Good day, everyone, and welcome to CCU's First Quarter 2024 Earnings Conference Call. Please note that 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, sir. .

Okay. Yes, sounds good. .

Claudio, please go ahead. .

Welcome, everyone, and thank you for attending CCU First Quarter 2024 Conference Call. Today with me are Mr. Felipe Dubernet, Chief Financial Officer; Mrs. Carolina Burgos, Senior Investor Relations analyst; and Mr. Joaquín Trejo, Financial Planning and Investor Relations Manager.

You have received a copy of the company's consolidated first quarter 2024 results. Felipe will now review our overall performance and we will then move on to our Q&A session..

As usual, before we begin, please take note of our cautionary statements. 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 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 report submitted to the CMF and is available on our website. It's now my pleasure to introduce our CFO, Mr. Felipe Dubernet. .

Thank you, Claudio, and thank you all for joining us today. 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 faced a low 20s beer industry contraction in that country. In Chile, the Chilean peso devaluated 16.6% versus last year, negatively impacting our cost base.

In this context, we continue with our 6-pillar regional plan, HerCCUles, 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 cost pressures..

It is worth noticing that the Wine Operating segment posted a turning point in volumes, especially in exports and financial results. During quarter 1 2024, our revenues expanded 1.9% in Chilean pesos, driven by 6.6% higher average prices in Chilean pesos while volumes dropped 4.4%.

Average prices were boosted by revenue management initiatives in all our operating segments and a weaker Chilean peso against the U.S. dollar, impacting favorably export revenues of the wine business. 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 PET resins. MSD&A expenses expanded 5.1% and as a percentage of net sales 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 the lower operating results..

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 mix effects in the portfolio.

In spite of higher cost pressures due to the devaluation of the Chilean pesos, we were able to sustain this margin, which slightly decreased from 47.5% to 47.3%. MSD&A expenses grew 7.5% and as a percentage of net sales deteriorated 137 basis points, mainly explained by higher marketing expenses due to pricing, higher depreciation, and larger U.S.

dollar-linked expenses. Consequently, EBITDA contracted 3% and EBITDA margin was lower, from 20.5% to 19.3%. .

Following with 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 15.4% rise in average prices in Chilean pesos.

The beer industry contracted in Argentina as a consequence of a challenging economic context, impacted consumer demand, while all the other geographies, Bolivia, Uruguay, Paraguay, posted positive volume growth..

The better average prices in Chilean pesos were driven 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.

MSD&A expense as a percent of net sales were flat due to efficiencies which helped to offset a high inflationary context and a lower business scale in Argentina.

Altogether, EBITDA contracted 27.1% and EBITDA margin was down 471 basis points, both more than explained by Argentina as the rest of the countries recorded a solid EBITDA growth and improvements in the margins..

In the Wine Operating segment, revenues were up 11.6%, mostly driven by higher average prices largely boosted by the weaker Chilean pesos and its favorable effect on export revenues. Volumes also contributed to the top line, increasing 2.7%, mainly explained by exports which were up 3.9%. On the other side, domestic volumes in Chile were flat.

Gross profit rose 34.7% and gross margin improved 662 basis points, also due to a lower cost of wine. MSD&A expenses increased 15.8% due to higher marketing expenses related to exports, which are denominated in U.S. dollars, and as a percentage of net sales deteriorated by 118 basis points.

In all, EBITDA reached CLP 6,667 million, a 90.7% growth, and EBITDA margin reached 11.3%, increasing 470 basis points, showing a recovery of this operating segment..

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-to-market and back-office integration with CCU Argentina, posted a positive net income versus a loss last year despite a steady contraction in volumes.

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. .

[Operator Instructions] We acknowledge the questions already from Bank of America, Scotiabank and BTG. Our first question comes from Mr. Felipe Ucros from Scotiabank. .

Let me ask you first about our competition in Chile. Just 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 prices to offset these effects of FX, or is discipline lacking a little bit in the sector?.

And then maybe if I can do a follow-up on wine, great quarter here. And it's just -- it wasn't just the FX, right? Volumes also ticked up. Now you're back above 2019 volumes on a comparable basis.

So just wondering if you could comment whether the key driver is restocking, after so many quarters of industry destocking, versus how much you think this was actually driven by final consumer demand. And of course, if it's demand, what regions you're seeing as the key drivers here. .

Okay. Thank you, Felipe, for your questions. So I would start by the competitive pressure in Chile.

As I mentioned in the previous call, we are cautious about 2024, especially regarding consumption, as it has remained challenging through the first quarter, although a little bit better if you compare to the previous quarter, quarter 4, where we have had unfavorable weather conditions.

Let's say, first quarter was better in terms of weather conditions for our business..

Competitive as so, as it is consumption challenging, what we have seen is an increase in terms of promotional activity of our competition. And this led to that they sell at lower prices or flat prices against last year, not even selling with prices in line with inflation.

In our side, we kept the pace of having prices at least in line with inflation, and overall, we have protected our market share. However, 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.

And this also put us in a challenge in order to protect our margins. So we took further actions end of March to increase prices in some categories..

And if this continue, of course, we will continue with the revenue management initiatives while looking also, at the same time, our market share. The very good news is that we are managing outstanding brand health in our portfolio. So especially in our beer portfolio, brand health is in a record.

So this could support our better prices without losing extremely high market share. So going forward, I think competition will continue. However, the industry is under pressure in the cost side, especially for U.S. dollar. 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 HerCCUles. HerCCUles is about maintaining a relative scale, given this challenging consumption scenario, while at the same time protecting our margins.

But the good news is that we have very strong brands [ in ] itself that will certainly help us, okay?.

Your second question regarding wine. Yes, last year was an adjustment year in terms of inventory reduction on the supply chain and the distributors, especially in the Northern Hemisphere. Now we come to a normalization. We started in quarter 4 to see the first positive signs that this adjustment has ended, has reached a final at the end.

And if you look at the numbers, the overall growth versus 2019 has increased by 1%, so we recovered already the volumes of 2019 as you mentioned..

Going forward, we continue to see growth, but limited growth as we have seen in the first quarter. We are very confident of some initiatives of the Wine business regarding some key markets, especially China, where we opened a commercial office there.

That will certainly improve our execution in that market, and also in other key markets also, we are improving a lot our execution. .

Our next question comes from Mr. Fernando Olvera, Bank of America. .

The first one is a follow-up on Chile. Think about this gradual volume recovery expected going forward. Can you comment 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 difference on performance between nonalcoholic and alcoholic beverages? That's the first question..

And my second question also on Chile, given the slight contraction in gross margin after the 12 months of improvement, how do you expect gross margin to perform in coming quarters taking into consideration precisely FX volatility, packaging, sugar costs? That's my second question. .

So I would say that during the quarter, the run rate in terms of volumes were practically, each month, the same in Chile. So no 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, that was minus 0.9% in all the months, was equal..

Regarding and [ split ] between alcoholic and nonalcoholic, I would say that nonalcoholic was rather flat in terms of volume. In nonalcoholic, we saw a decrease especially because of competition promotions, but not so different between each other.

So I would say flat volumes in alcoholic and low single-digit decrease in alcoholic products, mainly because of intensive promotions of competition. That is the highlight..

In terms of margins, yes, we -- as you mentioned, we experienced a nice recovery in 2023 increasing our margins. Now we have new upcoming pressures, new pressures that are there, especially the exchange rate. This is, a year ago, exchange rate in Chile was CLP 811. It reached during quarter 1 as an average CLP 946, so that is heavy devaluation.

It's CLP 10 of higher exchange rate. It hits us more or less $3 million in terms of at EBITDA level. And the receipt is still the same, and it is HerCCUles..

It is about enhance our revenue management efforts, as I previously mentioned. We took actions in some categories and we'll continue this level of [ actions that ] continue to be while protecting our market share and volumes, but we need absolutely to protect our margins.

Also efficiencies and cost control initiatives are important in order to protect our margins, at least to protect our gains we did in 2023 in terms of margins recovery. It's a challenging year in terms of input cost. You mentioned sugar. However, in the last week eased a little bit but not enough to compensate the U.S.

dollar exposure pressure that we have. However, I'm concerned about [ aluminum ] prices going forward also that affect our packaging materials. The only one that is more stable is PET, but we face a tough environment in terms of input costs. .

Our next question comes from Mr. Henrique Brustolin from BTG Pactual. .

I would like to just start with a follow-up on Chilean volumes.

If you could comment if there were any specific movements within the beer category in Q1 -- you mentioned last year, for example, a trade down, so premium beer 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..

And also, if you could give a little bit more color, comps [ in Chile ], they should start to get easier, volume comps in Chile throughout the year. So how you are 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 in international for this year.

Of course, visibility very low there, but all things considered, how you are 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 the strong prices that you were able to deliver.

These are the two ones. .

Yes. We have some sound problems but I will try to answer your questions. The first one was regarding the beer category and the trends in terms of mainstream and beer. It was a highly promoted quarter in terms of competition. 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 we promote premium, of course, you [indiscernible], let's say, in some way the trends. So we haven't seen -- so however, the premium has been reduced after the peak we experienced in 2021, beginning of '22, right after the pension funds withdraw in Chile.

Looking forward, the following quarters -- we don't do forward-looking -- but as far as the Chilean economy could -- last estimates are predicting GDP growth of 2% to 2.5%. We should be seeing the margins, industry volumes grow, especially maybe in the second semester, I would highlight. But nothing above GDP growth. So that's for Chile..

International, let me split between Argentina and the other businesses. The other businesses are showing robust volume growth related to market share gains. So we are happy about the performance in Paraguay, Uruguay also, and also Bolivia, especially with the launch of Amstel Beer in Bolivia. So the question now is about Argentina.

We think that as of today, we reached 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. This is -- but in such volatile and such heavy adjustment of the Argentine macroeconomics, would be difficult to predict this and what would happen. We could experience a recovery, yes.

But now the question is how quick would be this recovery if we are willing to see a more positive macro in Argentina going forward, but it's highly risky to predict what would happen in Argentina sometimes..

The answer -- our answer is again HerCCUles, 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 quarter or the first half of the year, we expect to be tougher than the second one. But again, it's too risky to predict. .

[Operator Instructions] In the meantime, I will read the question from Santiago Petri from Franklin Templeton..

"Hello. 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, good to hear about you. So yes, 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 beverage was stable, let's say, even with the marginal gain in market share.

However, in alcoholic categories, we have had some marginal loss in market share, I would say, not -- it's not significant. And we are not worried about that, because our -- as I mentioned on the brand health indicators are outstanding. Of course, as I mentioned, this was completely due to heavy promotional activity of the competition.

So that is what happened in the first quarter, to be clear. .

We'll give another minute or so for any additional questions to come through. [Operator Instructions] Okay, we have a question from Thomas Stark from [indiscernible].

I have a question regarding [ vineyards ], and it looks like receivables increased by more than 30% while sales only increased 11%.

Can you provide further details about its sales conditions made on trade, please?.

I think you are asking about working capital? Yes, because we 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 has not consolidated. However, we do the cash collection of this business..

Due to the route to market integration, we are having most receivables linked to the adding up the water business receivables to our consolidated balance sheet. This is 1 effect. The second effect is -- has increased a little bit the due debt, but it's not linked to bad debt.

It's more linked because the end of the quarter, the end of first quarter was during Easter. So Easter weekend, usually customers go on holidays on Thursday and do not [ send ] the transfer of demand. So nothing to worry, because at the end this was fully recovered in the first week of April.

So there is something linked to having Easter at the end of the quarter..

the consolidation of the receivable of the water business as we did the route-to-market integration; secondly, it was due to the holiday, the Easter holiday at the end of the quarter; and third, it was the [ phasing ] in Argentina.

Of course, we -- but nothing related to bad debts or things like that level, okay?.

It looks like we have no further questions at this point, so I'll pass the line back to the CCU team for the concluding remarks. .

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 6-pillar regional plan, HerCCUles, taking further actions in terms of revenue management efforts and cost and expense control initiatives to continue on the recovery of our financial results and protect our profitability, which is our priority..

Consequently, the 6 pillars of HerCCUles -- maintain business scale, strengthen revenue management efforts, enhance the CCU transformation program to deliver efficiency gains in cost expenses, focalize and reduce CapEx together with optimizing working capital, focus on core brands and high-volume margin innovation, and continue investing in our brand equity -- are key 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. .

This concludes today's conference call. We'll now be closing all the lines. Thank you, and goodbye..