Monterrey, Mexico, October 25, 2013 — Fomento Económico Mexicano, S.A.B. de C.V. (“FEMSA”) announced today its operational and financial results for the third quarter of 2013.
Third Quarter 2013 Highlights:
- FEMSA consolidated total revenues grew 7.2% compared to the third quarter of 2012, reflecting growth at Femsa Comercio and Coca-Cola FEMSA. On an organic basis1 total revenues grew 3.7%.
- Coca-Cola FEMSA total revenues increased 3.6% compared to the third quarter of 2012. On an organic basis total revenues grew 0.4% despite a negative translation effect resulting from the devaluation of currencies in our South America division. On a currency neutral basis and excluding the non-comparable effect of the integrations, total revenues grew 14.8%.
- FEMSA Comercio achieved total revenues growth of 12.5%, compared to the third quarter of 2012, driven by 1,043 net new store openings and 1.6% growth in same-store sales. On an organic basis1 total revenues grew 9.3%.
José Antonio Fernández Carbajal, Chairman and CEO of FEMSA, commented: “In many ways, the third quarter results showed a continuation of trends that have been present since the beginning of the year. For Coca-Cola FEMSA, its diversified geographical footprint again allowed the company to deliver top-line results that, in the aggregate, show some resilience in light of the very challenging environments that remain in its main markets, particularly Brazil and to a lesser extent, Mexico and Colombia. For FEMSA Comercio, sequential trends improved slightly and expenses were contained in the midst of soft consumer demand that has yet to show meaningful signs of a recovery. Importantly, both businesses were negatively impacted by a month of September that brought torrential rains across Mexico, particularly during the key Independence holiday weekend.
And yet, we are convinced that the short-term challenges are more than offset by the long-term opportunities. In that vein, during the quarter we announced Coca-Cola FEMSA’s acquisition of Spaipa, a key bottling franchise in Southern Brazil that fits perfectly with our existing territories, and FEMSA Comercio announced the acquisition of a majority stake in Doña Tota, a strong regional player in the quick service restaurant segment with high consumer preference in Northern Mexico. We will continue to invest, through acquisitions as well as capital projects, because we believe our evolving business platform has very compelling growth avenues ahead.”
FEMSA Consolidated
Total revenues increased 7.2% compared to 3Q12 to Ps. 63.977 billion in 3Q13. FEMSA Comercio and Coca-Cola FEMSA drove the incremental consolidated revenues. On an organic basis1 total revenues increased 3.7% compared to 3Q12.
For the first nine months of 2013, consolidated total revenues increased 6.6% compared to the same period in 2012 to Ps. 184.617 billion. On an organic basis1, total revenues for the first nine months of 2013 increased 4.5% compared to the same period in 2012.
Gross profit increased 6.4% compared to 3Q12 to Ps. 27.037 billion in 3Q13. Gross margin decreased 30 basis points compared to the same period in 2012 to 42.3% of total revenues, driven by the effect of the faster growth of lower-margin FEMSA Comercio, which tends to compress FEMSA’s consolidated margins over time.
For the first nine months of 2013, gross profit increased 7.4% compared to the same period in 2012 to Ps. 77.811 billion. Gross margin increased 30 basis points compared to the same period in 2012 to 42.1% of total revenues, driven by the margin expansion at Coca-Cola FEMSA and FEMSA Comercio.
Income from operations decreased 2.7% as compared to 3Q12 to Ps. 7.187 billion in 3Q13. On an organic basis income from operations decreased 4.0% compared to the same period in 2012. Consolidated operating margin decreased 120 basis points compared to 3Q12 to 11.2% of total revenues in 3Q13, driven by margin contraction at Coca-Cola FEMSA, reflecting the devaluation of South American currencies and higher operating expenses.
For the first nine months of 2013, income from operations increased 2.6% compared to the same period in 2012 to Ps. 19.816 billion. On an organic basis1 income from operations increased 1.1%. Our consolidated year-todate operating margin was 10.7% as a percentage of total revenues, a contraction of 50 basis points as compared to the same period of 2012.
Our effective income tax rate was 32.6% in 3Q13 compared to 30.4% in 3Q12. Net consolidated income decreased 8.2% compared to 3Q12 to Ps. 6.106 billion in 3Q13, driven by (i) a decrease in our income from operations, (ii) a decrease in FEMSA’s 20% participation in Heineken’s 3Q13 net income and (iii) higher financing expenses related to bonds issued recently both by FEMSA and Coca-Cola FEMSA.
For the first nine months of 2013, net consolidated income decreased 4.1% to Ps. 15.217 billion compared to the same period of 2012, resulting from higher financing expenses which were partially offset by the growth in income from operations.
Net majority income for 3Q13 was Ps. 1.25 per FEMSA Unit2. Net majority income per FEMSA ADS was US$ 0.95 for the third quarter of 2013. For the first nine months of 2013, net majority income per FEMSA Unit was Ps. 3.00 (US$ 2.28 per ADS).
Capital expenditures amounted to Ps. 5.360 billion in 3Q13, reflecting incremental investments at Coca-Cola
FEMSA and FEMSA Comercio.
Our consolidated balance sheet as of September 30, 2013 recorded a cash balance of Ps. 50.322 billion (US$ 3.825 billion), an increase of Ps. 12.206 billion (US$ 927.9 million) compared to December 31, 2012. Short-term debt was Ps. 12.294 billion (US$ 934.5 million), while long-term debt was Ps. 51.023 billion (US$ 3.879 billion). Our consolidated net debt balance was Ps. 12.995 billion (US$ 987.8 million).
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 www.cocacolafemsa.com.
FEMSA Comercio
Total revenues increased 12.5% compared to 3Q12 to Ps. 25.337 billion in 3Q13, mainly driven by the opening of 195 net new stores in the quarter, reaching 1,043 total net new store openings for the last twelve months. On an organic basis1 total revenues increased 9.3% compared to 3Q12. As of September 30, 2013, FEMSA Comercio had a total of 11,210 convenience stores. Same-store sales increased an average of 1.6% for the third quarter of 2013 over 3Q12, reflecting a 2.5% increase in average customer ticket that offset a 0.9% decrease in store traffic.
For the first nine months of 2013, total revenues increased 12.7% compared to the same period in 2012 to Ps. 71.848 billion. On an organic basis1, total revenues for the first nine months of 2013 increased 10.8% compared to the same period in 2012. FEMSA Comercio’s same-store sales increased an average of 2.3% compared to the same period in 2012, driven by a 3.1% increase in average customer ticket that offset a 0.7% decrease in store traffic.
Gross profit increased by 13.1% in 3Q13 compared to 3Q12, resulting in a 20 basis point gross margin expansion to 35.1% of total revenues. This increase reflects more efficient use of promotion-related marketing resources and a better execution of segmented pricing strategies across markets. For the first nine months of 2013, gross margin expanded by 40 basis points compared to the same period in 2012 to 34.4% of total revenues.
Income from operations increased 13.1% over 3Q12 to Ps. 1.989 billion in 3Q13. On an organic basis income from operations increased 11.3% compared to the same period in 2012. Operating expenses also increased 13.1% in 3Q13 compared to 3Q12 to Ps. 6.906 billion, reflecting the growing number of stores and distribution centers as well as incremental expenses related to, among other things, the development of specialized distribution routes aimed at enabling our prepared food initiatives. Operating margin expanded 10 basis points compared to 3Q12, to 7.9% of total revenues in 3Q13.
For the first nine months of 2013, income from operations increased 11.9% compared to the same period in 2012 to Ps. 4.912 billion, resulting in an operating margin of 6.8%, which represents a 10 basis point contraction from the same period in the prior year. On an organic basis1 income from operations increased 10.8% compared to the same period in 2012.
Recent Developments
• On August 31, 2013, Coca-Cola FEMSA announced that it had reached an agreement to acquire 100% of Spaipa S.A. Industria Brasileira de Bebidas (“Spaipa”), the second largest privately owned bottler in the Brazilian Coca-Cola system, in an all-cash transaction. During the last twelve months ended June 30, 2013, Spaipa sold 233.3 million unit cases of beverages, including beer, generating approximately US$905 million in net revenues. The aggregate enterprise value of this transaction is US$1,855 million. During 2012, Spaipa sold 236.0 million unit cases of beverages, generating net revenues of approximately US$929 million and a pro forma consolidated EBITDA of US$152 million.
• On September 23, 2013, FEMSA announced that its retail subsidiary FEMSA Comercio agreed to acquire 80% of the capital stock of Doña Tota, a leading quick-service restaurant operator, with the founding shareholders staying with the remaining 20%. This transaction brings relevant capabilities in the area of prepared food operation to FEMSA Comercio, while opening a compelling new avenue for growth. Doña Tota has built a strong brand and will continue to operate as a stand-alone format.
• The Mexican government’s proposal to tax sugary beverages has been approved by the lower house of Congress and sent to the Senate where it must be voted on by October 31, 2013. If approved, Coca-Cola FEMSA will work to make the necessary adjustments to our operating structure and portfolio in order to protect the profitability of our business.
CONFERENCE CALL INFORMATION:
Our Third Quarter of 2013 Conference Call will be held on: Friday, October 25, 2013, 11:00 AM Eastern Time (10:00 AM Mexico City Time). To participate in the conference call, please dial: Domestic US: (888) 572-7033 International: (719) 325-2376
, Conference Id: 1277375. 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 leading company that participates in the beverage industry through Coca-Cola FEMSA, the largest franchise bottler of Coca-Cola products in the world; and in the beer industry, through its ownership of the second largest equity stake in Heineken, one of the worlds leading brewers with operations in over 70 countries. In the retail industry it participates with FEMSA Comercio, operating various small-format chain stores, including OXXO, the largest and fastest-growing chain of stores in Latin America. All of which is supported by a Strategic Business unit.
The translations of Mexican Pesos into US Dollars are included solely for the convenience of the reader, using the noon day buying rate for Mexican Pesos as published by the U.S. Federal Reserve Board in its H.10 weekly
Release of Foreign Exchange Rates for September 30, 2013, which was 13.1550 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.