Dear shareholders

Short-term Challenges

2013 was a year in which our short-term challenges were more than offset by our long-term opportunities. Throughout a difficult year, we leveraged our core businesses’ strengths to satisfy our consumers’ needs, generated new avenues for growth, and profitably converted complexity into opportunity. Furthermore, through our 20% economic interest in Heineken, we remained in a position to benefit from the promising long-term prospects of the global brewing space.

Let us take a moment to summarize the challenges our company surmounted this year. In our key Mexican market, the soft macroeconomic environment, coupled with reduced construction spending, lower remittances, and torrential rains during the month of September, dampened consumer demand in both our retail and beverage businesses. Moreover, foreign exchange weakness in our major South American markets, along with slower economic growth and inflationary pressures in Brazil, affected consumer behavior and our performance in the region. While there are some encouraging signs across our operations as we begin 2014, some significant challenges remain, such as the new tax on soft drinks in Mexico and sustained currency pressures in certain South American markets.

Against this challenging backdrop, in 2013, we produced solid results for our shareholders thanks to our robust business platform, talented team of people, and operating capability. For the full year, our total revenues rose 8.3% to Ps. 258.1 billion (US$ 19.7 billion). Our income from operations grew 2.2% to Ps. 29.9 billion (US$ 2.3 billion). Our net income reached 21.0% to Ps. 22.2 billion (US$ 1.7 billion), and our earnings per unit were Ps. 4.45 (US$ 3.4 per ADR). Given our ability to perform in such tough terrain, we are optimistic that we have the tools to succeed throughout an evolving fiscal, monetary, and economic environment.

Now, let us briefly review some of the year’s highlights for our businesses.

Long-term Opportunities Coca-Cola FEMSA

We manage our company for the long term, and do not make major adjustments to our growth strategy based on short-term market dynamics. Since acquiring Panamco a decade ago, we continue to enhance our leading position in Brazil. During the year, we capitalized on the opportunities presented in the Coca-Cola bottling system to strengthen our platform in this major market through acquisitions that better position us to capture the benefits of this country’s recovery. In August and October, we closed the acquisitions of Companhia Fluminense and Spaipa, two key bottling franchises that fit perfectly with our existing territories. These transactions—which increase the number of consumers we serve in the country to 72 million—are consistent with our bullish view of Brazil as a market with great long-term potential despite the short-term issues it faces today.

In the Philippines, we are working with our partner, The Coca-Cola Company, along with a talented team of local professionals, on the pillars of an ambitious new strategic framework for this business: portfolio, route to market, and supply chain. Specifically, we are rationalizing our existing portfolio, freeing up capacity at our bottling plants. We are launching innovative new packages and products, capturing untapped market potential. We are introducing a new route to market, regaining direct contact with our customers across the greater Manila metropolitan area. We are also optimizing our production and distribution network, modernizing our capacity to roll out new products and presentations into the market. Through our ongoing efforts, we are firmly on the path to sustainable, long-term profitability.

In Mexico, we completed the merger of Grupo Yoli, one of our four recent mergers in our home market. Our combined scale from the integration of these operations enables us to further strengthen our position, while generating even greater value for all of our stakeholders.

FEMSA Comercio

At FEMSA Comercio, in the face of significant short-term headwinds, we continued with our long-term strategy to grow OXXO’s leadership position as Mexico’s unique national modern small-format store chain. In 2013, we successfully opened 1,120 new stores for a total of 11,721 stores—serving more than 9 million shoppers daily. Given the relatively low penetration of OXXO across ample areas of Mexico, we will continue expanding our store base at a sustained rate of growth.

Beyond the pursuit of geographic expansion, we are excited by FEMSA Comercio’s entry into the attractive drugstore sector, a complementary avenue for growth that leverages our capability and platform across small-box retail formats. In May, we completed the acquisition of a controlling stake in Farmacias YZA and the acquisition of Farmacias FM Moderna, two leading regional drugstore operators with more than 400 stores in southeast and western Mexico. Through these transactions, we will not only contribute our significant expertise in the development of small-box retail formats to what are already two successful regional players, but also advance our long-term strategy to establish a position in this dynamic industry.

Additionally, FEMSA Comercio opened another compelling new avenue for growth with the recent acquisition of a controlling stake in Gorditas Doña Tota, a strong regional player in the quick-service restaurant sector with high consumer preference in northern Mexico. On top of Doña Tota’s robust potential as a stand-alone format, this transaction further enables us to share our considerable experience in the growth of small-box retail formats, while gaining relevant capabilities in the field of prepared food operations.

Strategic Businesses

We also continued to advance our strategy to focus and strengthen our Strategic Businesses’ operations, particularly those that provide significant support to our core businesses and present attractive growth potential. To this end, we are working to consolidate Imbera as the leader in the design and production of refrigeration solutions for retail applications, spearheading innovation and achieving the highest efficiency ratings in the Americas. At FEMSA Logística, we continued to progress with the restructuring of its operations, while positioning it to drive growth organically and through selective acquisitions. These have become world-class operations in their own right, and they will continue to contribute to the growth and success of our company going forward.

Sustainable Development

At FEMSA, we embrace sustainability as integral to our company’s development. Our vision is to ensure the sustainability of our business by positively transforming our communities through the simultaneous creation of economic, social, and environmental value.

In addition to our company’s and business units’ many sustainability initiatives, FEMSA Foundation, along with the Nature Conservancy, the Inter-American Development Bank, and the Global Environment Facility, made considerable progress on the Latin American Water Funds Partnership. Over five years, the Partnership plans to implement at least 32 Water Funds throughout Latin America with seed investments of over US$27 million. Revenue from these investments preserves key watersheds upstream that filter and regulate the water supply of some of the most important cities in the region. Already, the Partnership has launched 17 Water Funds, benefiting 17 cities in six countries. For example, in 2013, the Partnership worked with over 50 organizations to establish the Monterrey Metropolitan Water Fund, protecting the watershed serving more than 3.7 million inhabitants of this urban area.

Underscoring our commitment to sustainability, we were further honored by Coca-Cola FEMSA’s selection as one of 81 companies to comprise the Dow Jones Sustainability Emerging Markets Index, as well as one of only 4 Mexico-based companies chosen for the Index.

Management Transition

Over the past 12 years, I enjoyed the privilege of serving as both Chairman and CEO of FEMSA. However, given the growing size and expanding geographic footprint of our company, as well as the complexity of our businesses and industries, our Board agreed on my proposal to separate the roles of Chairman and CEO. Effective January 1, 2014, I assumed the responsibilities of Executive Chairman, and Carlos Salazar Lomelín assumed the duties as new CEO of FEMSA, after serving as CEO of Coca-Cola FEMSA for the past 14 years.

The objective of this change is to provide even more focus on the responsibilities of each role. As Executive Chairman of the Board, I will ensure the proper functioning of the various levels of governance, the management of strategic relationships with key stakeholders, the definition of a clear strategic path, and the adherence to the highest business and corporate governance practices, consistent with the values of our company. I will also focus on the development of talent in order to pursue and capture future opportunities, and to properly enable the transition and succession of our management teams.

In his role as the new CEO of FEMSA, Carlos Salazar will focus his efforts on the day-to-day stewardship of FEMSA’s businesses, leading and managing his senior team; proposing short- and long-term plans and strategies to our Board; and developing the talent required to support our growth and succession processes.

Consequently, John Santa María was named CEO of Coca-Cola FEMSA, replacing Carlos Salazar. John, who headed Coca-Cola FEMSA’s South America Division, assumes his new responsibilities after 18 successful years with the company.

Looking forward, we envision an immensely rewarding future for our company, driven by our passionate team of managers and employees. On behalf of these more than 200 thousand dedicated men and women, we thank you for your continued support. We reiterate our conviction that the very reason for our existence is to create economic, social, and environmental value for our stakeholders—including our employees, our consumers, our shareholders, and the enterprises and institutions within our society—now and into the future.

José Antonio Fernández Carbajal
Executive Chairman of the Board

Carlos Salazar Lomelín
Chief Executive Officer