Press Release

FEMSA Announces First Quarter 2020 Results

FEMSA

Monterrey, Mexico, April 30, 2020 — Fomento Económico Mexicano, S.A.B. de C.V. (“FEMSA”) (NYSE: FMX; BMV: FEMSAUBD) announced today its operational and financial results for the first quarter of 2020.

FINANCIAL HIGHLIGHTS:

  • 5.5% revenue growth (2.7% on an organic1 basis) at FEMSA Consolidated
  • 30 basis points operating margin expansion at FEMSA Comercio’s Proximity Division
  • 19.9% revenue growth (-0.9% on an organic1 basis) at FEMSA Comercio’s Health Division
  • 5.1% volume growth in Coca-Cola FEMSA operations in South America
  • Robust balance sheet; positions FEMSA well amid current economic environment

Eduardo Padilla, FEMSA’s CEO, commented:

“Our year got off to a strong start across our business units, but as the magnitude of the COVID-19 emergency became clear in late March, and as measures were taken by governments and adopted by consumers, our focus changed quickly from earnings growth, to risk mitigation and business continuity. While most of the numbers we present today are solid, my greatest recognition goes to our team, across our operations, for reacting and adapting to the rapidly changing environment with high levels of agility and effectiveness. They quickly launched initiatives, defined protocols, adjusted processes and did everything necessary to protect our people, our consumers, our long-term business partners and our company.

As of today, a majority of our business units are being allowed to operate, given their essential nature. Our OXXO stores, drugstores and fuel stations are mostly open, but with increasing restrictions that vary by jurisdiction, and showing clear reductions in traffic that will impact results for as long as these conditions persist. Coca-Cola FEMSA is leveraging its large off-premise customer base and its flexible commercial platforms, but we are seeing some negative mix effects and increasing complexities in what are traditionally contact-intensive customer relationships. And as we all know, there is great uncertainty regarding the duration of the lockdowns and social-distancing policies. However, crisis often breeds opportunity. With that in mind, we are intensifying our digital and technology-driven initiatives across operations, and we will work hard to come out of this a stronger, more humane, more resilient and better positioned company.”

1 Excludes the effects of significant mergers and acquisitions in the last twelve months.

COVID-19 Management Framework: Priorities, Initiatives and Measures

• Our People Keeping our people safe and healthy is our first priority. Among related initiatives, we identified more than 25,000 vulnerable employees across business units and sent them home with pay. We have enabled remote collaboration where possible and eliminated travel. We are providing our personnel with all required protection equipment and have put in place enhanced safety and sanitary protocols at all stores and facilities. Furthermore, our firm objective is to provide job security for our employees, and we are working hard to avoid job losses.
• Our Customers We strive to provide a safe environment every time we interact with one of our millions of customers. We provide sanitizer at our stores, facilitate proper distancing, and avoiding high concentrations of customers in our locations. And we are increasingly offering our customers more ways to make their purchase, leveraging digital channels, with Coca-Cola FEMSA leading the way in omni-channel and FEMSA Comercio making progress with their digital initiatives.
• Our Communities We are leveraging our scale and reach to donate and channel resources to our communities in need. Examples include CocaCola FEMSA bringing hydration to health centers, FEMSA Strategic Businesses contributing its manufacturing expertise in a collaborative effort to produce low-cost medical ventilators in Mexico, and various monetary and in-kind donations by FEMSA Comercio.
• Our Financial Liquidity and Business Continuity We have adjusted our business focus to ensure we can operate under significant stress, and we have strengthened our cash balances by accessing a portion of our available credit lines. Each business unit has considered scenarios with varying durations and stress levels, and we have laid out the strategy for potential contingencies. We have put in place aggressive cost reduction and efficiency measures and are ready to adjust CAPEX as needed.

• On January 16th, 2020, FEMSA announced the placement of a U.S.-denominated SEC-registered offering of Senior Unsecured Notes (“Initial Notes”) in the international capital markets. FEMSA successfully issued USD $1,500 million in 30-year senior unsecured notes. The notes will bear interest at an annual rate of 130 basis points over the relevant benchmark, for a yield of 3.608% and a coupon of 3.500%. Later, on February 12, 2020, FEMSA announced the successful placement of a US$300 million re-tap to the Initial Notes. This re-tap issuance (“New Notes”), represents an additional issuance to FEMSA’s Initial Notes. The New Notes will be treated as a single class with the Initial Notes, raising the total outstanding balance to US $1,800 million. The New Notes were priced at 101.433 for an implied yield to maturity of 3.423%. This issuance received credit ratings of A- from Standard & Poor`s and A from Fitch Ratings. The proceeds from these issuances will be used for general corporate purposes.

• On March 9th, 2020, FEMSA announced that it had entered into a definitive agreement with the shareholders of WAXIE Sanitary Supply (“WAXIE”) and North American Corporation (“North American”) to form a new platform within the Jan-San, Packaging and Specialized distribution industry in the United States. The platform will bring together two market leaders in this field: WAXIE And North American, with FEMSA acquiring a majority controlling interest in the combined company. Current shareholders of WAXIE and North American will remain investors. Each company will maintain their current management teams, with Charles Wax of WAXIE and John Miller of North American, members of the founding families of their respective companies and current CEOs, now serving as co-CEOs of the new enterprise. FEMSA’s investment in this venture is US$900 million. The transaction is expected to close during the first semester of 2020.

• On March 20th, 2020, FEMSA held its Annual Ordinary General Shareholders Meeting, during which the shareholders approved the Company’s annual report for 2019 prepared by the Chief Executive Officer, the Company’s consolidated financial statements for the year ended December 31, 2019 and the election of the Board of Directors and its Committees for 2020. The shareholders approved the payment of a cash dividend in the amount of Ps. 10,360 million, consisting of Ps. 0.6458 per each Series “D” share and Ps. 0.5167 per each Series “B” share, which amounts to Ps. 3.1000 per “BD” Unit (BMV: FEMSAUBD) or Ps. 31.000 per ADS (NYSE: FMX), and Ps. 2.5833 per “B” Unit (BMV: FEMSAUB). The dividend will be paid no later than November 5th, 2020, in one or two installments on the dates to be determined by the Board of Directors. In addition, the shareholders established the amount of Ps. 17,000 million as the maximum amount that could potentially be used for the Company’s share repurchase program during 2020.

QUARTERLY RESULTS

Results are compared to the same period of previous year

FEMSA CONSOLIDATED

Total revenues increased 5.5% in 1Q20 compared to 1Q19, reflecting growth across most of our business units. On an organic1 basis, total revenues grew 2.7%.

Gross profit grew 7.1%. Gross margin expanded 60 basis points, mainly driven by expansion at Coca-Cola FEMSA and FEMSA Comercio’s Proximity and Fuel Divisions, partially offset by a contraction at FEMSA Comercio’s Health Division.

Income from operations increased 6.0%. On an organic1 basis, income from operations increased 4.4%. Consolidated operating margin increased 10 basis points to 7.8% of total revenues, reflecting stable margins at FEMSA Comercio’s Health Division and margin expansion at Coca-Cola FEMSA and FEMSA Comercio’s Proximity Division. These were partially offset by a margin contraction at FEMSA Comercio’s Fuel Division.

Income tax was Ps. 4,723 million in 1Q20.
Net consolidated income increased significantly to Ps. 9,112 million, mainly driven by a non-cash foreign exchange gain related to FEMSA’s U.S. dollar-denominated cash position as impacted by the depreciation of the Mexican peso and higher income from operations across most of our business units, partially offset by higher interest expense and a decrease in FEMSA’s participation in Heineken’s results.

Net majority income was Ps. 2.55 per FEMSA Unit2 and US$1.09 per FEMSA ADS.

Capital expenditures amounted to Ps. 5,309 million, reflecting higher investments at most of our business units.

1 Excludes the effects of significant mergers and 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 March 31, 2020 was 3,578,226,270, equivalent to the total number of FEMSA Shares outstanding as of the same date, divided by 5.
3 The exchange rate published by the Federal Reserve Bank of New York for March 31, 2020 was 23.4480 MXN per USD.
4 Includes the effect of derivative financial instruments on long-term debt. Excludes long-term leases.
1Q20

FEMSA COMERCIO – PROXIMITY DIVISION

Total revenues increased 10.6% in 1Q20 compared to 1Q19, reflecting the opening of 268 net new OXXO stores in the quarter to reach 1,365 total net new store openings for the last twelve months. As of March 31, 2020, FEMSA Comercio’s Proximity Division had a total of 19,598 OXXO stores. OXXO’s same-store sales increased an average of 5.5%, driven by 9.1% growth in average customer ticket, partially offset by a decrease of 3.3% in store traffic. These results reflect an extra day in February.

Gross profit reached 40.0% of total revenues, reflecting healthy trends in our commercial income activity, and increased and more efficient promotional programs with our key supplier partners.
Income from operations amounted to 6.7% of total revenues. Operating expenses increased 15.0% to Ps. 15,185 million, above revenues, mainly reflecting: i) our continuing initiative to strengthen our compensation structure of key in-store personnel in a tight labor market, including the gradual shift from commission-based store teams to employee-based teams; and ii) higher investments in IT programs and infrastructure. These were partially offset by lower electricity costs as approximately 70% of our stores in Mexico are now being supplied from wind energy.

FEMSA COMERCIO – HEALTH DIVISION

Total revenues increased 19.9% in 1Q20 compared to 1Q19. On an organic1 basis, total revenues decreased 0.9% reflecting positive trends across our operations, that were offset by a negative currency translation effect related to the appreciation of the Mexican peso compared to the Chilean and Colombian pesos. As of March 31, 2020, FEMSA Comercio’s Health Division had a total of 3,196 points of sale across our territories. This figure reflects the addition of 35 net new stores in the quarter, to reach 812 total net new store additions for the last twelve months, including the integration of Corporación GPF during the 2Q19. Same-store sales for drugstores decreased an average of 6.8%, reflecting the revenue drivers described above. On a currency-neutral2 basis, total revenues increased 35.9% while same-store sales increased by 3.1%.

Gross profit represented 28.1% of total revenues, reflecting modified pricing regulations in Colombia, and soft trading in our Maicao operations in Chile. These were partially offset by improved efficiency and more effective collaboration and execution with key supplier partners in Mexico.

Income from operations increased 21.8%. Operating expenses increased 17.0% to Ps. 3,913 million, below revenues, driven by cost efficiencies and tight expense control across our operations.

1 Excludes the effects of significant mergers and acquisitions in the last twelve months.
2 Calculated by translating comparable period figures at the foreign currency exchange rates used in the current period.

FEMSA COMERCIO – FUEL DIVISION

Total revenues remained flat in 1Q20 compared to 1Q19, reflecting the addition of 5 net new OXXO gas stations in the quarter, reaching 10 total net new stations in the last twelve months. This was offset by a same-station sales decrease of 1.5%, driven by a 0.9% decrease in the average price per liter, coupled with a decrease of 0.6% in the average volume. As of March 31, 2020, FEMSA Comercio’s Fuel Division had a total of 550 OXXO GAS service stations.

Gross profit reached 10.6% of total revenues.

Income from operations amounted to 2.2% of total revenues. Operating expenses increased 15.6% to Ps. 920 million, above revenues, reflecting: i) higher wages and improved compensation structures for our in-station personnel aimed at reducing turnover in a tight labor market; and ii) maintenance and remodeling expenses related to the transition into the new OXXO GAS brand image.

Media Contact
(52) 555-249-6843
[email protected]
www.femsa.com

Investor Contact
(52)818-328-6167
[email protected]
www.femsa.com/inversionista

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 http://www.cocacolafemsa.com

CONFERENCE CALL INFORMATION:
Our First Quarter 2020
Conference Call will be held on: Thursday, April 30, 2020, 9:30 AM Eastern Time (8:30 AM Mexico City Time).
To participate in the conference call, please dial: Domestic US: (800) 289 0438; International: +1 (323) 794 2423; Conference Id: 8031486.
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

FEMSA is a company that creates economic and social value through companies and institutions and strives to be the best employer and neighbor to the communities in which it operates. It participates in the retail industry through FEMSA Comercio, comprising a Proximity Division operating OXXO, a small-format store chain, a Health Division, which includes drugstores and related activities, and a Fuel Division, which operates the OXXO GAS chain of retail service stations. In the beverage industry, it participates through Coca-Cola FEMSA, a public bottler of Coca-Cola products; and in the beer industry, as a shareholder of HEINEKEN, a brewer with operations in over 70 countries. Additionally, through its Strategic Businesses unit, it provides logistics, point-of-sale refrigeration solutions and plastics solutions to FEMSA`s business units and thirdparty clients. Through its business units, FEMSA has approximately 300,000 employees in 12 countries. FEMSA is a member of the Dow Jones Sustainability MILA Pacific Alliance, the FTSE4Good Emerging Index and the Mexican Stock Exchange Sustainability Index, among other indexes that evaluate is sustainability performance.

The translations of Mexican pesos into US dollars are included solely for the convenience of the reader, using the noon buying rate for Mexican pesos as published by the Federal Reserve Bank of New York on March 31, 2020, which was 23.4480 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.

Coca-Cola FEMSA Announces First Quarter 2020 Results

Mexico City, April 29, 2020, Coca-Cola FEMSA, S.A.B. de C.V. (BMV: KOFUBL, NYSE: KOF) (“Coca-Cola FEMSA”, “KOF” or the “Company”), the largest Coca-Cola franchise bottler in the world by sales volume, announces results for the first quarter of 2020.

FIRST QUARTER OPERATIONAL AND FINANCIAL HIGHLIGHTS

• Consolidated volumes remained flat, as a slight contraction in Mexico and volume declines in Brazil and Uruguay were offset by volume growth in Argentina, Central America, and Colombia.
• Total revenues decreased 1.9%, while comparable revenues grew 3.6%. Our pricing initiatives were offset mainly by unfavorable currency translation effects from most of our operating currencies into Mexican Pesos.
• Operating income remained flat, while comparable operating income increased 6.3%. Declining raw material costs, coupled with operating expenses efficiencies and tax reclaims in Brazil, were offset mainly by higher concentrate costs, and the depreciation of most of our operating currencies as applied to our U.S. dollar-denominated raw material costs.
• Majority net income decreased 1.5%, driven mainly by a one-time expense due to the prepayment of our 2023 U.S. dollar denominated bond, related to our successful debt refinancing initiatives completed during the quarter.
• Earnings per share1 were Ps. 0.15 (Earnings per unit were Ps. 1.21 and per ADS were Ps. 12.15.).

John Santa Maria, Coca-Cola FEMSA’s CEO, commented:

“During the first quarter, we successfully navigated currency headwinds and the initial effects of the COVID-19 pandemic to deliver positive results. Excluding currency translation effects, our comparable revenues grew 3.6%, while our comparable operating income grew 6.3%, reflecting our positive underlying operating performance and our ability to drive cost and expense efficiencies. Importantly, recognizing the rapidly changing environment, we developed a comprehensive framework focused on deploying actions to ensure the continuity of our business, putting the safety and wellbeing of our employees as a paramount priority. Accordingly, we are listening and reacting to the needs of our customers, consumers, and the communities we serve. Following our conservative profile, we took measures to further strenghten our balance sheet, succesfully refinancing debt and taking on short-term credits to strengthen our cash position, all while implementing additional control measures on our costs, expenses, and CAPEX.

I am proud of the level of collaboration and resilience that we demonstrate as an organization. Coca-Cola FEMSA has faced crises before, and has been able to adapt and capitalize on dynamic environments. I am confident that the pressures we face will be temporary and that the measures we are taking will position us for success in the long-term.”

(1) Quarterly earnings / outstanding shares. Earnings per share (EPS) were calculated using 16,806.7 million shares outstanding. For the convenience of the reader, as a KOFUBL Unit is comprised of 8 shares (3 Series B shares and 5 Series L shares), earnings per unit are equal to EPS multiplied by 8. Each ADS represents 10 KOFUBL Units.
(2) Please refer to page 8 for our definition of “comparable” and a description of the factors affecting the comparability of our financial and operating performance.

RECENT DEVELOPMENTS
COVID-19 Outbreak
• During the first quarter of 2020, the Company developed a comprehensive management framework designed to guide its mitigation actions across five key areas: collaborators, clients, consumers, community, and cash flow.
o Collaborators: Ensuring employees’ safety and wellbeing is of utmost importance. Examples of the Company’s additional measures include implementing reinforced health, sanitation, and hygiene protocols across its facilities and providing additional protective equipment such as masks, gloves, and sanitizing gels. o Clients: The Company is helping its clients to remain open for business in a safe way. Among its initiatives, the Company is leveraging its digital capabilities such as multichannel order taking via B2B platforms, contact centers, and WhatsApp. In addition, the Company’s preventive measures include donating protective screens for its clients’ counters. o Consumers: Consumers are at the center of the Company’s DNA. Accordingly, its mitigation actions include leveraging its affordability portfolio across key markets and channels, as well as reinforcing its presence in digital and direct to home channels. o Communities: As a social response to the current situation, the Company is donating beverages to health centers, transporting health supplies, contributing to the construction of alternative health centers, and acquiring medical equipment, among other community relief initiatives. o Cash Flow: Coca-Cola FEMSA´s liquidity position is robust and has a strong balance sheet, nonetheless, consistent with its financial discipline, the Company is implementing measures to further strengthen its balance sheet and protect its cash flow by prioritizing or deferring CAPEX investments and rationalizing expenses.

• The Company is confident that it has the resilient profile, solid cash position, balance sheet, and operational prowess to navigate this challenging environment.

Other Recent Developments

• As was previously disclosed, in January 2020, Coca-Cola FEMSA issued US$1.25 billion aggregate principal amount of senior notes due 2030. The net proceeds from the sale of the 2030 notes were used to repurchase and redeem its 3.875% senior notes due 2023 and for general corporate purposes. This resulted in the one-time expense due to the prepayment of our U.S. dollar denominated bond due 2023 and related to our successful debt refinancing initiatives completed during the quarter. In addition, in February 2020, the Company announced the successful placement of two tranches of Mexican Peso-denominated bonds or certificados bursátiles in the Mexican market for an aggregate amount of Ps. 3,000 million for 8 years and for an aggregate amount of Ps. 1,727 million for 5.5 years.
• In addition to the previously mentioned transactions, the Company incurred in short-term financing for Ps. 11,143 million as a preventive measure to reinforce its cash position. As of 31 March 2020, the Company had a cash position of more than Ps. 39 billion.
• Similar to what it was reported for the third quarter of 2019, following a favorable decision from Brazilian authorities on a separate matter, Coca-Cola FEMSA has been entitled to reclaim tax payments made in prior years in Brazil, resulting in an extraordinary positive effect on its first-quarter 2020 results, affecting mainly other operating revenues and other operating expenses, net. The total net amount of extraordinary tax effects in Brazil, including our conservative approach to not credit IPI related to concentrate purchases in Brazil, in the operating income is Ps. 78 million for the period.
• In an effort to provide readers with a more useful representation of the Company`s underlying financial and operating performance, as of the first quarter 2020, the Company adjusted its methodology to calculate comparable figures, no longer excluding hyperinflationary operations. Due to this change, the term “comparable” means, with respect to a yearover-year comparison, the change of a given measure excluding the effects of: (i) mergers, acquisitions, and divestitures; and (ii) translation effects resulting from exchange rate movements. In preparing this measure, management has used its best judgment, estimates, and assumptions in order to maintain comparability.
• On March 17, 2020, Coca-Cola FEMSA held its Annual Ordinary General Shareholders’ Meeting, during which its shareholders approved the Company’s consolidated financial statements for the year ended December 31, 2019, the annual report presented by the Board of Directors, the declaration and payment of dividends corresponding to the fiscal year 2019, and the appointment or reelection of the members of the Board of Directors and the Planning and Finance, Audit, and Corporate Practices Committees for 2020. Shareholders approved the payment of a cash dividend of Ps. 0.6075 per share (equivalent to Ps. 4.86 per unit) to be paid in two installments as of May 5, 2020, and November 3, 2020. This dividend payment represents a 37% increase compared to the previous year’s dividend.
• Coca-Cola FEMSA released its 2019 integrated report entitled, “One vision, One platform, One future,” the annual report on Form 20-F filing to the U.S. Securities and Exchange Commission, and the annual report filing to the Mexican National Banking and Securities Commission (Comisión Nacional Bancaria y de Valores). These three reports are available on the Investor Relations section of Coca-Cola FEMSA´s website at www.coca-colafemsa.com

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