Compania Cervecerias Unidas, S.A.

Good day and welcome to the CCU's 3Q22 earnings conference call. Today's conference has been recorded. At this time, I would like to turn the conference over to Claudio Lajeras, Head of Investor Relations. Please go ahead, sir.

Welcome, everyone, and thank you for attending CCU's 3Q22 conference call. Today with me are Mr. Felipe Duvernet, Chief Financial Officer, and Mr. Carlos Anvanter, Financial Planning and Investor Relations Manager. You have received a copy of the company's consolidated third quarter 2022 results. Felipe will now review our overall performance, and then we will move on to a Q&A session. 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. This statement should be taken in conjunction with additional information about risks and uncertainties set forth in CCU's annual reports 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 Mr. Felipe Duvernay.

Thank you, Claudio, and thank you all for joining us today. In the third quarter of 2022, we continue to face an adverse macroeconomic scenario which negatively impacted our financial results, particularly in Chile, where we also have a challenging comparison base against 2021. In terms of financial results, EBITDA contracted 33.4%, the later fully explained by the contraction in the Chile operating segment, while the international business and line operating segments improved their financial results. EBITDA margins decreased from 16.3% to 9%. indicating that our revenue management efforts and efficiencies have not been enough to offset three main external effects. First, the depreciation of our main local currency against the U.S. dollar, impacting our U.S. dollar denominated cost. Second, higher raw and packaging material costs. And third, other costs and expenses of pressures associated with an accelerating inflation in our main geographies. In line with this, net income totalized a gain of $17,226 million, a 59.1% drop caused by a lower operational result and a greater loss in non-operating results driven by higher net financial expenses. In this difficult business environment, we would like to mention that our long-term business fundamentals remain strong. Based on, first, a solid business scale, as we decreased slightly our volumes by 2.8% in the third quarter. However, we grew 16.4% versus 2019. Second, a stable, growing market share in our main categories. And third, a robust brand portfolio sustained on a constant improvement in our brand equity. We are focused as a company on recovering our financial results. To achieve this, we launched across all our business units a plan called Hercules 2023, aiming to recover profitability, especially in Chile, encompassing six pillars. First, to maintain our business scaling. Second, revenue management efforts. Enhance the CCU transformation program to deliver efficiency gains in cost and expenses. Four, focalize and reduce capex together with optimizing working capital. Fifth, focus on core brands and high volume margin innovations. And sixth, continue to invest in our brand equity. as it is crucial for our long-term sustainability of the business. As mentioned above, the Chile operating segment has been the most affected by the adverse macroeconomic scenario and a weaker consumption environment. Our top line was flat due to 4.8% growth in average prices, explained by revenue management initiatives partially offset by a negative mixed effect in the portfolio, while volumes declined 4.5%. Gross profit contracted 16.8%, mostly caused by a 20% devaluation of the Chilean peso against the U.S. dollar, affecting our U.S. dollar denominated cost and cost pressure from higher prices in raw and packaging materials. NSMDNA expenses grew 8.3%, and as a percentage of net sales, increased 261 basis points due to expenses pressures coming from high inflation and oil prices. In all, EBITDA decreased 51.1%. In international business operating segments, which include Argentina, Bolivia, Paraguay, and Uruguay, Net sales recorded a 25.8% rise as a result of an increase in average prices in Chilean pesos, while volumes contracted 1.3%. The better average prices were most explained by revenue management initiatives in all the geographies. Gross profit expanded 28.9%, and innocent DNA expenses as a percentage of net sales were flat, due to efficiencies that compensated high inflation and other cost pressures. Altogether, EBITDA increased 16.9%. In the wine operating segment, revenues were up 19.8%, mainly explained by a 19.1% growth in average prices, as volumes increased 0.6%, the later driven by exports and the Argentina domestic market. The higher prices in Chilean pesos were mainly explained by a positive impact on export revenues from the depreciation of the Chilean pesos versus the U.S. dollar and revenue management initiatives in our domestic markets, which permitted us to partially compensate higher costs in packaging materials and inflationary pressures. Consequently, gross profit expanded 17.3 percent, MSMDNA expenses grew 24.1 percent, and expansion as a percentage of net sales, increased 85 basis points. In all, it expanded 9.9%. In Colombia, our joint venture to produce and distribute beer and malt in Postobón top-line rose over 30% in Chilean pesos, driven by both volume and average prices growing double-digit. The late debt due to the implementation of revenue management initiatives. Financial results were similar from last year due to strong cost pressures and the devaluation of the Colombian peso against the U.S. dollar. In Argentina, our water business with Danone showed strong top-line goals, led by volume and prices, allowing a recovery in its financial results. Now, I will be glad to answer any questions you may have.