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30 Apr 2007

FEMSA Reports Revenue Growth of 9% in 1Q2007


Monday, 04/30/2007, 3:48:33 pm

Monterrey, Mexico, April 30, 2007 — Fomento Económico Mexicano (“FEMSA”) today announced its operational and financial results for the first quarter of 2007.


First Quarter 2007 Highlights:
Consolidated total revenues increased 8.7%. All operating units contributed to this top-line growth.
Coca-Cola FEMSA total sales volume increased 7.0% and income from operations increased 10.8%. Strongest growth came from all international operations, which combined grew at a double-digit pace.
FEMSA Cerveza total revenues increased 3.6%; Mexico sales volume increased 2.6%, Brazil sales volume increased 14.4%, and export sales volume increased 5.8%.
         - A combination of external and internal factors, mainly in Brazil and Mexico resulted in a 57.6% decrease in income from operations.
         - Outlook for 2007 operating income in line with 2006 levels.
Oxxo total revenues increased 14.0%, driven by 91 net new stores and a 3.5% increase in same-store sales. There are now over 4,900 Oxxo stores throughout Mexico.
FEMSA Cerveza and Heineken USA have reached a new agreement to extend their successful relationship for the long-term. The two most complementary import portfolios in the U.S. beer industry will continue to be marketed together for the next 10 years.
 
“FEMSA delivered mixed results in a very tough first quarter. Most notable was the weakness at the beer division due to a softer demand environment in Mexico, a seasonal increase in marketing expenses in Brazil, and increased raw material pressure, as expected. Additionally, negative weather trends and a weak pricing environment further complicated matters. While we are not pleased with the first quarter results, we are as confident as ever that we are executing on the right strategy to maximize value creation over the long-term.”
“Despite the challenges of the quarter, FEMSA’s top-line was strong, led by the international operations of Coca-Cola FEMSA, most of whose business units, on average, experienced growth in the double-digits. We are confident in the course we have set and we remain committed to control costs within the context of what is best for the long-term – competing successfully and delivering sustainable growth across all our businesses”, commented José Antonio Fernández, Chairman and CEO of FEMSA.

   
FEMSA Consolidated
Total revenues increased 8.7% to Ps. 31.576 billion in 1Q07. This increase was primarily driven by total revenue growth of 9.2% at Coca-Cola FEMSA and 14.0% at Oxxo, despite a challenging consumer environment in Mexico. FEMSA Cerveza contributed to a lesser extent with total revenue growth of 3.6%.
Gross profit increased 5.2% to Ps. 13.959 billion in 1Q07, however the gross margin contracted 150 basis points to 44.2% of total revenues. This margin contraction reflects sustained raw material pressure at FEMSA Cerveza and Coca-Cola FEMSA, and the greater contribution of lower margin Oxxo retail operations in FEMSA’s consolidated results.
Income from operations decreased 9.7% to Ps. 3.116 billion in 1Q07, resulting in a 200 basis point decrease in operating margin to 9.9% of total revenues. The decrease in operating margin was primarily attributable to a margin contraction at FEMSA Cerveza and the increased contribution of the Oxxo retail chain, which has a lower margin than our other core operations. Partially offsetting this decrease was a 20 basis point margin improvement at Coca-Cola FEMSA.
Net income decreased 4.4% to Ps. 1.662 billion in 1Q07, driven by a decrease in income from operations. The effective tax rate decreased from 31.5% in 1Q06 to 30.5% in 1Q07.
Net majority income per FEMSA Unit1  was Ps. 0.88 in 1Q07. Net majority income per FEMSA ADS, using an exchange rate of Ps. 11.05 per dollar, which was the exchange rate at period end, was US$ 0.80 in the quarter.
Capital expenditures increased 36.6% to Ps. 1.824 billion in 1Q07, mainly reflecting increased investment in all three business units, in-line with our budget.
Consolidated net debt. As of March 31, 2007, FEMSA recorded a cash balance of Ps. 9.949 billion (US$ 900 million), short-term debt of Ps. 3.070 billion (US$ 277.8 million), and long-term debt of Ps. 39.641 billion (US$ 3.587 billion), for a net debt balance of Ps. 32.762 billion (US$2.965 billion), 28.4% higher than on March 31, 2006. The increase in net debt was mainly related to the acquisition of an additional 8.02% interest in Coca-Cola FEMSA and to a capital increase at our Brazilian beer operations, which represents the final step in the capitalization of the operation.
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