COCA-COLA FEMSA, S.A.B. de C.V.

United Mexican States

Calle Mario Pani No. 100,
Santa Fe Cuajimalpa,
Cuajimalpa de Morelos,
05348, Ciudad de México,

México

 

 

2017 FOURTH QUARTER AND FULL YEAR RESULTS

Mexico City, February 22, 2018, Coca-Cola FEMSA, S.A.B. de C.V. (BMV: KOFL, NYSE: KOF) (“Coca-Cola FEMSA” or the “Company”), the largest Coca-Cola franchise bottler in the world by sales volume, announces results for the fourth quarter of 2017.

·         Revenues grew 11.6%, while comparable revenues grew 5.7% for the quarter.

·         Operating income increased 5.8%, while comparable operating income grew 13.3% during the quarter.

·         Operating cash flow increased 4.6%, while comparable operating cash flow grew 12.5% for the quarter.

·         As of December 31, 2017, the Company changed the method for reporting Coca-Cola FEMSA de Venezuela to Fair Value. Due to this change, a recorded foreign currency translation charge in equity has been reclassified as a non-cash one-time item to the other non-operative expenses line of the Income Statement in accordance with IFRS. This resulted in a majority net loss of Ps. 24,245 million and a loss per share of Ps. 11.54 for the quarter. On a comparable basis, earnings per share were Ps. 1.85 vs. Ps. 1.39 in the same period of the previous year.

·         Coca-Cola FEMSA de Venezuela will continue operating in Venezuela and its Fair Value will be reported in the investment in shares line of the Balance Sheet of the Company.

 

 

“During 2017, we navigated a complex environment to deliver positive results. Guided by our strategic framework, we delivered revenue and operating income growth of 14.7% and 9.4% respectively. In addition, excluding items impacting comparability, our majority net income increased 34.7%, resulting in earnings per share of Ps. 6.15.

In Mexico, despite unprecedented external challenges, our operation was able to keep its top-line growth on track, continuing the digitization of its value chain, while protecting profitability. In Central America, we successfully implemented initiatives to regain volume growth—positioning our operations for future revenue growth. Furthermore, we remain encouraged by the turnaround of our Brazilian operation, highlighted by volume growth, profitability improvement, and our successful integration of Vonpar, capturing synergies ahead of expectations. Finally, in the Philippines, we closed the year strongly, delivering double-digit volume and transaction growth for the fourth quarter. We enter 2018 fully aware of our markets’ challenges and opportunities. By leveraging our operational and financial discipline, executing the right strategies, and capitalizing on our transformed capabilities, we renew our commitment to deliver sustainable profitable growth for years to come.” said John Santa Maria Otazua, Chief Executive Officer of the Company.

 

 

 

Comparable means, with respect to a year-over-year comparison, the change in a given measure excluding the effects of: (i) mergers, acquisitions and divestitures, (ii) translation effects resulting from exchange rate movements, (iii) the results of hyperinflationary economies in both periods; and (iv) includes the results of Coca-Cola FEMSA Philippines, Inc., as if the consolidation had taken place at the beginning of first quarter 2016. From our operations, only Venezuela qualifies as a hyperinflationary economy. In our “as reported” figures, our Venezuelan operation’s results were translated into Mexican pesos using an exchange rate of 22,793.3 bolivars per US dollar.

Comparable figures:

Revenues: Comparable total revenues grew 5.7% in the fourth quarter of 2017 as compared to the same period of 2016, driven by average price per unit case growth in Mexico and Argentina, coupled with volume growth in Brazil, Central America, the Philippines, and flat performance in Argentina, partially offset by volume declines in the rest of our operations.

Transactions: Comparable number of transactions increased 3.8%. Our sparkling beverage category grew 4.0%, driven by 4.2% growth in brand Coca-Cola and its extensions and 3.3% growth in flavors. Our positive performance in brand Coca-Cola was driven by growth in Central America, Argentina, Brazil, and the Philippines, partially offset by a decline in Mexico and flat performance in Colombia. Our growth in flavors was driven by Argentina, Brazil, and the Philippines, partially offset by flat performance in Mexico and declines in Central America and Colombia. Our still beverage category grew 3.0%, driven mainly by the positive performance of the Philippines and Brazil. Finally, our water category’s transactions increased by 2.5%, driven by growth in Central America, Brazil and the Philippines, partially offset by declines in the rest of our operations.

Volume: Comparable sales volume grew 1.8% in the fourth quarter of 2017 as compared to the same period in 2016. Our sparkling beverage portfolio’s volume increased 1.8%, driven by 1.9% growth in brand Coca-Cola and 1.4% growth in flavors. Our growth in brand Coca-Cola was driven mainly by the performance of Central America, Argentina, Brazil, and the Philippines, while our growth in flavors was driven mainly by positive performance in the Philippines and even volumes in Mexico, Central America, and Brazil. Our still beverage category’s volume increased 2.2%, driven by growth in most of our operations, partially offset by a decline in Colombia. Our personal water portfolio’s volume grew 6.7% due to positive performance in most of our operations. Finally, our bulk water portfolio’s volume declined 1.9%, driven by a decline in Mexico and Colombia, partially offset by growth in the rest of our operations.

Gross profit: Comparable gross profit grew 9.2%. Our pricing initiatives, coupled with lower PET and sweetener prices in most of our operations, offset an unfavorable currency hedging position, higher sweetener and concentrate prices in Mexico, and the depreciation in the average exchange rate of the Argentine Peso and the Philippine Peso as applied to our U.S. dollar-denominated raw material costs.

Operating Income: Comparable operating income grew 13.3% for the fourth quarter of 2017 as compared to the same period of 2016.

Operating cash flow: Comparable operating cash flow increased 12.5% in the fourth quarter of 2017.

 

As reported figures:

Revenues: Total revenues increased 11.6% to Ps. 55,275 million in the fourth quarter of 2017, including the acquisition of Vonpar in Brazil, which was consolidated in December 2016, and the consolidation of our operation in the Philippines, combined with price increase in line with or above inflation in key territories such as Mexico and Argentina and supported by volume growth in Central America, Brazil, the Philippines, and flat performance in Argentina; all despite the negative translation effect resulting from the depreciation of all of our operating currencies as compared to the Mexican Peso.

Transactions: Reported total number of transactions increased 39.6% to 6,958.3 million in the fourth quarter of 2017 as compared to the same period in 2016.

Volume: Reported total sales volume increased 21.6% to 1,033.3 million unit cases in the fourth quarter of 2017 as compared to the same period in 2016.

Gross profit: Gross profit grew 12.0% to Ps. 25,063 million, and gross margin expanded 10 basis points to 45.3%.

(Continued on next page)

 

Press Release 4Q 2017 February 22, 2018

Page 2

 

 

Equity method: The reported share of the profits of associates and joint ventures recorded a loss of Ps. 103 million in the fourth quarter of 2017, compared to a loss of Ps. 275 million recorded in the fourth quarter of 2016. This is mainly due to: (i) a loss in our dairy joint venture in Panama and a loss in the joint venture of Jugos del Valle; (ii) the consolidation of Coca-Cola FEMSA Philippines, Inc., which is no longer included in the equity method as of February 2017; (iii) partially offset by gains in our joint ventures in Brazil.

Operating Income: Operating income increased 5.8% to Ps. 7,584 million, and operating margin contracted 80 basis points to 13.7%, driven mainly by higher labor costs, higher freight costs, and higher diesel and gasoline prices. Due to the consolidation of Coca-Cola FEMSA Philippines in February 2017, the results of this operation are not included in our share of the profit of associates for 2017, as compared to 2016. These effects where partially mitigated by marketing expense efficiencies.

Other non-operative expenses, net: Other non-operative expenses, net, recorded an expense of Ps. 29,090 million, compared to Ps. 346 million during the fourth quarter of 2016, due mainly to the change in the accounting method for our Venezuela operation to a Fair Value approach. Due to this change, according to IFRS standards a Ps. 26,123 million non-cash one-time charge has been reclassified from equity as part of the cumulative translation adjustment within the other comprehensive income to other non-operative expenses of our income statement.

Comprehensive financing result: Comprehensive financing result in the fourth quarter of 2017 recorded an expense of Ps. 1,084 million, compared to an expense of Ps. 1,211 million in the same period of 2016.

During the fourth quarter of 2017, we recorded an interest expense of Ps. 2,001 million, compared to Ps. 2,095 million in the fourth quarter of 2016. This decrease was driven by the decrease of short-term interest rates in Brazil; the average exchange rate depreciation of the Brazilian Real compared to the Mexican Peso as applied to existing Brazilian Real-denominated interest expense; and the reduction of debt in Argentina. However, these effects were partially offset by: (i) interest rate increase in Mexico; (ii) additional debt related to the acquisition of Vonpar; and (iii) the interest rate increase from swapping U.S. dollar-denominated debt to Brazilian Real and Mexican Peso-denominated debt, as part of our strategy to eliminate our U.S. dollar net debt exposure.

In addition, for the fourth quarter, we recorded a foreign exchange gain of Ps. 516 million as compared to a gain of Ps. 66 million in 2016, which was generated as a result of the quarterly depreciation of the Mexican peso as applied to our U.S. dollar-denominated cash position.

During the fourth quarter of 2017, we recorded a gain on monetary position in inflationary subsidiaries of Ps. 460 million as compared to Ps. 838 million during the same period of 2016, related to the impact of the devaluation of the Bolivar during the period in our operation in Venezuela.

Market value on financial instruments recorded a loss of Ps. 310 million as compared to a loss of Ps. 213 million in the fourth quarter of 2016 due to the quarterly increase in long-term interest rates in Brazil as applied to our floating rate cross-currency swaps.

Income tax: During the fourth quarter of 2017, income tax paid was Ps. 1,314 million as compared to Ps. 1,929 million in the same period of 2016. Income tax paid in 2016 was higher in relation to hyperinflationary accounting of our Venezuela operation.

Net income: Consolidated net controlling interest loss is Ps. 24,245 million in the fourth quarter of 2017, as a result of the change in the accounting method for our Venezuela operation, which resulted in the reclassification of a recorded foreign currency translation charge in equity as a non-cash one-time item to the other non-operative expenses line of the Income Statement in accordance with IFRS standards. On a comparable basis, net controlling income grew 34.5% to Ps. 3,894 million for the fourth quarter of 2017, resulting in comparable earnings per share (EPS) of Ps. 1.85 (Ps. 18.54 per ADS).

Operating cash flow: Operating cash flow grew 4.6% to Ps. 11,310 million, and operating cash flow margin contracted 130 basis points to 20.5%.

 

 

Press Release 4Q 2017 February 22, 2018

Page 3

 

 

As of December 31, 2017, we had a cash balance of Ps. 18,767 million, including US$307 million denominated in U.S. dollars, an increase of Ps. 8,291 million as compared to December 31, 2016. As of December 31, 2017, total short-term debt was Ps. 12,171 million, and long-term debt was Ps. 71,189 million. Total debt decreased by Ps. 5,549 million, compared to year-end 2016, due mainly to the positive translation effect resulting from the appreciation of the end-of-period exchange rate of the Mexican Peso as applied to our U.S. dollar-denominated debt position and our cash flow generation during the year. Net debt decreased by Ps. 13,840 million compared to year-end 2016.

 

The weighted average cost of debt for the quarter, including the effect of debt swapped to Brazilian Reals and Mexican Pesos at floating and fixed rates, was 7.78%, a reduction as compared to the third quarter of 2017 due mainly to the reduction of interest rates in Brazil. The following charts set forth the Company’s debt profile by currency and interest rate type and by maturity date as of December 31, 2017.

 

Debt Maturity Profile

 

(1)      See page 18 for detailed information.

(2)      After giving effect to cross currency swaps.

(3)      Calculated by weighting each year’s outstanding debt balance mix.

 

 

 

 

 

Press Release 4Q 2017 February 22, 2018

Page 4

 

(Mexico, Guatemala, Nicaragua, Costa Rica, and Panama)

Comparable means, with respect to a year-over-year comparison, the change in a given measure excluding the effects of: (i) mergers, acquisitions and divestitures, (ii) translation effects resulting from exchange rate movements, (iii) the results of hyperinflationary economies in both periods; and (iv) includes the results of Coca-Cola FEMSA Philippines, Inc., as if the consolidation had taken place at the beginning of first quarter 2016. From our operations, only Venezuela qualifies as a hyperinflationary economy. In our “as reported” figures, our Venezuelan operation’s results were translated into Mexican pesos using an exchange rate of 22,793.3 bolivars per US dollar.

 

Comparable figures:

Revenues: Comparable total revenues from our Mexico and Central America division increased 4.5% in the fourth quarter of 2017, compared to the same period in 2016, driven by an increase in average price per unit case in Mexico and volume growth in Central America, partially offset by volume decline in Mexico.

Transactions: Total transactions in our Mexico and Central America division declined 1.8% in the fourth quarter of 2017. Our sparkling beverage portfolio’s transactions contracted 1.5%, driven mainly by a 2.5% decline in brand Coca-Cola in Mexico, partially offset by 4.8% growth in Central America. In flavors, our division’s flat performance was driven by even performance in Mexico, partially offset by a decline in Central America. Our still beverage category’s transactions decreased 3.0% in the division, while our water transactions, including bulk water, declined 4.3%, driven mainly by a decline in Mexico, partially offset by 3.2% growth in Central America.

Volume: Total sales volume for the division decreased 1.4% in the fourth quarter of 2017, compared to the same period of 2016. Our sparkling beverage category’s volume declined 1.3%, driven by a 1.6% decline in brand Coca-Cola and flat performance in flavors. Our performance in brand Coca-Cola was driven mainly by a 2.5% decline in Mexico, partially offset by 6.8% growth in Central America, while our performance in flavors was driven by both Mexico and Central America. Our still beverage category’s volume remained flat, driven by growth in Central America, offset by a slight decline in Mexico. Our personal water portfolio’s volume declined 1.4%, driven by a decline in Mexico, partially offset by positive performance in Central America. Our bulk water portfolio’s volume declined 2.6% in the division due to a contraction in Mexico, partially offset by growth in Central America.

Gross profit: Comparable gross profit grew 1.6% in the fourth quarter of 2017 as compared to the same period in 2016. In Mexico, our pricing initiatives, lower PET prices, and the appreciation of the average exchange rate of the Mexican Peso as applied to U.S. dollar-denominated raw material costs were offset by the increase of concentrate cost, higher prices of sweeteners, and an unfavorable currency hedging position. In Central America, lower sweetener and PET prices were offset by price-mix effect and the depreciation of the average exchange rates of the Costa Rican Colon and the Nicaraguan Cordoba as applied to U.S. dollar-denominated raw material costs.

Operating income: Comparable operating income in the division decreased 15.1% in the fourth quarter of 2017 as compared to the same period in 2016.

Operating cash flow: Comparable operating cash flow decreased 3.7% in the fourth quarter of 2017 as compared to the same period in 2016.

 

As reported figures:

Revenues: Reported total revenues increased 3.5% in the fourth quarter of 2017 as compared to the same period of 2016.

Gross profit: Reported gross profit increased 0.7% in the fourth quarter of 2017, and gross profit margin reached 47.9%, a gross margin contraction of 130 basis points.

Operating income: Reported operating income decreased 10.6% in the fourth quarter of 2017, and operating income margin reached 13.6%, contracting 220 basis points during the period, due mainly to an increase in freight expenses, higher diesel and gasoline prices in Mexico, and higher labor costs and depreciation in Central America. In addition, due to the consolidation of Coca-Cola FEMSA Philippines, the results of this operation are not included in the share of the profit of associates for 2017, as compared to 2016.

Operating cash flow: Reported operating cash flow decreased 4.5% in the fourth quarter of 2017, resulting in a margin contraction of 170 basis points, reaching 20.9%.

 

 

Press Release 4Q 2017 February 22, 2018

Page 5

 

(Colombia, Venezuela, Brazil, and Argentina)

Comparable means, with respect to a year-over-year comparison, the change in a given measure excluding the effects of: (i) mergers, acquisitions and divestitures, (ii) translation effects resulting from exchange rate movements, (iii) the results of hyperinflationary economies in both periods; and (iv) includes the results of Coca-Cola FEMSA Philippines, Inc., as if the consolidation had taken place at the beginning of first quarter 2016. From our operations, only Venezuela qualifies as a hyperinflationary economy. In our “as reported” figures, our Venezuelan operation’s results were translated into Mexican pesos using an exchange rate of 22,793.3 bolivars per US dollar.

 

Comparable figures:

Revenues: Comparable total revenues increased 5.1%, driven mainly by volume growth in Brazil and flat performance in Argentina, coupled with an average price per unit case increase in Argentina, which was partially offset by a volume decline in Colombia.

Transactions: Comparable transactions in the division increased 2.6% during the fourth quarter of 2017. Our sparkling beverage portfolio’s transactions increased 3.4%, driven by 6.4% growth in brand Coca-Cola and its extensions, partially offset by a 5.7% contraction in flavors. Our positive performance in brand Coca-Cola was driven by growth in Argentina and Brazil, coupled with even performance in Colombia. However, flavor’s negative performance was driven by Colombia, partially offset by growth in Argentina and Brazil. Our still beverage category’s transactions decreased 2.4%; growth in Brazil was offset by a decline in Argentina and Colombia. Our water transactions, including bulk water, increased 0.8%, driven by growth in Brazil, partially offset by declines in Argentina and Colombia.

Volume: Comparable total sales volume in South America grew 2.0% during the fourth quarter of 2017 as compared to the same period of 2016. Our sparkling beverage category’s volume increased 1.8%, driven by 3.9% growth in brand Coca-Cola and its extensions, which was partially offset by a 4.7% decline in flavors. Brand Coca-Cola positive performance was driven by growth in Argentina and Brazil, while our decline in flavors was driven mainly by Colombia. Our still beverage category’s volume increased 0.6%, driven by growth in Argentina and Brazil, partially offset by a decline in Colombia. Our personal water category’s volume increased 12.4%, driven by growth in Brazil and Colombia, partially offset by a decline in Argentina. Our bulk water business’s volume declined 17.3%, driven by a decline in Colombia, partially offset by growth in Argentina and Brazil.

Gross profit: Comparable gross profit increased 15.0% as a result of lower PET and sweetener prices and the appreciation of the Brazilian Real and the Colombian Peso as applied to U.S. dollar-denominated raw material costs, which offset higher aluminum prices and the depreciation of the average exchange rate of the Argentine Peso as applied to U.S. dollar-denominated raw material costs.

Operating income: Comparable operating income in the division increased 38.5% as compared to the same period in 2016.

Operating cash flow: Comparable operating cash flow increased 30.5% as compared to the same period of 2016.

As reported figures:

Revenues: Reported total revenues declined 4.3% to Ps. 25,784 million in the fourth quarter of 2017, driven by volume decline in Colombia and Venezuela and the negative translation effect resulting from the depreciation of all operating currencies as compared to the Mexican Peso, mainly the Venezuelan Bolivar. These effects were partially offset by the integration of Vonpar in Brazil, coupled with price increases aligned with inflation in Argentina, volume growth in Brazil, and flat performance in Argentina.

Transactions: Reported total number of transactions increased 8.8% to 2,360.1 million in the fourth quarter of 2017 as compared to the same period in 2016.

Volume: Reported total sales volume increased 8.7% to 378.2 million unit cases in the fourth quarter of 2017 as compared to the same period in 2016.

Gross profit: Reported gross profit increased 1.4% to Ps. 11,425 million in the fourth quarter of 2017, and gross profit margin expanded 250 basis points to 44.3%.

Operating income: Reported operating income grew 14.7% to Ps. 4,137 million in the fourth quarter of 2017, resulting in a margin of 16.0%, an expansion of 260 basis points.

Operating cash flow: Reported operating cash flow declined 2.8% to reach Ps. 5,543 million in the fourth quarter of 2017, resulting in a margin of 21.5%, an expansion of 30 basis points.

 

 

Press Release 4Q 2017 February 22, 2018

Page 6

 

(The Philippines)

Comparable means, with respect to a year-over-year comparison, the change in a given measure excluding the effects of: (i) mergers, acquisitions and divestitures, (ii) translation effects resulting from exchange rate movements, (iii) the results of hyperinflationary economies in both periods; and (iv) includes the results of Coca-Cola FEMSA Philippines, Inc., as if the consolidation had taken place at the beginning of first quarter 2016. From our operations, only Venezuela qualifies as a hyperinflationary economy. In our “as reported” figures, our Venezuelan operation’s results were translated into Mexican pesos using an exchange rate of 22,793.3 bolivars per US dollar.

 

Comparable figures:

Revenues: Comparable total revenues increased 13.7% during the fourth quarter of 2017, driven by volume growth.

Transactions: Comparable transactions increased 15.3% in the fourth quarter of 2017. Our sparkling beverage portfolio’s transactions increased 13.8%. Our still beverage category’s transactions increased by 26.9%. Our water transactions, including bulk water, increased 28.8%.

Volume: Comparable total sales volume increased 12.6% in the fourth quarter of 2017. Our sparkling beverage category’s volume grew 12.4%, driven by 10.9% growth in brand Coca-Cola and 15.2% growth in flavors. Our still beverage category’s volume, excluding powders, increased 32.6%. Our personal water category’s volume increased 21.4%. Our bulk water business’s volume grew 17.6%.

Gross profit: Comparable gross profit increased 25.0% as compared to the same period of 2016, driven mainly by lower prices of sweeteners and PET resin, partially offset by the devaluation of the Philippine Peso as applied to our U.S. dollar-denominated raw material costs.

Operating income: Comparable operating income increased to Ps. 265 million during the fourth quarter of 2017.

Operating cash flow: Comparable operating cash flow increased 35.4% as compared to the same period of 2016.

 

 

Press Release 4Q 2017 February 22, 2018

Page 7

 

Comparable means, with respect to a year-over-year comparison, the change in a given measure excluding the effects of: (i) mergers, acquisitions and divestitures, (ii) translation effects resulting from exchange rate movements, (iii) the results of hyperinflationary economies in both periods; and (iv) includes the results of Coca-Cola FEMSA Philippines, Inc., as if the consolidation had taken place at the beginning of first quarter 2016. From our operations, only Venezuela qualifies as a hyperinflationary economy. In our “as reported” figures, our Venezuelan operation’s results were translated into Mexican pesos using an exchange rate of 22,793.3 bolivars per US dollar.

Comparable figures:

Revenues: Comparable total revenues grew 3.6%, driven by average price per unit case growth across most of our operations, volume growth in the Philippines, and flat volume performance in Mexico and Central America, which was partially offset by volume declines in South America.

Transactions: Comparable number of transactions declined 1.4%. Our sparkling beverage portfolio’s transactions declined 1.5%, driven by most operations, partially offset by growth in Argentina and the Philippines. Our brand Coca-Cola portfolio declined 0.5%; growth in Argentina and the Philippines, coupled with a flat performance in Brazil, was offset by declines in the rest of our operations. Our flavors portfolio declined 4.3%, driven by most operations, partially offset by growth in Argentina and flat performance in the Philippines. Our still beverage category’s transactions decreased 2.1%; growth in Mexico, Argentina, and the Philippines was offset mainly by Colombia. Our water transactions, including bulk water, remained flat, driven by growth in Mexico and the Philippines, offset by the rest of our operations.

Volume: Comparable sales volume contracted 1.5% in 2017 as compared to 2016. Our sparkling beverage portfolio’s volume declined 1.7%, driven by most operations, partially offset by growth in the Philippines. Our brand Coca-Cola portfolio declined 1.4%, while our flavors portfolio declined 2.6%. Our still beverage category’s volume declined 2.6%; growth in Mexico, Argentina, and flat performance in Central America was offset by Brazil, Colombia, and the Philippines. Our personal water portfolio’s volume increased 0.9%, driven mainly by growth in Mexico, Central America, and the Philippines, partially offset by contractions in South America. Our bulk water portfolio’s volume declined 0.7%; growth in Argentina, Brazil, and the Philippines was offset by flat volume in Mexico and a decline in Colombia.

Gross profit: Comparable gross profit grew 6.1%. Our pricing initiatives, coupled with our currency and raw material hedging strategies, offset higher sweetener and concentrate prices in Mexico and the depreciation in the average exchange rate of the Mexican Peso, the Argentine Peso, and the Philippine Peso as applied to U.S dollar-denominated raw material costs.

Operating Income: Comparable operating income grew 6.2% in the full year of 2017.

Operating cash flow: Comparable operating cash flow increased 5.9% in the full year of 2017.

 

As reported figures:

Revenues: Total revenues increased 14.7% to Ps. 203,780 million for the full year of 2017, including the results of the Vonpar acquisition in Brazil and the consolidation of our operation in the Philippines beginning in February. Total revenues were also driven by price increases aligned with or above inflation in key territories, supported by the positive translation effect resulting from the appreciation of the Brazilian Real and the Colombian Peso, despite the depreciation of the Argentine Peso, the Philippine Peso, and the Venezuelan Bolivar; all as compared to the Mexican Peso.

Transactions: Reported total number of transactions increased 30.9% to 25,875.3 million in 2017 as compared to 2016.

Volume: Reported total sales volume increased 16.1% to 3,870.6 million unit cases in 2017 as compared to 2016.

Gross profit: Gross profit grew 15.1% to Ps. 91,686 million, and gross margin expanded 20 basis points to 45.0%.

Equity method: The reported share of the profits of associates and joint ventures recorded a loss of Ps. 98 million in 2017, compared to a gain of Ps. 43 million recorded in 2016. This is due to: (i) the consolidation of Coca-Cola FEMSA Philippines, Inc., which is no longer included in the equity method as of February 2017; (ii) a loss in our dairy joint venture in Panama and a loss in Jugos del Valle; and (iii) gains in our joint ventures in Brazil.

(Continued on next page)

 

 

Press Release 4Q 2017 February 22, 2018

Page 8

 

 

Operating Income: Operating income increased 9.4% to Ps. 26,175 million, and operating margin contracted 70 basis points to 12.8%, due mainly to an increase in labor costs, freight, diesel and gasoline prices and other operative expenses, partially offset by an operative foreign exchange gain.

Other non-operative expenses, net: Other non-operative expenses, net, recorded an expense of Ps. 28,158 million in 2017, compared to expenses of Ps. 3,489 million during 2016, due mainly to the change in the accounting method for our Venezuela operation to a Fair Value approach. Due to this change, according to IFRS standards a Ps. 26,123 million non-cash one-time charge has been reclassified from equity as part of the cumulative translation adjustment within the other comprehensive income to other non-operative expenses of our income statement. This effect was partially offset by income related to the consolidation of Coca-Cola FEMSA Philippines.

Comprehensive financing result: Our comprehensive financing result in the full year of 2017 recorded an expense of Ps. 5,276 million, compared to an expense of Ps. 6,080 million in 2016.

During 2017, we recorded an interest expense of Ps. 8,809 million, compared to Ps. 7,471 million in 2016. This increase was driven by: (i) the interest rate increase from swapping U.S. dollar-denominated debt to Brazilian Real and Mexican Peso-denominated debt, as part of our strategy to eliminate our U.S, dollar net debt exposure; (ii) additional debt related to the acquisition of Vonpar; (iii) the average exchange rate appreciation of the Brazilian Real compared to the Mexican Peso as applied to our existing Brazilian Real-denominated interest expense; and (iv) the interest rate increase in Mexico. These effects were partially offset by the decrease of interest rates in Brazil and the reduction of debt in Argentina.

In addition, in 2017, we recorded a foreign exchange gain of Ps. 810 million as compared to a loss of Ps. 1,792 million in 2016, which resulted from the depreciation of the Mexican peso as applied to our U.S. dollar-denominated net debt position in 2016.

During 2017, we recorded a gain on monetary position in inflationary subsidiaries of Ps. 1,591 million as compared to Ps. 2,417 million during 2016 related to our operation in Venezuela.

Market value on financial instruments recorded a gain of Ps. 246 million due to the annual decrease of long-term interest rates in Brazil as applied to our floating rate cross-currency swaps.

Income tax: During 2017, income tax paid was Ps. 4,554 as compared to Ps. 3,928 million in 2016.

Net income: Consolidated net controlling interest loss was Ps. 12,802 million during 2017, mainly as a result of the change in the accounting method for our Venezuela operation, which resulted in the reclassification of an accumulated non-cash item as a one-time charge to the other non-operative expenses line of the Income Statement in accordance with IFRS standards. On a comparable basis, controlling net income grew 34.7% to Ps. 12,859 million during 2017, resulting in comparable earnings per share (EPS) of Ps. 6.15 (Ps. 61.49 per ADS).

Operating cash flow: Operating cash flow grew 11.4% to Ps. 39,546 million, and operating cash flow margin contracted 60 basis points to 19.4%.

 

 

 

 

Press Release 4Q 2017 February 22, 2018

Page 9

 

 

·         On February 21, 2018, Coca-Cola FEMSA’s Board of Directors agreed to propose for approval at the annual Shareholders meeting to be held on March 9, 2017, an ordinary dividend of Ps. 3.35 per share to be paid in two installments in May and November of 2018.

Our fourth quarter 2017 conference call will be held on February 22, 2018, at 11:00 A.M. Eastern Time (10:00 A.M. Mexico City Time). To participate in the conference call, please dial: Domestic U.S.: 888-318-7469 or International: 719-457-2695. Participant code: 6702196. We invite investors to listen to the live audio cast of the conference call on the Company’s website, www.coca-colafemsa.com. If you are unable to participate live, the conference call audio will be available at www.coca-colafemsa.com.

Coca-Cola FEMSA encourages the reader to refer to our quarterly filing to the Mexican Stock Exchange (Bolsa Mexicana de Valores or BMV) for more detailed information. This filing contains a detailed cash flow statement and selected notes to the financial statements, including segment information. This filing is available at www.bmv.com.mx in the Información Financiera section for Coca-Cola FEMSA (KOF) and on our corporate website at www.coca-colafemsa.com/inversionistas/registros-bmv.

 

 

Press Release 4Q 2017 February 22, 2018

Page 10

 

This news release may contain forward-looking statements concerning Coca-Cola FEMSA’s future performance, which should be considered as good faith estimates by Coca-Cola FEMSA. These forward-looking statements reflect management’s expectations and are based upon currently available data. Actual results are subject to future events and uncertainties, many of which are outside Coca-Cola FEMSA’s control, which could materially impact the Company’s actual performance. References herein to “US$” are to United States dollars. This news release contains translations of certain Mexican peso amounts into U.S. dollars for the convenience of the reader. These translations should not be construed as representations that Mexican peso amounts actually represent such U.S. dollar amounts or could be converted into U.S. dollars at the rate indicated.

All the financial information presented in this report was prepared under International Financial Reporting Standards (IFRS).

In an effort to provide our readers with a more useful representation of our company's underlying financial and operating performance, we are including the term “Comparable.” This means, with respect to a year-over-year comparison, the change in a given measure excluding the effects of: (i) mergers, acquisitions and divestitures, (ii) translation effects resulting from exchange rate movements, (iii) the results of hyperinflationary economies in both periods, and (iv) includes the results of Coca-Cola FEMSA Philippines, Inc., as if the consolidation had taken place at the beginning of the first quarter of 2016. Currently, the only operation that qualifies as a hyperinflationary economy is Venezuela. In preparing this measure, management has used its best judgment, estimates, and assumptions in order to maintain comparability.

As a result of additional KOF L shares issued in May 2017, full year earnings per share were computed based on 2,091.4 million shares, the weighted average outstanding shares over the period. At the end of December 2017, total outstanding shares were 2,100.8 million shares (each ADS represents 10 local shares).

For reporting purposes, all corporate expenses, including the equity method recorded from our stake of the results of Coca-Cola FEMSA Philippines, Inc., were included in the results of the Mexico and Central America division. Starting on February 2013 and ending on January 2017, we incorporated our stake of the results of Coca-Cola FEMSA Philippines, Inc. through the equity method.

 

Stock listing information: Mexican Stock Exchange, Ticker: KOFL | NYSE (ADR), Ticker: KOF | Ratio of KOF L to KOF = 10:1

 

Coca-Cola FEMSA, S.A.B. de C.V. is the largest Coca-Cola franchise bottler in the world by sales volume. The company produces and distributes trademark beverages of The Coca-Cola Company, offering a wide portfolio of 154 brands to more than 375 million consumers daily. With over 100 thousand employees, the company markets and sells approximately 4 billion unit cases through 2.8 million points of sale a year. Operating 66 manufacturing plants and 328 distribution centers, Coca-Cola FEMSA is committed to generating economic, social, and environmental value for all of its stakeholders across the value chain.  The company is a member of the Dow Jones Sustainability Emerging Markets Index, FTSE4Good Emerging Index, and the Mexican Stock Exchange’s IPC and Social Responsibility and Sustainability Indices, among other indexes.  Its operations encompass franchise territories in Mexico, Brazil, Colombia, Argentina, and Guatemala and, nationwide, in the Philippines, Venezuela, Nicaragua, Costa Rica, and Panama. For more information, please visit www.coca-colafemsa.com.

 

For additional information or inquiries, contact the Investor Relations team:

·         Maria Dyla Castro | mariadyla.castro@kof.com.mx | (5255) 1519-5186

·         Jorge Collazo | jorge.collazo@kof.com.mx | (5255) 1519-5218

·         Tania Ramírez | tania.ramirez@kof.com.mx | (5255) 1519-5013

 

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