Good day, everyone and welcome to the CCU's First Quarter 2021 Earnings Conference Call. Today's call is being recorded. At this time, I would like to turn the conference over to Claudio Las Heras, Head of Investor Relations. Please go ahead..

Welcome, everyone, and thank you for attending CCU's first quarter 2021 conference call. Today with me are Patricio Jottar, Chief Executive Officer; Felipe Dubernet, Chief Financial Officer; and Nicolás Novoa, Financial Planning and Investor Relations Manager. You have received a copy of the company's consolidated first quarter 2021 results.

Patricio will now review our overall performance and we will then move on to a Q&A session. Before we begin, 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 actual performance or results to materially differ.

These statements should be taken in conjunction with the additional information about risks and uncertainties set forth in CCU's annual report in Form 20-F filed with the US Security and Exchange Commission and in the annual report submitted to the CMF and available on our website. It is my pleasure to introduce Patricio Jottar..

first, the expansion in consolidated volumes as mentioned above; second, the implementation of revenue management initiatives and positive mix effects; third, efficiency gains from the ExCCelencia CCU program with MSD&A expenses as a percentage of net sales, decreasing from 38.2% to 34.1%; and four, finance – positive external effects from the 9.8% appreciation of the Chilean peso against the US dollar, affecting favorably our US dollar-denominated costs, partially compensated by currency translation effects, wine export revenues in foreign currency and higher cost in raw material.

As a result of the above net income recorded a 99.7% hike. In the Chile operating segment, our top line expanded 15.2%, due to 4.2% growth in volumes, revenue management initiatives and positive mix effects mainly based on a strong performance of premium brands in beer, volume growth was driven by all main categories.

Gross profit grew 16.3% and gross margin rose 50 basis points to 52.7%, mainly as a result of the top line expansion mentioned about our positive external effect from the appreciation of the Chilean peso against the US dollar affecting favorably our US dollar-denominated costs and efficiencies in manufacturing.

This was partially offset by higher cost in raw materials, MSD&A expenses as a percentage of net sales improved 497 basis points in line with cost control initiatives to the ExCCelencia CCU program. In all, EBITDA recorded a 40.8% increase and EBITDA margin improved from 21.6% to 26.4%.

The International Business Operating segment, which includes Argentina, Bolivia, Paraguay and Uruguay posted a 0.1% rise in revenues due to an increase of 5.1% in volumes, offset by 4.8% lower average prices in Chilean pesos.

Volume growth was mostly driven by Argentina, lower average prices in Chilean pesos were explained by negative currency translation effects in Argentina from the sharp depreciation of the Argentine peso against the Chilean peso, as we executed revenue management initiatives to compensate local inflation.

The latter in Argentina allowed us to compensate higher US dollar-denominated costs from the depreciation of the Argentine peso against the US dollar and higher cost in raw materials.

In addition to this, we have positive mix effects in the portfolio that allowed us a gross profit expansion of 9.6% and an improvement in gross margins from 45% to 49.3%. MSD&A expenses as a percentage of net sales improved by 209 basis points, due to efficiencies from the ExCCelencia CCU program.

Altogether, EBITDA posted an expansion of 68.5% and EBITDA margin increased from 8% to 13.4%. The Wine Operating segment reported a 13.9% rise in revenues, due to a 16.7% expansion in volumes, as average prices contracted 2.4% during the quarter.

The volume expansion was driven by both, the domestic markets and exports, all posting double-digit growth with market share gains in domestic markets of Chile and Argentina.

The lower prices in Chilean pesos were mainly a consequence of the appreciation of the Chilean peso against the US dollar and its negative impact on export revenues and a negative mix effect. Gross profit was up 4% and gross margin decreased 380 basis points, mostly reflecting lower average prices in Chilean pesos and a higher cost of wine.

MSD&A expenses as a percentage of net sales improved by 344 basis points, thanks to efficiency. And all EBITDA rates and expansion of 5.6% while EBITDA margin decreased from 19.5% to 18%. Finally, in Colombia where we have a joint venture with Postobón, we continued in a positive trend in volumes and financial results.

In terms of volumes, we grew over 30% during the quarter. In terms of results, we have posted positive EBITDA for a second quarter in a row based on a higher business scale, the development of our beer portfolio and efficiency.

We will focus on continuing on this positive path by developing a strategy that involves new consumer experiences, quality and innovation. Now I will be glad to answer any questions you may have. .

[Operator Instructions] We'll go first to Fernando Olvera from Bank of America. Your line is open..

Hi. Good morning, everyone. And thanks for taking my questions. I have two, if I may. The first one is related to pricing.

I mean, given the increase in commodity prices, how are you thinking about your pricing strategy going forward? How can this change your view about favoring volume growth? And when do you expect to face higher costs? And the second question is about expenses. It was really outstanding the efficiencies that you achieved across the operations.

Can you comment from where did you obtain most of such efficiencies? And how should we think about expense evolution when mobility restrictions decline? Thank you..

one, logistics; second, manufacturing; third, procurement; four, marketing; five, sales; six, general expenses; and finally seven, revenue management. So it's not a onetime effort. It's not that we are putting a lot of focus now on expenses a permanent effort under the name of ExCCelencia CCU program in the seven areas that I just mentioned.

And finally, the combination of volumes, margins and expenses are the key to build profitability in our business. I mean our business at the end of the day is not too complicated. We need volumes, we did margins, we need to keep expenses under control. And this is our permanent effort and this is what we'll continue doing in the future. .

Great. Thank you so much..

Thank you, Fernando..

[Operator Instructions] Next we'll go to Henrique Brustolin from BTG. Your line is open..

Hello. Good morning, everybody. Two questions on my side. The first one in terms of….

Yes. Hello If you -- excuse me, Henrique please. Go ahead. .

Okay. I'm sorry. The first one is in terms of pricing in Chile that we saw a very strong growth and you mentioned the positive mix impact.

So I just wanted to hear if there were also any price increases in the quarter? And how was the relative performance between the alcoholic and non-alcoholic segment? And we think the alcoholic segment, premium performed very well, but how that compared to the mainstream portfolio. So I think it would be very helpful.

And the second question is in terms of competition, right? So this is the first quarter that ended and coke bottlers fully operated under the new distribution agreement. And then, they just reported 20% plus volume growth in Chile.

But I'm unsure about the comparison basis, but just wanted to hear from you guys, if you see any changes in the competitive environment in Chile in different channels, since the distribution agreement started? And also if you could give some color on market share performance, I think, it would be very helpful. Thanks..

Yes. Thank you, Henrique, for your question. Exactly, you are right, they reported 20% or more growth in volumes in two years, because I mean the first Q of 2020 was a very strange quarter. So the real comparison is first quarter 2021 compared with first quarter 2019.

And they announced that they grew by 20% and in the same basis we grew in our beer portfolio and more than 20%. In fact it has 24% --.

25..

25% comparing again Q1 2021 with Q1 2019. And if you take a longer period of time, let's say, four, five years our market shares, with ups and downs, have been rather stable in there, as we have been gaining market share in non-alcoholic.

Look, regarding competition, indeed to have the Coca-Cola system distributing the beers of our competitors is something important. I mean Coca-Cola is a fantastic operator and they have a fantastic distribution network. But let me say that, to become a real multi-category operator is much more than put new products on Europe and U.S.

historical distribution. This is the beginning or this is the first step of a multi-category process, but this is not a real multi-category strategy.

A real multi-category strategy needs a philosophy, a culture, needs processes, KPIs and a lot of tools in order to put the same focus in a 2 million or 3 million hectoliter brand than you have in 1,000 hectoliter brand. This is a real philosophy behind multi-category. We have been running a multi-category operation for 20 years.

At the end of the day -- now, our competitor Coca-Cola is going to learn how to do this. But believe me, this is not a short-term journey. It's a long-term journey. Having said that, we respect them a lot. Regarding alcoholic products, it's true. We have been improving the percentage of premium in our portfolio a lot.

In the first quarter of 2021, premium products in the beer -- in our beer portfolio represented more than 40% of our volumes. Two years ago that was 25% to 30%. We have been increasing -- we have been increasing this, which is good, because it improves our profitability.

But at the same time, it's a challenge, because there is much more competition in this segment, it's much more difficult to defend -- to grow market share in premium, rather than in mainstream. But this is our job. This is our everyday job..

That’s very helpful. Thanks very much..

Thank you, Henrique..

[Operator Instructions] And we have no further questions in the queue. So I'll turn it back to Patricio Jottar for closing remarks..

Perfect. Thank you very much. Summarizing, during this first quarter 2021, in a still challenging scenario, due to the pandemic, CCU continued developing a regional plan with three priorities, as I mentioned before. Number one, the safety of the people; number two, the operation continuity; and number three, the financial health.

At the same time, the strategy implemented in this context gave positive results during the quarter, where we delivered volume growth in all the operating segments and a recovery in our financial results. The latter, with an improvement in our profitability.

In 2021, we'll continue to face a challenging and uncertain scenario, due to new outbreaks of COVID-19 in the region. In this context, we'll keep executing with a lot of discipline. The strategy that we have been carrying out in order to continue delivering profitable and sustainable growth. Thank you very much all of you for attending this call. .

And that does conclude our call for today. Thank you for your participation. You may now disconnect..