In companies where CCU has a controlling interest, the Company’s Administration and Finance Management provides a centralized service for the group’s companies to obtain financing and administration of exchange rates, interest rates, liquidity, inflation, raw materials and credit risks. Such activity operates in accordance with a framework of policies and procedures which is regularly reviewed to ensure it fulfils the purpose of managing the risks by business needs.

In companies with a non-controlling interest (VSPT, CPCH, Aguas CCU-Nestlé S.A., Bebidas del Paraguay S.A., Cervecería Kunstmann S.A. and Bebidas Bolivianas BBO S.A.) the responsibility for this service lies with the respective Board of Directors and respective Administration and Finance Management Area. When applicable, the Board of Directors and Directors Committee has the final responsibility for establishing and reviewing the risk administration structure, as well as for the reviewing significant changes made to risk management policies.

In accordance with financial risk policies, the Company uses derivate instruments only for the purpose of hedging exposure to interest rate and exchange rate risks arising from the Company’s operations and its sources of financing, of which some are considered as hedges for accounting purposes. Transactions with derivate instruments are exclusively carried out by the Administration and Finance department while the Internal Audit Management department regularly reviews the control of this activity. Relationships with credit rating agencies and the monitoring of financial covenants are also managed by Administration and Finance department.

The Company’s main risk exposure is related to exchange rates, interest rates, inflation and raw materials price (commodities), taxes, trade accounts receivable and liquidity. Several types of financial instruments are used to manage the risk originated by these exposures.

For each of the following points, where applicable, the sensitivity analyses developed are merely for illustration purposes, since in practice the sensitized variables rarely change without affecting each other and without affecting other factors that were considered as constant and which also affect the Company’s financial position and results.

The Company is exposed to exchange rate risks originated by: a) its net exposure to foreign currency assets and liabilities, b) exports sales, c) the purchase of raw materials, products and capital investments in foreign currencies, or indexed in such currencies, and d) the net investment of subsidiaries in foreign countries. The Company’s greatest exchange rate exposure is to the variation on the Chilean peso with respect to the US Dollar, Euro, Argentine Peso, Uruguayan Peso, Paraguayan Guarani, Bolivian Peso and Colombian Peso.

As of December 31, 2020, the Company maintained foreign currency obligations amounting to

ThCh$ 101,245,204

(ThCh$ 104,825,681 in 2019), mostly denominated in US Dollars. Obligations with banks in foreign currency

ThCh$ 29,034,945 as of December 2020 (ThCh$ 38,185,534 in 2019) represent a 6% (14% in 2019) of total other financial liabilities. The remaining 94% (86% in 2019) is mainly denominated in Unidades de Fomento (inflation-indexed Chilean monetary unit – see inflation risk section). In addition, the Company has assets in foreign currency in the amount of

ThCh$ 195,343,807 (ThCh$ 210,988,726 in 2019) that mainly correspond to net investments of subsidiaries in foreign countries and export accounts receivable.

To protect the value of the net foreign currency assets and liabilities position of its Chilean operations, the Company enters into derivate contracts (currency forwards) to ease any variation in the Chilean peso as compared to other currencies.

As of December 31, 2020, the net exposure of the Company in Chile in foreign currencies, after the use of derivate

instruments, is a liability position in the amount of

ThCh$ 1,451,523

(was an asset position in

ThCh$ 8,440,013 in 2019).

As of December 31, 2020, of the Company’s total sales, both in Chile and abroad, 7% (7% in 2019 and in 2018) corresponds to export sales in foreign currencies, mainly US Dollars and Euros and approximately 62% (64% in 2019 and 61% in 2018) of total direct costs correspond to raw materials and products purchased in foreign currencies, or indexed to such currencies. The Company does not hedge the possible variations in the expected cash flows from such transactions.

The Company is also exposed to fluctuations in exchange rates relating to the conversion from Argentine Peso, Uruguayan Peso, Paraguayan Guaraní, Bolivian Peso and Colombian Peso to Chilean Pesos with respect to assets, liabilities, income and expenses of its subsidiaries in Argentina, Uruguay, Paraguay and Bolivia the associate in Perú and a joint venture in Colombia. The Company does not hedge the risks associated to the conversion of its subsidiaries, whose effects are recorded in equity.

The effect of foreign currency translation differences recognized in the Consolidated Statement of Income for the year ended as of December 31, 2020, related to assets and liabilities denominated in foreign currency, was a gain of

ThCh$ 2,551,823 (a loss of ThCh$ 9,054,155 in 2019 and a gain of ThCh$ 3,299,657 in 2018). Considering exposure as of December 31, 2020 and assuming a 10% increase in the exchange rate, and keeping constant all other variables such as interest rates, it is estimated that the effect on the Company’s net income would be a loss after taxes of

ThCh$ 105,961 (a gain of ThCh$ 616,121 in 2019 and ThCh$ 99

589 in 2018) associated of the owners of the controller.

Considering that approximately 7% of the Company’s sales revenue comes from export sales carried out in Chile (7% in 2019 and in 2018), in currencies other than Chilean Peso, and that approximately 62% (64% in 2019 and 61% in 2018) of the Company’s direct costs are in or indexed to the US Dollar and assuming that the functional currencies will appreciate (depreciate) by 10% in respect to the US Dollar, and keeping all other variables constant, the hypothetical effect on the Company’s income would be a loss after taxes of ThCh$ 22,919,408 (ThCh$ 27,683,581 in 2019 and ThCh$ 22,116,350 in 2018).

The Company can also be affected by changes in the Exchange rate of the countries where its foreign subsidiaries operate, since income is converted to Chilean Pesos at the average Exchange rate of each month. The operating income of foreign subsidiaries as of December 31, 2020 was a loss of ThCh$ 963,321 (net income of ThCh$ 20,517,569 in 2019 and

ThCh$ 56,533,194 in 2018). Therefore, a depreciation (appreciation) of 10% in the exchange rate of the Argentine Peso, the Uruguayan Peso, the Paraguayan Guarani and the Bolivian peso against the Chilean Peso, would result in a loss (income) before taxes of ThCh$ 96,332 (a gain of ThCh$ 2,051,757 in 2019 and ThCh$ 5,653,319 in 2018).

The net investment in foreign subsidiaries, associates and joint ventures as of December 31, 2020, amounted to

ThCh$ 238,824,995, ThCh$ 1,337,526 and ThCh$ 119,777,994, respectively (ThCh$ 272,584,756, ThCh$ 1,149,291 and ThCh$ 124,612,431 in 2019). Assuming a 10% increase or decrease in the Argentine Peso, Uruguayan Peso, Paraguayan Guarani, Bolivian Peso and Colombian Peso against the Chilean Peso, and maintaining all other variables constant, the increase (decrease) would hypothetically result in Net income (loss) of ThCh$ 35,994,052 (ThCh$ 39,834,648 in 2019 and ThCh$ 37,008,642 in 2018) recorded as a credit (charge) to equity.

As of December 31, 2020, the Company had a total

ThCh$ 8,250,670 in variable interest debt (ThCh$ 8,694,473 in 2019). Consequently, as of December 31, 2020, the company’s financing structure is made up of approximately 2% (3% in 2019) of debt with variable interest rate, and 98% (97% in 2019) in debt with fixed interest rates.

To manage interest rate risk, the Company has a policy which seeks to reduce the volatility of its finance cost, and maintain and ideal percentage of its debt in fixed rate instruments. The financial position is mainly set by the use of short-term and long-term, as well as derivate instruments such as cross currency interest rate swaps and cross interest rate swaps.

The terms and conditions of the Company’s obligations as of December 31, 2020, including Exchange rates, interest rates, maturities and effective interest rates, are detailed in

Note 21 – Other financial liabilities.

The total financial cost recognized in the Consolidated Statement of Income for the twelve months ended as of December 31, 2020, related to short and long-term debt amounted to ThCh$ 28,714,063 (ThCh$ 27,720,203 in 2019 and ThCh$ 23,560,662 in 2018). Assuming a reasonably possible increase of 100 bps in variable interest rates and maintaining all other variables constant, the increase would hypothetically result in a loss before taxes of ThCh$ 5,059 in 2018. As of December 31, 2020 and 2019, the company does not maintain variable interest debts.

The Company maintains a series of agreements indexed to Unidades de Fomento (UF) with third parties, as well as UF indexed financial debt which means the Company is exposed to fluctuations in the UF, generating an increase in the value of those agreements and liabilities if the UF increases due to inflation. This risk is partially mitigated by the Company’s policy of keeping net sales per unit in UF constant as long as market conditions allow it, and taking cross currency swaps if the market conditions are favorable to the Company.

Inflation in Argentina has shown significant increases since the beginning of 2018. The cumulative inflation rate of three years, calculated using different combinations of consumer price indices, has exceeded 100% for several months, and it’s still increasing. The cumulative three-year inflation calculated using the general price index has already exceeded 100%. Therefore, as prescribed by IAS 29, Argentina was declared a hyperinflationary economy as of July 1, 2018. (

See Note 2 – Summary of significant accounting polices (2.4)

Income from indexation units recognized in the Consolidated Statement of Income for the twelve-months ended as of December 31, 2020, related to UF indexed short and long-term debt and the application of Hyperinflation Accounting in Argentina, is a loss of ThCh$ 429,198 (a loss of ThCh$ 8,255,001 in 2019 and a gain of ThCh$ 742,041 in 2018). Assuming a reasonably possible 3% increase (decrease) in the UF and a 10% in the inflation rate in Argentina and keeping all other variables such as interest rates constant, the aforementioned increase (decrease) would hypothetically result in a loss (income) of ThCh$ 1,589,705 (ThCh$ 4,781,394 in 2019 and ThCh$ 3,380,752 in 2018).

The main exposure to raw materials price variation is related to barley, malt, and cans used in the production of beer, concentrates, sugar and plastic containers used in the production of soft drinks and bulk wine and grapes for the manufacturing of wine and spirits.

In Chile, the Company obtains its malt supply from both local producers and from the international markets (mainly from Argentina). With local and argentine producers, the Company enters into long-term supply agreements in which malt price is set annually, using for this purpose the market price of barley and manufacturing cost established in these agreements.

The purchases and commitments entered for the acquisition of raw materials expose the Company to a price fluctuations risk. Malt represents approximately 7% of the direct cost of the Chile Operating segment (6% in 2019 and 5% in 2018). CCU Argentina acquires all of its malt from local producers.

As of December 31, 2020, in the Chile Operation segment, the cost of cans represented approximately 19% of direct costs (17% in 2019 and 12% in 2018). In the International Business Operating segment, the cost of cans represented approximately 36% of direct raw materials costs as of December 31, 2020 (38% in 2019 and in 2018).

The main raw materials used in the production of non-alcoholic beverages are concentrated, which are mainly acquired from licenses, sugar and plastic resin for the manufacturing of plastic bottles and containers. The Company is exposed to price fluctuation risks involving these raw materials, which jointly represent approximately 24% (31% in 2019 and 27% in 2018) of the direct cost of the Chile Operating segment.

The main raw materials used by our subsidiary Viña San Pedro Tarapacá S.A. for wine production are grapes harvested from its own vineyards and grapes and wine acquired from third parties through long-term and spot contracts. In the last 12 months, approximately

20% (27% in 2019) of VSPT’s total wine supply came from its own vineyards. Regarding our export market, and considering our focus on this market, approximately 33% (43% in 2019) of our wine supply for export came from our own vineyards.

The remaining 80% (73% in 2019) supply was purchased from third parties through long-term and spot contracts. In the last 12 months, the subsidiary VSPT acquired 65% (54% in 2019) of the necessary grapes and wine from third parties through spot contracts. Additionally, the long-term transactions were 16% (19% in 2019) of the total supply.

We should consider that as of December 31, 2020, wine represents 59% (60% in 2019) of the total direct cost of the Wine Operating segment, and supplies purchased from third parties represented 38% (33% in 2019).

Total direct costs in the Consolidated Statement of Income for the twelve months ended as of December 31, 2020, amounted to ThCh$ 757,097,886 (ThCh$ 694,307,741 in 2019 and ThCh$ 650,386,343 in 2018). Assuming a reasonably possible 8% increase (decrease) in the direct cost of each Operating segment and keeping all other variables such as exchange rates constant, the aforesaid increase (decrease) would hypothetically result into a loss (income) before taxes of ThCh$ 38,770,441 (ThCh$ 33,084,911 in 2019 and ThCh$ 30,150,723 in 2018) for the Chile Operating segment, ThCh$ 13,698,385 (ThCh$ 14,807,640 in 2019 and ThCh$ 13,545,233 in 2018) for the International Business Operating segment and ThCh$ 8,959,908 (ThCh$ 8,310,433 in 2019 and ThCh$ 8,734,204 in 2018) for the Wine operating segment.

The credit risk which the Company is exposed originates mainly from: a) trade accounts receivable from retail customers, wholesale distributors and supermarket chains in the domestic market; b) accounts receivable from exports; and c) financial instruments maintained with Banks and financial institutions, such as demand deposits, mutual fund investments, instrument acquired under resale commitments and derivatives.

The credit risk related to trade accounts receivable from domestic markets is managed by the Credit and Collections Management Department, and is monitored by the Credit Committee of each business unit. The domestic market mainly refers to accounts receivables in Chile and represents 70% of total trade accounts receivable (63% in 2019). The Company has a wide base of customers that are subject to the policies, procedures and controls established by the Company. Credit limits are established for all customers on the basis of an internal rating and their payment behavior.

The

utstanding trade accounts receivable are regularly monitored. In addition, the Company purchases credit insurance that covers 90% of individually significant accounts receivable balances, coverage that as of December 31, 2020, is equivalent to 86% (86% in 2019) of total accounts receivable.

Overdue, but not impaired, trade accounts receivables represent customers that are less than 33 days overdue (30 days in 2019).

As of December 31, 2020, the Company has approximately 1,405 customers (1,381 customers in 2019) with more than Ch$ 10 million in debt each, which altogether represent approximately 88% (85% in 2019) of total trade accounts receivable. There are 272 customers (265 customers in 2019) with balances in excess of Ch$ 50 million each, representing approximately 76% (73% in 2019) of the total accounts receivable. The 92% (92% in 2019) of those accounts receivable are covered by credit insurance.

The Company believes that no additional credit risk provisions other than the individual and collective provisions determined as of December 31, 2020, that amount to ThCh$ 6,323,298 (ThCh$ 5,792,821 in 2019) are needed since a large percentage of these are covered by insurance.

The credit risk related to accounts receivable from exports is managed by the Head of Credit and Collections at VSPT and is monitored by VSPT Administration and Finance Management. VSPT’s export trade accounts receivable represent 13% of total trade accounts receivable (14% in 2019). VSPT has a wide base of customers, in more than eighty countries, which are subject to the policies, procedures and controls established by VSPT. In addition, VSPT acquires credit insurance to cover 98% (99% in 2019) of individually significant accounts receivable. This coverage accounts for more than 89% (89% in 2019) of total accounts receivable are covered. Pending payments of trade accounts receivable are regularly monitored. Apart from the credit insurance, having diversified sales in different countries decreases the credit risk.

The Company believes that no credit risk provisions are necessary other than the individual and collective provisions determined as of December 31, 2020. See analysis of accounts receivable aging and losses due to impairment of accounts receivables. (See Note 10 – Trade and other receivables)).

Financial investments correspond to time deposits, which are financial instruments acquired with repurchase agreements at fixed interest rate, maturing in less than three months placed in financial institutions in Chile, so there are not exposed to significant market risk. Derivatives are measured at fair value and traded only in the Chilean market. Since 2018, the amendment to IFRS 9, which requires changes to the valuation of derivative financial instruments considering the counterparty risk (CVA and DVA), is applied. The CVA and DVA effect is calculated using the probability of default of the counterparty or CCU, when applicable, assuming a 40% recovery rate for each derivative instrument. For CCU, the default probability is obtained from the spread of corporate bonds with the same credit risk rating than CCU, while for the counterparty, considers the sum between the Credit Default Swap (CDS) of Chile and the CDS of Citibank in the United States. As of December 31, 2020 the effect is not material.

Our businesses are taxed with different taxes, particularly with excise taxes on the consumption of alcoholic and non-alcoholic beverages. An increase in the rate of these or any other tax could negatively affect our sales and profitability.

The Company manages liquidity risk at a consolidated level. Cash flows from operating activities are the main source of liquidity. Additionally, the Company has the ability to issue debt and equity instruments in the capitals market based on our needs.

Based on current operating performance and its liquidity position, the Company estimates that cash flows from operation activities and available cash will be sufficient to finance working capital, capital investments, interest payments, dividend payment and debt payment requirement for the next 12-months period and in the foreseeable future.

A health crisis, pandemics or other contagious diseases at the global or regional level, like Covid-19, declared a pandemic by the World Health Organization on March 2020, could have a negative impact on our operations and financial position.

This is due to the fact these productions could not allow the normal Company's operation, limiting our supply and distribution capacity, and could be generate a contraction in demand for our products, as the periods with more restriction, like the second and third quarter of 2020.

The level of the impact on our operation depending on factors that we cannot predict, such as the duration, spread and severity of the health crisis.

Any restrictive measure to control a contagious disease or other adverse public health development in any of the target markets may have a material and adverse effect on business operations. The duration of the pandemic remains uncertain at this time and therefore the impact it may have on the world, the economies where CCU operates or the financial markets cannot be predicted.

The Company has contingency plans to care the people and operational continuity, but we cannot assure that these plans are sufficient to mitigate a material impact on our results and financial position.

Specifically, during 2020 we deployed a regional plan with three focuses: the health of workers and the people, operational continuity, and safeguarding the financial health of the Company. This allowed us to supply our customers and consumers with our products and maintain safety in the workplace. Up to date, CCU continues to sell, produce and distribute its products normally, in all the countries where it operates.

As of December 31, 2020	Book value (*)	Contractual flows maturities
	Book value (*)	0 to 3 months	3 months to 1 year	Over 1 year to 3 years	Over 3 years to 5 years	Over 5 years	Total
	ThCh$	ThCh$	ThCh$	ThCh$	ThCh$	ThCh$	ThCh$
Other financial liabilities no derivative
Bank borrowings	125,906,105	836,693	39,751,923	79,476,094	12,885,867	803,482	133,754,059
Bond payable	332,416,479	4,954,003	7,303,258	34,748,671	109,950,580	255,265,277	412,221,789
Lease liabilities	32,134,911	1,689,539	4,415,461	7,687,792	4,724,806	23,943,806	42,461,404
Deposits for return of bottles and containers	14,116,167	-	14,116,167	-	-	-	14,116,167
Sub-Total	504,573,662	7,480,235	65,586,809	121,912,557	127,561,253	280,012,565	602,553,419
Derivatives
Derivatives not designated as hedges	4,243,939	4,243,939	-	-	-	-	4,243,939
Derivatives designated as hedges	5,323,640	1,176,303	4,521,259	-	-	-	5,697,562
Sub-Total	9,567,579	5,420,242	4,521,259	-	-	-	9,941,501
Total	514,141,241	12,900,477	70,108,068	121,912,557	127,561,253	280,012,565	612,494,920

As of December 31, 2019	Book value (*)	Contractual flows maturities
	Book value (*)	0 to 3 months	3 months to 1 year	Over 1 year to 3 years	Over 3 years to 5 years	Over 5 years	Total
	ThCh$	ThCh$	ThCh$	ThCh$	ThCh$	ThCh$	ThCh$
Other financial liabilities no derivative
Bank borrowings	142,196,520	20,991,920	33,633,237	84,363,883	10,396,997	966,733	150,352,770
Bond payable	140,551,686	4,932,819	4,878,698	18,973,584	18,107,650	163,272,427	210,165,178
Lease liabilities	33,070,356	1,433,720	4,540,987	6,652,459	4,049,398	26,579,745	43,256,309
Deposits for return of bottles and containers	13,290,754	-	13,290,754	-	-	-	13,290,754
Sub-Total	329,109,316	27,358,459	56,343,676	109,989,926	32,554,045	190,818,905	417,065,011
Derivatives
Derivatives not designated as hedges	240,394	229,726	10,668	-	-	-	240,394
Derivatives designated as hedges	805,306	460,503	439,381	-	-	-	899,884
Sub-Total	1,045,700	690,229	450,049	-	-	-	1,140,278
Total	330,155,016	28,048,688	56,793,725	109,989,926	32,554,045	190,818,905	418,205,289