Q2 2019 Earnings Call

We're about to begin.

Welcome to see see use.

Teen earnings call today's conference is being recorded.

At this time I'd like to turn the conference over to cardio whatsoever.

Head Investor Relations. Please go ahead Sir.

Thank you.

Welcome everyone and thank you for attending Cc use second quarter 2019 conference call.

Today with me are Philippe <unk>, Chief Financial Officer, Nicholas Monobore financial planning and Investor Relations manager and Catalina Borderless Investor Relations senior analyst.

You have received a copy of the company's consolidated second quarter 2019 result.

Felipe <unk> will review or overall performance and we will then move on to a <unk> session.

Before we begin please take note of our cautionary statement.

Statements made in this call that relate to cease use future performance or financial results are forward looking statements, which involve known and unknown risks and uncertainties that could cause actual performance or results to materially differ.

These statements should be taken in conjunction with the additional information about risks and uncertainties are set forth in cc use I don't report in form 20-F filed with the U.S. The Securities and Exchange Commission and in the <unk> report submitted to the C. M F and available on our web site.

It is now my pleasure to introduce Felipe <unk>, but a net.

Thank you cloud and thank you all for joining us.

Before moving to our quarterly performance. It is important to mention that ore body shouldn't against last year in the second quarter 2018 ratios that I will be talking about exclude the effect of the C. you, Argentina and then he said a boogeyman bad <unk> transaction, which took place in the second quarter of last year.

During the second quarter of 2019 Cc U.S got somebody that volumes increased 1.4% why you'd be thought was down 9.8%. Consequently, EBITDA margin that they do they did 170 basis points to 13.7%.

The weaker financial results were mainly explained by the high depreciation off the TBM pay so on the I don't think peso against the U.S. dollar increasing our U.S. dollar denominated costs by the absence of prices increases in Argentina. During most of the first half of the year limiting our capacity to offset the impact of inflation on our cost and emus somebody and they expenses.

These effects were partially compensated by efficiency gains from the Exelon says he who brought with him and the implementation of revenue management initiatives.

In fact, the drop of 5609 11 million Chilean pesos in a beep. So let's go back to fall off then so since 2060 3 million in Chilean pesos in the international business operating segment wide, we post a positive turn around in the teens operating segment, where they'd be thorough bore south and a 99 million Chilean peso honest, so someone 11 billion Chilean pesos increase into wine operating segment.

[noise] them something that didn't come we increased 45.1%. These results was affected by four mostly non operating effect in Argentina, three possibly it starts off at the revaluation you application of our you for rice three on the recent wind asset acquisition and the application of inflation for tax purposes.

And when they got the application of hyperinflation accounting Weve and let the positive impact of 7120 3 million Chilean pesos.

Excluding the aforementioned buckets.

Net income would have decreased 12.2%.

In the June operating segment, our topline growth, 3.2% with volumes expanding 2.2% in line with the economy.

I would have to prices went up to 1% comparing supposed to be evenly with the 0.9% decrease in the first one.

This is the first restart of our revenue momentum Jim manage many ships that allowed us to raise prices in this being the highly promoted industry.

Gross margin dropped by 142 basis points, mostly due to the higher U.S. dollar denominated costs from the weaker Chilean peso.

However, we were able to compensate the increase in Cogs with efficiency gains in EMEA, some DNA expenses, which as a percentage of net sales improved by 135 basis points.

Accordingly, it beeped expanded 4.8%.

Posting a positive turn in a wrong when compared with the 8% drop in the first quarter of 2019.

So we thought it'd be some are being dumped 29 basis points to 19.6%.

The international business operating segment, which includes Argentina, Bolivia, Paraguay Uruguay.

Reported volumes rose 1.5%.

Excluding Bolivia volumes were down 6.5% explained by the industry contraction in that emptiness associated with both.

Hi company somebody in the second quarter of 2018, and the weak economic scenario.

Net sales declined 2.1% explained by the 3.6% average price prices drop in Chilean pesos due to the impact of the depreciation of the Argentine peso against the Chilean peso.

Yup sense of the already mentioned price increases during most of the first half of the year, which at the same time limited our capability to offset the exchange rate.

Change right pressure on our US dollar link get caught on the negative impact.

Oh inflation on expenses.

Accordingly.

Gross margin contracted from 53.3% to 42.8% this important to mention that it takes time to compensate for the sharp currency devaluation and high inflation in our results.

In this regard.

We took the first step increasing prices in Argentina at the end of June .

All in all a beep study Greece nine.

94 point.

3% on the EBITDA margin deteriorated from 11.5% to zero point.

7%.

The White operating segment posted a 1% increase in revenue mainly explained by the 2.6% how do you how your average prices in Chilean pesos, partially offset by a 1.6% drop in volumes.

The low Vietnamese.

In volumes in this segment is explained by export mainly do you like to higher competition, we are facing in key markets, where we operate.

The Italian market at prices well explain by the positive effect of the stronger us dollar against the Chilean peso and that didn't think based on our export revenues.

The operating segment gross margin continued to recover at least what we saw an improvement of three congrats on 16 basis points from 33% to 36.1% primarily associated with lower cost of wine against last year and a higher average prices.

Mmm DNA expenses, all over total sales increased from 24.1% to 26.4%, mainly due to temporary marketing expenses, which concentrated in the quarter altogether EBITDA grew 15% and EBITDA margin improved by 174 basis points to 14.3%.

In Colombia, where we have a joint venture with Boston, We continued to post bromide sale results. After the launch of our locally produced beer and Bina, which complemented our.

Premium beer portfolio.

See smart we have seen gains in market share on a positive trend in volumes, reflecting the success of our marketing strategy in positioning Andina button and most importantly, a positive access acceptance from the consumer.

By the end of June we more than doubled the volumes reached during the first semester of 2018.

Furthermore, we started producing the Kathy in our plan and then the Mount Mall category at the end of July when we launched not too much.

We expect to continue increasing points of sites and to implement our strategy that involves a focus on quality onto delivered the best experience to our clients and consumers.

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

Thank you Sir.

If youd like to ask a question. Please signal by pressing star one on your telephone keypad.

If you are using a speakerphone. Please make sure your mute function is turned off to allow your signal to reach our equipment.

Voice prompt on the phone line will indicate when your line is open.

Please do state your name and company before posing your question.

Once again that is star one to enter the queue.

That's for just a moment to allow everyone a chance to signal.

<unk> first question caller. Please go ahead your line is open.

Hello, guys. Thank you very much for allowing my questions Hope you guys are doing well.

Just a question on Colombia, a while I appreciate that the volumes are now increasing.

My understanding was that the overall JV losses were not expected to accelerate significantly beyond last years levels and clearly the first half they have already achieved last year mm loss levels I'm, just trying to understand how we should expect the JV income to sort of progress this year and next year.

Hey.

Hello, Good you state your name please I didn't hear or I think you didn't mention your name.

Sorry, My name is Muhammad Ahmed Oh, FTP were a shareholder.

Oh, Hello, a kilo Mohammad Thank you for for your question, Yes in Colombia, as we state that we ought to gain share because of the long term and Bina honestly thought on Omnicam and continued solid performance of our premium brands there and regarding the results. The financial results you will understand we ate we are creating the brand's E matches the brand precedents.

And so we need to significantly invest behind the launch of a fundamental brand. So for this year, we continue to heavily invest in marketing in Colombia.

To support the launch of the brand. So we are building these new.

Mainstream but on the or this new brand.

In Colombia, so we need to be to do these a significant effort.

On the payout will come certainly in the in the future. This is what we look forward and so far the results are very encouraging.

We we as we mentioned we double our scale in Colombia in the first sentence that underground. He is doing is doing really well and steel we need to further expand along with formats and points of sites to increase the size.

We didn't commit a two to the market. This specific target in terms of financial results for for the next for the upcoming years, but certainly with the production.

All the premium portfolio in Colombia, we will increase profitability in the in the future on and and also with the Gainesville for scale that we are doing by gaining share in the market certainly we will be more profitable in the in the future.

Okay moment.

That's great. So sorry, you said you doubled your volume or was that basically doubled your volume from Q2 last year to Q2. This year and can you talk a little bit.

Yeah. The first half of a we doubled the volumes, we had first half or.

Last year, our first half of this year, we doubled the.

But bear in mind that we only launched Andina at mid February so.

But we are really happy with so far with the launch of Alina mm.

Okay are you communicating eat into your current volumes and be your volume targets or volume share in the market right now or or EBITDA margins.

As you know obviously, you don't have to communicate any future targets.

A poll so answer your question.

And we have already published today in on a yearly basis in our annual report the volume. So for these JV last year, we sold in Colombia half a half a million act on it.

Okay, great. Thank you very much guys. Thank you for taking my questions.

Okay.

Right once again, everyone star one if youd like to ask the question.

Well go to our next caller. Please go ahead your line is open.

Hi, Good morning. Thank you very much for taking my question. This is better but data from something that for Chile, we observed a slower growth in prices and I mean, there is little girls in volumes and in prices, increasing diffuse the reversal of the trend above trend.

I believe this is a related with revenue management programs.

I was just wondering can we expect a similar trend from now onwards in Chile, or our volume growth going to decelerate and prices start to increase.

Thank you very much for taking my question.

[noise]. Thank you bad at all for the board or what are your what are your question.

What I, what I would say is that I think he late in quarter. Two we kept a somewhat AECOM a good commercial bina reason, because we continue to grow in volume at the lower base that they know what their one for sure what the when we give you 4.8% and then what they do.

2.2%.

In my view.

However, the economic dynamism of the Chilean economy economy has slowed down.

Little meet the maybe you know.

So.

I cannot predict what will happen in the in the in the second semester I look forward to the Chilean economy would or would recovery, but we are in a very volatile idle a environment, especially you know with the devaluation on or off of the currency Uh huh.

So so our margins will continue to be under pressure. So revenue management initiatives are key.

Buttons you mention.

We same store revenue management, we have it in now in the in the second quarter in more positive pricing in fact is positive by 1% compared to a negative pricing in what the one.

And especially in a very promote that market us as we mentioned in previous conferences. The market continue to be very promoted especially in supermarket. So the challenge is to keep.

Positive volume growth with with commercial dynamism, while recovering margin through revenue management.

Initiative, especially given the devaluation of the Chilean peso that impact our word.

Overall PNM.

Perfect. Thank you very much for the color I'll say from a follow up question.

Youve commented that.

You've increased prices.

In June I was just wondering are these price hikes related to inflation levels or are those price hikes below inflation levels. Thank you.

Oh.

Thank you. This is Mohammed again, I think or federal federal federal So thank you Pedro.

Or yeah regarding Argentina.

Yeah.

We increased prices to us as we mentioned by the end of June , but we ought to feel a below inflation level I mean, cumulated inflation level seen or December last year huh.

So his spiel, we need to to cut tops inflation on a currency devaluation in Argentina, but it was a first step to a start.

ER the recall video of our profitability there.

Thank you very much for your analysis.

Okay and once again that is star one if youd like to ask a question, we'll pause for just another moment to allow everyone a chance to signal.

Oh. Please go ahead your line is open.

Hi, Hello, and I'm, putting on the letter from Bank of America Merrill Lynch and thank you for taking my questions.

I have one related to to Argentina.

Yeah, I would ER, how should we think about volume behavior going forward.

I mean, given your your pricing strategy or it seems that do you still have to increase prices again and also considering that the comparison that you phase is going to be tough in column in coming quarters and that's my first question. The second one is related to Chile, and can you comment about the aluminum costs for the second half of the year and how this as well as your excellence program could help you mitigate the FX pressure in coming quarters. Thank you so much.

Hey, Hello, Fernando photo quotas for your question, we get any not just seeing that the tougher comps were in the first set Mr. I will remember you that the economic crisis in there or or the devaluation crisis in Argentina.

Startup that by what the two last year I went when Argentina heavy they evaluate and offer beginning of May 2018, So the really tough the really tough comps were in the first.

Sensed that the comps in the in the second Cymer service that.

And let's say.

Less challenging however, I need to say that we are leaving a very volatile scenario.

Well, certainly we need to further enhance our revenue management initiatives in Argentina.

I mentioned to catch up inflation levels on currency devaluation.

So this is the only thing I can I can say I cannot give you, especially in Argentina.

Hey look forward on what will happen.

Regarding due to your question the outlook on cost ice ice I.

I would say as you know the.

The dollar.

So I appreciate that a lot internally and consequently pumping a lot of pressure on our input costs.

And of course, we are working on efficiency programs may mainly up expenses 11.

And if you saw our a pea I now have the T. down operating segment, we need a very good airports in terms of any sudden dnanet by reducing them.

More than 100 basis points as a percentage of net sales, reflecting our capability of executing efficiency programs, especially in our distribution operations. So it is one is of course is one source.

You know the efficiencies to mitigate some walked the impact of the input costs.

Bob It takes long to recover profitability as we state.

So we keep we keep a big focus on revenue management, but also being efficiencies.

Okay, great. Thanks, so much.

Right and one last time that star one if youd like to ask a question.

The one other caller. Please go ahead your line is open.

Hi, I do think we can from BTG.

Thank you for taking my question.

I have just wanting to one operating segment you mentioned that you had more marketing investments during this quarter.

And I understand dues, mostly related to improved volumes in export markets. So my question is if we should expect this to continue going forward. These investments.

And what you are seeing in term of volume so far as a as a consequence of this thanks.

Yes, so we face a very competitive scenario in the export wine business not only be a competitor that up I care about the overall TVN industry.

And our people on some markets.

But to Japan Okay.

The statement about marketing expenses was of course in the export market and more related with facing facing of investment because we got some particular initiatives during the quarter okay.

We had a baby we deep very disciplined in keeping you know comfortable of our marketing expenses and investment we think high returns in terms of volume and profitability of our marketing investments.

In all the operating segments.

Regarding exports I think we have.

We at the end of June and especially in July because we take orders in June and then we keep them in July .

We saw more positive signs in the wine exports.

Segment in July but these are you know.

Too close to call how would evolve in the next.

A few months.

So, but we saw some positive signs.

So of course, what the two once a week water in terms of export volumes.

You mentioned, but we felt recovery at the end of the quarter in terms of the orders we took from the export market that would certainly have a more positive impact in in July say seven consequently in quarter three sites.

Okay.

Okay, that's very clear thanks very much.

All right and it looks like we have no further questions at this time.

[noise] it do anything.

<unk>.

Okay. If there is no further questions I would like to thank you all for attending this session today.

In the second quarter as I mentioned to you was able to partially offset significant external effect from the devaluation of local currencies by developing a strategy that aims to defend profitability through revenue management initiatives and efficiency efforts in total we kept positive consolidated volume growth, we achieved an EBITDA expansion into Chile, and wine operating segment and we are and we were able to raise prices in Argentina at the end of the quarter.

During the second half of the year, we will continue executing our sustainable and profitable growth strategy supported by a strong portfolio of brands, our continuous purse per suite of operational excellence and our focus on innovation marketing and sales execution have a very good weekend.

That does conclude today's conference we thank everyone again.