Ladies and gentlemen, good day, and welcome to CCU’s Fourth Quarter 2023 Earnings Conference Call on the 28th of February. Today’s conference call is being recorded. At this time, I would like to turn the conference call over to Claudio Las Heras, the Head of Investor Relations. Please go ahead, sir.

Welcome, everyone, and thank you for attending CCU’s fourth quarter 2023 conference call. Today with me are Mr. Felipe Dubernet, Chief Financial Officer; and Mr. Joaquín Trejo, Financial Planning and Investor Relations Manager. You have received a copy of the company’s consolidated fourth quarter 2023 results. Felipe will review our overall results, and we will then move on to a Q&A session. Before we begin, 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 actual 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 Form 20-F filed with the U.S. Securities and Exchange Commission and in the annual report submitted to the CMF and available on our website. It is now my pleasure to introduce our CFO, Mr. Felipe Dubernet.

Thank you, Claudio, and thank you to all for joining us today. During 2023, we posted a recovery in our operating results and profitability in spite of the volatile business environment, a particularly difficult year for the wine export business and Argentina’s macroeconomic conditions. Our consolidated EBITDA in the year grew 6% and the EBITDA margin improved 159 basis points, driven by our main operating segment, Chile, which expanded EBITDA by 24.8% more than offsetting a 37.4% drop in the Wine Operating segment and a 16% contraction in International Business Operating segment, which includes Argentina. Consolidated net income contracted 10.6% versus 2022. The driver for the better operational result was the execution of our regional plan HerCCUles, which encompasses six pillars: Number one, maintain business scale; number two, strengthen revenue management efforts; number three, deliver efficiency gains through our transformation program; number four, optimizing CapEx and working capital; number five, focusing on core brands and high-volume margin innovations; and number six, continue investing in our brand equity. I would like to briefly mention some of the highlights of the year for each pillar. In terms of pillar number one, consolidated volumes in 2023 were 3.4% below last year, mainly driven by lower consumption in Argentina for the year, a tough scenario for Chilean wine export and a deceleration in volumes in Chile during the second semester. Nonetheless, we maintained relative scale by keeping increasing market shares in our main categories. As for pillar number two, we executed revenue management initiatives in all our geographies, especially noticeable in Chile, where average prices increased 7.9% being key to recover margins, offsetting cost and expense pressures and negative mix effects. Regarding pillar number three, we were able to deliver efficiency during the year, as total expenses, including manufacturing cost of MSD&A as a…

Thank you very much for the presentation. We'll now be moving to the Q&A part of the call. [Operator Instructions] The first question we have is from Mr. Felipe Ucros from Scotiabank. Please go ahead, sir. Your line is open.

Thanks operator. Good morning, Felipe, Joaquín, and team. Thanks for the space. So my first question is on Argentina. Obviously a messy quarter. All the hyperinflationary accounting effects kind of muddy up the quarter. But how did the quarter start for Argentina in 2024? How are things looking there? And then if I can, I'll do a follow-up. Thanks.

Thank you, Felipe, for your question regarding Argentina. The quarter maintained exactly the same trend as we had in quarter four. So we continue to increase prices in line with inflation. Inflation level during January was 20.5% in Argentina. This is public data. And we are experiencing industry contraction of, let's say, high single digit, let's say during January for the time being. It is expected that we will have a lower level of inflation in Argentina in February. We do not have official data, but we will continue our revenue management efforts there in order to keep profitability in Argentina.

Great. Great. Before I move to the next question, Felipe, great comment on how the consumer is doing. Let me ask you, do you expect kind of margins to deteriorate as you eventually have to adjust employees in Argentina or what type of margin environment do you expect as the year starts?

Look, I will not give you a forward look [ph]. In Argentina all the pillars of HerCCUles are completely valid, let's say. Of course we would like to maintain business scale, but it would be difficult given the macro environment. But at least relative scale we are maintaining thanks to this because we – our portfolio ended up as getting in a very strong way, let's say. So the relative scale would be maintained. The big answer would be, let's say how much the industry would suffer. The good news is if the government plans works in terms of having lower levels of inflation, maybe we could experience, let's say, some relief in terms of the contraction of the volumes. But all the pillars are towards, let's say, not suffering in profitability terms. Let's say we will continue revenue management efforts there as I pointed out, efficiencies are keys. A number of projects in several areas, logistics, manufacturing, in terms of expense control are very valid on that. Also taking care of the cash is important of working capital inventory reduction. We have in fact reduced our inventory levels, let's say, to work with less safety in terms of reacting, of course maintaining flexibility towards the market, but in a more efficient way. Also portfolio rationalization is something important. Enhancing also investing behind returnable packaging also is a way to protect our profitability. And of course, because all of these should be – it need to be possible, thanks of our high levels of, or good levels of brand equity to continue invest behind the brands, because without a stronger brand, you don't have – it would be very difficult to maintain our relative scale.

Very clear. Thanks very much for that. Maybe if I can do a second one on Chile. Weather seems to have been a factor in the quarter and I think your peers reported exactly the same thing. So I'm wondering how did results look if you kind of didn't have the weather effects? And what I mean is I'm trying to gauge how the consumer is doing if you put aside the weather factor?

Oh, that's very difficult. I asked for a – we need an algorithm for that. Of course, we have some internal algorithms, but is the predict how much? So I think there is a weaker demand itself in the consumer. The consumer is not in the same shape as it used to be in 2021 and beginning of 2022 period. We know that. We have had two bad quarters, quarter three and four in terms of not good weather conditions for selling refrigerated drinks, let's say. The majority of our portfolio need to be drink. Of course, it was unfavorable in terms of rain, in terms of temperatures. So factoring out the weather would be we decrease 7.3%. I would not attribute 100% to the weather, but I don't have a number to provide to you – exact number to provide to you. How much the weather would influence on this decrease in volume would be difficult. Maybe an indicator could be quarter one, that we have had more stable weather in terms of temperatures, but still it's too early to call the quarter one. January has started in good shape with low-single digit growth because we have a more normalized weather. But certainly, as I mentioned in previous conference call without giving you future forecast, because it's difficult on that, because there are several factor risk and uncertainties. I think low-single digit between mid- and low-single digit should be the growth if you take out the weather and it's aligned with GDP in Chile.

That's super helpful, especially the comments on January, that helps us a lot. So thanks for that Felipe. I will hand it back to you. Thanks.

Thank you very much. We also have acknowledged the text question from Mr. Pablo Bello from BTG, which we believe was answered this question – in this answer about Argentina. The next voice question comes from Mr. Fernando Olvera from Bank of America. Please go ahead. Sir, your line is open.

Hi. Good morning – good afternoon. Thanks for taking my questions. I have two. The first one is related to Chile. If you can comment what is your outlook on cost and how FX will play in coming quarters? And if you can share some color of how margins should behave this year, particularly in Chile? That's my first question and I have a second one. Thanks.

First of all, Pablo, I already answered the question regarding Argentina to Felipe. Anyway, thank you for your question. Fernando, yes, I would – of course, you pointed out the main risk that we are facing nowadays in terms of FX. Today, USD is 980 which is much higher than what we had in previous quarters, and we have a pressure on that in terms of, of course. As an example, last year, U.S. dollar was – average exchange rate in Chile was 839. Now we are, let's say, more than CLP100 more, so this is more than 10%. And this has – would have certainly an impact in our P&L, in our cost structure. Although commodities are stable with the exception of sugar, let's say, but commodities are stable. What we need to do at the end is to compensate that in order to have more stable EBITDA margins. And this, we need to enhance our revenue management efforts, enhance our efficiency efforts also to speed up some projects that we have in terms of efficiencies. And improved mix also is a way to compensate this pressure in terms of the U.S. dollar. And this is fully aligned with HerCCUles, but you pointed out that is one of the risks that we are facing.

Okay. Great. Felipe, and my second question is related to your SKUs reduction. If you can comment about that to give us an idea of how many SKUs you eliminated in 2023? Any idea of how this favor your profitability and if you are going to continue with the SKU reduction this year? Thank you.

Well, we took out about – for our offers about 100 SKUs, but this does not represent, it should be in terms of percentage, about 5%. But the idea is not reducing all the time you do tacking the tailing, let's say, SKU reduction, but the incentive of that is to really if we need to launch something when innovation should be relevant, should be – should have better margins, should improve the brand equity of the category of the portfolio, improve brand equity, deliver higher margins and also improved volumes. So at the end, it's an exercise that we should – it is about discipline on that.

Okay. Great. Thank you, Felipe.

Thank you very much. [Operator Instructions] Our next question comes from Mr. Ulises Bolio from J.P. Morgan. Please go ahead sir.

Hi guys. Thanks so much for the space questions. A couple of follow-ups on my side. So first on the Chile volumes; can you provide a little bit of detail how was the performance there on the alcoholic versus non-alcoholic? And maybe a double click there on how those more premium beer categories continue to perform there? And then the other one on FX, I just wanted to hear your thoughts more or less what is kind of being embedded in your budget in terms of FX for the year? And what are you thinking in terms of the pricing that you need to do to kind of offset this pressure? Thanks so much.

Yes. Regarding your first question, volumes in quarter four were exactly the very similar in both non-alcoholic and beer [ph], no big difference in terms of decrease for both. So we are talking about between mid- to high-single digit, let's say. Because overall, decrease in volumes in Chile was 7%, so was very similar across the board. Regarding FX, yes, we will have a significant effect on this. More or less 70% or 75% are linked to the U.S. dollar of our direct cost, raw material costs, packaging material cost and also energy costs. So we need to do efforts in revenue management certainly to compensate because every – let's say, CLP10 of devaluation, more or less is about CLP2,000 million effect in our EBITDA being compensated by – that are already compensated by the export business. So this is net of the export that we have in wine, especially that compensate somewhat at the consolidated level. So if you have a sustained CLP100, so we need to deliver in our P&L, extra between CLP20,000 million to CLP25,000 million. So this is a significant number if you look at the total EBITDA of Chile. So it should be a combination of tools, let's say, revenue management, efficiencies, cost and expense control so it's something in order to have stable margins, let's say.

Okay. Thank you. That is very clear. And then just on that FX question. Are you able to share more or less what you are budgeting in terms of that, like for your plan for 2024? What kind of FX are you using? And then just to have that as maybe a kind of a benchmark of what we should be thinking about in that sense and the impacts on costs?

I’m not an economist, I am not a methodologist, so I cannot predict weather neither exchange rate. I would not like to do a prediction on exchange rate. I can give you current exchange rate, okay? This is the best projection you have, the current one. And maybe you could look at Bloomberg to the futures of the Chilean peso. So current exchange rate is CLP960. I will ask Joaquín how are the prediction of the U.S. dollar? How much is – yes, it’s like that. Today, spot price is CLP960, a year ago or – no, average of last year was CLP840. So it’s a pressure in exchange rate. And it’s a pressure that has increased since January.

All right, no, I think that’s fair enough. So, I was kind of putting you in a tough position there, but understood. Thanks so much for the color there, guys.

Thank you very much. We have a follow-up question from Mr. Felipe Ucros from Scotiabank. Please go ahead sir.

Thanks, operator. Since it seemed there wasn’t anybody else on the queue, I thought I’d take advantage and ask another one, Felipe, so thanks. I know wine is not the largest segment. So it might be unusual to ask about this one. But strategically speaking, it’s the segment that seems more challenged in the long term. Volumes have been falling for the larger part of the last few years. And I know it’s not a CCU problem. It’s an industry problem. We’ve seen it across wines throughout the world. But just wondering if there’s a plan to kind of turn around that dynamic or kind of offset that decline in wine consumption. Anything you guys are thinking of to improve performance in that segment?

Yes. Thank you, Felipe, for your question. Of course, we suffered a terrible 2023 in the wine export industry not only in Chile, but also Argentina, I saw some numbers yesterday, some numbers yesterday of decrease of Australia exports, Chile exports. So, I think there are factors that are related of the carrying inventory units of places that are far from consumption centers. So there is something of the economics of the export that has an influence and given the interest rate that especially in the U.S., has not reduced. Yes, the same interest rate is still, we are less competitive in terms of carrying out inventory cost. So we experienced this in 2023. Now, what I would say, we are seeing some green, let’s say, green grass of some embryonari [ph] good signals in terms that we expect at least in the first quarter to have some growth in terms of the exports volume. As you pointed out, there is a global industry in terms of volume that has decreased, but there are some tools that we need to look at. So of course, premiumization, something innovation, it is a category that needs innovation. We are innovating a lot especially in the domestic market in Chile through brand extensions, sweet wine in order to keep – to maintain the scale, especially in the domestic market. Also Sparkling Wine is doing very well. In the exports are more complicated because you have – as I mentioned, we have some constraints there because it’s difficult to a global branding. No one has a few that have really global branding in terms of wine, it’s country by country, region by region. So it is difficult. So what we are working in order to make it more profitable and to sustain the scale, even growing in some markets is through improving our execution. And it’s all about execution, especially in some key markets. We opened a commercial office in China, also in the U.S. and in the UK so with these three, let’s say, new endeavors, we think we would significantly improve the execution in those markets

That’s very clear. Thanks so much for the color.

Okay. Thank you very much. Our final question is a text question from Mr. Alessandro Conti from Jefferies. Are you planning on initiating cost-cutting initiatives, especially in Chile, do you see any foreseeable improvement in margins?

Yes. Cost cutting seems a little bit aggressive, let’s say, I would say, cost control to make with the same resources better and more. But of course, our efficiency plan is in place in terms of improving expenses, the key indicators are expenses over revenue and that we need to reduce that in the long-term or in the medium term and also this year. So we have plans for that, special expense level. In costs themselves, it depends a lot on the market, the exchange rate, the direct cost of raw material, and packaging materials. So of course, is a key pillar, pillar number three in terms of efficiency in order to keep the pace with these gains. If this would be reflected or not in the bottom line, it would depend on other factors, let’s say. But the priority is one key pillar of HerCCUles are efficiencies.

Okay, thank you very much for the answer. We see no further questions at this point. I’ll pass the line back to the management team for their concluding remarks.

In 2024, we will continue working under our three strategic pillars: growth, profitability and sustainability, and we will keep implementing HerCCUles. We know that the environment in the region will continue to be challenging, especially in Argentina. Nonetheless, we expect to be able to continue on the recovery path of our financial results and profitability. Finally, I would like to thank all our employees, given their hard work and commitment with CCU, we have been able to navigate challenging years. We will continue working united to sustain a path of profitable and sustainable growth. Thank you, and have a wonderful end of the day.

Thank you very much. This concludes today’s conference call. We’ll now be closing all the lines. Thank you, and goodbye.