Business context and reporting period
Compañía Cervecerías Unidas S.A. (CCU), also known as United Breweries Company, Inc., filed its Form 20-F annual report for the fiscal year ended December 31, 2023. The filing reports consolidated results under IFRS Accounting Standards in Chilean pesos (CLP). The source is an annual filing, not a standalone fourth-quarter report; quarterly results are not separately presented here.
CCU is a diversified beverage company operating primarily in Chile, Argentina, Bolivia, Paraguay and Uruguay, with interests and joint ventures in Colombia and Argentina. Its principal segments are Chile, International Business and Wine. Chile represented 68.6% of 2023 segment sales revenue, International Business 22.9% and Wine 9.9%.
Key financial metrics
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Net sales | CLP 2,565,556 million | CLP 2,711,435 million | Down 5.4% |
| Gross profit | CLP 1,186,944 million | CLP 1,196,510 million | Down 0.8% |
| Gross margin | 46.3% | 44.1% | Up 220 bps |
| Adjusted Operating Result | CLP 253,283 million | CLP 231,431 million | Up 9.4% |
| Adjusted Operating Result margin | 9.9% | 8.5% | Up 140 bps |
| ORBDA | CLP 379,402 million | CLP 357,929 million | Up 6.0% |
| Net income | CLP 118,425 million | CLP 135,484 million | Down 12.6% |
| Net income attributable to parent | CLP 105,653 million | CLP 118,168 million | Down 10.6% |
| Basic EPS | CLP 285.93 | CLP 319.80 | Down 10.6% |
| Net cash from operating activities | CLP 294,097 million | CLP 45,937 million | Material improvement |
| Capital expenditures | CLP 129,448 million | CLP 203,603 million | Down 36.4% |
Cost of sales declined 9.0% to CLP 1,378,612 million, while MSD&A expenses declined 3.3% to CLP 936,272 million. MSD&A nevertheless increased to 36.5% of sales from 35.7%.
At December 31, 2023, cash and cash equivalents were CLP 618,154 million, including CLP 250,728 million in time deposits, mutual funds and repurchase agreements. Indebtedness, including accrued interest and lease obligations, was CLP 1,329,262 million. Current financial liabilities were CLP 107,152 million and non-current financial liabilities were CLP 1,234,246 million.
All debt was fixed-rate after considering interest-rate and currency swaps. The company reported an interest coverage ratio of 4.93, financial leverage of 0.50, adjusted equity attributable to the parent of CLP 1,271,191 million and unpledged assets to unsecured liabilities of 2.66. Management stated that all financial covenants were satisfied.
Material changes versus the prior comparable period
- Consolidated sales fell 5.4%, reflecting a 3.4% volume decline and a 2.0% decline in average prices in CLP terms.
- Chile sales increased 5.1% to CLP 1,758,971 million despite a 2.6% volume decline. Revenue management and lower aluminum, PET and energy costs increased the segment's Adjusted Operating Result 30.5% to CLP 204,586 million, with margin rising to 11.6%.
- International Business sales declined 25.1% to CLP 586,484 million and volume declined 4.5%. The segment's Adjusted Operating Result fell 8.5% to CLP 57,553 million, primarily due to Argentina.
- Wine sales declined 14.7% to CLP 252,825 million, volume declined 14.4% and Adjusted Operating Result fell 48.7% to CLP 20,019 million. The filing attributes the deterioration mainly to weaker domestic demand, sharply lower exports and unfavorable currency and mix effects.
- Net financial expense improved to a loss of CLP 37,621 million from CLP 53,060 million, primarily because of higher interest income. This benefit was more than offset at the bottom line by larger foreign-exchange losses, which increased to CLP 65,945 million from CLP 20,173 million, primarily due to Argentina.
- Equity-method losses increased to CLP 19,218 million, including non-recurring expenses related to the integration of Aguas de Origen into the Argentine route-to-market.
- Other comprehensive income was a loss of CLP 122,396 million, mainly due to translation losses from foreign operations. Total equity declined to CLP 1,337,383 million from CLP 1,435,969 million.
Guidance, outlook, risks and unusual items
Management did not provide quantitative earnings guidance. Its 2022–2024 strategy was supplemented in 2023 by the “HerCCUles” profitability recovery plan, focused on protecting scale, revenue management, operating efficiencies, CAPEX and working capital optimization, core brands and innovation.
Planned 2024 capital expenditures are CLP 190,459 million, including CLP 155,221 million in Chile. Planned capital expenditures for 2025–2027 are CLP 195,490 million, CLP 184,896 million and CLP 174,572 million, respectively. These plans are subject to market conditions, inflation, interest rates, foreign exchange movements and competitive conditions.
- Argentina: Argentina remained hyperinflationary under IAS 29. 2023 inflation was reported at 211%, while the Argentine peso depreciated approximately 122.1% on average and 356.2% at year-end against the U.S. dollar. Exchange controls, pricing restrictions, repatriation constraints and economic contraction remain material risks.
- Competition and litigation: Cervecería Chile, an ABI subsidiary, filed a complaint before Chile's Competition Tribunal alleging abuse of dominant position in beer distribution. The proceeding was at an early stage, and the potential financial effect could not be determined.
- Raw materials and supply chain: CCU is exposed to malt, cans, sugar, PET, energy, grapes and wine price volatility, as well as supply-chain disruptions. The company does not hedge raw-material purchases.
- Foreign exchange: Approximately 62% of direct costs were denominated in or indexed to foreign currencies, compared with 5% of sales from Chilean exports. The company uses derivatives for selected balance-sheet exposures but does not actively hedge all operating cash-flow or translation exposures.
- Regulation and environment: Chilean labeling, alcohol advertising, recycling, single-use plastic, water-use and climate regulations may increase compliance costs or restrict marketing and packaging. CCU reported progress toward its 2030 environmental goals, including a 62.4% reduction in greenhouse-gas emissions per liter since the baseline, 81.2% renewable electricity use and 99.1% industrial solid-waste recovery in 2023.
- Contingencies and commitments: Non-cancellable service agreements totaled CLP 177,323 million; purchase and supply agreements totaled CLP 1,332,277 million, plus CLP 16,756 million related to wine and grape purchases; and capital investment commitments were approximately CLP 37,880 million. Provisions for litigation and other matters totaled CLP 2,718 million.
- Subsequent event: In February 2024, CCU acquired Sudameris Bank's remaining interests in its Paraguayan subsidiaries for approximately USD 32.7 million, making CCU the sole shareholder of those entities.
The company reported effective disclosure controls and internal control over financial reporting as of December 31, 2023. PricewaterhouseCoopers issued an unqualified audit opinion. The principal audit matter concerned impairment testing for goodwill and indefinite-lived trademarks, with carrying values of approximately CLP 127,592 million and CLP 127,011 million, respectively.
Most important facts for investors to verify
- Reconcile the annual results to the company’s separate fourth-quarter release, because this Form 20-F does not provide standalone Q4 financial statements.
- Review Argentina’s contribution to operating results, cash generation, asset values and foreign-exchange losses under IAS 29.
- Assess whether the Chilean operating improvement can offset continued weakness in International Business and Wine.
- Review debt maturities, including the large long-term bond balances, covenant calculations and the effect of UF, USD and currency swaps.
- Evaluate the potential exposure from the Chilean Competition Tribunal proceeding and other contingencies.
- Examine the assumptions supporting goodwill and trademark impairment tests, particularly discount rates, perpetual growth rates and Argentina-related projections.
- Confirm 2024 CAPEX execution, the CirCCUlar recycled-resin project and the funding mix for planned investments.
- Consider the stated dividend policy of at least 50% of parent-attributable net income and the 2023 total dividend of CLP 63,392 million, equal to 60% of parent-attributable net income.