Good day, everyone, and welcome to the CCU's third quarter 2024 earnings conference call on the seventh of November, 2024. Please note that today's 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 third quarter 2024 conference call. Today with me are Mr. Felipe Dubernet, Chief Financial Officer, also Mr. Joaquín Trejo, Financial Planning and Investor Relations Manager, and Miss Carolina Burgos, Senior Investor Relations Analyst. You have received a copy of the company's consolidated third quarter 2024 results. As usual, Felipe will review our overall performance, and then we will move into a question and answer session. Before we begin, please take note of our cautionary statement. The statements made in this conference call that relate to CCU future 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, 20-F form filed with the U.S. Securities and Exchange Commission, and in the annual report submitted to the CMF and available in our website. It is now my pleasure to introduce our CFO, Mr. Felipe Dubernet.
Thank you, Claudio, and thank you all for joining us today. In the third quarter of 2024, CCU moved forward to recover profitability and financial results, which is our main priority. In our main operating segment, Chile, we posted a positive turnaround in volume, EBITDA, and EBITDA margin, mainly as the result of revenue management initiatives and cost and expenses control efforts. In the wine operating segment, we kept an upward trend in EBITDA, mostly driven by favorable U.S. dollar and efficiencies. On the other hand, in international business operating segment, results were weaker than last year as we faced another challenging quarter, mostly associated with a sharp contraction in the beverage industry in Argentina. The EBITDA drop in this segment more than offset the better results in the Chile and wine operating segment.
Before moving into the analysis of the quarter, we would like to mention that from third quarter of this year, we started consolidated Aguas de Origen, our water business in Argentina, of which we now hold 50.1% of the shares. The consolidation of this business added in this quarter, 844,000 hectoliters to our consolidated volumes and a loss in the quarter of CLP 1,052 million to our consolidated EBITDA. The explanations below in the paragraph related to the consolidated and international business operating segment results consider organic figures. This is excluding the consolidation of Aguas de Origen. During the third quarter of this year, organic revenues contracted 6.9%, explained by a 5.5 contraction in organic volumes and 1.5 decrease in organic average prices in Chilean pesos.
The decrease in organic volumes was mainly due to the weakened demand in Argentina. Lower organic average prices in Chilean pesos were fully explained by Argentina, partially compensated by revenue management efforts. Gross profit was down 13.7%, as a percent of net sales deteriorated 342 basis points organically due to higher cost pressure, mainly coming from the depreciation of the Chilean peso and the Argentine peso against the U.S. dollar, impacting our U.S. dollar-denominated costs. Organic admin and expenses contracted 10% and as a percent of net sales improved 130 basis points organically due to efficiencies across all operating segments. In all, organic EBITDA reached CLP 71,483 million, a 17.2% decrease, and organic EBITDA margin contracted 140 basis points.
Consolidated net income reached a gain of CLP 29,548 million, increasing 211.1%, driven by a better non-operating result, particularly in Argentina. In the Chile operating segment, top line expanded 7% as a result of 5.2% increase in average prices and 1.8% higher volumes. Average prices were boosted by revenue management efforts, while volumes expanded, changing the trend of the first half of the year.
Gross profit was up 2.8% and as a percent of net sales decreased from 44.8% to 43% as a result of higher cost pressure, largely coming from our U.S. dollar-denominated costs. On the other hand, we are very proud of that our SG&A expenses decreased 1.7%, and as a percentage of net sales improved 302 basis points due to efficiencies, which more than offset higher U.S. denominated expenses, such as for example, energy costs. In all, we are presenting a turnaround in terms of EBITDA, as EBITDA totalized CLP 59,980 million and a 13.8% rise, and EBITDA margin grew 84 basis points.
In international business operating segment, which includes Argentina, Bolivia, Paraguay and Uruguay, organic net sales recorded a 33.3% decrease as a consequence of a 23.5 contraction in organic volumes and 12.8% lower organic average prices in Chilean pesos. Weaker organic volumes were mostly explained by Argentina due to a difficult context for consumption. Although we want to say that we are starting to see a sequential improvement. Lower organic average prices in Chilean pesos were driven by negative translation effects in Argentina as prices in local currency grew. The latter was partially compensated by revenue management efforts and positive mix effect in all the other countries.
Organic gross margin deteriorated 598 basis points as a result of cost pressures, mostly coming from the depreciation of the Argentine peso against the U.S. dollar and its impact in the already mentioned U.S. dollar denominated costs. Organic SG&A expenses decreased 26.5% as percentage of net sales deteriorated 446 basis points, mainly due to the lower scale in Argentina. Organic EBITDA reached CLP 506 million, an organic drop of 80.6%. We would like to highlight that during this month in October in Paraguay, we continue expanding our regional scale by entering into an association with Vierci Group regarding the PepsiCo license for the production and distribution of beverages as well as the distribution of snacks in this country.
Consequently, Paraguay becomes the second country where the Pepsi, the PepsiCo license is part of the CCU brand portfolio, in addition to Chile. The Vierci Group, with 57 years of experience in various sectors, has its quarters in Paraguay, developing its activities in Paraguay, Brazil, Chile, Bolivia, Peru, Panama, Uruguay and the United States. Finally, the wine operating segment posted a top line expansion of 3.3%, driven by 1.9% higher volumes and 1.4% rise in prices. Volumes were boosted by the Chile domestic market, which grew 6.5%, while export from Chile contracted 1.2% due to logistic difficulties in September, which caused shipment delays. The better average prices were explained by the weaker Chilean peso and its favorable impact on export revenues, partially offset by negative mix effect.
Gross profit rose 1.6% and gross margin decreased 66 basis points. SG&A expenses were flat and as a percentage of net sales decreased 102 basis points due to efficiencies. In all, EBITDA reached CLP 12,521 million, a 7.9% growth and EBITDA margin expanded 71 basis points. Regarding our main JV and associated business in Colombia, volume increased high single digits, driving better financial results. The latter allow us to record a positive EBITDA on an accumulated basis as of September 2024.
Ladies and gentlemen, please stand by. Okay, ladies and gentlemen, thank you very much. We are now ready for questions. If you have a question, please press star two on your keypad. Star two on your keypad for any voice questions. You may also ask a voice or a text question if you have dialed in via the web. The first question comes from Mr. Álvaro García from BTG Pactual. Please go ahead, sir.
Regulatory agencies. I guess the question will be in time.
Hi, can you hear me?
Whether-
Yes, please go ahead.
Thanks for the space for questions. Hi, Felipe, Joaquín, Claudio. My first question's on the licensing agreement in Paraguay with Pepsi. I was wondering if you could maybe give a little bit more color, you know, how it compares to Chile's agreement, the snacks element? Is it a 50/50 JV? Is it just a distribution agreement? Any sort of color would be greatly appreciated there.
No. Hello. What is your name? I didn't hear your name. Álvaro.
Hi. It's Álvaro García of BTG Pactual.
Hello, Álvaro. Good morning. Yeah. It's a long-term license agreement with Pepsi that has the company. The new company will consolidate, thus will control the company in Paraguay. It would add practically 30%-40% more in EBITDA to the business. Of course, we receive the PepsiCo portfolio with a strong brand and international brand in cola, also Gatorade. And at the same time we will be doing the distribution of snacks. So it will add, let's say a very important scale to our business in Paraguay. Okay?
Of course, we will have synergies in sales and logistics, and we have a plan to implement this in the following, let's say six months-nine months. As we said, these are first-class partners with operations in several countries with a long legacy in doing business in Paraguay, the Vierci Group. We are glad that this is the second PepsiCo license that we have in the region, along with Chile. Of course, we will add to the business all our experience in managing the multi-category portfolio and especially Pepsi brands. As you know, we have been several times selected as Pepsi bottler of the year. Well, who knows? Given what they've done.
There's someone with their micro open, Álvaro. It's you, Álvaro. Okay. That's the color I can give you so far, Álvaro.
Thank you very much.
Okay. Although they did, you know, Álvaro didn't.
Okay. Thank you. Thank you very much for the question. Next question comes from Mr. Felipe Ucros from Scotiabank. Please go ahead.
Thanks, operator. Hola, Felipe. Thanks for the space for questions. A couple of questions. I was surprised that you managed that you mentioned that there were some expenses in dollars in the Chile operation. Just wondering if you could give us some detail about what those are and kind of the magnitude, just so we can think about this whenever there's devaluation or revaluation. It would help us in our model. The second question, which is a little more strategic. You talked about the logistical difficulties in wine exports in your wine division. Just wondering if you can talk about what the details are on those. I know we've had these before in the last three years. We thought they had gone away.
Probably more importantly, should we expect kind of a catch-up for this in the coming quarters, as you kind of cover the hole that was caused in September? Thank you.
Thank you, Felipe. Nice to hear about you. Let me touch Chile. I have done some work and read your report or some reports. We are very satisfied about the performance in Chile in the third quarter because we grew our EBITDA double digit after a very tough quarter two as we talk. We posted positive volume 1.8%. I would like to highlight that in terms of comps, we didn't have an easy comp from quarter three because some of you have posted that quarter three decreased -5% compared to quarter three 2022.
I would remind you that in 2022 we still had some effect or some carryover in terms of per capita consumption, due to the pension funds withdrawal. Comparing quarter two, quarter three 2023 against the same quarter of 2022 was a little bit misleading. Comps were not easy. Despite that, we grew our volumes 1.8% while increasing prices 5.2%. In two years, the total price increase for the operating segment is up to 15%, which is our strategy to recover profitability, as you pointed out. As a consequence, we grew gross profit 2.8%, which is good and a very good expense control at the level of MS and DNA. All of this maintaining our market share.
This EBITDA growth, managing external effect up to CLP 11 billion. Which is significant, CLP 11 billion, let's say, or CLP 11,000 million especially due to effects due to exchange rate. Going forward, of course, now we can say that in quarter four we will have an easy comp regarding quarter four of last year because of weather condition, because seasonally adjusted, the decrease of quarter four of last year compared to a normal quarter three was 10%. We will have a significant upside in terms of looking at the comps, and it's a very high quarter. We are positive on the results of Chile in the quarter three, and I wanted to highlight and thank you for your question. Regarding your second question, yes, absolutely. We will catch up.
You know, sea freight transportation depends. I don't know what happened in the Red Sea, what happened with international trade. It occurred in September, but certainly with a catch up in the, now in October of this. We will not lose these sales. As you know, export management, let's say levels of inventories that consider this kind of contingencies. We are not talking about the prices we had during the pandemic or right after the pandemic regarding sea freights payment.
That's very clear. Maybe if I can do a follow-up. You talked about the price increase in Chile. It seems though what we've heard is that your competition has also moved with you guys. It seems like the price increase was sustainable. I know that hasn't been the case the last couple of years, so just wondering if you could tell us what changed and what you're seeing on the competitive environment in Chile?
Chile is a very competitive market. We have discussed this several times. You know, it's a competitive market. It's an open market. At the end, everybody is subject to the external effects in terms of currency and in terms of raw materials. Every brewer in the world in the last since 2019 has lost a bit of margin, but especially in the line of gross margin because of input costs. Input costs are there, although we have seen, let's say some improvement in terms of costs or lower cost in sugar and PET. Aluminum still is high. In that sense, in order to recover profitability, revenue management efforts are key. Why?
This is part of the Hercules plan, preserving our scale, let's say. This we have been successful in Chile as we grew our volume 1.8%. I already explained, I hope this was clear for you, the comps statement. I'm maintaining market share. This was an ideal quarter in our view.
Understood. Thanks a lot for the color.
Thank you very much. Our next question comes from Mr. Santiago Ringas from HSBC. Please go ahead.
Hola. Thank you for taking my question. This is Santiago Ringas for Carlos Laboy from HSBC. Could you give us more color regarding what's happening in the premium beer segment in Chile? Just expand on how the category as a whole is growing. Thank you.
Hello, Santiago. They unmuted. They put mute, but now I'm unmuted. Can you hear me, Santiago?
Yes, yes, I can hear you.
We grew 1.8% and in the whole geography, if I include domestic wine, 1.9%. The growth of non-alcoholic product and alcoholic product was similar, let's say. Even we grew a little bit more in alcoholic products compared to non-alcoholic. Overall, was similar, let's say in this range of 1.8 and if I include domestic wine, 1.9%, percent. Mm?
Thank you.
Thank you very much. Our next question comes from Constanza Muñoz from Quest Capital. Please go ahead, ma'am.
Good afternoon, Felipe, Joaquín, Claudio, and thank you for taking my question. I have a question in relation with Argentina. Could you give us more color about the consumption situation there in this quarter and what are you expecting for the next year?
Unmute. Hello, Constanza. How are you? Argentina. Argentina, as we mentioned, we have seen a sequential improvement in quarter three. Let's say still decreasing the volumes. We decreased the volume against last year something like 25%. However, I would like that this sequential improvement accelerate in October. In October, we saw a real much better sequential improvement. Seasonally adjusted, the volumes grew in Argentina in October against the trend we have in quarter three by 7%. This is seasonally adjusted. Which is good because at the end, we have still lower volume than last year, but a much lower decrease. As a consequence, we are seeing better results in terms of financial results.
Because if you saw the international business on the whole, we had, let's say, positive EBITDA in the quarter. It is consolidated-disconsolidated international business. In Argentina, we also had a positive EBITDA, but much lower than last year for obvious reasons that we have been talking along the year. To give you more color, we are seeing more positive news now in October. We saw, let's say, moderate positive news in quarter three, and now in the quarter, the starting of the quarter. Still, you know, we are subject always to weather sometimes or things like that. We are starting. We are seeing an acceleration of this improvement in Argentina. Of course, in Argentina, you must be cautious, especially because the macro conditions.
However, this improvement in quarter three and what we are seeing in the first month of quarter four, these are positive news.
Thank you so much.
Okay, thank you very much. Our next question comes from Miss Juliana O'Hara from Goldman Sachs. Please go ahead, ma'am. Your line is open.
Yes. Good morning, everyone. This is Thiago from Goldman. Thanks for taking our questions. I have two, and just to make sure we're talking like for like, on the same thing, right? I know you commented about flattish market share in beer. Just to confirm, if you could give us more details sequentially on how your market share for beer and for NAB performed in Chile. This is the first question. The second one is regarding pricing, right? You did a very good job in revenue management year to date, but still your average ticket is growing a bit below your cost inflation, right? With the information and the visibility you have so far in the state of domestic consumption in Chile, would you say there is more room for pushing prices a bit higher over the next few quarters? Thank you very much.
We are a multi-category, multi-beverage company. The number we posted in our annual investor relations is related to the total market share of the beverage industry in Chile, including beer, non-alcoholic. This is completely stable, let's say at 45%. We published last year 45%, so far is 45%. Overall maintaining market share. We measure market share, you know, every week in supermarkets. We measure market share every month in the whole market in Chile, and some categories bi-monthly. We use for that Nielsen. We pay for that, let's say, and we pay to have the data. You know, we have ups and downs in the categories. You ask specifically about beer.
We don't publish the market share of beer, but what I can say within a range is stable, compared to last year. We, as I said, we have ups and down, but we have a higher one in quarter two, a lower one in quarter three. Within what I would say, within plus-minus one point. It depends on the price dynamics, on the price increases in competition, but nothing to worry about that. In non-alcoholic beverages, we have also stable market share, I would say, completely in the last three quarters, if I saw, and compared to last year, let's say, within the error margin, let's say, stable. Completely stable.
Okay. Thank you very much for the question. Star two for any additional questions or follow-up questions, please press star two. In the meantime, we will take a text question from Mr. Tiago Vicuña from CHL Capital. The question goes: How does CCU assess the current state of isotonic and hydration beverage market? Additionally, how does the growth of brands like SUX affect competition, and what impact does this have on their product, Gatorade? Finally, how do you perceive consumption behavior in this segment in the near future?
Tiago Vicuña. Yeah, thank you for the question. It's regarding the question about sports drinks. Yeah, sports drinks or isotonic, let's say Gatorade. Yeah, first of all, I would like to highlight that the sports drink per capita consumption in 2012 was 1.3 liters per capita. Nowadays, we are talking about something around 6 liters per capita. It's significant. This is in Chile. The question was related to Chile, I think. It's a significant increase in terms of per capita consumption, which is very good. You know, more people also is more it means a healthy behavior, let's say, aligned with CCU goal for or mission for a better life. Let's say more people running, more people, you know, playing soccer or stretching or going. Okay.
It's in the healthy side of the life, which is good. We have been the market leader in this especially in this category along all this time. Of course, it's very competitive, especially against the Coca-Cola system. It is a category where you need to activate a lot of events. We support many soccer teams with catering. We support the Santiago Marathon, which is an event of 30,000 people running in Santiago. We also the Pan American Games last year. At the end, it is a very exciting category.
We will continue to develop this with new innovation, especially electrolyte variants of Gatorade and sizes and new packaging and flavors and the zero sugar Gatorade proposal. It's a very exciting and growing category, as I said.
Okay. Thank you very much. We have a follow-up text question from Miss Dominga Aguilera from MBI Inversiones. Hi, everyone. Thank you for reading this question. I would like to know if you could share with us what are you expecting for the prices of raw materials for next year, sugar, PET, aluminum?
Hello. You came to a difficult day because I think all the predictions maybe we had last week maybe will be changing after the events in the U.S. On Tuesday to Wednesday. First of all, we have some uncertainty and some volatility in the exchange rate, which at the end is one of the main drivers of the commodity prices. Let's put aside the exchange rate. Everybody can go to Bloomberg, where are the latest forecast of the U.S. Dollar there. Regarding PET prices, what I can say is, first of all, the international markets are flat, let's say. Maybe some increase in freight costs because we import all the