Compañía Cervecerías Unidas S.A. (NYSE:CCU) Q3 2023 Earnings Call Transcript November 9, 2023
Operator: Good day, everyone and welcome to CCU’s Third Quarter 2023 Earnings Conference Call on the 9th of November. Today’s conference call is being recorded. At this time, I would like to turn the conference over to Claudio Las Heras, the Head of Investor Relations. Please go ahead sir.
Claudio Las Heras: Welcome, everyone, and thank you for attending CCU’s third quarter 2023 conference call. Today with me is Mr. Felipe Dubernet, Chief Financial Officer. You have received a copy of the company’s consolidated third quarter 2023 results. Felipe will now review our overall performance and we will then move on to a Q&A session. Before we begin as usual, 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 the performance or results to materially differ. These statements should be taken in conjunction with the additional information about risks and uncertainties set forth in CCU’s annual report in our 20-F form filed with the US Securities and Exchange Commission and in the annual report submitted to the CMF and available on our website.
A colorful array of sparkling beverages in dozens of different containers on parade.
It is now my pleasure to introduce, Mr. Felipe Dubernet.
Felipe Dubernet: Thank you, Claudio, and thank you to you all for joining us today. During the third quarter 2023, CCU continued making progress to recover financial results and profitability in a challenging and volatile economic environment, the later is strong at the operation at the operational level, increasing consolidated EBITDA by 27.7% and improving 269 basis points EBITDA margin. The performance of the quarter shows that the path to improve our profitability under the regional plan HerCCUles is moving forward. However, stronger efforts are needed in the context of economic deacceleration and volatility in exchange rates and commodity prices. This drives us to focus on the pillars of HerCCUles. First, maintain business scale, strengthening revenue manageable efforts, deliver efficiency gains through our transformation program, optimizing CapEx and working capital, focusing on core brands and high-volume margin innovations and continue investing in our brand equity.
In quarter three 2023, our revenues expanded 0.4% explained by 5.1% increase in volumes more than offset by a 5.7% expansion in average prices in Chilean pesos. Lower volumes were caused by weaker consumption in Chile and Argentina and worst weather especially in Chile, while holding market share and a contraction in wine exports. The higher average prices in Chilean pesos were a consequence of revenue management efforts across all our operating segments. Gross profit jumped at 8.9% and gross margin rose 362 basis points the latter explained by the higher average prices and flat average cost of goods sold versus last year. The MSD&A expenses increased 2.9% and as a percentage of net sales grew 94 basis points mainly as a consequence of higher marketing activities, the latter to keep enhancing brand equity.
In-all, EBITDA reached CLP86,344 million up by 27.7%. Net income dropped 44.9% totalizing a gain of CLP9,499 million. [Technical Difficulty] during the quarter. And second CLP8,665 million of nonrecurring expenses related with the route — with the integration of the route to market of our JV in Argentina with our Danone into our beer and cider operation. In terms of cash generation, we delivered another robust quarter. Thus, as of September 2023 net cash inflow from operating activities totalized CLP205,681 million versus a negative cash inflow of CLP21,871 million. In 2022, while net cash outflow from investment activities reached CLP111,051 million, decreasing from the CLP175,168 million during the same period in 2022. In addition, we have decreased our portfolio complexity and recorded strong brand equity in [Indiscernible] being key to hold market share in our main categories.
In the Chile Operating segment, our top line expanded 5.1% explained by 4.7% decrease in volumes being more than offset by 10.2% growth in average prices. The higher average prices were explained by a robust revenue management initiatives that we have taken from end of last year. Lower volumes were explained by a challenging consumption environment along with unfavorable weather although in line with the industry as market share remains stable. Gross profit expanded 17.4% due to top line performance and lower cost pressures. MSD&A expenses were 12.3% higher and as a percentage of net sales grew 237 basis points mostly due to higher marketing activities. In all EBITDA reached CLP52,618 million, growing 38.7% and EBITDA margin increased 320 basis points.
In International Business Operating segment, which includes Argentina, Bolivia, Paraguay and Uruguay, net sales recorded 2.4% contraction in Chilean pesos as a result of 4.3% drop in volumes, partially offset by a 2% increase in average prices in Chilean pesos. Volumes were negatively impacted by a weaker consumption environment in Argentina, partially compensated by volume expansion in all the other geographies. Gross profit expanded 1.1%. MSD&A expenses decreased 6% and as a percent of net sales improved 167 basis points due to efficiencies, compensating high inflation and other cost pressures, especially in Argentina. Altogether, EBITDA reached CLP25,785 million, a 30.2% expansion from last year. The Wine Operating segment continued facing a tough business environment during the quarter.
Revenues were down 4.7% mostly explained by a 17.3% contraction in volumes while average prices increased 3.1% due to revenue management in the domestic market, partially compensated with negative mix effects. The lower volumes was explained by both a 14.4% fall in exports from Chile and a 14.8% drop in the Chile domestic market. Gross profit dropped 8.1% but gross margin improved 296 basis points due to higher average prices and a decrease in cost per liter, due to a more favorable cost of wine. MSD&A expenses were flat versus last year and as a percentage of net sales increased 429 basis points associated with the lower business scale. In all EBITDA reached CLP11,606 million a 21.2% contraction. In terms of our main JVs and associated business in Argentina volumes of our water business decreased low double digit mainly impacted by a challenging consumption environment.
Also we successfully continued with the route-to-market integration of this business. Finally, in Columbia, volumes contracted low single digit. Now, I will be glad to answer any questions you may have.
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