Business Context and Reporting Period
Compañía Cervecerías Unidas S.A. (CCU), also referred to as United Breweries Company, Inc., filed its Form 20-F annual report for the fiscal year ended December 31, 2022. The company reports under IFRS as issued by the IASB, with the Chilean peso (CLP) as its presentation currency. CCU is a diversified beverage company operating principally in Chile, Argentina, Uruguay, Paraguay, Bolivia and Colombia, with beer, non-alcoholic beverages, wine, spirits, cider and water businesses.
Results are reported through the Chile, International Business and Wine operating segments. The filing is annual rather than a standalone 2022 fourth-quarter filing.
Key Financial Metrics
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Net sales | CLP 2,711,435 million | CLP 2,484,712 million | +9.1% |
| Gross profit | CLP 1,196,510 million | CLP 1,193,152 million | +0.3% |
| Gross margin | 44.1% | 48.0% | -3.9 percentage points |
| Adjusted Operating Result | CLP 231,431 million | CLP 320,881 million | -27.9% |
| Adjusted Operating Result margin | 8.5% | 12.9% | -4.4 percentage points |
| ORBDA | CLP 357,929 million | CLP 444,998 million | -19.6% |
| Net income | CLP 135,484 million | CLP 219,051 million | -38.2% |
| Net income attributable to parent | CLP 118,168 million | CLP 199,163 million | -40.7% |
| Net cash from operating activities | CLP 45,937 million | CLP 293,356 million | -84.3% |
| Capital expenditures | CLP 203,603 million | CLP 171,854 million | +18.5% |
Volumes declined 1.1% overall to approximately 34.3 million hectoliters. Average prices increased 10.3% in CLP terms. Chile represented 61.7% of segment net sales, International Business 28.9% and Wine 10.9%.
At December 31, 2022, cash and cash equivalents were CLP 597,082 million, including CLP 417,745 million of time deposits, mutual funds and repurchase agreements. Total liabilities were CLP 2,159,110 million and shareholders’ equity was CLP 1,435,969 million. Other financial liabilities totaled CLP 1,361,586 million, excluding lease liabilities; total indebtedness including accrued interest was reported at approximately CLP 1,372,558 million.
All debt was effectively at fixed interest rates after swaps. CCU reported an interest coverage ratio of 4.71, consolidated leverage ratio of 1.49, financial leverage ratio of 0.51 and unpledged-assets-to-unsecured-liabilities ratio of 2.62, and stated that all financial covenants were satisfied.
Material Changes Versus the Prior Comparable Period
- Net sales increased 9.1%, driven by pricing and revenue-management actions, while volumes fell 1.1%.
- Cost of sales rose 17.3%, primarily because of higher aluminum, PET, malt, sugar, energy and other input costs, as well as currency depreciation and inflation.
- Gross margin fell to 44.1% from 48.0%; Adjusted Operating Result margin fell to 8.5% from 12.9%.
- Chile Adjusted Operating Result declined 40.1% to CLP 156,753 million, reflecting lower volume and cost pressure.
- International Business Adjusted Operating Result increased 11.2% to CLP 62,913 million, while Wine Adjusted Operating Result increased 15.9% to CLP 39,046 million.
- Net financial expenses increased 148.0% to CLP 53,060 million, primarily due to higher debt.
- Cash generated from operations declined sharply to CLP 45,937 million, while financing activities generated CLP 537,102 million, principally from new borrowings and bond issuances.
- CCU issued a USD 600 million, 10-year international bond in January 2022 and issued UF 2 million and UF 4 million Chilean bonds in April and December 2022, respectively.
- CCU acquired a 49% interest in Aguas Danone de Argentina and subsequently reached a 50% interest in Aguas de Origen, expanding its regional water and powdered-juice platform. It also acquired the Volcanes del Sur premium beer brand.
Guidance, Outlook, Commentary, Risks and Unusual Items
Management described a 2023 recovery profitability plan, “HerCCUles 2023,” focused on maintaining scale, improving revenue management, increasing efficiency through CCU Transformation, optimizing capital expenditures and working capital, prioritizing core brands and higher-volume innovations, and continuing brand investment.
Planned 2023 capital expenditures are CLP 172,258 million, including CLP 128,067 million in Chile. Planned capital expenditures for 2023–2026 total CLP 627,686 million. Management cautioned that these estimates may change with market, inflation, interest-rate, foreign-exchange, competitive and economic conditions.
- Chile experienced 12.8% inflation and GDP growth of 2.4% in 2022; management referenced expectations of weaker activity and a possible mild recession in 2023.
- Argentina remained hyperinflationary under IAS 29, with approximately 95.2% inflation in 2022 and 72.1% year-end peso depreciation against the U.S. dollar.
- Input-cost, energy, logistics and supply-chain pressures remain significant. Approximately 63% of direct costs are denominated in or indexed to foreign currencies, while only about 6% of sales are export sales from Chile.
- Key regulatory risks include higher beverage excise taxes, restrictions on alcohol advertising and labeling, sugar-related rules, environmental and packaging requirements, water-use restrictions and labor-law changes.
- Climate risks include water scarcity, drought, floods, wildfires and other natural disasters. CCU’s 2030 targets include a 50% reduction in greenhouse-gas emissions per liter, a 60% reduction in water consumption per liter, 100% industrial-waste recovery and 75% renewable electricity.
- On April 10, 2023, Cervecería Chile S.A., an ABI subsidiary, filed a complaint alleging possible abuse of a dominant position in Chile’s beer distribution market. The filing states that the proceedings were at an early stage and that the potential financial impact could not yet be determined.
- CCU reported no material legal or administrative proceedings in its operating jurisdictions other than disclosed contingencies. Provisions for litigation totaled CLP 496 million at year-end.
- The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting. The critical audit matter concerned impairment testing for goodwill and indefinite-lived trademarks.
- Subsequent to year-end, CCU increased its ownership in its Paraguayan companies after agreements involving the former Cartes-group shareholders. Heineken notified the Paraguayan subsidiary of alleged license breaches, which CCU stated were formally cured by March 16, 2023.
Most Important Facts an Investor Should Verify
- Whether pricing, revenue-management initiatives and the HerCCUles 2023 plan can restore margins after the 2022 cost shock.
- The sustainability of cash generation given the steep decline in operating cash flow, higher capital expenditures, dividends and increased debt.
- Refinancing and foreign-exchange exposure associated with the USD 600 million bond, UF-linked debt and Argentina-related operations.
- The effect of Chilean inflation, Argentine hyperinflation, currency depreciation and commodity prices on future earnings.
- The status and potential remedies or financial consequences of the Chilean beer-distribution competition complaint.
- The renewal status and compliance conditions of material licensing agreements, particularly Heineken, PepsiCo, Gatorade, Schweppes and other strategic brands.
- Progress toward environmental and packaging obligations, especially water availability and Chilean extended-producer-responsibility requirements.
- The assumptions supporting impairment tests for CLP 142,547 million of trademarks and CLP 136,969 million of goodwill.