E-Malt.com News article: 4390

Chile: Fitch Ratings has affirmed the 'A-' foreign and local currency credit ratings of Compania Cervecerias Unidas S.A. (CCU). The Rating Outlook is Stable. CCU's investment grade ratings are supported by the company's dominant position in the Chilean beer market and its conservative capital structure, Business Wire, Chicago posted on March 4. The product and geographic diversification of the company's cash flow from operations further supports the ratings.

CCU ended 2004 with a 90% market share in the Chilean beer industry. Fitch expects the company to continue dominating this industry due to its modern production facilities, extensive direct-distribution system, diversified portfolio of beer products and the broad appeal of its flagship brand, Cristal. The cash flow generated by CCU's Chilean beer division provides stability to the company's credit-protection measures and underpins the ratings. During 2004, 39% of the company's consolidated revenues and 64% of its consolidated cash operating profits (EBITDA) were generated by its Chilean beer division.

Through the company's subsidiary Embotelladoras Chilenas Unidas S.A. (ECUSA), CCU also has a solid presence in Chile's soft drink, mineral water and nectar industries. During 2004, ECUSA was the largest bottler and distributor of water in Chile, with a market share of 64%, and the third-largest bottler of soft drinks, with an estimated market share of 22%. Soft drink, mineral water and nectar sales accounted for 29% of CCU's sales and 20% of its EBITDA during 2004. The company's proprietary soft drink products -- Bilz, Pap, Kem and Show-are the most profitable part of this division. CCU also bottles, markets, sells and distributes PepsiCo, Inc.'s (PepsiCo) and Schweppes Holdings' products. The company's cash flows are further diversified by its Argentine brewer, CCU Argentina, and its vintner, Vina San Pedro (VSP). They accounted for 29% of revenues and about 14% of EBITDA in 2004.

During 2004, CCU generated US$162 million of EBITDA, an increase from US$125 million in 2003. This improved profitability was driven by strong demand for the company's products in Chile and Argentina, as well as higher average prices for beer in both markets. The company's dollar EBITDA also benefited from a strengthening of the Chilean peso versus the U.S. dollar by 12% during 2004.

CCU ended 2004 with US$243 million of debt and US$117 million of cash and marketable securities. These figures compare with US$236 million of total debt and a cash balance of US$88 million at the end of 2003. Liquidity is not a concern for CCU given the amount of cash it holds. During 2005, CCU has US$75 million of debt maturing. The company will likely use a mix of its cash flow from operations plus new lines of credit to meet these fixed obligations. The company refinanced most of its long-term debt during December 2004 with a US$100 million syndicated loan and a peso denominated bond.

The outlook for CCU in 2005 is very good. Demand for the company's products in Chile and Argentina will continue to be robust because of the improving economic situation in these countries. This should allow the CCU to continue to increase prices for its products. With the expectation of very strong copper prices in 2005, the Chilean peso is expected to continue to remain strong vis-a-vis the U.S. dollar. This will also help the company's dollar based EBITDA. For 2005, CCU should generate at least US$170 million of EBITDA. With projected capital expenses of US$60 million, taxes of about US$20 million and net interest expense of less than US$10 million, CCU should have at least US$80 million of free cash flow that could be used for debt reduction or dividends.


09 March, 2005