News Column

Fitch Affirms Compania Cervecerias Unidas' (CCU) Ratings; Outlook Stable

May 1, 2014

CHICAGO--(BUSINESS WIRE)-- Fitch Ratings has affirmed the ratings of Compania Cervecerias Unidas S.A. as follows:

--Foreign currency and local currency long-term Issuer Default Rating (IDR) at 'A';

--National scale rating at 'AA+(cl)';

--Senior unsecured bonds at 'AA+(cl);

--National equity rating at 'Primera Clase Nivel 1'.

The Rating Outlook is Stable.

KEY RATING DRIVERS

CCU's 'A' ratings are amongst the highest Latin America corporate ratings issued by Fitch. The ratings reflect the company's strong business position, cash flow generating capacity, and the stability and defensive nature of the beverage industry. CCU also enjoys a solid financial profile with strong credit metrics, sound liquidity and conservative financial strategy. The ratings also incorporate the possibility of M&A activity funded with up to USD700 million in cash; CCU's board of directors approved a capital increase for USD700 million in 2013 for acquisition purposes that is currently held in the company's cash balance.

CCU's ratings are constrained by its operations in Argentina through its subsidiary CCU Argentina, given the high political and economic risk associated with operating in this country. Nearly 15% of the company's EBITDA is generated by CCU Argentina.

Strong Market Position in Chilean Beer Business: CCU has a 78% market share in the Chilean beer market. Despite competitive pressures from Cerveceria Chile (a subsidiary of Quinsa, owned by Ambev), CCU has been able to maintain its market position for several years due to its extensive direct-distribution system, diversified product portfolio, successful marketing strategies and the broad appeal of its flagship brand, Cristal. CCU's strong position allows it to lead market price adjustments in order to cope with cost pressures. During 2013, the Chilean beer segment represented about 43% of consolidated EBITDA.

Diversified Business Portfolio: CCU's ratings also consider its diversified product portfolio and the stability of the beverage industry in Chile. CCU is the largest bottler and distributor of mineral water in Chile with a market share of 58% and the second bottler of soft drinks with a 27% market share. During 2013, the company's Chilean soft drinks business accounted for about 26% of consolidated EBITDA. In Argentina, CCU is the second largest brewer after Quinsa with a market share of 23%.

Sound Operational Performance: In 2013, CCU continued to report sound operational results despite facing cost pressures. Consolidated volumes increased 10%, reaching 21.9 million hectoliters, while average prices increased 1.1%. CCU's normalized EBITDA increased to CLP252 billion in 2013 from CLP235 billion in 2012 and normalized EBITDA margin decreased slightly to 21.3% from 21.9% over the same period. Cost pressures arising from higher distribution costs in Chile and Argentina, as well as stiffer competition, were partly offset by price increases and lower sugar costs.

Conservative Financial Strategy: Management continues to maintain a conservative capital structure and high liquidity. As of Dec. 31, 2013, CCU had CLP263 billion in total debt, of which CLP120 billion was short-term debt, and CLP408 billion in cash and marketable securities. The large cash balance comes from the proceeds of a CLP340 billion (USD700 million) capital contribution completed in November 2013 to finance future growth. These funds will be maintained in cash until M&A opportunities arise. CCU's debt balance should remain relatively unchanged; operating cash flow and cash from the equity increase will be used for capex and M&A activity.

As of Dec 31 2013, CCU's leverage as measured by total debt-to-LTM EBITDA was 1.0 times (x), while its net-debt to EBITDA ratio was negative 0.6x as a result of the capital increase. These levels are better than the average of the last four years of 1.2x and 0.6x respectively. CCU's inorganic growth strategy could include acquisitions, which may be financed with a combination of cash and debt. Given the company's strong cash generation capacity, CCU would likely be able to lower leverage quickly in the event of a large acquisition.

RATING SENSITIVITIES

The most likely cause of a downgrade would be a change in management's attitude toward maintaining a strong capital structure or a large debt-financed acquisition. A positive rating action is not likely to occur given that Fitch does not expect a significant improvement in operational performance and credit metrics.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (Aug. 5, 2013);

--'National Ratings Scale Criteria' (Oct. 30, 2013).

Applicable Criteria and Related Research:

Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=715139

Additional Disclosure

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.



Fitch Ratings, Inc.

Primary Analyst

Cristina Madero, +1-312-368-2080

Associate Director

70 West Madison Street

Chicago, IL 60602

or

Secondary Analyst

Monica Coeymans, +56-2-2499-3314

Director

or

Committee Chairperson

Rina Jarufe, +56-2-2499-3310

or

Media Relations

Elizabeth Fogerty, New York

+1-212-908-0526

elizabeth.fogerty@fitchratings.com

Source: Fitch Ratings


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