Dear
Shareholders

As of January 1, 2018, we also welcomed Eduardo Padilla Silva—most recently FEMSA’s Chief Financial and Corporate Officer—as FEMSA’s new Chief Executive Officer. Eduardo joined FEMSA in 1997 and, since then, has held several senior positions at FEMSA, including Chief Executive Officer of FEMSA Comercio for 16 years. During his tenure in that role, Eduardo oversaw significant growth, including the establishment of OXXO as the leading proximity retail format in Mexico, as well as FEMSA’s expansion into the drugstore and service station formats. These developments have been integral to shaping our company into what it is today and hold great promise for our future growth. I am confident that Eduardo’s talent and energy will successfully lead us as we embark on a new chapter for FEMSA, full of growth opportunities in these times of momentous change that are rapidly transforming our world.

FEMSA continued to evolve in 2017. We successfully monetized a small portion of our Heineken shares, thereby strengthening our balance sheet and efficiently improving our financial flexibility. We also unified our logistics operations under the new name of Solistica, within our FEMSA Strategic Businesses Unit. This move further consolidates our position as a leader in third-party integrated logistics services across Latin America and puts us in a stronger position to deliver expanded solutions to our clients.

This year we continued to leverage our diverse brand portfolio and operational expertise to realize strong performance on a consolidated level, despite challenging macroeconomic conditions in several key markets. Total revenues in 2017 increased 15.3 percent over the previous year to Ps. 460.5 billion (US$ 23.4 billion), mainly driven by steady operational growth. Income from operations increased 10.7 percent to Ps. 41.4 billion (US$ 2.1 billion), while net consolidated income increased 36.9 percent to Ps. 37.2 billion (US$ 1.9 billion). Net majority income per BD Unit was Ps. 11.85 in 2017 (US$ 6.03 per ADS).

These results were made possible by the strength of our business units. In FEMSA Comercio—comprised of the Retail, Health and Fuel divisions—we continued to build and strengthen our competitive position in multiple regions. In Retail, we opened 1,301 net new OXXO stores—our fastest pace to date—and further expanded the OXXO brand beyond Mexico in Colombia and Chile. In Health, our operations in Mexico and expansions in Colombia and Chile further secured our position as a leading drugstore operator in Latin America, with a total of 2,225 stores achieving a 9.2 percent increase in revenue and a 6.7 percent increase in same-store sales. In Fuel, we continued to play a key role in the rapid transformation of Mexico’s energy sector with the addition of 70 net new OXXO GAS service stations in Mexico, and a 19.8 percent increase in same-station sales.

Coca-Cola FEMSA successfully navigated market pressures in 2017 and focused on strengthening its beverage portfolio and remaining nimble and responsive to evolving consumer preferences. Our Mexico and Central America divisions continued implementing our operating model transformational initiatives, including digitizing our platform, scaling supply chain solutions and innovating information technology strategies. In Brazil, we are encouraged by our results highlighted by our affordability strategy that enabled us to grow volumes, regain market share in sparkling beverages—reaching a record high by year-end—and improve our profitability.

We know our economic impacts are tied closely to our social impacts. In addition to our permanent sustainability efforts within our business units, the FEMSA Foundation, and in close collaboration with Tec de Monterrey, this year we came together to respond to several natural disasters that caused tremendous loss in Mexico, including two devastating earthquakes. FEMSA launched three separate disaster response initiatives to provide needed assistance and resources, and the FEMSA Foundation contributed critical supplies to shelters and food banks in the hardest-hit areas in the country.

Leading in sustainability performance and disclosure is an important priority for FEMSA. In 2017, we took steps to further embed best practices across our operations and we invested a total amount of Ps. 2.7 billion (US$ 138.3 million). Externally, these funds are allocated to our communities through our operations and FEMSA Foundation’s initiatives on water security, early childhood development, and education through our work with Tec de Monterrey. Internally, the focus is directed toward our employees and their families as well as environmental stewardship.

We have been a signatory of the United Nations Global Compact (UNGC) since 2005, and we adhere to the UNGC’s ten principles to protect human rights, uphold ethical labor practices, preserve the environment and combat corruption. Our 2017 Annual Report represents our 12th UNGC Communication on Progress and it references the Global Reporting Initiative (GRI) Standards.

Throughout our company’s history, FEMSA’s culture has maintained a deep respect for human dignity over and above financial considerations. Our corporate philosophy is to serve our customers, generate returns for our shareholders, increase social development and minimize our environmental impact. As such, we operate under the fundamental principle of creating both, economic and social value for our stakeholders.

This year’s integrated Annual Report highlights the important ways in which we advanced in these areas in 2017, as well as the goals and priorities we have identified to make even more progress in 2018 and beyond. We want to thank you once again for your continued support and trust, and look forward to embarking with you on another exciting year ahead.

 

José Antonio Fernández Carbajal
Executive Chairman of the Board