Chile: CCU reports consolidated first quarter 2006 results
Compañía Cervecerías Unidas S.A. (CCU) announced on April 28 its consolidated financial results, stated in Chilean GAAP for the first quarter 2006. All US$ figures are based on the exchange rate effective March 31, 2006 (US$1.00 = Ch$526.18). Revenues Up 7.5%, Operating Income Increased 4.3%, EBITDA(1) Up 2.8%, Net Income Increased 3.1% to US$0.61 per ADR.
During the first quarter of 2006, revenues continued their positive trend, growing by 7.5% in comparison to the first quarter of 2005, reaching Ch$139,282 millions (US$264.7 million). These satisfactory results are explained by the growth of consolidated volumes of 5.6% and 2.0% higher average prices.
The volume growth, just like the second half of last year, was supported by a higher investment in marketing in the different business segments, reflecting CCU's commitment to compete through the creation of brand value to ensure the Company's sustainability in the long-term.
During the first quarter of 2006 all business segments improved their performance, with the exception of wine. Without considering Viña San Pedro (VSP), which has been affected by the appreciation of the Chilean peso and volume decreases in the domestic market, CCU's operating profit would have grown by 9.5% instead of the 4.3% effectively reached.
The Chilean beer segment had a good performance during the quarter, growing its operating results by 7.1%, mainly explained by 9.4% higher revenues, as a consequence of 8.1% and 1.1% higher volumes and prices, respectively. During this period, all of our key brands developed positively.
The Argentine beer business improved its operating results by 4.4% measured in Chilean pesos. However, in dollar terms, our subsidiary in Argentina increased its operating results by 19.2%. This difference is explained by the appreciation of the Chilean peso.
INCOME STATEMENT HIGHLIGHTS (Exhibit 1)
REVENUES Q1’06
Total revenues increased 7.5% to Ch$139,282 million (US$264.7 million), as a result of 7.8% higher revenues from core products, partially offset by 2.3% lower revenues from other products. Core products growth is the result of 5.6% higher consolidated volumes and 2.0% higher average prices. Consolidated volumes growth is explained by an increase of 8.1% in beer Chile, 6.6% in the soft drink segment, 48.8% in the pisco business and 1.1% in beer Argentina, partially offset by lower sales in the wine business. The increase in average prices is explained by higher prices in beer Chile, pisco and mineral water, partially offset by lower prices in the other categories.
GROSS PROFIT Q1’06 Increased 9.7% to Ch$77,980 million (US$148.2 million) as a result of 7.5% higher revenues, partially offset by a 4.8% higher cost of goods sold, which amounted to Ch$61,302 million (US$116.5 million). Cost of goods sold decreased as a percentage of sales 1.1 points to 44.0%. This decrease, with the exception of wine, is explained by all business segments that benefited from the lower exchange rate and the dilution of some fixed costs. In Q1’06, the gross profit margin, as a percentage of sales, increased from 54.9% to 56.0%.
OPERATING RESULTS Q1’06 Amounted to Ch$26,808 million (US$50.9 million), 4.3% higher than Q1’05, due to a higher gross profit, partially offset by higher selling, general & administrative (SG&A) expenses. SG&A expenses reached Ch$51,172 million (US$97.3 million) in Q1’06, 12.7% higher than in Q1’05, mainly due to higher marketing and distribution expenses. SG&A expenses, as a percentage of sales, increased from 35.0% in Q1’05 to 36.7% in Q1’06. As a consequence, the consolidated operating margin for the period decreased from 19.8% to 19.2%.
EBITDAQ1’06 Increased 2.8% to Ch$37,087 million (US$70.5 million) compared to Q1’05, while the consolidated EBITDA margin (EBITDA as a percentage of sales) was 1.2 percentage points lower than in Q1’05, reaching 26.6% in Q1’06. This quarter, continuing with the criteria applied since Q3'05, the depreciation of agricultural assets and barrels, which are included in the direct cost of wine, were considered in the calculation of EBITDA. This criteria has been applied to 2005 figures in order to facilitate comparison between the two periods.
NET INCOME Q1’06 Increased 3.1% in relation to Q1’05, reaching Ch$20,414 million (US$38.8 million), as a consequence of higher operating income, positive minority interest and improved non-operating results, partially offset by higher income taxes, which are explained by better results in Chile and Argentina.
Revenues and operating margins have been separated by business segments. Revenues for each business segment have been categorized according to those derived from core beverage products and those derived from the sale of other non-core products. The results of the Company's plastic packaging division and the confectionery sales have been included in the “Others” business segment. In this segment, inter-company sales have been eliminated. Pisco sales of Control products made during the second half of March 2005 were not consolidated in CCU’s results during Q1'05. Corporate overhead expenses have been allocated on a pro-rata basis to the individual business segments based on service level agreements. The costs associated with Transportes CCU, the logistics subsidiary, which are not directly related to each business segment, are allocated based on the case volume handled from each product.
BEER CHILE
Revenues increased 9.4% to Ch$60,813 million (US$115.6 million), as a result of 8.1% higher sale volumes and 1.1% higher real average prices. Operating Income increased 7.1% to Ch$20,062 million (US$38.1 million), mainly as a result of higher revenues, partially offset by higher cost of goods sold and SG&A expenses. Cost of goods sold increased 6.7% to Ch$20,303 million (US$38.6 million), mainly due to higher direct costs as a consequence of higher volumes, a higher mix of one-way products and higher energy costs, partially offset by lower depreciation. As a percentage of sales, cost of goods sold decreased from 34.3% to 33.4% due to the positive effect of a weaker dollar and the dilution of some fixed costs. SG&A expenses increased 14.8% to Ch$20,448 million (US$38.9 million) reaching 33.6% of sales, 1.6 percentage points higher than in Q1’05, mainly due to higher marketing and distribution expenses. The operating margin decreased from 33.7% to 33.0%. EBITDA increased 5.0% to Ch$24,630 million (US$46.8 million), while the EBITDA margin was 40.5% of sales, 1.7 percentage points lower than in Q1’05.
Sale volumes had a very positive performance, with an 8.1% increase. The most important brands grew their sales, most notably Cristal, Escudo, Heineken and Kunstmann. This growth was supported by higher investments in brand value through an increase in marketing expenses and promotional activities in supermarkets.
BEER ARGENTINA
Revenues decreased 1.6% to Ch$15,094 million (US$28.7 million), due to 2.0% lower average prices, when converted to Chilean pesos, partially offset by 1.1% higher sale volumes. In US dollar terms, revenues increased 15.2% and average prices 14.3%. Operating Income increased 4.4% from Ch$1,879 million (US$3.6 million) in Q1’05 to Ch$1,961 million (US$3.7 million) in Q1’06, as a result of lower cost of goods sold, partially offset by lower revenues and higher SG&A expenses. Cost of goods sold measured in Chilean pesos decreased 8.8%, reaching Ch$6,697 million (US$12.7 million). In US dollar terms, cost of goods sold increased 6.5%, but as a percentage of sales, cost of goods sold decreased from 47.9% to 44.4%. SG&A expenses measured in Chilean pesos increased 5.2% from Ch$6,116 million (US$11.6 million) to Ch$6,436 million (US$12.2 million), mainly as a result of higher marketing expenses. As a percentage of sales, SG&A expenses increased from 39.9% to 42.6%. The operating margin increased from 12.2% to 13.0%. Operating results in US dollar terms grew by 19.2%. EBITDA increased 0.1% from Ch$3,360 million (US$6.4 million) to Ch$3,362 million (US$6.4 million) this quarter, while the EBITDA margin improved 0.4 points reaching 22.3%, compared with 21.9% in Q1’05.
Comments The profitability of this segment continues improving, with higher volumes and better prices measured in dollars. Prices increased from US$37 per HL in Q1’05 to US$43 per HL in Q1’06. Budweiser and Heineken had a very good performance during this quarter, growing CCU Argentina volumes more than the estimated growth of the industry.
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