11/04/20: CCU Reports Consolidated Third Quarter 2020 Results

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CCU REPORTS CONSOLIDATED THIRD QUARTER 2020 RESULTS1,2

Santiago, Chile, November 4, 2020 - CCU announced today its consolidated financial and operating results for the third quarter 2020, which ended September 30, 2020.

• Consolidated Volumes decreased 1.8%. Volume variation per Operating segment was as follows:

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1. Chile (1.3)%

1. International Business (5.5)% o Wine 18.7%

Net sales were up 9.8%

EBITDA reached CLP 59,487 million, a 6.7% decrease. EBITDA variation per Operating segment was as follows:

1. Chile (18.1)%

1. International Business >500% o Wine 21.0%

Net income reached a gain of CLP 12,131 million, an expansion of 40.6%

Earnings per share reached of CLP 32.8 per share

Key figures	3Q20	3Q19	Total	YTD20	YTD19	Total
(In ThHL or CLP million unless stated otherwise)	change %	change %
Volumes	6,734	6,857	(1.8)	20,545	20,855	(1.5)
Net sales	428,355	390,249	9.8	1,257,964	1,244,469	1.1
Gross profit	189,879	189,392	0.3	578,240	612,622	(5.6)
EBIT	32,254	37,895	(14.9)	87,235	138,520	(37.0)
EBITDA	59,487	63,757	(6.7)	169,870	216,064	(21.4)
Net income	12,131	8,626	40.6	41,109	75,183	(45.3)
Earnings per share (CLP)	32.8	23.3	40.6	111.3	203.5	(45.3)

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 3Q20 compared to 3Q19, unless otherwise stated.

PRESS RELEASE

COMMENTS FROM THE CEO

During the third quarter we continued executing a regional plan with three priorities in the context of the pandemic: (i) the health and safety of our people, and the community we interact with, (ii) operation continuity and, (iii) financial health. Along with focusing on these aspects, and thanks to the effort of all CCU employees, we were able to post a sequential improvement in our volumes and financial results. The latter reflects the strategy adopted in this context, which is to maintain business scale, and then, recover profitability gradually over time, by implementing revenue management initiatives and efficiencies through the ExCCelencia CCU program. It is worth mentioning, that on an accumulated basis, our consolidated volumes decreased marginally by 1.5%, due to an expansion of 6.4% in 1Q20, a deep drop of 12.0% in the 2Q20 and a slight contraction of 1.8% in the 3Q20, ending with a positive growth in September.

The performance in volumes during the quarter was mainly explained by a 5.5% fall in the International Business Operating segment, while the Chile Operating segment experienced a decrease of only 1.3%, and the Wine Operating segment posted an important 18.7% increase. Throughout the quarter, all our geographies and main categories showed improvement in their volume performance, mainly driven by a gradual recovery in consumer occasions, as restrictions from the pandemic started to ease in the region, especially in Chile, and by our strong portfolio of brands and sales execution. In terms of financial results, EBITDA fell 6.7% to CLP 59,487 million and EBITDA margin dropped 245 bps to 13.9%. This result was mainly explained by: (i) negative external effects from the devaluation of the CLP and the ARS against the USD, which depreciated 10.8%3 and 31.3%4, respectively, affecting our USD-denominated costs and the translations of our results, partially compensated with export revenues in the wine business. The FX variations generated a net unfavorable estimated effect of CLP 7,429 million on EBITDA; and (ii) a non-recurrent gain of CLP 3,149 million last year from the sale of a real estate asset. Net income grew 40.6%, reaching CLP 12,131 million, explained in part by a better result in JVs and associated, related to our operation in Colombia.

In the Chile Operating segment, our top line rose 4.7%, due to a 6.1% growth in average prices, partially offset with a 1.3% decrease in volumes. The higher average prices were explained by revenue management initiatives and a positive mix effect between categories, more than compensating the negative impact of the pandemic in high margin consumer occasions. The slight decline in volumes was largely explained by a sharp contraction in July, showing an upward trend in the following months, ending the quarter with double-digit growth in September, driven by all the main categories. Also, during the quarter, our e-commerce platform, "La Barra", continued with a strong growth, expanding its sales by five times. This quarter our results were negatively impacted by the higher USD-denominated costs from the weaker CLP against the USD, where the FX variations generated a net unfavorable estimated effect of CLP 7,925 million on EBITDA. MSD&A expenses decreased 2.1%, and as percentage of Net sales improved 255 bps, in line with cost control initiatives through the ExCCelencia CCU program. In all, EBITDA reached CLP 44,996 million, a 18.1% drop, and EBITDA margin decreased 450 bps to 16.2%.

The International Business Operating segment, which includes Argentina, Bolivia, Paraguay and Uruguay, reported a 24.2% rise in revenues, driven by a 31.5% increase in average prices in CLP, partly offset by a 5.5% contraction in volumes. The higher prices in CLP were mainly related with a lower comparison base in 2019, associated with the application of the hyperinflation accounting in Argentina, as a result of the higher devaluation of the ARS against the CLP during 3Q19 compared with 3Q20. Also, it is important to mention that during the quarter we implemented revenue management initiatives in Argentina, to start catching up with the high inflation in this country. On EBITDA, the FX variations generated an unfavorable translation effect of CLP 1,464 million. MSD&A expenses as a percentage of Net sales improved by 114 bps due to efficiencies associated with the ExCCelencia CCU program. Altogether, EBITDA reached CLP 2,483 million from CLP 2 million in 2019, and EBITDA margin increased 277 bps to 2.8%.

The Wine Operating segment posted a 19.7% increase in revenue, driven by a 18.7% rise in volumes while average prices grew 0.9%. The volume expansion was boosted by the Chilean and the Argentine domestic market, the latter associated with the brands acquired in Argentina in 2019, while exports grew mid-single digit. The higher prices in CLP were mainly as a consequence of a stronger USD on export revenues partially offset by a negative mix effect from the higher growth in our domestic markets. On EBITDA, the FX variations generated a net positive estimated effect of CLP 1,960 million due to export revenues, which more than offset an increase in cost of wine, starting to reflect the weaker 2020 harvest. MSD&A expenses as a percentage of Net sales improved by 135 bps, due to efficiencies coming from the ExCCelencia CCU program. In all, EBITDA reached CLP 14,604 million, an expansion of 21.0%, and EBITDA margin improved by 22 bps to 21.2%.

In Colombia, where we have a joint venture with Postobón, volumes grew double-digit, due to a strong recovery since May. This performance has allowed us to keep gaining market share, due to a continuous improvement in brand equity, distribution and sales execution. Our focus will be to continue this positive path in volumes and financial results, by developing brand equity and executing a strategy that involves new consumer experiences, quality and innovation.

In the third quarter of 2020, along with to continue focusing on people, operation continuity, and financial health, CCU posted a strong recovery in volumes and financial results, driven by a better commercial performance in all the geographies, revenue management initiatives and efficiencies. All of this was the result of the strong commitment of all our employees, the gradual recovery of consumer occasions, our portfolio, and the excellence in sales execution. Looking ahead, we will continue concentrating our efforts on maintaining our business scale in the current scenario, so that we will start to recover profitability over time, by implementing revenue management initiatives and efficiencies through the ExCCelencia CCU program.

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

4 The ARS currency variation against the CLP or the USD considers 2020 end of period (eop) compared to 2019 eop.

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PRESS RELEASE

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

• Net sales increased 9.8%, explained by a 11.8% rise in average prices in CLP, partially offset by a 1.8% drop in consolidated volumes. The higher average prices in CLP were explained by: (i) an expansion of 31.5% in the International Business Operating segment, mostly related with revenue management initiatives and a lower comparison base in 2019, associated with the application of the hyperinflation accounting in Argentina, as a result of the higher devaluation of the ARS against the CLP during 3Q19 compared with 3Q20, (ii) an increase of 6.1% in the Chile Operating segment, due to revenue management initiatives and a positive mix effect between categories, more than compensating the negative impact of the pandemic in high margin consumer occasions, and (iii) a 0.9% growth in the Wine operating segment, as a consequence of a stronger USD on export revenues, partially offset by a negative mix effect. The slight decrease in consolidated volumes, was largely explained by a sharp contraction in July, showing an upward trend reaching positive growth in September.
• Cost of sales was up 18.7%, explained by a 20.9% rise in the Cost of sales per hectoliter, as volumes decreased 1.8%. The Chile Operating segment reported an 18.2% growth in Cost of sales per hectoliter, driven by the increase in USD-linked costs from the 10.8%3 devaluation of the CLP against the USD, and a mix effect between categories, partially offset with lower costs in raw materials, especially malt and PET. In the International Business Operating segment, the Cost of sales per hectoliter in CLP expanded 35.5%, associated with a lower comparison base in 2019, from the application of the hyperinflation accounting in Argentina (same effect explained in Net sales), and by higher USD-linked costs, largely explained by the 31.3%4 devaluation of the ARS against the USD, and the impact of inflation, partially compensated with lower costs in raw materials. In the Wine Operating segment, the Cost of sales per hectoliter grew 2.1%, explained by a higher cost of wine, starting to reflect the weaker 2020 harvest, and by the effect of the depreciation of the CLP against the USD on our packaging materials linked to this currency.
• Gross profit reached CLP 189,879 million, a 0.3% increase. Gross margin fell 420 bps, from 48.5% to 44.3%, as a consequence of the effects described above.
• MSD&A expenses grew 4.0%, and as a percentage of Net sales decreased 212 bps, due to cost control measures through the ExCCelencia CCU program in all our Operating segments, especially in marketing. In the Chile Operating segment, MSD&A expenses contracted 2.1%, and as a percentage of Net sales decreased 255 bps. In the International Business Operating segment MSD&A expenses were up 21.4%, and as a percentage of Net sales decreased 114 bps. In the Wine Operating segment, MSD&A expenses grew 13.5%, and as a percentage of Net sales contracted 135 bps.
• EBIT reached CLP 32,254 million, a contraction of 14.9%, mainly due to the same reasons described above and a non-recurrent gain of CLP 3,149 million last year from the sale of a real estate asset.
• EBITDA was down 6.7%, and EBITDA margin dropped 245 bps, from 16.3% to 13.9%. This result was mainly explained by: (i) an unfavorable estimated effect from FX variations of CLP 7,429 million, and (ii) a non-recurrent gain of CLP 3,149 million last year from the sale of a real estate asset.
• Non-operatingresult totalized a loss of CLP 14,147 million, a decrease of 29.2% when compared to a loss of CLP 19,990 million last year, primarily due to: (i) a lower loss in Foreign currency exchange differences by CLP 4,539 million, mainly in Argentina, (ii) a better result in Equity and income of JVs and associated by CLP 2,919 million, mainly caused by a higher financial result in Colombia, and (iii) a better result of CLP 2,648 million in Results as per adjustment units, mostly explained by a lower UF variation during 3Q20 compared with 3Q19 and its impact on UF-linked liabilities, and a lower inflation in Argentina in 2020 versus 2019. These effects were partially offset by:
• 1. lower result in other gains/(losses) by CLP 3,974 million, mostly explained by losses on forward contracts entered into to mitigate the impact of foreign exchange rate fluctuations on our foreign currency denominated assets, and
  2. higher Net financial expenses by CLP 289 million.
• Income taxes reached CLP 3,692 million, a 46.4% drop, mostly explained by lower taxes resulting from our foreign currency denominated assets, as a consequence of the lower appreciation of the USD against the CLP in 3Q20 compared with 3Q19.
• Net income reached a gain of CLP 12,131 million, an increase of 40.6%, explained by the reasons described above.

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PRESS RELEASE

CONSOLIDATED INCOME STATEMENT HIGHLIGHTS - NINE MONTHS (Exhibit 2 & 4)

• Net sales increased 1.1%, explained by an increment of 2.6% in average prices in CLP, partially offset by a 1.5% decrease in consolidated volumes. The higher average prices in CLP were explained by: (i) a 1.3% rise in the Chile Operating segment, as a consequence of revenue management initiatives and a positive mix effect between categories, more than compensating the negative impact of the pandemic in high margin consumer occasions, (ii) a 2.0% rise in the International Business Operating segment, and (iii) a 2.7% growth in the Wine Operating segment, as a consequence of a stronger USD on export revenues. The lower volumes were largely associated by a 5.8% fall in the International Business Operating segment, while the Chile Operating segment decreased 0.2% and the Wine Operating segment grew 10.0%. The negative consolidated volume growth was explained by the restrictions to control the Covid-19 pandemic in the region, which sharply impacted consumer occasions mostly during the second quarter.
• Cost of sales was up 7.6% explained by the 9.2% increment in Cost of sales per hectoliter, partially compensated by a 1.5% contraction in volumes and efficiencies from the ExCCelencia CCU program. The Chile Operating segment reported a 10.6% growth in Cost of sales per hectoliter, driven by the increase in USD-linked costs from the 17.0%3 devaluation of the CLP against the USD, and mix effect between categories, partially offset with lower costs in raw materials, especially aluminum and PET. In the International Business Operating segment, the Cost of sales per hectoliter in CLP increased 10.1%, mostly as a result of higher USD-linked costs, largely explained by the 31.3%4 devaluation of the ARS against the USD, and the impact of inflation, partially compensated with lower costs in raw materials. In the Wine Operating segment, the Cost of sales per hectoliter decreased 3.4%, impacted by a lower cost of wine that more than offset the effect of the depreciation of the CLP against the USD on our packaging materials linked to this currency.
• Gross profit reached CLP 578,240 million, a 5.6% drop, resulting in a 326 bps contraction in our Gross margin, from 49.2% to 46.0%, as a consequence of the effects described above.
• MSD&A expenses grew by 3.0%, and as a percentage of Net sales increased by 76 bps. In the Chile Operating segment, MSD&A expenses increased 1.3% and as a percentage of Net sales are flat. In the International Business Operating segment, MSD&A expenses rose 3.1% in CLP and as a percentage of Net sales deteriorated by 352 bps, mostly associated with the high level of inflation in Argentina, not fully compensated with price increases. In the Wine Operating segment, MSD&A expenses grew 14.7% and as a percentage of Net sales rose 39 bps, mainly explained by higher marketing expenses denominated in USD and Euros.
• EBIT reached CLP 87,235 million, a contraction of 37.0%, mainly due to the same reasons described above.
• EBITDA was down 21.4%, reaching CLP 169,870 million, explained by a 20.1% contraction in the Chile Operating segment and a drop of 96.9% in the International Business Operating segment, partially compensated by a 38.8% expansion in the Wine Operating segment. Consequently, EBITDA margin dropped 386 bps, from 17.4% to 13.5%. The weaker financial result was mainly explained by strong negative external effects from the devaluation of the CLP and ARS against the USD, and the lower consolidated volumes due to the pandemic.
• Non-operatingresult totalized a loss of CLP 20,571 million, a decrease of 36.1% when compared to a loss of CLP 32,180 million last year, primarily due to: (i) a better result in Foreign currency exchange differences by CLP 9,619 million, mainly in Argentina (ii) a lower loss in Equity and income of JVs and associated by CLP 7,933 million, mainly caused by a higher financial result in Colombia, and (iii) a lower loss of CLP 5,565 million in Results as per adjustment units, mostly explained by a lower inflation in Argentina and a lower UF variation during 2020 compared with 2019 and its impact on UF-linked liabilities. These effects were partially offset by higher Net financial expenses by CLP 10,372 million, mainly due to higher Cash and cash equivalents held last year for tax expenses and dividend payments related to the 2018 ABI Transaction5 and a higher debt. As well as, a lower result in other gains/(losses) by CLP 1,136 million.
• Income taxes reached CLP 19,973 million, decreasing 8.5% from last year, mostly explained by a lower taxable income.
• Net income reached CLP 41,109 million, a contraction of 45.3%.

5 For further information about the Transaction see the Note 1- letter C, of our Consolidated Financial Statements as of December 31st 2019.

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