Good day, everyone. And welcome to CCU's Second Quarter 2023 Earnings Conference Call. Please note that today's conference is being recorded. At this time, I would like to turn the conference over to Claudio Las Heras, the Head of Investor Relations. Please go ahead, sir..

Thank you. Welcome, everyone. And thank you for attending CCU's second quarter 2023 conference call. Today with me are Felipe Dubernet, Chief Financial Officer; and Colin Drako, [ph] Financial Planning and Investor Relations Manager. You have received a copy of the company's consolidated second quarter 2023 results.

Felipe 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.

Statements made in this call that relate to CCU's previous 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 U.S. Securities and Exchange Commission and in the annual report submitted to the CMF and available on our website. It is now my pleasure to introduce Mr. Felipe Dubernet..

an 86% jump in our Chile core operating segment, a 74.9% expansion in the international business operating segment and contraction of 44.5% in the Wine Operating center. Finally, as I said, we have an increase in our results at net income level. Now I will be glad to answer any questions you may have..

Thank you very much for the presentation. We'll now be moving the Q&A part of the call. [Operator Instructions]. We'll take the first question from Felipe Ucros from Scotiabank. Please go ahead, sir..

Thanks, operator. And good afternoon, Felipe, [Indiscernible] and Claudio. Congrats on the results, really nicely down from a year ago. I wanted to ask questions about the changes that you think will be implemented with distribution in Argentina. And how it sees that a piece of the portfolio might be leaving from the core system.

Just wondering if you could give us any details around that, hopefully something like which brands you're planning to remove or what percentage of volumes you're trying to move out of the system? And also, I wanted to know what's the plan once you're out of the system, is it going to be to create your own distribution network? Or that you find another third party that you thought would be better gap in coke? Any details you can give us around it would be great..

Thank you, Felipe, for your question regarding our distribution, and the changes we are doing in our distribution in Argentina. Before let me give you some background. We need to have our own distribution in the vast majority of the country.

So last year, we had the two Coca-Cola bottlers, Arca and Andina, distributing in particular areas or geographies such as the North Arca and South plus [ph] other regions, the Coca-Cola system, that accounted for more or less 20% of our total volumes.

But as we said in our press release, the distribution agreement that we had in some regions with two Coca-Cola bottlers that I already mentioned, expiring June. So in those regions, we have implemented a new distribution network.

That is a joint distribution of beer and with our recently water business acquired or the participation we have in the JV with Danone in Argentina. So practically, in all the countries this network is implemented. But that is combining beer, wine, liquors, but also now the water business.

As we said, at the same time, we have negotiated the potential new distribution agreement with Coca-Cola bottlers, which could include some of the brands of our portfolio. Some brands of our portfolio could go with the distribution with the Coca-Cola bottlers. But so far, we are still negotiated this potential agreement with them.

But in summary, the new distribution level was successfully implemented now in Argentina. And also, we went live with all the systems, integrating the water business to our systems, the CCU system at on a key level in Argentina, also very successful implementation.

Okay, Felipe?.

No, that's very clear, Felipe. So that means that we do negotiate and distribution with Coca-Cola, you're already distributing on your own system.

Is that correct?.

Yeah, we are distributing now with our own system. And I want to be clear, the Coca-Cola only distribute in particular areas, this agreement finished in end of June. But we have negotiated that we could distribute some of our brand of portfolio maybe potential agreement..

Okay. That's very clear. And then the second question I wanted to ask you. Just wondering how you feel the temperature of the Chilean consumer.

What's the new -- what's the sentiment for business on the ground in Chile?.

Yeah. What we had a good expansion in volumes in Chile during quarter two. As you know, this 4.7% growth. Having said, this is still above pre-pandemic figures. So it's a good growth to be on.

However, the comp of quarter two was easier than the comp of quarter one of last year because quarter one of last year, as you know, we have the influence of government aid plus the withdrawal of the pension funds in Chile, that boosted consumption.

So I would say we are happy with the evolution of the industry in order to maintain our business's scale. We were also very clear in saying that the economy has been deteriorating, therefore, consumption to facilitate, especially in the last four quarters, I would say.

But from quarter two, we see growth at our categories and more resilient to the purchase power of the -- reduction in the purchase power of the consumer. So in summary, in terms of the evolution of the consumer we are -- I would say, we are confident that we will be able to maintain our business scale in the following quarters..

Very clear. And just a follow-up on the Chile question.

Is the premium segment of the portfolio now stabilized?.

Yeah. What I would say, and actually, as we stated during the included in our release, a portion of our revenue management efforts were offset by the mix of our portfolio, let's say.

So we reached as you know, record in terms of premium mix, especially in beer category, but also in wine, also in liquors during, at the end of 2021 and the beginning of 2022. So I would say it has been stabilized in quarter two with a reduction compared to last year.

Where, in fact, it's growing more in the main three brands, especially in beer, but also in wine..

That's all very clear. Thanks a lot for the comments. .

Thank you, Felipe. Have a wonderful date. .

Thank you very much for the question. Our next question comes from Fernando Olvera from Bank of America. Please go ahead, sir. .

Great. Thank you. Good afternoon, everyone. Thanks for taking my questions. Just to follow-up, Felipe, regarding Chile, sorry.

At the beer segment, I mean, can you comment how your market share behaves during the quarter? And my second question is regarding the International business, if you can comment what were the main drivers of volume growth? And what is your outlook for the second half of the year? Thank you. .

Yeah. Regarding the beer, I would say there has been in the last quarter, we have had a steady market share. You could gain one point, one month and the later on reduced by half point. So we're taking market share in the last, I would say, six quarters, okay, in the year.

Regarding the question on International business, the comps were a little bit, especially in Argentina last year, the comps were low. So Argentina, in fact, volumes have been challenged in the last quarters at the high level of inflation is affecting consumer purchase power, let's say.

We are, let's say, in Uruguay particularly and it's called worse [ph] situation linked to the draught conditions during the summer, but we have scarcity of public water, let's say. And that boosted our water sales in Uruguay during quarter two. Along also a very good performance in Paraguay, growing the volumes, high-single digits.

But it's encouraging the results in Paraguay. In the case of Bolivia, very depressed volumes in Bolivia. So going forward, it will be an international segment, as you know, is the big participation of Argentina. But we think Argentina still have negative trend in terms of volume.

And we could see some decrease quarter-on-quarter in terms of volume in the next -- looking forward..

Great. Thank you, Felipe. .

Thank you very much. Our next question comes from Mr. Henrique Brustolin from BTG Pactual. Please go ahead, sir. Your line is open. .

Hi, hello, Felipe [Indiscernible], thanks for taking my question. I would like to explore a little bit more the recovery in profitability in Chile going forward to historical levels.

And if you could break it down from two different perspectives, the first one coming from costs, like, how should we think about costs in the second half of the year compared to what you delivered now in the first half? Especially now that we see maybe a slightly weaker Chilean peso and overall stable commodity prices.

And the second one on the pricing front, as you mentioned, pricing has been very strong over the past two years, even with some negative mix impact. But we see the results in your net revenues per hectoliter. And the industry performance, even though it's not growing as much, volumes remain pretty strong relative to pre-pandemic.

So the question, I think, is how much room do you see for additional price hikes on the back half of the year that could help bring margins back to those levels from pre-pandemic? Those are the two questions. Thank you. .

Thank you, Henrique. Yeah, so far, I think these are the first steps in order to recover our pre-pandemic margins as we pointed out. We have had a massive -- if you compare all the raw materials compared to the pre-pandemic level -- let me give you just one example. Aluminum prices in 2019 was $1,800 per ton and now has stabilized at $2,400 a ton.

So that's a significant increase between 25% to 30%. Yeah, we had a very high aluminum prices right after the Russian invasion to Ukraine when it jumped to $1,300 per ton. Now to stabilize at a lower level, but it's still much higher than the than the levels we saw.

So this is a long path because, as we said, in this kind of business, you probably record the margin, and this is what we have been done especially for quarter four last year, quarter one and now quarter two.

As we pointed out, with the differences in terms of interest rate between a reduction between the Fed and the Chilean Central Bank we have seen an increase of the exchange rate, but devaluation of the Chilean peso, but just an impact our cost. If this is maintained, I think maybe it's for sure that this should be considered in our pricing strategy.

But I would say, depending on competition, depending on many factors for the upcoming months. So I don't want to -- but let's see about that. On the other hand, cost perspective, I think raw material are more or less stable. We have high cost pressure in sugar due to supply and demand global conditions, especially in India [ph].

So there, we have pressure. But another good news, as I said, I think in two or three calls that we have high levels of inventory. And you saw in our cash generation that we have been reducing our raw materials inventory according to normal levels that we had before the Russian invasion. So also this would sell surely into our costs.

But to be honest, we always face unstable volatility in exchange rate, and the aim is to gradually recover our pre-pandemic margins. Okay, Henrique..

That's clear. Thanks, Felipe. .

Thank you very much. [Operator Instructions]. Our next question is from Martin Leche [ph] from Fundamenta Capital. The text question should we expect cost per liter in Chile to be negative year-over-year given high comparables in commoditites and better FX? Or should we expect it to be positive, but below inflation? Thank you. .

Thank you, Martin. Futuristic cost per liter in Chile negative year-on-year given high comparison. Yes, of course, especially in the last -- especially in the third quarter last year, we tactically experienced CLP1,000 per dollar exchange rate. Now it's stabilized. Its stable at the last two weeks, let's say, at CLP850. So there we have some benefits.

As I mentioned in the previous question, the cost pressure has been exact for sugar prices compared to last year. So that's -- so answering your question, it should be negative and especially in quarter 3..

Thank you very much. It looks like we have no further questions at this point. I will pass the line to CCU team for the concluding remarks..

During quarter two, 2023, we consolidated a recovery path in our financial results in a tough economic environment. The latter was mainly driven by the implementation of April 2023. Although we are aware that more efforts are needed to keep improving profitability.

In order to be sold during the second semester ahead, we will keep executing our strategy to deliver profitable and sustainable growth. I wish you all a wonderful afternoon..

Thank you very much. This concludes today's conference call. We will now be closing the line. Thank you, and goodbye..