Equity Research M exico

July 30, 2021 Quarterly Report FEMSA www..com Solid growth and in clear recovery @analisis_fundam

▪ Femsa's figures confirmed an important recovery in all of its Consumer businesses, highlighting the expansion in margins. Greater mobility boosted sales and improved operating leverage drove profitability Marissa Garza Director of Equity Strategy [email protected] ▪ Given the outlook of economic recovery and a valuation of 10.6x FV/EBITDA (vs. 3Y average of 12.1x), we reaffirm Femsa within our Juan Barbier, CFA Analyst selection of value companies and reiterate BUY [email protected]

Double-digit rebound in each of the divisions. The report was positive, with BUY significant growth across all of the company's businesses and reflecting an easy Current Price $172.50 comparable base —recalling that 2Q20 was the most affected quarter by the PT $190.00 Dividend $2.3 pandemic, facing beer shortages and restrictions in the operation of its units—. Dividend Yield (%) 1.3% Consolidated revenues grew 19.7% y/y to MXN 137.058 billion. By division, Upside Potential 11.5% ADR Price US$86.63 Fuels grew 56.3% y/y, driven by increases in volume (+24%) and price (+24%), PT ADR US$96.00 followed by Health with a 17.6% rise, after the addition of 270 net units in the Shares per ADR 10 Max – Mín LTM ($) 174.4 – 112.7 LTM, and a good performance in , Chile and Colombia. In Proximity, Market Cap (US$m) 27,644.79 sales advanced by 17.1% y/y, due to a 15.6% increase in SSS, driven by higher Shares Outstanding (m) 3,578.2 Float 60% mobility (Ticket: +7.6%; Traffic: +7.4%). Meanwhile, in KOF, the recovery in Daily Turnover US$m 342.0 volumes (+9.1%) boosted sales by 10.9%. EBITDA posted a higher-than- Valuation metrics LTM FV/EBITDA 10.6x expected increase (+41.0%), thanks to higher operating leverage and adequate P/E 64.3x expense management. With this, EBITDA reached MXN 21.349 billion and the MSCI ESG Rating* A respective margin expanded 240bps to 15.6% (Oxxo: +380bps; Health: +130bps; Fuels: +0bps; Kof: +190bps). Net income amounted to MXN 3.082 Relative performance to Mexbol billion (vs. -MXN 11.692 billion previously), as a result of good operating LTM 50% performance and gains in associates, which were partially offset by higher 40% interest and FX losses. With room for rerating in the face of a faster-than- 30% 20% expected recovery. In addition to the positive outlook, Femsa continues to 10% strengthen its financial structure (1.8x ND/EBITDA), and we find its valuation 0% -10% attractive mainly due to Femco's ~17% discount (vs. historical averages), which -20% represents ~58% of the entire business. Therefore, we reiterate our BUY rating. -30% Jul.-20 Oct.-20 Jan.-21 Apr.-21 Jul.-21

MEXBOL FEMSAUBD

Financial Statements Valuation and Financial metrics

2019 2020 2021E 2022E 2019 2020 2021E 2022E

Revenue 506,910 493,627 533,806 573,481 FV/EBITDA 10.8x 11.6x 10.6x 9.9x Operating Income 47,165 41,473 49,326 52,566 P/E 31.1x -321.2x 41.6x 30.1x

EBITDA 75,483 72,017 80,245 85,489 P/BV 2.5x 2.6x 2.6x 2.5x EBITDA Margin 14.9% 14.6% 15.0% 14.9% Net Income 19,936 -1,927 14,894 20,594 ROE 6.0% -0.6% 4.8% 6.4% Net Margin 3.9% -0.4% 2.8% 3.6% ROA 3.1% -0.3% 2.2% 2.8% EBITDA/ interest 5.3x 4.1x 4.7x 4.8x Total Assets 637,541 684,638 692,119 728,210 Net Debt/EBITDA 1.6x 2.0x 1.9x 1.7x Cash 65,562 107,233 94,705 120,418 Debt/Equity 0.6x 0.8x 0.8x 0.8x Total Liabilities 311,790 377,451 377,541 397,749 Debt 187,257 253,124 249,185 262,110 This document is provided for the reader’s convenience only. The translation from the original Spanish version was Common Equity 325,751 307,187 314,579 330,461 made by Banorte’s staff. Discrepancies may possibly arise Source: Banorte between the original document in Spanish and its English translation. For this reason, the original research paper in Spanish is the only official document. The Spanish version was released before the English translation. The original document entitled “Sólido crecimiento y en franca recuperación” was released on July 28, 2021. Document 1 for distribution among public

FEMSA – Results 2Q21 Revenue & EBITDA Margin MXN, million MXN, million Diff% vs Concept 2Q20 2Q21 Var % 2Q21e Estim. Revenue 114,514 137,058 19.7% 132,422 3.5% 16.1% 140,000 18.0% Operating Income 7,456 13,973 87.4% 11,468 21.8% 14.9% 15.6% Ebitda 15,136 21,349 41.0% 19,494 9.5% 135,000 13.2% 13.6% 16.0% Net Income -11,692 3,082 N.A. 4,403 -30.0% 130,000 14.0% Margins 125,000 12.0% 10.0% Operating Margin 6.5% 10.2% 3.7pp 8.7% 1.5pp 120,000 Ebitda Margin 13.2% 15.6% 2.4pp 14.7% 0.9pp 8.0% 115,000 Net Margin -10.2% 2.2% 12.5pp 3.3% -1.1pp 6.0% 110,000 EPS -$3.27 $0.86 N.A. $1.23 -30.0% 4.0% 105,000 2.0%

100,000 0.0%

2Q20 3Q20 4Q20 1Q21 2Q21 Income Statement (Million pesos) Year 2020 2021 2021 Change Change Revenue EBITDA Margin Quarter 2 1 2 % y/y % q/q

Net Revenue 114,514 124,474 137,058 19.7% 10.1% Costs of goods sold 70,970 77,940 83,200 17.2% 6.7% Gross profit 43,544 46,534 53,858 23.7% 15.7% General expenses 35,428 36,717 39,748 12.2% 8.3% Net Income & ROE Operating Income 7,456 9,525 13,973 87.4% 46.7% MXN, million Operating Margin 6.5% 7.7% 10.2% 3.7pp 2.5pp Depreciation 7,680 7,450 7,376 -4.0% -1.0% EBITDA 15,136 16,974 21,349 41.0% 25.8% 6,000 5.0% EBITDA Margin 13.2% 13.6% 15.6% 2.4pp 1.9pp 3.3% 4.1% 4,000 Interest Income (Expense) net (3,679) (1,898) (6,973) 89.5% 267.4% 2,000 1.7% 3.0% Interest expense 4,184 3,835 4,878 16.6% 27.2% 0 Interest income 629 260 283 -55.0% 8.7% (2,000) 1.0% Other income (expense) 83 152 106 27.5% -30.2% (4,000) Foreign exchange gain (loss) (207) 1,524 (2,485) >500% N.A. (6,000) -1.0% Unconsolidated subsidiaries (1,687) 836 1,030 N.A. 23.2% (8,000) -0.8% Income before taxes 3,765 8,462 6,988 85.6% -17.4% (10,000) -2.2% -3.0% Income taxes 5,733 2,659 3,311 -42.2% 24.5% (12,000) Discontinued operations N.A. N.A. (14,000) -5.0% Consolidated Net Income (10,775) 6,260 5,255 N.A. -16.1% 2Q20 3Q20 4Q20 1Q21 2Q21 Non-controlling interest 917 1,694 2,174 137.1% 28.3% Net Income ROE Net Income (11,692) 4,566 3,082 N.A. -32.5% Net Margin -10.2% 3.7% 2.2% 12.5pp (1.4pp) EPS (3.268) 1.276 0.861 N.A. -32.5%

Balance Sheet (Million pesos) Total Current Assets 233,560 204,868 211,479 -9.5% 3.2% Net Debt & Net Debt to EBITDA ratio Cash & Short Term Investments 140,240 113,327 107,784 -23.1% -4.9% MXN, million Long Term Assets 511,087 484,172 482,246 -5.6% -0.4% Property, Plant & Equipment (Net) 115,609 111,253 111,475 -3.6% 0.2% Intangible Assets (Net) 102,990 107,671 106,850 3.7% -0.8% Total Assets 744,647 689,040 693,725 -6.8% 0.7% 147,000 2.5x Current Liabilities 158,214 127,399 126,969 -19.7% -0.3% 146,000 2.0x 2.0x Short Term Debt 46,534 15,199 13,192 -71.7% -13.2% 145,000 1.9x 2.0x 1.8x Accounts Payable 74,024 74,399 82,052 10.8% 10.3% 144,000 2.0x Long Term Liabilities 262,916 261,815 261,029 -0.7% -0.3% 143,000 Long Term Debt 235,380 239,713 237,514 0.9% -0.9% 142,000 Total Liabilities 421,130 389,214 387,998 -7.9% -0.3% 1.5x 141,000 Stockholders’ Equity 323,517 299,826 305,727 -5.5% 2.0% 140,000 Non-controlling interest 73,875 64,745 68,237 -7.6% 5.4% 139,000 1.0x Total Equity 249,642 235,081 237,490 -4.9% 1.0% 2Q20 3Q20 4Q20 1Q21 2Q21 Liabilities & Equity 744,647 689,040 693,725 -6.8% 0.7% Net Debt 141,674 141,584 142,922 0.9% 0.9% Net Debt Net Debt to EBITDA

Cash Flow CF from Operating Activities 6,401 12,991 22,208 CF from Investing Activities (7,135) (2,268) (12,915) CF from Financing Activities 11,414 (5,658) (12,493) FX effect on cash (3,910) 638 (2,342) Change in Cash Balance 6,770 5,703 (5,543)

Source: Banorte, MSE.

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Performance by business unit

Proximity

2Q20 1Q21 2Q21 % y/y % q/q Ticket 41.7 42.2 44.9 7.6% 6.3% Traffic 16.6 16.3 17.9 7.4% 9.6% SSS 693.1 686.9 801.2 15.6% 16.6% Revenues 43,409 43,418 50,850 17.1% 17.1% EBITDA 4,628 5,196 7,360 59.0% 41.6% EBITDA Margin 10.7% 12.0% 14.5% 3.8pp 2.5pp

Health

2Q20 1Q21 2Q21 % y/y % q/q SSS 1,183 1,412 1,359 14.9% -3.7% Revenues 15,624 17,750 18,377 17.6% 3.5% EBITDA 1,418 1,634 1,917 35.2% 17.3% EBITDA Margin 9.1% 9.2% 10.4% 1.3pp 1.2pp

Fuel

2Q20 1Q21 2Q21 % y/y % q/q Price 15.1 18.0 18.8 23.8% 4.2% Volume 254.6 283.7 316.1 24.2% 11.4% SSS 3,855 5,105 5,927 53.7% 16.1% Revenues 6,382 8,535 9,974 56.3% 16.9% EBITDA 388 434 610 57.2% 40.6% EBITDA Margin 6.1% 5.1% 6.1% 0.0pp 1.0pp

Coca-Cola Femsa

2Q20 1Q21 2Q21 % y/y % q/q Volume 781 801 851 9.1% 6.3% Revenues 43,075 44,690 47,786 10.9% 6.9% EBITDA 8,221 8,807 10,007 21.7% 13.6% EBITDA Margin 19.1% 19.7% 20.9% 1.9pp 1.2pp

Strategic Businesses

2Q20 1Q21 2Q21 % y/y % q/q Revenues 6,024 10,081 10,071 67.2% -0.1% EBITDA 481 1,991 1,455 202.8% -26.9% EBITDA Margin 8.0% 19.7% 14.4% 6.5pp -5.3pp

Consolidated

2Q20 1Q21 2Q21 % y/y % q/q Revenues 114,514 124,474 137,058 19.7% 10.1% EBITDA 15,136 16,975 21,349 41.0% 25.8% EBITDA Margin 13.2% 13.6% 15.6% 2.4pp 1.9pp

*MXN Million, except Ticket (pesos), Traffic (thousands of transactions), SSS (thousands of pesos), Volume (thousands of lt) and Price (average per lt).

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Certification of Analysts. We, Gabriel Casillas Olvera, Alejandro Padilla Santana, Delia María Paredes Mier, Juan Carlos Alderete Macal, Manuel Jiménez Zaldívar, Marissa Garza Ostos, Francisco José Flores Serrano, Katia Celina Goya Ostos, Santiago Leal Singer, José Itzamna Espitia Hernández, Víctor Hugo Cortes Castro, Hugo Armando Gómez Solís, Miguel Alejandro Calvo Domínguez, Luis Leopoldo López Salinas, Leslie Thalía Orozco Vélez, Gerardo Daniel Valle Trujillo, Eridani Ruibal Ortega and Juan Barbier Arizmendi, certify that the points of view expressed in this document are a faithful reflection of our personal opinion on the company (s) or firm (s) within this report, along with its affiliates and/or securities issued. Moreover, we also state that we have not received, nor receive, or will receive compensation other than that of Grupo Financiero Banorte S.A.B. of C.V for the provision of our services.

Relevant statements. In accordance with current laws and internal procedures manuals, analysts are allowed to hold long or short positions in shares or securities issued by companies that are listed on the and may be the subject of this report; nonetheless, equity analysts have to adhere to certain rules that regulate their participation in the market in order to prevent, among other things, the use of private information for their benefit and to avoid conflicts of interest. Analysts shall refrain from investing and holding transactions with securities or derivative instruments directly or through an intermediary person, with Securities subject to research reports, from 30 calendar days prior to the issuance date of the report in question, and up to 10 calendar days after its distribution date.

Compensation of Analysts.

Analysts’ compensation is based on activities and services that are aimed at benefiting the investment clients of Casa de Bolsa Banorte and its subsidiaries. Such compensation is determined based on the general profitability of the Brokerage House and the Financial Group and on the individual performance of each analyst. However, investors should note that analysts do not receive direct payment or compensation for any specific transaction in investment banking or in other business areas. Last-twelve-month activities of the business areas. Grupo Financiero Banorte S.A.B. de C.V., through its business areas, provides services that include, among others, those corresponding to investment banking and corporate banking, to a large number of companies in Mexico and abroad. It may have provided, is providing or, in the future, will provide a service such as those mentioned to the companies or firms that are the subject of this report. Casa de Bolsa Banorte or its affiliates receive compensation from such corporations in consideration of the aforementioned services.

Over the course of the last twelve months, Grupo Financiero Banorte S.A.B. C.V., has not obtained compensation for services rendered by the investment bank or by any of its other business areas of the following companies or their subsidiaries, some of which could be analyzed within this report.

Activities of the business areas during the next three months.

Casa de Bolsa Banorte, Grupo Financiero Banorte or its subsidiaries expect to receive or intend to obtain revenue from the services provided by investment banking or any other of its business areas, by issuers or their subsidiaries, some of which could be analyzed in this report.

Securities holdings and other disclosures.

As of the end of last quarter, Grupo Financiero Banorte S.A.B. of C.V. has not held investments, directly or indirectly, in securities or derivative financial instruments, whose underlying securities are the subject of recommendations, representing 1% or more of its investment portfolio of outstanding securities or 1 % of the issuance or underlying of the securities issued.

None of the members of the Board of Grupo Financiero Banorte and Casa de Bolsa Banorte, along general managers and executives of an immediately below level, have any charges in the issuers that may be analyzed in this document.

The Analysts of Grupo Financiero Banorte S.A.B. of C.V. do not maintain direct investments or through an intermediary person, in the securities or derivative instruments object of this analysis report. Guide for investment recommendations.

Reference

BUY When the share expected performance is greater than the MEXBOL estimated performance. HOLD When the share expected performance is similar to the MEXBOL estimated performance. SELL When the share expected performance is lower than the MEXBOL estimated performance. Even though this document offers a general criterion of investment, we urge readers to seek advice from their own Consultants or Financial Advisors, in order to consider whether any of the values mentioned in this report are in line with their investment goals, risk and financial position.

Determination of Target Prices

For the calculation of estimated target prices for securities, analysts use a combination of methodologies generally accepted among financial analysts, including, but not limited to, multiples analysis, discounted cash flows, sum-of-the-parts or any other method that could be applicable in each specific case according to the current regulation. No guarantee can be given that the target prices calculated for the securities will be achieved by the analysts of Grupo Financiero Banorte S.A.B. C.V, since this depends on a large number of various endogenous and exogenous factors that affect the performance of the issuing company, the environment in which it performs, along with the influence of trends of the stock market, in which it is listed. Moreover, the investor must consider that the price of the securities or instruments can fluctuate against their interest and cause the partial and even total loss of the invested capital. The information contained hereby has been obtained from sources that we consider to be reliable, but we make no representation as to its accuracy or completeness. The information, estimations and recommendations included in this document are valid as of the issue date, but are subject to modifications and changes without prior notice; Grupo Financiero Banorte S.A.B. of C.V. does not commit to communicate the changes and also to keep the content of this document updated. Grupo Financiero Banorte S.A.B. of C.V. takes no responsibility for any loss arising from the use of this report or its content. This document may not be photocopied, quoted, disclosed, used, or reproduced in whole or in part without prior written authorization from Grupo Financiero Banorte S.A.B. of C.V. History of PT and ratings MSCI ESG Rating scale Stock Date Rating PT CCC B BB BBB A AA AAA FEMSA UBD 18/01/2021 Buy $190.00 LAGGARD AVERAGE LEADER

FEMSA UBD 27/07/2020 Buy $164.00 *MSCI ESG Rating is an indicator that evaluates FEMSA UBD 29/11/2019 Buy $211.00 companies in Environment, Social and Governance FEMSA UBD 18/01/2021 Buy $190.00 (ESG) metrics.

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GRUPO FINANCIERO BANORTE S.A.B. de C.V.

Research and Strategy Gabriel Casillas Olvera IRO and Chief Economist [email protected] (55) 4433 - 4695 Raquel Vázquez Godinez Assistant [email protected] (55) 1670 - 2967 Lourdes Calvo Fernández Analyst (Edition) [email protected] (55) 1103 - 4000 x 2611

Economic Research and Financial Market Strategy Executive Director of Economic Research and Financial Alejandro Padilla Santana [email protected] (55) 1103 - 4043 Markets Strategy Itzel Martínez Rojas Analyst [email protected] (55) 1670 - 2251

Economic Research Juan Carlos Alderete Macal, CFA Director of Economic Research [email protected] (55) 1103 - 4046 Francisco José Flores Serrano Senior Economist, Mexico [email protected] (55) 1670 - 2957 Katia Celina Goya Ostos Senior Economist, Global [email protected] (55) 1670 - 1821 Luis Leopoldo López Salinas Economist, Global [email protected] (55) 1103 - 4000 x 2707

Market Strategy Manuel Jiménez Zaldívar Director of Market Strategy [email protected] (55) 5268 - 1671

Fixed income and FX Strategy Santiago Leal Singer Senior Strategist, Fixed Income and FX [email protected] (55) 1670 - 2144 Leslie Thalía Orozco Vélez Strategist, Fixed Income and FX [email protected] (55) 5268 - 1698

Equity Strategy Marissa Garza Ostos Director of Equity Strategy [email protected] (55) 1670 - 1719 José Itzamna Espitia Hernández Senior Strategist, Equity [email protected] (55) 1670 - 2249 Víctor Hugo Cortes Castro Senior Strategist, Technical [email protected] (55) 1670 - 1800 Eridani Ruibal Ortega Analyst [email protected] (55) 1103 - 4000 x 2755 Juan Barbier Arizmendi, CFA Analyst [email protected] (55) 1670 - 1746

Corporate Debt Hugo Armando Gómez Solís Senior Analyst, Corporate Debt [email protected] (55) 1670 - 2247 Gerardo Daniel Valle Trujillo Analyst, Corporate Debt [email protected] (55) 1670 - 2248

Economic Studies Delia María Paredes Mier Executive Director of Economic Studies [email protected] (55) 5268 - 1694 Miguel Alejandro Calvo Domínguez Senior Analyst, Economic Studies [email protected] (55) 1670 - 2220

Wholesale Banking Armando Rodal Espinosa Head of Wholesale Banking [email protected] (81) 8319 - 6895 Alejandro Aguilar Ceballos Head of Asset Management [email protected] (55) 5268 - 9996 Alejandro Eric Faesi Puente Head of Global Markets and Institutional Sales [email protected] (55) 5268 - 1640 Alejandro Frigolet Vázquez Vela Head of Sólida Banorte [email protected] (55) 5268 - 1656 Arturo Monroy Ballesteros Head of Investment Banking and Structured Finance [email protected] (55) 5004 - 1002 Carlos Alberto Arciniega Navarro Head of Treasury Services [email protected] (81) 1103 - 4091 Gerardo Zamora Nanez Head of Transactional Banking, Leasing and Factoring [email protected] (81) 8318 - 5071 Jorge de la Vega Grajales Head of Government Banking [email protected] (55) 5004 - 5121 Luis Pietrini Sheridan Head of Private Banking [email protected] (55) 5004 - 1453 Lizza Velarde Torres Executive Director of Wholesale Banking [email protected] (55) 4433 - 4676 Osvaldo Brondo Menchaca Head of Specialized Banking Services [email protected] (55) 5004 - 1423 Raúl Alejandro Arauzo Romero Head of Transactional Banking [email protected] (55) 5261 - 4910 René Gerardo Pimentel Ibarrola Head of Corporate Banking [email protected] (55) 5268 - 9004 Ricardo Velázquez Rodríguez Head of International Banking [email protected] (55) 5004 - 5279 Víctor Antonio Roldan Ferrer Head of Commercial Banking [email protected] (55) 5004 - 1454

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