2020 ANNUAL REPORT

Dear
Shareholders:

The past year was one characterized by many humanitarian and economic challenges across the world. FEMSA faced these risks and opportunities head on, as we are aware of the important role we play – both as an economic engine and as a force for social good – in the regions and communities where we operate.

We are proud of the swift and unified actions of all our teams to develop a comprehensive management response framework designed to protect short-term results while maintaining long-term goals. Thanks to these efforts, we emerged as a stronger company within the robust business ecosystem in which we operate. Some highlights of our COVID-19 response:

• Our top priority in 2020 was the health, safety and wellbeing of our people, customers and consumers. We implemented work-from-home programs for our employees, including more than 24,000 of them who had underlying health conditions or other identified risk factors.
  
  In other cases, we redefined protocols and expanded infrastructure to support work-from-home arrangements. For the essential employees who kept our stores, stations and facilities open to meet the needs of our communities, we distributed personal protective equipment and intensified all on-site hygienic, disinfection and deep cleaning standards. To extend protective measures to our other areas of influence, we implemented social distancing measures in accordance with regulatory guidelines and proactively made important operational adjustments. For example, across FEMSA Comercio, we added plexiglass shields at checkout counters and used nanotechnology to sanitize service stations and public restrooms.

Our top priority in 2020 was the health, safety and wellbeing of our people, customers and consumers.

• In collaboration with stakeholder partners, we came together in 2020 to give back to our neighbors and communities in need. We were proud to take a leadership role in Juntos por la Salud, a public-private initiative to protect community health in Mexico. With contributions from governmental bodies and nearly 600 companies, organizations and academic institutions, the objective of the program was to combat COVID-19 by increasing the availability of medical equipment and supplies for hospital personnel, security forces and the employees, suppliers, customers and consumers of participating companies.
  
  FEMSA’s combined contributions to the Juntos por la Salud initiative – as well as many other initiatives during the year – came from many parts of our diverse organization. We are so proud of the leadership of all our colleagues who came together to contribute their ideas, talents, time, resources and passion to help save lives. The team at Torrey contributed in the design and engineering expertise for the development of the first 100% Mexican-made mechanical respirator (completed in only 10 weeks) and then Solistica helped to transport and deliver mechanical respirators and other medical supplies. FEMSA Foundation was instrumental in promoting the #pontecubrebocas communications campaign to encourage the correct way and societal normalization of wearing masks to increase public safety – messaging that was shared on television, radio, print and social media. At year-end, Juntos por la Salud had mobilized more than Ps. 1.4 billion (US$ 71.5 million) in contributions from more than 33,000 individuals, benefiting 530 hospitals.
• Through a disciplined approach to financial management, we ensured business continuity by carefully evaluating capital expenditures and responsibly preserving working capital. We set up cash flow “control towers” and dynamic scenario analyses for each business unit, allowing us to maintain precise visibility of cash levels in real time while better visualizing and anticipating potential areas of financial stress. Our consolidated net debt position at year-end was Ps. 81.0 billion (US$ 4.1 billion), and our capex decreased 18.3% as we identified and rationalized noncritical investments. FEMSA business units followed similarly conservative approaches. For example, Coca-Cola FEMSA’s relentless focus on driving efficiencies resulted in cost and expense savings of Ps. 7.4 billion (US$ 0.4 billion) for the year. Such efforts across our business units, coupled with our conservative balance sheet management and successful debt financings, resulted in a solid year-end cash position at FEMSA of more than Ps. 107.6 billion (US$ 5.4 billion).

In collaboration with stakeholder partners, we came together in 2020 to give back to our neighbors and communities in need.

Each of these responsive actions – and many more – align with FEMSA’s mission to generate economic and social value through our companies and institutions. They also underscore our commitment to sustainability, in every sense of the definition – that is, maintaining long-term growth and business continuity despite disruptions, as well as going further to reduce our environmental footprint and promote community development. FEMSA contributes to the United Nations Sustainable Development Goals and, as a signatory of the U.N. Global Compact (UNGC), we support its 10 Principles in the areas of human rights, labor, environment and anti-corruption. By focusing on environmental sustainability and labor inclusion priorities today, we are ensuring longer-term business continuity and success tomorrow.

Despite the challenges of the year’s macroeconomic environment, we continued to execute on our strategic vision for responsible capital deployment in high growth, high return assets.

• Seeking to apply our capabilities in high-frequency, process-enabled distribution, and expand our footprint into markets with favorable growth potential and visibility, we acquired a majority controlling interest in a new combined company that brought together two market leaders in the specialized distribution industry, with a focus on janitorial and sanitary (“jan-san”) supply solutions: WAXIE Sanitary Supply and North American Corporation. During the year, we completed significant steps in their integration process, including bringing in a new CEO to lead the combined company and move forward on our growth strategy for industry consolidation. In late 2020, we took a couple of additional, relevant steps to advance that strategy by acquiring SW Plus and Southeastern Paper Group, Inc., further expanding our U.S. reach while continuing to build a national distribution platform.
• We also continued to build our reach and capabilities in Latin America. For example, Solistica completed a full year as the first fully integrated third-party logistics solution provider in the Brazilian market following the successful acquisition of AGV last year. Similarly, following last year’s announcement of FEMSA Comercio’s entry into Brazil through Grupo Nós, our joint venture with Raízen, the first OXXO store in Brazil opened its doors to the public in the city of Campinas in December 2020.
• Reflecting the challenging and complex operating environment across our company in 2020, total revenues decreased 2.7% from the previous year to Ps. 493.0 billion (US$ 24.8 billion); income from operations decreased 12.0% to Ps. 41.5 billion (US$ 2.1 billion); and net consolidated income decreased 86.6% to Ps. 3.8 billion (US$ 0.2 billion). Net majority loss per BD Unit was Ps. 0.54 in 2020 (US$ 0.27 per ADS).

Despite the challenges of the year’s macroeconomic environment, we continued to execute on our strategic vision for responsible capital deployment in high growth, high return assets.

FEMSA Comercio felt the effects of pandemic-driven reduced customer mobility, which significantly impacted certain consumption occasions and store segments. We faced broad health-related operating restrictions on small box retail formats, contributing to a slow pace of recovery in OXXO stores. Many of the consumer needs we serve – such as thirst or craving for a snack or meal on-the-go – involve immediate, spur-of-the-moment purchasing decisions, and those categories were particularly exposed to the lack of consumer mobility. Nevertheless, same-store sales during the second half of the year showed a gradual, but sustained trend of recovery that stabilized in the final weeks of December, though still below the levels of the comparable period of 2019. Reduced mobility also impacted the results of our Fuel Division, while the Health Division had a strong year as our operations in Mexico continued their strong momentum and we catered to our customers’ health needs across markets.

Coca-Cola FEMSA, having embarked on a deep transformation to create a leaner, more agile organization prior to the pandemic, was well positioned to adapt to the challenges of the year resiliently. We saw sequential operational improvements during the year driven by the gradually recovering consumer demand, portfolio innovation and affordability initiatives, and accelerated rollouts of new digital strategies. Coca-Cola FEMSA also benefited from a favorable environment for certain raw materials and achieved strong efficiencies and expense containment across operations, protecting their profitability. Importantly, in support of our sustainable development objectives, we are very proud that Coca-Cola FEMSA issued its first green bond in the international capital markets for US$ 705 million priced at US Treasury +120 basis points and a coupon of 1.85% and due 2032, the largest for a Latin American Corporation and a first for the Coca-Cola System.

We know that our resilience this year would not have been possible without the remarkable adaptability, agility and commitment from all of FEMSA’s more than 320,000 people. We thank our colleagues, as well as all stakeholders, for their unwavering partnership and cooperation with us throughout the year. To learn more about the positive impacts we made together as a team, we invite you to explore the rest of this 2020 Annual Report, as well as our accompanying 2020 Sustainability Content.

While the second and third quarters of 2020 were challenging across FEMSA’s operations, we began to see consistent gradual improvement across our business units by the fourth quarter.

As we begin a new year, we are optimistic about the prospects of a healthier, better tomorrow, and we thank you for joining us as we continue to work to move FEMSA forward. We wish you a healthy and successful 2021.

José Antonio Fernández Carbajal
Executive Chairman of the Board

M. Eduardo Padilla Silva
Chief Executive Officer