Compania Cervecerias Unidas SA (CCU) 2007 Q3 法說會逐字稿

Good day, ladies and gentlemen and welcome to the third quarter 2007 CCU earnings conference call. My name is Stacy and I will be your moderator for today. At this time, all participants are in a listen-only mode. We will conduct a question and answer session towards the end of the conference. (OPERATOR INSTRUCTIONS)

I would now like to turn the presentation over to your host for today, Mr. Patricio Jottar, CEO. Please proceed, sir.

Good afternoon and thank you for attending CCU's third quarter 2007 conference call. I am here with Ricardo Reyes, CCU's Chief Financial Officer and Luis Eduardo Bravo, our IR Manager.

First of all, I want to apologize for any inconveniences it may have caused you, the cancellation of yesterday's conference call, due to a problem with our conference call provider.

You have received a copy of the Company's results for the third quarter of 2007. On this occasion I would like to comment on the results of each business segment and also [get] some new developments during the quarter. After these remarks, I will gladly answer any questions you may have.

We are pleased with the Company's results during the quarter. Consolidated volumes increased 4.1%. Revenues grew 4.8%. Operating income increased 8.3%. Net income grew 6%. And EBITDA increased 5.5%.

These results are especially significant if we take into consideration a much colder winter season this year, as well as a high base of comparison from last year, when operating income grew by 47.6% and EBITDA by 23%.

The Chilean beer business continued its positive trend in terms of volumes, increasing 3.1% in the quarter over the 22.1% growth obtained in quarter three 2006. During the quarter, operating results grew by 4.7% to $22m and EBITDA expanded by 4% to $31m.

Cristal Black Lager, Cristal's brand extension, launched in the market last April, continued selling exceptionally well. Nominal prices were increased 6.5% in September to partially offset the effects of inflation and higher raw material and energy costs.

The Argentine beer business increased its volume by 6.8%. The highest-performing brands were Heineken and Budweiser. Nevertheless, operating income decreased during the quarter, mainly due to cost pressures in raw material, energy and personnel. To partially offset this rising-cost scenario, we increased nominal prices at the end of August.

On October 4, we executed an agreement to purchase the Argentine brewery, ICSA, subject to prior approval by the Argentine Antitrust Commission. ICSA owns, among other assets, Bieckert, Palermo and Imperial beer brands, which together represents approximately 5.8% of the Argentine beer market, and a brewery in Lujan, Buenos Aires, with a nominal production capacity of 2.7m hectoliters per year.

Our non-alcoholic product segment had a positive performance during the quarter, increasing its operating income by 26.8%. This growth was supported mainly by 2.3% higher average volumes, 1.1% higher average prices and lower per-unit direct costs.

Nectar continued with its excellent performance, growing its volumes by 15.8% during the quarter. Mineral water volumes were mainly affected by the decrease in the flavored water segment. During the quarter, the wine segment continued improving its result, growing operating income by 32.7% and EBITDA by 19%. These results were mainly due to higher volumes in Chile and Argentina, lower raw materials costs and higher price of Chilean wine exports and Argentine wine.

In September, nominal prices were increased approximately 5% to partially offset higher inflation and higher wine costs expected for the next harvest. [Vineyard San Pedro] will continue focusing on distribution, brand equity creation, winemaking and innovation in order to continuously improve its results.

The spirits business had an outstanding performance during the quarter, growing its operating income by 150.9% and its EBITDA by 110.5%. These positive results were supported by volume and price increase -- and prices that increased 6.1% and 5.4%, respectively, mainly due to the focus of Compania [Piscera] in Chile on premium pisco products and cocktails.

Last May, we launched the market of imported rum, Sierra Morena, which has enjoyed an excellent reception by consumers.

Finally, in our confectionery business, volumes were flat during the quarter, mainly due to the rationalization of the number of SKUs and price increases.

Having touched on the highlights of the third quarter of 2007, as well as some other recent developments, I will now be pleased to answer any questions you may have.

(OPERATOR INSTRUCTIONS) There are no questions at this time.

Okay. I would like to apologize again for the cancellation of the conference call yesterday, as I said before, because of operating problems with our conference call provider. I would like to say also that we are pleased with the results obtained in the quarter and optimistic regarding CCU's further development during this year in 2008. I would like to thank you, all of you, for attending our conference call and I hope to see you soon.

Pardon the interruption. We do have a question from the line of Sean Glickenhaus with Citi. Please proceed.

Hi gentlemen. Sorry for the late entry to the Q&A. Quick question. Below the operating line, the interest expense, it's uncharacteristically negative. Was just wondering if there's something that I had missed there and probably there were a lot of people at the [Mulero] Investor Day, which is maybe why there are no questions today.

Yes. The interest expenses and Ricardo Reyes is here for answering your question.

The interest expenses are expressed negatively in the P&L according to Chilean (inaudible) because we express the interest rate in real terms. So we -- the excess of cash is put at nominal interest rate. And because we have higher inflation during the quarter, the real interest rate was negative.

Okay, got it. Thank you.

Okay. Thank you.

(OPERATOR INSTRUCTIONS) There are no further questions in the queue.

Thank you again, and I hope to see you soon. Good afternoon.

Thank you for your participation in today's conference. This concludes your presentation. You may now disconnect, and have a good day.