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ANNUAL REPORT 2017 Fomento Económico Mexicano, S.A.B

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ANNUAL REPORT 2017 Fomento Económico Mexicano, S.A.B ANNUAL REPORT 2017 Fomento Económico Mexicano, S.A.B. de C.V., or FEMSA, is a leading Contents multinational company headquartered in Monterrey, Mexico, that participates in the beverage and retail industries. FEMSA at a Glance ..................2 Value Creation Highlights. 4 We hold a controlling stake1 in Coca-Cola FEMSA, the largest franchise Dear Shareholders ...................8 bottler of Coca-Cola products in the world by sales volume with operations FEMSA Comercio ..................10 in ten countries. We are also the second largest shareholder of Heineken— Coca-Cola FEMSA .................16 one of the world’s leading brewing companies with operations in over 70 Sustainability ......................22 countries—with a 14.76 percent economic interest in the Heineken Group. FEMSA Foundation ................30 Corporate Governance ..............34 FEMSA Comercio is the largest operator of small-format stores in the Financial Summary .................38 Americas, and is comprised of a Retail Division, operating various store Management’s Discussion chains, including OXXO, the largest proximity retail chain in Latin America; & Analysis .........................40 a Fuel Division, operating the OXXO GAS chain of retail service stations in Mexico; and a Health Division, which includes drugstores and related operations in Chile, Mexico and Colombia. FEMSA Negocios Estratégicos (FEMSA Strategic Businesses) provides logistical support to Coca-Cola FEMSA, FEMSA Comercio and external clients. It is comprised of Solistica, providing an integrated logistics platform in several Latin American countries; Imbera, offering leading commercial refrigeration solutions with global reach; and PTM, manufacturing plastic transformation projects for the food and beverage, automotive and retail industries, as well as operating one of the largest plastic recycling companies in Mexico. 1 47.2% economic interest, representing 63% of shares with voting rights. Refreshment. Convenience. Value Creation. FEMSA is driven by a corporate philosophy characterized by identifying and satisfying consumer demands, generating income for our shareholders, expanding social development and minimizing our environmental impact.2 Our 2017 integrated Annual Report reflects our commitment to strong corporate governance and transparency. Our financial and sustainability results are for the twelve months ended December 31, 2017 compared to the twelve months ended December 31, 2016. This report was prepared in accordance with the Global Reporting Initiative (GRI) Standards and, as signatories to the United Nations Global Compact, represents our Communication on Progress for 2017. 2 http://www.femsa.com/en/meet-femsa/our-beginning/who-we-are/ 1 FEMSA at a Glance Our Presence: Mexico ● ● ● Philippines ● Venezuela ● Central America ● ● Colombia ● ● ● Business Units ● FEMSA Comercio ● Coca-Cola FEMSA FEMSA Comercio and Coca-Cola FEMSA ● FEMSA Strategic Businesses Brazil FEMSA operates in 11 ● ● Chile countries: Argentina, Brazil, ● Chile, Colombia, Costa Rica, Argentina ● Guatemala, Mexico, Nicaragua, Panama, the Philippines and Venezuela. Corporate Structure: Equity Stakes and Business Units 27.8% The Coca-Cola Company FEMSA Coca-Cola FEMSA Strategic Heineken FEMSA Comercio Businesses 14.8% 47.2% 100% 100% 25.0% Public Retail Health Fuel Division Division Division 2 FEMSA at Value Creation Dear FEMSA Coca-Cola Sustainability FEMSA Corporate a Glance Highlights Shareholders Comercio FEMSA Foundation Governance Operational Overview: Mexico and Colombia FEMSA COMERCIO Customers Points Distribution Headcount Retail Division per day of Sale Facilities OXXO, the largest (millions) C-store chain in the 11.8 16,526 20 130,687 Americas by units Mexico, Chile and Colombia Customers Points Distribution Headcount FEMSA COMERCIO per year of Sale Facilities Health Division (millions) Drugstores and related operations in Mexico, 173 2,225 5 21,493 Chile and Colombia Mexico Customers Points Headcount FEMSA COMERCIO per year of Sale Fuel Division (millions) OXXO GAS chain of retail service stations in Mexico 153 452 5,839 Country / Region Population Points Plants Distribution Served of Sale Facilities (millions) Mexico 72.1 853,430 17 145 COCA-COLA FEMSA Largest Coca-Cola Central America 1 21.7 118,414 5 36 franchise bottler in the Colombia 49.6 372,785 7 24 world by volume Venezuela 32.1 158,563 4 24 Brazil 88.4 396,220 10 40 Argentina 12.3 48,396 2 3 Philippines 104.9 818,502 19 52 Total 381.1 2,766,310 64 324 1. Includes Costa Rica, Guatemala, Nicaragua and Panama 3 Value Creation Highlights FEMSA’s mission is to create economic and social value through business enterprises and institutions. This includes consistently attracting and meeting consumer demand, generating financial returns for our shareholders and promoting higher social growth. Economic Value Our 2017 financial results reflect the economic value we continue to create in the countries where FEMSA operates. Millions of pesos 2017 (1) 2017 2016 %Change 2015 %Change Total revenues 23,445 460,456 399,507 15.3% 311,589 28.2% Income from operations (2) 2,110 41,439 37,427 10.7% 33,735 10.9% Operating margin 9.0% 9.4% 10.8% Consolidated net income 1,895 37,206 27,175 36.9% 23,276 16.8% Controlling interest net income (3) 2,160 42,408 21,140 100.6% 17,683 19.5% Controlling interest earnings per BD unit (4) 0.6 11.9 5.9 101.7% 4.9 20.4% Controlling interest earnings per ADS (5) 6.0 118.5 59.1 100.5% 49.4 19.6% EBITDA 3,127 61,418 54,987 11.7% 46,626 17.9% EBITDA margin 13.3% 13.8% 15.0% Total assets 29,967 588,541 545,623 7.9% 409,332 33.3% Total liabilities 12,812 251,629 259,453 -3.0% 167,476 54.9% Total equity 17,155 336,912 286,170 17.7% 241,856 18.3% Capital expenditures 1,282 25,180 22,155 13.7% 18,885 17.3% Total cash and cash equivalents (6) 4,936 96,944 43,637 122.2% 29,396 48.4% Short-term debt 692 13,590 7,281 86.7% 5,895 23.5% Long-term debt 5,996 117,758 131,967 -10.8% 85,969 53.5% Headcount (7) 295,027 266,144 10.9% 246,158 8.1% 1. U.S. dollar figures are converted from Mexican pesos using the noon-buying rate published by U.S. Federal Reserve Board, which was Ps. 19.6395 per US$1.00 as of December 29, 2017. 2. Company’s key performance indicator. 3. Represents the net income that is assigned to the controlling shareholders of the entity. 4. “ BD” units each of which represents one series “B” share, two series “D-B” shares and two series “D-L” shares. Data based on outstanding 2,161,177,770 B D units and 1,417,048,500 B units. 5. American Depositary Shares, a U.S. dollar-denominated equity share of a foreign-based company available for purchase on the American Stock Exchange. 6. Cash consists of non-interest bearing bank deposits and cash equivalents consist principally of short-term bank deposits and fixed rate investments. 7. Includes headcount from Coca-Cola FEMSA, FEMSA Comercio and Other Businesses of FEMSA. 4 FEMSA at Value Creation Dear FEMSA Coca-Cola Sustainability FEMSA Corporate a Glance Highlights Shareholders Comercio FEMSA Foundation Governance FEMSA consolidated Total Revenues Total Assets by Business Unit by Business Unit millions of Mexican pesos millions of Mexican pesos Ps. 460,456 Ps. 588,541 ● Coca-Cola FEMSA 43% ● Coca-Cola FEMSA 46% FEMSA Comercio: FEMSA Comercio: ● Retail Division 32% ● Retail Division 11% ● Health Division 10% ● Health Division 6% ● Fuel Division 8% ● Fuel Division 1% ● Others* 7% ● Others* 36% 2 Income from Operations EBITDA FEMSA is driven by a by Business Unit 1 by Business Unit millions of Mexican pesos millions of Mexican pesos corporate philosophy characterized by identifying and satisfying consumer demands, Ps. 41,439 Ps. 61,418 generating income for our shareholders, expanding social development and minimizing our ● Coca-Cola FEMSA 63% ● Coca-Cola FEMSA 64% environmental impact. Our integrated Annual FEMSA Comercio: FEMSA Comercio: ● Retail Division 30% ● Retail Division 28% Report 2017, reflects our ● Health Division 4% ● Health Division 4% ● Fuel Division 1% ● Fuel Division 1% solid corporate governance and transparency. ● Others* 2% ● Others* 3% * Includes FEMSA Strategic Businesses 1. Company’s key performance indicator. 2. EBITDA equals to Income from operations plus depreciation, amortization and other non-cash items. 5 6 Coca-Cola FEMSA Coca-Cola FEMSA Comercio Value Economic 2. 1. * FEMSA Philippines. Coca-Cola s of2017, itincludes % annual % annual % annual % annual A growth growth growth growth 2014 2014 E C Headcount * Headcount Headcount Headcount Headcount 2015 2015 ompany’s key performance indicator. ompany’s BITDA equals to Income from operations plusdepreciation, operations amortization from and other Income equalsBITDA non-cash items. to -1.8 83.4 7.5 110.7 thousands thousands thousands thousands 2015 2015 4.6 20.0 0.4 83.7 2016 2016 2.7 113.7 2016 2016 17.8 5.4 6.0 21.2 1.7 85.1 2017 2017 9.0 123.9 2017 2017 9.0 5.8 1.2 21.5 19.4 101.7 6.8 132.4 ■ billions of Mexican pesos billions of % annual Mexican pesos billions of % annual Mexican pesos billions of % annual Mexican pesos billions of % annual tail Division Total Revenues Total Revenues Total Revenues Total Total Revenues Total growth growth growth growth Re 2014 2014 -5.6 147.3 2015 2015 12.4 109.6 2015 18.5 13.1 2015 3.4 152.4 2016 2016 9.4 119.9 2016 54.6 28.6 232.6 43.4 2016 16.6 177.7 2017 2017 14.4 137.1 2017 2017 34.1 38.4 9.2 47.4 14.7 203.8 12.4 154.2 Income fromOperations Income fromOperations Income fromOperations Income fromOperations ■ billions of Mexican pesos billions of billions
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