Business context and reporting period
Fomento Económico Mexicano, S.A.B. de C.V. (FEMSA; NYSE: FMX) filed this Form 20-F on April 14, 2022, covering the fiscal year ended December 31, 2021—not a standalone fourth quarter. FEMSA is a diversified holding company with Coca-Cola FEMSA bottling, OXXO proximity retail, health and fuel businesses, Logistics and Distribution, and a 14.76% economic interest in Heineken. Financial statements are audited and prepared under IFRS in nominal Mexican pesos (Ps.), except where stated otherwise.
Key financial metrics
Amounts are in millions of Mexican pesos unless otherwise noted.
| Metric | 2021 | 2020 | Change or context |
|---|---|---|---|
| Total revenue | 556,261 | 492,966 | Up 12.8% |
| Gross profit | 213,713 | 189,653 | Up 12.7%; gross margin 38.4%, down 0.1 percentage point |
| Income before tax | 41,191 | 19,311 | More than doubled |
| Income tax expense | 14,278 | 14,819 | Effective tax rate 34.7% versus 76.7% |
| Consolidated net income | 37,678 | 3,756 | Includes a substantial recovery in equity-accounted investee earnings |
| Net income attributable to FEMSA controlling interest | 28,495 | (1,930) | Returned to profit |
| Interest expense | 16,938 | 17,516 | Down 3.3% |
| Cash from operating activities | 73,090 | 53,173 | Up 37.5% |
| Cash used in investing activities | (46,175) | (31,367) | Higher investment outflows |
| Cash used in financing activities | (36,989) | 19,575 provided | Shift to net financing outflow |
| Capital expenditures | 24,055 | 20,893 | Up 15.1% |
| Cash and cash equivalents | 97,407 | 107,624 | Down 9.5% |
| Total debt | 190,585 | 188,665 | Up 1.0%; Ps. 4,640 short-term, including current maturities |
Debt less cash was approximately Ps. 93,178 million. Current assets were Ps. 230,718 million and current liabilities Ps. 136,723 million. Lease liabilities were separately reported at Ps. 62,355 million, including current and non-current portions. The filing does not present a single consolidated EBITDA figure in the supplied text.
Segment performance
- Coca-Cola FEMSA: revenue Ps. 194,804 million, up 6.1%; sales volume rose 5.3%. Gross profit increased 7.0%, and gross margin improved 0.4 percentage point to 45.5%.
- Proximity Division: revenue Ps. 198,586 million, up 9.5%; same-store sales grew 7.7%, and 865 net OXXO stores were added.
- Health Division: revenue Ps. 73,027 million, up 12.1%; same-store sales rose 9.5%, with 284 net new drugstores.
- Fuel Division: revenue Ps. 39,922 million, up 16.3%; same-station sales increased 12.9%, primarily reflecting a 12.0% increase in average price per liter.
- Logistics and Distribution: revenue Ps. 48,412 million, up 53.4% on the reported comparison base, including acquisitions. FEMSA began reporting it as a separate segment in 2021.
Material changes versus the prior comparable period
- Results improved as customer mobility and operating conditions recovered from pandemic restrictions. FEMSA reported growth across its major operating divisions, while noting ongoing uncertainty from COVID-19.
- Consolidated net income benefited from Ps. 10,765 million of equity-accounted investee profit in 2021, compared with a Ps. 736 million loss in 2020. Heineken was the principal contributor; its 2021 results included an exceptional fair-value gain.
- The 2020 comparison was burdened by impairments and an extraordinary Mexican tax settlement. FEMSA recorded Ps. 3,727 million of other expenses in 2021 versus Ps. 12,381 million in 2020; 2020 included impairments and charges associated with the tax agreement.
- Operating cash flow rose, but investing cash outflow increased, including Ps. 9,612 million net cash paid for 2021 Envoy Solutions acquisitions. Financing cash flow swung from an inflow in 2020 to an outflow in 2021.
- FEMSA introduced Logistics and Distribution as a reportable segment and reallocated a small fuel business; prior segment information was revised for comparability. The 2021 segment mix also reflects multiple acquisitions.
Outlook, management commentary, risks and unusual items
- Capital spending: FEMSA budgeted Ps. 34,834 million for 2022. This is a budget, subject to market conditions, pandemic developments, operating results and available resources. Coca-Cola FEMSA separately budgeted Ps. 18,374 million and expected to fund it with internally generated cash.
- Dividend: Shareholders approved a Ps. 11,358 million cash dividend for fiscal 2021, payable in two installments on May 5 and November 7, 2022. Future dividends are not assured and depend on subsidiary distributions, results and liquidity.
- Sustainability-linked debt: Coca-Cola FEMSA issued Ps. 9,400 million of bonds in 2021 tied to water-use targets of 1.36 liters per liter of beverage by 2024 and 1.26 by 2026. Missing the verified targets would increase the applicable coupon by 25 basis points.
- Acquisitions and integration: Envoy Solutions expanded through several 2021 acquisitions. Management identified integration, execution, customer retention and profitability as risks. Acquired businesses representing 1.6% of assets and 0.4% of 2021 revenue were excluded from management’s internal-control assessment.
- Key business risks: reliance on Coca-Cola Company bottler agreements and concentrate supply; raw-material, energy and supply-chain costs; currency and interest-rate volatility; water availability; regulation and taxes; competition and changing consumer preferences; climate and environmental requirements; cybersecurity; and the ongoing effects of COVID-19. FEMSA also cited indirect exposure to the Russia-Ukraine conflict through costs, supply chains and Heineken.
- Contingencies: Recorded loss contingencies totaled Ps. 5,589 million (Ps. 2,845 million indirect tax, Ps. 1,807 million labor and Ps. 937 million legal). Additional contingencies assessed as more than remote but less than probable, for which no reserve was recorded, totaled Ps. 108,481 million. Brazilian tax contingencies of Ps. 10,721 million were collateralized. Management stated that it did not expect pending proceedings, individually or in aggregate, to have a material adverse effect; outcomes remain uncertain.
- Audit and controls: The auditor issued an unqualified opinion on the financial statements, and management and the auditor concluded internal control over financial reporting was effective as of year-end. The audit’s critical matters included impairment testing of intangible assets, distribution rights and goodwill, and recoverability of deferred tax assets.
Important facts for investors to verify
- Reconcile reported revenue growth, segment restatements and the filing’s stated comparable-basis Coca-Cola FEMSA revenue decline; confirm the definition and currency effects used in that comparison.
- Assess the sustainability of 2021 earnings by separating recurring operating performance from Heineken’s equity-accounted contribution, its exceptional gain, and the unusually high 2020 tax and impairment charges.
- Review debt maturities, lease obligations, currency exposures and cash held in subsidiaries, including the effect of restrictions on transferring cash between countries.
- Evaluate the Ps. 108,481 million of unreserved contingencies, the collateral supporting Brazilian tax cases and any subsequent changes in management’s loss assessments.
- Track performance and integration of Envoy Solutions acquisitions, the 2022 capital-spending plan, and progress toward Coca-Cola FEMSA’s water targets and associated bond terms.
- Review the audited financial statements and notes for detailed cash-flow, debt, segment, impairment and tax disclosures; 2021 results include acquisitions and revised segment presentation.