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25 Jul 2013

FEMSA Grows Operating Income High Single Digit in 2Q13

  • FEMSA income from operations grew 9.1% compared to the second quarter of 2012, reflecting growth at Coca-Cola FEMSA and FEMSA Comercio. On an organic basis1 income from operations grew 8.0%.
  • Coca-Cola FEMSA income from operations increased 9.1% compared to the second quarter of 2012, mainly driven by lower sugar prices combined with the appreciation of the Mexican peso as applied to Coca-Cola FEMSA’s U.S. dollar-denominated raw material costs
  • FEMSA Comercio achieved total revenues growth of 11.7% and income from operations growth of 6.7% compared to the second quarter of 2012, driven by 1,026 net new store openings in the last twelve months.

Monterrey, Mexico, July 25, 2013 — Fomento Económico Mexicano, S.A.B. de C.V. (“FEMSA”) announced today its operational and financial results for the second quarter of 2013.
Second Quarter 2013 Highlights:
• FEMSA income from operations grew 9.1% compared to the second quarter of 2012, reflecting growth at Coca-Cola FEMSA and FEMSA Comercio. On an organic basis1 income from operations grew 8.0%.
• Coca-Cola FEMSA income from operations increased 9.1% compared to the second quarter of 2012, mainly driven by lower sugar prices combined with the appreciation of the Mexican peso as applied to Coca-Cola FEMSA’s U.S. dollar-denominated raw material costs. On an organic basis1 income from operations increased 7.6%.
• FEMSA Comercio achieved total revenues growth of 11.7% and income from operations growth of 6.7% compared to the second quarter of 2012, driven by 1,026 net new store openings in the last twelve months.
José Antonio Fernández Carbajal, Chairman and CEO of FEMSA, commented: “As is sometimes the case, our quarterly results include reasons to be optimistic, but also a few challenging areas. At Coca-Cola FEMSA, in spite of sluggish macro growth, again it was Mexico that provided the positive momentum on the back of improved profitability, driven by strong execution and a favorable raw material environment. Performance in South America remained muted, particularly in Brazil. And FEMSA Comercio had results that reflect tough comparisons, a soft consumer environment in Mexico, and some continued pressure from the telephony category. It is too soon to tell whether the second half will show a meaningful improvement, however the level of economic activity is expected to gradually increase and we are cautiously optimistic about the rest of the year. Most importantly, the long-term structural advantages across our businesses continue to strengthen and we will continue to execute our strategy and will keep investing to improve and expand our competitive position across our operations. On that note, during the quarter we closed the acquisitions of Farmacias Yza and Farmacias Moderna on the retail front in Mexico, and we announced the acquisition of Fluminense on the bottling front in Brazil. So we keep moving forward at a solid, steady pace.”
1 Excludes non-comparable results from Coca-Cola FEMSA acquisitions in the last twelve months.
2 July 25, 2013
FEMSA Consolidated
Total revenues increased 4.1% compared to 2Q12 to Ps. 62.047 billion in 2Q13. FEMSA Comercio drove the growth in consolidated revenues. On an organic basis1 total revenues increased 3.1% compared to 2Q12. For the first half of 2013, consolidated total revenues increased 4.8% compared to the same period in 2012 to Ps. 119.289 billion. On an organic basis1, total revenues for the first half of 2012 decreased 1.3% compared to the same period in 2012.
Gross profit increased 5.3% compared to 2Q12 to Ps. 26.325 billion in 2Q13. Gross margin increased 50 basis points compared to the same period in 2012 to 42.4% of total revenues, driven by margin expansion at Coca-Cola FEMSA.
For the first half of 2013, gross profit increased 6.2% compared to the same period in 2012 to Ps. 50.095 billion. Gross margin increased 60 basis points compared to the same period in 2012 to 42.0% of total revenues, driven by margin expansion at both Coca-Cola FEMSA and FEMSA Comercio.
Income from operations increased 9.1% as compared to 2Q12 to Ps. 7.294 billion in 2Q13. On an organic basis1 income from operations increased 8.0% compared to the same period in 2012. Consolidated operating margin increased 60 basis points compared to 2Q12 to 11.8% of total revenues in 2Q13, due to gross margin improvements at Coca-Cola FEMSA driven by lower sugar prices combined with the appreciation of the Mexican peso as applied to Coca-Cola FEMSA’s U.S. dollar-denominated raw material costs.
For the first half of 2013, income from operations increased 4.5% compared to the same period in 2012 to Ps. 12.499 billion. Our consolidated operating margin year-to-date remained at 10.5% as a percentage of total revenues as compared to the same period of 2012.
Our effective income tax rate was 31.2% in 2Q13 compared to a tough comparable base of 23.5% in 2Q12 resulting from a tax shield related to interests on capital, including a dividend declared by the South America division of Coca-Cola FEMSA.
Net consolidated income decreased 6.6% compared to 2Q12 to Ps. 5.078 billion in 2Q13, driven by (i) a swing from a significant foreign exchange gain in 2Q12 to a foreign exchange loss in 2Q13, mainly due to the effect of Coca-Cola FEMSA’s US Dollar-denominated debt position as impacted by the quarterly depreciation of the Mexican peso, and (ii) higher interest expense related to bonds issued recently both by FEMSA and Coca-Cola FEMSA.
For the first half of 2013, net consolidated income decreased 1.9% to Ps. 9.055 billion compared to the same period of 2012, resulting from higher financing expenses which were partially offset by the growth in income from operations.
Net majority income for 2Q13 was Ps. 1.00 per FEMSA Unit2. Net majority income per FEMSA ADS was US$ 0.77 for the second quarter of 2013. For the first half of 2013, net majority income per FEMSA Unit1 was Ps. 1.74 (US$ 1.34 per ADS).
Capital expenditures amounted to Ps. 3.581 billion in 2Q13, reflecting incremental investments at Coca-Cola FEMSA and FEMSA Comercio.
Our consolidated balance sheet as of June 30, 2013 recorded a cash balance of Ps. 46.572 billion (US$ 3.585 billion), an increase of Ps. 8.456 billion (US$ 650.8 million) compared to December 31, 2012. Short-term debt was Ps. 11.686 billion (US$ 899.4 million), while long-term debt was Ps. 44.457 billion (US$ 3.422 billion). Our consolidated net debt balance was Ps. 9.571 billion (US$ 736.7 million).
1 Excludes non-comparable results from Coca-Cola FEMSA acquisitions in the last twelve months.
2 FEMSA Units consist of FEMSA BD Units and FEMSA B Units. Each FEMSA BD Unit is comprised of one Series B Share, two Series D-B Shares and two Series D-L Shares. Each FEMSA B Unit is comprised of five Series B Shares. The number of FEMSA Units outstanding as of June 30, 2013 was 3,578,226,270, equivalent to the total number of FEMSA Shares outstanding as of the same date, divided by 5.
3 July 25, 2013
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.
FEMSA Comercio
Total revenues increased 11.7% compared to 2Q12 to Ps. 24.808 billion in 2Q13, mainly driven by the opening of 279 net new stores in the quarter reaching 1,026 total net new store openings for the last twelve months. As of June 30, 2013, FEMSA Comercio had a total of 11,015 convenience stores. Same-store sales increased an average of 0.9% for the second quarter of 2013 over 2Q12, reflecting a 1.1% increase in average customer ticket that offset a 0.1% decrease in store traffic.
For the first half of 2013, total revenues increased 12.8% compared to the same period in 2012 to Ps. 46.511 billion. FEMSA Comercio’s same-store sales increased an average of 2.7% compared to the same period in 2012, driven by a 3.4% increase in average customer ticket that offset a 0.7% decrease in store traffic.
Gross profit increased by 12.1% in 2Q13 compared to 2Q12, resulting in a 10 basis point gross margin expansion to 34.6% of total revenues. This increase reflects a more efficient use of promotion-related marketing resources and a better execution of segmented pricing strategies across markets. For the first half of 2013, gross margin expanded by 50 basis points compared to the same period in 2012 to 34.0% of total revenues.
Income from operations increased 6.7% over 2Q12 to Ps. 1.952 billion in 2Q13. Operating expenses increased 13.8% in 2Q13 to Ps. 6.628 billion, reflecting the growing number of stores and distribution centers as well as incremental expenses relating to, among other things, the development of specialized distribution routes aimed at enabling our prepared food initiatives. Operating margin contracted 30 basis points compared to 2Q12, to 7.9% of total revenues in 2Q13.
For the first half of 2013, income from operations increased 11.1% compared to the same period in 2012 to Ps. 2.923 billion, resulting in an operating margin of 6.3%, which represents a 10 basis point contraction from the same period in the prior year.
Recent Developments
• On May 2, 2013, FEMSA announced that its retail subsidiary, FEMSA Comercio, closed the acquisition of a 75% stake in Farmacias YZA in Mexico after obtaining all regulatory approvals.
• On May 10, 2013, FEMSA announced the placement of two tranches of US Dollar-denominated bonds in the international capital markets. FEMSA successfully issued US$ 300 million in 10 year bonds at a yield of 10-year Treasuries plus 1.125%, and US$ 700 million in 30 year bonds at a yield of 30-year Treasuries plus 1.45%.
• On May 22, 2013, Coca-Cola FEMSA issued Ps. 7,500 million in a 10 year bond at a fixed rate in Mexican pesos of 5.46%.
• On May 13, 2013, FEMSA announced that its retail subsidiary FEMSA Comercio acquired Farmacias FM Moderna, a leading drugstore operator in the western state of Sinaloa. This transaction follows the recent acquisition of a controlling stake in Farmacias Yza in the southeast of Mexico, as FEMSA Comercio advances in its strategy to establish a relevant position in this attractive small-box retail segment.
• On June 28, 2013, Coca-Cola FEMSA announced that it had reached an agreement to acquire 100% of Companhia Fluminense de Refrigerantes (“Companhia Fluminense”) in an all-cash transaction of US$ 448 million. During the last twelve months ended March 31, 2013, Companhia Fluminense sold 56.6 million unit cases of beverages, including beer, generating approximately US$ 232 million in net revenues and an estimated pro-forma consolidated EBITDA of US$ 40 million.

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