Annual Report 2015
FEMSA celebrated a remarkable milestone this year: the 125th anniversary of our founding. Even as we continue on our path of growth, diversification, expansion and consolidation, this is an occasion that merits highlighting.
From the company’s entrepreneurial beginnings as a local Monterrey brewer in 1890, to our global profile as a NYSE-listed beverage and retail leader today, the vision and philosophy of the founders has not wavered: to work with and for the communities we serve, and to create long-term value for all our stakeholders. We are proud and humbled to carry on their tradition, creating new stories for the generations to come.
We changed our name from VISA to FEMSA, and listed FEMSA’s shares on the New York Stock Exchange (NYSE) under the ticker symbol FMX in May 1998.
As with any good story –business or otherwise– the narrative unfolds over time. We strongly believe in taking a multi-year approach to our strategic objective of delivering returns that exceed our costs, and executing consistently across business cycles even when short-term market dynamics require us to respond with specific measures.
In that regard, 2015 was a notable year: as we outline below, FEMSA made important advances in the year, including new acquisitions, geographic growth and product innovations, as well as top line gains and margin expansion. Perhaps most importantly, we saw the resilience of our businesses in the face of ongoing macroeconomic challenges – giving us confidence in the fundamental strength and agility of our operations.
Key developments in the year at FEMSA Comercio include the opening of 1,208 net new OXXO stores in Mexico and Colombia, equivalent to an average of more than three new stores per day, for a total of over 14,000 OXXO units at year-end 2015. Notably, we have held capital expenditures steady while driving up EBITDA profitability, thanks to the benefits of scale and operating leverage. Key in-store initiatives such as incremental financial services and more effective promotional activity in our key categories, as well as gradual yet continuous improvement in Mexico’s consumption environment, led to solid same-store sales growth, reflecting a better mix of ticket and traffic.
OXXO is already one of the top retailers in Mexico by revenue, and largest in the Americas by number of units, but we still see plenty of horizontal opportunity in terms of market penetration potential.
On the drugstore front, we closed two key acquisitions in the year that advanced our growth strategy in this compelling small-box retail segment: 100% of Farmacon, a Sinaloa, Mexico-based drugstore chain with more than 200 stores, and a majority equity stake in Socofar, based in Santiago, Chile, with over 640 drugstores and 150 beauty stores in Chile and 150 drugstores in Colombia. These acquisitions are an important step forward in leveraging our growing segment expertise, and the latter beauty stores in Chile and 150 drugstores in Colombia. These acquisitions are an important step forward in leveraging our growing
We received a 20% stake in Heineken shares in exchange for 100% of FEMSA beer shares, significantly growing our market share and improving our global competitiveness.
segment expertise, and the latter transaction specifically can be seen as a platform from which to drive our growth strategy in that region.
Early in the year, we announced our participation in the retail gasoline business to take advantage of evolving regulations and reforms in Mexico’s energy sector. This is a highly fragmented, high-growth potential industry that fits well with our OXXO service model, and offers attractive returns on capital through our asset-light model. At year-end 2015, our FEMSA Comercio’s Fuel Division operated 307 gasoline stations in Mexico, predominantly in the north of the country.
At Coca-Cola FEMSA, where we faced difficult conditions in several of our key markets, we focused on operational efficiency, including the startup of two new state-of-the-art bottling plants in Brazil and Colombia, as well as point-of-sale execution that contributed to a 0.7% rise in transactions. Notable launches in the year included Schweppes Guaraná Class in Brazil, Naranja & Nada and Limon & Nada in Mexico, and Santa Clara brand semi-skim milk in Mexico.
The strategic transformation of Coca-Cola FEMSA continued this year, shaping us into a leaner, nimbler and more flexible organization; at the same time, we focused on the short-term requirements of navigating economic pressures and foreign exchange challenges by acting on the variables under our control, resulting in market share gains and, notably, margin expansion.
Coca-Cola FEMSA retained its position as the largest franchise bottler in the world, and we see strong organic growth potential ahead as per capita consumption improves across most of our markets.
Within our Strategic Businesses, FEMSA Logística became the first Mexican company to receive ISO 39001 certification, a comprehensive road safety management system through which we aim to significantly increase our already high safety standards across the fleet. FEMSA Logística continues to increase its value-creating potential through organic growth with internal and external clients, as well as strategic acquisitions in our key markets. At Imbera, we introduced new models and continued to upgrade our refrigeration technology to reduce costs and improve our environmental footprint, further enhancing our client partnerships across the US and Latin America.
Inscribed at the heart of our mission is the generation of economic and social value. In keeping with this way of being and working, our commitment to sustainability was evident in various ways over the past year due to the generation of social and environmental benefits. In 2015 we continued to reinforce our Comprehensive Talent Management Model to assure the professional and personal development of our employees.
In environmental matters, we focused our efforts on better understanding the impact of our operations, so that we can use the information to strengthen our Environmental Strategy and take more efficient action to mitigate these impacts in all our Business Units. During the year we added a third wind farm to supply clean energy in Mexico, advancing toward our goal of satisfying 85% of the electricity needs of our Mexican operations (based on 2010 consumption) from clean energy sources by the year 2020. With this commitment we adhered to the COP21. To build better community relations, under a concerted effort by all the FEMSA Business Units, we developed the Methodology for Addressing Risks and Community Relations (MARRCO), for professionalizing community management locally at our work centers and implement mutually beneficial actions.
Our results in the year reflect the solid operational improvements highlighted above within the context of market conditions that ranged from improving consumption and continued recovery in Mexico, to extreme volatility and soft macroeconomic environments in certain South American markets, particularly in regards to foreign exchange.
Total revenues in 2015 increased 18.3% over the previous year to Ps. 311.6 billion (US$ 18.1 billion), driven by growth at FEMSA Comercio. Income from operations rose 12.5% to Ps. 33.7 billion (US$ 1.96 billion), with net income rising 2.9% to Ps. 23.3 billion (US$ 1.35 billion), earnings per unit were mainly driven by our 20% participation in Heineken, whose net profit in the year rose 25%. Earnings per BD unit were Ps. 4.94 (US$ 2.87 per ADR).
Looking ahead, we are cautiously optimistic about continued improvement in the business environment and consumption trends across most of our markets. Notwithstanding external growth drivers, however, we will continue to build on our momentum by focusing on the disciplined deployment of capital to take advantage of our balance sheet flexibility, leveraging our core competencies and current business platforms to identify new and adjacent opportunities that will create value over the long term.
We are grateful to our 261,464 strong FEMSA family for their passion and commitment, and on behalf of the entire FEMSA team, thank you to our consumers, shareholders, suppliers and communities for your continued confidence and support. We look forward to creating the next stories together.
Sincerly,
José Antonio Fernández Carbajal
Executive Chairman of the Board
Carlos Salazar Lomelín
Chief Executive Officer
In Memoriam
Max Michel Suberville
(✝ February 2016)
“Don Max” left a legacy that should serve as an example to all. He forged a life full of personal and professional success as an extraordinary entrepreneur, who believed that business was merely an instrument for doing good to others. He was a simple, austere man, and he enjoyed the country and nature. Toward his family and friends he was unfailingly affectionate, loyal, straightforward and generous.
Honoring the heritage of dedication and perseverance handed down by his predecessors, he began working at El Puerto de Liverpool at a very young age. After spending many years in the various departments of the company, he became its Chairman and led it along an impressive path of growth and diversification, making it one of the leading department store chains in the Americas, and one of the largest credit suppliers in the country, benefiting hundreds of thousands of Mexican families.
A close friend and colleague of Eugenio Garza Lagüera, Max accompanied us starting in 1985 as shareholder and board member of VISA, the forerunner of FEMSA. His values were always compatible with FEMSA’s, and for more than thirty years he supported it faithfully, from its most difficult moments to its phase of growth and consolidation. His vision as a strategist and businessman, combined with his extensive experience and familiarity with retail activities, were key to the evolution of FEMSA and its Business Units.
His positions on the Board were vital to bringing the company through its difficult phase of debt structuring in the late 1980s and to spurring on the company’s growth by taking advantage of its competitive strengths. He always stood with us, and always supported us in the fundamental decisions that have made us what we are today.
Inevitably, we will miss Max’s wise counsel, his commitment to his friends, family, community and his country. We will miss his vision of life, his vocation, and the great human being he always was.
May he rest in peace.
