Compania Cervecerias Unidas SA (CCU) 2004 Q1 法說會逐字稿

I would like comment on the company’s results and business segments, and also on the new developments presented during the quarter. After these remarks, I will gladly answer the questions you might have.

We are very satisfied with this quarter’s results. Revenues increased 10.3% and operating results grew 51.3%, compared with the same period of last year. We had very good performance in the beer segment in Chile and Argentina, and in the Soft Drinks division, increasing volumes and improving margins.

Chile has lived an important appreciation of its currency during the quarter, which had led, on one hand, to a material reduction in our direct costs, and on the other to a decrease in the profitability of the Wine segment. Adding both effects, the outcome is still very positive for the company.

I will turn now to discuss briefly the main issues in each of our business segments.

Chilean Beer revenues increased by 11.3% during the quarter, explained mainly by an 11.8% higher average price, as a consequence of the two price adjustments done last year, better revenue management relating to discounts, and a sales mix with a higher presence of premium brands, after the incorporation of Heineken and [indiscernible] into CCU’s portfolio. Better prices and the positive effect of the stronger Chilean peso on the cost of raw materials, the [indiscernible] to the dollar, improved significantly the profitability of the segment, reaching a 35.5% higher operating income.

During the quarter, Beer Chile has increased importantly its brand equity, measured by first preference, which grew from 86% in the first quarter 2003 to 93% this quarter, mainly explained by the incorporation of Heineken beer.

We are very satisfied with the good results obtained in Argentina. Sales volumes grew 16.1%, compared with the first quarter 2003, and prices in dollar terms have been increasing consistently, reaching $33 per hectoliter in March, compared with $24 per hectoliter a year ago. This good performance was reflected in 42.9% higher revenues and a better operating result, reversing an operating loss of $1.6m to a gain of $1.7m. Additionally, market share increased from 14% to 15%, comparing the first quarter 2003 with the first quarter 2004.

During to Soft Drinks, in the Nectars and Mineral Waters segment, consolidated volumes increased by 5.3%, growing all the categories of this segment. High volumes and the appreciation of the Chilean peso have reduced significantly unit costs, improving the profitability of the segment, reaching growth of 62.9% in operating profit of this category. Additionally, the company increased its Soft Drink first preference from 19% to 21% in the first quarter [2004], mainly explained by Bilz and Pap and [Lemon Soda].

The Nectars segment maintains good performance, increasing its volume by 17.2%, and its market improved from 49% in March 2003 to 53% as of March 2004.

In the Wine segment, the Chilean Domestic Wine category increased its volume by 3.2% and its prices by 6.7%. Chilean Bottled Wine exports grew 13.7% in volume, and 7.5% in prices in dollar terms. Nevertheless, the profitability of this segment has been affected mainly by the weaker dollar, that decreased by 20.3% during the quarter. Overall, [indiscernible] has continued with its program to increase volumes and prices, and to rationalize expenses and SKUs with very positive results. This program should be finished by mid-year.

As you know, we entered the Pisco business a year ago with a the brand Ruta Norte, that participates only in the mainstream segment, which is two-thirds of the total market. In January, we launched the new Ruta Sour, a Pisco sour ready-to-drink, a typical Chilean drink that combines Pisco, lemon and sugar. The Pisco sour category has higher growth than in 2003, representing 16% of total market, and is the second most important category. We have had very positive results in this industry, reaching a market share of 15.7% in February-March according to AC Nielsen.

Last January, CCU entered the Sweet Snacks business, the realization of a 50% joint venture between its subsidiary, ECUSA, and Industria Nacional de Alimentos S.A. (formerly Lucchetti, a company controlled by Quinenco). This joint venture acquires the assets of Calaf, traditional confectionary company with more than 100 years in the Chilean market. Calaf’s products are sold together with Soft Drinks, potentially reaching more than 90,000 clients. This new challenge allows ECUSA to explore the ready-to-eat industry, with a market size similar to the one it participates in today. The entrance to this industry offers and interesting growth opportunity for ECUSA. During the first month of operations, we have obtained significant synergies between Calaf and ECUSA.

Having discussed the highlights of the first quarter and some recent events, I will be pleased to answer the questions you might have.

[operator instructions] We will take our first question today from Catherine Reynolds with [indiscernible].

Hello, Patricio. First, I’d like to congratulate you on the results. EBITDA growth was very strong for this quarter. I just wanted to ask, in terms of volumes in Chile for this quarter, I understand that perhaps the average price increase could have impacted volumes. They were flat. But I was also wondering if the competitive scenario is growing stronger in Chile.

Thank you, Catherine, for your question. Do you mean the competitive scenario in Beer, or in all categories?

In Beer. I’m sorry, in Beer.

Yes, the competitive environment in Beer has not changed since the last conference call. We don’t have the information about the volumes of our competitors. Here in Chile in the first quarter, they are going to release their results in two or three weeks. We expect then we will see what happens with their volumes during the first quarter. But we think that nothing has changed dramatically. We have not seen special changes. We expect them to happen in the future, but until now no changes in the competitive scenario.

Okay. Thank you.

Thank you, Catherine.

We’ll take our next question from Jose Yordan.

Hi. Good morning, Patricio. I had a couple of questions about Argentina. Number one is, the price increase you did in the first quarter in Argentina, I thought was about 10%. So, I was a little surprised to see the price already at $33 (per hectoliter), because I guess in the fourth quarter the average had been something like $26 and change, or around $27. So, I was expecting something around $30. If you can explain whether there has been an additional price increase, or why the base was so low?

And then number two, just in general, if you can give us an update on what’s happening with the court cases surrounding the forced brand sales in Argentina, the brands that [indiscernible] has to sell at some point.

Thank you, Jose, for your two questions. First of all, regarding prices in Argentina, prior to the last increase, the price was roughly $30 (per hectoliter), $30.5. We increased them by 10% during March and, in fact, in March we didn’t get 100% of effect, but in April we did. And I think that the price in April-- I don’t have the final figure coming from accounting, but I think this was more near $34 per hectoliter than $33, which is very good news for us, because we are still growing in volumes strongly, and the price is very good.

I have to say, additionally, that the price increase has a relation, not only with the fact of the industry increasing the prices, but also with the fact of adding Heineken to our portfolio at the beginning of the second half of 2003.

Regarding the assets which are supposed to be sold by [indiscernible], we are still in the courts, and we don’t have a final solution, and we don’t have additional news on this point.

Okay. Thanks.

[operator instructions] There are no questions at this time. We’ll turn the conference over to Mr. Jottar for any additional or closing remarks.

Okay. Thank you for the questions. I have here with me also Ricardo Reyes, the current CFO of CCU, and Ricardo Bartel, current General Manager of Transportes CCU, which is our distribution and logistics operation.

I have to say that today we are informing to the [SDS] that Vina San Pedro’s board of directors decided to appoint Ricardo Reyes as its new VSP’s new CEO. First of all, I want to thank Matias Elton for his excellent job as Vina San Pedro’s CEO during seven years, being responsible for the tremendous growth of VSP, consolidating it as the second-largest winery in Chile. I wish him a great success in his new entrepreneurial venture.

Secondly, I want to thank Ricardo for his great job as CCU’s CFO, and I’m sure he will be very successful in his new position in Vina San Pedro.

Finally, I want to introduce Ricardo Bartel, the new CFO of CCU. He has been working with CCU since 1990 in different positions, in sales, distribution and finance, doing always an excellent job.

All these changes will take place next Monday, May 10. I don’t know, Ricardo, do you want to say some words.

Thank you, Patricio. First, I would like to thank all of you for your support and the excellent relations we have maintained during all this period. We have as our first priority to maintain and to have an excellent relationship with all analysts and investors, and to improve the quality of the press releases and the information we provide to the market, and to use, for instance, the web page as a good vehicle to keep all the information relevant to the market on a timely basis.

In the future, of course, I will be very happy to receive all of you in Vina San Pedro to talk about the development of the Wine business. Thank you very much.

Okay. Thank you very much, Ricardo Reyes. Welcome, Ricardo Bartel.

Just in concluding, I would like to say that we are optimistic about the future of CCU because the signals of economic recovery have continued in Argentina, which are having a positive impact on the company’s results. Moreover, if the Chilean peso keeps [trending] during 2004, the positive effects on the Beer and Soft Drinks segments will over-compensate the negative effects on Wine exports, where we’re taking a lot of measurements in order to improve results.

Finally, I would like to thank all of you for attending our conference call, and I hope to see you soon.

And that concludes today’s conference call. We thank you for your participation. Have a nice day. You may now disconnect.