Fitch Ratings has affirmed the following ratings of Compania Cervecerias Unidas (CCU):
--Foreign currency Issuer Default Rating (IDR) at 'A';
--Local currency IDR at 'A';
--National scale IDR for series E, H and I UF-denominated local bonds at 'AA+(cl)';
--Equity rating at 'Level 1'.
The Rating Outlook is Stable.
The rating affirmation is based on CCU's dominant position in the Chilean beer market, stable operations and strong cash flow generation despite economic cycles. The company's credit profile also benefits from broad geographic and product diversification, as well as from the stability of the beverage industry. Credit metrics remain strong: as of December 2009, CCU's leverage as measured by total debt-to-EBITDA declined to 1.3 times (x) from 1.5x, while net debt to EBITDA ratio reached 0.5x.
CCU's dominant position in the Chilean beer market is reflected by its 85.2% market share. Despite competitive pressures from Cerveceria Chile (subsidiary of Quinsa, owned by Ambev) the company has been able to maintain its market share through the years due to its extensive direct-distribution system, diversified portfolio of beer products, strong marketing strategies 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. During 2009, 36% of CCU's consolidated revenues and 51% of its consolidated EBITDA were generated by this business segment.
CCU's ratings also consider its product and geographic diversification. The company has a solid presence in Chile's soft drink, mineral water and nectar industries: during 2009, CCU was the largest bottler and distributor of mineral water in Chile with a market share of 68%, and the third largest bottler of soft drinks with an estimated market share of 24%. In such period, this business unit generated 26% of CCU's consolidated revenues and 19% of its consolidated EBITDA.
CCU's cash flows are further diversified through its subsidiary Vina San Pedro Tarapaca, (VSPT), the second largest wine producer in Chile. This segment represented 16% of total revenues and 11% of total EBITDA in 2009. Furthermore, the company also has a strong market presence in Argentina through its subsidiary CCU Argentina, a local brewery with a 22% market share, which in 2009 accounted for 18% of consolidated revenues and 12% of consolidated EBITDA.
During 2009, CCU's consolidated volumes grew by 3.7%, while average prices increased by 7.5%, leading consolidated revenues to record level of US$776.544 million, showing a 9.3% annual growth. Both volumes and average price increases were mainly driven by the wine segment (20.5% in volumes and 9.8% in price after the merger with Vina Tarapaca in December 2008), as well as by 15% higher prices in the beer segment in Argentina. Consolidated EBITDA margin remained at a solid and stable level of 23.3%, while the EBITDA generation increased by 10.7% to US$181.513 million.
In spite of the higher costs related to the earthquake in February, results for the first quarter of 2010 were positive, with revenues amounting to US$47.854 million (0.9% increase as compared to the first quarter of 2009) as a result of 3.5% higher consolidated volumes partially offset by 2% lower average prices. Consolidated EBITDA for the quarter amounted to US$58.354 million, showing a 2.1% increase respecting the same period of 2009, and improved its margin to 27.3%. Fitch expects that results for 2010 will maintain a positive trend, reflecting a more positive overall economic environment.
Management's strategy also includes preserving a conservative capital structure and high liquidity: in April 2009, CCU placed bonds for UF 5 million (US$180 million). Proceeds from these bonds were mainly used to pay a US$100 million syndicated loan with maturity in November 2009, to refinance a US$33 million loan obtained to fund the acquisition of Vina Tarapaca in 2008, and to increase cash on balance. In this period CCU has built up a significant cash balance, which has recorded a strong growth reaching US$166.740 million as of March 2010 from US$59.836 million in December 2008. Such increment resulted mainly from CCU's high free cash flow generation (US$42.200 million in 2009), the collection of US$24.448 million from the sale of a 29.9% participation in Aguas CCU - Nestle Chile, and extra liquidity received from the bond issuances.
Applicable criteria available on Fitch's website at www.fitchratings.com:
--'Corporate Rating Methodology' dated Nov. 24, 2009;
--'National Ratings- Methodology Update' dated Dec. 18, 2006.
Additional information is available at www.fitchratings.com.
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