Compania Cervecerias Unidas, S.A.

Good day, everyone. Welcome to CCU's fourth quarter 2024 earnings conference call on the 26th of February, 2025. Please note that today's call is being recorded. At this time, I'd like to turn the conference call over to Claudio Lazaras, the head of investor relations. Please go ahead, sir.

Welcome, everyone, and thank you for attending CCU's fourth quarter 2024 conference call. Today with me are Mr. Felipe Duvernet, Chief Financial Officer, 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 four-quarter earnings release. Felipe will now review our overall results, and we will then move into a Q&A session. As usual, before we begin, please take note of our cautionary statements. The statements made in this call that relate to CCU's future financial results are forward-looking statements, which involve known and unknown risks and uncertainties that could cause our actual performance or results to materially differ. This statement should be taken in conjunction with the additional information about risk and uncertainty 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's my pleasure now to introduce Mr. Felipe Gubernet.

Thank you, Claudio, and thank you all for joining us today. Before moving into the quarter, I would mention some highlights of the full year 2024. In 2024, CCU delivered higher financial results versus 2023 after a strong turnaround during the second half. Also, we continued to advance in our strategy in a particularly challenging and volatile business environment. Through the year, we faced a low 20s contraction in the beer and water industries in Argentina, and a modest economic growth in Chile that led to flat volumes in the Chile operating sector. In addition, we experienced cost and expenses pressures coming from the depreciation of our local currencies against the US dollar. In this context, and excluding the non-recurring effect of the sale of a portion of land in Chile in quarter two 2024, full-year consolidated EBITDA reached 387,267 million Chilean pesos, increasing 2.1%. When including the non-recurring gain, EBITDA increased 9.6% versus last year. At the same time, and also excluding the non-recurring gain, full-year consolidated net income expanded 32.5%. When including the non-recurring gain, net income increased 52.3% versus last year. The strong turnaround in the second half of the year where consolidated EBITDA surged by 27.7% was mainly explained by a solid performance in the quarter four in all our operating segments, more than offsetting a challenging first half where we passed a 26.5% decline in EBITDA. as of June 2024. This upward trend was driven by effective initiatives in revenue management and efficiencies in all our operating segments, enabling us to more than offset the negative impacts in our result from the challenging scenario described above. The initiatives mentioned above were executed under the regional plan Hercules. which we started in 2022 and ended in 2024, being key to align the company under six pillars with the objective of recovering financial results, resulting in positive EBITDA and net income growth, the later well above inflation in that period, despite an unfavorable external context with devaluation of the currencies and low economic growth in the region. Regarding our business strategy, during the year, CCU continues strengthening its regional footprint. In July 2024, we started consolidating Aguas de Origen, our water business with Danone in Argentina, which will continue bringing synergies to our operations in that country. In October 2024, we increased our scale in Paraguay. through a partnership with the BRC Group, which includes the PepsiCo license for the production and distribution of beverage, as well as the distribution of snacks. With this association, Paraguay became the second country where the PepsiCo license is part of CCU's brand portfolio, in addition to Chile. At the same time, we continue investing in our brands, achieving a strong brand especially here in Chile and kept reinforcing our digital transformation to support sales execution and drive operational efficiencies in the future. Finally, we were the first to inaugurate a modern PET recycling plant bottle to bottle in Chile named Circular. Now I will move into the quarter. In quarter for 2024, CCU delivered a solid set of results. Consolidated EBITDA reached 182,621 million Chilean pesos, a 65.2% increase. This result was driven by all operating segments. It is important to mention, as we mentioned in that moment, that in quarter four, 2023, the application IAS 29 from IFRS in Argentina generated the loss of 24,018 million Chilean pesos in consolidated EBITDA versus a gain of 1,095 Chilean million pesos in quarter 424. Nonetheless, even isolating this mentioned effect due to the hyperinflationary accounting, consolidated EBITDA expanded robustly by 34.9 percent in terms of quarterly volumes excluding the inorganic volumes from the consolidation of hours the region and the association with the bfc group in paraguay volumes were down 0.1 percent in quarter 4 2024 fully explained by an international business operating segment which continued to contract versus last year due to argentina almost fully offset by an expansion in the Chile operating segment while wine bonds were flat. I would like to mention anyway that Argentina continued to improve its scale compared to previous quarters. Consolidated net income reached a gain of 74,153 million Chilean pesos up by 77.7% driven by the better operational result and a better non-operating result, particularly in Argentina. In terms of our segments, in the Chile operating segment, top line expanded 9.9% as a result of 4.9% increase in average prices and 4.7% higher volumes. Average prices were boosted by revenue management efforts partially compensated by negative mix effects, while volume expanded mainly due to a low comparison base in quarter for 2023. EBITDA expanded 23% and EBITDA margin grew 208 basis points to 19.6%. In the international business operating segment, excluding inorganic volume from the consolidation of ADO and AV, in Argentina and Paraguay, respectively, organic net sales recorded a sharp increase, driven by higher organic average prices, which more than offset an 11.5% contraction in organic volumes. Higher organic average prices were mostly caused by a low comparison base due to a negative impact on revenues from the sharp Argentinian pesos devaluation against the US dollar in last quarter of last year. And to a lesser extent, revenue management initiatives. EBITDA more than tripled versus last year, driven by all the geographies. The wine operating segment posted a top line expansion of 21.4%, driven by 21.7% rise in average prices, where volumes were flat. Exports expanded during the quarter. being almost fully compensated by the drop in the Argentine domestic market, as Chilean domestic volumes were flat. The better average prices were mostly explained by a favorable comparison base, a weaker Chilean peso, and its favorable impact on export revenues, and positive mixed effects. EBITDA posted a 16% growth, and EBITDA margin was down 74 basis points. Regarding our main joint venture and associated business in Colombia, volume reached 2.3 million hectoliters in full year 2024, increasing 7.8% and we reached positive EBITDA. Now, I will be glad to answer any question you may have.

Thank you. So, we'll now move to the question and answer section. If you'd like to ask a question, please press star two on your phone and wait to be prompted. If you're dialed in by the web, you can type your question in the box provided or request to ask a voice question. We'll just wait a moment or two for questions to come in. Okay, so our first question comes from Fernando Vera from Bank of America. Please go ahead, sir. Your line is now open.

Great. Good morning, everyone. Good afternoon there. Thanks for taking my questions. I have two. My first question is if you can comment what was the performance in Chile between premium and mainstream beer and how much represents premium of your beer volume now? How do you expect the mix to behave this year? And my second question is how are you thinking about the price elasticity in Chile. Thank you.

Yeah. Yeah. So I understood in your first question, I understood the first part of the question. We have some communication problems in the second part. So let me answer first the first part of your question, what is premium and mainstream. So how was the mix? This is your first question regarding that.

Yes, and basically, what is your outlook for this year in these two categories? Thank you, Felipe.

Okay, so I would say between premium and mainstream is rather stable, the mix, comparing quarter four, 24, and quarter four, 23. The outlook in Chile, so... You know, quarter four, the industry was, I would say, soft, because although we have a mid-single-digit growth in Chile during the quarter, 4.7% we grew the volumes, it's worth to say that the comparison base of last year, as we mentioned in our press release at that time, due to weather conditions, was a low-competition base. So if we exclude that, we could conclude that the industry is rather flat. So I would say soft. What we expect in the future, you know, it's too early to call because only we have one month, but what we, it was a slightly positive, I would say, compared to the first quarter of last year. But it's too early to call. But it would be a soft industry, for sure. I would say the economic growth in Chile is expected to be 2% in the long term. So do not expect a big jump in the industry. I would say a similar year in terms of growth of what we experienced. A little bit more growth maybe, but low single-digit growth would be something reasonable.

Okay?

Okay. And regarding the second question, how are you thinking about price elasticity? Thinking about that soft volume.

Yeah. You know, at the end of the day, if you look at the overall quarter, excuse me, the overall Chile operating segment, we grew the volumes, and volumes are, let's say, running at, you know, a very similar rate, you know. So I would say that the price elasticity Of course, we aim, we increase prices by 4.9%. This is in part as we have discussed in many phone calls that we need to recover our margins due to this big jump after the pandemics of the input cost. Because we still have a lower gross margin compared to 2019, for example, that is the year previous to the pandemic. So we need to continue to do revenue management efforts and price elasticity, I think, you know, there is something, but at the end it's exactly the same we have. So remember in 2019, for example, we used to sell in, in the last quarter six million hectoliters uh just as a data you know and in in in the 2024 last quarter we sold 6.6 million hectoliters while we have to increase the prices uh in line with inflation so it's not the same price so there is a So we could increase price while increasing the industry. Because if you see the numbers, we are against 2019, 15% above in terms of volumes. So the first pillar of Hercules was to maintain the scale. And still we are more than maintaining the scale, despite the prices increases. These prices increases were not enough to compensate the input cost, but we have increased the prices while increasing the volumes.

Okay. Great. Thank you, Felipe.

Thank you. Our next question comes from from . Please go ahead, sir. Your line is open.

Hello, thanks for taking my question. I have a question regarding Argentina. So far in 2025, how have you seen Argentina performing, and what are your expectations going forward? Thanks.

Thank you, Eval, for your question regarding Argentina. In Argentina, after, you know, the big decrease in volumes occurred in quarter two and quarter three, where we saw a high 20s decrease in volumes, between 25% to 28% decrease in volumes compared to the same quarter of the previous year. So in quarter four, we saw an improvement. So we decreased our volumes in a much lesser extent, the volumes. So we saw gradual improvements in Argentina. Just to give you a flavor on that, this is seasonally adjusted volumes. In quarter 1-24, our seasonally adjusted volume, this is not including the inorganic volumes of adobe, were 5.8 million hectoliters. So in quarter 4, it was 5.6. So we haven't yet recovered the quarter 1 volumes. However, in quarter 2, which was the bottom, was 5.2. So we continue to see some improvement in January. but as I like to mention, it's too early to call. But we think it would gradually recover a higher scale Argentina. Would Argentina recover the scale we had in 2023? No, but certainly we will, the industry, as you know, inflation is more controlled and as it is projected a higher, economic growth should continue to recover in the way to recover the scale we had previous to the macro adjustment in Argentina.

Okay, perfect. Do you have any sense? about when 2023 volumes could be achieved going forward, maybe in 2026, 2027?

It's difficult to predict. I would say maybe, but you mentioned exactly what could be reasonable between two to three years. It would depend on many factors because in Argentina you have still many macro challenges. Would the government release the CEPO at the end of the day? So, you know, we are in a good path in the sequential improvements, I would like to say, but to predict, you know, when we would recover the scale in Argentina, Because at the end, Argentina today manage a completely different micro and macroeconomic reality. You know, it's a country that maybe the first question you may ask me or we may think is when hyperinflation would end in accounting, for accounting purposes, you know, because yeah we saw a very good results in inflation with improvements uh but you know salaries need to recover employment need to recover so the macros need to recover and then we answered the qu and then we could answer the question regarding when uh would be recovered the scale in argentina but we are in the past quarter four results showed up early january results show that we continue with the sequential improvement that we are saying that is happening since quarter three. Quarter three more moderate, quarter four better, and we expect quarter one to be a little bit better and continue to recover the scale.

Okay, perfect, thanks. Have a nice day.

Okay, thank you. Just a reminder, if you'd like to ask a question, please press Start to on your phone and wait to be prompted. And if you're dialed in by the web, you can type your question in the box provided or request to ask a voice question. We'll just wait a moment or two for questions to come in. So we have a question from Martin Zetsch from Fundamenta Capital. Should we expect margin recovery during 2025 and 2026? Would that recovery come on the back of price increases going ahead of cost inflation?

Thank you, Martin, for the question. At the end, the last quarter results are encouraging, especially in the case of Chile. As you compare, we recovered our margin path. So, for example, in 2024, we have exactly the same margin as we had in 2021 when we had an extremely high bonus. In general terms, it's a tough scenario. It's very volatile. So it would depend a lot on external factors, especially the exchange rate. So if you ask me that question at the beginning of the year with the Chilean peso at 1,000 pesos per U.S. dollar, it would be very difficult to improve EBITDA margins. but we will continue our revenue management effort as well as our efficiencies effort in order to show sequential improvement in margins. These are key. As you mentioned in your question, revenue management is key, not only increasing prices, but also rationalizing promotions is key in that sense. So certainly the improvement of margin will not come So it should come from revenue management, but also from efficiencies. But we should be seeing an improvement. And this I'm talking regarding Chile. In the case of Argentina, if as far as we, as I mentioned in the previous question, we continue with this sequential improvement, we should recover margin certainty.

Okay, thank you. It looks like we have a follow-up question from Fernando Zeira from Bank of America. Your line is now open. Please go ahead.

Hi. Hello, guys. Thank you for taking my question again. Maybe if you can comment about the wine division. I mean, your volume is still far from the peak, Richard, in 2021. So how do you expect volume to behave this year, and what is your outlook on export and the corresponding domestic markets? And also, if you can comment about Colombia, about volumes in Colombia. How are you seeing the behavior this year, given the solid growth that we saw in 2024? Thank you.

Okay. Regarding the wine division, I would maybe divide your question in three answers because we operate in different markets. So first of all, exports. exports as we haven't yet recovered the scale we had previous to to the pandemic uh we are below the the 2019 volumes by 13 percent in exports from chile 2024 was the first step in terms of recovering that as we grew four percent three point nine percent um speed is moderate we think we will continue to to recover especially by the implementation of our commercial offices in china us and uk this initiative certainly will improve our execution in these three key markets along with the recovery of other markets such as korea um So in general terms, we should be recovering, growing this year and in the way to recover this market. It's tough, it's a very competitive market. You know, we have experienced the stocking in 2023 of all of our clients and going forward, 2024 show growth. But we are still far from recovering the scale we had previous to the pandemic. So another important level is innovation. Innovation is key in a category that globally doesn't grow. So innovation is key. Jumping now to Chile domestic. In that case, it's the opposite to the export market because we have a higher scale than previous to the pandemic. So we have preserved the scale despite an improvement in margins as we have increased prices. But in that sense, this is a very good business that we are in very good shape. We are the market leaders and innovation has been key in that. Argentina suffering from what's happening in Argentina in terms of volume. This year we suffer in the domestic Argentinian market in 2024. So overall the perspective is growing exports, maintaining our leading position in Chile. but essentially the recovery of export volumes key going forward. Excellent.

Yeah. And regarding Colombia.

Regarding Colombia, we grew high single digits, gaining share with an excellent performance of Andina Light. Also an excellent performance of Tecate. There is still job to be done in our execution. The team in Colombia is working hard also with our partner Postobon in improving especially our sales execution and also while increasing our brand preference there. But we are very happy about the performance of Andina Online.

okay so so you expect the good performance to continue and as i mentioned uh we reach a positive evita which is very important to continue to invest behind the branch okay oh perfect and just a a quick one about the about the massive blackout from yesterday in chile I mean, I was just wondering if that blackout affected in some way your operation? If it was highly affected or not?

No, not significantly. So, first of all, we lost, you know, one shift of production because production, you don't have backups for the full production, only for the essential, for example, to keep the beer in the in the fermentation tanks, you have backups. All the distribution is not a heavy user of electricity, so you have full backups. So we completely deliver our customer orders without any disruption. We lost one shift of production. It's not significantly as we could, extend some shift going forward and completely recover this shift that we lost. But our contingency plans work perfectly in the IT side, in our data centers, and also in the distribution to completely deliver the products to our clients.

Great. Thank you, Felipe.

Okay, thank you. Our next question comes from Constanza Gonzalez from Quest Capital. Your line is now open. Please go ahead.

Good afternoon, Felipe and Tim. Thank you for taking my question. I have two. The first one regarding CAPEX. What is the CAPEX that you are expecting for this year? And I appreciate if you can make the separation between investment and maintenance. And the second one is just regarding topics, too. Do you have any targets regarding the data that you intend to invest in the future? Thank you.

Hello. Hello, Constanza. Thank you for your question regarding capex. Yeah, what we can say is that capex against depreciation would be going forward a little bit above inflation, above depreciation, our capex would be a little bit above So, but much lower of what we saw in previous year, let's say 2019-22, where was a period of big expansion in terms of volume capacity. So, we moved from one point, between 1.4 on average, 1.3 to 1.7, where was the peak. In 2022, we are moving to ranges between 1.1 and 1.2 going forward. So because, as I mentioned, we saw a soft industry at least in 2025 and maybe in two years, we need to, as I mentioned, we need to recover the scale in Argentina. So we saw a more moderate capex going forward. So CapEx, especially the sales were in ranges between 7% to 7.5% on average, 2019, 22, 23, 25, we saw something around 5.5%. That's for CapEx. Could you repeat your second part of the question?

Do you have any targets regarding CapEx versus EBITDA or is not a measure that you follow?

The metrics I mentioned are the metrics we use. You know, CapEx as percentage of net sales. As I mentioned, we don't have a – because CapEx, you need to be flexible enough. If we have a jump in industries, you need to invest in capacity. Main capex, you know, the mix of capex now is moving to efficiencies, is moving to regulation. As I mentioned, a big jump in capex last year was due to the construction of Circular, which is a plant to recycle PET bottles. Okay, so it's more linked to environmental and efficiencies rather than capacity. So I think our level of capex should be in the average of the industry. What we have seen is between 5% to 8%, depending on what are the needs. But there is no specific, but I think this would be the level of the capex that's a little bit above inflation, between 1.2 times depreciation, excuse me, not inflation, depreciation.

Thank you, Felipe. I have another question. Regarding net financial debt over EBITDA, are you evaluating some range in the next year, or are you comfortable with your current levels? Yeah.

In general terms, we are within the range. We don't have a public target on that. I think when we compare with the industry, comparing with other actors, I think we have a reasonable level as far as we kept our investment grade, which is key. That's important for us. We still are keeping our investment grade level. We need to be in that range. I mentioned we have maybe less capex in the next three years because we are moving from 1.5 times inflation to 1.2 times, excuse me, depreciation. Again, I said inflation, depreciation, or moving from above 7% as per the same capex. This indicator will continue to improve. In fact, in the last quarter we moved we move from net financial debt to DIPTA from, you know, two times to, yeah, two times to 1.8. So we are in the good path, but it's key for us preserving our investment grade.

Thank you so much for your answers.

Okay, thank you. Our next question is from Alvaro Garcia from VTG Pactual. Can I ask about Chile cost inflation outlook specifically and your outlook on how this might impact the rationality of pricing in Chile over the next year? Thank you.

Okay, Alvaro, thank you for your question. Regarding cost inflation, as I mentioned in the previous question, it's very volatile because it's very different, this business, with a thousand pesos per dollar exchange rate. It's very different than 940. These are 60 Chilean pesos. And you know it's 1% of the valuation. It's a lot of money in our P&L that we need to compensate with efficiencies or with pricing. Because as I mentioned, we will not have great news from volumes. So at the end, that's key for us. If the dollar going forward is maintained in a range of 940, price increase we do at least in line with inflation would be a good news in terms of overall market. And this is the aim. You know, usually in the long term, CCU is aiming to increase price in line with inflation. Our ability to increase prices would depend in several factors. And one of the factors is competition, of course. But more than thinking about the competition, we need to think about ourselves. And this is what is key, and it was a big pillar in Hercules and continues to be a very important KPI for us, is brand health. The stronger our brands are, the more our brands are in the heart of the consumer, the better price we can get for our brands. If the competition does promotions or, you know, discounts, we need to rely in our brand equity in order to sell, you know, at better prices. Of course, it's key, as I mentioned, the volatility in the markets, but if we have a scenario of 940, I would say it is reasonable to increase the prices in line with inflation or a little bit above inflation.

Okay, thank you. Our next question comes from Francisca Taverne from Lara Invial. Have you seen competition regarding price increases in the beer market in Chile? Have they followed in the last months?

Yeah, we have been in the last quarter increasing prices in some specific packages. So because we have some packages that are less profitable than others. So we have touched these packages, especially the large size packages and this has been implemented especially in the beer in the beer category in in chile so as a still i think every company has suffered a lot in terms of margins of of the levels we had before the pandemic we need to continue to recover profitability uh usually competition or or the whole industry has increased the prices along the time so uh and this is what i said at the end is a combination of overall industry price but also brand equity matter in in not only in in the price list but also in rationalizing promotions this is this is key in a very competitive market of chile

Okay, thank you. Just a reminder, if you'd like to ask a question, please press start to your phone and wait to be prompted. And if you're dialed in by the web, you can type your question in the box provided or request to ask a voice question. We'll wait a moment or two for questions to come in. So we have a question from from Falcon Capital. In your press release, you mentioned that Hercules is already concluded. Is there any other plan or measure to continue working on efficiencies in 2025?

Hello, Sergio. Thank you for your question. Maybe we haven't been very clear in the press release, but we are mentioning that, of course, Hercules as a name, as an idea, as a brand, ended in 2024. It was a three-year plan in order to recover our results against 2022. That was, in fact, a very disappointing year in terms of results. And, in fact, we recovered EBITDA growth and especially net income growth that was above inflation in that period. So now going forward, as we mentioned, our focus will be on developing our 2025, 2027 strategic plan, reinforcing our three pillars, profitability, growth, and sustainability. So Hercules ended, but many elements of Hercules are still present and will be still present in our 2025, In the upcoming annual report that we will issue according to the regulation going forward, we will be more specific and give more color on different KPIs of that new strategic plan 2025-2027. But many elements of the plan would continue. especially in terms of profitability where we need to continue to recover gross margin because this is what suffered the industry, as well reducing our expenses as a percentage of net sales in, let's say, kind of efficiencies at gross margin level and efficiencies also at expenses level in order protect our bottom line going forward. But it is worth to say that Hercules was a successful plan in order to recover to some extent despite the external effects we had, the contraction in Argentina. At the end, Hercules helped us in the delivery of the results that are shown especially in the last quarter.

Okay, thank you. We are not seeing any further questions. Thank you everyone who asked questions. I'll be handing the line back to the CCU team for closing remarks.

Thank you all for attending this conference call. To conclude, in 2024, we posted a strong turnaround in our financial results during the second half of the year, expanding EBITDA and net income versus 2023 in a challenging business scenario. At the same time, we strengthened our regional footprint. Looking ahead, we are cautious about 2025 as the business scenario will remain volatile and uncertain. Our focus will be on developing our 2025-2027 strategic plan, reinforcing our three strategic pillars, profitability, growth, and sustainability, with a special focus on profitability through revenue management efforts and efficiencies. Finally, I would like to extend my gratitude to all our employees. Their dedication and commitment have been key to navigate challenging times. We will continue to work to ensure sustainable and profitable growth for CCU. I wish you a wonderful afternoon today. Thank you.

That concludes the call. Thank you and have a nice day.