Monterrey, Mexico, February 27, 2014 — Fomento Económico Mexicano, S.A.B. de C.V. (“FEMSA”) announced today its operational and financial results for the fourth quarter and full year 2013.
Fourth Quarter 2013 Highlights:
• FEMSA consolidated total revenues grew 11.1% compared to the fourth quarter of 2012, reflecting growth at Coca-Cola FEMSA and FEMSA Comercio. On an organic basis1, total revenues grew 3.2%.
• Coca-Cola FEMSA total revenues increased 8.5% compared to the fourth quarter of 2012. On an organic basis1, total revenues decreased 2.2% reflecting a negative translation effect resulting from the devaluation of currencies in our South America division. On a currency neutral basis and excluding the non-comparable effect of the integration of Grupo Yoli in our Mexican territories, Companhia Fluminense de Refrigerantes and Spaipa S.A. Industria Brasileira de Bebidas in our Brazilian operation, total revenues grew 12.1%.
• FEMSA Comercio achieved total revenues growth of 13.5% and income from operations growth of 24.4%, each as compared to 4Q12, driven by new store openings and 2.5% growth in same-store sales. On an organic basis1, total revenues and income from operations grew 10.0% and 23.6%, respectively.
2013 Full Year Highlights:
• FEMSA consolidated total revenues grew 8.3% compared to 2012 driven by Coca-Cola FEMSA and FEMSA Comercio. On an organic basis1, total revenues grew 4.6%.
• Coca-Cola FEMSA total revenues increased 5.6% compared to 2012 driven by a result of mid single-digit growth in its two operating Divisions. On an organic basis1 total revenues grew 1.0%.
• FEMSA Comercio continued its pace of strong floor space growth by opening 1,120 net new stores in 2013. Same-store sales rose 2.4% and income from operations increased 16.6%, each as compared to 2012. On an organic basis1, total revenues and income from operations grew 10.6% and 15.6%, respectively.
Carlos Salazar Lomelín, FEMSA CEO, commented: “During the fourth quarter, trends for our two core businesses followed separate trajectories. For Coca-Cola FEMSA, in Mexico top-line was resilient but profitability numbers reflected a very demanding comparison base, while the consumer environment remained tough in Brazil and local currencies continued under pressure in most of South America. For its part, at FEMSA Comercio sequential top-line trends improved slightly and expenses remained contained during the quarter, helping to drive positive margin dynamics. In addition, we were able to deliver on our expectations of opening more than 1,000 new stores in a calendar year yet again.
On the strategic front, 2013 was an important and busy year during which we took opportunities to increase our bottling presence in our two largest markets, Mexico and Brazil, with three key acquisitions: Yoli, Fluminense and Spaipa. These transactions should allow us to create value in the medium- and long-term, and we are well advanced in our integration efforts in both countries. We also made our entrance into the Philippine market a reality, with very encouraging early results. For its part, FEMSA Comercio took the initial steps of leveraging its capabilities by entering new small-format retail markets in Mexico through acquisitions in the drugstore and quick-service restaurant segments. And so, we continued to privilege the execution of our long-term strategy even in the face of short-term market noise.
Looking forward, there are certainly challenges ahead but, as always, we continue to position ourselves to capture opportunities down the road. On the beverage front, the new tax environment in Mexico is already requiring meaningful adjustments to our price and presentation architecture, as well as rationalization efforts to our cost and expense structures, in order to mitigate the pressure to our top and bottom lines. And in South America, several of our markets are going through some level of macroeconomic dislocation. These conditions should be transitory, and we have navigated similar waters in the past, but that does not mean they do not present headwinds. As for FEMSA Comercio, even though the consumer environment in Mexico has not yet shown signs of improvement, we aim to deliver results that outperform our industry and we continue to make progress in developing additional avenues for growth.”
Total revenues increased 11.1% compared to 4Q12, to Ps. 70.490 billion in 4Q13. Coca-Cola FEMSA and FEMSA Comercio drove the growth in consolidated revenues. On an organic basis1, total revenues increased 3.2% compared to 4Q12.
For the full year of 2013, consolidated total revenues increased 8.3% compared to 2012, to Ps. 258.097 billion. On an organic basis1, total revenues for 2013 increased 4.6% compared to 2012. This growth resulted from increases at FEMSA Comercio and Coca-Cola FEMSA.
Gross profit increased 8.3% compared to 4Q12, to Ps. 30.347 billion in 4Q13. Gross margin in 4Q13 decreased 110 basis points compared to the same period in 2012 to 43.1% of total revenues, mainly driven by margin contraction at Coca-Cola FEMSA.
For the full year of 2013, gross profit increased 8.2% compared to 2012, to Ps. 109.654 billion. Gross margin remained stable compared to 2012 at 42.5% of total revenues.
Income from operations decreased 0.3% compared to 4Q12, to Ps. 9.705 billion in 4Q13. On an organic basis1, income from operations decreased 5.5% in 4Q13 compared to the same period in 2012. Consolidated operating margin decreased 150 basis points compared to 4Q12, to 13.8% of total revenues, driven by margin contraction at Coca-Cola FEMSA.
For the full year of 2013, income from operations increased 2.2% compared to 2012, to Ps. 29.857 billion. On an organic basis1, income from operations decreased 0.5% compared to 2012. Our consolidated operating margin in 2013 decreased 70 basis points compared to 2012, to 11.6% of total revenues.
Our effective income tax rate was 26.5% in 4Q13 compared to 29.2% in 4Q12.
Net consolidated income decreased 44.2% compared to 4Q12, to Ps. 6.754 billion in 4Q13, mainly as a result of a decrease in FEMSA’s 20% participation in Heineken’s 4Q13 net income, largely reflecting a tough comparable base. In 4Q12, Heineken reported a non-cash exceptional gain related to the revaluation of certain equity interests held in Asia, helping to drive net consolidated income growth of 67.9% during that period. The decrease in net consolidated income in 4Q13 further reflects higher financing expenses related to bonds issued recently by FEMSA and Coca-Cola FEMSA.
For the full year of 2013, net consolidated income decreased 21.0% compared to 2012, to Ps. 22.155 billion, resulting from a tough comparable base caused by a non-cash exceptional gain related to the revaluation of certain equity interests held by Heineken in Asia in 4Q12 as described above, as well as by higher financing expenses, which were partially offset by the growth in income from operations.
Net majority income for 4Q13 resulted in Ps. 1.39 per FEMSA Unit2. Net majority income per FEMSA ADS was US$ 1.06 for the fourth quarter of 2013. For the full year of 2013, net majority income per FEMSA Unit2 was Ps. 4.45 (US$ 3.40 per ADS).
Capital expenditures amounted to Ps. 5.411 billion in 4Q13. For the full year of 2013, capital expenditures increased to Ps. 17.882 billion, reflecting incremental investments at Coca-Cola FEMSA and FEMSA Comercio.
Our consolidated balance sheet as of December 31, 2013 recorded a cash balance of Ps. 27.385 billion (US$ 2.091 billion), a decrease of Ps. 10.731 billion (US$ 819.3 million) compared to December 31, 2012. Short-term debt was Ps. 3.827 billion (US$ 292.2 million), while long-term debt was Ps. 71.792 billion (US$ 5.481 billion). Our consolidated net debt balance was Ps. 48.234 billion (US$ 3.683 billion).
Soft Drinks – Coca-Cola FEMSA
Coca-Cola FEMSA’s financial results and discussion thereof are incorporated by reference from Coca-Cola FEMSA’s press release, which is attached to this press release or may be accessed by visiting www.coca-colafemsa.com.
Total revenues increased 13.5% compared to 4Q12, to Ps. 25.724 billion in 4Q13, mainly driven by the opening of 511 net new stores in the quarter, reaching 1,120 total net new store openings for the year. On an organic basis1, total revenues increased 10.0% compared to 4Q12. As of December 31, 2013, FEMSA Comercio had a total of 11,721 convenience stores. Same-store sales increased an average of 2.5% for the quarter compared to 4Q12, reflecting a 2.1% increase in average customer ticket and a 0.3% increase in store traffic.
For the full year of 2013, total revenues increased 12.9% compared to 2012, to Ps. 97.572 billion. On an organic basis1, total revenues for 2013 increased 10.6% compared to 2012. FEMSA Comercio’s same-store sales increased an average of 2.4% compared to 2012, driven by a 2.8% increase in average customer ticket that offset a 0.5% decrease in store traffic.
Gross profit increased 15.2% in 4Q13 compared to 4Q12, resulting in a 60 basis point gross margin expansion to 38.4% of total revenues. This increase reflects (i) a positive mix shift due to the growth of higher margin categories, and (ii) a more effective collaboration and execution with our key supplier partners, including higher and more efficient joint use of promotion-related marketing resources, as well as objective-based incentives. For the full year of 2013, gross margin expanded by 40 basis points to 35.4% of total revenues.
Income from operations increased 24.4% compared to 4Q12, to Ps. 2.994 billion in 4Q13. On an organic basis1, income from operations increased 23.6% in 4Q13 compared to the same period in 2012. Operating expenses increased 11.7% compared to 4Q12, to Ps. 6.894 billion, below revenue growth, in spite of the growing number of stores and distribution centers as well as incremental expenses related to new initiatives. Operating margin expanded 100 basis points compared to 4Q12, to 11.6% of total revenues in 4Q13.
For the full year of 2013, income from operations increased 16.6% compared to 2012, to Ps. 7.906 billion, resulting in an operating margin of 8.1%, which represented a 30 basis point expansion from the prior year. On an organic basis1, income from operations increased 15.6% compared to 2012.
• In December 2013, FEMSA Comercio, through one of its subsidiaries, purchased the assets and trademark of Gorditas Doña Tota (“GDT”), a leading quick-service restaurant operator in Mexico. The founding shareholders of GDT hold a 20% stake in the FEMSA Comercio subsidiary that now operates the GDT business.
• The Mexican government’s proposal to tax sugary beverages was approved by the Mexican Congress. Coca-Cola FEMSA is making the necessary adjustments to its operating structure and portfolio in order to protect the profitability of its business in this key market.
• On December 18, 2013, FEMSA paid an ordinary dividend of Ps. 6.684 billion, as approved by its shareholders. In total, ordinary dividends of Ps. 13.368 billion were paid during 2013. We do not anticipate additional ordinary dividends to be paid during 2014.
CONFERENCE CALL INFORMATION:
Our Fourth Quarter and Full Year 2013 Conference Call will be held on: Thursday February 27, 2014, 11:00 AM Eastern Time (10:00 AM Mexico City Time). To participate in the conference call, please dial: Domestic US: (888) 505-4369; International: (719) 325-2455; Conference ID 2965757. The conference call will be webcast live through streaming audio. For details please visit www.femsa.com/investor.
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 Federal Reserve Bank of New York on December 31, 2013, which was 13.0980 Mexican pesos per US dollar.
This report may contain certain forward-looking statements concerning our future performance that should be considered as good faith estimates made by us. These forward-looking statements reflect management’s expectations and are based upon currently available data. Actual results are subject to future events and uncertainties, which could materially impact our actual performance.