Compania Cervecerias Unidas, S.A.

Good afternoon, everyone, and welcome to CCU's second quarter 2024 earnings presentation call on the 8th of August. Please note that this call is being recorded and all participant lines are on listen-only mode. After the presentation is completed, there'll be an opportunity to ask questions. So without further ado, I would now like to pass the line over to Claudio Lázarez-Olivares, Head of Investor Relations at CCU. Please go ahead, sir. Welcome, everyone.

And thank you for attending CCU's second quarter 2024 conference call. Today with me are Mr. Patricio Jota, Chief Executive Officer, Mr. Felipe Duvernet, Chief Financial Officer, Mr. Joaquin Trejo, Financial Planning and Investor Relations Manager, and Carolina Burgos, Senior Investor Relations Analyst. You have received a copy of the company's consolidated second quarter 2024 results. As usual, Patricio will now review our overall performance and we will then move into a Q&A session. Before we begin, as usual, we take notes 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 reasons 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 file 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. Patricio Jotaro. Thank you, Claudio, and thank you all for joining us today. In the second quarter of 2024, CCUs financial results were much weaker than last year, as they were heavily impacted by two effects, a particularly difficult context for demand in Chile and Argentina, and the depreciation of our main local currencies. The industries of our core categories, particularly beer, decreased, largely explained by adverse weather conditions with unusual low temperatures and record rainfall during the quarter, particularly in May and June. In Argentina, we faced a sharp contraction in the economy and in the beer industry, associated with a challenging context for consumption. It's important to mention that we maintained overall market share in both countries. In terms of our main local currencies, the Chilean peso and Argentine peso depreciated 16.8% and 255.1% against the U.S. dollar respectively, increasing our U.S. dollar denominated costs, impacting our operating results. In this scenario, under original plan Hercules, Further actions in terms of revenue management and costs and expenses control are currently in place. These actions in a more normalized context of volumes growth should help us to return to the profitability path. In the second quarter of 2024, our revenues contracted 8.6%, fully explained by 12.7% volumes dropped, partially compensated by 4.6% higher average prices in trillion pesos. Lower volumes were largely caused by a weaker demand in Chile and Argentina as I explained before. Average prices were higher due to revenue management initiatives in all operating segments. Gross profit was down 15.8% and as a percentage net sales deteriorated by 338 basis points due to higher cost pressures, mainly coming from depreciation of the Chilean peso and the Argentine peso mentioned above. MSDMA expenses expanded 1.7%, and as a percentage for net sales, deteriorated 464 basis points, mainly as a consequence of lower volumes and its negative impact in fixed expenses deletion. In all, EBDA reached 10,053 million Chilean pesos, a 78.7% decrease, and EBDA margin contracted 629 basis points, Net income reached a loss of 15,888 million Chilean pesos. These figures do not consider the non-returning gain from the sale of a portion of land in Chile, with a favorable effect before taxes of 28,659 million Chilean pesos, and after tax of 20,928 million Chilean pesos. Including this non-recurring effect, EDTA totalized 38,722 million kilonewton pesos, and net income reached a gain of 5,040 million kilonewton pesos. The following analysis also does not consider these non-recurring events. In the field operating segment, top line contracted 5.5%. driven by 8.4% volume drop, partially offset by 3.1% growth in average prices. Volume contraction was caused by weaker demand due to unbearable weather conditions in the quarter, particularly in the beer business. Nonetheless, we saw much better performance in July, being a good sign for volumes looking ahead. Average prices were highly driven by revenue management efforts in all our categories, partially offset by negative mixed effects in the portfolio. In this regard, in July, we implemented additional price actions. Gross margin decreased as a result of high cost pressures, largely coming from our U.S. dollar denominated costs. MFDMA expenses were flat. due to efficiencies that fails to compensate higher US dollar denominated expenses. Consequently, EVGA totalized 26,587 million trillion pesos, contracting 39.7%. In international business operating segments, which includes Argentina, Bolivia, Paraguay, and Uruguay, net sales recorded 22.1% drops as a result of 37.2% reduction in volumes, partially offset by 7% rise in average prices in Chilean pesos. Weaker volumes were mostly concentrated in Argentina. On the other hand, Paraguay and Bolivia expanded volumes by little white drops due to a high comparison base explained by an uncommon draft in 2023, which boosted package water consumption in that year. The better average price in Chilean pesos was driven by revenue management efforts in all the countries, partially offsetting strong cost pressures, mostly coming from the sharp depreciation of the Argentine peso against the U.S. dollar and its impact in U.S. dollar's denominated costs. Consequently, gross margin deteriorated from 46% to 37.5%, and as DNA expenses increased 3.3%, and as a percentage net safety rate is mainly due to the lower business scale in Argentina. Altogether, EDA rates a loss of 24,372 million Chilean pesos. The wine operating segment continued in a recovery trend with revenues expanding 12% driven by 11.9% higher average prices. Volume showed a strong recovery in exports from Chile which expanded 9.1%, while the Chile domestic market was down 5.4%. The better average prices were boosted by the weekly Chilean peso, and its federal impact on export revenues and revenue management initiatives in our domestic market. Gross profit rose 28.5%, and gross margin improved 511 basis points. MSDNA expenses increased 12.4%, mainly due to higher market expenses related to exports which are denominated in U.S. dollars. And as a percentage of net sales, we made floods. In all, EBITDA increased 59.2%. Regarding our main joint ventures and associated business, in Colombia, volumes increased mid-East. driving better financial results. In Argentina, our water business recorded a contraction in volumes due to the challenge scenario for consumption. Nonetheless, financial results improved versus last year due to efficiencies from a successful route to market and back office integration with CCU Argentina. Now I will be glad to answer any questions you may have.

Thank you very much for the presentation. We'll now be moving to the Q&A part of the call. If you have any questions and are dialed in by the telephone, please press star two. That's star two for any questions. You may also ask a voice or a text question if you are dialed in via the web. Okay, we'll now give a moment or so for questions to come in. First question comes from Mr. Tilipe Ukros from Scotiabank. Please go ahead sir, your line is open.