In 2014, we successfully navigated a tough operating environment. Throughout the 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 positioned to benefit from the promising long-term prospects of the global brewing space.
José Antonio Fernández Carbajal
Executive Chairman of the Board (left)
Carlos Salazar Lomelín
Chief Executive Officer (right)
Our company overcame significant headwinds this year as we effectively managed extremely challenging consumer dynamics. In our key Mexican market, the soft macroeconomic situation, magnified by structural reforms, increased taxation, excise tax-driven price increases on most soft drinks and calorie-dense products, and higher VAT rates in northern and southern border states, compounded a sluggish consumer environment for our retail and beverage businesses. Moreover, adverse foreign exchange dynamics in our major South American markets, combined with decelerating GDP growth in Brazil, a weak economy in Argentina, and a demanding operating landscape in Venezuela, affected consumer confidence across the region.
In light of these and other challenges, we generated better than expected results for our shareholders thanks to our robust business platform, talented team of people, and operations’ ability to adapt to new market realities. For 2014, our total revenues increased 2.1% to Ps. 263.4 billion (US$ 17.9 billion). Our income from operations increased 0.4% to Ps. 30.0 billion (US$ 2.0 billion). Our net income increased 2.1% to Ps. 22.6 billion (US$ 1.5 billion), and our earnings per unit were Ps. 4.67 (US$ 3.16 per ADR). Now that the new taxes and related price increases are reflected in our retail and beverage businesses’ base, as we look forward, we are optimistic about our ability to succeed throughout ever-evolving operating conditions.
Now, let us briefly review some of the year’s highlights for each of our businesses.
2.8 million points of sale to quench our consumers’ thirst. How refreshing!
Coca-Cola FEMSA
Coca-Cola FEMSA surmounted a complex environment, particularly in Mexico and Brazil, to deliver volume growth and profitable results across our markets. In Mexico, our operations acted swiftly to protect our profitability and cash flow generation, proactively implementing portfolio and revenue management initiatives. To address the impact of new taxes, our operations’ emphasized returnable, low-calorie, and single-serve sparkling beverages—coupled with packaging and brand innovation—to enable us to connect more closely with our consumers’ needs, generating more than 9 billion transactions, while outpacing our volume performance for the year. Additionally, we restructured our operations, reducing costs and expenses, while scaling back investments. These initiatives, combined with our relentless focus on marketplace execution and operating efficiency, set us on the right path to achieve operating cash flow and margin expansion for the year.
Despite a difficult environment, we integrated the operations of Companhia Fluminense and Spaipa, solidifying our position as Brazil’s leading Coca-Cola bottler. Thanks to our team’s efforts, we are rapidly capturing the expected synergies, which total approxiamtely US$ 52 million. We also made strategic capital investments across the supply chain to keep up with potential demand. In November, we began operations at our new state-of-the-art bottling plant in Itabirito, Brazil, with an annual capacity of approximately 200 million unit cases. Built to LEED certification standards, this efficient, eco-friendly facility enhances our position to capture the benefits of this dynamic market’s great long-term prospects.
Coca-Cola FEMSA further embarked on an intensive strategic, organizational, and operating transformation process to create a leaner, nimbler, and more flexible organization with the requisite capabilities to drive our competitiveness and prepare for the next wave of growth. Among our actions, we established centers of excellence, focused on our supply chain, commercial, and IT innovation areas. We commenced streamlining and de-layering our organization to foster a tighter, leaner, more agile management that will enable greater efficiency and bring us closer to our customers.
We are also reinforcing our talent management to develop a deep bench of professionals who can address growing market and industry complexity, while furthering our strategic vision.
FEMSA Comercio
FEMSA Comercio effectively managed soft consumer dynamics to produce resilient, positive results for 2014, including top- and bottom-line growth, a 50 basis point gross margin expansion, and comparable same-store sales growth that outperformed our industry. We also continued our long-term strategy to solidify OXXO’s leadership position as Mexico’s unique national modern small-format store chain. In 2014, we successfully opened a record 1,132 new OXXO stores for a total of 12,853 stores—serving more than 9 million shoppers daily.
Beyond OXXO, we strengthened our position in the complementary drugstore sector, further developing an important new avenue for growth. Building on our 2013 acquisitions of Farmacias YZA and Farmacias FM Moderna, we leveraged our in-depth understanding of our consumers and expertise operating a national small-box retail chain to enhance the value proposition of our base of 515 drugstores, while opening more than 90 new drugstores over the course of the year.
Additionally, in December 2014, we agreed to acquire Farmacias Farmacón, an important drugstore operator with over 200 stores in northwestern Mexico. Through this transaction, we take an additional step in our strategy to play a relevant role in an attractive, still-fragmented industry, where we aspire to replicate the success of our small-box retail format.
Furthermore, we made great strides in the integration of recently acquired Doña Tota, a leading quick-service restaurant operator with more than 200 outlets in Mexico and the U.S. Consequently, we are now well positioned to gradually increase the pace of growth of this business in the coming year.
Strategic Businesses
We also advanced our strategy to focus and strengthen our Strategic Businesses’ operations, which provide significant support to our core businesses and also present attractive growth potential. To this end, we worked to consolidate Imbera as the leader in the design and production of state-of-the-art refrigeration solutions for retail applications, spearheading innovation and achieving the highest efficiency ratings in the Americas. At FEMSA Logística, we made progress with its operational restructuring, positioning it to drive growth organically and through selective acquisitions. In this regard, we continued to foster Logistica’s transformation into an integrated logistics provider by deploying resources to increase our operational capabilities in key markets such as Brazil. World-class operations in their own right, these businesses will continue to contribute to the growth and success of our company going forward.
Sustainable Development
Sustainability is integral to our company’s development. Consistent with our commitment to ensure that renewable sources of energy eventually cover a high percentage of our electricity needs, we executed two important power purchase agreements that will enable us to fulfill more than 25% of FEMSA’s current annual electricity requirements in Mexico. Through these agreements, we have secured 193,000 megawatt (MW) hours of electricity per year from the 100-MW Dominica II wind farm in San Luis Potosi, Mexico, and 350,000 MW hours of electricity per year from the 126-MW Ventika II wind farm in Nuevo León, Mexico. With the power generated from these wind farms, which are expected to come online in the third quarter of 2015 and the first quarter of 2016, respectively, we will lower the consumption of fossil fuels, reduce our energy costs, and decrease our overall carbon footprint.
Underscoring our commitment to sustainability, Coca-Cola FEMSA was once again selected as one of only 86 corporations chosen from emerging markets and one of only four Mexico-based companies included in the Dow Jones Sustainability Emerging Markets Index. Importantly, Coca-Cola FEMSA was the first Mexican company that was included in RobecoSAM’s Sustainability Yearbook and also received this prestigious institution’s Industry Mover Sustainability Award.
Management Changes
As previously announced, we recently initiated certain executive changes that will not only enable us to properly manage the transition processes for certain key responsibilities, but also reinforce our management team to transcend current and future challenges, continue our growth trajectory, and build an ever better, more global business.
After nine years as Vice President of Corporate Development and 25 years working at FEMSA, Federico Reyes García has decided to retire as of April 1, 2015. Javier Astaburuaga Sanjines, currently FEMSA’s Chief Financial and Corporate Officer, will replace Federico as Vice President of Corporate Development. In that position, Javier will continue to support FEMSA’s Strategic and Mergers & Acquisitions processes.
We also warmly welcome Daniel Rodríguez Cofré, who joined FEMSA on January 1, 2015, and will take Javier’s place as Chief Financial and Corporate Officer on April 1, 2015. Born in Chile, Daniel enjoys considerable international financial experience in Latin America and Europe; first as CFO of Shell in South America and later as Global CFO of one of Shell’s European based operating divisions. For the past six years, Daniel has served as the CEO of CENCOSUD, a major Chilean retail consortium.
Looking forward, we envision an immensely rewarding future for our company, driven by our passionate team of managers and employees. On behalf of these 216,000 dedicated men and women, we thank you for your continued support. 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
In Memoriam
If we are fortunate in our lives, we are privileged to know a very few great and fascinating leaders.
Donald R. Keough was one of them.
Donald R. Keough
(September 4, 1926 – February 24, 2015)
The Coca-Cola Company, FEMSA and Coca-Cola FEMSA Members of the Board of Directors and Top Management, October 2011.
Donald R. Keough stands in the first row from left to right with Muhtar Kent, José Antonio Fernández Carbajal, and Eva Garza Lagüera de Fernández.
At FEMSA, we appreciate the character and the values of those leaders, and strive to carry their values beyond the workplace and into our broader lives.
We recognize the admirable way Don Keough lived his life as a great man, a talented business leader, and a dedicated philantropist for many educational and charitable causes.
Don will certainly be remembered for his many business and personal accomplishments in challenging times. He was a key figure in the history and growth of iconic institutions such as The Coca-Cola Company, Allen & Company, and the University of Notre Dame.
Donald R. Keough was a dear friend and cherished mentor to so many. He truly believed that people are at the heart of successful companies. His legacy includes a new leadership model; unmatched operating skills; an expansive vision; and, above all, a deep commitment to developing people who possess the potential to positively transform our world.
Don had high regards for Coca-Cola FEMSA, where he contributed his passion, talent, visionary leadership, and counsel to help build the company that it is today. We will always remember and be thankful for his devotion to our company.
His impact will be forever present in our shared committment to create economic, social, and environmental value for our stakeholders and communities.
“In admiration and affection for a man whom it was a privilege and an inspiration to have known, we will miss Don Keough´s sharp wit and generous spirit.”
José Antonio Fernández Carbajal
Executive Chairman of the Board
