Compania Cervecerias Unidas SA
SGO:CCU
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[Audio Gap]
So as percentage of net sales, MSD&A improved from 42.4% to 36.4% due to cost control initiatives through the ExCCelencia CCU program. In all, EBITDA expanded 136.1% -- excuse me. In all, EBITDA expanded 136.1% and EBITDA margin improved from 12% to 18.3%. In addition, business -- in International Business Operating segment, which includes Argentina, Bolivia, Paraguay and Uruguay, posted a 58.2% rise in revenues due to an increase of 39.1% in average prices in Chilean pesos and 13.7% higher volumes.
Volume growth was mostly driven by Argentina, although all the other countries posted positive growth. Better average prices in Chilean pesos were explained by revenue management initiatives and positive mix effects in the portfolio, which more than offset negative currency translation effects.
In addition, our efforts in pricing allowed us to compensate higher U.S. dollar-denominated costs from the depreciation of the Argentine peso against the U.S. dollar and higher cost in raw materials posting a gross profit expansion of 114.4% and an improvement in gross margin from 32.7% to 44.3%. MSD&A expenses as a percentage of net sales improved from 69% to 54.4% due to efficiencies from the ExCCelencia CCU program. Altogether, EBITDA improved 18.2% versus last year.
The Wine Operating segment reported an 11% rise in revenue due to a 7.4% expansion in volumes and a 3.4% growth in average prices. Volumes were driven by domestic markets and exports, both posting middle single-digit growth. The higher price in Chilean pesos were mainly a consequence of a better mix, which more than offset the appreciation of the Chilean peso against the U.S. dollar and its negative impact on export revenues. Gross profit was up 6.5% and gross margin decreased from 39.5% to 37.9%, in line with the higher cost of wine due to the harvest level of 2020. MSD&A expenses as a percentage of net sales improved from 26.8% to 25.6%, thanks to efficiencies driven by the ExCCelencia CCU program. In all, EBITDA recorded a 4.1% increase while EBITDA margin decreased from 17.8% to 16.7%.
In Colombia, finally, where we have a joint venture with Postobón, we finished the positive first half of the year with a volume expansion over 40% gains in market share and an improvement in our financial results. Specifically, during the quarter, we expanded volumes over 50% with growth in all main brands and categories standing out the performance in premium beer.
Now I will be glad to answer any questions you may have.
[Operator Instructions] We'll take our first question from Fernando Olvera with Bank of America.
I have 2, if I may. The first one is related to Chile. In your opinion, what explains the selling volume growth as you witnessed in the quarter? And in line with this, can you comment on the volume growth between alcoholic and nonalcoholic beverages? And how do you expect them to behave in the remaining of the year? And I have another question, I'll wait.
Thank you, Fernando. I listened to your voice with a lot of echo. I didn't understand the question.
Yes. He's asking about our solid growth during the quarter, I think, Fernando. And on the other hand, I think how...
How do we expect for the rest of the year? Okay. Okay. Thank you. Again, I listen to you with a lot of echo. This is the reason why I didn't understood you -- I didn't understand you perfectly. But I mean, as you know, Fernando and all the group, Chilean consumers and Chilean population have been receiving a lot of money in our pockets for 2 reasons. I mean, number one, because of all the expenses of the government and the direct subsidies to people. And secondly, because we have been allowed to retire money or to withdraw money from our pension funds.
All together, I mean, pay -- money retire from pension funds has been $50 billion and the subsidies from government, around $20 billion. All together, $70 billion is equivalent to the total expenses of government in a regular year pre-pandemic. So it's a lot of money on one hand. And on the other hand, there are many expenses that have been restricted as restaurants, travels, vacations, et cetera, et cetera. So most of that money has been concentrated on consumption. And this is the reason why our volumes have been extraordinary high. I mean, at the same time, of course, we are doing our job. We are executing correctly. We are keeping and gaining market share in the different categories. But the real reason behind this expansion is what I'm explaining.
How much is going to last? Probably for a semester, a year, 18 months, but no more than that. So I think that it's wise to imagine that this trend will not continue in the future. Having said that, we are gaining scale, and we expect to keep our scale and not to lose our scale, and we're going to make our best effort to continue growing. But I think that it's more wise and serious to imagine that this trend probably is going to last in Q3, eventually in Q4. But for 2022, my recommendation is to be much more careful regarding this.
Okay. I hope you hear me better. Can you hear me?
Excuse me, Fernando. Now I'm listening to you perfectly.
Okay. Great. And in that sense, can you comment what was the growth between alcoholic and non-alcoholic beverages, I mean?
Yes. We grew -- I mean, as you know, we present the segment of Chile or the Chilean segment together because we operate Chile as one segment, multi-category, same sales force, same trucks, same managers. Having said that, we are growing a lot in both segments. In Q2, we grew a little bit less than 40% in beer and a little bit more than 40% in nonalcoholic.
Okay. Great. And my second question is related to cost. Can you just comment what is your outlook for the remaining of the year and 2022? And what are the different measures that you are implementing to mitigate the increase in raw material costs?
I mean, I will give you a general answer, and then I will ask Felipe Dubernet to discuss on the details on cost. I mean, as you know perfectly and as I mentioned in my introduction, we are facing strong pressures on cost of raw material on one hand and on the exchange rate on the other. I mean exchange rate in Q2 was not too high. But today, exchange change rate until -- before the beginning of this conference, the Chilean peso was 785, I mean, to buy $1, which is very high.
So in order to offset this, we need to do revenue management initiatives, number one; to improve our mix, number 2; and to be very efficient in terms of MSD&A. And we are doing this. I mean, as we know that the current level of volume is something transitory and that sooner than later we'll move to a much normal growth, we have been very careful on these, on hiring people, on keeping our MSD&A under tight control. I mean, we are managing MSD&A as if we're not growing in our volumes in order to be prepared for the future.
And regarding direct cost also, we are doing our best effort in order to make revenue management initiatives in terms of promotions, discounts to increase the percentage of premium products in our portfolio. So as an example, here, we have the figures, premiumization. For example, in Q2, here I have, in beer in Chile, premium accounted for more than 40% of our volumes, while in Q2 of 2020, it represented just 23% of our volumes. And same thing in all the different categories because, again, we need to be prepared for a future scenario, which is not going to be as good as 2021. Having said that and regarding particularly -- particular raw material, I prefer, Felipe, you to discuss this.
As you probably know, Fernando, it's a global pressure on raw material costs. As an example, aluminum year-on-year increased 60%, PET or resins more than 40% and so on. You have also international freights increasing a lot. We saw containers from China, the actual cost is about $10,000 per container. So this will last at least for more than 1 year. This is what we expect, so this outlook.
Along with this, we are facing, compared to last year, a more favorable exchange rate that somewhat compensate that, but it's not in our control. But by saying that, especially in the Chilean peso and also the Argentine peso are very volatile. So the exchange rate in volatile for other cautious more than international. So at the end, we will continue to face inflationary pressures due to raw materials. So -- and the actions are the ones that Patricio highlighted.
We'll take our next question from Felipe Ucros with Scotiabank.
Well, Patricio and Felipe, congratulations on the results. Maybe let me start with one on the implied price mix, and maybe I can follow up on Chilean market shares. So on the first one, obviously, very solid on your international operation. When I look at it on a currency basket basis, it looks like you were able to increase prices in Argentina very aggressively. But obviously, there's also a mix effect in there. So I was just wondering if you could break that out for us and give us a bit of color on what's happening on price enforcement or controls in Argentina. And then I'll follow up with Chilean market shares.
Yes. I mean in Argentina -- thank you, Felipe, for your question. In Argentina, we have been able to cope with inflation in our structural prices. And at the same time, we are improving our mix both on premium, which is growing. And we have a shift from returnable bottles to cans. And cans are more expensive per liter than returnable bottles, as you know, but the margin is less attractive than bottles. So all together, we are moving along with inflation along with our costs.
Excellent. And maybe on Chilean market shares. Just wondering, I know this is difficult because Nielsen and the other surveyors are having a tough time delivering an apples-to-apples comparison. But just wondering how you're seeing the market share picture and beer in Chile given the distribution changes at your competitor.
Yes. You're right. I mean, Nielsen, it's not completely precise because they have a good reading on what happens in supermarket, but not the best reading on what happens in mom-and-pops. Having said that, If you compare our market share in Q2 2021, it's slightly higher than our market share in Q2 2020. But I prefer to say that our market share has been stable in the last many months and years, and we have been able to cope against the competition with its new distribution.
Excellent color. And you know what, I'll stop it here so other analysts can ask questions, and maybe I'll get back on the queue if they don't ask my third question.
Indeed. Thank you, Felipe.
[Operator Instructions] We'll take our next question from Mohammed Ahmad with FGP.
Just comparing to 2019, I know you answered to Felipe that shares is stable. So partly you've answered the question already, but if you could confirm some of the volume changes versus 2019 Q2 -- actually first half 2019 versus first half of 2021? Because even there, I see 18% growth, which is impressive and you've given reasons for it. But I just want to know if the margin has grown that much or maybe in certain segments, you've grown faster to get that kind of numbers, particularly beer versus no beer.
Yes, indeed. Look, the Chile operating segment, we grew our volumes -- this is first half, no? Yes. First half, 6 months [indiscernible]. Here, I have the answer, Mohammed. Regarding volumes from the Chile operating segment, this is nonalcoholic beer and spirits. First half of 2021 compared with the first half of 2019, we grew our consolidated volumes by 17.7%. In international business, by 2%. And in the Wine Operating segment, by 16.8%.
And in Chile operating segment, that was a full margin. So the market grew that much, stable market share.
Yes. Market share were slightly higher. We have been rather stable in the year, growing a little bit on nonalcoholic. In fact, do we have the breakdown of these figures in beer and nonalcoholic here, gentlemen?
I can take...
Let me check. But we have grown more in beer than in nonalcoholic, having said that, because the capital of beer has been...
Growing. Yes.
Yes.
Yes. But in both in nonalcoholic and beer, we are growing, Mohammed, against 2019.
In fact, here, we have in beer, we have grown in 2 years, roughly speaking, a little bit more than 40%.
Okay. All right.
No, excuse me, this is quarter 2, 2021 compared with 2019 quarter 2. And year-to-date, 31%. The first semester compared with first semester, 31%, quarter compared with quarter, 41%.
Okay. Sorry, the voice was breaking up a little bit. So am I to understand that you said beer has grown 31% versus first half of 2019?
Yes.
Yes. And nonalcoholic, roughly 11%.
That's it.
Remember that, Mohammed, that nonalcoholic suffer much than beer last year also.
Okay. Well, we also have speeds...
No...
But we...
Hello?
Hello, yes.
Okay. That's okay.
[Operator Instructions] We'll take a follow-up from Felipe Ucros with Scotiabank.
Great. So I can do a follow-up. Maybe on Colombia, you guys had very strong results on the operation with a very strong rise in volume. So I was just wondering if you can give us a little more color on what's going on in the ground there in terms of market share, price and maybe utilization of the plant. All those would be great if we could get some color.
Thank you, Felipe, as we mentioned when we entered into Colombia, we designed our plan for 3.2, 3.3, 3.4, depending on mix volume or hectoliters of total volume. And we are running this year, but a little bit more than 2 million hectoliters. That is what we expect to sell in this year. So we have a 60% utilization of the plant. We have been growing market share. As I mentioned before, margins are good in the industry prices growing in line with inflation. And again, we are doing our best effort to increase our volumes and to complete the capacity of the plant because if we do this, we will be having a good profitability that was -- we began this operation still our purpose, and we are moving in the right direction.
Thank you, Felipe. Remember that, in Colombia, we operate in 2 segments: beer and malt. Beer representing more than 80% of the total volume and malt less than 20%. When I say that this is the total volume, this is the total volume of the plant for both categories, beer and malt.
We'll take our next question from [ Antonia Winman ] with LarrainVial.
But I was also want to know a little bit more about Colombia, but I think that everything is clear.
Thank you, Antonia.
With no additional questions in queue, I'd like to turn the call back over to our speakers for any additional or closing remarks.
Thank you very much. For closing, I would like to say that during the second quarter of 2021, in a challenging scenario due to the pandemic, CCU delivered a solid performance in volumes and financial results improving versus both last year and pre-pandemic figures. Looking ahead, we'll continue investing in the key aspects of the business in order to keep executing the strategy that we have been carrying out, which is continue building strong brands and portfolio and putting our efforts in maintaining and gaining business scale and market share while recovering profitability related to revenue management initiatives and efficiencies, particularly in an inflationary scenario. Thank you very much again.
That will conclude today's call. We appreciate your participation.