Friday, 02/12/2010, 10:44:45 am
Monterrey, Mexico, February 12, 2010 — Fomento Económico Mexicano, S.A.B. de C.V. (“FEMSA”) announced today its operational and financial results for the fourth quarter and full year 2009.
Fourth Quarter 2009 Highlights:
• Consolidated total revenues and income from operations grew 19.8% and 21.5%, respectively, compared to the fourth quarter 2008. In spite of a challenging economic environment, FEMSA again delivered a quarter of strong growth in revenues and income from operations, mainly driven by double-digit performance at Coca-Cola FEMSA and FEMSA Comercio.
• Coca-Cola FEMSA total revenues and income from operations increased 27.6% and 19.1%, respectively. Driven by double-digit income from operations growth in Latincentro and Mercosur operations.
• FEMSA Cerveza total revenues increased 7.6%. Top-line growth mainly due to higher price per hectoliter in Mexican pesos, combined with operating expense containment offsetting raw material cost pressures due to year-over-year increases, resulting in growth of 8.6% in income from operations.
• FEMSA Comercio continued its pace of strong growth and margin expansion. Income from operations increased 45.3%, resulting in an operating margin expansion of 240 basis points to reach an all-time high of 11.7% during 4Q09.
2009 Full Year Highlights:
• Consolidated total revenues increased 17.3%. All operating units contributed to this top-line growth.
• Consolidated income from operations increased 19.1%, driven by double-digit growth at Coca-Cola FEMSA and FEMSA Comercio.
• Coca-Cola FEMSA total revenue and income from operations increased 23.9% and 15.6%, respectively. Strong growth in Latincentro and Mercosur, as well as more tempered growth in Mexico drove these results.
• FEMSA Cerveza total revenues increased 9.3%, mainly as a result of increases in average price per hectoliter across all our operations in local currencies. Income from operations increased 9.3%, as a result of top-line growth combined with operating expense containment offsetting continued raw material cost pressures.
• FEMSA Comercio income from operations increased 44.8%, reaching an all-time-high operating margin of 8.3% and resulting in 180 basis points of expansion. For the 8th consecutive year, income from operations increased over 25%, driven by the opening of 960 new stores during the year and a 1.3% increase in same store sales.
• Ordinary dividend of Ps. 2.600 billion proposed by FEMSA’s Board of Directors, to be paid in 2010 and subject to approval at the annual shareholders meeting in April, 2010, representing a 60% increase over the prior year.
José Antonio Fernández, Chairman and CEO of FEMSA, commented: “At the outset of 2010, we should highlight the benefit of having not one, but two distinct reasons to be very optimistic about FEMSA. On the operating front, we closed a very challenging 2009 that nevertheless saw us grow, improve, and ultimately succeed in delivering a very robust set of results. On the strategic front, as you know, we announced a definitive agreement under which we are exchanging FEMSA’s beer operations for a 20% economic interest in Heineken, which will allow our shareholders to participate in the value creation we believe will come from aligning FEMSA Cerveza with Heineken. At the same time, we increase FEMSA’s operational and financial flexibility, and we will be able to focus our attention and resources on the significant opportunities for Coca-Cola FEMSA and FEMSA Comercio. We are confident that FEMSA has the right skill set and the right people to continue its path of growth and operational excellence in soft drinks and convenience retail, two businesses that hold tremendous promise and opportunities for growth and value creation, while also adding value to Heineken as we move forward.”
As of December 31, 2009 the Mexican Peso and Brazilian Real appreciated approximately 3.5% and 25.5% respectively, against the US dollar as compared to the same period of 2009. During the same period, the Mexican Peso depreciated approximately 29.5% against the Brazilian Real.
Total revenues increased 19.8% compared to 4Q08 to Ps. 53.678 billion. Coca-Cola FEMSA accounted for more than 70% of the incremental consolidated revenues, while FEMSA Comercio and FEMSA Cerveza provided the balance.
For the full year of 2009, consolidated total revenues increased 17.3% to Ps. 197.033 billion. This growth resulted from double-digit growth at Coca-Cola FEMSA and FEMSA Comercio, combined with high-single digit growth at FEMSA Cerveza.
Gross profit increased 19.9% compared to 4Q08 to Ps. 25.120 billion in 4Q09. Gross margin increased 10 basis points compared to the same period in 2008 to 46.8% of total revenues. FEMSA Comercio and Coca-Cola FEMSA gross profit improvement more than offset raw material cost pressures at FEMSA Cerveza, driven largely by year-over-year increases in unit costs.
For the full year of 2009, gross profit increased 17.0% to Ps. 90.838 billion. Gross margin contracted 10 basis points compared to the same period in 2008 to 46.1% of total revenues. FEMSA Comercio gross profit improvement partially offset raw-material cost pressures at FEMSA Cerveza and Coca-Cola FEMSA.
Income from operations increased 21.5% to Ps. 8.157 billion in 4Q09 as compared to the same period in 2008 driven by double-digit growth at Coca-Cola FEMSA and FEMSA Comercio. Coca-Cola FEMSA accounted for approximately 54% of the incremental consolidated income from operations, while FEMSA Comercio accounted for approximately 36%. Consolidated operating margin increased 20 basis points compared to 4Q08 to 15.2% of total revenues, as operating margin improvement mainly at FEMSA Comercio and FEMSA Cerveza expense containment initiatives offset gross margin pressure at the beer operations.
For the full year of 2009, income from operations increased 19.1% to Ps. 27.012 billion. Our consolidated operating margin for the year was 13.7%, an improvement of 20 basis points as compared to the same period in 2008, driven mainly by robust top-line growth and expense containment initiatives across our operations, as well as by gross margin expansion at FEMSA Comercio, which together offset raw material pressures at the beverage operations.
Net income increased seven-fold compared to 4Q08 to Ps. 6.110 billion in 4Q09, due in part to the low comparison base of 4Q08, and driven by the depreciation of local currencies in our markets against the US dollar and losses in certain derivative instruments, resulting in a significant improvement in the integral result of financing during 4Q09. Furthermore, we recorded a one-time benefit from the settlement of certain contingent tax liabilities in FEMSA Cerveza’s Brazilian operations, under the tax amnesty program offered by the Brazilian tax authorities in 2009. The effective income tax rate was 30.0% in 4Q09 compared to 41.2% in 4Q08.
For the full year of 2009, net income increased 62.6% to Ps. 15.082 billion compared to 2008, largely for the reasons described above. The effective tax rate was 31.5% in 2009, compared with 31.2% in 2008.
Net majority income for 4Q09 resulted in Ps. 1.14 per FEMSA Unit1. Net majority income per FEMSA ADS was US$ 0.87 for the quarter. For the year of 2009, net majority income per FEMSA Unit1 was Ps. 2.77 (US$ 2.12 per ADS), an increase of 48% compared to 2008.
Capital expenditures decreased 7.2% over 4Q08 to Ps. 5.017 billion in 4Q09, driven by the rationalization and reduction of capacity-related investments in FEMSA Cerveza, which offset higher manufacturing investments at Coca-Cola FEMSA and the accelerated expansion of store openings at FEMSA Comercio. For the full year of 2009, capital expenditures decreased 7.4% over 2008 to Ps. 13.178 billion, largely for the reasons described above.
Our consolidated balance sheet as of December 31, 2009, recorded a cash balance of Ps. 17.636 billion (US$ 1.351 billion), an increase of Ps. 8.526 billion (US$ 653.0 million) compared to the same period in 2008, reflecting strong cash generation at all of our operations, particularly at Coca-Cola FEMSA. Short-term debt was Ps. 8.853 billion (US$ 678 million) while long-term debt was Ps. 33.765 billion (US$ 2.586 billion). Our net debt decreased by Ps. 8.831 billion (US$ 676.3 million) for a net debt balance of Ps. 24.982 billion (US$ 1.913 billion).
Consistent with what we believe to be FEMSA’s conservative approach, as of December 31, 2009, our ratio of net debt to EBITDA2 was only 0.7x, while our mix of US dollar-denominated debt represented 12.0% and our mix of fixed interest rate represented 46.2% of the total.
As a matter of policy, FEMSA follows what it considers to be a conservative approach with respect to its leverage position and seeks to maintain low leverage ratios. FEMSA also seeks to manage risk through derivative instruments, through which it aims to minimize the volatility and uncertainty of operating results by hedging interest rates, foreign exchange rates and the prices of certain of our raw materials.
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 or visit www.coca-colaFEMSA.com.
Beer – FEMSA Cerveza
Mexico sales volume increased 0.8% to 7.176 million hectoliters in 4Q09, in the context of a still challenging economic environment, particularly in our key northern markets. Our Tecate brand family and Indio once again delivered strong growth. Furthermore, Mexico price per hectoliter increased 3.1% over 4Q08 to Ps. 1,131.1 in 4Q09, resulting from price increases implemented during the second quarter of 2009. Mexico beer revenues were up 3.9% over 4Q08 mainly driven by healthy prices and stable volumes
For the full year of 2009, Mexico sales volume decreased 1.7% to 26.929 million hectoliters and price per hectoliter increased 6.4% over 2008, in the context of extreme economic headwinds, particularly affecting our key territories.
Brazil sales volume increased 3.3% in 4Q09, to 3.249 million hectoliters, while Brazil price per hectoliter calculated in Mexican pesos increased 26.1% to Ps. 735.3 compared to the same period in 2008, driven by the strength of the Brazilian Real. Price per hectoliter in local currency decreased 4.4% compared to 4Q08. Brazil beer revenues were up 30.2% in Mexican pesos over 4Q08 due to a positive exchange rate translation effect, driven by the depreciation of the Mexican peso against the Brazilian Real.
For the full year of 2009, Brazil sales volume decreased 1.3% from 2008 to 10.049 million hectoliters.
Export sales volume decreased 8.9% in 4Q09 to 685 thousand hectoliters, against a tough comparison base of 12.3% volume growth in 4Q08, and despite high inventory level build up during 3Q09, as well as a still-challenging economic environment across our export markets. The decrease was mainly driven by our Tecate brand in the US as well as by Sol in other key markets. Export price per hectoliter in Mexican pesos increased 1.5% to Ps. 1,270.8 in 4Q09 as compared with 4Q08. In US dollar terms, price per hectoliter increased 0.5% mainly due to a favorable brand mix shift from Tecate to higher-priced Dos Equis. As a result, Export beer revenues decreased 7.5% over 4Q08.
For the full year of 2009, export sales volume increased 2.6% to 3.570 million hectoliters, outperforming the US import beer category by a significant margin.
Total revenues increased 7.6% over 4Q08 to Ps. 12.361 billion in 4Q09. Higher average price per hectoliter in Mexican pesos in all of our markets drove these results. Mexican beer sales represented 71.3% of total beer revenues, while Brazil and Export beer sales reached 21.0% and 7.7% of total beer revenues, respectively in 4Q09.
For the full year of 2009, total revenues increased 9.3% to Ps. 46.336 billion mainly driven by an increase of 8.9% in beer revenues. Mexican beer revenues reached 71.9% of total beer revenues, down from 74.9% in 2008. Brazil beer revenues represented 16.9% of total beer revenues, up from 15.8% in the same period of 2008. Export beer revenues were 11.1% of total beer revenues, up from 9.2% in 2008.
Cost of sales was Ps. 6.105 billion in 4Q09, an increase of 12.5% compared with 4Q08, which was above the 7.6% growth in total revenues. Cost per hectoliter increased by 11.6% over 4Q08, as a result of i) year-over-year increases in the cost of raw materials, particularly related to packaging inputs and grains and ii) the translation effect resulting from the depreciation of the Mexican peso against the Brazilian Real. Gross profit increased 3.1% over 4Q08 to Ps. 6.256 billion in 4Q09, however as a percentage of revenues, gross margin contracted 220 basis points from 52.8% in 4Q08 to 50.6% in 4Q09 as a result of these cost increases and the translation effect.
For the full year of 2009, cost of sales increased 14.7% to Ps. 22.418 billion. Gross margin for the year contracted by 230 basis points to 51.6% of total revenues as a result of i) the depreciation of the Mexican peso against the US dollar applied to the unhedged portion of input costs denominated in foreign currencies, ii) year-over-year increases in the cost of raw materials, particularly in grains and to a lesser extent aluminum, and iii) the translation effect of the depreciation of the Mexican peso against the Brazilian Real.
Income from operations increased 8.6% compared with 4Q08 to Ps. 1.587 billion in 4Q09, as continued rationalization and containment efforts at the selling expense level in Mexico and Brazil helped to offset gross margin pressures. Operating expenses increased by 1.4%, which was less than total revenues growth, continuing the trend of previous quarters in 2009 and offsetting the contraction experienced at the gross margin level, resulting in an operating margin increase of 10 basis points.
For the full year of 2009, income from operations increased 9.3% to Ps. 5.894 billion. Operating margin remained flat as compared to 2008 at 12.7%. Operating expense containment offset the contraction experienced at the gross margin level.
Total revenues increased 15.6% compared to 4Q08 to Ps. 14.114 billion in 4Q09 mainly driven by the opening of 340 net new stores in the quarter, for a total increase of 960 net new stores in the year, reaching a new record number of store openings. As of December 31, 2009, FEMSA Comercio had a total of 7,334 convenience stores in Mexico, surpassing its objective for the year. Same-store sales increased an average of 3.4% for the quarter over 4Q08, driven by a 2.0% increase in store traffic and 1.2% average customer ticket.
For the full year of 2009, total revenues increased 13.6% to Ps. 53.549 billion. FEMSA Comercio same-store sales increased an average of 1.3% driven by a 3.3% increase in store traffic, which more than offset a slight reduction of 1.6% in average ticket. As was the case in 2008, the same-store sales, ticket and traffic dynamics continued to reflect the effects from the continued mix shift from physical prepaid wireless air-time cards to the sale of electronic air-time, for which only the margin is recorded, not the full amount of the electronic recharge. As 2009 progressed, this effect diminished. On a comparable basis excluding this change, the average ticket would have grown in the low-single-digits in 2009.
Gross profit increased by 24.1% in 4Q09 compared to 4Q08, resulting in a 250 basis point gross margin expansion to reach 36.9% of total revenues. This increase reflects more effective collaboration and execution with our key supplier partners combined with a more efficient use of promotion-related marketing resources, and a positive mix shift due to the growth of higher margin categories and to a lesser extent, the continued shift towards electronic air-time recharges as described above. For the full year of 2009, gross margin expanded by 220 basis points to 33.1% of total revenues to Ps. 17.724 billion.
Income from operations increased 45.3% over 4Q08 to Ps. 1.655 billion in 4Q09. Operating expenses increased 16.2% to Ps. 3,555 million, largely driven by the growing number of stores, and partially offset by broad expense-containment initiatives at the store level as well as by scale-driven efficiencies. As a result, operating margin expanded 240 basis points over 4Q08 reaching 11.7% of total revenues.
For the full year of 2009, income from operations increased 44.8% to Ps. 4.457 billion, resulting in a record operating margin of 8.3%, an improvement of 180 basis points as compared to the previous year.
On January 11, 2010, FEMSA announced that its Board of Directors unanimously approved a definitive agreement under which FEMSA will exchange its FEMSA Cerveza business for a 20% economic interest in Heineken (HEIA.NA; HEIN.AS; HEIO.NA; HEIO.AS), one of the world’s leading brewers. Under the terms of the agreement, FEMSA will receive 43,018,320 shares of Heineken Holding N.V. and 72,182,201 shares of Heineken N.V., of which 29,172,502 will be delivered pursuant to an allotted share delivery instrument. It is expected that the allotted shares will be acquired by Heineken in the secondary market for delivery to FEMSA over a term not to exceed five years. Heineken also will assume US$ 2.1 billion of indebtedness, including FEMSA Cerveza’s unfunded pension obligations. The total transaction was valued at approximately US$ 7.347 billion, based on closing prices of € 32.92 for Heineken N.V. and € 29.38 for Heineken Holding N.V. on January 8, 2010, including the assumed debt. The transaction, which is expected to be
completed in the first half of 2010, is subject to customary regulatory approvals, as well as approval by FEMSA, Heineken N.V. and Heineken Holding N.V. shareholders.
CONFERENCE CALL INFORMATION:
Our Fourth Quarter and Full Year 2009 Conference Call will be held on: Friday February 12, 2010, 12:00 PM Eastern Time (11:00 AM Mexico City Time). To participate in the conference call, please dial: Domestic US: (1 888) 230-5549 International: (1 913) 312-1516. 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 on http://ir.FEMSA.com/results.cfm.
We are a holding company whose principal activities are grouped under the following sub-holding companies and carried out by their respective operating subsidiaries: Coca-Cola FEMSA, S.A.B. de C.V., which engages in the production, distribution and marketing of non-alcoholic beverages; FEMSA Cerveza, S.A. de C.V., which engages in the production, distribution and marketing of beer and flavored alcoholic beverages; and FEMSA Comercio, S.A. de C.V., which engages in the operation of convenience stores.
The translations of Mexican pesos into US dollars are included solely for the convenience of the reader, using the noon day buying rate for pesos as published by the Federal Reserve Bank of New York at December 31, 2009, which was 13.0576 Mexican pesos per US dollar.
FORWARD LOOKING STATEMENTS
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.
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