Chile: CCU reports consolidated 1st Quarter 2007 results

CCU announced its consolidated financial results, stated in Chilean GAAP for the first quarter 2007, in its press release, April 26. All US$ figures are based on the exchange rate effective March 31, 2007.

COMMENTS FROM THE CEO
We are very pleased with the results obtained during the first quarter of 2007. Consolidated volumes increased 8.0%, revenues grew 11.7%, operating income increased 26.6%, net income grew 21.5% and EBITDA increased 19.1%. These good results are attributable to a better performance in all of our business segments during the quarter, as a consequence of strong volumes, margins and a controlled cost structure.

Q1’07 Results

The Chilean beer segment had a good performance during this period, with 17.5% higher operating income, mainly explained by volumes and prices that increased 5.9% and 3.5%, respectively. The Argentine beer business grew its revenues by 26.9% and operating income by 38.9%, mainly due to 13.5% volume growth and 11.1% higher prices during the quarter.

Prices increased due to a higher mix of premium products, such as Heineken and Budweiser and one-way packaging, in addition to a price increase of approximately 4% carried out in January. During that month we also began with the production of Schneider done by ICSA in the Luján plant.

REVENUES

Q1’07

Total revenues increased 11.7% to Ch$159,808 million (US$296.4 million), as a result of 8.0% higher consolidated volumes and 3.4% higher average prices. Consolidated volumes growth is explained by an increase of 7.1% in the soft drink segment, 13.5% in beer Argentina, 5.9% in beer Chile, 10.8% in the wine business and 11.6% in the pisco business. The increase in average prices is mainly explained by higher prices in beer Argentina, beer Chile, wine from Argentina, pisco and soft drinks, partially offset by lower prices in nectars and domestic wine businesses.

Q1’07 Results

Revenues by segment

Q1 (US$ million)

Gross Profit

Q1’07
Increased 11.7% to Ch$89,469 million (US$165.9 million) as a result of 11.7% higher revenues, partially offset by a 11.7% higher cost of goods sold, which amounted to Ch$70,339 million (US$130.4 million). Cost of goods sold increased in all business segments with the exception of wine. In Q1’07, the gross profit margin, as a percentage of sales, remained flat at 56.0%.


OPERATING RESULT

Q1’07

Amounted to Ch$34,843 million (US$64.6 million), 26.6% higher than Q1’06, due to higher gross profit, partially offset by higher selling, general & administrative (SG&A) expenses. SG&A expenses reached Ch$54,625 million (US$101.3 million) in Q1’07, 3.9% higher than in Q1’06, mainly due to higher distribution expenses, salaries and marketing expenses, partially offset by lower depreciation. SG&A expenses as a percentage of sales decreased 2.6 percentage points from 36.7% in Q1’06 to 34.2% in Q1’07, mainly due to a lower marketing rate and the dilution of some fixed expenses. The consolidated operating margin for the period increased 2.6 percentage points from 19.2% to 21.8%. Operating Income and Operating Margin by Segment

EBITDA

Q1’07

Increased 19.1% to Ch$45,366 million (US$84.1 million) compared to Q1’06, while the consolidated EBITDA margin (EBITDA as a percentage of sales) was 1.8 percentage points higher than in Q1’06, reaching 28.4% in Q1’07. EBITDA by segment

NON-OPERATING RESULTS

Q1’07

Decreased Ch$1,436 million (US$2.7 million) compared to the same quarter last year, from a loss of Ch$1,340 million (US$2.5 million) to a loss of Ch$2,776 million (US$5.1 million).
The decrease in non-operating results is mainly explained by:

- Other non-operating income/expenses, which decreased from a gain of Ch$176 million (US$0.3 million) in Q1’06 to a loss of Ch$996 million (US$1.8 million) this quarter, mainly due to non-recurring severance payments higher than the provision done in Q4'06, related to a rationalization program undertaken by the Company during Q1'07.

- Price level restatement, which decreased from a gain of Ch$494 million (US$0.9 million) to a loss of Ch$79 million (US$0.1 million) in Q1’07, mainly due to a 0.2% positive inflation rate during Q1'07 versus a negative inflation rate of 0.3% during Q1'06.

These negative effects were partially offset by:
- Foreign currency exchange result, which improved from a loss of Ch$202 million (US$0.4 million) to a gain of Ch$80 million (US$0.1 million), mainly due to the dollar variation in the Company's foreign currency structure.

NET INCOME

Q1’07
Increased 21.5% in relation to Q1’06, reaching Ch$25,464 million (US$47.2 million), mainly due to higher operating income, partially offset by lower non-operating results and higher income taxes, as a consequence of a higher level of income in Chile and Argentina. SEGMENT HIGHLIGHTS (Exhibit 2)

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. Corporate overhead expenses have been allocated pro-rata 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.

Q1’07 Results

BEER CHILE

Revenues increased 9.5% to Ch$68,381 million (US$126.8 million), as a result of 5.9% higher sale volumes and 3.5% higher real average prices.

Operating Income increased 17.5% to Ch$24,213 million (US$44.9 million), mainly as a result of higher revenues and lower SG&A expenses, partially offset by higher cost of goods sold. Cost of goods sold increased 13.5% to Ch$23,674 million (US$43.9 million), mainly due to higher direct costs as a consequence of a higher mix of premium and one-way products, as well as higher energy costs, partially offset by lower depreciation. As a percentage of sales increased from 33.4% to 34.6%. SG&A expenses decreased 2.4% to Ch$20,494 million (US$38.0 million) equivalent to 30.0% of sales, 3.7 percentage points lower than in Q1’06, mainly due to lower marketing rate and depreciation, partially offset by higher distribution expenses. The operating margin increased from 33.0% to 35.4%. EBITDA increased 13.8% to Ch$28,785 million (US$53.4 million), while the EBITDA margin was 42.1% of sales, 1.6 percentage points higher than in Q1’06.

Sale volumes had a very positive performance, with a 5.9% increase. Noteworthy are the volumes associated with the premium segment which grew more than 30%.

BEER ARGENTINA

Revenues increased 26.9% to Ch$19,668 million (US$36.5 million), due to 13.5% higher sale volumes and 11.1% higher average prices, measured in Chilean pesos. In US dollar terms, revenues increased 21.1% and average prices 10.7%.

Operating Income increased 38.9% from Ch$2,014 million (US$3.7 million) in Q1’06 to Ch$2,797 million (US$5.2 million) in Q1’07, as a result of higher revenues, partially offset by higher cost of goods sold and SG&A expenses.

Cost of goods sold measured in Chilean pesos increased 31.6%, reaching Ch$9,051 million (US$16.8 million) this quarter, mainly due to higher direct costs as a consequence of a higher mix of premium and one-way products, as well as the costs related to the production contract with ICSA at the Luján plant. As a percentage of sales, cost of goods sold increased from 44.4% to 46.0%.

SG&A expenses measured in Chilean pesos increased 18.3% from Ch$6,610 million (US$12.3 million) to Ch$7,821 million (US$14.5 million), mainly as a result of higher distribution and marketing expenses. As a percentage of sales, SG&A expenses decreased from 42.6% to 39.8% as a result of a lower marketing rate and the dilution of some fixed expenses. Operating margin increased from 13.0% to 14.2%. 8

Q1’07 Results
EBITDA increased 24.7% from Ch$3,457 million (US$6.4 million) to Ch$4,309 million (US$8.0 million) this quarter, while the EBITDA margin decreased 0.4 points reaching 21.9%, compared with 22.3% in Q1’06. The profitability of this segment continues improving, with higher volumes and better prices measured in US dollars. In January, prices increased approximately 4% to partially offset costs increases incurred during 2006. Budweiser and Heineken had a very good performance during this quarter. Also in January, CCU Argentina began the production of Schneider at the Luján plant near Buenos Aires, following the brewering agreement with ICSA.

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