Chile & Argentina: CCU S.A. reports consolidated fourth quarter 2005 and full year results

Compania Cervecerias Unidas S.A. (CCU) announced on February 28 its consolidated financial results, stated in Chilean GAAP for the fourth quarter and full year ended December 31, 2005. For the forth quarter revenues up 13.4%, Operating Income increased 9.7%, EBITDA(1) up 7.3%,
Net Income decreased 20.6% to US$0.59 per ADR. All US dollar figures are based on the exchange rate effective December 31, 2005 (US$1.00 = Ch$512.50).

CCU’s CEO commented:

“2005 was a record year for CCU. Volumes reached 12.3 million hectoliters, consolidated revenues grew to Ch$492,047 million (US$960.1 million), operating income increased to Ch$66,470 million (US$129.7 million) and EBITDA reached Ch$107,609 million (US$210.0 million).

CCU also had a positive fourth quarter of 2005. Consolidated revenues grew by 13.4%, operating income increased 9.7% and EBITDA grew by 7.3%. These good results are attributable to higher volumes and prices in almost all of our business segments. The increases in volumes were partially attributable to the higher investment in marketing, which reflects CCU’s commitment to compete through the creation of brand value in order to ensure the long-term sustainability of the Company.

All business segments improved their results during Q4’05, with the exception of wine. Without considering Viña San Pedro (VSP), affected by the appreciation of the Chilean peso, CCU’s operating results would have increased by 22.1%. The Chilean beer segment had a good performance during the quarter, with 13.0% higher operating income explained by volumes and prices that grew 9.5% and 3.5%, respectively. During 2005, beer sales reached almost 4.2 million hectoliters.

The Argentine beer business improved its revenues by 30.0% and operating results by 88.4%, due to 20.7% higher prices and 9.4% volume growth during the quarter. For the year 2005 it earned an operating income of Ch$2,394 million (US$4.7 million), leaving behind the negative results shown in previous years.

During the quarter, the soft drinks segment grew its revenues by 8.4% as a consequence of 4.5% higher average volumes and 3.5% higher average prices. The excellent performance of the new Cachantun product, “Mas” –a flavored mineral water–, continued during the quarter explaining the increase of 30.5% in mineral water volumes, as well as the good performance of nectar Watt’s and Gatorade that grew during the same period by 18.2% and 56.2%, respectively.

CONSOLIDATED INCOME STATEMENT HIGHLIGHTS (Exhibits 1 & 2)

REVENUES

Q4'05 Total revenues increased 13.4% to Ch$148,595 million (US$289.9 million), as a result of higher consolidated volumes and higher average prices. Consolidated volumes growth is explained by increases of 9.5% in beer Chile, 9.4% in beer Argentina, 4.5% in the soft drinks segment, and 187.0% in the pisco business, partially offset by lower sale volumes of 9.0% in the wine segment. The increase in average prices is explained by higher prices in pisco, beer in Chile and Argentina, soft drinks segment and domestic wine and wine from Argentina, partially offset by lower prices in wine exports due to the appreciation of the Chilean peso.

GROSS PROFIT

Q4'05 Increased 20.1% to Ch$84,376 million (US$164.6 million) as a result of 13.4% higher revenues, partially offset by a 5.7% higher cost of goods sold, which amounted to Ch$64,219 million (US$125.3 million). The increase in cost of goods sold is explained by the higher level of pisco sales, as well as higher costs in the soft drinks and beer Chile businesses, partially offset by lower cost of goods sold in the wine and beer Argentina segments. As a percentage of sales, cost of goods sold decreased 3.2 percentage points due to the dilution of some fixed cost and the appreciation of the Chilean peso. In Q4'05, the gross profit margin, as a percentage of sales, improved from 53.6% in Q4'04 to 56.8%.

2005 Increased 13.5%, amounting to Ch$256,338 million (US$500.2 million). The consolidated gross margin increased 0.3 percentage point to 52.1%.

OPERATING RESULT

Q4'05 Amounted to Ch$25,829 million (US$50.4 million), 9.7% higher than in Q4'04, mainly due to 20.1% higher gross profit, partially offset by 25.3% higher selling, general and administrative (SG&A) expenses. SG&A expenses reached Ch$58,547 million (US$114.2 million) in Q4'05, mainly due to higher marketing expenses in almost all business units. SG&A expenses as a percentage of sales increased from 35.7% in Q4'04 to 39.4% in Q4'05. As a consequence, the consolidated operating margin for the period decreased from 18.0% to 17.4%.

2005 Increased 9.3%, amounting to Ch$66,470 million (US$129.7 million). The consolidated operating margin decreased 0.5 percentage point to 13.5%.

EBITDA

Q4'05 Increased 7.3% to Ch$36,072 million (US$70.4 million) compared to Q4'04, while the consolidated EBITDA margin (EBITDA as a percentage of sales) was 1.3 percentage points lower than in Q4'04, reaching 24.3%. 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 2004 figures in order to facilitate comparison between the two periods.

2005 Increased 3.9%, to Ch$107,609 million (US$210.0 million). The EBITDA margin decreased 1.9 percentage points to 21.9%.

NON-OPERATING RESULTS

Q4'05 Decreased Ch$3,669 million (US$7.2 million) compared to the same quarter last year, from a gain of Ch$647 million (US$1.3 million) to a loss of Ch$3,023 million (US$5.9 million). The decrease in non-operating results is mainly explained by:

• Other non-operating income/expenses, which decreased from a gain of Ch$2,149 million (US$4.2 million) in Q4'04 to a loss of Ch$238 million (US$0.5 million) this quarter, mainly due to a non-recurrent gain on the sale of a property site during Q4'04.

• Interest expenses, which increased from Ch$1,350 million (US$2.6 million) in Q4'04 to Ch$1,911 million (US$3.7 million) in Q4'05, mainly due to higher debt related to the pisco business and higher interest rate.

• Price level restatement, which increased from a loss of Ch$170 million (US$0.3 million) to a loss of Ch$438 million (US$0.9 million) in Q4'05, due to a higher price level restatement of liabilities, mainly cross-currency swaps indexed to the UF.

2005 Decreased from a loss of Ch$6,400 million (US$12.5 million) in 2004 to a loss of Ch$9,315 million (US$18.2 million) in 2005.

NET INCOME

Q4'05 Decreased from a gain of Ch$24,267 million (US$47.4 million) to a gain of Ch$19,270 million (US$37.6 million), mainly due to higher income taxes and lower non-operating results, partially offset by higher operating results and positive minority interest due to losses in Viña San Pedro. Higher income taxes are mainly explained by the absence this year of an extraordinary tax credit generated in Q4'04 in CCU Argentina.

2005 Increased from Ch$47,028 million (US$91.8 million) in 2004 to Ch$48,177 million (US$94.0 million), mainly due to improved operating results and positive minority interest, partially offset by lower non-operating results and higher income taxes.

SEGMENT HIGHLIGHTS

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 (beer, soft drinks, wine, etc.) 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 of 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 13.4% to Ch$62,580 million (US$122.1 million), as a result of 9.5% higher sales volumes and 3.5% higher real average prices. Operating Income increased 13.0% to Ch$19,666 million (US$38.4 million), mainly as a result of higher revenues, the effect of which was partially offset by higher cost of goods sold and higher SG&A expenses. Cost of goods sold
increased 3.4% to Ch$20,149 million (US$39.3 million), mainly due to higher energy costs. As a percentage of sales, cost of goods sold decreased from 35.3% in Q4'04 to 32.2% in Q4'05 due to the dilution of some fixed costs and the positive effect of the appreciation of the Chilean peso.

SG&A increased 24.3% to Ch$22,766 million (US$44.4 million) reaching 36.4% of sales, 3.2 percentage points higher than in Q4'04, mainly due to higher marketing and distribution expenses. The operating margin remained almost constant reaching 31.4% in Q4'05.

EBITDA increased 11.1% to Ch$24,544 million (US$47.9 million), while the EBITDA margin was 39.2% of sales, 0.8 percentage points lower than in Q4'04. Comments During the quarter, volumes showed a very good performance, in spite of higher competition. Volume increase was supported by value brand creation through higher marketing expenses to ensure CCU's sustainability in the long-term. All key brands increased their volumes.

BEER ARGENTINA

Revenues measured in Chilean pesos increased 30.0% to Ch$15,209 million (US$29.7 million), due to 20.7% higher prices and 9.4% higher sales volumes. Operating Income measured in Chilean pesos improved 88.4% from of Ch$1,165 million (US$2.3 million) in Q4'04 to Ch$2,195 million (US$4.3 million) in Q4'05, as a result of higher revenues and lower cost of goods sold, partially offset by higher SG&A expenses. Cost of goods sold decreased 2.8%, reaching Ch$5,453 million (US$10.6 million) this quarter mainly due to a reallocation between license costs and marketing expenses. As a percentage of sales, cost of goods sold decreased from 48.0% to 35.9%. SG&A expenses increased from Ch$4,925 million (US$9.6 million) to Ch$7,561 million (US$14.8 million) mainly due to higher marketing and distribution expenses. As a percentage of sales, SG&A expenses increased from 42.1% to 49.7%. The operating margin increased from 10.0% in Q4'04 to 14.4% in Q4'05.

EBITDA increased 52.8% from Ch$2,173 million (US$4.2 million) in Q4'04 to Ch$3,322 million (US$6.5 million) this quarter. The EBITDA margin increased to 21.8%, compared with a 18.6% in Q4'04.

Comments:
The profitability of this segment continues improving through higher volumes and better prices. Prices increased from US$35 per HL in Q4'04 to US$42 per HL in Q4'05. Operating income for the year 2005 reached Ch$2,394 million (US$4.7 million), leaving behind the negative operating results seen during the past few years.

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