Business Context and Reporting Period
Compañía Cervecerías Unidas S.A. (CCU), translated as United Breweries Company, Inc., filed its annual Form 20-F for the fiscal year ended December 31, 2021. The company reports under IFRS as issued by the IASB, with the Chilean peso (CLP) as its presentation currency. CCU is a multi-category beverage company operating in Chile, Argentina, Bolivia, Paraguay and Uruguay, with a 50% joint venture in Colombia. Its principal segments are Chile, International Business and Wine.
Key Financial Metrics
| CLP millions, except percentages | 2021 | 2020 | Change |
|---|---|---|---|
| Net sales | 2,484,712 | 1,857,594 | +33.8% |
| Gross profit | 1,193,152 | 873,558 | +36.6% |
| Gross margin | 48.0% | 47.0% | +100 bps |
| Adjusted operating result | 320,881 | 186,591 | +72.0% |
| Adjusted operating margin | 12.9% | 10.0% | +290 bps |
| ORBDA | 444,998 | 296,405 | +50.1% |
| Income before taxes | 301,680 | 143,603 | +110.1% |
| Net income | 219,051 | 108,195 | +102.5% |
| Net income attributable to parent | 199,163 | 96,152 | +107.1% |
| Net margin attributable to parent | 8.0% | 5.2% | +280 bps |
| Operating cash flow | 293,356 | 280,670 | +4.5% |
| Capital expenditures | 171,854 | 122,787 | +39.9% |
Sales volume increased 13.0% overall, while average prices in CLP increased 18.3%. Consolidated cost of sales rose 31.3%, and cost of sales per hectoliter increased 16.1%, primarily due to higher raw-material and packaging costs. MSD&A expenses increased 25.2%, but declined to 35.5% of sales from 37.9%.
Segment Performance
- Chile: Sales increased 27.0% to CLP 1,578,152 million; volume increased 16.7%; adjusted operating result rose 49.7% to CLP 261,534 million; margin expanded to 16.6% from 14.1%.
- International Business: Sales increased 68.3% to CLP 677,945 million; volume increased 7.3%; adjusted operating result recovered to a gain of CLP 56,564 million from a CLP 1,351 million loss, with margin improving to 8.3% from negative 0.3%.
- Wine: Sales increased 11.2% to CLP 261,620 million; volume increased 2.9%; adjusted operating result increased 6.8% to CLP 33,679 million, while margin declined to 12.9% from 13.4%.
Liquidity, Debt and Capital Resources
- Cash and cash equivalents were CLP 265,568 million at December 31, 2021, down from CLP 396,389 million. The balance included CLP 197,254 million in time deposits, mutual funds and repurchase agreements.
- Net cash from operating activities was CLP 293,356 million. Investing cash outflows were CLP 178,993 million, primarily capital expenditures. Financing cash outflows were CLP 233,644 million, including CLP 274,136 million of dividends.
- Other financial liabilities totaled CLP 573,651 million, comprising CLP 101,426 million current and CLP 458,270 million non-current. Separately, total interest-bearing debt, including lease liabilities, was reported at CLP 677,324 million.
- After hedging, management reported that 100% of debt carried fixed interest rates. The company reported compliance with applicable financial covenants, including interest coverage above 3.0, leverage below 1.5 and unpledged assets to unsecured liabilities of 4.96.
- Planned 2022 capital expenditures were CLP 270,315 million, including CLP 205,210 million in Chile. Planned capital expenditures for 2022–2025 total CLP 813,797 million.
Material Changes Versus the Prior Comparable Period
- Results rebounded strongly from the COVID-19-affected 2020 period, supported by higher private consumption, increased physical social activity, improved sales execution, premiumization and revenue-management initiatives.
- Chile market share increased to an estimated 46.2% by volume from 45.2%; International Business market share increased to 18.0% from 17.7%; Wine market share increased to 19.1% from 18.9%.
- CCU completed and began operating the new Renca non-alcoholic beverage plant, launched the CCU Transformation Plan and continued digital platforms including La Barra and the B2B platform Mi Carro.
- CCU increased its ownership of VSPT to approximately 84.52% and its ownership of Sáenz Briones in Argentina to approximately 99.94%.
- IRSA increased its direct and indirect ownership to 65.87% following purchases and a partial tender offer.
- Other comprehensive income was CLP 114,644 million, primarily reflecting foreign-currency translation gains, compared with a CLP 53,622 million loss in 2020.
Outlook, Risks, Contingencies and Unusual Items
- Management expected Chilean economic growth to decelerate materially in 2022, while inflation, higher commodity costs, supply-chain disruption and freight costs were expected to pressure margins.
- Argentina remained hyperinflationary under IAS 29, with approximately 50.9% inflation in 2021 and significant currency, price-control, exchange-control and repatriation risks.
- Major operating risks include COVID-19 variants, weaker consumer spending, competition, raw-material and packaging shortages, water availability, exchange-rate volatility, inflation, higher taxes, environmental and labeling regulation, cybersecurity incidents and labor-cost increases.
- The company disclosed non-cancellable service commitments of CLP 159,855 million, purchase and supply commitments of CLP 1,336,186 million, wine and grape commitments of CLP 30,746 million, and capital investment commitments of approximately CLP 75,498 million.
- Disclosed litigation included labor and commercial claims in Argentina and Paraguay. Provisions for litigation totaled CLP 576.6 million; management stated that provisions were adequate and that no material legal or administrative proceedings were pending in the principal operating jurisdictions.
- The filing identifies goodwill of CLP 131,173 million and indefinite-lived trademarks of CLP 121,643 million as significant valuation areas. No impairment was identified in the 2021 tests, but the estimates depend on projected growth and discount rates.
- After year-end, CCU issued a 10-year international bond of USD 600 million on January 19, 2022, with a 3.350% coupon and maturity in 2032. The filing also notes a subsequent UF 2 million local bond issued in April 2022.
Important Facts for Investors to Verify
- Reconcile the reported CLP 573,651 million of other financial liabilities with the CLP 677,324 million interest-bearing debt figure, including lease liabilities.
- Review cash conversion and working-capital requirements, particularly the increase in receivables and inventories and the decline in year-end cash.
- Assess whether price increases and premiumization can offset continuing inflation in Argentina and higher aluminum, PET, sugar, malt, energy and logistics costs.
- Evaluate the sustainability of the 2021 International Business recovery and the effect of Argentine inflation, currency depreciation and government price controls.
- Review debt maturities, covenant calculations and the effect of the 2022 USD 600 million bond on leverage and interest expense.
- Monitor the Renca plant, planned 2022–2025 capital expenditures and the expected 2024 R-PET plant investment of approximately USD 33 million.
- Consider controlling-shareholder concentration: IRSA owned 65.87% of common shares, and related-party transactions include licensing, banking, investment and service arrangements with affiliates of IRSA and Heineken.