FEMSA FY2022 Form 20-F Summary
Period and basis: This is an annual report for the fiscal year ended December 31, 2022, filed April 21, 2023—not a standalone fourth-quarter report. FEMSA reports in Mexican pesos and prepares its audited consolidated financial statements under IFRS as issued by the IASB. Unless indicated otherwise, amounts below are in millions of Mexican pesos (Ps.).
Business context
FEMSA operates Coca-Cola FEMSA, retail businesses in the Americas and Europe, pharmacies, fuel stations, logistics and distribution, and other businesses. Mexico generated 62.05% of consolidated revenue in 2022. Valora’s European retail business was consolidated only from its October 2022 acquisition date, so its reported contribution is not comparable to a full year.
Key financial metrics
| Metric | 2022 | 2021 | Change or context |
|---|---|---|---|
| Total revenue | 673,202 | 556,261 | Up 21.0% |
| Gross profit / gross margin | 251,668 / 37.4% | 213,713 / 38.4% | Profit up 17.8%; margin down 100 basis points |
| Administrative expenses | 34,486 | 27,219 | Up 26.7%; 5.1% of revenue versus 4.9% |
| Selling expenses | 157,340 | 134,079 | Up 17.3%; 23.4% of revenue versus 24.1% |
| Income before tax and equity-method earnings | 41,680 | 41,191 | Up 1.2% |
| Consolidated net income | 34,743 | 37,678 | Down 7.8%; controlling-interest income was 23,909 versus 28,495 |
| Net cash from operating activities | 72,576 | 73,090 | Down 0.7% |
| Capital expenditures | 34,410 | 24,055 | Up 43.0% |
| Cash and cash equivalents at year-end | 83,439 | 97,407 | Down 14.3% |
| Consolidated debt | 191,741 | 190,585 | Short-term, including current maturities, was 18,341; long-term was 173,400 |
Net cash used in investing activities was Ps. 46,432 million and net cash used in financing activities was Ps. 35,898 million. Dividends paid were Ps. 17,506 million. The year-end current assets of Ps. 226,449 million exceeded current liabilities of Ps. 176,922 million. Debt less cash was approximately Ps. 108,302 million; this comparison excludes lease liabilities, which were Ps. 93,317 million on the balance sheet. The average cost of borrowing, after specified swaps, was approximately 6.0%, up from 4.8%.
Business performance and changes from 2021
- Coca-Cola FEMSA revenue rose 16.4% to Ps. 226,740 million; sales volume increased 8.6% and gross margin declined 130 basis points to 44.2%. Management cited pricing and mix gains alongside higher concentrate and packaging costs.
- Proximity Americas revenue increased 17.8% to Ps. 233,958 million. OXXO same-store sales rose 14.3%, and the division added 1,027 net stores, ending the year with 21,458.
- Health Division revenue rose 2.4% to Ps. 74,800 million, including 434 net new locations; same-store sales fell 1.0%. Fuel Division revenue rose 29.8% to Ps. 51,813 million, with same-station sales up 22.4%.
- Logistics and Distribution revenue increased 49.8% to Ps. 72,539 million, substantially reflecting acquisitions. Proximity Europe contributed Ps. 9,809 million for the partial year following the Valora acquisition.
- Consolidated net income fell despite stronger top-line and operating results. Management attributed the decline mainly to a negative foreign-exchange swing on FEMSA’s U.S.-dollar cash position, lower other income versus 2021 (which included Jetro Restaurant Depot dividends), and a smaller contribution from equity-method investees, principally Heineken.
Outlook, strategy, risks and unusual items
- FEMSA Forward: Announced in February 2023, the initiative prioritizes retail, Coca-Cola FEMSA and digital; plans to divest the Heineken investment; and calls for exploring alternatives for Envoy Solutions and other non-core interests, reducing debt and returning excess capital to shareholders. These are subsequent developments, not 2022 results.
- Capital spending outlook: The company budgeted Ps. 49,853 million of 2023 capital expenditures. This is a budget subject to change, not earnings or revenue guidance. No clear consolidated revenue or profit forecast is provided in the filing text.
- Heineken transactions: In February 2023 FEMSA sold Heineken shares for approximately €3.2 billion and issued €500 million of exchangeable bonds. Its combined economic interest declined from 14.76% to 8.13%; FEMSA said it expects to divest the remaining interest. It also completed a March 2023 tender offer to repurchase approximately €666 million and US$1.09 billion of bonds to reduce indebtedness.
- Contingencies: Recorded tax, legal and labor provisions totaled Ps. 4,685 million. Separately, Ps. 119,728 million of contingencies were classified as more than remote but less than probable and were not reserved. Coca-Cola FEMSA had Ps. 13,728 million of Brazilian tax contingencies collateralized. FEMSA stated that it did not expect the pending proceedings to have a material consolidated effect; outcomes and timing remain uncertain.
- Principal risks: Exposure includes inflation and rising input costs, foreign-exchange and interest-rate movements, supply-chain disruption, water availability, climate and environmental regulation, competition, cybersecurity and data privacy, changing consumer preferences, and reliance on Coca-Cola Company bottler agreements and authorized inputs. Other risks include acquisitions and integration, country-specific political and regulatory conditions, and fuel-safety and environmental incidents.
- Unusual accounting and reporting matters: Argentina was treated as hyperinflationary. The filing reports Ps. 833 million of impairment losses in 2022, including Ps. 770 million related to the Health Division in Ecuador. Acquisition accounting for Valora and certain Envoy businesses was preliminary. The financial statements received an unqualified audit opinion; management and the auditor reported effective internal control, but the assessment excluded specified recent acquisitions, including Valora.
Important facts for investors to verify
- Review the audited statements and notes for debt maturities, covenant headroom, lease obligations, and the effect of the March 2023 bond tender on current debt and liquidity.
- Assess the quality and persistence of revenue growth, including pricing versus volume, margin pressure, acquisition contributions, and Valora’s full-year results in subsequent periods.
- Track the final purchase-price allocations and subsequent operating performance of Valora and Envoy acquisitions, as well as impairment assumptions and goodwill sensitivity.
- Follow the Heineken divestment, exchangeable-bond terms, use of proceeds, and changes to FEMSA’s equity-method earnings and debt.
- Evaluate the Ps. 119,728 million of unreserved contingencies, including Brazilian tax disputes, and any changes in legal assessments or collateral requirements.
- Confirm execution and funding of the 2023 capital-expenditure budget, and whether the stated strategic review and capital-return plans are completed.
- Consider governance and control structure: the voting trust held 74.86% of Series B shares as of March 31, 2023; Series D shares have limited voting rights.