Compania Cervecerias Unidas, S.A.

Ladies and gentlemen, good day and welcome to CCU's fourth quarter 2023 earnings conference call on the 28th of February. Today's conference call is being recorded. At this time, I would like to turn the conference call over to Claudio Las Jarras, the head of investor relations. Please go ahead, sir.

Welcome, everyone, and thank you for attending CCU's fourth quarter 2023 conference call. Today with me are Mr. Felipe Gubernet, chief financial officer, and Mr. Joaquin Trejo, Financial Planning and Investor Relations Manager. You have received a copy of the company's consolidated four-quarter 2023 results. Felipe will review our overall results, 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. This statement should be taken in conjunction with the additional information about risk 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 our CFO, Mr. Felipe Adubeme.

Thank you, Claudio, and thank you all for joining us today. During 2023, we posted a recovery in our operating results and profitability in spite of a volatile business environment, a particularly difficult year for the wine export business, and Argentina's macroeconomic conditions. Our consolidated EBITDA in the year grew 6%, and the EBITDA margin grew 159 basis points, driven by our main operating segment, Chile, which expanded EBITDA by 24.8%, more than offsetting a 37.4% drop in the wine operating segment and a 16% percent contraction in international business operating segments, which includes Argentina. Consolidated net income contracted 10.6% versus 2022. The driver for the better operational result was the execution of our regional plan Hercules, which encompasses six pillars. Number one, maintain business scale. Number two, strengthen revenue management efforts. Number three, deliver efficiency gains through our transformation program. Number four, optimizing CapEx and working capital. Number three, focusing on core brands and high volume margin innovations. And number six, continue investing in our brand equity. I would like to briefly mention some of the highlights of the year for each pillar. In terms of pillar number one, consolidated volumes in 2023 were 3.4% below last year. mainly driven by lower consumption in Argentina throughout the year, a tough scenario for Chilean export, and a deceleration in volumes in Chile during the second semester. Nonetheless, we maintained relative scale by keeping increasing market shares in our main categories. As for pillar number two, we executed revenue management initiatives in all our geographies. especially noticeable in Chile, where average prices increased 7.9%, being key to recover margins, offsetting cost and expenses pressures, and negative mixed effects. Regarding pillar number three, we were able to deliver efficiencies during the year, as total expenses, including manufacturing costs and MSM DNA as a percentage of net sales, were stable at 47.7% in 2022 and 2023. In terms of pillar number four, we recovered our catch generation, mainly due to a reduction in working capital versus 2022, capex optimization, and a higher EBITDA. Finally, in line with pillar number five and six, we reduced the number of SKUs following us to focus in core brands and profitable innovation, reducing the complexity of our operation, and we posted solid levels of running risk. From a quarterly perspective, consolidated EBITDA dropped 9.9% and EBITDA margin was up from 16% to 19.3%. In this quarter, it is important to mention that the chart devaluation of the Argentine peso against the US dollar generated a material impact in our results in quarter four, 2023. The Argentine currency jumped 131% the exchange rate from 350 Argentinian pesos per dollar as of September 30, 2023, to 808.5 Argentinian pesos per dollar as of December 31, 2023. Thus, as Argentina is under hyperinflation accounting, according to the IAS 29, accumulated results in Argentina as of September 30, 2023, are updated to prices and exchange rate levels to the end of the period. This generated a loss in the quarter of 24,018 million Chilean pesos in consolidated EBITDA, of which 22,800 and 4 million Chilean pesos are accounted in the international business operating segment, and 1,215 million Chilean pesos are accounted in the wine operating segment. Excluding these effects, consolidated EBITDA in the quarter would have expanded 3.4% versus the same quarter of last year. In terms of the segment, in the Chile operating segment, top line decreased 2.2% in the last quarter, due to a 7.3% contraction in volumes, partially compensated with 5.5% higher average prices. Lower volumes were mostly related to a weakening demand, which was especially affected by weather conditions, while prices were driven by revenue management initiatives. EBITDA increased 20.9%, and EBITDA margin improved and expanded from 14.2% to 17.5%. In the international operating segment, which includes Argentina, Bolivia, Paraguay, and Uruguay, net sales dropped 90%, mainly as a result of a contraction of 89.4% in average prices in Chilean pesos, due to the impact of hyperinflation accounting states above, as prices in local currency evolved in line with inflation. Volumes contracted 8.3%, fully explained by Argentina, as all the other geographies posted positive volume growth. EBITDA contracted 53.7%. In the wine operating segment, revenues were down 11.7%, mainly explained by an 8.8% decrease in volumes. driven by a 10.2% decrease in the Chile domestic market and a 5.6% contraction in exports from Chile. Average prices contracted by 3.1%, also due to the impact of hyperinflation accounting states above, in our wine business in Argentina, and a stronger Chilean peso against the U.S. dollar, which impacted negatively our export revenue. Partially offset by revenue management initiatives in our domestic markets, EDIPTA decreased 21.3%. Regarding our main JVs and associated business from a yearly perspective, in Colombia, volumes contracted low single-digit in 2023 in a scenario of weaker consumption. In Argentina, our water business recorded mid-single-digit growth in volumes despite the complex economic environment explained by the strength of the brands and the successful route to market integration of this business into our operations. Now I will be glad to answer any questions you may have.