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25 Feb 2011

Coca-Cola FEMSA Announces Fourth Quarter and Full Year Results of 2010


Friday, 02/25/2011, 3:25:34 pm

 - Total revenues reached Ps. 27,991 million in the fourth quarter of 2010, a decrease of 3.6% compared to the fourth quarter of 2009 mainly as a result of the devaluation of the Venezuelan bolivar, which was partially compensated by double-digit total revenue growth in our Mercosur division and a 6.5% total revenue growth in our Mexico division. On a currency neutral basis, total revenues grew approximately 12%.

 - Consolidated operating income grew 5.2% to Ps. 5,080 million for the fourth quarter of 2010, driven by double-digit operating income growth recorded in our Latincentro division. Our operating margin was 18.1% in the fourth quarter of 2010.

 - Consolidated net controlling interest income grew 6.9%, reaching Ps. 3,022 million in the fourth quarter of 2010, resulting in earnings per share of Ps. 1.64 in the fourth quarter of 2010.


Mexico City (February 22, 2011)
, Coca-Cola FEMSA, S.A.B. de C.V. (BMV: KOFL, NYSE: KOF) (“Coca-Cola FEMSA” or the “Company”), the largest public Coca-Cola bottler in the world in terms of sales volume, announces results for the fourth quarter of 2010.

“In the face of unusually bad weather conditions across our Mexico and Latincentro divisions during an important part of the year and the effect of the devaluation of the Venezuelan bolivar, we believe the strength of our diversified, defensive business profile enabled us to produce top-line growth for 2010.  Our operators' disciplined ability to navigate and adapt our business to challenging, complex market environments produced increased profitability for the fourth quarter and the full year, despite the volatility of sugar costs throughout 2010. Our diversified sources of cash flow allowed us to deliver double-digit consolidated net controlling interest income growth for our shareholders in 2010, extending our track record of earnings per share growth.  We are privileged to lead a solid, multinational business that evolves and adapts to our operations' particular conditions; stays focused on our disciplined search to capture opportunities in the beverage industry, which extend the growth path that we have followed over the past several years; and enables us to consolidate our position across our franchise territories—delivering value to our shareholders." said Carlos Salazar Lomelin, Chief Executive Officer of the Company.
 

CONSOLIDATED RESULTS

Our consolidated total revenues decreased 3.6% to Ps. 27,991 million in the fourth quarter of 2010, compared to the fourth quarter of 2009 mainly as a result of the devaluation of the Venezuelan bolivar. On a currency neutral basis, total revenues grew approximately 12%, mainly driven by volume growth in our Mercosur and Mexico divisions, in combination with average price per unit case growth across our territories.

Total sales volume increased 1.2% to reach 659.9 million unit cases in the fourth quarter of 2010 as compared to the same period in 2009. Strong volume growth across all categories in our Mercosur division in combination with volume growth in our Mexico division, mainly driven by a 3% increase in the sparkling beverage category, supported by 3% growth of the Coca-Cola brand, compensated for volume declines in our Latincentro division.

Our gross profit decreased 3.3% to Ps. 12,974 million in the fourth quarter of 2010, compared to the fourth quarter of 2009. Cost of goods sold decreased 3.8%, mainly as a result of the devaluation of the Venezuelan bolivar. In local currency, cost of goods sold increased mainly driven by higher year-over-year sweetener costs across our territories, which were partially offset by the appreciation of the Brazilian real,(1) the Colombian peso(1) and the Mexican peso(1) as applied to our U.S. dollar-denominated raw material costs. Gross margin reached 46.4%, an expansion of 20 basis points as compared to the fourth quarter of 2009.

Our consolidated operating income increased 5.2% to Ps. 5,080 million in the fourth quarter of 2010, driven by double-digit operating income growth in our Latincentro division. Operating expenses decreased 8.1% in the fourth quarter of 2010 mainly as a result of the devaluation of the Venezuelan bolivar. In local currency, operating expenses grew mainly as a result of continued marketing investment in our Mexico division to support our execution in the marketplace, widen our cooler coverage and broaden our returnable base availability and higher labor and freight costs in Argentina. Our operating margin was 18.1% in the fourth quarter of 2010, an expansion of 150 basis points compared to the same period in 2009.

During the fourth quarter of 2010, we recorded Ps. 415 million in the other expenses, net line. These expenses mainly reflect the recording of employee profit sharing and the loss on sale of certain fixed assets.

Our comprehensive financing result in the fourth quarter of 2010 recorded an expense of Ps. 147 million as compared to an expense of Ps. 102 million in the same period of 2009.

During the fourth quarter of 2010, income tax, as a percentage of income before taxes, was 29.7% compared to 32.2% in the same period of 2009.

Our consolidated net controlling interest income(2) grew 6.9% reaching Ps. 3,022 million in the fourth quarter of 2010 as compared to the fourth quarter of 2009. Earnings per share (EPS) in the fourth quarter of 2010 were Ps. 1.64 (Ps. 16.37 per ADS) computed on the basis of 1,846.5 million shares outstanding (each ADS represents 10 local shares).


MEXICO DIVISION OPERATING RESULTS

Revenues
Total revenues from our Mexico division increased 6.5% to Ps. 9,922 million in the fourth quarter of 2010, as compared to the same period in 2009. Increased average price per unit case accounted for approximately 60% of incremental revenues during the quarter and volume growth represented the balance. Average price per unit case reached Ps. 31.66, an increase of 3.7%, as compared to the fourth quarter of 2009, mainly reflecting higher volumes sold in our sparkling beverage portfolio and selective price increases across our product portfolio implemented over the past several months. Excluding bulk water under the Ciel brand, our average price per unit case was Ps. 36.21, a 3.1% increase as compared to the same period in 2009.

Total sales volume increased 2.6% to 312.2 million unit cases in the fourth quarter of 2010, as compared to the fourth quarter of 2009. Sparkling beverage volume increased 3%, driven by the strong performance of the Coca-Cola brand and increases in flavored sparkling beverages. Our still beverage portfolio grew 5% mainly due to the Jugos del Valle line of beverages. These volume increases in sparkling and still beverages compensated for a slight decline in our water portfolio, driven by a 2% decline in bulk water.
 
Operating Income
Our gross profit increased 3.6% to Ps. 4,887 million in the fourth quarter of 2010 as compared to the same period in 2009. Cost of goods sold increased 9.5% as a result of higher PET and sweetener costs, which were partially compensated by the appreciation of the Mexican peso(1) as applied to our U.S. dollar-denominated raw material costs. Gross margin reached 49.3% in the fourth quarter of 2010 in comparison to 50.6% in the same period of 2009.

Operating income decreased 2.9% to Ps. 1,859 million in the fourth quarter of 2010, compared to Ps. 1,914 million in the same period of 2009. Operating expenses grew 8.0% mainly due to continued marketing investment to support our execution in the marketplace, widen our cooler coverage and broaden our returnable base availability. Our operating margin was 18.7% in the fourth quarter of 2010, compared to 20.5% in the same period of 2009.

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

Revenues
Total revenues reached Ps. 7,984 million in the fourth quarter of 2010, a decrease of 26.2% as compared to the same period of 2009 mainly as a result of the devaluation of the Venezuelan bolivar and a volume decline across the division. On a currency neutral basis, total revenues increased approximately 12% due to selective price increases implemented over the past several months across the division.

Total sales volume in our Latincentro division decreased 8.8% to 151.8 million unit cases in the fourth quarter of 2010 as compared to the same period of 2009. Our bottled water category recorded a double-digit volume decline, while the sparkling and still beverage categories declined 7% and 8%, respectively. Volumes in Venezuela declined approximately 14%, while volumes in Colombia and Central America declined approximately 9% and 1%, respectively. These declines were mainly related to unusually bad weather conditions experienced during the fourth quarter of 2010 in our operations.

Operating Income
Gross profit reached Ps. 3,780 million, a decrease of 23.3% in the fourth quarter of 2010, as compared to the same period of 2009. Cost of goods sold decreased 28.6% mainly as a result of the devaluation of the Venezuelan bolivar. In local currency, cost of goods sold increased mainly as a result of higher year-over-year sweetener costs across the division, which were partially compensated by the appreciation of the Colombian peso(1) as applied to our U.S. dollar-denominated raw material costs. Operating leverage achieved by higher average prices per unit case in local currency resulted in a gross margin expansion of 180 basis points to 47.3% in the fourth quarter of 2010.

Our operating income increased 23.8% to Ps. 1,608 million in the fourth quarter of 2010, compared to the fourth quarter of 2009. Operating expenses decreased 40.1% mainly as a result of the devaluation of the Venezuelan bolivar. In local currency, higher labor costs in Venezuela were partially compensated by lower marketing expenses across the division. Operating leverage achieved through higher average prices per unit case in local currency resulted in an operating margin of 20.1% in the fourth quarter of 2010, as compared to 12.0% in the same period of 2009.


MERCOSUR DIVISION OPERATING RESULTS (Brazil and Argentina)

Volume and average price per unit case exclude beer results.

Revenues
Total revenues increased 13.3% to Ps. 10,085 million in the fourth quarter of 2010, as compared to the same period of 2009. Excluding beer, which accounted for Ps. 986 million during the quarter, revenues increased 14.0% to Ps. 9,099 million. Volume growth and higher average prices per unit case in local currency were partially compensated by a negative currency translation effect resulting from the appreciation of the Mexican peso against the Brazilian real(1) and the Argentinean peso(1). On a currency neutral basis, our Mercosur division’s revenues increased approximately 18%.

Total sales volume in our Mercosur division increased 8.1% to 195.9 million unit cases in the fourth quarter of 2010 as compared to the same period of 2009. Volume growth was a result of (i) a 7% growth in sparkling beverages, mainly driven by the strong performance of the Coca-Cola brand in Brazil and Argentina, growing 7% and 6% respectively, accounting for close to 75% of incremental volumes, (ii) a 43% growth in the still beverage category, driven by the performance of the Jugos del Valle line of business in Brazil and Aquarius flavored water in Argentina, in combination with the recent introduction of the Matte Leao brand into our portfolio in Brazil, contributing approximately 20% of incremental volumes, and (iii) a 9% increase in our bottled water category, representing the balance.
 
Operating Income
In the fourth quarter of 2010, our gross profit increased 14.3% to Ps. 4,307 million, as compared to the same period in 2009. Cost of goods sold increased 12.7% mainly due to higher sweetener costs in the division and higher PET costs in Argentina, which were partially compensated by the appreciation of the Brazilian real(1) as applied to our U.S. dollar-denominated raw material costs. Gross margin reached 42.7% in the fourth quarter of 2010, an expansion of 30 basis points as compared to the fourth quarter of 2009.

Operating income remained flat at Ps. 1,613 million in the fourth quarter of 2010, as compared to Ps. 1,614 million in the same period of 2009. Operating expenses increased 25.0%, mainly driven by higher labor and freight costs in Argentina. Our operating margin was 16.0% in the fourth quarter of 2010 as compared to 18.1% in the same period of 2009.


SUMMARY OF FULL-YEAR RESULTS

Our consolidated total revenues increased 0.7% to Ps. 103,456 million in 2010, as compared to 2009, as a result of revenue growth in our Mercosur and Mexico divisions and despite the devaluation of the Venezuelan bolivar. On a currency neutral basis and excluding the acquisition of Brisa in Colombia, total revenues increased approximately 15% in 2010.

Total sales volume increased 2.9% to 2,499.5 million unit cases in 2010, as compared to 2009. The sparkling beverage category, driven by a 4% growth of the Coca-Cola brand, contributed more than 70% of incremental volumes. The still beverage category, mainly driven by the performance of the Jugos del Valle line of business across our territories, grew 11% and accounted for approximately 20% of incremental volumes. The consolidation of the Brisa water brand in Colombia drove an 8% growth in our bottled water portfolio, representing the balance. Excluding the non-comparable effect of Brisa, total sales volume increased 2.1% to reach 2,479.6 million unit cases.

Our gross profit increased 0.2% to Ps. 47,922 million in 2010, as compared to 2009, despite the devaluation of the Venezuelan bolivar. Cost of goods sold increased 1.1% as a result of higher cost of sweetener across our operations, which was partially offset by the appreciation of the Brazilian real,(1) the Colombian peso(1) and the Mexican peso (1) as applied to our U.S. dollar-denominated raw material costs. Gross margin reached 46.3% for 2010, a decrease of 20 basis points as compared to 2009.

Our consolidated operating income increased 7.9% to Ps. 17,079 million in 2010, as compared to 2009. Our Mercosur and Latincentro divisions accounted for this growth. Our operating margin was 16.5% for 2010, a 110 basis points expansion as compared to 2009.

Our consolidated net controlling interest income(2) increased by 15.0% to Ps. 9,800 million in 2010 as compared to 2009, mainly as a result of higher operating income. Earnings per share (EPS) in 2010 were Ps. 5.31 (Ps. 53.07 per ADS) computed on the basis of 1,846.5 million shares outstanding (each ADS represents 10 local shares).


RECENT DEVELOPMENTS

During December, 2010, authorities of the Venezuelan Government announced the unification of their two fixed foreign exchange rates, stating that the BsF. 4.30 per US dollar exchange rate would remain as the only official exchange rate in the country. We expect this event will affect our financial results, increasing our operating costs, as a result of the impact of the announced exchange rate as applied to our US dollar-denominated raw material costs. This event will not affect the results of our Venezuelan operations when translated into our reporting currency, the Mexican peso, as we have been translating the results of these operations at the BsF. 4.30 per US dollar exchange rate since January 1, 2010.

On January 14, 2011, our Valencia production and distribution facilities in Venezuela went on strike as a result of our negotiations with these facilities’ labor union. On February 10, 2011, we reached an agreement and returned to normal operating conditions after 26 days.

During the third quarter of 2010, our Board of Directors approved the anticipated adoption of International Financial Reporting Standards. On February 18, 2011, based on a recommendation made by the audit committee, the Board of Directors approved the adoption of International Financial Reporting Standards in accordance with Mexican regulations beginning January 1, 2012.

On February 18, 2011, Coca-Cola FEMSA’s Board of Directors agreed to propose an ordinary dividend of approximately Ps. 4,358 million, to be paid during the second quarter of 2011. This dividend is subject to approval at the Annual Shareholders meeting to be held in March, 2011 and represents an increase of approximately 67 % as compared to the dividend paid on April 26, 2010.


CONFERENCE CALL INFORMATION

Our fourth-quarter 2010 Conference Call will be held on: February 22, 2011, at 11:00 A.M. Eastern Time (10:00 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 March 1, 2011. To listen to the replay, please dial: Domestic U.S.: 888-286-8010 or International: 617-801-6888. Pass code: 95777529.

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 30 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, which 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, which 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.

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