Coca-Cola FEMSA, S.A.B. de C.V. — 2021 Form 20-F
Reporting period: Fiscal year ended December 31, 2021; filed April 8, 2022. This is an annual report, not a standalone fourth-quarter filing, and the supplied filing text does not provide clear Q4-only financial results. Financial statements are prepared under IFRS and reported primarily in nominal Mexican pesos (Ps.).
Business context
Coca-Cola FEMSA is the world’s largest Coca-Cola franchise bottler by volume. It produces, markets and distributes beverages across Mexico, Central America, Colombia, Brazil, Argentina and Uruguay, and has an investment in Venezuela. Mexico and Brazil together represented approximately 75.9% of 2021 revenue. FEMSA and The Coca-Cola Company held approximately 47.2% and 27.8% of capital stock, respectively, and together exert substantial influence over the company.
Key financial and operating metrics
| Metric (Ps. millions unless noted) | 2021 | 2020 | Change |
|---|---|---|---|
| Total revenues | 194,804 | 183,615 | +6.1% |
| Gross profit | 88,598 | 82,811 | +7.0% |
| Gross margin | 45.5% | 45.1% | +0.4 percentage points |
| Consolidated net income | 16,331 | 10,368 | +57.5% |
| Net income attributable to parent shareholders | 15,708 | 10,307 | +52.4% |
| Basic and diluted EPS (Ps. per share) | 0.93 | 0.61 | — |
| Cash generated from operating activities | 32,721 | 35,147 | −6.9% |
| Cash used in investing activities | (9,547) | (10,508) | — |
| Cash used in / provided by financing activities | (20,263) | 417 | — |
| Cash and cash equivalents at year-end | 47,248 | 43,497 | +8.6% |
| Total indebtedness at year-end | 85,782 | 87,478 | −1,695 |
| Capital expenditures, net | 13,865 | 10,354 | +33.9% |
Volume rose 5.3% to 3,457.9 million unit cases; average price per unit case increased 7.4% to Ps.53.0. On a comparable basis excluding currency translation effects, management reported revenue growth of 11.1% and average price-per-case growth of 9.0%. Operating margin is not clearly stated in the filing’s summarized results. Year-end cash less total indebtedness was approximately Ps.38.5 billion, calculated from reported balances.
Mexico and Central America generated Ps.115,794 million of revenue and Ps.57,366 million of gross profit; South America generated Ps.79,010 million and Ps.31,232 million, respectively. South America’s gross margin was 39.5%, up 0.6 percentage points; Mexico and Central America’s gross margin was unchanged. Segment revenue growth was 8.4% and 2.8%, respectively.
Material changes versus 2020
- Revenue and volume recovered as mobility increased and markets gradually reopened; still beverages and bottled water, excluding bulk water, grew 18.9% and 18.3%, respectively.
- Gross margin expanded 40 basis points, supported by pricing, favorable mix, hedging and resumed Brazilian concentrate tax credits, partly offset by higher input and concentrate costs.
- Parent-attributable net income increased 52.4%, reflecting stronger operating results and a lower comprehensive financing expense. That expense fell to Ps.4,219 million from Ps.6,679 million, partly because 2020 included a one-time charge relating to repurchase and redemption of 2023 notes.
- Administrative and selling expenses rose 7.6%; as a share of revenue they increased 50 basis points to 31.2%, reflecting a gradual normalization of labor, maintenance and marketing costs.
- Other expenses net declined to Ps.807 million from Ps.3,611 million, principally because 2020 included impairments related to Estrella Azul and Leão Alimentos.
- Operating cash flow decreased despite higher earnings. Capital expenditures increased to Ps.13,865 million, with investment focused on capacity, coolers, returnable packaging, distribution and IT.
Liquidity, debt and capital allocation
- Cash was Ps.47,248 million against total indebtedness of Ps.85,782 million; debt was predominantly long-term, with Ps.2,453 million classified as short-term and Ps.83,329 million as long-term.
- After giving effect to swaps, 93.4% of debt was fixed-rate and 6.6% variable-rate on the stated debt mix; the filing also reports variable-rate exposure of 15.2% when weighted by outstanding debt life. A 100-basis-point increase in applicable variable rates was estimated to increase annual interest expense by Ps.160 million.
- In September 2021, the company issued Ps.9,400 million of sustainability-linked bonds and used the proceeds to prepay Mexican bank loans; management says the transaction did not represent additional debt. The bonds carry targets for water-use efficiency, with a 25-basis-point interest-rate step-up if targets are not met.
- Cash dividends paid in 2021 were Ps.10,649 million. A 2021 fiscal-year dividend of Ps.2.715 per unit in each of two installments was declared for payment in 2022.
- Management budgeted 2022 capital expenditures at 7.0%–8.0% of revenue and expected internally generated funds to cover the budget, subject to market conditions and pandemic developments.
Outlook, commentary, risks and unusual items
- Management’s strategy emphasizes revenue growth, pricing and portfolio development, digital and omnichannel capabilities, efficiency, sustainability and selective acquisitions. No quantified revenue or earnings guidance is provided.
- COVID-19 restrictions continued to affect on-premise channels and product mix, while traditional trade and digital channels showed resilience. Supply disruptions and inflation increased costs for some raw materials.
- Raw-material exposure is material: the U.S.-dollar PET resin price increased 13.9% in 2021 and average sugar prices in U.S. dollars increased approximately 13.8% across territories, before considering the differing effects of hedging. Concentrate pricing is controlled by The Coca-Cola Company, and marketing contributions from it are discretionary.
- Principal risks include dependence on Coca-Cola bottler agreements and brands; consumer and regulatory shifts on sugar, labeling and single-use plastics; water scarcity and concession renewals; commodity, currency and interest-rate volatility; COVID-19 and other disruptions; competition; political, tax and regulatory changes; and cybersecurity. Argentina is accounted for as hyperinflationary.
- Brazilian tax developments led the company to resume recognition of previously suspended credits on concentrate purchased from the Manaus Free Trade Zone, recording an extraordinary Ps.1,083 million benefit in cost of goods sold. Brazilian tax-credit recoveries also contributed Ps.254 million to other operating revenue in 2021, compared with Ps.1,359 million in 2020.
- Recorded provisions for tax, labor and legal contingencies totaled Ps.4,150 million. The filing also reports Ps.102,659 million of unsettled proceedings assessed as less than probable but not remote, including approximately Ps.55,288 million of possible Brazilian tax contingencies; management does not expect the proceedings to have a material consolidated effect. Brazilian contingencies of Ps.10,721 million were collateralized at year-end.
- After year-end, the Brazilian subsidiary completed its acquisition of CVI Refrigerantes for Ps.1,948 million; results began to be integrated from February 2022. The company also announced a jointly funded PET recycling plant expected to begin operating in 2023.
- The independent auditor issued an unqualified opinion on the IFRS financial statements and on internal control over financial reporting. Key audit matters included impairment testing of distribution rights and goodwill and recoverability of deferred tax assets.
Important facts for investors to verify
- Check the audited statements and notes for the drivers of cash-flow decline, working-capital movements, capital spending and the sustainability of earnings growth.
- Review debt maturities, variable-rate exposure and hedge positions, including the effect of exchange rates on local-currency results and U.S.-dollar-linked input costs.
- Assess whether water-use targets tied to sustainability-linked bonds are on track and whether any shortfall could trigger higher interest costs.
- Monitor Brazilian tax-credit recoveries, the status and collateral requirements of tax litigation, and the outcome of Mexican environmental, labeling and electricity-related legal challenges.
- Verify CVI integration, acquisition economics and the effect of the revised Brazilian beer distribution portfolio; the filing provides no quantified 2022 earnings guidance.