able to sustain gross margin, which is slightly decreased from 47, 5% to 47, 3% MSR DNA expenses grew seven 5% on a suppressive effects of.
Felipe Ucros Nunez: MSMB&A expenses grew 7.5%, and as a percentage of net sales, they deteriorated 137 basis points, mainly explained by higher marketing expenses due to failure, higher depreciation, and larger U.S. dollar-linked expenses. Consequently, EBITDA contracted 3%, and the EDITA margin was lower from 20.5% to 19.3%. Following the following segment, in the International Business Operating Segment, which includes Argentina, Bolivia, Paraguay, and Uruguay, net sales recorded a 1.6% drop as a result of a 14.7% reduction in volumes, explained by Argentina, partially offset by a 15.4% rise in average prices in Chilean pesos. The beer industry contracted in Argentina as a consequence of a challenging economic context that impacted consumer demand. Why?
Felipe Ucros Nunez: Let's say deteriorated 137 basis points, mainly explained by higher marketing expenses due to face higher depreciation.
Felipe Ucros Nunez: Larger U S dollar linked kit expenses.
Felipe Ucros Nunez: Consequently, EBITDA contracted 3%.
Felipe Ucros Nunez: And EBITDA margin was lowered from 25% to 20 to 19, 3%.
Felipe Ucros Nunez: Following with the following segment in the International business operating segment, which includes Argentina, Bolivia, Paraguay, and Uruguay net sales recorded a one 6% drop as a result of a <unk>.
Felipe Ucros Nunez: <unk> 14, 7% reduction in volumes explained by Argentina, partially offset by 15, 4% rise in average prices in Chilean pesos.
Felipe Ucros Nunez: The beer industry contracted in Argentina, as a consequence of the challenging economic context, with fact that consumer demand while all the other geographies.
Felipe Ucros Nunez: All the other geographies, Bolivia, Uruguay, Paraguay, posted positive voting rolls. The better average prices in Chilean pesos were given by revenue management efforts in all the countries where we operate. Gross Margin Deteriorated 586 basis points to 49.4%, mostly associated to cost pressures coming from the 311.8% depreciation of the Argentine peso against the U.S. dollar, together with inflationary pressures. MSDNA, the Expresso Specialty of Net Sales, was flat due to efficiencies which helped to offset a high inflationary context and a lower business scale in Argentina.
Felipe Ucros Nunez: <unk> worldwide at Hawaii posted positive volume growth.
Felipe Ucros Nunez: Better average prices in Chilean pesos were given by our revenue management efforts in all the countries, where we operate.
Felipe Ucros Nunez: Gross margin deteriorated by candidate.
Felipe Ucros Nunez: Six basis points to 49, 4%, mostly associated to cost pressures coming from the three kind of 11, 8% depreciation of the Argentine peso against the U S dollar together with inflationary pressures.
Felipe Ucros Nunez: <unk> expenses per available net sales were flat due to efficiencies, which help to offset a highly inflationary context on a lower business escape in Argentina.
Felipe Ucros Nunez: All together, EBITDA contracted 27.1%, and the EBITDA margin was down 471 basis points, more than explained by Argentina, as the rest of the countries recorded solid EBITDA growth and improvements in their margins. In the wine operating segment, revenues were up 11.6%, mostly driven by higher average prices, largely boosted by the weaker Chilean peso and its favorable effect on export revenue. Volumes also contributed to the top line, increasing 2.7%, mainly explained by exports, which were up 3.9%. On the other hand, domestic volumes in Chile were flat.
Felipe Ucros Nunez: Together EBITDA contracted 27, 1% and EBITDA margin was down 471 basis points more both more than explained by the Argentina of the rest of the countries recorded a solid EBITDA growth.
Felipe Ucros Nunez: And improvements in their minds.
Felipe Ucros Nunez: In the wine operating segment revenues were up 11, 6%, mostly driven by higher average prices largely booster boosted by the weaker Chilean pesos and its favorable effect on export revenues volumes also continued contributed to.
Felipe Ucros Nunez: The top line, increasing two 7% mainly explained by exports, which were up three 9% on the other side domestic volumes in Chile were flat gross profit rose 34, 7% and gross margin improved 662 basis points or should do too.
Felipe Ucros Nunez: Gross Profit rose 34.7%, and Gross Margin improved 662 basis points, also due to a lower cost of living. MSMDNA expenses increased 15.8% due to higher market expenses related to exports, which are denominated in U.S. dollars. MSMDNA sales deteriorated by 118 basis points.
Felipe Ucros Nunez: A lower cost of Hawaii.
Felipe Ucros Nunez: <unk> expenses increased 15, 8% due to higher marketing expenses related to exports.
Felipe Ucros Nunez: Denominated in U S dollar and as a percent of let's say deteriorated by 118 basis points.
Felipe Ucros Nunez: In all, EBITDA reached 6,667 million Chilean pesos, a 90.7% growth, and an EBITDA margin reached 11.3%, increasing 470 basis points, showing a recovery of this business. Regarding our main JVs and associated business, in Colombia, we started 2024 with a low single-digit increase in volumes and gains in profitability due to the appreciation of the Colombian peso. In Argentina, our water business with Danone, as a result of the Route 2 market and back office integration with CCU Argentina, posted a positive net income versus a loss last year, despite a heavy contraction in volume. We are working to keep gaining scale in both businesses, which are relevant for our regional multi-category beverage strategy in the region. Now, I will be glad to answer any questions you may have.
Felipe Ucros Nunez: EBITDA reached 6600 67 million Chilean pesos, a 97% growth.
Felipe Ucros Nunez: And EBITDA margin reached 11, 3% increasing.
Felipe Ucros Nunez: 470 basis points, showing a recovery of this operating segment.
Felipe Ucros Nunez: Regarding our main JV and associated business in Colombia, We started 2024 with a low single digit increase in volumes and gains in profitability due to the appreciation of the Colombian peso.
Felipe Ucros Nunez: Now Jim Vena, our water business with demand as a result of the route to market and back and back office integration with CCU, Argentina posted a positive net income versus a loss last year. Despite a contraction in volumes.
Felipe Ucros Nunez: We are working to keep gaining scale in both businesses, which are relevant for our regional multi category beverage strategy in the region.
Felipe Ucros Nunez: Now I will be glad to answer any questions you may have.
Speaker Change: Thank you very much for the presentation I will now be moving to the Q&A part of the call. If you have any questions. Please press star two and a key part of that start to keep up.
Operator: Thank you very much for the presentation. We'll now be moving to the Q&A part of the call.
Speaker Change: With most of the questions already from <unk>.
Operator: Bank of America Scotiabank on BTG.
Operator: Our first question comes from Mr. Philip <unk> from Scotiabank. Please go ahead, Sir your line is open.
Operator: Yeah.
Operator: Thanks, operator, and good morning, Felipe, Joaqun, and team. Thanks for the space.
Speaker Change: Thanks, operator.
Speaker Change: Good morning, <unk>, thanks for the space.
Questioner: Let me ask you first about our competition in Chile. I was wondering, with the sudden moves that the Chilean peso had throughout the quarter, what you have seen in terms of competitive pressures. Do you see, generally, a rational sector that adjusts prices to offset these effects of FX? Or is discipline lacking a little bit in the sector?
Speaker Change: Let me ask you first about our competition in Chile.
Questioner: Just wondering with the sudden moves.
Questioner: The Chilean peso throughout the quarter, what you have seen in terms of competitive pressures do you see generally a rational sector, but prices to offset these effects of FX or in discipline lacking a little bit in the sector.
Questioner: And then maybe if I can do a follow up online, great quarter here, and it wasn't just the effects, right? Volumes also picked up. Now you're back above 2019 volumes on a comparable basis. So just wondering if the key driver is restocking after so many quarters of industry de-stocking versus how much you think this was actually driven by final consumer demand. And, of course, as it's demanded, what regions you're seeing as the key drivers here. Thank you.
Speaker Change: And then maybe if I can do a follow up online.
Questioner: Great quarter here.
Questioner: And it just it wasn't just the FX volumes also ticked up and now you're back above 2019 volumes.
Questioner: On a comparable basis. So just wondering if you can comment whether.
Questioner: The key driver is restocking after so many quarters of industry Destocking.
Questioner: Versus how much you think this was actually driven by by final consumer demand.
Questioner: And of course as its demand what regions, you're seeing as the key drivers here. Thank you.
Questioner: Okay.
Felipe Ucros Nunez: Okay. Thank you, Felipe, for your question. So, I would start with the competitive pressure in Chile. You know, as I mentioned in the previous call, we are cautious about 2024, especially regarding consumption, as it has remained challenging in the first quarter, although a little bit better if you compare it to the previous quarter, quarter four, where we had unfavorable weather conditions. Let's say the first quarter was better in terms of weather conditions for our business, although competitive as so.
Speaker Change: Okay. Thank.
Speaker Change: Thank you Philippe for your questions.
Felipe Ucros Nunez: So.
Felipe Ucros Nunez: I would start by the competitive pressure in Q2.
Felipe Ucros Nunez:
Felipe Ucros Nunez: You know the.
Felipe Ucros Nunez: As I mentioned in the previous call we are cautious about 2024, especially.
Felipe Ucros Nunez: Regarding consumption.
Felipe Ucros Nunez: Agreed.
Felipe Ucros Nunez: It has remained challenging.
Felipe Ucros Nunez: The first quarter, although a little bit better if you can.
Felipe Ucros Nunez: <unk> to the <unk>.
Felipe Ucros Nunez: Quarter on quarter, four where we are.
Felipe Ucros Nunez: But unfavorable.
Felipe Ucros Nunez: Weather conditions.
Felipe Ucros Nunez: First quarter was better in terms of of weather conditions product for our business.
Felipe Ucros Nunez: As it is consumption-challenging, what we have seen is an increase in terms of the promotional activity of our competition. This led to them selling at lower prices or flat prices against last year, not even selling with prices in line with inflation. On our side, we kept the pace of having prices at least in line with inflation.
Felipe Ucros Nunez: So as these consumption challenges what we have seen.
Felipe Ucros Nunez: I think in terms of promotional activity.
Felipe Ucros Nunez: All of our competition.
Felipe Ucros Nunez: And this led.
Felipe Ucros Nunez: To that they sell at lower prices of slab prices against last year, not even selling.
Felipe Ucros Nunez: Prices in line with inflation.
Felipe Ucros Nunez: Our side, we kept the pace of housing prices at least in line with inflation.
Felipe Ucros Nunez: So, and overall, we have protected our market share. However, in some categories, we have lost, but marginal losses, but especially due to promotion. So the answer to that is that, on the other hand, we have pressures on our costs, as you mentioned. And this also puts us in a challenge in order to protect our margins. So we took further actions at the end of March to increase prices in some categories.
Felipe Ucros Nunez: No.
Felipe Ucros Nunez: And overall, we have protected our months however.
Felipe Ucros Nunez: However, in some categories, we have lost but marginal loss, but especially due to promotions. So the answer to that is that on the other hand, we have FX pressures in our cost as you mentioned.
Felipe Ucros Nunez: And this also put us in there.
Felipe Ucros Nunez: And the challenge in order to protect our margins. So we took further actions in March to increase prices in some categories.
Felipe Ucros Nunez: And if this continues, of course, we'll continue with the revenue management initiative while looking also, at the same time, at our market share. The very good news is that we are managing outstanding brand sales in our portfolio. So, especially in our year-end portfolio, brand sales are on the record.
Felipe Ucros Nunez: If this continue of course, we will continue with the revenue management initiatives. While looking also at the same time our market share.
Felipe Ucros Nunez: The very good news is that we are managing outstanding brand itself.
Felipe Ucros Nunez: In our portfolio.
Felipe Ucros Nunez: So.
Felipe Ucros Nunez: Sharing our via portfolio brand health <unk>.
Felipe Ucros Nunez: So this could support a better price without losing an extremely high market share. So going forward, I think competition will continue. However, the industry is under pressure on the cost side, especially US dollars. But also, aluminum prices are increasing. And forward-looking aluminum will also increase. So in that sense, we should be careful about pricing, promotions, and all this equation of competitive pressure. But the priority is Hercules. I mean, Hercules is about maintaining a relative scale, given this challenging consumption scenario, while at the same time protecting our margins.
Felipe Ucros Nunez: So this could support.
Felipe Ucros Nunez: Better pricing.
Felipe Ucros Nunez: Without losing.
Speaker Change: Good morning.
Felipe Ucros Nunez: Ted.
Felipe Ucros Nunez: So.
Felipe Ucros Nunez: Going forward I think.
Felipe Ucros Nunez: Petition will continue however.
Felipe Ucros Nunez: The industry.
Felipe Ucros Nunez: <unk>.
Felipe Ucros Nunez: It was under pressure in the cost side, especially for our U S. Dollar, but also aluminum prices are increasing.
Felipe Ucros Nunez: Forward looking aluminium.
Felipe Ucros Nunez: This increase so in that sense.
Felipe Ucros Nunez: We should be careful about pricing promotions on all this equation of competitive pressure.
Felipe Ucros Nunez: The priority is adequate and air quality, it's about maintaining a relatively stable.
Felipe Ucros Nunez: Given this challenging consumption scenario, while at the same time protecting our margins, but the good news is that we have very strong brands.
Felipe Ucros Nunez: But the good news is that we have very strong brands, even itself, that will certainly help us. OK? Your second question regarding wine, yeah, last year was an adjustment. [inaudible] Going forward, we continue to see execution in that market, and also in other key markets, we are improving a lot our execution.
Felipe Ucros Nunez: We sell.
Felipe Ucros Nunez:
Felipe Ucros Nunez: That will affect us.
Felipe Ucros Nunez: Uh huh.
Felipe Ucros Nunez: Okay.
Felipe Ucros Nunez: Your second question regarding volume.
Felipe Ucros Nunez: Yeah last year was an investment year in terms of inventory reduction on the supply chain and logistics.
Felipe Ucros Nunez: With us, especially in the northern hemisphere.
Felipe Ucros Nunez: Now we came to a normalization.
Felipe Ucros Nunez: We started to see the first positive signs that these adjustments have and reach a final at the M. I.
Felipe Ucros Nunez: As you look at the numbers.
Felipe Ucros Nunez: The overall growth versus.
Felipe Ucros Nunez: Our 2019.
Felipe Ucros Nunez: <unk> costs increased by 1% so we recovered already the volumes.
Felipe Ucros Nunez: 2019.
Felipe Ucros Nunez: Going forward, we continue to see growth, but limited growth as we have seen in the.
Felipe Ucros Nunez: First quite a bit we're very confident of some initiatives of the wine business.
Felipe Ucros Nunez: Got it in some key markets, especially in China, where we opened a commercial office there.
Felipe Ucros Nunez: That would certainly improve our execution.
Felipe Ucros Nunez: In that market and also in other key markets also we are improving a lot our execution.
Questioner: Great, that's very clear. Thanks a lot, Felipe.
Speaker Change: Great that's very clear thanks, a lot for them.
Operator: Okay, thank you very much. Our next question comes from Mr. Fernando Oliveira, from Bank of America. Please go ahead, sir.
Questioner: Okay. Thank you very much. Our next question comes from Mr. Fernando Olvera Bank of America. Please go ahead Sir.
Fernando Olvera Espinosa de los Monteros: Hi, good morning team, and thanks for taking my questions. The first one is a follow-up on Chile. I think about this gradual volume recovery expected going forward. Can you comment on how volume performed month by month during the quarter, and even any insight that you could share of April would be great, and what are the differences in performance between non-alcoholic and alcoholic beverages? That's the first question. And my second question also concerns Chile, you know, given the slight contraction in gross margin after 12 months of improvement. How do you expect North Margin to perform in the coming quarters taking into consideration precisely FX, volatility, packaging, and sugar costs? That's my second question. Thank you.
Fernando Olvera Espinosa de los Monteros: Hi, good morning team and thanks for taking my questions.
Fernando Olvera Espinosa de los Monteros: The first one is a follow up.
Fernando Olvera Espinosa de los Monteros: Follow up on Chile, and thinking about this.
Fernando Olvera Espinosa de los Monteros: Gradual volume recovery expected going forward.
Fernando Olvera Espinosa de los Monteros: Can you comment how volume performed.
Fernando Olvera Espinosa de los Monteros: On a month by month during the quarter and even any insight that you could share of April would be great.
Fernando Olvera Espinosa de los Monteros: And what are the difference in performance between non alcoholic beverages.
Fernando Olvera Espinosa de los Monteros: Beverages. That's the first question and my second question is also on Chile, now and given the slight contraction in gross margin after the 12 months of improving.
Fernando Olvera Espinosa de los Monteros: Do you expect gross margin to performing coming quarters, taking into consideration precisely FX volatility packaging sugar costs.
Fernando Olvera Espinosa de los Monteros: That's my second question. Thank you.
Felipe Ucros Nunez: No, I would say that during the quarter, the running rate in terms of volumes was practically the same in Chile for practically each month, so not a big difference between months. Maybe in some categories, especially February, was better in water because of the fires we have in the central region of Chile, but I would say in terms of the overall volume trend in Chile, which was minus 0.9% in all the months, was equal.
Fernando Olvera Espinosa de los Monteros: I would say that doing the work there.
Felipe Ucros Nunez: Right in terms of volumes were practically each month.
Felipe Ucros Nunez: Same in Chile.
Felipe Ucros Nunez: So no big difference between months, maybe in some categories, especially February was better water because of the fires.
Felipe Ucros Nunez: The fires we have in the in the same site as we've done with Chile.
Felipe Ucros Nunez: But.
Felipe Ucros Nunez: I would say in terms of.
Felipe Ucros Nunez: Of the overall volume trend.
Felipe Ucros Nunez: That was minus <unk>, 9%.
Felipe Ucros Nunez: Months worth.
Felipe Ucros Nunez:
Felipe Ucros Nunez: No.
Felipe Ucros Nunez: Regarding the split between alcoholic and non-alcoholic, I would say that non-alcoholic was rather flat in terms of volume, and we saw a decrease, especially because of competition promotion, but not so different between each other. So I would say flat volumes in alcoholic beverages and low CBD decreasing in alcoholic products.
Felipe Ucros Nunez: Regarding MSP between I'll call it kind of like call. It I would say that.
Felipe Ucros Nunez: Non alcoholic was rather flat in terms of volume and nonalcoholic, we saw a decrease especially because of competition promotions.
Felipe Ucros Nunez: But.
Felipe Ucros Nunez: Not so different between each other so I would say flat volumes in alcoholic.
Felipe Ucros Nunez: Low single digit decrease in alcoholic products.
Felipe Ucros Nunez: Mainly because of intensive promotion of competition. That is the. In terms of margins, yeah, we, as you mentioned, experienced a nice recovery in 2023, increasing our margin. Now we have new upcoming pressures, new pressures that are there, especially the exchange rate. This is a year ago; the exchange rate in Chile was 811 pesos; it reached during quarter one an average of 946. So, that's a heavy devaluation. It's 10 pesos of higher exchange rate hits us for less than $3 million in terms of, at the NIPA level. So, and the receipt is still the same, and it is Hercules.
Felipe Ucros Nunez: Mainly because of the intensity of promotions of competition.
Speaker Change: That's right.
Felipe Ucros Nunez: Great.
Felipe Ucros Nunez: Terms of margins Yeah, we are.
Felipe Ucros Nunez: As we mentioned we experienced a nice recovery in 2023, increasing our our margins.
Felipe Ucros Nunez: Now we have new.
Felipe Ucros Nunez: Precious new pressures that are there, especially with king right. This is.
Felipe Ucros Nunez: A year ago.
Felipe Ucros Nunez: <unk> was a partner at 11 basis.
Felipe Ucros Nunez: Sure.
Felipe Ucros Nunez: It reach beyond what the one off and out of that 946. So thus does it gave you the valuation it's 10 patients off of.
Felipe Ucros Nunez: Higher exchange rate.
Felipe Ucros Nunez: Us more or less $3 million out of it.
Felipe Ucros Nunez: In terms of delays.
Felipe Ucros Nunez: The level.
Felipe Ucros Nunez: So.
Felipe Ucros Nunez: And the receipt is still the same.
Felipe Ucros Nunez: Equities.
Felipe Ucros Nunez: It is about enhancing our revenue management efforts, as I previously mentioned. We took actions in some categories, and we will continue to do so, if this level of exchange rate continues to be, while protecting our market share and volumes. But, we need absolutely to protect our margins. All sufficiency and cost control initiatives are important in order to protect our markets, at least to protect the gains we made in 2023 in terms of margin recovery.
Felipe Ucros Nunez: It is about.
Felipe Ucros Nunez: Hence our revenue management efforts effectively dimension, we took actions in some categories and we'll continue this level of free standards continue to be while protecting our mental cleared on volumes, but.
Felipe Ucros Nunez: We need absolutely to protect our margins also efficiencies and cost control initiatives.
Felipe Ucros Nunez: Important in order to protect.
Felipe Ucros Nunez: Protect our margins.
Felipe Ucros Nunez: At least to protect our gains we did in 2023 in terms of margin recovery is Italian year and definitely a simple cost you mentioned sugar. However, in the last week, even compete but not enough.
Felipe Ucros Nunez: It's a challenging year in terms of cost. You mentioned sugar, but in the last week, it's up a little bit, but not enough to compensate for the US dollar exposure pressure that we have. However, I'm concerned about the aluminum prices going forward, which affects our packaging materials. The only one that is more stable is P&T, but we face a tough environment in terms of input costs.
Felipe Ucros Nunez: To compensate the U S dollar exposure.
Felipe Ucros Nunez: However.
Felipe Ucros Nunez: However, I am concerned about the moon prices going forward also.
Felipe Ucros Nunez: Does affect our packaging materials, the only one that is more statements BD, but.
Felipe Ucros Nunez: But we face it.
Felipe Ucros Nunez: A tougher environment in terms of input costs.
Fernando Olvera Espinosa de los Monteros: Great. Thank you, Felipe.
Speaker Change: Great. Thank you Philippe.
Operator: Thank you very much. Our next question comes from Mr. Henrique Brustolin from BTG Pactual. Please go ahead.
Felipe: Thank you very much. Our next question comes from Mr. Henry K Who's.
Henrique Brustolin: Coastal <unk> from BTG Pactual. Please go ahead Sir.
Henrique Brustolin: Hi, good morning. Thanks for taking my questions. I would like to just start with a follow-up on Chilean volumes. If you could comment on whether there were any specific movements within the beer category in Q1. You mentioned last year, for example, a trade down. So premium beer is losing space to the core mainstream portfolio. If you continue to see that happening or if the weaker category, I mean, it's widespread for all the product segments.
Henrique Brustolin: Hi, good morning, Thanks for taking my questions.
Henrique Brustolin: I would like to just start with a follow up on their own children volumes. If you could comment if there were any specific movements within the beer category in Q1.
Henrique Brustolin: You mentioned last year for example, our trade down some.
Henrique Brustolin: Indian movies Phase II, the core midstream portfolio.
Henrique Brustolin: If you continue to see that's happening or if the weaker category I mean, it's it's widespread for all the products segments.
Henrique Brustolin: And also, if you could give, you know, a little bit more color in the combs interior, they should start to get easier volume combs in Chile throughout the year. So how are you thinking about volume performance in the coming quarters in the country as well? And I mean the strength of the category as a whole. These are the first ones in Chile. And the other one, I would just like to hear a little bit more about how you are seeing results internationally for this year.
Henrique Brustolin: And also if you could give it back.
Henrique Brustolin: A little bit more color poems interior, they should start to get easier volume comps Chile throughout the year.
Henrique Brustolin: So how you are thinking about volume performance in the coming quarters in the country as well.
Henrique Brustolin: The strength of the category as a whole.
Henrique Brustolin: These are the first ones in Chile.
Henrique Brustolin: And the other one I would just like to hear a little bit more about how you are see resulting international for this year.
Henrique Brustolin: Of course, you know, visibility is very low there. But all things considered, how are you thinking about the volume performance and if things don't change much from what the macro conditions were in Q1, if we might continue to see somewhat similar levels of margin pressure throughout the year but also strong prices.
Henrique Brustolin: Of course, you know visibility very load there, but all things considered.
Henrique Brustolin: How you are thinking about the volume performance and if things don't change.
Henrique Brustolin: March from Trung.
Speaker Change: Uh huh.
Henrique Brustolin: The macro condition was worrying to one if we might continue to see somewhat similar levels of margin pressure throughout the year, but also the strong prices that we're able to deliver this.
Speaker Change: These are the two months thank you.
Felipe Ucros Nunez: We have some sound problems, but I will try to answer your question. The first one was regarding the beer category and the trends in terms of mainstream and craft beer. You know, it was a highly promoted quarter in terms of special competitions, and usually, there were promotions in the premium portfolio. So, we haven't seen a radical change in terms of mainstream and premium, as premium was promoted. When you promote premium, of course, you mitigate, let's say, in some way, the trend. So, we haven't seen a...
Speaker Change: We have some sound problems, but I would try to answer.
Felipe Ucros Nunez: Sure.
Speaker Change: Your question please.
Felipe Ucros Nunez: One was regarding the beer category.
Felipe Ucros Nunez: The trends in terms of mainstream media.
Felipe Ucros Nunez: No.
Felipe Ucros Nunez: The tiny promoters.
Felipe Ucros Nunez: In terms of suspicion competition, so a new trial.
Felipe Ucros Nunez: <unk>.
Felipe Ucros Nunez: There were.
Felipe Ucros Nunez: Promotions in the premium portfolio.
Felipe Ucros Nunez: So.
Felipe Ucros Nunez: We haven't seen a radical change in terms of mainstream and premium.
Felipe Ucros Nunez: Yes.
Felipe Ucros Nunez: Ramon.
Speaker Change: Hello team.
Speaker Change: Of course.
Felipe Ucros Nunez: Yeah.
Felipe Ucros Nunez: Let's say in some way.
Felipe Ucros Nunez: The trend.
Felipe Ucros Nunez: So we haven't seen yet.
Felipe Ucros Nunez: So, however, the premium has been reduced after the peak we experienced in 2021 and at the beginning of 2022, right after the pension funds withdrew in each year, looking forward to the following quarters. We don't do forward looking, but as far as the Chilean economy is concerned... [inaudible] Last estimates are predicting GDP growth of 2 to 2.5%. We should be seeing the margin and industry volumes grow, especially maybe in the... In the second semester, I will try to highlight some important points, but nothing about GDP growth. So, that's for the TA.
Felipe Ucros Nunez: However, the Premier League has been reduced after the peak.
Felipe Ucros Nunez: In 2021.
Felipe Ucros Nunez: Right after the pension reform.
Felipe Ucros Nunez: Zero.
Speaker Change: T J.
Felipe Ucros Nunez: Looking forward the following quarters, we don't.
Felipe Ucros Nunez: Looking back as far as the key.
Felipe Ucros Nunez: Good.
Felipe Ucros Nunez: Rough 50 data.
Felipe Ucros Nunez: GDP growth of two two.
Felipe Ucros Nunez: Two 5% we should.
Speaker Change: Do you see the margin.
Felipe Ucros Nunez:
Felipe Ucros Nunez: Industry volumes growth, especially mainly maybe.
Felipe Ucros Nunez: In the second semester.
Felipe Ucros Nunez: Highlights.
Felipe Ucros Nunez: So but nothing.
Felipe Ucros Nunez: Above GDP growth.
Felipe Ucros Nunez: So.
Felipe Ucros Nunez: That's for the children.
Felipe Ucros Nunez: Internationally, let me speak with Argentina and the other businesses. The other businesses are showing robust... [inaudible] So, uh, the question now is about Argentina. We think that, as of today, we have reached...
Speaker Change: Sure Let me speak with you at Centinela in the other businesses. The other businesses are sold in globals.
Felipe Ucros Nunez: Yeah.
Felipe Ucros Nunez: But in the world.
Felipe Ucros Nunez: With the market share gains.
Felipe Ucros Nunez: So we are happy about the performance in Paraguay, Uruguay also on ultra Bolivia, especially with the long term.
Felipe Ucros Nunez: It'll be in there.
Felipe Ucros Nunez: So.
Felipe Ucros Nunez: The question now is about Argentina.
Felipe Ucros Nunez: We've seen that.
Felipe Ucros Nunez: As of today, we reach the bottom in terms of consumption.
Felipe Ucros Nunez: The bottom in terms of consumption, as inflation levels are being reduced. So, for the first time in many years, we see a downward trend in Argentina in terms of inflation. So this 20% decrease that we have seen, us and competitors in the beverage industry, maybe has reached a bottom. But in such a volatile and such heavy adjustment of Argentine macroeconomics, and Argentina. The answer, our answer, is again Hercules. So we need to reemphasize our cost and expense control initiatives while carrying out revenue management initiatives because we are facing a scenario where, certainly, the industry will overall decrease this year. However, the first... for the first half of the year, we expect it to be tougher than the second one. But, again, it's too risky to predict.
Felipe Ucros Nunez: US inflation levels are being reduced.
Henrique Brustolin: Great, Felipe. Thank you.
Felipe Ucros Nunez: For the first time in many years, we see.
Henrique Brustolin: Our friends, who have been here in terms of inflation.
Henrique Brustolin: This 20% decrease but we have seen some competitors in the beverage industry.
Henrique Brustolin: Maybe.
Henrique Brustolin: <unk> reached the bottom.
Henrique Brustolin: This.
Henrique Brustolin: But.
Henrique Brustolin: Such volatile.
Speaker Change: And such.
Henrique Brustolin: Heavy adjustment of the Argentine macroeconomics.
Speaker Change: Would be difficult to predict.
Henrique Brustolin: Beef on what would happen we could experience a recovery yes.
Henrique Brustolin: But now the question is how quick would be this recovery.
Henrique Brustolin: We.
Speaker Change: Are we going to see more.
Henrique Brustolin: Positive macro in Argentina going forward, but is highly risky to predict.
Speaker Change: What would happen.
Henrique Brustolin: Hum.
Henrique Brustolin: Sometimes.
Henrique Brustolin: The answer our Elsa is again adequately.
Henrique Brustolin: So we need to reemphasize, our cost and expense control initiatives.
Henrique Brustolin: While.
Henrique Brustolin: Cutting out revenue management initiatives.
Henrique Brustolin: Because we are facing a scenario where.
Henrique Brustolin: Certainly the industry overall decrease this year.
Henrique Brustolin: However.
Speaker Change: The first one.
Henrique Brustolin: First of all the first half of the year, we expect to be tougher than the second one but again, it's too risky to predict.
Henrique Brustolin: Sure.
Felipe: Great. Thank you.
Felipe: Thank you very much just a reminder, star to for any additional questions in the meantime, I'll read the question.
Operator: Okay, thank you very much. Just a reminder, page two for any additional questions. In the meantime, I will read the question from Santiago Petri from Franklin Templeton. Hello, thank you for the call. Could you please give us some color on the competitive environment for beer in Chile? You mentioned in your statement that the market share was stable despite lower volumes, while your competitor of yours reported higher beer volumes in Chile.
Henrique Brustolin: From Santiago Petri Franklin Templeton Hello, Thank you for the call could you. Please give us some color on the competitive environment in beer in Chile, you mentioned in your statement that the market share was stable despite lower volumes, while the competitor of yours reported higher beer volumes in Chile.
Santiago Petri: Hello, Santiago. Good to hear from you. So yeah, the competitive environment is tough in all categories. Remember CCU is a multi-beverage company; it's not only a beer company. So overall, our market share in beverages was stable, let's say, even with the marginal gain in market share, not significant, and we are not worried about that because, as I mentioned, our brand health indicators are outstanding. Of course, as I mentioned, this was completely due to the heavy promotional activity of the competition. So that is what happened in the first quarter, to be clear. Okay, thank you very much. We'll give another minute or so for any...
Santiago Petri: And Hello Santiago.
Santiago Petri: Two two.
Santiago Petri: So yeah, the competitive environment and staff in all categories remember CCU with some multi beverage company, it's not that it would be a comeback so overall our market share in it.
Santiago Petri: In beverage was stable, let's say, even with the margin level.
Santiago Petri: The gain in market share however.
Santiago Petri: And alcoholic categories, we have some marginal loss in market share I would say net.
Santiago Petri: It's not significant.
Santiago Petri: And we are not worry about that because our as I've mentioned.
Santiago Petri: <unk> been self indicate a thorough understanding of course as I mentioned this was completely due to heavy promotional activity of the competition.
Santiago Petri: So.
Santiago Petri: That's that is what happened in the in the first one but to be clear.
Santiago Petri: Yeah.
Speaker Change: Okay. Thank you very much we'll give another minute or so for any additional questions to come through.
Felipe Ucros Nunez: Thank you very much. We'll give another minute or so for any additional questions to come through. Just a reminder, star two for any additional questions. Okay, we have a question from Thomas Stark from Biche Infesiones. Please go ahead, sir. Hello, thanks for the call. I have a question regarding Vineyard. Looks like receivables increased by more than 30% while sales only increased 11%. Can you provide further details about if a face condition is made on credit, please?
Felipe Ucros Nunez: Okay.
Felipe Ucros Nunez: Yeah.
Felipe Ucros Nunez: Well just to remind there start to for any additional questions.
Felipe Ucros Nunez: Okay.
Felipe Ucros Nunez: Okay.
Thomas Stark: Okay. We have a we have a question from Thomas stock from became the youngest please go ahead Sir.
Thomas Stark: Hello, Thanks for the call.
Felipe Ucros Nunez: I have a question regarding Bangor.
Thomas Stark: It looks like receivables increased by more than 30.
Thomas Stark: 30% and sales increased 9% and you provide further details.
Felipe Ucros Nunez: Sales conditions right.
Felipe Ucros Nunez: Yes.
Felipe Ucros Nunez: Yeah.
Thomas Stark: Evan, I think you are asking about working capital. Yes. Yes. Yes. Yes. Yes.
Felipe Ucros Nunez: I think you are asking about working capital.
Thomas Stark: Yeah.
Evan: Yeah, let me try it.
Felipe Ucros Nunez: There are several, yeah, yeah, because you have seen an increase in receivables. Look, we, so there are several effects. One main effect is that with the route to market integration of the water business in Argentina, that is a business that does not consolidate. However, we do the cash collection of this business.
Thomas Stark: Yeah.
Thomas Stark: Yeah, Yeah, because you have seen an increase in receivables.
Felipe Ucros Nunez: And we.
Felipe Ucros Nunez: There is several effects one main factor is that with the route to market the integration of the.
Felipe Ucros Nunez: Water business in Argentina, but it's a business that does not consolidate or wherever we are.
Felipe Ucros Nunez: We do the cash collection at the decision that we took the route to market integration integration.
Felipe Ucros Nunez: This was the route to market integration. We are having most receivables linked to the adding up of the water business receivables to our consolidated balance sheet. This is one effect. The second effect has increased a little bit the view depth, but it's not linked to bad depth.
Felipe Ucros Nunez: We are having most receivable new pet food.
Felipe Ucros Nunez: Adding up the water business.
Felipe Ucros Nunez:
Felipe Ucros Nunez: The receivable to our consolidated balance sheet. This is one effect the second effect.
Felipe Ucros Nunez: It has increased a little bit the do that but.
Felipe Ucros Nunez: That is not even get to that depth is more limited because of the end of the product at the end of first quarter was using eastern so eastern Easter weekend, and you shouldn't customers.
Felipe Ucros Nunez: It's more linked because the end of the quarter, the end of the first quarter was during Easter. So Easter, the Easter weekend, and usually customers go on holidays on Thursday and do not send the transfer of the money. So nothing to worry about because, in the end, it was fully recovered in the first week of April. So there is something linked to having Easter at the end of the quarter. Also, another effect was felt towards the end of the month in Argentina.
Felipe Ucros Nunez: Go on holidays on Thursday.
Felipe Ucros Nunez: And.
Felipe Ucros Nunez: The transfer of demand so nothing to worry because again this was fully recovered in the first week of April So there is something related to having Easter.
Felipe Ucros Nunez: And at least at the end of the of the of the of the block also another effect was.
Felipe Ucros Nunez: Facing.
Felipe Ucros Nunez: Facing.
Felipe Ucros Nunez: Yeah.
Felipe Ucros Nunez: Ah facing towards the end of the month.
Peter: Peter So three effects.
Felipe Ucros Nunez: So three effects, the consolidation of the receivables of the water business as we did the route-to-market integration. Secondly, it was due to the holiday, the Eastern holiday at the end of the quarter, and third, it was facing in Argentina.
Felipe Ucros Nunez: The consolidation of the of the receivable of the water business as we did the route to market.
Felipe Ucros Nunez: Integration.
Felipe Ucros Nunez: Secondly, it was due to the holiday the eastern Holiday Inn.
Felipe Ucros Nunez: Yeah.
Felipe Ucros Nunez: At the end of the quarter.
Felipe Ucros Nunez: Third is also facing in Argentina.
Felipe Ucros Nunez: Of course, but nothing related to bad debts or things like that at all, okay?
Speaker Change: Of course.
Felipe Ucros Nunez: But nothing related to bad debt or things like that.
Felipe Ucros Nunez: Okay.
Speaker Change: Okay. Thanks.
Operator: Okay, thank you very much. It looks like we have no further questions at this point, so I'll pass the line back to the CCU team for the closing remarks.
Speaker Change: Okay. Thanks, very much it looks like we have no further questions at this point I'll pass the line back to the CCU team for the concluding remarks.
Operator: Okay.
Operator: Okay.
Felipe Ucros Nunez: Thank you all for attending the conference. In summary, our results were negatively impacted by a challenging economic context in Argentina and the depreciation of the Chilean peso against the U.S. dollar, which resulted in higher cost pressures. In this context, we continue with our... PILA Regional Plan, Hercules, taking further actions in terms of revenue management efforts and cost and expense control initiatives to continue on the recovery path of our financial results and protect our profitability, which is our priority.
Speaker Change: Alright. Thank you all for attending the conference.
Felipe Ucros Nunez: In summary, our results results were negatively impacted by a challenging economic context in Argentina, and the depreciation of the Chilean peso against the U S dollar, which resulted in higher cost pressures.
Felipe Ucros Nunez: In this context, we continue with our six.
Felipe Ucros Nunez: Pillar original plan airplanes, taking further actions in terms of revenue management effort and cost and expense control initiatives to continue under recovery off of our financial results and protect our profitability, which is our priority.
Felipe Ucros Nunez: Consequently, the six pillars of Hercules maintain business scale, strengthen revenue management efforts, enhance the CCU transformation program to deliver efficiency gains in cost and expenses, and focus and reduce capex together with optimizing working capital. Focus on co-brands and high-volume margin innovation and continue investing in our brand equity. Our key is to gradually offset negative external effects and weaker consumer demand to fulfill our strategy of delivering profitable and sustainable growth. Thank you very much and have a wonderful afternoon.
Felipe Ucros Nunez: Consequently, the six pillars of adequate maintain beatings escape strengthening revenue management effort and hence the CCU transformation program to deliver efficiency gains in prostate expenses for her life and reduce capex together with optimizing working capital focus on core brands and.
Felipe Ucros Nunez: High volume margin and innovation.
Felipe Ucros Nunez: Continue investing in our brand equity are key to gradually offset negative external effect and weaker consumer demand to fulfill our strategy of delivering profitable and sustainable growth.
Felipe Ucros Nunez: Thank you very much and have a wonderful afternoon.
Operator: Thank you very much. This concludes today's conference call. We'll now be closing all the lines. Thank you, and goodbye.
Speaker Change: Thank you very much. This concludes today's conference call will now be closing Olga Thank you and goodbye.
Operator: Yeah.
Operator: Oh.