FEMSA Delivers Double Digit Operating Income Growth in 1Q14

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Wednesday, 04/30/2014, 2:15:29 pm

Monterrey, Mexico, April 30, 2014 — Fomento Económico Mexicano, S.A.B. de C.V. (“FEMSA”) announced today its operational and financial results for the first quarter of 2014.

First Quarter 2014 Highlights:

• FEMSA consolidated total revenues increased 14.3% and income from operations grew 16.2% compared to the first quarter of 2013, reflecting growth at Coca-Cola FEMSA and FEMSA Comercio. On an organic basis total revenues and income from operations increased 4.2% and 7.2%, respectively.

• Coca-Cola FEMSA total revenues increased 15.3% and income from operations grew 18.0% compared to the first quarter of 2013, mainly driven by the integration of Fluminense, Spaipa and Yoli combined with revenue growth in the Venezuelan operation. On an organic basis1 total revenues and income from operations grew 1.2% and 7.4%, respectively.

• FEMSA Comercio achieved total revenues growth of 12.3% and income from operations growth of 6.6% compared to the first quarter of 2013, reflecting 1,120 net new store openings and stable same-store sales. On an organic basis1 total revenues and income from operations grew 8.2% and 3.8%, respectively.


Carlos Salazar Lomelín, FEMSA CEO, commented: “Our first quarter performance was encouraging, even as consumer sentiment in Mexico remained sluggish. At Coca-Cola FEMSA, our team in this key market has been hard at work adjusting our price-package architecture to offer the best alternatives to our consumers in light of the new tax environment. We also put in place major cost rationalization efforts and scaled back investments in order to mitigate the negative impact on our results. Volumes suffered during the quarter, as expected, but we continue to work on optimizing our portfolio and are optimistic about our ability to adapt. Elsewhere, we observed some good growth trends, particularly in Brazil and Venezuela. For its part, FEMSA Comercio navigated the weak demand dynamics in Mexico and was still able to deliver stable same-store-sales, even against a very tough calendar comparison reflecting the timing of Semana Santa.

On the more strategic front, we again made solid progress. The integration of Coca-Cola FEMSA’s recently acquired territories in Mexico, Brazil and the Philippines keeps moving forward, as do the new businesses entered by FEMSA Comercio in the drugstore and Quick Service Restaurant segments. As we have mentioned before, this year presents some short-term challenges, driven largely by external factors, but it is also a period in which we aim to keep pursuing opportunities and advancing our long-term growth strategy”.

FEMSA Consolidated

Total revenues increased 14.3% compared to 1Q13, to Ps. 64.228 billion in 1Q14. Coca-Cola FEMSA and FEMSA Comercio drove the incremental consolidated revenues. On an organic basis1, total revenues increased 4.2% compared to 1Q13.

Gross profit increased 14.0% compared to 1Q13, to Ps. 26.511 billion in 1Q14. Gross margin decreased 10 basis points compared to the same period in 2013 to 41.3% of total revenues, driven by slight margin contraction at Coca-Cola FEMSA and FEMSA Comercio.

Income from operations increased 16.2% compared to 1Q13, to Ps. 5.946 billion in 1Q14. On an organic basis1 income from operations grew 7.2% in 1Q14 compared to the same period in 2013. Consolidated operating margin increased 20 basis points compared to 1Q13, to 9.3% of total revenues, driven by margin expansion at Coca-Cola FEMSA.

Net consolidated income decreased 4.1% compared to 1Q13 to Ps. 3.778 billion in 1Q14, mainly as a result of higher financing expenses related to bonds issued recently by FEMSA and Coca-Cola FEMSA, and to a lesser extent by a decrease in FEMSA’s 20% participation in Heineken’s 1Q14 net income, driven by exceptional items. These factors were partially offset by the growth in income from operations.

The effective income tax rate was 32.8% in 1Q14 compared to 32.7% in 1Q13.

Net majority income for 1Q14 resulted in Ps. 0.70 per FEMSA Unit2. Net majority income per FEMSA ADS was US$ 0.53 for the quarter.

Capital expenditures decreased to Ps. 3.050 billion in 1Q14, reflecting lower investments at Coca-Cola FEMSA.

Our consolidated balance sheet as of March 31, 2014 recorded a cash balance of Ps. 32.994 billion (US$ 2.527 billion), an increase of Ps. 5.609 billion (US$ 429.6 million) compared to December 31, 2013. Short-term debt was Ps. 2.310 billion (US$ 176.9 million), while long-term debt was Ps. 74.027 billion (US$ 5.670 billion). Our consolidated net debt balance was Ps. 43.343 billion (US$ 3.320 billion).

Soft Drinks – Coca-Cola FEMSA

Coca-Cola FEMSA’s financial results and discussion are incorporated by reference from Coca-Cola FEMSA’s press release, which is attached to this press release and available at www.coca-colafemsa.com.

FEMSA Comercio

Total revenues increased 12.3% compared to 1Q13, to Ps. 24.371 billion in 1Q14, mainly driven by the opening of 135 net new stores in the quarter, reaching 1,120 total new store openings for the last twelve months. On an organic basis1 total revenues increased 8.2% compared to 1Q13. As of March 31, FEMSA Comercio had a total of 11,856 convenience stores. Same-store sales increased an average of 0.4% for the first quarter of 2014 over 1Q13, even against a tough calendar comparison reflecting the timing of Semana Santa combined with higher excise taxes on key categories and incremental VAT in border cities. Same-store sales performance was driven by a 0.4% growth in store traffic; the average customer ticket remained flat compared to 1Q13.

Gross profit increased 12.2% compared to 1Q13, to Ps. 8.102 billion in 1Q14, resulting in a 10 basis point gross margin contraction to 33.2% of total revenues. This contraction reflects several factors such as the incorporation of FEMSA Comercio’s new drugstore operations, which have a lower margin, and reduced leverage resulting from muted comparable revenue growth.

Income from operations increased 6.6% compared to 1Q13, to Ps. 1.035 billion in 1Q14. On an organic basis1, income from operations increased 3.8% in 1Q14 compared to the same period in 2013. Operating expenses increased 13.0% compared to 1Q13, to Ps. 7.067 billion, driven by the growing number of stores as well as by incremental expenses related to new initiatives and higher electricity costs. Operating margin contracted 30 basis points compared to 1Q13 to 4.2% of total revenues in 1Q14, reflecting among other things the incorporation of FEMSA Comercio’s new drugstore operations and lower leverage as mentioned above.


CONFERENCE CALL INFORMATION:

Our First Quarter of 2014 Conference Call will be held on: Wednesday April 30, 2013, 5:00 PM Eastern Time (4:00 PM Mexico City Time). To participate in the conference call, please dial: Domestic US: (888) 428-9490; International: (719) 325-2458; Conference Id 8782500. The conference call will be webcast live through streaming audio. For details please visit www.femsa.com/investor.

If you are unable to participate live, the conference call audio will be available at http://ir.FEMSA.com/results.cfm.

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FEMSA is a leading company that participates in the beverage industry through Coca-Cola FEMSA, the largest franchise bottler of Coca-Cola products in the world; and in the beer industry, through its ownership of the second largest equity stake in Heineken, one of the world`s leading brewers with operations in over 70 countries. In the retail industry it participates with FEMSA Comercio, operating various small-format chain stores, including OXXO, the largest and fastest-growing chain of stores in Latin America. All of which is supported by a Strategic Business unit.

The translations of Mexican pesos into US dollars are included solely for the convenience of the reader, using the noon day buying rate for Mexican Pesos as published by the U.S. Federal Reserve Board in its H.10 weekly Release of Foreign Exchange Rates for March 31, 2014, which was 13.0560 Mexican pesos per US dollar.

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