Compania Cervecerias Unidas, S.A.

Good day and welcome to the CCU's fourth quarter 2020 earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Claudio Lazaras, head of investor relations. Please go ahead.

Welcome, everyone. I'll thank you for attending CCU's fourth quarter 2020 conference call. Today with me are Felipe Duvernet, Chief Financial Officer, and Nicolás Novoa, Financial Planning and Investor Relations Manager. You have received a copy of the company's consolidated fourth quarter 2020 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 statements. The statements made in this call that relate to CCU 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 risk and uncertainties set forth in CCU's annual report in Form 20F filed with the U.S. Security and Exchange Commission, and in the annual report submitted to the CMF and available on our website. It is now my pleasure to introduce Felipe Duvernet.

Felipe Duvernet Thank you, Claudio, and hello to everyone, and thank you for joining us today. In 2020, we faced a particularly challenging year due to the COVID-19 pandemic. To handle this, we implemented a regional plan with three priorities. The safety of our people and the community we interact with. Secondly, operation continuity. And thirdly, financial health. This allows us to continue operating and supplying our products to all our clients and consumers. According to this, we put in place a strategy which aims to maintain business scale and then gradually recover profitability over time by implementing revenue management initiatives and efficiencies. In terms of volumes, in 2020, we grew 2.2%, reaching 30.7 million hectoliters. in spite of the strong negative impact in our volumes from the pandemic between April and August, showing a V-shaped recovery throughout the year, as follows. An expansion of 6.4% in the first quarter, a drop of 12% in the second quarter, a slight contraction of 1.8% in the third quarter, and a strong growth of 10.6% during the fourth quarter of the year. Regarding financial results, EBITDA dropped 11.7% and EBITDA margin decreased from 18.4% to 16%, mainly due to negative external effects from the sharp depreciation of the Chilean peso and Argentine peso against the U.S. dollar and the impact from the pandemic in high-margin consumer locations. These effects were partially compensated with revenue management initiatives, efficiencies from the Excelencia CCU program, and lower cost in raw materials. At net income level, we decreased 26.1%. In regards to financial health, we kept our net financial debt under control, decreasing against last year. During the fourth quarter, the expansion of 10.6% in consolidated volumes was driven by an 11.7% jump in the Chile operating segment, 8.3% increase in the international business operating segment, and 10.9% rise in the wine operating segment. The higher volumes were the result of a solid commercial and operational execution, which allowed us to respond to a strong demand recovery. In terms of financial results, EBITDA increased 5.7%, and EBITDA margin improved from 20.7% to 21.1%. The higher EBITDA was mainly explained by the volume growth mentioned above, revenue management initiatives, and efficiencies from the Excelencia CCU program, partially offset by negative effects related with the currency translation of our results in Argentina, according to the hyperinflation accounting. MS&D&A expenses up percentage of net sales, improved 377 basis points. Net income grew 0.2%, including a non-recurring negative effect explained by an impairment loss related to Bolivia and property impairment losses. Excluding these two impairments, net income would have expanded by 9.8%. In the Chile operating segment, this quarter, our top line expanded 19.8% due to an 11.7% growth in volume and 7.3% higher average prices. The strong performance in volume was driven by all main categories, in line with lower restriction and a more positive consumer environment, along with gains in market share. The higher average prices were explained by revenue management initiatives and positive mixed effects. Gross margin contracted 357 basis points as a consequence of the negative impact of the pandemic in high-margin consumer locations and higher manufacturing costs. MS and DNA expenses as percentage of net sales improved 322 basis points, in line with cost control initiatives through the Excelencia CCU program. In all, EBITDA increased 16.1% and EBITDA margin dropped from 25% to 24.2%. The international business operating segment, which includes Argentina, Bolivia, Paraguay, and Uruguay, reported 8.3% higher volumes and 33.8% drop in average prices in Chilean pesos during the quarter. The lower average prices were mainly related with negative currency translation effects in Argentina applying hyperinflation accounting, while prices in local currency increased thanks to revenue management initiatives. Gross margin contracted 54 basis points. MS and DNA expenses as percentage of net sales improved by 385 basis points due to efficiencies from the Excelencia CCU program. Altogether, EBITDA decreased of 17.6%, but returned to positive ground after two negative figures in the second quarter and third quarter of 2020. EBITDA margin increased from 16.1% to 18.5%. The wine operating segment posted a 4.5% rise in revenue, driven by a 10.9% expansion in volumes, as average prices contracted 5.7% during the quarter. The volume expansion was driven by the Chilean and the Argentine domestic market, while exports decreased. The lower prices in Chilean pesos were mainly a consequence of a negative mixed effect from the higher growth in our domestic markets. Gross margin decreased 555 basis points, mostly reflecting a higher cost of wine. MS and DNA expenses as percentage of net sales deteriorated by 422 basis points, mainly due to higher temporary marketing expenses. In all, EBITDA contracted 36.6% and EBITDA margin decreased from 23.9% to 14.5%. In Colombia, where we have a joint venture with Postobon, in 2020 we reached more than 1.5 million hectoliters, posting an annual expansion of 21.2% while the industry contracted. This positive performance in spite of a challenging scenario allow us to practically double our market share in 2020. The consistent positive trend in Colombia is the consequence of a continuous improvement in brand equity, distribution and sales execution. In terms of financial results and in line with a greater business scale, we reach positive EBITDA during the second half of the year. with four consecutive months with positive EBITDA since September. Now I will be glad to answer any question you may have.