Business Context and Reporting Period
Company: Compañía Cervecerías Unidas S.A. (CCU), trading as United Breweries Company, Inc.
Reporting Period: Fiscal year ended December 31, 2009.
Accounting Standards: First-time adoption of International Financial Reporting Standards (IFRS) as issued by the IASB. Prior year (2008) data has been restated for comparability.
Operations: Diversified beverage company operating primarily in Chile and Argentina. Key segments include Beer (Chile and Argentina), Non-Alcoholic Beverages, Wine, and Spirits. The company is the largest brewer in Chile and the second largest in Argentina.
Key Financial Metrics (2009 vs. 2008)
| Metric (Ch$ millions) | 2009 | 2008 | Change |
|---|---|---|---|
| Net Sales | 776,544 | 710,189 | +9.3% |
| Operating Result | 137,382 | 123,990 | +10.8% |
| Net Income (Total) | 141,365 | 95,303 | +48.3% |
| Net Income (Parent Equity) | 128,037 | 90,414 | +41.6% |
| EPS (Ch$) | 402.00 | 283.87 | +41.6% |
| EBITDA | 181,513 | 163,912 | +10.7% |
| Total Debt | 229,528 | 246,037 | -6.7% |
| Cash & Equivalents | 137,354 | 55,300 | +148.4% |
| Operating Cash Flow | 150,844 | 126,936 | +18.8% |
Material Changes and Segment Performance
- Revenue Growth: Driven by volume increases in Argentine beer, non-alcoholic beverages, and wine, alongside price increases across all segments.
- Beer Argentina: Sales increased 19.2% (Ch$137,296 million) due to the acquisition of ICSA (adding brands Imperial, Bieckert, and Palermo) and organic growth. Operating margin improved to 12.6%.
- Wine: Sales surged 34.6% (Ch$124,726 million) following the merger with Viña Tarapacá in late 2008. Export volumes grew 35.3%.
- Beer Chile: Sales grew 3.0% despite a 1.9% volume decline caused by the global financial crisis. Price increases and a premium mix offset volume losses.
- Non-Alcoholic Beverages: Sales increased 7.7% (Ch$201,512 million) with volume growth in soft drinks, nectars, and water.
- Unusual Items: Net income was significantly boosted by a non-recurring gain of Ch$24,439 million from the sale of a 29.9% stake in Aguas CCU-Nestlé Chile S.A. to Nestlé.
- Financial Expenses: Net financing expenses increased 116.1% to Ch$10,367 million due to higher debt levels from refinancing and the Viña Tarapacá acquisition.
Guidance, Outlook, and Risks
- Outlook: Management reported a successful 2009, exceeding contingency plans made for the global financial crisis. All segments improved operating income and EBITDA.
- Recent Events: A major earthquake struck Chile on February 27, 2010. The company is insured for physical losses and business interruption (up to Ch$323,377 million). Management expects to restore the pre-earthquake growth path by the second half of 2010.
- Capital Expenditures: 2009 CapEx was Ch$57,892 million. Planned CapEx for 2010-2013 totals approximately Ch$358 billion, focused on capacity expansion, packaging lines, and environmental improvements.
- Key Risks:
- Competition: Intense competition in Chile (Cervecería Chile/Anheuser-Busch InBev) and Argentina (Quilmes/Anheuser-Busch InBev).
- Raw Materials: Exposure to global commodity prices (malt, sugar, grapes) and exchange rate fluctuations (Chilean peso vs. USD).
- Regulatory: Potential restrictions on alcohol advertising and consumption in Chile; price controls in Argentina.
- Energy: Restrictions on gas exports from Argentina to Chile have increased energy costs, though new LNG plants are mitigating this.
Investor Verification Checklist
- IFRS Transition: Verify the impact of the first-time adoption of IFRS on comparative 2008 figures, specifically regarding goodwill (no longer amortized) and price-level restatement elimination.
- Non-Recurring Gains: Assess the sustainability of earnings by excluding the Ch$24.4 billion gain from the Aguas CCU-Nestlé stake sale.
- Earthquake Impact: Monitor the resolution of insurance claims and the actual operational recovery timeline following the February 2010 earthquake.
- Debt Covenants: Confirm continued compliance with debt covenants (interest coverage, leverage ratios) under the new IFRS framework.
- Argentine Operations: Evaluate the integration of the ICSA acquisition and the impact of Argentine peso volatility on consolidated results.