Compañía Cervecerías Unidas S.A. (CCU) Q2 2023 Earnings Call Transcript

Compañía Cervecerías Unidas S.A. (NYSE:CCU) Q2 2023 Earnings Convention Name August 10, 2023 12:00 PM ET

Firm Individuals

Claudio Heras – Head of IR

Felipe Dubernet – CFO

Convention Name Individuals

Felipe Ucros – Scotiabank

Fernando Olvera – Financial institution of America

Henrique Brustolin – BTG Pactual

Operator

Good day, everybody. And welcome to CCU’s Second Quarter 2023 Earnings Convention Name. Please observe that immediately’s convention is being recorded.

Presently, I wish to flip the convention over to Claudio Las Heras, the Head of Investor Relations. Please go forward, sir.

Claudio Heras

Thanks. Welcome, everybody. And thanks for attending CCU’s second quarter 2023 convention name. At the moment with me are Felipe Dubernet, Chief Monetary Officer; and Colin Drako, [ph] Monetary Planning and Investor Relations Supervisor. You’ve acquired a duplicate of the corporate’s consolidated second quarter 2023 outcomes. Felipe will now evaluation our general efficiency, and we’ll then transfer on to a Q&A session.

Earlier than we start, please pay attention to our cautionary assertion. Statements made on this name that relate to CCU’s earlier efficiency or monetary outcomes are forward-looking statements, which contain identified and unknown dangers and uncertainties that would trigger precise efficiency or outcomes to materially differ. These statements ought to be taken along with the extra details about dangers and uncertainties set forth in CCU’s annual report in Type 20-F filed with the U.S. Securities and Alternate Fee and within the annual report submitted to the CMF and out there on our web site.

It’s now my pleasure to introduce Mr. Felipe Dubernet.

Felipe Dubernet

Thanks, Claudio, and thanks all for becoming a member of us immediately. In the course of the second quarter 2023, CCU posted a powerful set of outcomes up to now financial setting, increasing consolidated volumes by 4.8% and EBITDA by 45.1% from final yr. The expansion in volumes and EBITDA was 6% and 96.2%, respectively, once we exclude the Wine Working phase, which is going through a very difficult state of affairs attributable to a pointy lower in export volumes, consistent with the Chilean wine trade.

The efficiency of the quarter reveals that our efforts and initiatives to recuperate our profitability strained below the unique plan HerCCUles 2023 are in the correct path. Nonetheless, we’re conscious that extra efforts are wanted with the intention to consolidate this constructive development.

Accordingly, trying forward, we’ll proceed specializing in the six pillars of HerCCUles 2023: primary, preserve enterprise scale; quantity two, strengthening income administration efforts; quantity three, improve the CCU transformation program to ship effectivity features; quantity 4, optimize CapEx and dealing capital; and quantity 4, give attention to core manufacturers and high-volume margins and improvements; and 6, proceed investing in our model.

In quarter two, 2023, our revenues expanded 2.8%, boosted by 4.8% rise in volumes, whereas common costs in Chilean pesos contracted 1.9%. The growth in volumes within the quarter allowed us to be on monitor to keep up enterprise scale in 2023, consistent with pillar quantity one in all HerCCUles.

The decrease common costs in Chilean pesos had been largely defined by the detrimental translation impact in Argentina, though in native forex developed consistent with inflation. And in the important thing working phase, common value grew high-single digits in the course of the quarter, regardless of detrimental combine impact.

Gross revenue jumped at 10.7% and gross margin improved from 40.3% to 43.4%, the later pushed by the upper revenues, but additionally related to extra favorable prices in related packeting supplies and the appreciation of the Chilean pesos versus the U.S. greenback, impacting positively our U.S. dollar-denominated prices consistent with pillar quantity two of HerCCUles.

SG&A bills elevated 3.6% versus final yr. And as a proportion of web gross sales had been virtually flat attributable to efficiencies by means of all our working segments, consistent with pillar three of HerCCUles.

In all, EBITDA was up by 45.1% and web earnings totalized a lack of CLP3,943 million versus a detrimental results of CLP1,455 million final yr. Moreover, in quarter two, 2023, we saved delivering a powerful money technology versus 2022. Thus, as of June 2023, web money influx from working actions expanded. And web money outflow from investing actions decreased throughout the identical interval, consistent with pillar quantity 4 of HerCCUles.

As well as, we lowered our portfolio complexity and recorded a powerful model desire indicators being key to achieve or preserve market share in our major classes, consistent with pillar quantity 5 and quantity six of HerCCUles.

In abstract, consolidated volumes elevated 4.8%, pushed by a 4.7% growth in the important thing working phase and an 8.1% progress in Worldwide enterprise working phase, partially compensated by a 14.4% contraction within the Wine Working phase. Web gross sales had been up 2.8%, and gross revenue elevated 10.7%. Consolidated EBITDA reached CLP47,126 million, a forty five.1% improve. EBITDA variation within the working phase was as following: an 86% leap in our Chile core working phase, a 74.9% growth within the worldwide enterprise working phase and contraction of 44.5% within the Wine Working middle. Lastly, as I stated, we’ve a rise in our outcomes at web earnings degree.

Now I will likely be glad to reply any questions you will have.

Query-and-Reply Session

Operator

Thanks very a lot for the presentation. We’ll now be shifting the Q&Part of the decision. [Operator Instructions]. We’ll take the primary query from Felipe Ucros from Scotiabank. Please go forward, sir.

Felipe Ucros

Thanks, operator. And good afternoon, Felipe, [Indiscernible] and Claudio. Congrats on the outcomes, actually properly down from a yr in the past. I wished to ask questions concerning the modifications that you just suppose will likely be applied with distribution in Argentina. And the way it sees {that a} piece of the portfolio is likely to be leaving from the core system. Simply questioning if you happen to might give us any particulars round that, hopefully one thing like which manufacturers you are planning to take away or what proportion of volumes you are attempting to maneuver out of the system?

And in addition, I wished to know what is the plan when you’re out of the system, is it going to be to create your personal distribution community? Or that you just discover one other third social gathering that you just thought could be higher hole in coke? Any particulars you can provide us round it could be nice.

Felipe Dubernet

Thanks, Felipe, on your query relating to our distribution, and the modifications we’re doing in our distribution in Argentina. Earlier than let me offer you some background. We have to have our personal distribution within the overwhelming majority of the nation. So final yr, we had the 2 Coca-Cola bottlers, Arca and Andina, distributing specifically areas or geographies such because the North Arca and South plus [ph] different areas, the Coca-Cola system, that accounted for kind of 20% of our complete volumes.

However as we stated in our press launch, the distribution settlement that we had in some areas with two Coca-Cola bottlers that I already talked about, expiring June. So in these areas, we’ve applied a brand new distribution community. That may be a joint distribution of beer and with our lately water enterprise acquired or the participation we’ve within the JV with Danone in Argentina. So virtually, in all of the international locations this community is applied. However that’s combining beer, wine, liquors, but additionally now the water enterprise.

As we stated, on the identical time, we’ve negotiated the potential new distribution settlement with Coca-Cola bottlers, which might embrace a number of the manufacturers of our portfolio. Some manufacturers of our portfolio might go together with the distribution with the Coca-Cola bottlers. However thus far, we’re nonetheless negotiated this potential settlement with them.

However in abstract, the brand new distribution degree was efficiently applied now in Argentina. And in addition, we went stay with all of the methods, integrating the water enterprise to our methods, the CCU system at on a key degree in Argentina, additionally very profitable implementation. Okay, Felipe?

Felipe Ucros

No, that is very clear, Felipe. In order that implies that we do negotiate and distribution with Coca-Cola, you are already distributing by yourself system. Is that right?

Felipe Dubernet

Yeah, we’re distributing now with our personal system. And I need to be clear, the Coca-Cola solely distribute specifically areas, this settlement completed in finish of June. However we’ve negotiated that we might distribute a few of our model of portfolio possibly potential settlement.

Felipe Ucros

Okay. That is very clear. After which the second query I wished to ask you. Simply questioning how you’re feeling the temperature of the Chilean shopper. What’s the brand new — what is the sentiment for enterprise on the bottom in Chile?

Felipe Dubernet

Yeah. What we had a superb growth in volumes in Chile throughout quarter two. As you realize, this 4.7% progress. Having stated, that is nonetheless above pre-pandemic figures. So it is a good progress to be on.

Nonetheless, the comp of quarter two was simpler than the comp of quarter one in all final yr as a result of quarter one in all final yr, as you realize, we’ve the affect of presidency assist plus the withdrawal of the pension funds in Chile, that boosted consumption. So I’d say we’re proud of the evolution of the trade with the intention to preserve our enterprise’s scale. We had been additionally very clear in saying that the financial system has been deteriorating, due to this fact, consumption to facilitate, particularly within the final 4 quarters, I’d say.

However from quarter two, we see progress at our classes and extra resilient to the acquisition energy of the — discount within the buy energy of the patron. So in abstract, by way of the evolution of the patron we’re — I’d say, we’re assured that we can preserve our enterprise scale within the following quarters.

Felipe Ucros

Very clear. And only a follow-up on the Chile query. Is the premium phase of the portfolio now stabilized?

Felipe Dubernet

Yeah. What I’d say, and really, as we said in the course of the included in our launch, a portion of our income administration efforts had been offset by the combination of our portfolio, as an instance. So we reached as you realize, report by way of premium combine, particularly in beer class, but additionally in wine, additionally in liquors throughout, on the finish of 2021 and the start of 2022. So I’d say it has been stabilized in quarter two with a discount in comparison with final yr. The place, the truth is, it is rising extra in the principle three manufacturers, particularly in beer, but additionally in wine.

Felipe Ucros

That is all very clear. Thanks loads for the feedback.

Felipe Dubernet

Thanks, Felipe. Have a beautiful date.

Operator

Thanks very a lot for the query. Our subsequent query comes from Fernando Olvera from Financial institution of America. Please go forward, sir.

Fernando Olvera

Nice. Thanks. Good afternoon, everybody. Thanks for taking my questions. Simply to follow-up, Felipe, relating to Chile, sorry. On the beer phase, I imply, are you able to remark how your market share behaves in the course of the quarter?

And my second query is relating to the Worldwide enterprise, if you happen to can remark what had been the principle drivers of quantity progress? And what’s your outlook for the second half of the yr? Thanks.

Felipe Dubernet

Yeah. Concerning the beer, I’d say there was within the final quarter, we’ve had a gradual market share. You could possibly achieve one level, one month and the afterward lowered by half level. So we’re taking market share within the final, I’d say, six quarters, okay, within the yr.

Concerning the query on Worldwide enterprise, the comps had been a bit bit, particularly in Argentina final yr, the comps had been low. So Argentina, the truth is, volumes have been challenged within the final quarters on the excessive degree of inflation is affecting shopper buy energy, as an instance.

We’re, as an instance, in Uruguay significantly and it is known as worse [ph] scenario linked to the draught situations in the course of the summer season, however we’ve shortage of public water, as an instance. And that boosted our water gross sales in Uruguay throughout quarter two. Alongside additionally an excellent efficiency in Paraguay, rising the volumes, high-single digits. However it’s encouraging the leads to Paraguay.

Within the case of Bolivia, very depressed volumes in Bolivia. So going ahead, it is going to be a world phase, as you realize, is the massive participation of Argentina. However we expect Argentina nonetheless have detrimental development by way of quantity. And we might see some lower quarter-on-quarter by way of quantity within the subsequent — trying ahead.

Fernando Olvera

Nice. Thanks, Felipe.

Operator

Thanks very a lot. Our subsequent query comes from Mr. Henrique Brustolin from BTG Pactual. Please go forward, sir. Your line is open.

Henrique Brustolin

Hello, howdy, Felipe [Indiscernible], thanks for taking my query. I wish to discover a bit bit extra the restoration in profitability in Chile going ahead to historic ranges. And if you happen to might break it down from two completely different views, the primary one coming from prices, like, how ought to we take into consideration prices within the second half of the yr in comparison with what you delivered now within the first half? Particularly now that we see possibly a barely weaker Chilean peso and general steady commodity costs.

And the second on the pricing entrance, as you talked about, pricing has been very sturdy over the previous two years, even with some detrimental combine influence. However we see the leads to your web revenues per hectoliter. And the trade efficiency, though it isn’t rising as a lot, volumes stay fairly sturdy relative to pre-pandemic. So the query, I feel, is how a lot room do you see for extra value hikes on the again half of the yr that would assist deliver margins again to these ranges from pre-pandemic? These are the 2 questions. Thanks.

Felipe Dubernet

Thanks, Henrique. Yeah, thus far, I feel these are the primary steps with the intention to recuperate our pre-pandemic margins as we identified. We have now had an enormous — if you happen to examine all of the uncooked supplies in comparison with the pre-pandemic degree — let me offer you only one instance. Aluminum costs in 2019 was $1,800 per ton and now has stabilized at $2,400 a ton. In order that’s a major improve between 25% to 30%. Yeah, we had a really excessive aluminum costs proper after the Russian invasion to Ukraine when it jumped to $1,300 per ton.

Now to stabilize at a decrease degree, but it surely’s nonetheless a lot increased than the than the degrees we noticed. So this can be a lengthy path as a result of, as we stated, in this type of enterprise, you most likely report the margin, and that is what we’ve been executed particularly for quarter 4 final yr, quarter one and now quarter two. As we identified, with the variations by way of rate of interest between a discount between the Fed and the Chilean Central Financial institution we’ve seen a rise of the alternate charge, however devaluation of the Chilean peso, however simply an influence our price.

If that is maintained, I feel possibly it is for positive that this ought to be thought of in our pricing technique. However I’d say, relying on competitors, relying on many elements for the upcoming months. So I do not need to — however let’s examine about that.

Then again, price perspective, I feel uncooked materials are kind of steady. We have now excessive price strain in sugar attributable to provide and demand world situations, particularly in India [ph]. So there, we’ve strain. However one other excellent news, as I stated, I feel in two or three calls that we’ve excessive ranges of stock. And also you noticed in our money technology that we’ve been decreasing our uncooked supplies stock in accordance with regular ranges that we had earlier than the Russian invasion. So additionally this may promote certainly into our prices.

However to be trustworthy, we at all times face unstable volatility in alternate charge, and the intention is to progressively recuperate our pre-pandemic margins. Okay, Henrique.

Henrique Brustolin

That is clear. Thanks, Felipe.

Operator

Thanks very a lot. [Operator Instructions]. Our subsequent query is from Martin Leche [ph] from Fundamenta Capital. The textual content query ought to we count on price per liter in Chile to be detrimental year-over-year given excessive comparables in commoditites and higher FX? Or ought to we count on it to be constructive, however beneath inflation? Thanks.

Felipe Dubernet

Thanks, Martin. Futuristic price per liter in Chile detrimental year-on-year given excessive comparability. Sure, after all, particularly within the final — particularly within the third quarter final yr, we tactically skilled CLP1,000 per greenback alternate charge. Now it is stabilized. Its steady on the final two weeks, as an instance, at CLP850. So there we’ve some advantages.

As I discussed within the earlier query, the associated fee strain has been precise for sugar costs in comparison with final yr. In order that’s — so answering your query, it ought to be detrimental and particularly in quarter 3.

Operator

Thanks very a lot. It seems to be like we’ve no additional questions at this level. I’ll go the road to CCU group for the concluding remarks.

Felipe Dubernet

Throughout quarter two, 2023, we consolidated a restoration path in our monetary leads to a tricky financial setting. The latter was primarily pushed by the implementation of April 2023. Though we’re conscious that extra efforts are wanted to maintain enhancing profitability.

To be able to be bought in the course of the second semester forward, we’ll preserve executing our technique to ship worthwhile and sustainable progress. I want you all a beautiful afternoon.

Operator

Thanks very a lot. This concludes immediately’s convention name. We are going to now be closing the road. Thanks, and goodbye.