CCU Compania Cervecerias Unidas SA

 

 

CCU REPORTS CONSOLIDATED THIRD QUARTER 2019 RESULTS^1,2

 

Santiago, Chile, November 6, 2019 – CCU announced today its consolidated financial and operating results for the third quarter 2019, which ended September 30, 2019:

·        Consolidated Volumes increased 6.0%. Volume variation per Operating segment was as follows:

o   Chile 6.5%

o   International Business 6.2%. Excluding Bolivia, volumes rose 3.9%³

o   Wine 4.8%

·        Net sales increased 0.5%

·        EBITDA reached CLP 63,757 million, a 6.8% decrease. Variation per Operating segment was as follows:

o   Chile 8.1%

o   International Business (100.0)%

o   Wine 29.0%

·        Net income reached CLP 8,626 million, a drop of 55.5%, when excluding the effects of the CCU Argentina and Anheuser-Busch InBev S.A./N.V. (ABI) transaction, which took place in the 2Q18 (the “Transaction”)⁴

·        Earnings per share reached CLP 23.3 per share

 

Key figures		3Q19	3Q18	Total change %		YTD19	YTD18	Total change %
(In ThHL or CLP million unless stated otherwise)
Volumes		6,857	6,467	6.0		20,855	19,882	4.9
Net sales		390,249	388,349	0.5		1,244,469	1,232,682	1.0
Gross profit		189,392	191,286	(1.0)		612,622	641,308	(4.5)
EBIT		37,895	45,017	(15.8)		138,520	172,537	(19.7)
EBITDA		63,757	68,404	(6.8)		216,064	238,464	(9.4)
Net income		8,626	19,390	(55.5)		75,183	88,565	(15.1)
Earnings per share (CLP)		23.3	52.5	(55.5)		203.5	239.7	(15.1)
Including the effect of the Transaction:
EBIT		37,895	45,017	(15.8)		138,520	381,472	(63.7)
EBITDA		63,757	68,404	(6.8)		216,064	447,399	(51.7)
Net income		8,626	21,521	(59.9)		75,183	244,192	(69.2)

 

 

 

 

 

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In the third quarter of 2019, in spite of a less dynamic economic scenario, CCU’s consolidated volumes performed positively by growing 6.0%, supported by all Operating segments. Despite higher volumes, EBITDA was down 6.8%, to CLP 63,757 million and EBITDA margin decreased 128 bps to 16.3%. The weaker financial results were mainly explained by: (i) the depreciation of the CLP and ARS against the USD, which depreciated 6.5%¹ and 41.4%², respectively, increasing our USD-denominated costs, and (ii) the application of Hyperinflation Accounting in Argentina, mainly affecting the consolidation of our Argentine results, due to the 28.7%⁶ devaluation of the ARS against the CLP. These external effects, mostly concentrated in Argentina, were too significant to be compensated in the short run with efficiencies and pricing, aspects which we are particularly concentrated on. Consequently, the International Operating segment EBITDA dropped by CLP 10,433 million, more than explaining the consolidated EBITDA contraction of CLP 4,647 million. In fact, the Chile and Wine Operating segments delivered positive EBITDA growth, even excluding a non-recurrent operating gain of CLP 3,149 million in the Chile Operating segment. This gain was fully offset, at Net income level, by a non-recurrent non-operating loss. In all, Net income decreased by 55.5% to CLP 8,626 million.             

 

In the Chile Operating segment, our top-line rose 5.6%, with volumes expanding 6.5%, accelerating with respect to the first half of the year. Average prices were down 0.9%, explained by promotional activities partially compensated with revenue management efforts. Gross margin dropped by 94 bps, mostly due to the higher USD-denominated costs from the weaker CLP against the USD. MSD&A expenses as a percentage of Net sales worsened by 35 bps, due to the anticipation of marketing expenses partially compensated by efficiency gains in distribution. In all, EBITDA reached CLP 54,936 million, an expansion of 8.1%, and EBITDA margin jumped 48 bps, from 20.2% to 20.7%. Excluding a non-recurrent operating gain of CLP 3,149 million from the sale of a real estate asset, EBITDA would have expanded 1.9%, and EBITDA margin would have reached 19.5%.

 

The International Business Operating segment, which includes Argentina, Bolivia, Paraguay and Uruguay, posted a 6.2% increase in volumes (3.9% when excluding Bolivia³) mostly driven by a good commercial dynamism in Argentina, demonstrating the strength of our beer portfolio. However, Net sales declined 16.4% and Gross margin contracted from 47.1% to 41.2%, explained by lower average prices in CLP, mostly due to the negative impact of the sharp depreciation of the ARS against the CLP during the quarter, and price adjustments that have not yet been enough to offset the effect of inflation and the devaluation of currencies in our costs and expenses. It is important to mention that it takes time to compensate for an impact of such magnitude and we expect to gradually do so by implementing revenue management initiatives. Accordingly, we increased prices by 25% by the end of September in Argentina. In all, EBITDA was marginally positive during the quarter.

 

The Wine Operating segment posted a 3.3% increase in revenue, explained by 4.8% higher volumes, partially offset by a 1.4% drop in average prices in CLP. The lower prices in CLP were mainly explained by negative mix effects in exports and in the domestic Argentine market, due to the incorporation of volumes from the recently acquired brands in Argentina, more than offsetting a positive effect from a stronger USD on export revenues. The Operating segment’s gross margin continued to recover this quarter, with an improvement of 428 bps, from 37.6% to 41.9%, primarily associated with lower cost of wine against last year. Altogether, EBITDA reached CLP 12,074 million, an expansion of 29.0%, and EBITDA margin improved by 418 bps, from 16.8% to 21.0%.

 

In Colombia, where we have a joint venture with Postobón, we continue to post a positive performance in volumes and in positioning Andina, our local mainstream beer. In addition, we are successfully developing our strategy and are about to produce our premium beer portfolio locally. In the malt category, our recently launched brand Natumalta has evolved positively. During the third quarter we continued on an upward commercial trend by almost tripling our volumes. This allowed us to more than double our accumulated volumes. We will continue focusing on developing brand equity and commercial execution, through a strategy that involves new consumer experiences, quality and innovation.

 

In the third quarter, CCU was able to deliver a solid performance in volumes in a highly competitive environment and challenging economic and social context to partially offset significant external effects, mainly related to the devaluation of the currencies. We expect to continue focusing on delivering profitable and sustainable growth by implementing additional revenue management initiatives together with our constant efforts in efficiencies, sales execution and service quality to our clients and consumers.

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In the Chile Operating segment, our top-line rose 5.6%, with volumes expanding 6.5%, accelerating with respect to the first half of the year. Average prices were down 0.9%, explained by promotional activities partially compensated with revenue management efforts. Gross margin dropped by 94 bps, mostly due to the higher USD-denominated costs from the weaker CLP against the USD. MSD&A expenses as a percentage of Net sales worsened by 35 bps, due to the anticipation of marketing expenses partially compensated by efficiency gains in distribution. In all, EBITDA reached CLP 54,936 million, an expansion of 8.1%, and EBITDA margin jumped 48 bps, from 20.2% to 20.7%. Excluding a non-recurrent operating gain of CLP 3,149 million from the sale of a real estate asset, EBITDA would have expanded 1.9%, and EBITDA margin would have reached 19.5%.

In terms of innovation, during the quarter CCU introduced a new online sales platform in Chile, named “La Barra” bringing a new experience to our customers through home delivery, special discounts and a multi-category offer. Additionally, regarding brands, we launched Cristal Summer Lager with a positive acceptance from the consumers. This new beer contains hops that bring citrus notes and an aroma that leaves a refreshing feel ideal for summer.

Regarding sustainability, for the second consecutive year CCU stood out for its actions in economic, social and environmental matters, being listed in Chile's Dow Jones Sustainability Index and, for the first time, entering the MILA Pacific Alliance index (Latin American Integrated Markets) positioning us among the best evaluated companies in the region. We are aware that environmental care is a concern that transcends industries, generations and countries. In this regard we have taken a number of initiatives to promote a cross-disciplinary education in order to facilitate the tasks of collection and recycling. Along the same line, CCU joined the Chilean Plastics Pact, committing to the challenge of rethinking the future of this material in Chile, moving towards a circular economy.

 

The International Business Operating segment, which includes Argentina, Bolivia, Paraguay and Uruguay, posted a 6.2% increase in volumes (3.9% when excluding Bolivia3) mostly driven by a good commercial dynamism in Argentina, demonstrating the strength of our beer portfolio. However, Net sales declined 16.4% and Gross margin contracted from 47.1% to 41.2%, explained by lower average prices in CLP, mostly due to the negative impact of the sharp depreciation of the ARS against the CLP during the quarter, and price adjustments that have not yet been enough to offset the effect of inflation and the devaluation of currencies in our costs and expenses. It is important to mention that it takes time to compensate for an impact of such magnitude and we expect to gradually do so by implementing revenue management initiatives. Accordingly, we increased prices by 25% by the end of September in Argentina. In all, EBITDA was marginally positive during the quarter.

This quarter in Argentina, our premium beer brand Imperial added a new variety, an American Pale Ale (APA). The APA style is characterized as being an easy drinking beer, with low bitterness and citrus notes, ideal for consumers looking for something between a pale ale beer and an India Pale Ale (IPA).

Regarding our beer brand Schneider, we introduced new varieties adding a black and red ale in its iconic can. In addition, Schneider signed a strategic agreement with the Argentine Football Association, to become the new official sponsor of the National Teams for the next three years, which allows us to continue strengthening the relationship with the most popular sport in the country.

 

The Wine Operating segment posted a 3.3% increase in revenue, explained by 4.8% higher volumes, partially offset by a 1.4% drop in average prices in CLP. The lower prices in CLP were mainly explained by negative mix effects in exports and in the domestic Argentine market, due to the incorporation of volumes from the recently acquired brands in Argentina, more than offsetting a positive effect from a stronger USD on export revenues. The Operating segment’s gross margin continued to recover this quarter, with an improvement of 428 bps, from 37.6% to 41.9%, primarily associated with lower cost of wine against last year. Altogether, EBITDA reached CLP 12,074 million, an expansion of 29.0%, and EBITDA margin improved by 418 bps, from 16.8% to 21.0%.

During the quarter, and considering CCU's joint contribution to Chile's first waste management program VSPT Wine Group was the first winery to participate in a pilot plan of the Extended Producer Responsibility Law (Ley REP), encouraging our country to raise standards, manage waste in a sustainable manner and open up to a true circular economy view.

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ABOUT CCU

 

CCU is a multi-category beverage company with operations in Chile, Argentina, Bolivia, Colombia, Paraguay and Uruguay. CCU is one of the largest players in each one of the beverage categories in which it participates in Chile, including beer, soft drinks, mineral and bottled water, nectar, wine and pisco, among others. CCU is the second-largest brewer in Argentina and also participates in the cider, spirits and wine industries. In Uruguay and Paraguay, the Company is present in the beer, mineral and bottled water, soft drinks and nectar categories. In Bolivia, CCU participates in the beer, water, soft drinks and malt beverage categories. In Colombia, the Company participates in the beer and in the malt industry. The Company’s principal licensing, distribution and / or joint venture agreements include Heineken Brouwerijen B.V., PepsiCo Inc., Seven-up International, Schweppes Holdings Limited, Société des Produits Nestlé S.A., Pernod Ricard Chile S.A., Promarca S.A. (Watt’s) and Coors Brewing Company.

 

CORPORATE HEADQUARTERS

 

Vitacura 2670, 26th floor

Santiago

Chile

 

STOCK TICKER

 

Bolsa de Comercio de Santiago: CCU

NYSE: CCU

 

CAUTIONARY STATEMENT

 

Statements made in this press release that relate to CCU’s future performance or financial results are forward-looking statements, which involve known and unknown risks and uncertainties that could cause actual performance or results to materially differ. We undertake no obligation to update any of these statements. Persons reading this press release are cautioned not to place undue reliance on these forward-looking statements. These statements should be taken in conjunction with the additional information about risk and uncertainties set forth in CCU’s annual report on Form 20-F filed with the US Securities and Exchange Commission and in the annual report submitted to the CMF (Chilean Market Regulator) and available on our web page.

 

GLOSSARY

 

Operating segments

The Operating segments are defined with respect to its revenues in the geographic areas of commercial activity:

 

·        Chile: This segment commercializes Beer, Non Alcoholic Beverages and Spirits in the Chilean market, and also includes the results of Transportes CCU Limitada, Comercial CCU S.A., Creccu S.A. and Fábrica de Envases Plásticos S.A.

·        International Business: This segment commercializes Beer, Cider, Non-Alcoholic Beverages and Spirits in the Argentina, Uruguay, Paraguay and Bolivia.

·        Wine: This segment commercializes Wine, mainly in the export market reaching over 80 countries, as well as the Chilean and Argentine domestic market.

·        Other/Eliminations: Considers the non-allocated corporate overhead expenses and eliminations of transactions between segments.

 

 

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ARS

Argentine peso.

 

CLP

Chilean peso.

 

Cost of sales

Formerly referred to as Cost of Goods Sold (COGS), includes direct costs and manufacturing costs.

 

Earnings per Share (EPS)

Net profit divided by the weighted average number of shares during the year.

 

EBIT

Earnings Before Interest and Taxes. For management purposes, EBIT is defined as Net income before other gains (losses), net financial expenses, equity and income of joint ventures, foreign currency exchange differences, results as per adjustment units and income taxes. EBIT is equivalent to Adjusted Operating Result used in the 20-F Form.

 

EBITDA

EBITDA represents EBIT plus depreciation and amortization. EBITDA is not an accounting measure under IFRS. When analyzing the operating performance, investors should use EBITDA in addition to, not as an alternative for Net income, as this item is defined by IFRS. Investors should also note that CCU’s presentation of EBITDA may not be comparable to similarly titled indicators used by other companies. EBITDA is equivalent to ORBDA (Adjusted Operating Result Before Depreciation and Amortization), used in the 20-F Form.

 

Exceptional Items (EI)

Formerly referred to as Non-recurring items (NRI), Exceptional Items are either income or expenses which do not occur regularly as part of the normal activities of the Company. They are presented separately because they are important for the understanding of the underlying sustainable performance of the Company due to their size or nature.

 

Gross profit

Gross profit represents the difference between Net sales and Cost of sales.

Gross margin

Gross profit as a percentage of Net sales.

Liquidity ratio

Total current assets / Total current liabilities

Marketing, Sales, Distribution and Administrative expenses (MSD&A)

MSD&A includes marketing, sales, distribution and administrative expenses.

Net Financial Debt

Total Financial Debt minus Cash & Cash Equivalents.

Net Financial Debt / EBITDA

The ratio is based on a twelve month rolling calculation for EBITDA.

Net income

Net income attributable to the equity holders of the parent.

UF

The UF is a monetary unit indexed to the Consumer Price Index variation in Chile.

USD

United States Dollar.

 

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Exhibit 1: Consolidated Income Statement (Third Quarter 2019)
Third Quarter	2019	2018	Total
	(CLP million)		Change %
Net sales	390,249	388,349	0.5
Cost of sales	(200,857)	(197,063)	1.9
% of Net sales	51.5	50.7
Gross profit	189,392	191,286	(1.0)
MSD&A	(157,458)	(149,735)	5.2
% of Net sales	40.3	38.6
Other operating income/(expenses)	5,961	3,466	72.0
EBIT	37,895	45,017	(15.8)
EBIT margin %	9.7	11.6
Net financial expenses	(6,543)	(4,043)	61.8
Equity and income of JVs and associated	(5,346)	(3,790)	41.1
Foreign currency exchange differences	(6,471)	(4,041)	60.1
Results as per adjustment units	(1,914)	470	(507.3)
Other gains/(losses)	284	(470)	(160.4)
Non-operating result	(19,990)	(11,874)	68.3
Income/(loss) before taxes	17,905	33,143	(46.0)
Income taxes	(6,886)	(10,995)	(37.4)
Net income for the period	11,019	22,147	(50.2)
Net income attributable to:
The equity holders of the parent	8,626	19,390	(55.5)
Non-controlling interest	(2,393)	(2,757)	(13.2)
EBITDA	63,757	68,404	(6.8)
EBITDA margin %	16.3	17.6
Including the effect of the Transaction:
EBIT	37,895	45,017	(15.8)
EBIT margin %	9.7	11.6
EBITDA	63,757	68,404	(6.8)
EBITDA margin %	16.3	17.6
Net income (attributable to equity holders of the parent)	8,626	21,521	(59.9)
OTHER INFORMATION
Number of shares	369,502,872	369,502,872
Shares per ADR	2	2
Earnings per share (CLP)	23.3	52.5	(55.5)
Earnings per ADR (CLP)	46.7	105.0	(55.5)
Depreciation	25,862	23,387	10.6
Capital Expenditures	34,491	31,481	9.6

 

 

 

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Exhibit 3: Segment Information (Third Quarter 2019)
	1. Chile Operating segment				2. International Business Operating segment				3. Wine Operating segment
Third Quarter
(In ThHL or CLP million unless stated otherwise)	2019	2018	YoY %		2019	2018	YoY %		2019	2018	YoY %
Volumes	4,442	4,170	6.5		2,039	1,920	6.2		395	377	4.8
Net sales	265,336	251,303	5.6		72,144	86,281	(16.4)		57,554	55,726	3.3
Net sales (CLP/HL)	59,729	60,264	(0.9)		35,378	44,938	(21.3)		145,702	147,778	(1.4)
Cost of sales	(126,837)	(117,764)	7.7		(42,405)	(45,636)	(7.1)		(33,428)	(34,753)	(3.8)
% of Net sales	47.8	46.9			58.8	52.9			58.1	62.4
Gross profit	138,499	133,539	3.7		29,740	40,645	(26.8)		24,126	20,973	15.0
% of Net sales	52.2	53.1			41.2	47.1			41.9	37.6
MSD&A	(104,626)	(98,216)	6.5		(36,380)	(38,805)	(6.2)		(14,863)	(13,777)	7.9
% of Net sales	39.4	39.1			50.4	45.0			25.8	24.7
Other operating income/(expenses)	3,702	69			1,492	3,212			228	119
EBIT	37,574	35,392	6.2		(5,149)	5,052	(201.9)		9,491	7,316	29.7
EBIT margin	14.2	14.1			(7.1)	5.9			16.5	13.1
EBITDA	54,936	50,814	8.1		2	10,435	(100.0)		12,074	9,360	29.0
EBITDA margin	20.7	20.2			0.0	12.1			21.0	16.8
Including the effect of the Transaction:
EBIT	37,574	35,392	6.2		(5,149)	5,052	(201.9)		9,491	7,316	29.7
EBITDA	54,936	50,814	8.1		2	10,435	(100.0)		12,074	9,360	29.0
	4. Other/eliminations				Total
Third Quarter
(In ThHL or CLP million unless stated otherwise)	2019	2018	YoY %		2019	2018	YoY %
Volumes	(20)				6,857	6,467	6.0
Net sales	(4,785)	(4,961)	(3.6)		390,249	388,349	0.5
Net sales (CLP/HL)					56,912	60,049	(5.2)
Cost of sales	1,813	1,090	66.4		(200,857)	(197,063)	1.9
% of Net sales					51.5	50.7
Gross profit	(2,972)	(3,871)	(23.2)		189,392	191,286	(1.0)
% of Net sales					48.5	49.3
MSD&A	(1,588)	1,062	(249.5)		(157,458)	(149,735)	5.2
% of Net sales					40.3	38.6
Other operating income/(expenses)	539	65			5,961	3,466
EBIT	(4,021)	(2,744)	46.5		37,895	45,017	(15.8)
EBIT margin					9.7	11.6
EBITDA	(3,256)	(2,205)	47.6		63,757	68,404	(6.8)
EBITDA margin					16.3	17.6
Including the effect of the Transaction:
EBIT	(4,021)	(2,744)	46.5		37,895	45,017	(15.8)
EBITDA	(3,256)	(2,205)	47.6		63,757	68,404	(6.8)

 

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Exhibit 5: Balance Sheet
	September 30	December 31
	2019	2018
	(CLP million)
ASSETS
Cash and cash equivalents	150,562	319,014
Other current assets	555,018	621,993
Total current assets	705,580	941,007
PP&E (net)	1,059,644	1,021,267
Other non current assets	446,260	443,591
Total non current assets	1,505,904	1,464,858
Total assets	2,211,485	2,405,865
LIABILITIES
Short term financial debt	73,814	62,767
Other liabilities	345,805	582,957
Total current liabilities	419,619	645,724
Long term financial debt	251,556	228,185
Other liabilities	156,972	142,839
Total non current liabilities	408,529	371,025
Total Liabilities	828,148	1,016,749
EQUITY
Paid-in capital	562,693	562,693
Other reserves	(167,344)	(151,048)
Retained earnings	875,384	868,482
Total equity attributable to equity holders of the parent	1,270,734	1,280,127
Non - controlling interest	112,603	108,989
Total equity	1,383,337	1,389,116
Total equity and liabilities	2,211,485	2,405,865
OTHER FINANCIAL INFORMATION
Total Financial Debt	325,371	290,952
Net Financial Debt	174,808	(28,062)
Liquidity ratio	1.68	1.46
Total Financial Debt / Capitalization	0.19	0.17
Net Financial Debt / EBITDA	0.53	(0.05)

 

 

 

 

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Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Compañía Cervecerías Unidas S.A.
(United Breweries Company, Inc.)

	/s/ Felipe Dubernet
	Chief Financial Officer

 

Date: November 6, 2019

 

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