02/27/19: CCU Reports Consolidated Fourth Quarter 2018 Results

CCU REPORTS CONSOLIDATED FOURTH QUARTER 2018 RESULTS1,2

Santiago, Chile, February 27, 2019 - CCU announced today its consolidated financial and operating results for the

fourth quarter 2018, which ended December 31, 2018:

•  Consolidated Volumes increased 11.9%. Volume variation per Operating segment was as follows:

  • o Chile 9.2%

  • o International Business 19.7%.

  • o Wine 1.7%

•  Net sales increased 7.9%.

•  EBITDA reached CLP 114,612 million, a 2.5% decrease. EBITDA variation per Operating segment was as follows:

  • o Chile 1.4%

  • o International Business (13.3)%

  • o Wine 92.1%

•  Net income reached CLP 62,698 million, a 13.1% increase.

•  Earnings per share reached CLP 169.7 per share.

Key figures

4Q18

4Q17

(In ThHL or CLP million unless stated otherwise)

Total change %YTD18

YTD17

Total change %

Volumes

8,648

7,731

11.9 28,530

26,020 9.6

Net sales Gross profit EBIT EBITDA Net income

550,601

510,120

7.9 1,783,282 1,698,361 5.0

281,963

277,051

1.8

• 923,271 899,622 2.6

  87,250

  90,193

  (3.3)

• 468,722 234,894 99.5

  114,612

  117,562

  (2.5)

• 562,011 327,094 71.8

  62,698

  55,443

  13.1

• 306,891 129,607 136.8

Earnings per share (CLP)

169.7

150.0

13.1

830.6

350.8 136.8

1 For an explanation of the terms used in this report, please refer to the Glossary in Additional Information and Exhibits. Figures in tables and exhibits have been rounded and may not add up exactly to the total shown.

2 All growth or variation references in this Earnings Release refer to 4Q18 compared to 4Q17, unless otherwise stated.

COMMENTS FROM THE CEO

This year CCU delivered a solid performance, with consolidated volumes that increased 9.6%, to 28.5 million hectoliters, while EBITDA grew by 71.8% to CLP 562,011 million and Net income rose 136.8% to CLP 306,891 million. These results include growth from both ongoing operations, as well as a gain of CLP 208,842 million in EBITDA and CLP 157,359 million in Net income from the CCU Argentina and Anheuser-Busch InBev S.A./N.V. (ABI) transaction (the "Transaction") executed this year. The application of Hyperinflation Accounting in Argentina favorably impacted EBITDA by CLP 749 million and adversely affected Net income by CLP 6,087 million. Also this year, CCU Argentina opted in to a tax asset revaluation, which generated a CLP 6,822 million positive impact at Net income, including CLP 103 million in related operating expenses. Excluding the effects of the Transaction3, the application of Hyperinflation Accounting and the tax asset revaluation in Argentina, EBITDA increased by 7.8% to CLP 352,523 million and Net income, by 14.8% to CLP 148,797 million.

In the fourth quarter, volumes came in stronger than the annual trend, while financial results were weaker, with a consolidated EBITDA that declined 2.5% to CLP 114,612 million, despite volume growth of 11.9%. This financial result was largely explained by the sharp depreciation of our local currencies against the USD, primarily the CLP and ARS which depreciated 7.2%4 and 119.0%5, respectively. These FX fluctuations had an adverse estimated effect of CLP 19,041 million on EBITDA. Excluding these currency variations, EBITDA would have increased by 13.7%.

At the Net income level, we grew 13.1% to CLP 62,698 million this quarter. Net income includes a loss of CLP 3,158 million from Hyperinflation Accounting in Argentina, as well as a CLP 1,732 million gain, mainly due to after tax Financial income related to the Transaction6, and a CLP 6,822 million gain from the tax asset revaluation in Argentina; excluding these effects, Net income reached CLP 57,303 million, an increase of 3.4%.

In the Chile Operating segment, our top-line rose 5.8%, driven by volumes that increased 9.2%, partially offset by 3.2% lower average prices, primarily explained by product mix and promotional activities. Gross margin decreased by 48 bps, primarily due to lower prices and higher USD-denominated costs from the weaker CLP. MSD&A expenses as a percentage of Net sales improved by 43 bps, primarily due to scale and efficiencies. As a result, EBITDA grew 1.4%, reaching CLP 85,825 million, and the EBITDA margin deteriorated by 113 bps, from 27.3% to 26.2%. Excluding the negative effect from the FX fluctuation, the segment's EBITDA would have increased 8.0%.

The International Business Operating segment, which includes Argentina, Bolivia, Paraguay and Uruguay, reported volumes that rose 19.7%, with growth in all countries. Excluding Bolivia7, volumes grew 11.8%. Revenue increased by 10.5%, as volume growth was partially offset by lower average prices in CLP, due to the impact of the 99.4%5 depreciation of the ARS against the CLP. Given that price increases in local currencies were not yet enough to offset FX pressures on USD-linked costs, gross margin contracted from 59.6% to 48.5%. Our MSD&A expenses as a percentage of Net sales improved 274 bps, thanks to efficiencies from the ExCCelencia CCU program and fixed expense dilution. All-in, EBITDA reached CLP 27,378 million, a decrease of 13.3%. EBITDA margin deteriorated by 436 bps, from 20.3% to 15.9%. Excluding the adverse effect of currency fluctuations, the segment's EBITDA would have increased 33.8%.

The Wine Operating segment reported an 11.4% increase in revenue, explained by a 1.7% rise in volumes and a 9.5% higher average price in CLP. The higher average price was explained by an increase in prices in the domestic market and the positive tailwind on export revenues from the stronger USD against the CLP and ARS. The segment's gross margin finally marked a turning point this quarter, with an improvement of 310 bps, from 35.3% to 38.4%, explained by the aforementioned higher average price, as well as a lower cost of wine in a portion of our sales, thanks to 2018 harvest yields which returned to historical average levels. MSD&A as a percentage of Net sales also improved this quarter, by 220 bps, explained by greater operating efficiencies. As a result, EBITDA reached CLP 10,514 million, an increase of 92.1%, and EBITDA margin improved by 800 bps, from 11.0% to 19.0%. Excluding the favorable impact from the stronger USD, the segment's EBITDA would have increased 67.6%.

In Colombia, where we have a joint venture with Postobón, our volumes of our mainly imported premium beer portfolio grew 33.5%, surpassing 0.5 million hectoliters in 2018. In February 2019, we launched our local beer brand, Andina, which is well represented with its slogan "Colombia in a beer", produced in our new, state-of-the art, three million hectoliter brewery, located in the outskirts of Bogota. Built to international standard specifications, the new plant will also soon begin producing the above mentioned beer portfolio, including Heineken, Miller Genuine Draft, Tecate and Sol, among others.

Looking back at 2018, we continued to consolidate our regional leadership as a multicategory beverage company. CCU delivered profitable and sustainable growth, and executed value-add transactions, while navigating Argentina's macroeconomic headwinds and the adverse effects of Hyperinflation Accounting, as well meeting the day-to-day challenges of competing with global players in all of our markets. Looking ahead, we have put together a 2019-2021 Strategic Plan that continues to be based on our three Strategic Pillars: Growth, Profitability and Sustainability. Our plan has six strategic goals: 1) grow profitably in all our business units; 2) strengthen our brands; 3) continue to innovate; 4) execute our CCU ExCCelencia plan to capture additional efficiencies; 5) continue working towards the integral development of our employees; and 6) taking care of our planet through the development and implementation of our 2030 Environmental Vision.

• 3 See page 4 "Consolidated Income Statement Highlights - Full Year 2018".

• 4 The CLP currency variation against the USD considers average of period (aop) compared to aop.

• 5 The ARS currency variation against the CLP or the USD considers 2018 end of period (eop) compared to 2017 aop.

• 6 See page 3 "Consolidated Income Statement Highlights - Fourth Quarter".

• 7 CCU began to consolidate BBO as of August 9, 2018.

CONSOLIDATED INCOME STATEMENT HIGHLIGHTS - FOURTH QUARTER (Exhibit 1 & 3)

•  Net sales increased 7.9%, driven by 11.9% volume growth, which was partially offset by a 3.5% decline in average price in CLP. While all three Operating segments reported an increase in volumes this quarter, growth was primarily driven by the 19.7% and 9.2% rise in volumes in the International Business and Chile Operating segments, respectively, while the Wine Operating segment contributed with a 1.7% increase. The 3.5% lower average price in CLP was primarily explained by the 99.4%5 depreciation of the ARS against the CLP, which reduced the revenue contribution in CLP from the International Business Operating segment, despite price increases in local currency, and by the 3.2% lower average price in the Chile Operating segment, explained by product mix and promotional activities. In the Wine Operating segment, the average price increased 9.5%, due to higher prices in the domestic market, as well as the favorable impact of the stronger USD on export revenues.

•  Cost of sales increased 15.3%, explained by the 11.9% increase in volumes and the 3.0% increase in Cost of sales per hectoliter. The Chile Operating segment reported a 2.1% decrease in Cost of sales per hectoliter, explained by manufacturing efficiencies, which more than offset the increase in USD-linked costs from the 7.2%4 depreciation of the CLP against the USD. In the International Business Operating segment, the Cost of sales per hectoliter in CLP increased 17.8%, primarily due to the impact of the 119.0%5 depreciation of the ARS/USD on USD-linked costs, as well as the effects of inflation in Argentina. In the Wine Operating segment, the Cost of sales per hectoliter increased only by 4.2%, indicating a marked improvement due to a lower cost of wine in a portion of our sales.

•  Gross profit reached CLP 281,963 million, an increase of 1.8%, resulting in a 310 bps deterioration in our Gross margin.

•  MSD&A increased 7.0%, while MSD&A as a percentage of Net sales improved by 32 bps. In the Chile Operating segment, MSD&A as a percentage of Net sales improved by 43 bps, as scale and efficiencies offset higher fuel prices. In the International Business Operating segment, MSD&A as a percentage of Net sales improved by 274 bps, explained by logistic efficiencies and scale benefits, due to strong volume growth, which more than offset the negative impact of 47.4% inflation in Argentina. In the Wine Operating segment, MSD&A as a percentage of Net sales improved 220 bps, from 27.8% to 25.6%, due to greater operating efficiencies.

•  EBIT reached CLP 87,250 million, a decrease of 3.3%. These results include the application of Hyperinflation Accounting in Argentina which adversely impacted EBIT by CLP 1,140 million, CLP 92 million in expenses related to the Transaction and CLP 103 million in operating expenses related to the tax asset revaluation in Argentina. Excluding these effects, EBIT reached CLP 88,585 million, a decrease of 1.8%.

•  EBITDA reached CLP 114,612 million, a decrease of 2.5%, primarily explained by the International Business Operating segment, which reported a decline of 13.3%. Our consolidated EBITDA margin contracted by 223 bps, from 23.0% to 20.8%. This financial result was largely explained by the sharp depreciation of our local currencies against the USD, primarily the CLP and ARS which depreciated 7.2%4 and 119.0%5, respectively. This FX fluctuation had an adverse estimated impact of CLP 19,041 million on EBITDA. Excluding this currency variation, EBITDA would have increased by 13.7%. On the other hand, excluding the impact of Hyperinflation Accounting, as well as the expenses related to the tax asset revaluation and to the Transaction, EBITDA reached CLP 111,815 million, a decrease of 4.9%.

•  Non-operating result improved by 97.6%, with a loss of CLP 194 million compared to a loss of CLP 8,176 million last year, primarily as a result of CLP 3,853 million in lower Net financial expenses, due to higher Cash and cash equivalents, as well as a positive delta of CLP 3,567 million in Other gains, explained by gains on forward contracts entered into to mitigate the impact of foreign exchange rate fluctuations on our foreign currency denominated assets. Cash and cash equivalents maintained for upcoming Tax expenses related to the Transaction generated CLP 2,570 million in Financial income in the fourth quarter.

•  Income taxes reached CLP 18,795 million, 13.3% less than last year, explained by the decrease in the corporate income tax rate in Argentina from 35.0% to 30.0% and by the CCU Argentina's tax asset revaluation. This was partially offset by 6.1% higher consolidated taxable income, the increase of the First Category Income tax rate in Chile from 25.5% to 27.0% and by the impact on taxes resulting from our foreign currency denominated assets, as a consequence of the appreciation of the USD against the CLP.

•  Net income reached CLP 62,698 million, an increase of 13.1%. This quarter Net income includes a negative impact of CLP 3,158 million from Hyperinflation Accounting in Argentina, a positive impact of CLP 1,728 million mainly due to after-tax Net financial income related to the Transaction, and a CLP 6,822 million gain from the tax asset revaluation in Argentina. Excluding these effects, Net income reached CLP 57,303 million, an increase of 3.4%.

CONSOLIDATED INCOME STATEMENT HIGHLIGHTS - FULL YEAR 2018 (Exhibit 2 & 4)

•  Net sales rose 5.0% as a result of 9.6% higher volumes, offset by a 4.2% lower average price in CLP. Volume growth was driven by a 23.0% and 5.6% increase in volumes in the International Business and Chile Operating segments, respectively, partially offset by 3.0% lower volumes in the Wine Operating segment. The 4.2% lower average price in CLP was primarily explained by the sharp depreciation of the ARS against the CLP, which resulted in a 14.5% lower average price in CLP from the International Business Operating segment.

•  Cost of sales increased 7.7%, mostly due to 9.6% higher volumes, given that the Cost of sales per hectoliter declined 1.8%. The Chile Operating segment reported a 1.9% decrease in the Cost of sales per hectoliter, explained by manufacturing efficiencies, lower cost of sugar and the 1.4% appreciation of the CLP against the USD, which reduced our USD-denominated costs, offset by higher PET and aluminum costs. In the International Business Operating segment, the Cost of sales per hectoliter in CLP decreased by 1.8%, primarily explained by currency translation, given that in local currency, the Cost of sales per hectoliter rose as a result of higher USD-linked costs, due to the sharp depreciation of the ARS/USD. In the Wine Operating segment, the 8.8% higher Cost of sales per hectoliter was the result of the higher cost of wine, following the weak 2016 and 2017 harvests in Chile.

•  Gross profit reached CLP 923,271 million, a 2.6% increase, resulting in a 120 bps decline in Gross margin.

•  MSD&A increased 1.9%, while MSD&A as a percentage of Net sales improved 116 bps, partially driven by the ExCCelencia CCU program in all of our Operating segments. In the Chile Operating segment our MSD&A as a percentage of Net sales increased 11 bps, as operating efficiencies were offset by higher fuel prices. In the International Business Operating segment, logistic efficiencies and scale benefits, due to our double-digit volume growth, contributed to the 544 bps improvement in MSD&A as a percentage of Net sales. In the Wine Operating segment our MSD&A as a percentage of Net sales improved 101 bps, from 26.4% to 25.4%, due to higher operating efficiencies.

•  EBIT reached CLP 468,722 million, an increase of 99.5%. These results include growth from both ongoing operations, as well as a gain of CLP 208,842 million from the Transaction, the application of Hyperinflation Accounting in Argentina which adversely impacted EBIT by CLP 5,023 million and also CLP 103 million in operating expenses related to the tax asset revaluation in Argentina. Excluding these effects, EBIT reached CLP 265,006 million, an increase of 12.8%.

•  EBITDA grew by 71.8% to CLP 562,011 million. These results include growth from both ongoing operations, as well as a gain of CLP 208,842 million from the Transaction, the application of Hyperinflation Accounting in Argentina which favorably impacted EBITDA by CLP 749 million and also CLP 103 million in operating expenses related to the tax asset revaluation in Argentina. Excluding these effects, EBITDA reached CLP 352,523 million, an increase of 7.8%.

•  Non-operating result improved by 72.6%, with a loss of CLP 10,510 million compared to a loss of CLP 38,420 million last year, as a result of CLP 11,349 million in lower Net financial expenses, due to higher Cash and cash equivalents; USD-denominated assets generated Foreign currency exchange differences, which this period represented a gain of CLP 3,300 million, compared to a loss of CLP 2,563 million last year; and Other gains/(losses) presented a gain of CLP 4,030 million this period, compared to a loss of CLP 7,717 million last year, explained by gains on forward contracts entered into to mitigate the impact of foreign exchange rate fluctuations on our foreign currency denominated assets.

•  Income taxes reached CLP 136,127 million, compared to CLP 48,366 million last year, explained by an increase of 133.2% in consolidated taxable income, the increase of the First Category Income tax rate in Chile from 25.5% to 27.0% and by the impact on taxes resulting from our foreign currency denominated assets, as a consequence of the appreciation of the USD against the CLP. This was partially offset by the decrease in the corporate income tax rate in Argentina from 35.0% to 30.0% and by CCU Argentina's tax asset revaluation.

•  Net income rose 136.8% to CLP 306,891 million, which includes growth from both ongoing operations, as well as a gain of CLP 157,359 million from the Transaction, composed by the reported one-time gain in the second quarter of CLP 153,496 million, as well as CLP 2,131 million in 3Q18 and CLP 1,732 million in 4Q18, which we should highlight at year-end, as it mainly corresponds to after-tax Net financial income related to Cash and cash equivalents maintained for upcoming Tax expenses from the Transaction. This growth, however, was partially offset by the application of Hyperinflation Accounting in Argentina, which adversely impacted Net income by CLP 6,087 million. Also this year, CCU Argentina opted in to a tax asset revaluation, which generated a CLP 6,822 million positive impact at Net income. Excluding these effects, Net income increased by 14.8% to CLP 148,797 million.

HIGHLIGHTS OPERATING SEGMENTS FOURTH QUARTER

1. CHILE OPERATING SEGMENT

In the Chile Operating segment, our top-line rose 5.8%, driven by volumes that increased 9.2%, partially offset by 3.2% lower average prices, primarily explained by product mix and promotional activities. Gross margin decreased by 48 bps, primarily due to lower prices and higher USD-denominated costs from the weaker CLP. MSD&A expenses as a percentage of Net sales improved by 43 bps, primarily due to scale and efficiencies. As a result, EBITDA grew 1.4%, reaching CLP 85,825 million, and the EBITDA margin deteriorated by 113 bps, from 27.3% to 26.2%. Excluding the negative effect from the FX fluctuation, the segment's EBITDA would have increased 8.0%.

For the fourth year in a row, CCU organized the campaign 27 Toneladas de Amor CCU Teletón, which aims to, simultaneously, provide financial support to the Teletón (the annual Chilean charity for disabled children) and help our environment through recycling. This initiative consists in the collection of plastic bottles in 260 locations throughout the country. These bottles are then recycled and the proceeds from the sale of these materials are donated to the Teletón. This year the campaign collected and recycled 67 tons of bottles.

This year we continued to make important progress in our Environmental Vision 2020 plan, where we have already exceeded two of our three goals for the year 2020: we reduced our water consumption by 42.2% (the original target was 33%) and our greenhouse gas emissions by 24.4% (our goal was 20%). We also advanced towards our goal of 100% valorization of industrial waste, ending the year at 98.5%. During 2019, we will be setting the goals for our Environmental Vision 2030 plan.

As part of our electromobility plan, Transportes CCU began to operate the first 100% electric, high-tonnage truck in the country. With a capacity of up to 13 tons and a range of 280 kilometers, the heavy-load vehicle will be used to transport CCU's products in Santiago. The goal is for electric vehicles to represent 50% of the fleet by 2030.

CCU entered the cider category with the launch of Cygan, a beverage made from green and red apples, with an alcohol content of 4.5° and 64 calories per 100 ml.

CCU launched Escudo Sin Filtrar, an unfiltered beer with strong character and aromas of malt and fresh hops, as well as Smooth Lager de Royal Guard, a refreshing and easy drinking beer based on Royal Guard's original recipe. We also expanded our no sugar added carbonated soft drink offering with the launch of Pepsi Zero Limón.

2. INTERNATIONAL BUSINESS OPERATING SEGMENT

The International Business Operating segment, which includes Argentina, Bolivia, Paraguay and Uruguay, reported volumes that rose 19.7%, with growth in all countries. Excluding Bolivia, volumes grew 11.8%. Revenue increased by 10.5%, as volume growth was partially offset by lower average prices in CLP, due to the impact of the 99.4%4 depreciation of the ARS against the CLP. Given that price increases in local currencies were not yet enough to offset FX pressures on USD-linked costs, gross margin contracted from 59.6% to 48.5%. Our MSD&A expenses as a percentage of Net sales improved 274 bps, thanks to efficiencies from the ExCCelencia CCU program and fixed expense dilution. All-in, EBITDA reached CLP 27,378 million, a decrease of 13.3%. EBITDA margin deteriorated by 436 bps, from 20.3% to 15.9%. Excluding the adverse effect of currency fluctuations, the segment's EBITDA would have increased 33.8%.

In Argentina, CCU continued to innovate in packaging with the launch of the 710 cc aluminum can for our brand Schneider and the 473 cc aluminum can for our national premium brand Imperial.

3. WINE OPERATING SEGMENT

The Wine Operating segment reported an 11.4% increase in revenue, explained by a 1.7% rise in volumes and a 9.5% higher average price in CLP. The higher average price was explained by an increase in prices in the domestic market and the positive tailwind on export revenues from the stronger USD against the CLP and ARS. The segment's gross margin finally marked a turning point this quarter, with an improvement of 310 bps, from 35.3% to 38.4%, explained by the aforementioned higher average price, as well as a lower cost of wine in a portion of our sales, thanks to 2018 harvest yields which returned to historical average levels. MSD&A as a percentage of Net sales also improved this quarter, by 220 bps, explained by greater operating efficiencies. As a result, EBITDA reached CLP 10,514 million, an increase of 92.1%, and EBITDA margin improved by 800 bps, from 11.0% to 19.0%. Excluding the favorable impact from the stronger USD, the segment's EBITDA would have increased 67.6%. In December 2018, Viña San Pedro Tarapacá S.A. (VSPT) signed an agreement to acquire part of Pernod Ricard's wine business in Argentina. The purchase agreement, which is subject to local regulatory approval, includes the Argentine wine brands Graffigna, Colón and Santa Silvia, which represent roughly 1.5 million boxes of 9 liter wine bottles per year, as well as a winery in the San Juan province and two vineyards in Mendoza.

VSPT's recently launched EPICA Sangría, our first premium sangria beverage in Chile, received the Product of the Year 2019 award, based on the results of an online consumer survey conducted by GfK Adimark.