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12 Feb 2010

Coca-Cola FEMSA Announces Fourth Quarter and Full Year Results of 2009


Friday, 02/12/2010, 10:14:45 am

Mexico City (February 12, 2010), Coca-Cola FEMSA, S.A.B. de C.V. (BMV: KOFL, NYSE: KOF) (“Coca-Cola FEMSA” or the “Company”), the largest Coca-Cola bottler in Latin America and the second-largest Coca-Cola bottler in the world in terms of sales volume, announces results for the fourth quarter of 2009.

“In 2009 our Company extended its track record of solid results by producing double-digit top- and bottom-line growth in the face of a very adverse economic and consumer environment. We increased revenues, operating income and EBITDA by 24%, 16% and 15% respectively. The Company grew organically through our defensive portfolio of products as exemplified by the solid performance of the Coca-Cola brand, and our new lines of business, such as ValleFrut in the orangeade category; proving to be counter-cyclical to the prevailing economic conditions. On the acquisitions front, we continued integrating the Brisa water business in Colombia, helping us to consolidate our presence in the water segment in that market. We successfully weathered one of the most difficult years for consumers, while strengthening our balance sheet and investing for the long term. We enter 2010 with a renewed spirit of optimism, eager to continue learning from the challenges and the opportunities that the beverage industry presents." said Carlos Salazar Lomelin, Chief Executive Officer of the Company.


CONSOLIDATED RESULTS

Our consolidated total revenues increased 27.6% to Ps. 29,032 million in the fourth quarter of 2009, compared to the fourth quarter of 2008, as a result of double-digit revenue increases in all of our divisions. Revenue growth was driven by (i) organic growth, in both pricing and volumes, accounting for more than 70% of incremental revenues, (ii) a positive exchange rate translation effect, resulting from the depreciation of the Mexican peso against our operation’s local currencies,(1) contributing less than 25% of incremental revenues, and (iii) the consolidation of Brisa in Colombia providing less than 5%. On a currency neutral basis and excluding the acquisition of Brisa, our consolidated total revenues would have increased approximately 20%.

Total sales volume increased 8.7% to reach 652.0 million unit cases in the fourth quarter of 2009 as compared to the same period in 2008 driven by (i) increases in sparkling beverages in our Mexico and Latincentro divisions, accounting for almost 60% of incremental volumes, (ii) our bottled water business, driven by the acquisition of Brisa in Colombia, representing approximately 25%, and (iii) still beverages sales volume, mainly driven by the Jugos del Valle line of business across our territories, accounting for more than 15% of incremental sales volume, representing the balance. Excluding Brisa, total sales volume increased 6.5%.

Our gross profit increased 28.3% to Ps. 13,415 million in the fourth quarter of 2009, compared to the fourth quarter of 2008. Cost of goods sold increased 27.1% driven by higher year-over-year sweetener costs and the third and final stage of the scheduled Coca-Cola Company increase in concentrate prices in Mexico, which were offset by lower resin costs and the appreciation of the Colombian peso and the Brazilian real as applied to our U.S. dollar-denominated raw material cost. Gross margin reached 46.2% in the fourth quarter of 2009 as compared to 46.0% in the same period in 2008.

Our consolidated operating income increased 19.1% to Ps. 4,827 million in the fourth quarter of 2009, mainly driven by double-digit operating income growth in our Latincentro and Mercosur divisions. Operating expenses grew 34.0% in the fourth quarter of 2009, mainly as a result of (i) higher labor costs in Venezuela, (ii) increased marketing investment in our Mexico division and (iii) increased marketing expenses in the Latincentro division, due to the integration of the Brisa portfolio in Colombia and the continued expansion of the Jugos del Valle line of business in Colombia and Central America. Our operating margin was 16.6% in the fourth quarter of 2009, a decrease of 120 basis points compared to the same period in 2008.

During the fourth quarter of 2009, we recorded Ps. 277 million in the other expense line. These expenses mainly reflected the recording of employee profit sharing.

Our comprehensive financing result in the fourth quarter of 2009 recorded an expense of Ps. 102 million as compared to an expense of Ps. 2,823 million in the same period of 2008, mainly due to the quarterly appreciation of the Mexican peso as applied to a lower U.S. dollar-denominated net debt position.

During the fourth quarter of 2009, income tax, as a percentage of income before taxes, was 32.2% compared to 17.8% in the same period of 2008. This difference was mainly driven by the cancellation of an allowance, during the fourth quarter of 2008, recorded in previous periods.
 
Our consolidated net controlling interest income(2) increased by 383.4% to Ps. 2,828 million in the fourth quarter of 2009 as compared to the fourth quarter of 2008, mainly as a result of higher operating income in combination with a more favorable comprehensive financing result. Earnings per share (EPS) were Ps. 1.53 (Ps. 15.32 per ADR) computed on the basis of 1,846.5 million shares outstanding (each ADR represents 10 local shares).


BALANCE SHEET

As of December 31, 2009, we had a cash balance of Ps. 9,740 million, including US$ 240 million denominated in U.S. dollars, an increase of Ps. 3,548 million compared to December 31, 2008, as a result of cash generated by our operations and unused cash reserves from new financing during the year. 

As of December 31, 2009, total short-term debt was Ps. 5,427 million and long-term debt was Ps. 10,498 million. Total debt decreased Ps. 2,649 million compared with year-end 2008 mainly due to the maturity of the outstanding balance of the Yankee Bond inherited through the acquisition of Panamco in the amount of US$ 265 million and the maturity of a Certificado Bursátil in the amount of Ps. 500 million, both during July of 2009. As part of this debt reduction, we decreased our debt denominated in Colombian pesos by an amount equivalent to US$ 100 million. All of these maturities were paid with cash generated from our operations. Net debt decreased Ps. 6,197 million compared to year-end 2008, mainly as a result of cash generated during the year. KOF’s total debt balance includes U.S. dollar-denominated debt in the amount of US$ 376 million. (1)

The weighted average cost of debt for the quarter was 6.9%. To see the charts of the Company’s debt profile by currency and interest rate type and by maturity date as of December 31, 2009 please download the PDF version up in this page.


MEXICO DIVISION OPERATING RESULTS

Revenues
Total revenues from our Mexico division increased 10.2% to Ps. 9,315 million in the fourth quarter of 2009, as compared to the same period in 2008. Increased sales volume accounted for approximately 75% of incremental revenues during the quarter. Average price per unit case reached Ps. 30.52, an increase of 2.7%, as compared to the fourth quarter of 2008, reflecting higher volumes from the Coca-Cola brand, which carries higher average price per unit case and selective price increases implemented during the quarter. Excluding bulk water under the Ciel brand, our average price per unit case was Ps. 35.13, a 1.4% increase as compared to the same period in 2008.

Total sales volume increased 7.6% to 304.3 million unit cases in the fourth quarter of 2009, as compared to the fourth quarter of 2008, mainly driven by (i) an 8% volume growth in sparkling beverages supported by incremental volumes from the Coca-Cola brand in multi-serve and single-serve presentations, (ii) incremental volumes in the still beverage category, growing more than 25%, due to sales from the Jugos del Valle product line and (iii) an 11% volume growth in our bottled water business, excluding bulk water.
 
Operating Income
Our gross profit increased 10.1% to Ps. 4,718 million in the fourth quarter of 2009 as compared to the same period in 2008. Cost of goods sold increased 10.4% as a result of higher sweetener costs and the third and final stage of the scheduled Coca-Cola Company concentrate price increase announced in 2006, which were partially offset by lower year-over-year resin costs. Gross margin decreased from 50.7% in the fourth quarter of 2008 to 50.6% in the same period of 2009.

Operating income grew 4.0% to Ps. 1,914 million in the fourth quarter of 2009, compared to Ps. 1,840 million in the same period of 2008. Operating expenses grew 14.6% mainly due to increased marketing investment to support our execution in the marketplace, widen our cooler coverage and broaden our returnable base availability. Our operating margin was 20.5% in the fourth quarter of 2009, a decrease of 130 basis points as compared to the same period of 2008.


LATINCENTRO DIVISION OPERATING RESULTS (Colombia, Venezuela, Guatemala, Nicaragua, Costa Rica and Panama)

As of June 1, 2009, Coca-Cola FEMSA started to distribute the Brisa portfolio in Colombia.

Revenues
Total revenues reached Ps. 10,819 million in the fourth quarter of 2009, an increase of 43.2% as compared to the same period of 2008. Higher average price per unit case and volume growth accounted for more than 90% of incremental revenues. The integration of Brisa contributed approximately 5% of incremental revenues and a positive currency translation effect, resulting from the depreciation of the Mexican peso against some of our operation’s local currencies,(1) represented the balance. On a currency neutral basis and excluding the acquisition of Brisa, our Latincentro division’s revenues would have increased approximately 40%.

Total sales volume in our Latincentro division increased 19.0% to 166.5 million unit cases in the fourth quarter of 2009 as compared to the same period of 2008. Volume growth was a result of (i) a 10% increase in sparkling beverages across the division, mainly driven by the Coca-Cola brand, representing close to 50% of incremental volumes (ii) the consolidation of the Brisa water brand in Colombia, contributing more than 40% of incremental volumes and (iii) the strong performance of the Jugos del Valle line of business in Colombia and Central America, representing the balance.

Operating Income
Gross profit reached Ps. 4,928 million, an increase of 57.9% in the fourth quarter of 2009, as compared to the same period of 2008. Cost of goods sold increased 32.8% mainly driven by higher year-over-year sweetener costs across the division, which were partially compensated by lower resin costs in combination with the appreciation of the Colombian peso as applied to our U.S. dollar-denominated raw material cost. Gross margin expanded 420 basis points to 45.5% in the fourth quarter of 2009.

Our operating income increased 32.1% to Ps. 1,299 million in the fourth quarter of 2009, compared to the fourth quarter of 2008. Operating expenses increased 69.8% as a result of higher labor costs in Venezuela and increased marketing expenses in the division, mainly due to the integration of the Brisa portfolio in Colombia and the continued expansion of the Jugos del Valle line of business in Colombia and Central America. Our operating margin reached 12.0% in the fourth quarter of 2009, resulting in a 100 basis points decrease as compared to the same period of 2008.


MERCOSUR DIVISION OPERATING RESULTS (Brazil and Argentina)

Volume and average price per unit case exclude beer results.

Revenues
Total revenues increased 31.9% to Ps. 8,898 million in the fourth quarter of 2009, as compared to the same period of 2008. Excluding beer, which accounted for Ps. 919 million during the quarter, revenues increased 30.5% to Ps. 7,979 million. A positive translation effect, resulting from the depreciation of the Mexican peso against the Brazilian real,(1) represented more than 65% of incremental revenues and higher average prices per unit case and volume growth accounted for the balance. On a currency neutral basis, our Mercosur division’s revenues would have increased approximately 10%.

Total sales volume in our Mercosur division increased 2.3% to 181.2 million unit cases in the fourth quarter of 2009 as compared to the same period of 2008. Volume growth was a result of (i) growth in the still beverage category, driven by the Jugos del Valle line of business in Brazil and flavored water in Argentina, contributing close to 70% of incremental volumes, (ii) growth in sparkling beverages, driven by a 5% increase in the Coca-Cola brand in Brazil, accounting for more than 15% of incremental volumes and (iii) an 8% increase in our bottled water category, representing the balance.
 
Operating Income
In the fourth quarter of 2009, our gross profit increased 23.5% to Ps. 3,769 million, as compared to the same period in 2008. Cost of goods sold increased 38.9% mainly driven by higher cost of sweetener in Brazil which was partially offset by lower resin costs and the appreciation of the Brazilian real as applied to our U.S. dollar-denominated raw material cost. Gross margin in the Mercosur division decreased 290 basis points to 42.4% in the fourth quarter of 2009.

Operating income increased 31.2%, reaching Ps. 1,614 million in the fourth quarter of 2009, as compared to Ps. 1,230 million in the same period of 2008. Our operating margin was 18.1% in the fourth quarter of 2009, a decrease of 10 basis points as compared to the fourth quarter of 2008, mainly due to gross margin pressures and a tight control of operating expenses.


SUMMARY OF FULL YEAR RESULTS

Our consolidated total revenues increased 23.9% to Ps. 102,767 million in 2009, as compared to 2008, as a result of revenue growth in all of our divisions. Organic growth across our operations contributed more than 75% of incremental revenues; the acquisitions of Refrigerantes Minas Gerais, Ltda. (REMIL)(2) in Brazil and Brisa(3) in Colombia together contributed less than 15% and a positive exchange rate translation effect, resulting from the depreciation of the Mexican peso against our operation’s local currencies,(1) accounted for approximately 10%, representing the balance. On a currency neutral basis and excluding the acquisitions of REMIL(2) and Brisa,(3) our consolidated revenues for 2009 would have increased approximately 19%.

Total sales volume increased 8.3% to 2,428.6 million unit cases in 2009, as compared to 2008. Excluding the acquisitions of REMIL(2) and Brisa,(3) total sales volume increased 5.1% to reach 2,357.0 million unit cases. Organic volume growth was a result of (i) growth in sparkling beverages, driven by a 4% increase in the Coca-Cola brand across our territories, accounting for approximately 45% of incremental volumes, (ii) growth in the still beverage category, mainly driven by the Jugos del Valle line of business in our main operations, contributing less than 45% of incremental volumes, and (iii) a 4% increase in our bottled water category, representing the balance.

Our gross profit increased 22.3% to Ps. 47,815 million in 2009, as compared to 2008, driven by gross profit growth across all of our divisions. Cost of goods sold increased 25.2% as a result of (i) the devaluation of local currencies in our main operations as applied to our U.S. dollar-denominated raw material costs, (ii) the higher cost of sweetener across our operations, (iii) the integration of REMIL and (iv) the third and final stage of the scheduled Coca-Cola Company concentrate price increase announced in 2006 in Mexico; all of which were partially offset by lower resin costs. Gross margin reached 46.5% in 2009, a decrease of 60 basis points as compared to 2008.

Our consolidated operating income increased 15.6% to Ps. 15,835 million in 2009, as compared to 2008. Our Mercosur and Latincentro divisions accounted for more than 90% of this growth. Our operating margin was 15.4% in 2009, a 110 basis points decline as compared to 2008.

Our consolidated net controlling interest income(4) was Ps. 8,523 million in 2009, an increase of 52.3% compared to 2008, mainly reflecting higher operating income in combination with a more favorable comprehensive financing result. EPS was Ps. 4.62 (Ps. 46.16 per ADR) in 2009, computed on the basis of 1,846.5 million shares outstanding (each ADR represents 10 local shares).


RECENT DEVELOPMENTS

• On January 11, 2010, the Venezuelan Government authorities announced a devaluation of its currency, the Bolivar, and the establishment of a multiple exchange rate system. We expect this event will have an effect on our financial results, increasing our operating costs, as a result of the exchange rate movement applied to our US dollar-denominated raw material cost, and reducing our Venezuelan operation results when translated into our reporting currency, the Mexican peso. According to accounting practices, the exchange rate that will be used to translate our financial statements as of January 2010, will be the one at which we can remmit dividends. We are still awaiting a resolution on this matter.

• On February 2, 2010, the Company successfully sold US$ 500 million of 10-year bonds at a yield of 4.689% (US Treasury + 105 basis points) with a coupon of 4.625%. This transaction settled on February 5, 2010. The book was more than 6 times oversubscribed versus the initially announced size of US$ 400 million. The proceeds will be used for debt refinancing and general corporate purposes.

• On February 10, 2010, Coca-Cola FEMSA’s Board of Directors agreed to propose an ordinary dividend of Ps. 2,604 million, to be paid in 2010. This dividend is subject to approval at the Annual Shareholders meeting to be held in March, 2010 and represents an increase of 94% as compared to the dividend payed on April 13, 2009.

•  As of February 12, 2010, Alfredo Fernandez, who has been Head of Investor Relations at Coca-Cola FEMSA since 2001, will take on new responsibilities within our Mexican operations team. Jose Castro, who has been working with the corporate finance team since 2003, has been appointed the new Head of Investor Relations.


CONFERENCE CALL INFORMATION

Our fourth-quarter 2009 Conference Call will be held on: February 12, 2010, at 10:00 A.M. Eastern Time (9:00 A.M. Mexico City Time). To participate in the conference call, please dial: Domestic U.S.: 866-700-7477 or International: 617-213-8840. We invite investors to listen to the live audiocast of the conference call on the Company’s website: www.coca-colafemsa.com.

If you are unable to participate live, an instant replay of the conference call will be available through February 19, 2010. To listen to the replay, please dial: Domestic U.S.: 888-286-8010 or International: 617-801-6888. Pass code: 10671622.



Coca-Cola FEMSA, S.A.B. de C.V. produces and distributes Coca-Cola, Sprite, Fanta, Lift and other trademark beverages of The Coca-Cola Company in Mexico (a substantial part of central Mexico, including Mexico City and southeast Mexico), Guatemala (Guatemala City and surrounding areas), Nicaragua (nationwide), Costa Rica (nationwide), Panama (nationwide), Colombia (most of the country), Venezuela (nationwide), Brazil (greater São Paulo, Campiñas, Santos, the state of Mato Grosso do Sul, part of the state of Goias and part of the state of Minas Gerais) and Argentina (federal capital of Buenos Aires and surrounding areas), along with bottled water, beer and other beverages in some of these territories. The Company has 31 bottling facilities in Latin America and serves over 1,500,000 retailers in the region. The Coca-Cola Company owns a 31.6% equity interest in Coca-Cola FEMSA.



This news release may contain forward-looking statements concerning Coca-Cola FEMSA’s future performance and should be considered as good faith estimates by Coca-Cola FEMSA. These forward-looking statements reflect management’s expectations and are based upon currently available data. Actual results are subject to future events and uncertainties, many of which are outside Coca-Cola FEMSA’s control that could materially impact the Company’s actual performance.

References herein to “US$” are to United States dollars. This news release contains translations of certain Mexican peso amounts into U.S. dollars for the convenience of the reader. These translations should not be construed as representations that Mexican peso amounts actually represent such U.S. dollar amounts or could be converted into U.S. dollars at the rate indicated.




To obtain the complete version of this Financial Report with charts, we invite you to download the PDF version up in this page, or you can visit the Financial Reports section of Investor Relations.

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