Equity Research Mexico

Company Note December 2, 2019 FEMSA www.banorte.com Ongoing dynamism despite low economic growth @analisis_fundam

▪ Lower interest rates, the arbitration decision which allows KOF to Manuel Jiménez continue distributing Heineken beer in Brazil, and growth at Femsa Director Equity Research [email protected] Comercio, are positive factors amid a very uncertain environment Jorge Izquierdo ▪ Despite an overall low economic growth environment, revenues should Analyst increase 9.9% yoy, while we anticipate an 8.5% annual increment in [email protected]

EBITDA BUY Current Price MXN$177.33 ▪ We obtained a PT 2020 of MXN 211.00 and our rating on the stock is PT 2020 MXN$211.00 Dividend 2020e 3.90 BUY. This theoretical value implies a valuation of 10.4x 2020e Dividend Yield (%) 2.2% FV/EBITDA, similar to the current multiple of 10.2x Upside Potential 21.1% Max – Min LTM (P$) 191.42 – 163.7 Market Cap (US$m) 29,811.3 Attractive growth across operations. Despite a scenario of low economic Shares Outstanding (m) 3,578 growth and geopolitical risks, consolidated revenues should grow 9.9% yoy Float 59.3% Daily Turnover (P$ m) 670.1 driven by: (1) growth at the proximity division driven by an increase in the Valuation metrics TTM average ticket above the rate of inflation; (2) volume growth in Brazil and price FV/EBITDA 10.2x P/E 24.7x hikes above the rate of inflation in Mexico and Brazil; and (3) a higher penetration of the retail sector, as the number of OXXO, drugstore and gas station openings Relative performance to Mexbol will continue to grow. As for EBITDA, we anticipate an 8.5% annual growth and LTM 15% a slight decrease of 20bp in the margin to 14.5% due to higher operating expenses 10% at Femsa Comercio. We determined our theoretical value using a Sum of the Parts 5% valuation. The model assumed conservative target multiples for Femsa’s 0% -5% divisions because of local and international uncertainty. In this context, we -10% obtained a PT 2020 of MXN 211.00, which implies a 2020e FV/EBITDA -15% -20% multiple of 10.4x, similar to the current one, and a 22.9% discount to the last- 18/11/29 19/03/29 19/07/29 19/11/29

MEXBOL FEMSAUBD three-year average multiple (13.5x). As a result, we are upgrading the stock to

BUY.

Financial Statements Valuation and Financial metrics

2017 2018 2019E 2020E 2017 2018 2019E 2020E Rev enue 451,808 483,513 513,018 564,030 FV/EBITDA 12.6x 12.6x 9.8x 8.9x Operating Income 40,510 42,184 47,596 52,778 P/E 15.0x 26.3x 26.5x 22.0x

EBITDA 60,284 61,927 75,531 81,923 P/BV 2.5x 2.5x 2.5x 2.4x EBITDA Margin 13.3% 12.8% 14.7% 14.5% Net Income 42,226 24,084 23,940 28,901 ROE 16.9% 9.4% 9.3% 10.7%

Net Margin 9.3% 5.0% 4.7% 5.1% ROA 7.2% 4.2% 3.7% 4.2% EBITDA/ Interest 6.3x 8.9x 7.4x 9.5x Total Assets 588,541 576,381 650,394 681,592 Net Debt/EBITDA 0.7x 1.1x 1.1x 0.9x

Cash 96,944 62,047 96,992 116,012 Debt/Equity 0.6x 0.5x 0.7x 0.7x Total Liabilities 251,629 240,839 316,678 331,417 This document is provided for the reader’s convenience Debt 138,107 131,300 181,829 186,101 only. The translation from the original Spanish version was Common Equity 250,291 257,053 257,094 269,773 made by Banorte’s staff. Discrepancies may possibly arise Fuente: 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 “Mantiene dinamismo a pesar de bajo crecimiento” was released on November 29, 2019. 1 Document for distribution among public

FEMSA– Financial Statements Revenue & EBITDA Margin MXN, million MXN, million

Year 2017 2018 2019e 2020e CAGR 600,000 14.7% 15% Net Revenue 451,808 483,513 513,018 564,030 7.7% 14.5% Cost of goods sold 285,361 304,163 319,634 351,880 7.2% 500,000 Gross profit 166,447 179,351 193,384 212,150 8.4% 400,000 14% General expenses 125,185 135,444 143,687 158,392 8.2% 13.7% Operating Income 40,510 42,184 47,596 52,778 9.2% 300,000 Operating Margin 9.0% 8.7% 9.3% 9.4% 1.4% Depreciation 19,774 19,742 27,934 29,145 13.8% 200,000 13.3% 13% EBITDA 60,284 61,927 75,531 81,923 10.8% 100,000 12.8% EBITDA Margin 13.3% 12.8% 14.7% 14.5% Interest income (expense) net (2,380) (7,363) (8,912) (7,502) 46.6% 0 12% Interest expense 11,108 9,848 14,198 14,898 10.3% 2016 2017 2018 2019e 2020e Interest income 1,512 2,903 3,949 6,294 60.8% Revenue EBITDA Margin Other income (expenses) 2,290 (176) (88) (88) -133.7% Exchange Income (loss) 4,926 (242) 1,424 1,190 -37.7% Unconsolidated subsidiaries 7,924 6,252 6,194 9,308 5.5% Net Income before taxes 47,308 40,508 40,542 54,584 4.9% Provision for Income taxes 10,495 10,537 12,180 16,375 16.0% Discontinued operations 211 3,201 Net Income & ROE Consolidated Net Income 37,024 33,172 32,141 38,209 1.1% MXN, million Minorities (5,202) 9,088 8,202 9,308 -221.4% Net Income 42,226 24,084 23,940 28,901 -11.9% Net Margin 9.3% 5.0% 4.7% 5.1% 50,000 16.9% 18% EPS 11.801 6.731 6.690 8.077 -11.9% 40,000 16% Balance Sheet (Million pesos) 14% Total Current Assets 181,188 177,607 205,705 234,892 9.0% 30,000 Cash & Short Term Investments 96,944 62,047 96,992 116,012 6.2% 9.4% 10.7% 10.0% 12% Long Term Assets 407,353 398,774 444,689 446,700 3.1% 20,000 9.3% Property, Plant & Equipment (Net) 116,712 108,602 113,187 115,167 -0.4% 10% Intangible Assets (Net) 112,935 107,183 104,521 104,521 -2.5% 10,000 8% Total Assets 588,541 576,381 650,394 681,592 5.0% Current Liabilities 105,022 101,464 141,346 152,011 13.1% 0 6% Short Term Debt 17,552 14,079 28,258 28,456 17.5% 2016 2017 2018 2019e 2020e Accounts Payable 66,163 65,669 74,493 69,538 1.7% Net Income ROE Long Term Liabilities 146,607 139,375 175,332 179,406 7.0% Long Term Debt 120,555 117,222 153,571 157,646 9.4% Total Liabilities 251,629 240,839 316,678 331,417 9.6% Common Stock 336,912 335,542 333,716 350,175 1.3% Non-controlling Interest 86,621 78,489 76,623 80,402 -2.5% Total Equity 250,291 257,053 257,094 269,773 2.5% Net Debt & Net Debt to EBITDA ratio Liabilities & Equity 588,541 576,381 650,394 681,592 5.0% MXN, million Net Debt 41,163 69,253 84,837 70,089 19.4%

Cash Flow (Million pesos) 2017 2018 2019e 2020e 120,000 2.4x Cash flow from operating activities 40,135 48,378 62,775 67,622 1.9x 100,000 2.0x Cash flow from investing activities 31,417 (57,663) 7,336 (19,793) Cash flow from financing activities (21,539) (23,011) (32,602) (28,809) 80,000 1.1x 1.6x FX effect on cash 3,294 (2,602) (2,564) 1.1x Change in cash balance 53,307 (34,897) 34,945 19,020 60,000 0.9x 1.2x 0.7x Source: Banorte, MSE 40,000 0.8x

20,000 0.4x

0 0.0x 2016 2017 2018 2019e 2020e

Net Debt Net Debt/EBITDA

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Valuation and PT 2020E of MXN 211.00

Sum of the parts valuation. Our 2020 target price is MXN 211.00 per BD unit, which translates into upside potential of 21.1% on current prices and a 2020E FV/EBITDA target multiple of 10.4x, below the last-three-year average multiple (13.5x) and similar to the LTM FV/EBITDA multiple (10.2x). Our model estimates a value for each of Femsa’s divisions based on estimated 2020 EBITDA and a FV/EBITDA target multiple. To arrive at the total value, the result was altered by the participation of FEMSA in each division. In the case of KOF, we included our EBITDA and target multiple of 7.7x corresponding to the PT 2020.

SUM OF THE PARTS VALUATION Figures in millions EBITDA 2020E P$m FV/EBITDA Firm Value P$m Share TOTAL P$/unit Coca-Cola Femsa $ 41,444 7.7x $ 319,119 47.2% $ 150,624 $ 42.09 Proximity division $ 28,687 13.0x $ 372,925 100.0% $ 372,925 $ 104.22 Health division $ 6,994 9.0x $ 62,949 100.0% $ 62,949 $ 17.59 Strategic business division $ 2,583 6.5x $ 16,789 100.0% $ 16,789 $ 4.69 Fuel division $ 2,215 6.0x $ 13,289 100.0% $ 13,289 $ 3.71 Value sum of the parts $ 616,577 Net Debt Femsa (70,089) (19.59) Total FEMSA $ 546,488 Heineken $ 207,917 $ 58.11 Equity value FEMSA $ 754,405 Number of units outstanding 3,578 PT 2020e $ 210.83 Source: Banorte, Bloomberg

1) Proximity division. We used a target multiple of 13.0x, which corresponds to the implicit LTM average multiple of the retail division and is an 11.3% discount to the last-three-year average multiple (14.7x). We view this multiple as fair and conservative due to local and international uncertainty as well as a low growth environment and global recession fears.

2) Health division. We used a 9.0x multiple, which is below the median of comparable companies (9.2x). We applied a discount to reflect how its logistic, retail and administrative processes are not as integrated as its peers. We also believe that pressures on profitability will stymie revaluation.

3) Strategic business division. We used a 6.5x multiple, which is slightly below the median (6.7x) of comparable companies.

4) Fuel division. We used a 6.0x multiple, which is a 13% discount to the median multiple (6.9x) of comparable companies. The discount is due to the fact that unlike other comparable companies in the sample, the OXXO GAS operations are not vertically integrated.

5) Heineken. We estimated the shareholder value using a PT of €99.57 (the Bloomberg average consensus), our fixed income strategy team’s FX estimate (MXN 21.30 / dollar at the end of 2020) and FEMSA’s stock ownership in Heineken (14.8%).

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Relative valuation

RELATIVE VALUATION Market Cap Firm Value FV/EBITDA FV/EBITDA DIVIDEND COMPANY PRICE P/BV P/E P/E 2019E P/E 2020E FV/EBITDA (US$MM) (US$MM) 2019E 2020E YIELD SEVEN & I HOLDINGS CO LTD JPY 4,113 33,424 31,710 1.4x 17.1x 16.9x 15.8x 5.2x 5.3x 5.1x 2.3% ALIMENTATION COUCHE-TARD -B CAD 43 36,748 33,864 3.8x 18.2x 19.2x 18.8x 11.5x 11.5x 11.5x 0.6% KONINKLIJKE AHOLD DELHAIZE N € 23.07 28,141 43,135 1.8x 14.8x 14.1x 13.2x 7.6x 7.1x 7.1x 2.6% TESCO PLC GBP 232 29,326 47,673 1.6x 18.4x 13.7x 12.7x 8.8x 7.5x 7.3x 2.9% KROGER CO USD 27.63 22,145 42,079 2.5x 12.2x 12.6x 11.8x 7.1x 7.7x 7.6x 2.3% LOBLAW COMPANIES LTD CAD 71 19,551 31,655 2.3x 22.9x 17.1x 15.3x 9.4x 8.6x 8.2x 1.8% CARREFOUR SA € 14.78 13,222 33,533 1.4x 12.9x 11.3x 10.6x 8.3x 7.6x 3.1% GRUPO NUTRESA SA COP 25,540 3,367 4,468 1.4x 21.3x 20.3x 18.9x 12.2x 12.4x 11.7x 2.4%

Proximity division average 23,241 33,515 2.0x 17.8x 15.9x 14.7x 9.0x 8.6x 8.2x 2.2% Proximity division median 25,143 33,699 1.7x 18.2x 15.5x 14.3x 9.1x 8.0x 7.6x 2.4%

PEPSICO INC USD 135 188,395 216,756 13.3x 24.6x 24.5x 22.7x 16.7x 16.6x 15.5x 2.8% AMBEV SA BRL 18 67,285 65,402 13.3x 24.6x 24.5x 22.7x 16.7x 16.6x 15.5x 2.8% KEURIG DR PEPPER INC USD 31 43,005 58,506 1.9x 29.8x 25.0x 21.7x 19.5x 17.4x 15.9x 2.0% COCA-COLA EUROPEAN PARTNERS USD 51 23,637 27,243 3.3x 19.9x 18.0x 16.5x 12.1x 11.6x 2.7% COCA-COLA FEMSA SAB DE CV MXN 112 12,045 14,044 15.3x 57.2x 18.2x 16.9x 7.5x 7.3x 6.8x 3.2% ARCA CONTINENTAL SAB DE CV MXN 103 9,331 12,621 1.6x 19.0x 18.3x 16.0x 8.8x 8.4x 7.6x 2.2% COCA-COLA AMATIL LTD AUD 11.51 12,215 15,434 5.5x 20.6x 22.1x 20.9x 11.7x 11.4x 10.9x 4.6% COCA-COLA BOTTLERS JAPAN HOL JPY 2,646 5,004 6,193 0.9x 36.1x 10.1x 8.5x 1.9% EMBOTELLADORA ANDINA-PREF B CLP 2,035 2,231 3,094 2.3x 14.7x 15.4x 14.2x 7.5x 7.5x 7.1x 3.5% NATIONAL BEVERAGE CORP USD 49 2,288 2,138 6.2x 18.1x 20.0x 20.9x 11.2x 13.1x 13.6x COTT CORPORATION CAD 18 1,790 2,403 1.6x 95.3x 52.6x 34.2x 10.6x 9.7x 9.2x 1.8%

Coca-cola femsa average 33,384 38,530 5.9x 32.4x 23.9x 22.1x 12.2x 11.8x 11.1x 2.7% Coca-cola femsa median 12,045 14,044 3.3x 22.6x 21.0x 20.9x 11.2x 11.4x 10.9x 2.8%

CVS HEALTH CORP USD 76 98,440 180,910 1.6x 12.3x 10.8x 10.6x 10.9x 10.5x 10.0x 2.6% WALGREENS BOOTS ALLIANCE INC USD 59 52,883 69,335 2.3x 12.0x 10.0x 9.6x 10.1x 8.5x 8.4x 3.1% CARDINAL HEALTH INC USD 55 15,990 23,187 17.8x 14.4x 10.9x 10.4x 8.6x 8.4x 3.5% RAIA DROGASIL SA BRL 113 8,885 9,972 9.4x 46.5x 64.2x 51.8x 21.6x 29.1x 24.1x

Health division average 44,050 70,851 7.8x 21.3x 24.0x 20.6x 14.2x 14.2x 12.7x 3.1% Health division median 34,437 46,261 5.8x 13.3x 10.8x 10.5x 10.9x 9.5x 9.2x 3.1%

PHILLIPS 66 USD 115.2 51,171 64,351 2.1x 11.0x 12.8x 10.9x 10.9x 8.7x 7.5x 3.1% MARATHON PETROLEUM CORP USD 60.7 39,381 79,129 1.2x 13.4x 13.5x 8.1x 7.1x 8.1x 6.2x 3.5% ULTRAPAR PARTICIPACOES SA BRL 22 5,796 8,305 2.5x 20.7x 25.1x 19.9x 11.3x 10.9x 9.7x 1.8% DELEK US HOLDINGS INC USD 34.9 2,588 3,943 1.5x 8.5x 9.5x 10.9x 4.5x 5.7x 6.0x 3.4%

Fuel division average 24,734 38,932 1.8x 13.4x 15.2x 12.5x 8.5x 8.3x 7.4x 3.0% Fuel division median 22,589 36,328 1.8x 12.2x 13.2x 10.9x 9.0x 8.4x 6.9x 3.3%

HUNT (JB) TRANSPRT SVCS INC USD 115.6 12,318 13,658 5.6x 20.2x 21.5x 19.3x 11.6x 10.4x 9.7x 1% XPO LOGISTICS INC USD 81.9 7,557 14,876 3.8x 21.9x 20.6x 18.0x 6.9x 8.9x 8.3x HYUNDAI GLOVIS CO LTD KRW 148,000.00 4,691 5,572 1.2x 13.6x 11.8x 8.9x 5.9x 6.0x 5.8x 2% SCHNEIDER NATIONAL INC-CL B USD 22.5 3,987 3,989 1.8x 16.4x 17.5x 16.9x 6.9x 6.7x 6.4x 1% TFI INTERNATIONAL INC CAD 44 2,687 4,373 2.5x 12.9x 11.1x 10.6x 6.8x 6.8x 6.7x 2% TIANJIN PORT CO LTD-A CNY 6.15 1,756 3,225 0.7x 19.9x 7.8x 7.4x 1% ARAMEX PJSC AED 3.73 1,487 1,767 2.2x 10.9x 10.5x 9.7x 6.7x 6.9x 6.6x 4% HEARTLAND EXPRESS INC USD 21.2 1,736 1,678 2.6x 31.3x 21.3x 21.7x 7.4x 8.3x 8.0x 0% HUB GROUP INC-CL A USD 50.9 1,734 1,977 1.7x 14.4x 15.1x 15.3x 7.0x 7.4x 7.5x ID LOGISTICS GROUP € 190.00 1,188 1,635 5.8x 43.2x 35.1x 28.0x 10.3x 10.7x 9.2x UNIVERSAL LOGISTICS HOLDINGS USD 19.6 534 986 2.7x 14.8x 10.7x 8.1x 6.2x 6.1x 5.6x 2% GRUPO TRAXION SAB DE CV MXN 14 383 682 0.7x 14.6x 16.3x 12.9x 5.6x 5.7x 5.0x VRL LOGISTICS LTD INR 280.65 354 402 3.9x 27.6x 9.9x 3% DASEKE INC USD 2.8 181 975 2.0x 5.9x 5.7x RADIANT LOGISTICS INC USD 5.3 265 315 2.0x 18.7x 10.6x 10.1x 6.6x 7.5x 6.6x VALUE GROUP LTD ZAR 480.00 57 124 0.9x 5.3x 4.4x 9%

Strategic business division average 2,557 3,515 2.5x 19.0x 16.9x 15.0x 7.3x 7.5x 7.0x 2.7% Strategic business division median 1,610 1,722 2.1x 16.4x 15.7x 14.1x 6.9x 7.1x 6.7x 2.2% Source: Banorte, Bloomberg

4

2020 Estimates

Consolidated Results. We expect yoy revenue growth of 9.9% to MXN 564.030 billion underpinned by revenue growth at Femsa Comercio (MXN 330.657 billion), Coca-Cola Femsa (MXN 209.582 billion) and Femsa Strategic Businesses (MXN 23.791 billion), which should deliver yoy growth rates of 11.2%, 7.4% and 15%, respectively. We expect a slight decrease of 10bp in the gross margin to 37.6%. Regarding EBITDA, we forecast yoy growth of 8.5% to MXN 81.923 billion and a 20bp decrease in the margin to 14.5%. On the other hand, net income should amount to MXN 28.901 billion (+20.7% yoy) driven by a lower net interest expense (-15.8%) thanks to a 59.4% increase in interest earned as well as FX gains amounting to MXN 1.190 billion. Finally, we expect leverage levels to decrease to 0.9x ND/EBITDA vs 1.1x in 2019e on the back of operating results and an increase of MXN 19.020 billion (+19.6%) in cash.

CapEx should amount to MXN 26.087 billion (12.6% yoy). Also, CapEx as a percentage of consolidated revenues should be equal to 4.6% vs. 4.5% in 2019e. This would be the result of a more aggressive store opening strategy compared to 2019. By division, 45% of total CapEx should be allocated to the proximity division followed by KOF, which should receive 32%. Finally, the health and fuel divisions should obtain 9% and 4%, respectively. We believe that most of the investment will be used for opening and maintaining OXXO stores, drugstores, and OXXO gas stations. In the case of KOF, CapEx could be used to increase the number of coolers, offer a better product mix, generate efficiencies through data analysis capacities and improve infrastructure for expanding returnable presentations in the company’s operating regions.

Proximity Division. Revenues should grow 8.4% yoy to MXN 199.862 billion, representing 35% of consolidated revenues. This would be due to 3.3% Same Store Sales growth, driven by a 4.0% increase in the average ticket, which would offset a 0.6% decrease in traffic. Likewise, revenues should be driven by 1,375 new OXXO store openings compared to an estimated 1,351 in 2019. We further project that this division will end the year with 20,725 OXXO stores. (+7.1% yoy).

We forecast a 10bp improvement in the gross margin to 40.9%, mainly due to the positive effect of a more favorable sales mix strategy and higher revenues from in-store advertising and service fees. Thus, we forecast double-digit yoy growth (16%) in service revenues.

We estimate EBITDA would growth 6.2% yoy to MXN 28.687 billion. Thus, the margin should decrease by 30bp to 14.4% owing to greater expenses related to cash management, higher wages in the border region and a change in the labor scheme from commission agents to permanent employees. Our stance is conservative, as labor and rent expenses are the highest. However, more than 50% of the OXXO stores in Mexico use wind energy with the number expected to increase in the coming years. This could generate electricity savings and positively impact profitability.

5

Health Division. Revenues should increase 22% yoy to MXN 77.544 billion, representing 14% of consolidated revenues and would be mainly due to a 3.6% increase in same-unit sales and 230 new openings as well as the inclusion of 620 acquired drugstores in Ecuador in 2019. The division should end the year with 3,430 drugstores, which would be a 7.2% increase on the total number of drugstores for the previous year.

The gross margin should remain stable at 29.9% thanks to execution efficiencies with key suppliers in Mexico, which should offset the negative effect of the inclusion of the GPF Corporación drugstores in Ecuador. Meanwhile, we forecast yoy EBITDA growth of 20% to MXN 6.994 billion. Thus, the EBITDA margin should decrease 10bp to 9.0% due to pressures derived from higher expenses related to the acquired drugstores in Ecuador.

Fuel Division. We forecast revenue growth of 8.2% yoy to MXN 53.203 billion, representing 9% of total revenues. This would be due to 0.8% growth in same-station sales (SSS), an estimated average price per liter of MXN 18.4 (+3.5% yoy) and 92 new gas stations. The company said it intends to continue to open gas stations going forward and is just waiting for the respective regulatory authorizations. Thus, this division should end the year with 681 gas stations, which would imply 16% growth on the prior year.

We look for a 30bp improvement in the gross margin to 10.9%. As for EBITDA, we estimate a 3% annual growth to stand at MXN 2.215 billion. Thus, the margin should decrease by 20bp to 4.2% due to pressures on operating expenses associated with labor and the gradual transition of current gas stations to OXXO GAS stations.

Coca-Cola FEMSA Division

For further details regarding our estimates, please refer to our note on the PT 2020 and rating for Coca-Cola Femsa.

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Certification of Analysts. We, Gabriel Casillas Olvera, Delia Maria Paredes Mier, Alejandro Padilla Santana, Manuel Jiménez Zaldívar, Tania Abdul Massih Jacobo, Katia Celina Goya Ostos, Juan Carlos Alderete Macal, Víctor Hugo Cortes Castro, Marissa Garza Ostos, Miguel Alejandro Calvo Domínguez, Hugo Armando Gómez Solís, Gerardo Daniel Valle Trujillo, José Itzamna Espitia Hernández, Valentín III Mendoza Balderas, Santiago Leal Singer, Francisco José Flores Serrano, Luis Leopoldo López Salinas, Jorge Antonio Izquierdo Lobato, Eridani Ruibal Ortega and Leslie Thalía Orozco Vélez, 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 Mexican Stock Exchange 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.

PT and recommendation history Stock Date Rating PT FEMSA UBD November 29, 2019 BUY MXN$211.00 FEMSA UBD April 04, 2019 HOLD MXN$192.00

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

Research and Strategy

Gabriel Casillas Olvera Chief Economist and Head of Research [email protected] (55) 4433 - 4695 Raquel Vázquez Godinez Assistant [email protected] (55) 1670 - 2967

Economic Analysis

Delia María Paredes Mier Executive Director of Economic Analysis [email protected] (55) 5268 - 1694 Katia Celina Goya Ostos Senior, Global Economist [email protected] (55) 1670 - 1821 Juan Carlos Alderete Macal, CFA Senior Economist, Mexico [email protected] (55) 1103 - 4046 Miguel Alejandro Calvo Domínguez Economist, Regional [email protected] (55) 1670 - 2220 Francisco José Flores Serrano Economist, Mexico [email protected] (55) 1670 - 2957 Luis Leopoldo López Salinas Analyst, Global Economist [email protected] (55) 1103 - 4000 x 2707 Lourdes Calvo Fernández Analyst (Edition) [email protected] (55) 1103 - 4000 x 2611

Fixed income and FX Strategy

Alejandro Padilla Santana Head Strategist – Fixed income and FX [email protected] (55) 1103 - 4043 Santiago Leal Singer FX Senior Strategist [email protected] (55) 1670 - 2144 Leslie Thalía Orozco Vélez Fixed Income and FX Strategist [email protected] (55) 5268 - 1698

Equity Strategy

Director Equity Research — Manuel Jiménez Zaldivar [email protected] (55) 5268 - 1671 Telecommunications / Media Víctor Hugo Cortes Castro Technical Analysis [email protected] (55) 1670 - 1800 Equity Research – Conglomerates / Financials/ Marissa Garza Ostos [email protected] (55) 1670 - 1719 Mining / Petrochemicals Equity Research – Airlines / Airports / Cement / José Itzamna Espitia Hernández [email protected] (55) 1670 - 2249 Infrastructure / REITs Equity Research – Auto Parts/ Consumer Valentín III Mendoza Balderas [email protected] (55) 1670 - 2250 Discretionary / Real Estate / Retail Jorge Antonio Izquierdo Lobato Analyst [email protected] (55) 1670 - 1746 Eridani Ruibal Ortega Analyst [email protected] (55) 1103 – 4000 x 2755 Itzel Martínez Rojas Analyst [email protected] (55) 1670 - 2251

Corporate Debt

Tania Abdul Massih Jacobo Director Corporate Debt [email protected] (55) 5268 - 1672 Hugo Armando Gómez Solís Senior, Corporate Debt [email protected] (55) 1670 - 2247 Gerardo Daniel Valle Trujillo Manager, Corporate Debt [email protected] (55) 1670 - 2248

Wholesale Banking

Armando Rodal Espinosa Head of Wholesale Banking [email protected] (81) 8319 - 6895 Alejandro Eric Faesi Puente Head of Global Markets and Institutional Sales [email protected] (55) 5268 - 1640 Alejandro Aguilar Ceballos Head of Asset Management [email protected] (55) 5268 - 9996 Head of Investment Banking and Structured Arturo Monroy Ballesteros [email protected] (55) 5004 - 1002 Finance Head of Transactional Banking, Leasing and Gerardo Zamora Nanez [email protected] (81) 8318 - 5071 Factoring 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 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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