A N N U A L R E P O R T 2 0 1 7
Contents
FEMSA at a Glance . . . . . . . . . . . . . . . . . . 2
Value Creation Highlights. . . . . . . . . . . . . 4
Dear Shareholders . . . . . . . . . . . . . . . . . . . 8
FEMSA Comercio . . . . . . . . . . . . . . . . . . 10
Coca-Cola FEMSA . . . . . . . . . . . . . . . . . 16
Sustainability . . . . . . . . . . . . . . . . . . . . . . 22
FEMSA Foundation . . . . . . . . . . . . . . . . 30
Corporate Governance . . . . . . . . . . . . . . 34
Financial Summary . . . . . . . . . . . . . . . . . 38
Management’s Discussion
& Analysis . . . . . . . . . . . . . . . . . . . . . . . . . 40
Fomento Económico Mexicano, S.A.B. de C.V., or FEMSA, is a leading
multinational company headquartered in Monterrey, Mexico, that
participates in the beverage and retail industries.
We hold a controlling stake1 in Coca-Cola FEMSA, the largest franchise
bottler of Coca-Cola products in the world by sales volume with operations
in ten countries. We are also the second largest shareholder of Heineken—
one of the world’s leading brewing companies with operations in over 70
countries—with a 14.76 percent economic interest in the Heineken Group.
FEMSA Comercio is the largest operator of small-format stores in the
Americas, and is comprised of a Retail Division, operating various store
chains, including OXXO, the largest proximity retail chain in Latin America;
a Fuel Division, operating the OXXO GAS chain of retail service stations
in Mexico; and a Health Division, which includes drugstores and related
operations in Chile, Mexico and Colombia.
FEMSA Negocios Estratégicos (FEMSA Strategic Businesses) provides
logistical support to Coca-Cola FEMSA, FEMSA Comercio and
external clients. It is comprised of Solistica, providing an integrated
logistics platform in several Latin American countries; Imbera, offering
leading commercial refrigeration solutions with global reach; and PTM,
manufacturing plastic transformation projects for the food and beverage,
automotive and retail industries, as well as operating one of the largest
plastic recycling companies in Mexico.
1 47.2% economic interest, representing 63% of shares with voting rights.
Refreshment. Convenience. Value Creation.
FEMSA is driven by a corporate philosophy characterized by identifying
and satisfying consumer demands, generating income for our shareholders,
expanding social development and minimizing our environmental impact.2
Our 2017 integrated Annual Report reflects our commitment to strong
corporate governance and transparency.
Our financial and sustainability results are for the twelve months ended
December 31, 2017 compared to the twelve months ended December 31,
2016. This report was prepared in accordance with the Global Reporting
Initiative (GRI) Standards and, as signatories to the United Nations Global
Compact, represents our Communication on Progress for 2017.
2 http://www.femsa.com/en/meet-femsa/our-beginning/who-we-are/
1
FEMSA at a Glance
Our Presence:
Mexico
● ● ●
Central America
● ●
Colombia
● ● ●
Philippines
●
Venezuela
●
Business Units
● FEMSA Comercio
● Coca-Cola FEMSA
FEMSA Comercio and Coca-Cola FEMSA
● FEMSA Strategic Businesses
FEMSA operates in 11
countries: Argentina, Brazil,
Chile, Colombia, Costa Rica,
Guatemala, Mexico,
Nicaragua, Panama, the
Philippines and Venezuela.
Chile
●
Brazil
● ●
Argentina
●
Corporate Structure:
Equity Stakes and Business Units
27.8%
The Coca-Cola Company
25.0%
Public
Coca-Cola
FEMSA
47.2%
FEMSA
Comercio
100%
FEMSA
Strategic
Businesses
100%
Heineken
14.8%
Retail
Division
Health
Division
Fuel
Division
2
FEMSA at
a Glance
Value Creation
Highlights
Dear
Shareholders
FEMSA
Comercio
Coca-Cola
FEMSA
Sustainability
FEMSA
Foundation
Corporate
Governance
Operational Overview:
FEMSA COMERCIO
Retail Division
OXXO, the largest
C-store chain in the
Americas by units
Mexico, Chile and Colombia
Mexico and Colombia
Customers
per day
(millions)
Points
of Sale
Distribution
Facilities
Headcount
11.8
16,526
20
130,687
Customers
per year
(millions)
Points
of Sale
Distribution
Facilities
Headcount
173
2,225
5
21,493
FEMSA COMERCIO
Health Division
Drugstores and related
operations in Mexico,
Chile and Colombia
FEMSA COMERCIO
Fuel Division
OXXO GAS chain of retail
service stations in Mexico
Mexico
Customers
per year
(millions)
Points
of Sale
Headcount
153
452
5,839
Country / Region
Population
Served
(millions)
Points
of Sale
Plants
Distribution
Facilities
Mexico
Central America 1
Colombia
Venezuela
Brazil
Argentina
Philippines
Total
72.1
21.7
49.6
32.1
88.4
12.3
104.9
381.1
853,430
118,414
372,785
158,563
396,220
48,396
818,502
2,766,310
17
5
7
4
10
2
19
64
145
36
24
24
40
3
52
324
COCA-COLA FEMSA
Largest Coca-Cola
franchise bottler in the
world by volume
1. Includes Costa Rica, Guatemala, Nicaragua and Panama
3
Value Creation Highlights
FEMSA’s mission is to create economic and social value through business enterprises and institutions. This includes consistently
attracting and meeting consumer demand, generating financial returns for our shareholders and promoting higher social growth.
Economic Value
Our 2017 financial results reflect the economic value we continue to create in the countries where FEMSA operates.
Millions of pesos
Total revenues
2017 (1)
2017
2016
%Change
2015
%Change
23,445
460,456
399,507
15.3%
311,589
Income from operations (2)
2,110
41,439
37,427
10.7%
33,735
Operating margin
9.0%
9.4%
10.8%
Consolidated net income
1,895
37,206
27,175
36.9%
23,276
Controlling interest net income (3)
2,160
42,408
21,140
100.6%
17,683
Controlling interest earnings per BD unit (4)
Controlling interest earnings per ADS (5)
0.6
6.0
11.9
118.5
5.9
59.1
101.7%
100.5%
4.9
49.4
EBITDA
EBITDA margin
Total assets
Total liabilities
Total equity
3,127
61,418
54,987
11.7%
46,626
13.3%
13.8%
15.0%
29,967
588,541
545,623
7.9%
409,332
12,812
251,629
259,453
-3.0%
167,476
17,155
336,912
286,170
17.7%
241,856
Capital expenditures
1,282
25,180
22,155
13.7%
18,885
Total cash and cash equivalents (6)
4,936
96,944
43,637
122.2%
29,396
Short-term debt
Long-term debt
Headcount (7)
692
13,590
7,281
86.7%
5,895
5,996
117,758
131,967
-10.8%
85,969
295,027
266,144
10.9%
246,158
28.2%
10.9%
16.8%
19.5%
20.4%
19.6%
17.9%
33.3%
54.9%
18.3%
17.3%
48.4%
23.5%
53.5%
8.1%
1. U.S. dollar figures are converted from Mexican pesos using the noon-buying rate published by U.S. Federal Reserve Board, which was Ps. 19.6395 per US$1.00 as of December 29, 2017.
2. Company’s key performance indicator.
3. Represents the net income that is assigned to the controlling shareholders of the entity.
4. “BD” units each of which represents one series “B” share, two series “D-B” shares and two series “D-L” shares. Data based on outstanding 2,161,177,770 BD units and 1,417,048,500 B units.
5. American Depositary Shares, a U.S. dollar-denominated equity share of a foreign-based company available for purchase on the American Stock Exchange.
6. Cash consists of non-interest bearing bank deposits and cash equivalents consist principally of short-term bank deposits and fixed rate investments.
7. Includes headcount from Coca-Cola FEMSA, FEMSA Comercio and Other Businesses of FEMSA.
4
FEMSA at
a Glance
Value Creation
Highlights
Dear
Shareholders
FEMSA
Comercio
Coca-Cola
FEMSA
Sustainability
FEMSA
Foundation
Corporate
Governance
FEMSA consolidated
Total Revenues
by Business Unit
millions of Mexican pesos
Total Assets
by Business Unit
millions of Mexican pesos
Ps. 460,456
Ps. 588,541
● Coca-Cola FEMSA
43%
● Coca-Cola FEMSA
46%
FEMSA Comercio:
● Retail Division
● Health Division
● Fuel Division
● Others*
32%
10%
8%
7%
FEMSA Comercio:
● Retail Division
● Health Division
● Fuel Division
● Others*
11%
6%
1%
36%
Income from Operations
by Business Unit 1
millions of Mexican pesos
EBITDA 2
by Business Unit
millions of Mexican pesos
Ps. 41,439
Ps. 61,418
● Coca-Cola FEMSA
63%
● Coca-Cola FEMSA 64%
FEMSA Comercio:
● Retail Division
● Health Division
● Fuel Division
● Others*
30%
4%
1%
2%
FEMSA Comercio:
● Retail Division
● Health Division
● Fuel Division
● Others*
28%
4%
1%
3%
FEMSA is driven by a
corporate philosophy
characterized by
identifying and satisfying
consumer demands,
generating income for our
shareholders, expanding
social development and
minimizing our
environmental impact.
Our integrated Annual
Report 2017, reflects our
solid corporate governance
and transparency.
* Includes FEMSA Strategic Businesses
1. Company’s key performance indicator.
2. EBITDA equals to Income from operations plus depreciation, amortization and other non-cash items.
5
Economic Value
FEMSA Comercio ■ Retail Division ■ Health Division ■ Fuel Division
.
4
2
3
1
.
9
3
2
1
.
7
3
1
1
.
7
0
1
1
.
2
4
5
1
1
.
7
3
1
.
9
9
1
1
.
6
9
0
1
.
4
2
1
5
.
1
1
.
3
0
1
.
7
8
1
.
7
1
.
5
5
1
.
7
3
1
8
.
1
1
.
8
8
6
.
7
9
5
.
7
3
4
.
7
4
4
l
a
u
n
n
a
%
h
t
w
o
r
g
5
7
.
.
7
2
0
9
.
.
8
6
l
a
u
n
n
a
%
h
t
w
o
r
g
.
4
2
1
4
9
.
.
4
4
1
.
4
2
1
l
a
u
n
n
a
%
h
t
w
o
r
g
.
8
9
.
5
8
1
6
.
1
1
.
3
8
l
a
u
n
n
a
%
h
t
w
o
r
g
5
.
1
1
.
7
6
1
1
.
3
1
.
5
0
1
l
a
u
n
n
a
%
h
t
w
o
r
g
.
4
0
1
2
2
.
.
7
3
3
.
2
5
1
2014
2015 2016
2017
2014
2015 2016
2017
2014
2015 2016
2017
2014
2015 2016
2017
2014
2015 2016
2017
Headcount
thousands
Total Revenues
billions of Mexican pesos
Income from Operations 1
billions of Mexican pesos
EBITDA 2
billions of Mexican pesos
Total Assets
billions of Mexican pesos
l
a
u
n
n
a
%
h
t
w
o
r
g
2
.
1
2
5
.
1
2
.
0
0
2
0
6
.
2
.
1
2015 2016
2017
Headcount
thousands
8
5
.
4
5
.
.
6
4
l
a
u
n
n
a
%
h
t
w
o
r
g
.
8
7
1
0
9
.
2015 2016
2017
Headcount
thousands
.
4
7
4
.
4
3
4
6
.
1
6
.
1
6
2
.
4
2
.
.
5
8
3
.
9
5
3
.
5
2
2
l
a
u
n
n
a
%
h
t
w
o
r
g
1
.
3
1
.
6
2
3
2
.
2
9
.
6
0
l
a
u
n
n
a
%
h
t
w
o
r
g
.
7
7
5
1
9
2
.
l
a
u
n
n
a
%
h
t
w
o
r
g
.
8
0
1
.
5
0
2
4
6
.
l
a
u
n
n
a
%
h
t
w
o
r
g
1
.
9
5
3
7
.
2015 2016
2017
2015 2016
2017
2015 2016
2017
2015 2016
2017
Total Revenues
billions of Mexican pesos
Income from Operations 1
billions of Mexican pesos
EBITDA 2
billions of Mexican pesos
Total Assets
billions of Mexican pesos
.
4
8
3
.
6
8
2
.
5
8
1
l
a
u
n
n
a
%
h
t
w
o
r
g
.
6
4
5
1
.
4
3
.
3
0
.
3
0
.
2
0
.
4
0
.
4
0
.
3
0
.
7
4
.
6
2 3
3
.
l
a
u
n
n
a
%
h
t
w
o
r
g
.
2
2
2
.
7
6
l
a
u
n
n
a
%
h
t
w
o
r
g
1
.
6
2
.
2
2
1
l
a
u
n
n
a
%
h
t
w
o
r
g
.
0
3
1
.
2
8
2
2015 2016
2017
2015 2016
2017
2015 2016
2017
2015 2016
2017
Total Revenues
billions of Mexican pesos
Income from Operations 1
billions of Mexican pesos
EBITDA 2
billions of Mexican pesos
Total Assets
billions of Mexican pesos
Coca-Cola FEMSA
7
.
1
0
1
.
4
3
8
.
7
3
8
1
.
5
8
.
8
3
0
2
.
7
7
7
1
.
3
7
4
1
.
4
2
5
1
.
2
6
2
.
9
3
2
.
6
2
2
.
7
0
2
.
5
9
3
.
5
5
3
2
.
1
3
.
4
8
2
.
7
5
8
2
.
3
9
7
2
.
4
2
1
2
.
2
0
1
2
l
a
u
n
n
a
%
h
t
w
o
r
g
8
.
1
-
.
4
0
7
.
1
.
4
9
1
l
a
u
n
n
a
%
h
t
w
o
r
g
.
6
5
-
4
3
.
.
6
6
1
.
7
4
1
l
a
u
n
n
a
%
h
t
w
o
r
g
.
3
3
-
.
2
9
6
5
.
4
9
.
l
a
u
n
n
a
%
h
t
w
o
r
g
.
7
0
-
.
0
0
1
.
6
3
1
4
.
1
1
l
a
u
n
n
a
%
h
t
w
o
r
g
.
0
2
-
0
.
1
-
.
8
2
3
.
3
2
2014
2015 2016
2017
2014
2015 2016
2017
2014
2015 2016
2017
2014
2015 2016
2017
2014
2015 2016
2017
Headcount *
thousands
Total Revenues
billions of Mexican pesos
Income from Operations 1
billions of Mexican pesos
EBITDA 2
billions of Mexican pesos
Total Assets
billions of Mexican pesos
* As of 2017, it includes Coca-Cola FEMSA Philippines.
1. Company’s key performance indicator.
2. EBITDA equals to Income from operations plus depreciation, amortization and other non-cash items.
6
FEMSA at
a Glance
Value Creation
Highlights
Dear
Shareholders
FEMSA
Comercio
Coca-Cola
FEMSA
Sustainability
FEMSA
Foundation
Corporate
Governance
Social Value
We create value for our stakeholders not only through successful economic performance, but also by generating the
social, environmental and economic conditions necessary to operate today and to grow sustainably over time. In 2017,
we continued to more fully integrate sustainability into our business strategy.
2017
2016
2015
Average hours of training per employee
33.92
25.60
26.60
Accident Index 1
2.10
2.13
3.94
Organizational Climate Result 2
80.80
81.50
81.40
Energy Intensity
(Gigajoules / Total Revenues in Ps. million)
Greenhouse gas emissions intensity
(Tons of equivalent CO2 / Total Revenues in Ps. million)
Water efficiency
(liters of water used per liter of beverage produced)
41.26
40.46
53.01
3.36
1.65
3.59
1.72
5.33
1.79
Economic spill to the community 3
Ps. 253.2 billion
US$ 12.8 billion
Ps. 258.2 billion
US$ 12.5 billion
Ps. 184.4 billion
US$ 10.7 billion
Percentage of procurement budget on local
suppliers 4
Direct beneficiaries of FEMSA Foundation
programs 5
87%
82%
85%
1,248,123
1,124,319
631,250
1. Number of incidents per 100 employees, based on the number of FEMSA direct employees reported to the Occupational Health and Safety
Administration System. Includes information on all countries.
2. According to FEMSA’s Organizational Climate Diagnostic.
3. Includes human resources remuneration, provider payments, public administration sector remuneration, external donations and donations
to the community.
4. Local suppliers are defined as suppliers from the country where the purchase is made.
5. The number of direct beneficiaries is accumulated.
7
(from left to right)
Carlos Salazar Lomelín
Former Chief Executive Officer
José Antonio Fernández Carbajal
Executive Chairman of the Board
Eduardo Padilla Silva
Chief Executive Officer
Dear
Shareholders
2017 was notable for the developments that
contributed to FEMSA’s growth, the challenges that
we overcame and the positive impacts we were
able to make. It was also a period of change, another
step in our permanent quest to evolve and improve
as an organization.
We ended the year by thanking Carlos Salazar Lomelín
for his decades of service at FEMSA following his
retirement from the position of Chief Executive
Officer. Carlos has served a long and productive career
at FEMSA for nearly 45 years, during which time he led
many of our operations, including as Chief Executive
Officer of FEMSA Cerveza from 1992 to 1999 and as
Chief Executive Officer of Coca-Cola FEMSA from
2000 to 2013. He was instrumental in transforming
the company into the beverage and retail leader that
it is today, and he will continue to share his leadership
and expertise with us as my advisor and as a member
of the Board of Directors of FEMSA.
As of January 1, 2018, we also welcomed Eduardo Padilla
Silva—most recently FEMSA’s Chief Financial and Corporate
Officer—as FEMSA’s new Chief Executive Officer. Eduardo
joined FEMSA in 1997 and, since then, has held several senior
positions at FEMSA, including Chief Executive Officer of
FEMSA Comercio for 16 years. During his tenure in that
role, Eduardo oversaw significant growth, including the
establishment of OXXO as the leading proximity retail format
in Mexico, as well as FEMSA’s expansion into the drugstore
and service station formats. These developments have been
integral to shaping our company into what it is today and
hold great promise for our future growth. I am confident
that Eduardo’s talent and energy will successfully lead us
as we embark on a new chapter for FEMSA, full of growth
opportunities in these times of momentous change that are
rapidly transforming our world.
FEMSA continued to evolve in 2017. We successfully
monetized a small portion of our Heineken shares, thereby
strengthening our balance sheet and efficiently improving our
financial flexibility. We also unified our logistics operations
under the new name of Solistica, within our FEMSA Strategic
Businesses Unit. This move further consolidates our position
as a leader in third-party integrated logistics services across
Latin America and puts us in a stronger position to deliver
expanded solutions to our clients.
This year we continued to leverage our diverse brand portfolio
and operational expertise to realize strong performance on
a consolidated level, despite challenging macroeconomic
conditions in several key markets. Total revenues in 2017
increased 15.3 percent over the previous year to Ps. 460.5
billion (US$ 23.4 billion), mainly driven by steady operational
growth. Income from operations increased 10.7 percent
to Ps. 41.4 billion (US$ 2.1 billion), while net consolidated
income increased 36.9 percent to Ps. 37.2 billion (US$ 1.9
8
FEMSA at
a Glance
Value Creation
Highlights
Dear
Shareholders
FEMSA
Comercio
Coca-Cola
FEMSA
Sustainability
FEMSA
Foundation
Corporate
Governance
billion). Net majority income per BD Unit was Ps. 11.85 in
2017 (US$ 6.03 per ADS).
These results were made possible by the strength of our business
units. In FEMSA Comercio—comprised of the Retail, Health
and Fuel divisions—we continued to build and strengthen our
competitive position in multiple regions. In Retail, we opened
1,301 net new OXXO stores—our fastest pace to date—and
further expanded the OXXO brand beyond Mexico in Colombia
and Chile. In Health, our operations in Mexico and expansions
in Colombia and Chile further secured our position as a leading
drugstore operator in Latin America, with a total of 2,225 stores
achieving a 9.2 percent increase in revenue and a 6.7 percent
increase in same-store sales. In Fuel, we continued to play a
key role in the rapid transformation of Mexico’s energy sector
with the addition of 70 net new OXXO GAS service stations in
Mexico, and a 19.8 percent increase in same-station sales.
Coca-Cola FEMSA successfully navigated market pressures
in 2017 and focused on strengthening its beverage
portfolio and remaining nimble and responsive to evolving
consumer preferences. Our Mexico and Central America
divisions continued implementing our operating model
transformational initiatives, including digitizing our platform,
scaling supply chain solutions and innovating information
technology strategies. In Brazil, we are encouraged by
our results highlighted by our affordability strategy that
enabled us to grow volumes, regain market share in sparkling
beverages—reaching a record high by year-end—and improve
our profitability.
We know our economic impacts are tied closely to our social
impacts. In addition to our permanent sustainability efforts
within our business units, the FEMSA Foundation, and in
close collaboration with Tec de Monterrey, this year we
came together to respond to several natural disasters that
caused tremendous loss in Mexico, including two devastating
earthquakes. FEMSA launched three separate disaster response
initiatives to provide needed assistance and resources, and the
FEMSA Foundation contributed critical supplies to shelters
and food banks in the hardest-hit areas in the country.
Consolidated revenues totaled
Ps. 460.5 billion in 2017, up 15.3%
Leading in sustainability performance and disclosure is an
important priority for FEMSA. In 2017, we took steps to
further embed best practices across our operations and we
invested a total amount of Ps. 2.7 billion (US$ 138.3 million).
Externally, these funds are allocated to our communities
through our operations and FEMSA Foundation’s initiatives
on water security, early childhood development, and
education through our work with Tec de Monterrey.
Internally, the focus is directed toward our employees and
their families as well as environmental stewardship.
We have been a signatory of the United Nations Global
Compact (UNGC) since 2005, and we adhere to the UNGC’s
ten principles to protect human rights, uphold ethical labor
practices, preserve the environment and combat corruption.
Our 2017 Annual Report represents our 12th UNGC
Communication on Progress and it references the Global
Reporting Initiative (GRI) Standards.
Throughout our company’s history, FEMSA’s culture has
maintained a deep respect for human dignity over and above
financial considerations. Our corporate philosophy is to serve
our customers, generate returns for our shareholders, increase
social development and minimize our environmental impact.
As such, we operate under the fundamental principle of
creating both, economic and social value for our stakeholders.
This year’s integrated Annual Report highlights the important
ways in which we advanced in these areas in 2017, as well as
the goals and priorities we have identified to make even more
progress in 2018 and beyond. We want to thank you once
again for your continued support and trust, and look forward
to embarking with you on another exciting year ahead.
José Antonio Fernández Carbajal
Executive Chairman of the Board
9
FEMSA
Comercio
Steady growth, sustainable performance
The past decade of strong, steady growth in our FEMSA Comercio
retail operations has helped to position our company to continue
delivering value to our stakeholders in the coming years. FEMSA
Comercio contributed 50 percent of FEMSA’s consolidated
revenues in 2017 (up from 38 percent in 2007) and contributed 33
percent of EBITDA in 2017 (up from 18 percent in 2007), reflecting
an increasingly balanced core portfolio over time and favorably
diversifying our financial performance. Despite rising inflation in
Mexico, the rapid transformation of Mexico’s fuel industry, and a
number of severe natural disasters in 2017, our retail operations
made solid progress in a resilient consumer environment and are
well positioned to continue creating value and driving long-term
earnings growth.
On average, the Retail Division
opens one new OXXO store
every seven hours.
10
FEMSA at
a Glance
Value Creation
Highlights
Dear
Shareholders
FEMSA
Comercio
Coca-Cola
FEMSA
Sustainability
FEMSA
Foundation
Corporate
Governance
Retail Division
Every day, nearly 12 million people make a purchase at one of
our more than 16,500 OXXO proximity retail stores in Mexico
and Colombia. With a strong brand and best-in-class margins
and returns, OXXO is the third-largest retailer in Mexico in
terms of revenues and the largest store chain in the Americas
by units. We saw revenue growth in the Retail Division of 12.4
percent by year-end 2017.
Trajectory for success
On average, the Retail Division opens one new OXXO store
every seven hours. In 2017, we again added new stores at an
accelerated pace, opening a record of 1,301 net new stores—
and creating approximately 10,000 direct new jobs in the
process—while maintaining above-trend growth in same-store
sales for the third year in a row.
11
1,301
net new OXXO stores in 2017
6
2
5
6
1
,
5
2
2
5
1
,
1
6
0
4
1
,
3
5
8
2
1
,
h
t
w
o
r
g
l
a
u
n
n
a
%
.
7
9
4
9
.
.
3
8
.
5
8
2014
2015
2016
2017
Total OXXO Stores
Our trajectory for continued growth remains very strong in
many regions of Mexico where store penetration remains
relatively low. We have developed proprietary models to
assist in identifying optimal store locations, store formats, and
product categories. We expect to continue to generate solid
returns in new stores by strictly monitoring our cost-of-capital
parameters and by consistently implementing our proven
operating processes and practices.
In 2017, we also continued to prepare for long-term growth
and expansion of the OXXO brand beyond Mexico. In
our stores in Colombia and Chile, we are deploying our
considerable expertise in the convenience-store format while
optimizing our local value proposition and understanding
of how best to serve our consumers across markets. Gaining
this knowledge will help support the next stage of potential
expansions to other regional markets in South America.
Expanding convenience
Driving the sustained growth of the OXXO brand is FEMSA’s
dedicated focus on creating value for stakeholders while
refining our business model and offerings to meet the market’s
needs. Consumers who have relied on OXXO to quench
their thirst, satisfy a snack craving or pick up a prepared
meal now increasingly appreciate the one-stop convenience
of purchasing other products or using essential services
while at one of our stores. For example, providing a place to
securely make deposits and withdrawals from bank accounts,
receive remittances from relatives living abroad, and pay
utility bills are ways our company is investing in the social
and relationship capital of our customers to earn their trust.
+3,150
average SKUs
per store
12
FEMSA at
a Glance
Value Creation
Highlights
Dear
Shareholders
FEMSA
Comercio
Coca-Cola
FEMSA
Sustainability
FEMSA
Foundation
Corporate
Governance
Health Division
With acquisitions in key markets over the past several years,
FEMSA continues to build a strong presence in the health
and drugstore segment in Latin America. We first entered this
market segment in 2013, with the acquisition of two regional
drugstore chains in Mexico. In 2015, we expanded further
with two additional acquisitions, including a majority stake in
the Chilean pharmacy and distribution chain, Grupo Socofar,
which operates an integrated platform in Chile and Colombia.
Our current growth strategy for the Health Division is
to further consolidate our market presence and facilitate
continued international expansion by leveraging both our
effective small-box retail processes and our operational and
logistics expertise. With 2,225 points of sale as of year-end
2017, we are becoming a key drugstore operator in Latin
America. Revenues increased by 9.2 percent during the year,
with same-store sales increasing by 6.7 percent.
Strengthening our position
In Mexico, we currently operate more than 1,100 drugstores
under different leading regional brands. In 2017, we
continued to make significant preparations for future growth
and consolidation by building the infrastructure that is
required to integrate our legacy drugstore operations into a
single platform and to standardize our business model across
these different regional brands.
13
In turn, these added service offerings are driving same-store
traffic growth and expanding the gross margin. In 2017, our
Correspondent Banking network included 12 partner banking
institutions, and the number of issued Saldazo debit card
accounts reached more than 9 million.
To ensure that we maintain a motivated workforce, we
are also making investments in the human capital of our
organization. We are taking steps to ensure that our OXXO
employees are working in stores closer to their home, thereby
saving them time and money, while potentially contributing to
a reduction in traffic congestion and greenhouse gas emissions
related to commuting. In 2017, we also took steps to increase
compensation, training, and diversity among our OXXO
employees as part of our plan for employee engagement and
retention. Though these new policies and investments in
human capital partially contributed to a slight contraction of
OXXO’s operating margin in 2017, we believe that our value-
centered approach will reduce turnover and related costs of
hiring and training in the longer term.
Spotlight on Sustainability: FEMSA is focused on
reducing waste in our retail operations and
supporting our community. Two examples of our
efforts to accomplish this include:
1. Replacing or eliminating excess and unnecessary
packaging as much as possible, while promoting the use of
recycled and recyclable packaging materials; and
2. Donating packaged food prior to its expiration date to
local food banks, in collaboration with Bancos de
Alimentos de México.
2,225
stores in Mexico, Chile
and Colombia
105
net new stores in 2017
5
2
2
2
,
0
2
1
,
2
0
0
9
,
1
h
t
w
o
r
g
l
a
u
n
n
a
%
6
.
1
1
0
5
.
2015
2016
2017
Total Number of Stores
for Health Division
14
In South America, through Grupo Socofar, we operate more
than 700 Cruz Verde pharmacies and 181 Maicao beauty stores
in Chile, as well as more than 200 Cruz Verde drugstores in
Colombia. Our Chilean operations have a solid competitive
position, best-in-class operating practices and significant
vertical integration. Our experience in this market has greatly
expanded our knowledge base, and this represents an ideal
platform from which to grow and puts us in a strong position
for future regional expansion.
Fuel Division
Following Mexico’s historic energy reform program beginning
in December 2013—which opened the oil and gas market
to foreign capital for the first time in more than 75 years—
FEMSA recognized the unique opportunity to participate in
the transformation of the country’s fuel industry through the
operation of a large network of service stations. Beginning
in March 2015, we started transitioning from our legacy
operation of approximately 200 service stations on behalf
of third parties, to growing our own base of stations mainly
through long-term lease agreements. We saw clear alignment
in this endeavor with our retail service expertise, as well as the
opportunity to leverage OXXO’s brand equity.
Expanding our service stations network
To further consolidate our presence in the market and create
additional value for shareholders, in 2017 we invested in the
expansion of our infrastructure and continued to roll out our
OXXO GAS branding to new stations. As of the end of 2017,
our Fuel Division now operates a total of 452 OXXO GAS
service stations.
FEMSA at
a Glance
Value Creation
Highlights
Dear
Shareholders
FEMSA
Comercio
Coca-Cola
FEMSA
Sustainability
FEMSA
Foundation
Corporate
Governance
70
net new service stations in 2017
2
5
4
2
8
3
7
0
3
h
t
w
o
r
g
l
a
u
n
n
a
%
.
4
4
2
.
3
8
1
2015
2016
2017
Total OXXO GAS Service Stations
Our OXXO GAS outlets build trust with customers through
reliable, high-quality service backed by our strong brand.
We also engender loyalty through special promotions available
only to our customers.
Navigating market pressures
The number of vehicles on Mexico’s roads has grown steadily
over the last few decades and, with it, demand for gasoline.
Domestic refining output has not kept pace with demand,
and gasoline imports have increased as a result. That fact,
combined with the currency conditions present in early
2017—namely a steep depreciation of the Mexican peso vis
à vis the U.S. dollar—contributed to a sharp increase in the
price of gasoline and diesel in January 2017 by an average of
approximately 17 percent.
This unique set of circumstances led to a contraction in gross
margin in the Fuel Division in the first two quarters of 2017,
with gross profits per liter remaining relatively flat versus
the previous year, in peso terms. In the second half, we saw
stronger sequential improvement in profitability due to more
flexible pricing structures and a stronger exchange rate. For the
full year, revenues increased 34.1 percent, with same-station
sales growth of 19.8 percent.
Looking ahead, as the oil and gas industry continues to
transition to an open-market model, we will remain focused
on improving our customer value proposition, expanding
our network of service stations and enhancing underlying
profitability by fine-tuning our business model and revenue
management capabilities in ways that highlight our strengths
and expertise in retail dynamics.
Spotlight on Sustainability: We are continually
working to find efficiencies and save resources at
our OXXO GAS service stations:
� Since 2011, we have installed LED lighting at OXXO GAS
stations, which use less electricity, provide better lighting
conditions and create safer and more comfortable spaces.
� Since 2015, we have expanded the installation of efficient
toilets in service station restrooms, including dry urinals
that save an average of 3.8 liters of water per flush.
In 2017, we deployed a new waste management program
to separate organic and inorganic waste.
�
� As of the end of 2017, we have planted more than 1,000
trees at OXXO GAS stations.
15
Coca-Cola
FEMSA
Guiding our business growth
As a strategic partner to The Coca-Cola Company and the largest
Coca-Cola franchise bottler in the world, by sales volume,
Coca-Cola FEMSA holds a leadership position within the beverage
industry with a multi-category portfolio and global footprint .
Our Strategic Framework steers our long-term business growth
strategy by promoting company-wide collaboration and sharing
best practices. As we grow, both organically and through strategic
acquisitions, we aim to create value for all our stakeholders
by realizing new operational efficiencies and innovations. In
this way, we are focused on strengthening our multi-category
portfolio, transforming our operational capabilities, and evolving
toward a unified corporate culture. We are also integrating a
stronger emphasis on sustainability and proactive environmental
management across our business strategy.
Multi-category beverage leader
with global footprint
CATEGORIES
GEOGRAPHIES
WINNING
PORTFOLIO
BUILD-UP
• Growth in sparkling
beverages
• Profitable growth
in stills
• Accelerated growth
in dairy
OPERATING MODEL
TRANSFORMATION
CULTURAL
EVOLUTION
• Commercial
Digital Platform
• Scalable Solutions in
Supply Chain
• Global Business
Services to leverage
growth
•
Innovative IT strategy
• Connected and
inspiring
leadership
• Our talent is key
•
and innovation
Inside-out perspective
CHOICES FOR EVERY
LIFESTYLE
SUSTAINABLE
COMMUNITIES AND
ENVIRONMENT
SUSTAINABILITY
PROFESSIONAL
DEVELOPMENT AND
WORKPLACE RIGHTS
Disciplined
capital allocation
Strategic mergers
and acquisitions
16
FEMSA at
a Glance
Value Creation
Highlights
Dear
Shareholders
FEMSA
Comercio
Coca-Cola
FEMSA
Sustainability
FEMSA
Foundation
Corporate
Governance
Winning portfolio buildup
In 2017, we generated over 25 billion transactions serving
sparkling beverages, juices, isotonic sports and energy drinks,
teas, waters, dairy products and plant-based beverages to
more than 381 million consumers. To continue to expand our
level of service in diverse markets, we are focused on building
a winning portfolio of beverages, as well as anticipating—and
responding to—evolving consumer preferences.
We are revitalizing our sparkling beverage offerings,
diversifying in still and dairy beverage options, and exploring
new, innovative categories. Innovation is a cornerstone of
our path toward strategic growth and development. In 2017,
as part of our portfolio innovations that offer our consumers
more suitable options for their lifestyles, we launched:
17
31%
of the brands in our
portfolio have vitamins,
fiber, minerals,
or nutritional
supplements
• Coca-Cola Sin Azúcar in Mexico, a sugar-free alternative
that comes in a variety of portion sizes.
• Fanta Guaraná in Brazil to offer our consumers a lower
sugar alternative and revitalize our flavored carbonated soft
drink category.
We also continue to complement the organic growth of
Coca-Cola FEMSA with value-creating acquisitions.
We know that with multi-category
beverage leadership also comes great
responsibility. We are taking steps to
promote healthy habits in our communities
and encouraging people to combine good
nutrition with physical activity in their lives.
Our strategy is centered on three levels of
action:
• Local initiatives: In 2015, we set a goal to benefit five
million people by 2020 through programs supporting
healthy habits and nutrition awareness. In 2017,
approximately 1.6 million people had been benefited
in our programs, with an investment of US$ 6 million.
To date our progress on this goal is 62%.
• Multi-sector initiatives: In 2016, we launched the
Latin American Commitment for a Healthy Future,
a multi-sector coalition that promotes initiatives and
educational tools to empower school-aged children
and their families to make good decisions about
their eating habits and physical activity.
• Responsible marketing: In addition to strict
nutritional labeling standards and limited advertising
in media to children, we also adhere to the
Responsible Marketing policies and the Global School
Beverage Guidelines of The Coca-Cola Company.
In 2017, approximately
1.6 million
people had been
benefited by our
Healthy Habits
programs and initiatives
Together with The Coca-Cola Company and the Coca-Cola
System in Latin America, we added AdeS plant-based
beverages to our expanding offerings in the region. AdeS
will complement and strengthen our still beverage portfolio,
providing consumers with a broader range of choices. As
a nutritious, dairy-free product, AdeS is well-positioned
to benefit from favorable dynamics in the broader dairy-
alternative beverage segment, as well as positive consumption
trends for premium, nutritious, and natural products.
18
FEMSA at
a Glance
Value Creation
Highlights
Dear
Shareholders
FEMSA
Comercio
Coca-Cola
FEMSA
Sustainability
FEMSA
Foundation
Corporate
Governance
In our Commercial CoE, we continue to accelerate the
transformation of our operating model, highlighted by the
implementation of our upgraded KOFmmercial Digital
Platform (KDP), which is based on four pillars: advanced
analytics for revenue transformation; dynamic initiative
management; omnichannel integration of customer
connection points; and improved route-to-market to
maximize customer value creation while managing costs.
We rolled out the KDP platform in Mexico in early 2017 and
have now expanded to Brazil, the Philippines, Colombia,
Costa Rica, Nicaragua and Panama. In 2018, we will continue
upgrading and rolling out KDP throughout our markets.
Ensuring product affordability
To better serve and strengthen our connection with
consumers, particularly in the challenging macroeconomic
environment of 2017, we rolled out affordability initiatives
across our operations through our strong platform of
affordable, returnable multi-serve packaging alternatives. In
Mexico, Brazil and Colombia, we reinforced the coverage of
these returnable presentations, as we look to provide the right
package at the right price for every consumer.
Additionally, we continue implementing our Magic Price
Points strategy to intensify our connection with consumers.
This approach helps ensure affordability of our single-
serve portfolio at “magic price” points. As a result, we were
able to improve consumer segmentation through revenue
management, increase profitability and gain or maintain
market share, as we did in Argentina, Brazil and Colombia.
Operating Model Transformation
As we work to create a leaner and more agile organization,
we are building a sustainable competitive advantage
by developing and deploying next-generation strategic
capabilities through our Centers of Excellence (CoEs).
19
We delivered hard
manufacturing
savings of
US$ 145
million
over the past
three years
Our Distribution & Logistics CoE redefined its organizational
structure into KOF Logistics Services (KLS), which
designs and deploys our Supply Chain Planning model to
standardize processes, enhance centralized organizational
capabilities and incorporate cutting-edge technological
tools. We continue to invest in new technology platforms,
such as the Digital Distribution System, which delivers
increased resource optimization, improved employee
and driver safety, and higher customer satisfaction. The
CoE’s safety strategy includes initiatives that support the
entire company, including transforming our safety culture,
managing key risks and professionalizing the safety function.
These safety initiatives are adding value by reducing the
amount of resources we use and improving the safety of
our communities. After implementing Digital Distribution
in Mexico in 2017, we have now expanded the platform to
Brazil and aim to continue implementing in our remaining
territories by 2019.
In our Manufacturing CoE, we continued the development
and rollout of our proprietary Manufacturing Management
Model to bolster efficiency and productivity, which
includes our Plant Operating Model, Centralized Plant
Maintenance Planning, Standardized Maintenance System
and Manufacturing Execution System. We are also creating a
culture of safety, and working to advance our safety programs,
which has resulted in fewer accidents. These initiatives not
only create a better work environment for our employees, but
also drive cost savings.
41%
of the brands in our
portfolio are low or
no calorie beverages
20
FEMSA at
a Glance
Value Creation
Highlights
Dear
Shareholders
FEMSA
Comercio
Coca-Cola
FEMSA
Sustainability
FEMSA
Foundation
Corporate
Governance
Spotlight on Sustainability: To conserve the amount
of resources and energy needed for our operations,
our goal is to use recycled materials in 25% of our
total PET presentation production by 2020. As of 2017, we are
approaching the achievement of our goal, using 21% recycled
materials in the production of our PET presentations.
Cultural Evolution
Through our continuous evolution, we are creating a strong,
unified corporate culture, founded on the cornerstones
of leadership, talent and innovation. Together, we share
a passion for excellence—embracing diversity across our
increasingly multicultural operations. We are focused on
identifying the strengths and opportunities of our workforce
and leadership team, with an aim to empower employees by
giving them the tools and capabilities they need to succeed in
their roles.
2017 Cultural Evolution Highlights
Organizational
Health Index
Survey
Talent
Management and
Development
Volunteering
Coca-Cola FEMSA launched its
fourth annual employee engagement
survey and gathered feedback from
more than 21,000 participants. We
registered a five-point increase in our
overall organizational health from our
baseline survey in 2014.
In 2017, we invested US$ 12.7 million
in employee training initiatives,
accounting for 3.4 million of total
training hours. Additionally through
the Universidad FEMSA online
platform, we offered to our people
more than 5,000 different resources
such as: events, courses, videos and
diverse online materials aligned with
the best practices of our Centers of
Excellence.
By 2020, our goal is to achieve
one million hours of volunteer
work through the KOF Volunteers
program. At year-end 2017, we have
accumulated 681,224 volunteer hours
since 2016—representing 68.2% of
our goal.
21
Sustainability
Creating sustainable value
FEMSA defines sustainability as the ability to generate the
social, environmental and economic conditions needed
to operate today and grow over time in harmony with
the environment and society. We base our actions on an
underlying commitment to ethics and values, and we organize
our sustainability approach along three pillars: Our People,
Our Planet and Our Community.
Since 2005 we have been signatories of the United Nations
Global Compact, through which we pledge to follow and
promote its 10 principles relating to human rights, labor
practices, the environment and anti-corruption. We also
support the United Nations Sustainable Development Goals
(SDGs), which were launched in 2015 and represent an
ambitious plan to make our world more inclusive, prosperous,
sustainable, and resilient. The SDGs call for countries to
Economic
19
Environmental
Social
Focus
topics
in which we generate a
greater positive impact
(+)
r
o
f
e
c
n
a
t
r
o
p
m
I
l
s
r
e
d
o
h
e
k
a
t
s
y
e
k
(–)
Importance for FEMSA’s
business success
(+)
22
FEMSA at
a Glance
Value Creation
Highlights
Dear
Shareholders
FEMSA
Comercio
Coca-Cola
FEMSA
Sustainability
FEMSA
Foundation
Corporate
Governance
improve the lives of people everywhere by mobilizing efforts
to improve the most critical issues in the world by 2030,
including poverty, inequality and climate change. The eleven
countries in which FEMSA operates have accepted the SDGs
and will be using them to define their 2030 agendas. But to
fully make a global impact, businesses and civil society must
also take action. In 2017, FEMSA began an analysis to gain
a better understanding of what the SDGs mean for our core
business and how we can best contribute to them. In 2018,
we will also be considering how the SDGs can help guide our
own corporate sustainability goals.
Our approach to materiality
FEMSA’s Strategic Sustainability Framework is based on
the priorities and issues that are most important to our
business and the stakeholders with whom we engage. Our key
stakeholder groups include employees, consumers, suppliers,
shareholders, government entities, community members
and NGOs. Additional stakeholder groups include industry
experts, peer companies and the media.
We first conducted a company-wide materiality analysis in
2012, which included an analysis of our business strategy,
emerging risks, industry trends and best practices, and direct
engagement with FEMSA business-unit executives and other
external stakeholder representatives. We identified 19 focus
PILLARS
FOCUS TOPICS
Culture and values
Culture and values
Training and
development
Comprehensive
development
Water
Energy
Workplace health and safety
Compensation
Training and development
Comprehensive development
Water management
Energy use
Environmental impact of transportation and
logistics
Waste and recycling
Packaging and recycling
Waste
Healthy lifestyles
Nutrition and physical activity
Community
development
Responsible marketing and communications
Offering sustainable products/services
Local environmental impact
Safety in our surroundings
Social well-being in communities
Supplier development
Sustainable sourcing
Environmental impact of suppliers
Labor rights and working conditions of suppliers
topics, which correspond to nine action areas across our
three pillars. We engage our stakeholders on an ongoing basis
throughout the year to confirm and update our material issues
assessment. Because each of our business units is distinct,
we have now begun the process of conducting materiality
analyses by business unit, beginning with Coca-Cola FEMSA,
OXXO, Solistica, Imbera and PTM.
23
Our People
178,084
recruitments,
48% are women.
+10 million
hours of ongoing
training.
At FEMSA, we are committed to growing as a high-
performance organization where talent, culture and leadership
are the key levers for the development of our people and the
fulfillment of our strategic objectives. Accordingly, we seek to
promote the professional development of our employees and
to provide them with the training and resources they need to
do their jobs safely and successfully.
We focus on three areas of action that make up the Our People
pillar: Culture and Values, Training and Development and
Comprehensive Development.
In 2017, we invested Ps. 1.6 billion
(US$ 81.9 million) in our people, with 89%
for culture and values training and 11% for
comprehensive development.
• Respect for, and comprehensive development of,
our employees
• Integrity and austerity
• Passion for customer service
• Creation of social value
All employees are expected to uphold and demonstrate
these values within our culture of legality and leadership. We
respect and uphold the laws and societal standards of every
country in which we do business, and we have zero tolerance
for corruption. Our FEMSA Leadership Model—a set of
nine key competencies—ensures that all employees have the
necessary skills to contribute to our business strategy.
Training, Development and Safety
We are focused on developing the capabilities of our employees
in a safe and fulfilling environment, so they can respond to
challenges and achieve their highest potential as individuals
and professionals.
Culture and Values
We promote a culture of leadership characterized by respect and
by setting a positive example.
Our corporate culture—and our capacity to create economic
and social value—is guided by our values:
We offer online and in-person courses and other tools
to develop leadership skills and technical knowledge for
our employees. In 2017, we formalized our processes for
competency reviews, leadership style assessments and
performance measurement tools.
24
FEMSA at
a Glance
Value Creation
Highlights
Dear
Shareholders
FEMSA
Comercio
Coca-Cola
FEMSA
Sustainability
FEMSA
Foundation
Corporate
Governance
.
9
3
3
.
6
6
2
.
6
5
2
.
9
9
1
2017
2014
2015 2016
Average Hours of Training
per Employee
The wellbeing of our employees, particularly while at
work, is of utmost importance to FEMSA. We uphold strict
standards related to occupational health, hygiene, and safety,
and all our business units operate according to the guidelines
and requirements of our internal occupational health and
safety standards.
4
9
3
.
3
1
.
2
0
1
.
2
.
2
9
0
6
5
2
7
4
.
.
0
7
0
4
2015 2016
2017
Accident Rate
(Safety)
2015 2016
2017
General Diseases Rate
(Health)
Indexes are based on the number of incidents per 100 employees, calculated
on the number of FEMSA direct employees reported to Occupational Health
and Safety Administration System. Includes information on all countries.
Comprehensive Development
We promote wellness and a high quality of life for our employees,
their families and the communities in which they live and work.
We know that the advancement
of our employees takes place both
within and outside the company,
so we support a holistic FEMSA
Social Development System, which
is comprised of seven dimensions of
wellness related to Family, Social,
Health, Labor, Economic, Education
and Values.
One of the barometers of our progress toward advancing the
comprehensive development of our workforce is through our
employee engagement survey. This employee engagement
survey is annually open to 50 percent of our employees
(covering 100 percent of our employees every two years).
In 2017, 102,300 employees responded to the survey, an
approximately 89.8 percent participation rate among eligible
participants. We collect feedback on our organizational
climate, as it relates to satisfaction levels and potential areas of
concern. This information supports workplace improvements
and serves as an input to our quality-of-life programs.
We believe that talent is among the most
relevant competitive advantages we can
secure to ensure the long-term success and
sustainability of our business. We are
positioning talent management as a part of
our business strategy, generating the
organizational capacity to fully support it
and transforming it into a cultural attribute
of our organization.
25
Our Planet
We invest Ps. 658.7 million,
(US$ 33.4 million):
22%
water
67%
energy
11%
waste
and recycle
A key aspect of our sustainability strategy and risk management
approach includes identifying the major environmental impacts
of our operations across our value chain. We are taking steps
to improve our processes through the more efficient use of
resources. We focus our actions around three key priority areas
for our company and our stakeholders, including:
technologies. From 2011-2016, these improvements avoided
729,370 tons of CO2 emissions from being released into the
atmosphere. In 2017 our fuel efficiency consumption in
Mexico was 0.51 kilometer traveled per liter.
Liters of water consumed per liters of beverage produced
by Coca-Cola FEMSA
• Water: We optimize our water consumption to reduce our
water footprint.
• Energy: We work to reduce greenhouse (GHG) emissions
from our operations.
• Waste and recycling: We optimize our waste management
and reduce the impact of the waste created in our
processes.
Optimizing Resources
Because water quality and availability are crucial to the beverage
business, we focus on reducing consumption, improving
resource management and conserving the watershed.
Since 2010, the amount of water used by Coca-Cola FEMSA
to produce its beverages has steadily fallen.
We also work to optimize the amount of fuels used in our
operations. For example, we have reduced fuel consumption
per kilometer traveled at our Solistica operations by
implementing efficient route planning and integrating new
1.96
1.83
1.95
1.90
1.85
1.80
1.75
1.70
1.65
d
e
c
u
d
o
r
p
e
g
a
r
e
v
e
b
f
o
s
r
e
t
i
l
/
d
e
s
u
r
e
t
a
w
f
o
s
r
e
t
i
L
1.79
1.77
1.76
1.75
1.72
1.65
2010
2011
2012
2013
2014
2015
2016
2017
Data including all Coca-Cola FEMSA plants at the end of 2017
Percentage of water consumption by source
(%)
2017
2016
2015
2014
65.0
67.6
64.8
64.1
33.7
27.8
32.4
33.3
1.3
4.6
2.7
2.6
● Ground ● Supply ● Surface FEMSA Comercio is not included from 2014 to 2016.
26
FEMSA at
a Glance
Value Creation
Highlights
Dear
Shareholders
FEMSA
Comercio
Coca-Cola
FEMSA
Sustainability
FEMSA
Foundation
Corporate
Governance
Reducing Impacts
Energy is an important input to our business operations,
which is why year after year, we incorporate new processes
and tools to optimize its use, further diversify our energy
portfolio and reduce our climate impact.
We are taking steps to minimize the waste generated by
our operations, including proper management of industrial
waste. All our bottling plants operate with a waste-reduction
program, and our goal is to recycle 90 percent of the waste
associated with each of them by 2020.
Total intensive emissions Scope 1 (stationary) + Scope 2
Tons of equivalent CO2e / Total Revenues in Ps. million
● S1 stationary1 ● S1 non-stationary2 ● S23
3.71
3.80
0.92
0.81
2013
1.38
0.78
2014
3.31
1.28
0.75
2015
2.08
0.96
0.55
2016
2.17
0.80
0.39
2017
Includes the stationary consumption of non-renewable sources.
1
2 Includes the fuel consumption of own units, Coca-Cola FEMSA consumption is estimated.
3 Includes fuel consumption of renewable and non-renewable sources.
We comply with all regulations related to maintaining the
proper infrastructure to collect hazardous waste and dispose
of it through authorized service providers.
Used materials
(Tons) In 2017, 34.4 percent of our total materials consumed were recycled.
2017
2016
2015
2015
2014
518,319
515,095
● Virgin materials
64.9%
● Recycled materials 34.4%
● Biopolymer
0.7%
359,520
309,906
This information excludes Solistica and Imbera’s materials.
Waste management
(Tons)
2017
2016
2015
2014
166,604
209,318
202,479
212,346
Our goal is to obtain 85% of our electric
energy in Mexico from renewable sources
by 2020. We met 26.4% of our energy needs
in 2017 through renewable energy from
four wind farms.
This year we also moved closer to reaching our goal,
participating in the following projects:
• Amistad Wind Farm in the state of Coahuila, which will
have an installed capacity of 197.5 MW and generate
750,000 MWh per year of renewable energy. FEMSA
has entered into a power purchase agreement (PPA) to
acquire 100% of this energy to supply at least 7,600 FEMSA
load points in Mexico. The wind farm is expected to be
operational by the third quarter of 2018.
• Eolica del Sur Wind Farm in southern Oaxaca, which will
have 396 MW of installed capacity and generate more than
1.3 million MWh per year of renewable energy where we
have entered into a PPA to supply 13,800+ load points of
FEMSA’s and Heineken Mexico’s operations in Mexico.
The wind farm is expected to be completed by the fourth
quarter of 2018.
• We have also entered into a PPA for the San Matias Wind
Farm in the state of Baja California, which will have 31 MW
of installed capacity and generate 57,000 MWh per year of
renewable energy. This wind farm will supply its energy to
load points of FEMSA and Heineken Mexico located in this
NW region of Mexico and is expected to be operational by
the end of the year.
27
Our Community
98%
local
suppliers
Ps. 93.9
million from
Redondeo Clientes OXXO
504
local
initiatives
Due to the complexity and size of FEMSA’s multinational
organization, our operations reach a diverse group of people
and communities. Developing and maintaining positive,
mutually valuable relationships with the communities in
which we operate is fundamental to our business strategy
and our sustainability goals. This begins with understanding
the positive and negative impacts our businesses have in our
communities, and then assessing how our business strategy
can address the needs of these communities to further
promote their sustainability and our own.
We invested Ps. 454.8 million (US$ 23.0
million) in our community, with 73% for
community development and sustainable
supply and 27% for healthy lifestyles.
Community development
We contribute to the economic, social and environmental
wellbeing of the communities neighboring our operations.
We encourage employees to give back to their communities,
and we help organize and facilitate unique opportunities to
do so. During 2017, more than 51,063 employee volunteers
participated in 1,852 acts of service, totaling more than
367,796 donated hours.
28
FEMSA at
a Glance
Value Creation
Highlights
Dear
Shareholders
FEMSA
Comercio
Coca-Cola
FEMSA
Sustainability
FEMSA
Foundation
Corporate
Governance
The Model for Addressing Risks and Relations
with the Community (MARRCO) supports
company-wide efforts for more effective
dialogue with, and impact on, our local
communities.
We use this tool to help build trust and collaboration
with our local stakeholders, identify risks and
opportunities for value creation and better optimize
our actions and programs. MARRCO supports the
development of capabilities through multi-disciplinary
teams in our plants and distribution centers.
As part of the first phase of this model’s
implementation in 2016, we set up teams in 23 work
centers at Coca-Cola FEMSA, Solistica, Imbera, and
PTM in seven countries: Argentina, Brazil, Colombia,
Mexico, Nicaragua, Panama and Costa Rica. In
2017, we implemented MARRCO in 18 additional
work centers and continued to integrate it into our
processes, systems and work culture. This has included
expanded training in the methodology and the ability
for more parts of our organization to undertake
their own risk assessments and define Community
Engagement Plans.
Sustainable sourcing
We contribute to the improvement of the labor, social and
environmental performance of our suppliers.
Our suppliers are essential to the sustainability of our business,
and we are committed to helping them improve their labor,
social and environmental performance by providing training
and other resources to continually improve processes. In total,
we have a network of more than 53,992 suppliers of goods and
services for our business and operations, which channeled a
total of Ps. 171.8 billion (US$ 8.7 billion) to the productive
sectors of other industries.
To ensure that the companies and individuals who supply our
company with products and services operate with integrity,
we advise our suppliers to adhere to our Supplier Guiding
Principles, which describe our expectations related to labor
rights, the environment, community, ethics and values. We
modeled these principles on widely accepted international
standards, including the OECD Guidelines for Multinational
Enterprises and the United Nations Global Compact. In 2017,
we continued to work on ensuring our suppliers are informed
about and abide by these principles.
We are also committed to supporting suppliers who are local
to the country in which we are making the purchase. In 2017,
our percentage of spend in local suppliers was 86.8 percent.
The OXXO Customer Round-Up Program (Redondeo Clientes
OXXO), begun in the year 2002, serves as a link between
customers and local institutions, creating a circle of mutual
support between them. Currently, the program operates in
every state of Mexico through OXXO and other FEMSA Retail
banners. Through the participation of our employees, who
invite customers to participate in donating and rounding up
their total, in 2017, Ps. 93.9 million (US$ 1.8 million) were
raised, benefiting 256 institutions.
29
FEMSA
Foundation
Building partnerships to scale our impact
FEMSA Foundation’s mission is to make a positive impact on the
people and communities where we operate by furthering social
investment projects that promote sustainability. Specifically, we
focus our commitments on the principles of innovation, replicability
and scalability for three strategic action areas: water security, early
childhood development and cultural programs.
In 2017, our programs benefited 7,945,957 people directly and
indirectly in over 600 communities.
We know that the participation and expertise of our strategic
partners is crucial to the success of our projects. For every dollar
that we currently invest, we are able to leverage approximately
US$ 3.46 dollars through our partnerships (an increase from about
US$ 1.40 dollars during 2016).
In all the Foundation’s programs, we aim for maximum impact with
the resources and partnerships available to us. Over the coming year,
we will focus on reaching more people by scaling up our existing
programs and replicating best practices in new areas.
In 2018, FEMSA Foundation will
celebrate its first ten years of
accomplishments through special
activities and a renewed
commitment towards impactful
social investments that continue to
support a better future for all.
30
FEMSA at
a Glance
Value Creation
Highlights
Dear
Shareholders
FEMSA
Comercio
Coca-Cola
FEMSA
Sustainability
FEMSA
Foundation
Corporate
Governance
For a water secure region
One of our goals is to address water challenges in Latin
America by utilizing technology-supported decision-
making, increasing access to water and sanitation, and
enhancing water security through watershed sustainability.
tool run by the Water Center for Latin America and the
Caribbean, called the Strategic Decisions Hub (or NED, its
acronym in Spanish), we are able to generate a 360-degree
perspective on water availability and use in the region. This
tool supports the decision-making process—guided by a
multidisciplinary network of experts—for finding solutions to
complex problems.
We are increasingly addressing water stewardship in the
context of the inextricable linkages between water, energy
and food resources. By leveraging a sophisticated modeling
Our partnership with The Nature Conservancy, the Inter-
American Development Bank (IDB) and the Global
31
tools to make this initiative sustainable once the project is
complete. By using this model we have assisted 7,299 persons
and plan to help more in the coming year.
Promoting early childhood development
By strengthening early childhood development, our vision
is that all children reach their maximum potential and
transform the communities where we operate.
All children deserve to achieve their maximum potential,
but not all have the resources to do so. In partnership with
IDB and Open Society Foundations, we launched the Early
Childhood Development Innovation Fund. Designed to
benefit children in the most vulnerable of communities, the
new fund will finance initiatives to improve the cognitive,
linguistic, motor and socio-emotional abilities of children in
the first five years of their lives. We are excited to be a part of
this collaboration because it will afford us the partnerships
and resources necessary to test innovative models and
develop opportunities to scale.
Environment Fund has expanded the scope of our water
initiatives beyond conservation. As a member of the Latin
American Water Funds Partnership, we provide technical
and financial assistance for the creation of Water Funds.
These funds help communities achieve water security by
investing in natural infrastructure and good governance. For
example, in Monterrey in September 2017, we gathered 20
key stakeholders—from government, to private enterprise,
to agricultural producers and water utility companies—to
develop a common agenda on how the community can work
together to manage this water resource. From our discussion,
we identified 11 areas for this common agenda and we are
now executing on the first four:
• Governance structure
• Source protection
• Flood prevention
• Access to water
As of the end of 2017, the Latin American Water Funds
Partnership has leveraged over Ps. 43.5 million (US$ 2.2
million) from more than 100 local partners.
In March 2017, we launched Water Links (Lazos de Agua)
together with One Drop, IDB and the Coca-Cola Foundation.
Through this multi-stakeholder partnership, we are improving
the health and living conditions of the poorest and most
vulnerable communities in Latin America. Through a focus on
behavior change, we aim to develop sustainable water access
and sanitation projects. By helping communities change
their habits and learn the practices needed to sustain ongoing
investments, we seek to empower them and give them the
We also remain active in Sesame Workshop’s ¡Listos a Jugar!
(Ready to Play!), a multi-platform initiative to promote
lifelong, healthy habits through educational entertainment
for children from 0 to 6 years of age. We provide financial and
advisory support for the many activities provided to teachers
and parents, including games focused on nutrition habits,
emotional intelligence, self-esteem and physical health.
Through this initiative we have reached 7.8 million people
in Mexico, Ecuador and Colombia, and we are planning to
launch in Brazil in 2018.
32
FEMSA at
a Glance
Value Creation
Highlights
Dear
Shareholders
FEMSA
Comercio
Coca-Cola
FEMSA
Sustainability
FEMSA
Foundation
Corporate
Governance
Another one of our goals is to raise awareness in the private
sector community about the importance and benefits of
implementing early childhood development initiatives for
the families of employees. By making these investments,
we believe that companies can build a team that is more
successful and sustainable, as well as increase employee
productivity and satisfaction. In November 2017, in
collaboration with LEGO Foundation and United Way
Mexico, we hosted a one-day summit and symposium to
discuss these early childhood development opportunities
with the CEOs and human resources executives of some of the
most important companies in Mexico and Latin America. 18
speakers shared knowledge and best practices for promoting
early childhood development with over 280 participants and
9,000 remote viewers from six different countries. To learn
more about the symposium, please visit:
http://ecdsymposium.com/.
Arts and culture advocacy
Our goal is to preserve, promote, and share the FEMSA
Collection in order to contribute to a further
understanding and appreciation of modern and
contemporary Latin American art.
At FEMSA, we believe in the power of art and its ability
to positively transform the way people interact with their
surroundings. This is why, 40 years after its institution, the
FEMSA Collection continues its endeavor of sharing the legacy
of its artworks with diverse audiences in different geographies
through an exhibition program and various other initiatives.
The FEMSA Collection gathers more than 1,200 works of
art that document the evolution, diversity, and heritage of
the arts that have unfolded in Latin America since the 20th
century. Throughout 2017, more than 1 million people visited
exhibitions in Mexico, Costa Rica, Guatemala, and Panama
made possible by our exhibition program, as well as other
museums around the world, where works from the Collection
were displayed as part of our loan program.
In addition to safeguarding the FEMSA Collection, the FEMSA
Cultural Program manages two significant initiatives: the
FEMSA Biennial and Estancia FEMSA – Casa Luis Barragán.
The FEMSA Biennial was launched in 1992 with the purpose
of recognizing, strengthening, encouraging and providing
a platform for artistic creation in Mexico. Since then, it has
evolved into a collaborative model that seeks to generate a
dialogue that connects local cultural context and the global
contemporary art scene. Now in its 13th edition, the FEMSA
Biennial takes place from 2017 through 2019 in the state of
Zacatecas, in partnership with various local cultural institutions
and museums.
Estancia FEMSA – Casa Luis Barragán is a cultural and artistic
platform hosted by Casa Luis Barragán in Mexico City, the
former residence of Luis Barragán, one of the most relevant
architects of the 20th century. It presents a series of exhibitions,
performances and editorial content to promote dialogue
on the historical context offered by the house, as well as the
possibilities of the modern and contemporary art disciplines.
33
Corporate Governance
FEMSA seeks to adhere to the highest ethical standards of governance practices. We are committed to the quality, accuracy
and reliability of our practices for disclosing information, financial transparency and accountability. Our corporate practices
comply with the laws of the countries where we operate. We comply with the standards set forth in the Mexican Securities Law
(Ley del Mercado de Valores), and the applicable United States securities laws, including the Sarbanes-Oxley Act. Additionally
we observe recommendations of the Mexican Code of Best Practices, issued by the Business Coordinating Council (Consejo
Coordinador Empresarial).
Board of Directors
The Board of Directors is responsible for establishing our corporate strategy, defining and overseeing the implementation of our
vision and values, and approving related-party transactions, including transactions outside the ordinary course of business and
internal policies.
Series “B” Directors
José Antonio Fernández Carbajal C
Executive Chairman of the Board of Directors of Fomento
Económico Mexicano, S.A.B. de C.V.
Elected 1984
Alternate: Federico Reyes García C
Javier Gerardo Astaburuaga Sanjines C
Vice-President of Corporate Development of Fomento Económico
Mexicano, S.A.B. de C.V.
Elected 2006
Mariana Garza Lagüera Gonda
Private Investor
Elected 1998
Alternate: Paulina Garza Lagüera Gonda
Eva María Garza Lagüera Gonda
Private Investor
Elected 1999
Alternate: Othón Páez Garza
José Fernando Calderón Rojas
Chief Executive Officer and Chairman of the Board of Directors
of Franca Servicios, S.A. de C.V., Servicios Administrativos de
Monterrey, S.A. de C.V., Regio Franca, S.A. de C.V., and Franca
Industrias, S.A. de C.V.
Elected 1984
Alternate: Francisco José Calderón Rojas
Alfonso Garza Garza
Vice President of Strategic Businesses of Fomento Económico
Mexicano, S.A.B. de C.V.
Elected 2001
Alternate: Juan Carlos Garza Garza
Max Michel González
Operations Manager at Servicios Liverpool, S.A. de C.V.
Elected 1996
Alternate: Bertha Michel González
Alberto Bailleres González
Chairman of the Boards of Directors of the companies of Grupo
BAL, S.A. de C.V.
Elected 1989
Alternate: Arturo Fernández Pérez
Francisco Javier Fernández Carbajal C
Chief Executive Officer of Servicios Administrativos Contry,
S.A. de C.V.
Elected 2004
Alternate: Daniel Alberto Rodríguez Cofré
Ricardo Guajardo Touché B, C, I
Chairman of the Board of Directors of Solfi, S.A. de C.V.
Elected 1988
Alfonso González Migoya, A, I
Chairman of the Board of Directors of Controladora Vuela
Compañía de Aviación, S.A.B. de C.V. (Volaris).
Elected 2006
Alternate: Sergio Deschamps Ebergenyi I
Carlos Salazar Lomelín
Member of the Board of Directors of Fomento Económico
Mexicano, S.A.B. de C.V., Coca-Cola FEMSA, S.A.B. de C.V.,
Grupo Financiero BBVA Bancomer, S.A. de C.V. and Fundación
FEMSA, A.C.
Elected 2014
Alternate: Eduardo Padilla Silva
Bárbara Garza Lagüera Gonda
Private Investor; President of the Acquisitions Committee of
Colección FEMSA
Elected 1998
Alternate: Juan Guichard Michel
34
FEMSA at
a Glance
Value Creation
Highlights
Dear
Shareholders
FEMSA
Comercio
Coca-Cola
FEMSA
Sustainability
FEMSA
Foundation
Corporate
Governance
Ricardo E. Saldívar Escajadillo B, C, I
President of the Board of Directors and former Chief Executive
Officer of The Home Depot Mexico
Elected 2006
José Manuel Canal Hernando A, I
Independent Consultant
Elected 2003
Alfonso de Angoitia Noriega I
Executive Vice-Chairman and Chairman of the Finance
Committee of Grupo Televisa, S.A.B.
Elected 2015
Series “D” Directors
Armando Garza Sada I
Chairman of the Board of Directors of Grupo Alfa, S.A.B. de
C.V., Alpek, S.A.B. de C.V. and Nemak, S.A.B. de C.V.
Elected 2003
Alternate: Enrique F. Senior Hernández C, I
Moisés Naím B, I
Distinguished Fellow at the Carnegie Endowment for
International Peace; Producer and host of Efecto Naím; author
and journalist
Elected 2011
Alternate: Francisco Zambrano Rodríguez A, I
Michael Larson I
Chief Investment Officer for William H. Gates III
Elected 2011
Robert E. Denham B, C, I
Partner at Munger, Tolles & Olson, LLP
Elected 2001
Alternate Director: Ernesto Cruz Velázquez de León A, I
Carlos Eduardo Aldrete Ancira
Secretary
Alejandro Gil Ortiz
Alternate Secretary
A: Audit Committee;
B: Corporate Practices Committee;
C: Strategy and Finance Committee;
I: Independent Director
Committees
Our Board of Directors is supported by committees that analyze issues and provide recommendations to the Board of Directors
regarding their respective areas of focus, which include economic, social and environmental matters.
Audit Committee*
Corporate Practices Committee*
Strategy and Finance Committee
Responsible for:
• reviewing the accuracy and integrity
of quarterly and annual financial
statements in accordance with
accounting, internal control, and
auditing requirements;
• the appointment, compensation,
retention, and oversight of the
independent auditor, who reports
directly to the Audit Committee;
• identifying and following up on
contingencies and legal proceedings.
Responsible for:
• preventing or reducing the risk of
Responsible for:
• evaluating the investment and
financing policies proposed by the
Chief Executive Officer;
• evaluating risk factors to which the
corporation is exposed, as well as its
management policies.
transactions that could damage the
value of the company or benefit a
particular group of shareholders;
• approving policies for the use of the
company’s assets or any related party
transactions and the compensation of
the Chief Executive Officer and senior
executives, as well as supporting the
Board of Directors in the preparation
of reports on accounting practices.
*Committee members are independent directors, as required by Mexican Securities Law.
The Audit Committee has procedures for receiving, retaining, and addressing complaints regarding accounting, internal control,
and auditing matters, including the submission of confidential, anonymous complaints from employees regarding questionable
accounting or auditing matters.
35
Executive Management
Our management team is focused on driving business growth by creating economic, social and environmental value for
all our stakeholders.
Each of our executive leaders has significant professional experience within the industries where our businesses operate.
José Antonio Fernández Carbajal
Executive Chairman of the Board
Mr. Fernández joined FEMSA in 1988. He was appointed
CEO in 1995 and Chairman in 2001, serving in both positions
until January 2014. He is Vice Chairman of the Heineken N.V.
Supervisory Board and member of the Heineken Holding N.V.
Board, and also serves as Chairman of Coca-Cola FEMSA,
FEMSA Foundation, Tecnológico de Monterrey and the US-
Mexico Foundation. He is a member of the Board of Industrias
Peñoles and Grupo Televisa, co-chairs the Mexico Institute of
the Woodrow Wilson Center and he is a member of the board
of trustees of the Massachusetts Institute of Technology. His
degrees in Industrial Engineering and Systems and MBA were
both earned from Tecnológico de Monterrey.
Alfonso Garza Garza
Vice President of Strategic Businesses of FEMSA
Mr. Garza joined FEMSA in 1985 and held various positions
including CEO of FEMSA Empaques. In 2012 he was
appointed to his current position. He served as President of
the Employers Confederation of Mexico (Coparmex) for the
state of Nuevo León (2011-2013), and has served as National
Vice President since 2009. He is Chairman of the Talent
and Culture Committee of Tecnológico de Monterrey, and
member of the Board of Coca-Cola FEMSA and Tecnológico
de Monterrey. Mr. Garza earned a Bachelor’s degree in
Industrial Engineering from Tecnológico de Monterrey and
completed postgraduate coursework at IPADE.
Eduardo Padilla Silva
Chief Executive Officer of FEMSA
Mr. Padilla joined FEMSA in 1997 and was named to his
current position in January 2018. Previously he served as
Chief Financial and Corporate Officer of FEMSA, CEO of
FEMSA Comercio, CEO of FEMSA Strategic Procurement
and FEMSA’s Director of Planning and Control. Mr. Padilla
earned a Bachelor’s degree in Mechanical Engineering
from Tecnológico de Monterrey and an MBA from Cornell
University. He also holds a Master’s degree from IPADE.
Javier Gerardo Astaburuaga Sanjines
Vice President of Corporate Development of FEMSA
Mr. Astaburuaga joined FEMSA in 1982. His roles in the
company have included co-CEO of FEMSA Cerveza, Director
of Sales for Northern Mexico, CFO of FEMSA Cerveza
and Chief Financial and Corporate Officer of FEMSA.
He was appointed to his current position in April 2015.
Mr. Astaburuaga earned his Bachelor’s degree in Public
Accounting from Tecnológico de Monterrey.
Genaro Borrego Estrada
Vice President of Corporate Affairs of FEMSA
Mr. Borrego joined FEMSA in 2008 after serving as Governor
of the Mexican State of Zacatecas (1986-1992), head of the
Mexican Social Security Institute (IMSS) (1993-2000) and
Senator to the Federal Congress representing the State
of Zacatecas (2000-2006). He holds a degree in Industrial
Relations from Universidad Iberoamericana.
José González Ornelas
Vice President of Administration and Corporate Control of
FEMSA
Mr. González joined FEMSA in 1973 and assumed his current
position in 2001. His previous roles have included CFO
of FEMSA Cerveza, Director of Planning and Corporate
Development of FEMSA and CEO of FEMSA Logística.
He serves as Secretary of the Audit Committee of both
FEMSA’s and Coca-Cola FEMSA’s Boards of Directors, and
is a member of the Board of Productora de Papel, S.A. He
holds a BA in Accounting from Universidad Autónoma de
Nuevo León and completed postgraduate studies in Business
Administration at IPADE.
36
FEMSA at
a Glance
Value Creation
Highlights
Dear
Shareholders
FEMSA
Comercio
Coca-Cola
FEMSA
Sustainability
FEMSA
Foundation
Corporate
Governance
John Anthony Santa Maria Otazúa
Chief Executive Officer of Coca-Cola FEMSA
Mr. Santa Maria was appointed to his current position in 2014,
having joined Coca-Cola FEMSA in 1995 and having served
in several senior management positions since then, including
COO of the company’s Mexico Division, and Strategic
Planning and Business Development Officer. Mr. Santa Maria
earned a Bachelor´s degree and an MBA with a major in
Finance from Southern Methodist University.
Daniel Alberto Rodríguez Cofré
Chief Executive Officer of FEMSA Comercio
Mr. Rodríguez joined FEMSA in 2015 as Chief Financial and
Corporate Officer, and was named to his current position
in January 2016. Prior to joining the company he was CFO
and then CEO of CENCOSUD (Centros Comerciales
Sudamericanos S.A.), among other senior finance and
management positions in Latin America, Europe and Africa.
He is a member of the Board of Coca-Cola FEMSA and an
alternate member of the Board of FEMSA. Mr. Rodríguez
holds a forest engineering degree from Austral University of
Chile and an MBA from Adolfo Ibañez University.
Code of Ethics
Our Code of Ethics1 defines our expectations for ethical
decision-making and professional business conduct, including
employment policies, health and safety, our relations with the
community, use of resources, compliance with regulation,
relations with third parties and responsibilities under the
Code of Ethics. The Code is applicable to all our collaborators
and officers—including our Chief Executive Officer—and each
is required to confirm their understanding of, and adherence
to, these standards.
In accordance with the provisions set forth in our Code of
Ethics, we maintain a whistleblower system, through which
FEMSA detects any illegal practices, inappropriate conduct
or Code of Ethics violations. Managed 24 hours a day, every
day, by an independent party, this system offers our
stakeholders four confidential, anonymous communication
channels: phone, website, e-mail or online chat.
2
9
4
2
,
2
0
0
2
,
2
9
7
,
1
2015
2016
2017
Whistleblower System
Number of complaints received
at FEMSA and its Business Units
Number of complaints received at FEMSA and its Business Units*
2016
2,002
Number of complaints received
82%
Resolved in same calendar year
18%
Resolved beyond same calendar year
* Complaints include reported situations relating to workplace or sexual harassment,
2015
1,792
65%
35%
2017
2,492
70%
30%
discrimination, human rights violations, theft, corruption, misuse of information, negative impacts
on the community and the environment, among others.
1. http://files.shareholder.com/downloads/FEMSA/5674198996x0x30974/86
CD1FD-C202-405C-A003-87D9D7A40DB2/FEMSA_-_Code_of_
Ethics_2017_-_eng.pdf
37
Financial Summary
Amounts expressed in millions of Mexican pesos (Ps.)
as of December 31, 2017
Income Statement
Net sales
Total revenues
Cost of goods sold
Gross profit
Operating expenses
Income from operations (1)
Other non-operating expenses (income), net
Financing expenses, net
Income before income taxes and share of the profit of
associates and joint ventures
Income taxes
Share of the profit of associates and joint ventures
accounted for using the equity method, net of taxes
Consolidated net income
Controlling Interest
Non-Controlling Interest
Ratios to total revenues (%)
Gross margin
Operating margin
Consolidated net income
Other information
Depreciation
Amortization and other non cash charges to income
from operations
Operative Cash Flow (EBITDA)
Capital expenditures (2)
2017
2016
2015
2014
2013
Ps. 459,763
Ps. 398,622
Ps. 310,849
Ps. 262,779
Ps. 256,804
460,456
290,188
170,268
128,829
41,439
(1,545)
3,216
39,768
10,583
8,021
37,206
42,408
(5,202)
37.0%
9.0%
8.1%
15,613
4,366
61,418
25,180
399,507
251,303
148,204
110,777
37,427
4,208
4,619
28,600
7,888
6,463
27,175
21,140
6,035
37.1%
9.4%
6.8%
12,076
5,484
54,987
22,155
311,589
188,410
123,179
89,444
33,735
954
7,618
263,449
153,278
110,171
80,188
29,983
(508)
6,988
258,097
148,443
109,654
79,797
29,857
326
4,249
25,163
23,503
25,282
7,932
6,045
23,276
17,683
5,593
39.5%
10.8%
7.5%
9,761
3,130
6,253
5,380
22,630
16,701
5,929
41.8%
11.4%
8.6%
9,029
1,933
7,756
4,629
22,155
15,922
6,233
42.5%
11.6%
8.6%
8,805
1,208
46,626
18,885
40,945
18,163
39,870
17,882
38
Balance Sheet
Assets
Current assets
Investments in associates and joint ventures
Property, plant and equipment, net (3)
Intangible assets,net
Other assets, net
Total assets
Liabilities
Short-term bank loans and current portion of long-
term bank loans and notes payable
Other current liabilities
Long-term bank loans and notes payable
Employee benefits
Deferred tax liabilities
Other long-term liabilities
Total liabilites
Total equity
Controlling interest
Non-controlling interest
Financial ratios (%)
Liquidity
Leverage
Capitalization
Data per share
Controlling interest book value (4)
Net controlling interest income (5)
Dividends paid (6)
Series B shares
Series D shares
Number of employees (7)
Number of outstanding shares (8)
2017
2016
2015
2014
2013
181,188
96,097
116,712
154,093
40,451
588,541
117,951
128,601
102,223
153,268
43,580
545,623
86,723
111,731
80,296
108,341
22,241
409,332
79,112
102,159
75,629
101,527
17,746
376,173
73,569
98,330
73,955
103,293
10,045
359,192
13,590
7,281
5,895
1,553
3,827
91,432
117,758
5,373
6,133
17,343
251,629
336,912
250,291
86,621
1.725
0.747
0.29
13.990
2.370
0.431
0.538
79,008
131,967
4,447
11,037
25,713
259,453
286,170
211,904
74,266
59,451
85,969
4,229
6,230
5,702
167,476
241,856
181,524
60,332
1.367
0.907
0.33
1.327
0.692
0.28
11.844
1.182
10.146
0.988
0.417
0.521
0.366
0.458
47,766
82,935
4,207
3,643
5,947
146,051
230,122
170,473
59,649
1.604
0.635
0.27
9.528
0.933
0.000
0.000
45,042
72,921
4,074
2,993
7,785
136,642
222,550
159,392
63,158
1.505
0.614
0.26
8.909
0.890
0.667
0.833
295,027
266,144
246,158
216,740
209,232
17,891.13
17,891.13
17,891.13
17,891.13
17,891.13
1. Company’s key performance indicator.
2. Includes investments in property, plant and equipment, as well as deferred charges and intangible assets.
3. Includes bottles and cases.
4. Controlling interest divided by the total number of shares outstanding at the end of each year.
5. Net controlling interest income divided by the total number of shares outstanding at the end of the each year.
6. Expressed in nominal pesos of each year.
7. Includes incremental employees resulting from mergers & acquisitions made during the year.
8. Total number of shares outstanding at the end of each year expressed in millions.
39
Management’s
Discussion & Analysis
Fomento Económico Mexicano, S.A.B. de C.V. and Subsidiaries, Monterrey, N.L., Mexico
Audited Financial Results for the twelve months ended December 31, 2017 Compared to the twelve months ended
December 31, 2016.
The 2017 and 2016 results are stated in nominal Mexican
pesos (“pesos” or “Ps.”). Translations of pesos into US dollars
(“US$”) are included solely for the convenience of the reader
and are determined using the noon buying rate for pesos
as published by the U.S. Federal Reserve Board in its H.10
Weekly Release of Foreign Exchange Rates as of December 29,
2017, which was 19.6395 pesos per US dollar.
This report may contain certain forward-looking statements
concerning Company’s future performance that should be
considered good faith estimates made by the Company.
These forward-looking statements reflect management
expectations and are based upon currently available
data. Actual results are subject to future events and
uncertainties, which could materially impact the
Company’s actual performance.
Fomento Económico Mexicano, S.A.B. de C.V. (“FEMSA”)
is a Mexican holding company. Set forth below is certain
audited financial information for FEMSA and its subsidiaries
(the “Company” or “FEMSA Consolidated”) (NYSE: FMX;
BMV: FEMSA UBD, FEMSA BD). The principal activities
of the Company are grouped mainly under the following
subholding companies (the “Subholding Companies”):
Coca-Cola FEMSA, S.A.B de C.V. (“Coca-Cola FEMSA”
or “KOF”), (NYSE: KOF, BMV: KOFL) which engages in
the production, distribution and marketing of beverages,
and FEMSA Comercio, S.A. de C.V. (“FEMSA Comercio”),
including its Retail Division which operates small-format
chain stores, a Health Division, which includes drugstores
and related operations and its Fuel Division which operates
retail service stations for fuels, motor oils and others.
The consolidated financial information included in this
annual report was prepared in accordance with International
Financial Reporting Standards (“IFRS”) as issued by the
International Accounting Standards Board (“IASB”).
FEMSA Consolidated
2017 amounts in millions of Mexican pesos
FEMSA Consolidated
Coca-Cola FEMSA
FEMSA Comercio – Retail Division
FEMSA Comercio – Health Division
FEMSA Comercio – Fuel Division
Total Revenues
% Growth vs’16
Gross Profit
% Growth vs’16
460,456
203,780
154,204
47,421
38,388
15.3%
14.7%
12.4%
9.2%
34.1%
170,268
91,686
58,245
14,213
2,767
14.9%
15.1%
14.2%
11.6%
23.1%
40
FEMSA’s consolidated total revenues increased 15.3% to
Ps. 460,456 million in 2017 compared to Ps. 399,507 million
in 2016. Coca-Cola FEMSA’s total revenues increased 14.7%
to Ps. 203,780 million, including the results of the Vonpar
acquisition in Brazil and the consolidation of its operations
in the Philippines beginning in February, supported by price
increases aligned or above inflation in key territories and 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.
FEMSA Comercio – Retail Division’s revenues increased
12.4% to Ps. 154,204 million, driven by the opening of 1,301
net new OXXO stores combined with an average increase
of 6.4% in same-store sales. FEMSA Comercio – Health
Division’s revenues increased 9.2% to PS. 47,421 million,
driven by the opening of 105 net new stores combined with
an average increase of 6.7% in same-store sales. FEMSA
Comercio – Fuel Division revenues increased 34.1% to Ps.
Ps. 38,388 million in 2017, driven by the addition of 70 total
net new stations in the last twelve months, and a 19.8%
increase in same-station sales.
Consolidated gross profit increased 14.9% to Ps. 170,268
million in 2017 compared to Ps. 148,204 million in 2016.
Gross margin decreased 10 basis points to 37.0% of total
revenues compared to 2016, reflecting the growth of lower
margin businesses in FEMSA Comercio.
Consolidated operating expenses increased 16.3% to
Ps. 128,829 million in 2017 compared to Ps. 110,777 million
in 2016. As a percentage of total revenues, consolidated
operating expenses increased from 27.7% in 2016 to 28.0%
in 2017.
Consolidated administrative expenses increased 12.1% to
Ps. 16,512 million in 2017 compared to Ps. 14,730 million
in 2016. As a percentage of total revenues, consolidated
administrative expenses decreased 10 basis points, from 3.7%
in 2016, compared to 3.6% in 2017.
Consolidated selling expenses increased 16.7% to Ps. 111,456
million in 2017 as compared to Ps. 95,547 million in 2016.
As a percentage of total revenues, selling expenses increased
30 basis points, from 23.9% in 2016 to 24.2% in 2017.
Consolidated income from operations increased 10.7% to
Ps. 41,439 million in 2017 as compared to Ps. 37,427 million
in 2016. As a percentage of total revenues, operating margin
decreased 40 basis points, from 9.4% in 2016 to 9.0% in 2017
reflecting: i) the incorporation of structurally lower-margin
results from Coca-Cola FEMSA Philippines; ii) an operating
margin contraction across businesses; and iii) the integration
and faster growth of FEMSA Comercio’s three divisions,
whose lower margins tend to compress FEMSA’s consolidated
margins over time.
Some of our subsidiaries pay management fees to us in
consideration for corporate services we provide to them. These
fees are recorded as administrative expenses in the respective
business segments. Our subsidiaries’ payments of management
fees are eliminated in consolidation and, therefore, have no
effect on our consolidated operating expenses.
Net financing expenses decreased to Ps. 3,216 million from
Ps. 4,619 million in 2016, mostly driven by a positive result
caused by a foreign exchange gain related to the effect of
FEMSA’s US Dollar-denominated cash position, as impacted
by the depreciation of the Mexican Peso during the period.
This cash position increased during 2017, mainly as a result
from the sale of 5.24% of the combined interest in the
Heineken Group; this movement was enough to offset an
interest expense increase of 15.3% to Ps. 11,124 million in
2017, compared to Ps. 9,646 million in 2016 resulting from
new debt acquisition at Coca-Cola FEMSA in connection to
the Vonpar acquisition.
Income before income taxes and share of the profit in
Heineken results increased 39.0% to Ps. 39,768 million in
2017 compared with Ps. 28,600 million in 2016, mainly as a
result of growth in FEMSA’s income from operations, higher
non-operating income resulting from the sale of 5.24% of
the combined interest in the Heineken Group completed on
September 18, 2017, and higher foreign exchange gain related
to a higher U.S. dollar-denominated cash position at FEMSA,
coming from the aforementioned sale of Heineken shares.
41
These impacts more than offset higher financing expenses as
well as the change in the accounting method for Coca-Cola
FEMSA’s Venezuelan operation booked in the fourth quarter,
which resulted in the reclassification of a recorded foreign
currency translation charge in equity. This was a non-cash,
one-time impact to the other non-operating expenses line of
the income statement, in accordance with IFRS standards.
Our accounting provision for income taxes in 2017 was
Ps. 10,583 million, as compared to Ps. 7,888 million in 2016,
resulting in an effective tax rate of 26.5% in 2017, as compared
to 27.6% in 2016, slightly under our expected medium-term
range of 30%. The lower effective tax rate registered during
2017 is mainly related to certain tax efficiencies related with
the one-time non-operating income recorded by the partial
sale of Heineken Group’s shares and the consolidation of
Coca-Cola FEMSA Philippines, Inc. both during 2017.
Consolidated net income was Ps. 37,206 million in 2017
compared to Ps. 27,175 million in 2016, resulting from growth
in FEMSA’s income from operations, higher non-operating
income resulting from the sale of 5.24% of the combined
interest in the Heineken Group completed on September 18,
2017, and a higher foreign exchange gain related to a higher
U.S. dollar-denominated cash position at FEMSA, coming
from the aforementioned sale of Heineken shares. Controlling
interest amounted to Ps. 42,408 million in 2017 compared to
Ps. 21,140 million in 2016. Controlling interest in 2017 per
FEMSA Unit1 was Ps. 11.85 (US$ 6.03 per ADS).
Coca-Cola FEMSA
Coca-Cola FEMSA total revenues increased 14.7% to Ps.
Ps. 203,780 million in 2017, compared to Ps. 177,718 million
in 2016, including the results of the Vonpar acquisition
in Brazil and the consolidation of its operations 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. On a currency-neutral basis
and excluding Venezuela, 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.
Coca-Cola FEMSA gross profit increased 15.1% to Ps. 91,686
million in 2017, compared to Ps. 79,662 million in 2016, with
a gross margin expansion of 20 basis points. In local currency,
pricing initiatives, coupled with 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. Gross margin reached 45.0% in 2017.
The components of cost of goods sold include raw materials
(principally concentrate, sweeteners and packaging
materials), depreciation costs attributable to our production
facilities, wages and other employment costs associated
with labor force employed at our production facilities and
certain overhead costs. Concentrate prices are determined
as a percentage of the retail price of our products in the local
currency, net of applicable taxes. Packaging materials, mainly
PET and aluminum, and HFCS, used as a sweetener in some
countries, are denominated in U.S. dollars.
Operating expenses increased 17.5% to Ps. 65,511 million in
2017, compared to Ps. 55,742 million in 2016.
Administrative expenses increased 21.0% to Ps. 8,983 million
in 2017, compared to Ps. 7,423 million in 2016. Selling
expenses increased 16.4% to Ps. 55,927 million in 2017
compared with Ps. 48,039 million in 2016.
1 FEMSA Units consist of FEMSA BD Units and FEMSA B Units. Each FEMSA BD Unit is comprised of one Series B Share, two Series D-B Shares and two Series
D-L Shares. Each FEMSA B Unit is comprised of five Series B Shares. The number of FEMSA Units outstanding as of December 31, 2017 was 3,578,226,270,
equivalent to the total number of FEMSA Shares outstanding as of the same date, divided by 5.
42
Income from operations increased 9.4% to Ps. 26,175 million
in 2017 compared to Ps. 23,920 million in 2016.
FEMSA Comercio – Retail Division
FEMSA Comercio – Retail Division total revenues increased
12.4% to Ps. 154,204 million in 2017 compared to Ps. 137,139
million in 2016, primarily as a result of the opening of 1,301
net new OXXO stores during 2017, together with an average
increase in same-store sales of 6.4%. As of December 31,
2017, there were a total of 16,526 OXXO stores. As referenced
above, OXXO same-store sales increased an average of 6.4%
compared to 2016, driven by a 3.8% increase in average
customer ticket while store traffic increased 2.5%.
Cost of goods sold increased 11.4% to Ps. 95,959 million in
2017, compared to Ps. 86,149 million in 2016. Gross margin
increased 60 basis points to reach 37.8% of total revenues.
This increase reflects healthy trends in our commercial
income activity and the sustained growth of the services
category, including income from financial services. As a result,
gross profit increased 14.2% to Ps. 58,245 million in 2017
compared with Ps. 50,990 in 2016.
Operating expenses increased 15.9% to Ps. 45,802 million in
2017 compared to Ps. 39,505 million in 2016. The increase
in operating expenses was driven by i) our continuing
initiatives to improve compensation and reduce turnover of
key in-store personnel ii) a sustained increase in electricity
tariffs, and iii) higher secure cash transportation costs driven
by increased volume and higher fuel prices.
Administrative expenses increased 8.4% to Ps. 3,170 million in
2017, compared to Ps. 2,924 million in 2016; as a percentage
of sales, they remained flat at 2.1% in 2017. Selling expenses
increased 16.7% to Ps. 42,406 million in 2017 compared
with Ps. 36,341 million in 2016; as a percentage of sales they
reached 27.5% in 2017.
Income from operations increased 8.3% to Ps. 12,443 million
in 2017 compared to Ps. 11,485 million in 2016, resulting in
an operating margin contraction of 30 basis points to 8.1%
as a percentage of total revenues for the year, compared with
8.4% in 2016.
FEMSA Comercio – Health Division
FEMSA Comercio – Health Division total revenues increased
9.2% to Ps. 47,421 million compared to Ps. 43,411 million in
2016, primarily as a result of the opening of 105 net new stores
during 2017, together with an average increase in same-store
sales of 6.7%, which was mostly driven by strong performance
and positive foreign translation effects from our South
American operations. As of December 31, 2017, there were a
total of 2,225 drugstores in Mexico, Chile and Colombia.
Cost of goods sold increased 8.3% to Ps. 33,208 million
in 2017, compared with Ps. 30,673 million in 2016. Gross
margin increased 70 basis points to reach 30.0% of total
revenues compared with 29.3% in 2016. As a result,
gross profit increased 11.6% to Ps. 14,213 million in 2017
compared with Ps. 12,738 in 2016.
Operating expenses increased 12.8% to Ps. 12,595 million in
2017 compared with Ps. 11,166 million in 2016. The increase
in operating expenses was driven by the integration of a
single operating platform in Mexico, building our distribution
capabilities and increased services at our drugstores such as
on-site doctors and home delivery in the key Mexican market.
Administrative expenses decreased 7.1% to Ps. 1,643
million in 2017, compared with Ps. 1,769 million in 2016;
as a percentage of sales, they reached 3.5% in 2017. Selling
expenses increased 15.9% to Ps. 10,850 million in 2017
compared with Ps. 9,365 million in 2016; as a percentage of
sales, they reached 22.9% in 2017.
Income from operations increased 2.9% to Ps. 1,618 million in
2017 compared with Ps. 1,572 million in 2016, resulting in an
operating margin contraction of 20 basis points to 3.4% as a
percentage of total revenues for the year, compared with 3.6%
in 2016.
FEMSA Comercio – Fuel Division
FEMSA Comercio – Fuel Division total revenues increased
34.1% to Ps. 38,388 million in 2017 compared to Ps. 28,616 in
2016, primarily reflecting a national price increase established
at the beginning of the year, as well as the opening of 70 net
new OXXO GAS service stations during 2017. As of December
43
31, 2017, there were a total of 452 OXXO GAS service stations.
Same-station sales increased an average of 19.8% compared
to 2016, as the average price per liter increased by 21.1%
reflecting the national price increase mentioned above, while
the average volume decreased by 1.1% mainly from consumer
reaction to the higher prices.
Cost of goods sold increased 35.1% to Ps. 35,621 million in
2017, compared with Ps. 26,368 million in 2016. Gross margin
decreased 70 basis points to reach 7.2% of total revenues. This
decrease reflects the effect of gross profit per liter remaining
flat in peso terms for the first half of the year, while the
consumer price per liter increased significantly, as described
in the preceding paragraph. As a result, gross profit increased
23.1% to Ps. 2,767 million in 2017 compared with 2016.
Operating expenses increased 25.2% to Ps. 2,497 million in
2017 compared with Ps. 1,995 in 2016.
Administrative expenses increased 21.3% to Ps. 154 million in
2017, compared with Ps. 127 million in 2016; as a percentage
of sales, they remained flat at 0.4% in 2017. Selling expenses
increased 24.9% to Ps. 2,330 million in 2017 compared
with Ps. 1,865 million in 2016; as a percentage of sales, they
reached 6.1% in 2017.
Income from operations increased 6.7% to Ps. 270 million
in 2017 compared with Ps. 253 million in 2016, resulting in
an operating margin contraction of 20 basis points to 0.7%
as a percentage of total revenues for the year, compared
with 0.9% in 2016, as expense containment and operational
efficiencies only partially offset the contraction in gross
margin described above.
Key Events during 2017
The following text reproduces our press releases exactly as
originally published.
The Coca-Cola System welcomes AdeS® as the newest
member of its expanding ready-to-drink beverage
portfolio
On March 28, 2017 The Coca-Cola Company, together
with its bottlers in Latin America, announced the closing
of the acquisition of Unilever’s AdeS® plant-based beverage
business. The Coca-Cola Company became the sole owner of
the AdeS® brand.
On June 1st, 2016, The Coca-Cola Company and Coca-Cola
FEMSA, S.A.B. de C.V. (BMV: KOFL; NYSE: KOF) entered
into an agreement with Unilever to acquire the AdeS®
business. Other Coca-Cola bottlers joined to participate in
the investment prior the closing of the transaction. Founded
in 1988 in Argentina, AdeS® is the leading soy-based
beverage brand in Latin America. As the first major brand
launched in the category, AdeS® pioneered the development
of the second largest global market for soy-based beverages.
The AdeS® brand currently has a presence in Brazil, Mexico,
Argentina, Uruguay, Paraguay, Bolivia, Chile, and Colombia.
AdeS® will become part of the expanding beverage platforms
of the Coca-Cola System in Latin America.
Coca-Cola FEMSA announces successful merger with
Mexican company owned by the sellers of Vonpar
On May 4, 2017 Coca-Cola FEMSA announced that it had
successfully merged with POA Eagle, S.A. de C.V., a Mexican
company 100% owned by the sellers of Vonpar in Brazil, as per
the announcement made on September 23, 2016. As a result of
this merger, POA Eagle, S.A. de C.V. shareholders will receive
approximately 27.9 million newly issued KOF series L shares.
POA Eagle, S.A. de C.V. merged with net assets for an amount
of $4,082 million Mexican Pesos. Coca-Cola FEMSA, through
its Brazilian subsidiary, Spal Indústria Brasileira de Bebidas,
S.A., started consolidating the results of Vonpar in its financial
statements as of December 2016.
Senior Leadership Succession Plan
Eduardo Padilla to Succeed Carlos Salazar as Chief Executive
Officer in January 2018
On August 29, 2017, FEMSA announced that Carlos Salazar
Lomelín, FEMSA’s Chief Executive Officer at the time of the
announcement, would retire from his position on January
1, 2018, after a long and productive career at the Company
spanning almost 45 years.
44
During his career at FEMSA, Carlos had the opportunity
to lead many of the Company’s operations including
FEMSA Cerveza and Coca-Cola FEMSA. Carlos has been
instrumental in transforming FEMSA into a beverage and
retail powerhouse with operations across Latin America
and a growing presence in Southeast Asia. The Company
also announced that Carlos would remain on the Board
of Directors of FEMSA and as Advisor to the Chairman
of the Board and that Eduardo Padilla Silva, FEMSA’s
Chief Financial and Corporate Officer at the time of the
announcement, would become Chief Executive Officer on
January 1, 2018. These appointments represent one more step
in FEMSA’s long-term talent and succession planning process.
Offering of shares in Heineken N.V. and Heineken
Holding N.V.
On September 18, 2017 FEMSA announced the completion
of the sale of 5.24% of the combined interest in the Heineken
Group, comprising a combination of existing issued ordinary
shares of both Heineken N.V. and Heineken Holding N.V. The
Equity Offering consisted of 22,485,000 Shares in Heineken
N.V. representing 3.90% of the issued share capital at a price
of €84.50 per share, raising gross proceeds of approximately
1.9 billion Euros and 7,700,000 Shares in Heineken Holding
N.V. representing 2.67% of the issued share capital at a price of
€78.00 per share, raising gross proceeds of approximately 600
million Euros.
Following the completion of the Equity Offering, FEMSA’s
shareholding in Heineken N.V. decreased from 12.53% to
8.63% and in Heineken Holding N.V. from 14.94% to 12.26%,
for an overall decrease of FEMSA’s economic interest in
the Heineken Group from 20.00% to 14.76%. Following
this offering, FEMSA, under the terms of the Corporate
Governance Agreement dated April 30, 2010, retained its
existing governance rights, including one seat on the Board
of Directors of Heineken Holding N.V. and two seats on the
Supervisory Board of Heineken N.V. FEMSA continues to be
a significant shareholder in the Heineken Group and a long-
term supporter of the group’s strategy.
Coca-Cola FEMSA Selected as Part of the Dow Jones
Sustainability Emerging Markets Index for the Fifth
Consecutive Year
On September 14, Coca-Cola FEMSA announced that it
was chosen as a member of the Dow Jones Sustainability
Emerging Markets Index for the fifth consecutive year.
Among its relevant sustainability results, the Company has
benefited 1.5 million people through its healthy lifestyles
programs since 2015; fulfilled the goal of returning 100%
of the water used to produce its beverages back to the
environment in its Mexico, Brazil, Central America, and
Colombia operations; incorporated 20% of recycled resins in
its PET packages across its operations; and used clean sources
of energy across 29% of its manufacturing operations. In
addition, Coca-Cola FEMSA has earned several awards and
recognitions for its sustainability performance throughout
2017, including its selection for the FTSE4Good Emerging
Market Index of the London Stock Exchange and the
Sustainability and Social Responsibility Index of the Mexican
Stock Exchange.
45
For more information
We provide additional information and extensive reporting
online, including the Audited Financial Statements.
We encourage you to review the following site to learn more
about FEMSA: www.annualreport.femsa.com
Headquarters
FEMSA Corporate Offices
Monterrey
General Anaya Nº 601 Pte.
Col. Bella Vista
Monterrey, Nuevo León, Mexico
C.P. 64410
Phone: +52 (81) 83 28 60 00
Fax: +52 (81) 83 28 60 80
Mexico City
Mario Pani N° 100
Col. Santa Fe Cuajimalpa
Mexico City, Mexico
C.P. 05348
Phone: +52 (55) 52 49 68 00
Coca-Cola FEMSA
Mario Pani N° 100
Col. Santa Fe Cuajimalpa
Mexico City, Mexico
C.P. 05348
Phone: +52 (55) 15 19 50 00
FEMSA Comercio
Edison Nº 1235 Nte.
Col. Talleres
Monterrey, Nuevo León, Mexico
C.P. 64480
Phone: +52 (81) 83 89 21 21
Fax: +52 (81) 83 89 21 06
FEMSA Negocios Estratégicos
General Anaya Nº 601 Pte.
Col. Bella Vista
Monterrey, Nuevo León, Mexico
C.P. 64410
Phone: +52 (81) 83 28 66 00
Fax: +52 (81) 83 28 6601
The FEMSA 2017 Annual Report may contain certain forward-looking statements concerning FEMSA and its subsidiaries’ future
performance and should be considered as good faith estimates of FEMSA and its subsidiaries. These forward-looking statements reflect
management’s expectations and are based upon currently available data. Actual results are subject to further events and uncertainties
which could materially impact the Company’s subsidiaries’ actual performance.
46
Consolidated
Financial Statements
1
CONTENTS
Annual Report of the Audit Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Independent Auditors’ Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Consolidated Statements of Financial Position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Consolidated Income Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Consolidated Statements of Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Consolidated Statements of Changes in Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Notes to the Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2
Annual Report of the Audit Committee
FOMENTO ECONÓMICO MEXICANO, S .A .B . DE C .V . Y SUBSIDIARIAS
MONTERREY, N .L ., MÉXICO
To the Board of Directors
Fomento Económico Mexicano, S.A.B. de C.V. (the “Company”):
Pursuant to Articles 42 and 43 of the Mexican Securities Law (Ley del Mercado de Valores) and the Charter of the Audit Committee,
we submit to the Board of Directors our report on the activities performed during, 2017. We considered the recommendations
established in the Code of Corporate Best Practices and, since the Company is a publicly-listed company in the New York Stock
Exchange (¨NYSE¨), we also complied with the applicable provisions set forth in Sarbanes-Oxley Act. We met at least on a quarterly
basis and, based on a work program, we carried out the activities described below:
Risk Assessment
We periodically evaluated the effectiveness of the Enterprise Risk Management Process, which is established to identify, measure,
record, assess, and manage the Company´s risks, as well as for the implementation of follow-up measures to ensure its effective
operation.
We reviewed with Management and both External and Internal Auditors of the Company, the key risk factors that could adversely
affect the Company´s operations and assets, and we determined that they have been appropriately identified, managed, and
considered in both audit programs.
Considering that in 2017, the risks of cybersecurity in the information technology processing areas, increased substantially, in
the course of our meetings, the Committee dedicated special attention to this risk. We requested outside help, to have additional
assurance, that appropriate controls are in place to assure the confidentiality of information as well as the continuity of operations in
information technology.
Internal Control
We verified the compliance by Management of its responsibilities regarding internal control, and the establishment of general
guidelines and the procedures necessary for their application and compliance. This process included presentations to the Audit
Committee by the area responsible of the most important subsidiaries. Additionally, we followed the comments and remarks made
in this regard by External Auditors as a result of their findings.
We verified the actions taken by the Company in order to comply with section 404 of Sarbanes-Oxley Act regarding the self-
assessment of internal controls. During this process, we made sure that a follow up on main preventive and corrective actions
implemented concerning internal control issues that required improvement, were taken, and the submission to the authorities of
requested information.
External Audit
We recommended to the Board of Directors the appointment of the external auditors (who have been the same for the past ten years)
for the Company and its subsidiaries for fiscal year 2017. For this purpose, we verified their independence and their compliance
with the requirements established by applicable laws and regulations. We analyzed their approach, work program as well as their
coordination with Internal Audit.
We were in permanent and direct communication with them to be timely informed of their progress and their observations, and also
to consider any comments that resulted from their review of the quarterly financial statements. We were timely informed of their
conclusions and reports, regarding the annual financial statements and followed up on the actions implemented resulting from the
findings and recommendations provided during the year.
We authorized the fees of the external auditors for their annual audit and other permitted services, and verified that such services
would not compromise their Independence.
With the appropriate input from Management, we carried out an evaluation of their services for the previous year and initiated the
evaluation process for fiscal year 2017.
3
Internal Auditing
In order to maintain its independence and objectivity, the Internal Audit area reports to the Audit Committee therefore:
We reviewed and approved the annual work program and budget, in order to comply with the requirements of Sarbanes-Oxley Act.
For its preparation, the Internal Audit area participated in the risk assessment process and the validation of the internal control system.
We received periodic reports regarding the progress of the approved work program, any deviations and the causes thereof.
We followed up the implementation of the observations developed by Internal Audit.
We confirmed the existence and validated the implementation of an Annual Training program.
We reviewed and discuss with the responsible of the IA function the evaluations of the Internal Audit service performed by the
responsible of each business unit and the Audit Committee.
Financial Information, Accounting Policies and Reports to the Third Parties
We reviewed the quarterly and annual financial statements of the Company with the individuals responsible for its preparation and
recommended to the Board of Directors, its approval and authorize its publication. As part of this process, we analyzed the comments
of the external auditors and confirm that the criteria, accounting policies and information used by Management to prepare financial
information were adequate, sufficient, and consistently applied with the prior year. As a consequence, the information submitted by
Management reasonably reflects the financial position of the Company, its operating results and cash flows for the fiscal year ending
on December 31, 2017.
We also reviewed the quarterly reports prepared by Management and submitted to shareholders and the financial community,
verifying that such information was prepared under International Financial Reporting Standards (IFRS) and the same accounting
criteria for preparing the annual information. We also reviewed the existence of an integral process that provides a reasonable
assurance of fairness in the information content. To conclude, we recommended to the Board of Directors to authorize the release
of such information.
Our reviews also included reports and any other financial information required by Mexican and United States regulatory authorities.
We reviewed and approved the changes to the accounting standards used by the Company that became effective in 2017,
recommending their approval to the Board of Directors.
Compliance with Applicable Laws and Regulations, Legal Issues and Contingencies
We verified the existence and reliability of the Company-established controls to ensure compliance with the various legal provisions
applicable to the Company. When required, we verified its appropriate disclosure in the financial reports.
We made periodic reviews of the various tax, legal and labor contingencies of the Company. We supervised the efficiency of the
procedures established for their identification and follow-up, as well as their adequate disclosure and recording.
Code of Conduct
We reviewed the new version of the Business Code of Ethics of the Company which incorporates among other changes an update of
its values, validating that it includes a compliance provision with the Anti-Money Laundering laws in the countries where we operate,
as well as compliance with anti-corruption laws (FCPA), and recommended its approval to the Board of Directors.
With the support of Internal Audit, we verified the compliance of the Business Code of Ethics, the existence of adequate processes to
update it and its communication to employees, as well as the application of sanctions in those cases where violations were detected.
We reviewed the complaints received in the Company´s Whistle-Blowing System and followed up on their correct and timely
handling.
Training
To comply with the training requirements of our charter, during the year, The Audit Committee members attended specific courses
on topics as internal controls, risk management and auditing.
4
Administrative Activities
We held regular meetings with Management to be informed of any relevant or unusual activities and events. We also met individually
with external and internal auditors to review their work, and observations.
In those cases where we deemed advisable, we requested the support and opinion from independent experts. We are not aware of
any significant non-compliance with the operating policies, the internal control system or the accounting records of the Company.
We held executive meetings and when applicable reviewed with Management our resolutions.
We submitted quarterly reports to the Board of Directors, on the activities performed by the Committee.
We reviewed the Audit Committee Charter and made the amendments that we deemed appropriate, submitting such changes for its
approval by the Board of Directors.
We verified that the financial expert of the Committee meets the technical background and experience requirements to be considered
as such, and that each Committee Member meets the independence requirements set forth in by the applicable laws and regulations.
Our activities were duly documented in the minutes prepared for each meeting. Such minutes were properly reviewed and approved
by Committee members.
We made our annual performance self-assessment, and submitted the results to the Chairman of the Board of Directors.
Sincerely
March 7, 2018
José Manuel Canal Hernando
5
Independent Auditor’s Report
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
FOMENTO ECONÓMICO MEXICANO, S .A .B . DE C .V .
Opinion
We have audited the accompanying consolidated financial statements of Fomento Económico Mexicano, S.A.B. de C.V. and its
subsidiaries (collectively the “Group”), which comprised the consolidated statements of financial position as at December 31,
2017, and 2016, and the related consolidated income statements, consolidated statements of comprehensive income, consolidated
statements of changes in equity and consolidated statements of cash flows for each of the three years in the period ended as of
December 31, 2017, and notes to the consolidated financial statements including a summary of significant accounting policies.
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial
position of the Group as of December 31, 2017 and 2016, and their financial performance and cash flows for each of the three years in
the period ended as of December 31, 2017, in accordance with International Financial Reporting Standards (“IFRS”).
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (“ISAs”). Our responsibilities under those standards
are further described in the “Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements” section of our report.
We are independent of the Group in accordance with the International Ethics Standards Board of Accountants’ Code of Ethics for
Professional Accountants (“IESBA Code”) together with the ethical requirements that are relevant to our audit of the consolidated
financial statements in Mexico according with the “Codigo de Etica Profesional del Instituto Mexicano de Contadores Publicos”
(“IMCP Code”), and we have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Key Audit Matters for the year ended December 31, 2017
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated
financial statements for the year ended December 31, 2017. These matters were addressed in the context of our audit of the consolidated
financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For
each matter below, our description of how our audit addressed the matter is provided in that context.
We have fulfilled the responsibilities described in the “Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements”
section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed
to respond to our assessment of the risks of material misstatement of the accompanying consolidated financial statements. The results
of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on
the accompanying consolidated financial statements.
Coca-Cola FEMSA Philippines consolidation
Description of the key audit matter
As disclosed in Notes 4.1.1 to the consolidated financial statements, on January 25, 2017, the Company took control over Coca-
Cola FEMSA Philippines (CCFPI) as the veto rights held by The Coca-Cola Company “TCCC” over certain operating decisions
expired. Consequently, all decisions relating to the day-to-day operation and management of CCFPI’s business; including its annual
operations plan, are approved by a majority of its board of directors without requiring the affirmative vote of any director appointed
by TCCC. Commencing on February 1, 2017, the Company started consolidating CCFPI’s financial results in its financial statements.
Due to the complexity of the analysis regarding obtaining control without transfer of consideration involved in CCFPI, the
determination of the fair value of the business based on a Level 3 valuation technique and the valuation of the net assets acquired as
per IFRS 3 at the acquisition date that involves significant degree of estimates required by management, we have determined this to
be a key audit matter.
6
How our audit addressed the matter
We evaluated management´s assessment regarding control over the relevant activities attributable to the consolidation of CCFPI
under IFRS 3 including consideration of managements of obtaining control without transfer of additional consideration.
We evaluated management assumptions related to compound annual growth rates, projected cost and expense savings among others
key assumptions used in IFRS 13 Level 3 fair value at the acquisition date by 1) assessing the historical accuracy of the Group’s
budgetary estimates, 2) obtaining and analyzing the Group’s business strategies supporting the future cash flow estimates, 3)
evaluating the macroeconomic environment including comparisons to the performance of comparable companies for which publicly
data is available. We involved our internal specialists when performing these procedures. Finally, we evaluated the related disclosures
made in the consolidated financial statements.
Impairment of distribution rights, trade marks rights and goodwill
Description of the key audit matter
As disclosed in Note 12 to the consolidated financial statements, Distribution Rights, Trademarks Rights and Goodwill were Ps.
143,281 million as of December 31, 2017. Given the materiality of distribution rights, trademarks rights and goodwill in relation to
the consolidated financial statements and the significant judgment and estimation required by management when evaluating these
accounts for impairment, we have determined this area to be a key audit matter, in particular for territories in Brazil, due to recent
acquisitions that resulted in significant additions to these accounts and in Venezuela given the general deterioration of the country’s
macroeconomic environment.
How our audit addressed the matter
We evaluated management assumptions related to compound annual growth rates, projected cost and expense among others key
assumptions used in the impairment testing by 1) assessing the historical accuracy of the Management’s budgetary estimates, 2)
obtaining and analyzing Management’s business strategies supporting the future cash flow estimates, 3) evaluating the macroeconomic
environment including comparisons to the performance of comparable companies for which publicly available data is available.
We also assessed management’s sensitivity analyses focusing on the projected compound annual growth rates and projected cost
and expenses, mainly. We involved our internal specialists when performing these procedures. In addition, we tested the Group’s
procedures around the preparation of the budget, upon which the value-in-use model is based.
Furthermore, we assessed the related disclosures made in the consolidated financial statements.
Venezuela operations
Description of the key audit matter
Venezuela is a challenging economic and political environment. Challenges of operating in Venezuela include, but are not limited to,
high level of inflations, lack of exchangeability across all exchange mechanisms, limited access to certain key raw materials and import
restrictions, and periodic government intervention into operations including continually changing laws and regulations.
We focused on this area because of the involvement of key judgments and sources of estimation uncertainty including:
1) Whether the Group continues to have control over relevant activities of its Venezuela operations under IFRS 10 given the foreign
currency restrictions, as well as other operating challenges established by the economic and political environment in Venezuela.
2) The appropriate exchange rate used to translate the results of the subsidiary in Venezuela for consolidation purposes.
3) The recoverability of long-lived assets related to the Group’s Venezuela operations as described in the key audit matter “Impairment
of distribution rights, trademark rights and goodwill,” section above.
As disclosed in Note 3.3 at December 31, 2017, the Company deconsolidated its Venezuelan operations, which resulted in an
extraordinary charge to the income statement mainly attributable to the recycling of all the amount of currency translation differences
in accumulated other comprehensive recognized through December 31, 2017, that amounted to Ps. 26,123 million and impairment
charges of Ps. 2,053.
How our audit addressed the matter
We evaluated management’s assessment about the loss of control of the relevant activities attributable to the Venezuelan operations
under IFRS 10. This included consideration of management’s ability to control relevant activities such as managing its capital
structure, establishing sales strategies, some pricing, financial decisions, cost infrastructure, among other matters and the analysis of
the Group exposure to variable returns in their investment in Venezuela due to the difficult economic environment. We also evaluated
the adequacy of the entries posted by the Company in regard to the deconsolidation of Venezuela.
With regards to translation of the financial figures in Venezuela for consolidation purposes, we focused our audit efforts on assessing
management’s judgment applied in the determination of the exchange rate applied that fairly present and provide more useful and
relevant information regarding their results in Venezuela before deconsolidation. As disclosed in Note 3.3 such exchange rate was
based on certain assumptions such as inflation adjustments that in management’s view were not reflected in the official exchange rates
published in Venezuela.
7
We also assessed the adequacy of the related disclosures made in the consolidated financial statements, related to each of those items
mentioned above.
Recoverability of deferred tax assets
Description of the key audit matter
As disclosed on Note 24 to the consolidated financial statements, the Group had Ps. 29,487 million of net operating loss carry- forwards
as of December 31, 2017; such amount relates to the Brazilian and Mexican operations. Brazilian amounts are mainly attributable to
tax deductions of goodwill amortization generated on recent business acquisitions while the amounts generated in Mexico related to
operating tax losses generated in recent years.
Additionally, as disclosed on Note 24, the Company recognized deferred tax assets arising from tax credits for an amount of Ps. 1,723
million, mostly generated in Mexico in 2016 as a result of dividends received from subsidiaries outside Mexico.
We focus on this area because the recognition of deferred tax assets relies on the application of significant judgement by management
in respect of assessing the probability and sufficiency of future taxable profits and ongoing tax planning strategies; therefore, due
to the size of the Group’s deferred tax assets in Brazil and Mexico and the associated uncertainty surrounding recoverability, this is
considered a key audit matter.
How our audit addressed the matter
Our audit procedures, among others, included the assessment of controls over the recognition and measurement of deferred tax
assets and the evaluation of assumptions used in projecting the Group’s future taxable profits in Mexico and Brazil. With the assistance
of our internal tax specialists, we assessed the feasibility of the Group’s future tax planning strategies that may enable realizability of
the deferred tax asset in Mexico.
When applicable, our audit procedures also focused on the review of management’s projections of future cash flows in relation to the
likelihood of generating sufficient taxable profits based on forecasts of anticipated future cost savings, growth rates, discount rates,
and other key assumptions. We involved our internal specialists when performing these procedures.
We also evaluated the related disclosures made in the Consolidated Financial Statements.
Vonpar acquisition
Description of the key audit matter
On December 6, 2017, the Company finalized the final purchase price allocation, derived from Vonpar’s acquisition dated on
December 6, 2016 for a total consideration transfer of Ps. 20,992 million. This is outlined in Note 4 of the consolidated financial
statements. The final purchase price allocation and the analysis of the accounting, and valuation of the consideration transferred as it
involved embedded derivatives, are key audit matters.
How our audit addressed the matter
We audited in conjunction with our specialists, the corresponding final allocation of Vonpar acquisition and analyzed the propriety
of the accounting of the consideration transferred including the identification of the embedded derivatives. We also tested with the
assistance of our risk specialists the measurement of the consequent fair values of the various embedded derivatives including the
option to convert the promissory note into equity instruments of the Coca Cola FEMSA as part of the consideration transferred. We
further assessed the adequacy of the company’s disclosures of this business combination and final allocation, in the Consolidated
Financial Statements.
Partial disposal of Heineken Shares
Description of the key audit matter
As disclosed on Note 4.2, during 2017, the Company sold a portion of its holdings representing 5.24% of the outstanding shares of the
Heineken Group for Ps. 53,051 million in an all cash transaction. With this transaction the Company took advantage of a Repatriation
of Capital Decree issued by the Mexican government, which sustains a benefit to residents in Mexico by applying to income and
investments returned to the country an income tax of 8% (instead of the statutory rate of 30%). The Company recognized a gain of
Ps. 29,989, as a result of the sales of shares within other income, which is the difference between the fair value of the consideration
received and the book value of the net assets disposed. The gain is net of transaction related costs of Ps. 160 and includes reclassification
from other comprehensive income mainly corresponding to exchange differences on translation of the portion sold which amounts
net to Ps. 6,632. Because of the significant amounts involved in the transactions, the related accounting and tax consequences, we
considered it a key audit matter.
8
How our audit addressed the matter
Our audit procedures, among others, included the 1) Analysis of whether the Company continues to exercise significant influence
on the Heineken Group, 2) the evaluation of the propriety of the recognition of the gain of the sales of shares, 3) the appropriate
date when the company suspended the accounting of equity method for the portion of shares sold and 4) in connection with
our specialist the analysis of tax effects of repatriation of capital decree. We also evaluated the related disclosures made in the
Consolidated Financial Statements.
Other information included in the Group’s 2017 Annual Report
The other information comprises the information included in the Group’s 2017 Annual Report presented to the Comision Nacional
Bancaria y de Valores (“CNBV”) and the annual report presented to shareholders, but does not include the consolidated financial
statements and our auditor’s report thereon. Management is responsible for the other information.
Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of
assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing
so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge
obtained in the audit or otherwise appears to be materially misstated, as issuing the declaratory on annual report requested by CNBV.
If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required
to report that fact.
Responsibilities of Management and the Audit Committee for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the accompanying consolidated financial statements in
accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary
to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a
going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless
management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.
The Audit Committee is responsible for overseeing the Group’s financial reporting process.
Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material
misstatement, whether due to fraud or error, and issue an auditor’s report that includes our opinion. Reasonable assurance is a high
level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement
when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepticism throughout the
audit. We also:
• Identify and asses the risks of material misstatement of the consolidated financial statements whether due to fraud or error; design
and perform audit procedures responsive to those risks; and obtain audit evidence that is sufficient and appropriate to provide a
basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from
error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures
made by management.
• Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence
obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s
ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our
auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate to modify
our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future
events or conditions may cause the Group to cease to continue as a going concern.
9
• Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures,
and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves
fair presentation.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the
Group to express an opinion of the consolidated financial statements. We are responsible for the direction, supervision and
performance of the Group audit. We remain solely responsible for our audit opinion.
We communicate with the Audit Committee regarding, among other matters, the planned scope and timing of the audit and significant
audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide to the Audit Committee a statement that we have complied with relevant ethical requirements regarding independence
and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and
where applicable, related safeguards.
From the matters communicated with the Audit Committee, we determine those matters that were of most significance in the audit of
the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our
auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we
determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably
be expected to outweigh the public interest benefit of such communication.
The partner in charge of the audit resulting in this independent auditor’s report, is who signs it.
Mancera, S.C.
A member practice of
Ernst & Young Global Limited
Americo de la Paz de la Garza
March 8, 2018
Monterrey, N.L. Mexico
10
Consolidated Statements of Financial Position
FOMENTO ECONÓMICO MEXICANO, S .A .B . DE C .V . AND SUBSIDIARIES
MONTERREY, N .L ., MEXICO
As of December 31, 2017 and 2016 .
Amounts expressed in millions of U .S . dollars ($)
and in millions of Mexican pesos (Ps .)
ASSETS
Current Assets:
Cash and cash equivalents
Short-term investments
Accounts receivable, net
Inventories
Recoverable taxes
Other current financial assets
Other current assets
Total current assets
Investments in associates and joint ventures
Property, plant and equipment, net
Intangible assets, net
Deferred tax assets
Other financial assets
Other assets
TOTAL ASSETS
LIABILITIES AND EQUITY
Current Liabilities:
Bank loans and notes payable
Current portion of long-term debt
Interest payable
Suppliers
Accounts payable
Taxes payable
Other current financial liabilities
Total current liabilities
Long-Term Liabilities:
Bank loans and notes payable
Employee benefits
Deferred tax liabilities
Other financial liabilities
Provisions and other long-term liabilities
Total long-term liabilities
Total liabilities
Equity:
Controlling interest:
Capital stock
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income (loss)
Total controlling interest
Non-controlling interest in consolidated subsidiaries
Total equity
TOTAL LIABILITIES AND EQUITY
Note
December
2017 (*)
December
2017
December
2016
5
6
7
8
24
9
9
10
11
12
24
13
13
18
18
25
18
16
24
25
25
21
$
$
$
$
4,936
110
1,646
1,774
575
38
147
9,226
4,893
5,943
7,846
807
615
637
29,967
144
548
50
2,476
893
571
666
5,348
5,996
274
312
142
740
7,464
12,812
170
1,365
10,279
930
12,744
4,411
17,155
29,967
Ps. 96,944
2,160
32,316
34,840
11,284
756
2,888
181,188
96,097
116,712
154,093
15,853
12,073
12,525
Ps. 588,541
Ps. 43,637
120
26,222
31,932
9,226
2,705
4,109
117,951
128,601
102,223
153,268
12,053
15,345
16,182
Ps. 545,623
Ps.
2,830 Ps. 1,912
5,369
10,760
976
976
47,465
48,625
11,624
17,538
11,360
11,214
7,583
13,079
86,289
105,022
117,758
5,373
6,133
2,797
14,546
146,607
251,629
131,967
4,447
11,037
7,320
18,393
173,164
259,453
3,348
26,808
201,868
18,267
250,291
86,621
336,912
Ps. 588,541
3,348
25,733
168,796
14,027
211,904
74,266
286,170
Ps. 545,623
(*) Convenience translation to U.S. dollars ($) – See Note 2.2.3
The accompanying notes are an integral part of these consolidated statements of financial position.
11
Note
2017 (*)
2017
2016
2015
$
$
$
$
23,410
35
23,445
14,776
8,669
841
5,674
1,769
1,729
566
80
252
81
(10)
Ps. 459,763
693
460,456
290,188
170,268
16,512
111,456
34,741
33,959
11,124
1,566
4,956
1,590
(204)
Ps. 398,622
885
399,507
251,303
148,204
14,730
95,547
1,157
5,909
9,646
1,299
1,131
2,411
186
Ps. 310,849
740
311,589
188,410
123,179
11,705
76,375
423
2,741
7,777
1,024
(1,193)
(36)
364
2,031
539
39,866
10,583
28,556
7,888
25,163
7,932
403
1,895
7,923
Ps. 37,206
6,507
Ps. 27,175
6,045
Ps. 23,276
2,160
(265)
1,895
42,408
(5,202)
Ps. 37,206
21,140
6,035
Ps. 27,175
17,683
5,593
Ps. 23,276
Ps.
Ps.
0.11
0.13
0.11
0.13
2.12
2.65
2.11
2.64
1.05
1.32
1.05
1.32
Ps.
0.88
1.10
0.88
1.10
Consolidated Income Statements
FOMENTO ECONÓMICO MEXICANO, S .A .B . DE C .V . AND SUBSIDIARIES
MONTERREY, N .L ., MEXICO
For the years ended December 31, 2017, 2016 and 2015 .
Amounts expressed in millions of U .S . dollars ($)
and in millions of Mexican pesos (Ps .), except per share amounts .
Net sales
Other operating revenues
Total revenues
Cost of goods sold
Gross profit
Administrative expenses
Selling expenses
Other income
Other expenses
Interest expense
Interest income
Foreign exchange gain (loss), net
Monetary position gain (loss), net
Market value (loss) gain on financial instruments
Income before income taxes and share of the profit
of associates and joint ventures accounted
for using the equity method
19
19
18
Income taxes
Share of the profit of associates and joint ventures
24
accounted for using the equity method, net of taxes
10
Consolidated net income
Attributable to:
Controlling interest
Non-controlling interest
Consolidated net income
Basic controlling interest net income:
Per series “B” share
Per series “D” share
Diluted controlling interest net income:
Per series “B” share
Per series “D” share
21
23
23
23
23
(*) Convenience translation to U.S. dollars ($) – See Note 2.2.3
The accompanying notes are an integral part of these consolidated income statements.
12
Consolidated Statements of Comprehensive Income
FOMENTO ECONÓMICO MEXICANO, S .A .B . DE C .V . AND SUBSIDIARIES
MONTERREY, N .L ., MEXICO
For the years ended December 31, 2017, 2016 and 2015 .
Amounts expressed in millions of U .S . dollars ($)
and in millions of Mexican pesos (Ps .)
Consolidated net income
Other comprehensive income:
Items that will be reclassified to consolidated
net income, net of tax:
Valuation of the effective portion of derivative
financial instruments
Loss on hedge of a net investment in
a foreign operations
Exchange differences on the translation of
foreign operations and associates
Share of other comprehensive (loss) income
of associates and joint ventures
Total items that will be reclassified
Items that will not to be reclassified to consolidated
net income in subsequent periods, net of tax:
Share of other comprehensive income (loss)
of associates and joint ventures
Remeasurements of the net defined benefit liability
Total items that will not be reclassified
Total other comprehensive income (loss), net of tax
Consolidated comprehensive income, net of tax
Controlling interest comprehensive income
Reattribution to non-controlling interest of other
comprehensive income by acquisition of Vonpar
Controlling interest comprehensive income
Non-controlling interest comprehensive income
Reattribution from controlling interest of other
comprehensive income by acquisition of Vonpar
Non-controlling interest comprehensive income
Consolidated comprehensive income, net of tax
Note
2017 (*)
2017
2016
2015
$
1,895
Ps. 37,206
Ps. 27,175
Ps. 23,276
20
18
10
(22)
(64)
(439)
1,732
(1,259)
(1,443)
122
-
737
14,482
30,763
(2,234)
(102)
549
(2,013)
10,771
(2,228)
28,824
282
(1,830)
4
-
4
553
2,448
2,348
(3)
2,345
100
69
(7)
62
10,833
Ps. 48,039
46,052
(1,004)
(167)
(1,171)
27,653
Ps. 54,828
39,330
169
144
313
(1,517)
Ps. 21,759
19,165
(51)
46,001
1,987
-
39,330
15,498
-
19,165
2,594
3
103
2,448
51
2,038
Ps. 48,039
-
15,498
Ps. 54,828
-
2,594
Ps. 21,759
$
$
(*) Convenience translation to U.S. dollars ($) – See Note 2.2.3
The accompanying notes are an integral part of these consolidated statements of comprehensive income.
13
Consolidated Statements of Changes in Equity
FOMENTO ECONÓMICO MEXICANO, S .A .B . DE C .V . AND SUBSIDIARIES
MONTERREY, N .L ., MEXICO
For the years ended December 31, 2017, 2016 and 2015 .
Amounts expressed in millions of Mexican pesos (Ps .)
Capital
Stock
Additional
Paid-in
Capital
Retained
Earnings
Valuation of
the Effective
Portion of
Derivative
Financial
Instrument
Exchange
Differences
Translation
of Foreign
Operations
and Associates
on the Remeasurements
of the Net
Defined
Benefit
Liability
Total
Controlling
Interest
Non-
Controlling
Interest
Total
Equity
Balances at January 1, 2015
Net income
Other comprehensive income (loss), net of tax
Comprehensive income
Dividends declared and paid
Issuance of shares associated with share-based payment plans
Acquisition of Grupo Socofar (see Note 4)
Contributions from non-controlling interest
Other movements of equity method of associates, net of taxes
Balances at December 31, 2015
Net income
Other comprehensive income (loss), net of tax
Comprehensive income
Dividends declared and paid
Issuance (purchase) of shares associated with share-based payment plans
Other equity instruments from acquisition of Vonpar (see Note 4)
Other acquisitions and remeasurements (see Note 4)
Contributions from non-controlling interest
Other movements of equity method of associates, net of taxes
Balances at December 31, 2016
Net income
Other comprehensive income (loss), net of taxes
Comprehensive income
Dividends declared and paid
Issuance of shares associated with share-based payment plans
Capitalization of issued shares to former owners of Vonpar
Ps. 3,347
-
-
-
-
1
-
-
-
3,348
-
-
-
-
-
-
-
-
-
Ps. 3,348
-
-
-
-
-
Ps.
Ps.
Ps. 25,649
-
-
-
-
158
-
-
-
25,807
-
-
-
-
(74)
-
-
-
-
Ps. 25,733
-
-
-
-
(89)
Ps. 147,122
17,683
-
17,683
(7,350)
-
-
-
(923)
156,532
21,140
-
21,140
(8,355)
-
-
-
-
(521)
Ps. 168,796
42,408
-
42,408
(8,636)
-
in Coca-Cola FEMSA (see Note 4)
Acquisitions of non-controlling interest (see Note 4)
Contribution from non-controlling interest
Recognition of non-controlling interest upon consolidation
of CCFPI (see Note 4)
Recycling from net defined benefit liability on partial disposal
of associates and joint ventures
Other movements of equity method of associates, net of taxes
Balances at December 31, 2017
-
-
-
-
1,164
-
-
-
-
-
-
-
307
-
299
299
-
-
-
-
-
606
-
2,057
2,057
-
-
-
-
-
-
2,663
-
(47)
(47)
-
-
2
-
-
-
-
-
Ps. 3,348
-
-
Ps. 26,808
(596)
(104)
Ps. 201,868
-
-
2,618
Ps.
Ps. 18,207
Ps. (2,558) Ps. 250,291
Ps. 86,621
Ps. 336,912
Ps. (3,633) Ps. (2,319) Ps. 170,473
Ps. 59,649
Ps. 230,122
945
945
238
238
(2,688)
(2,081)
181,524
17,241
17,241
(1,108)
(1,108)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
3,607
3,607
47
-
-
-
-
-
-
-
-
-
-
-
-
-
-
33
33
-
-
2
-
-
-
596
-
17,683
1,482
19,165
(7,350)
159
-
-
(923)
21,140
18,190
39,330
(8,355)
(74)
(521)
42,408
3,593
46,001
(8,636)
(89)
1,215
-
-
-
-
-
-
-
(104)
5,593
(2,999)
2,594
(3,351)
57
1,133
250
-
60,332
6,035
9,463
15,498
(3,690)
9
(485)
1,710
892
-
(5,202)
7,240
2,038
23,276
(1,517)
21,759
(10,701)
216
1,133
250
(923)
241,856
27,175
27,653
54,828
(12,045)
(65)
(485)
1,710
892
(521)
37,206
10,833
48,039
(3,622)
(12,258)
50
(39)
2,867
(322)
272
4,082
(322)
272
11,072
11,072
-
-
-
(104)
Ps. 14,553
Ps. (3,189) Ps. 211,904
Ps. 74,266
Ps. 286,170
The accompanying notes are an integral part of these consolidated statements of changes in equity.
14
Issuance of shares associated with share-based payment plans
158
Issuance (purchase) of shares associated with share-based payment plans
(74)
Balances at January 1, 2015
Net income
Comprehensive income
Dividends declared and paid
Other comprehensive income (loss), net of tax
Acquisition of Grupo Socofar (see Note 4)
Contributions from non-controlling interest
Other movements of equity method of associates, net of taxes
Balances at December 31, 2015
Net income
Other comprehensive income (loss), net of tax
Comprehensive income
Dividends declared and paid
Other equity instruments from acquisition of Vonpar (see Note 4)
Other acquisitions and remeasurements (see Note 4)
Contributions from non-controlling interest
Other movements of equity method of associates, net of taxes
Balances at December 31, 2016
Net income
Comprehensive income
Dividends declared and paid
Other comprehensive income (loss), net of taxes
Issuance of shares associated with share-based payment plans
Capitalization of issued shares to former owners of Vonpar
in Coca-Cola FEMSA (see Note 4)
Acquisitions of non-controlling interest (see Note 4)
Contribution from non-controlling interest
Recognition of non-controlling interest upon consolidation
of CCFPI (see Note 4)
Recycling from net defined benefit liability on partial disposal
of associates and joint ventures
Other movements of equity method of associates, net of taxes
Capital
Stock
Additional
Paid-in
Capital
Ps. 3,347
Ps. 25,649
Ps. 147,122
Ps.
307
3,348
25,807
Retained
Earnings
17,683
17,683
(7,350)
(923)
156,532
21,140
21,140
(8,355)
(521)
42,408
42,408
(8,636)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(596)
(104)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(89)
1,164
299
299
606
2,057
2,057
(47)
(47)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2
-
-
-
-
-
-
-
-
-
1
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Ps. 3,348
Ps. 25,733
Ps. 168,796
Ps.
2,663
Balances at December 31, 2017
Ps. 3,348
Ps. 26,808
Ps. 201,868
Ps.
2,618
Valuation of
the Effective
Portion of
Derivative
Financial
Instrument
Exchange
Differences
on the Remeasurements
of the Net
Defined
Benefit
Liability
Translation
of Foreign
Operations
and Associates
Total
Controlling
Interest
Non-
Controlling
Interest
-
238
238
-
-
-
-
-
(2,081)
-
(1,108)
(1,108)
-
-
-
-
-
-
Ps. (3,633) Ps. (2,319) Ps. 170,473
17,683
1,482
19,165
(7,350)
159
-
-
(923)
181,524
21,140
18,190
39,330
(8,355)
(74)
-
-
-
(521)
Ps. (3,189) Ps. 211,904
42,408
3,593
46,001
(8,636)
(89)
-
945
945
-
-
-
-
-
(2,688)
-
17,241
17,241
-
-
-
-
-
-
Ps. 14,553
-
3,607
3,607
-
-
-
33
33
-
-
Ps. 59,649
5,593
(2,999)
2,594
(3,351)
57
1,133
250
-
60,332
6,035
9,463
15,498
(3,690)
9
(485)
1,710
892
-
Ps. 74,266
(5,202)
7,240
2,038
(3,622)
50
Total
Equity
Ps. 230,122
23,276
(1,517)
21,759
(10,701)
216
1,133
250
(923)
241,856
27,175
27,653
54,828
(12,045)
(65)
(485)
1,710
892
(521)
Ps. 286,170
37,206
10,833
48,039
(12,258)
(39)
47
-
-
-
2
-
-
-
1,215
-
-
2,867
(322)
272
4,082
(322)
272
-
11,072
11,072
-
-
Ps. 18,207
596
-
-
(104)
Ps. (2,558) Ps. 250,291
-
-
Ps. 86,621
-
(104)
Ps. 336,912
15
Consolidated Statements of Cash Flows
FOMENTO ECONÓMICO MEXICANO, S .A .B . DE C .V . AND SUBSIDIARIES
MONTERREY, N .L ., MEXICO
For the years ended December 31, 2017, 2016 and 2015 .
Amounts expressed in millions of U .S . dollars ($)
and in millions of Mexican pesos (Ps .)
Cash flows from operating activities:
Income before income taxes
Adjustments for:
Non-cash operating expenses
Non-cash non operating (income) expenses
Depreciation
Amortization
Gain on sale of long-lived assets
(Gain) loss on sale of shares (see Note 19)
Disposal of long-lived assets
Impairment of long-lived assets
Share of the profit of associates and joint ventures accounted
for using the equity method, net of taxes
Interest income
Interest expense
Foreign exchange (gain) loss, net
Monetary position (gain) loss, net
Market value loss (gain) on financial instruments
Cash flow from operating activities before changes
in operating accounts
Accounts receivable and other current assets
Other current financial assets
Inventories
Derivative financial instruments
Suppliers and other accounts payable
Other long-term liabilities
Other current financial liabilities
Employee benefits paid
Cash generated from operations
Income taxes paid
Net cash generated by operating activities
2017 (*)
2017
2016
2015
$
2,434
Ps. 47,789
Ps. 35,063
Ps. 31,208
159
1,315
795
104
(11)
(1,533)
23
105
(403)
(80)
566
(252)
(81)
10
3,151
(578)
99
(133)
1
376
16
100
(32)
3,000
(957)
2,043
3,114
25,817
15,613
2,052
(209)
(30,112)
451
2,063
(7,923)
(1,566)
11,124
(4,956)
(1,590)
204
61,871
(11,349)
1,949
(2,602)
18
7,394
309
1,968
(631)
58,927
(18,792)
40,135
4,111
-
12,076
1,633
(170)
8
238
-
(6,507)
(1,299)
9,646
(1,131)
(2,411)
(186)
51,071
(1,889)
(1,395)
(4,936)
130
15,337
968
2,642
(476)
61,452
(11,321)
50,131
2,873
-
9,761
1,064
(249 )
(14 )
416
134
(6,045)
(1,024)
7,777
1,193
36
(364 )
46,766
(4,379)
318
(4,330)
441
6,799
822
(570)
(382)
45,485
(8,743)
36,742
(*) Convenience translation to U.S. dollars ($) – see Note 2.2.3
The accompanying notes are an integral part of these consolidated statements of cash flow.
16
Consolidated Statements of Cash Flows
FOMENTO ECONÓMICO MEXICANO, S .A .B . DE C .V . AND SUBSIDIARIES
MONTERREY, N .L ., MEXICO
For the years ended December 31, 2017, 2016 and 2015 .
Amounts expressed in millions of U .S . dollars ($)
and in millions of Mexican pesos (Ps .)
Cash flows from investing activities:
Increase in cash by acquisition of Coca-Cola FEMSA
Philippines, Inc. (see Note 4)
Deconsolidation in Coca-Cola FEMSA Venezuela
Acquisition of Grupo Socofar, net of cash acquired (see Note 4)
Partial payment of Vonpar, net of cash acquired (see Note 4)
Other acquisitions, net of cash acquired (see Note 4)
Other investments in associates and joint ventures
Partial disposal of investment in Heineken
Purchase of investments
Proceeds from investments
Interest received
Derivative financial instruments
Dividends received from associates and joint ventures
Property, plant and equipment acquisitions
Proceeds from the sale of property, plant and equipment
Acquisition of intangible assets
Investment in other assets
Collections of other assets
Investment in other financial assets
Collection in other financial assets
Net cash generated by (used in) investing activities
Cash flows from financing activities:
Proceeds from borrowings
Payments of bank loans
Interest paid
Derivative financial instruments
Dividends paid
Contributions from non-controlling interest
Acquisition of non-controlling interest
Other financing activities
Financing from Vonpar’s acquisition
Net cash (used in) generated by financing activities
Increase (decrease) in cash and cash equivalents
Initial balance of cash and cash equivalents
2017 (*)
2017
2016
2015
204
(9)
-
-
-
(45)
2,586
(103)
-
80
(2)
167
(1,061)
25
(170)
(62)
(1)
(9)
-
1,600
692
(923)
(335)
(80)
(634)
-
(16)
(9)
208
(1,097)
2,546
2,222
4,013
(170)
-
-
-
(889)
50,790
(2,016)
-
1,566
(35)
3,277
(20,838)
490
(3,346)
(1,222)
(19)
(184)
-
31,417
13,599
(18,130)
(6,578)
(1,579)
(12,450)
-
(315)
(168)
4,082
(21,539)
50,013
43,637
-
-
-
(13,198)
(5,032)
(2,189)
-
(118)
20
1,299
(220)
3,276
(19,083)
574
(2,309)
(1,709)
2
(23)
65
(38,645)
26,629
(5,458)
(5,470)
(3,471)
(12,045)
892
-
220
-
1,297
12,783
29,396
-
-
(6,890)
-
(5,821)
(291)
-
-
126
1,024
232
2,394
(17,485)
630
(971)
(1,502)
223
(28)
-
(28,359)
8,422
(15,520)
(4,563)
8,345
(10,701)
250
-
26
-
(13,741)
(5,358)
35,497
Effects of exchange rate changes and inflation effects on
cash and cash equivalents held in foreign currencies
Ending balance of cash and cash equivalents
168
4,936
3,294
Ps. 96,944
1,458
Ps. 43,637
(743)
Ps. 29,396
$
(*) Convenience translation to U.S. dollars ($) – see Note 2.2.3
The accompanying notes are an integral part of these consolidated statements of cash flow.
17
Notes to the Consolidated Financial Statements
FOMENTO ECONÓMICO MEXICANO, S .A .B . DE C .V . Y SUBSIDIARIAS
MONTERREY, N .L ., MÉXICO
For the years ended December 31, 2017, 2016 and 2015 .
Amounts expressed in millions of U .S . dollars ($) and in millions of
Mexican pesos (Ps .)
Note 1. Activities of the Company
Fomento Económico Mexicano, S.A.B. de C.V. (“FEMSA”) is a Mexican holding company. The principal activities of FEMSA and its
subsidiaries (the “Company”) are carried out by operating subsidiaries and companies that are direct and indirect holding company
subsidiaries of FEMSA.
The following is a description of the Company´s activities as of the date of the issuance of these consolidated financial statements,
together with the ownership interest in each subholding company or business unit:
Subholding Company
Coca-Cola FEMSA,
S.A.B. de C.V. and
subsidiaries
(“Coca-Cola FEMSA”)
% Ownership
December 31,
2017
December 31,
2016
Activities
47.2%(1) (2)
(63.0% of
the voting shares)
Production, distribution and marketing of certain
47.9% (1)
(63.0% of the
Coca-Cola trademark beverages in Mexico, Guatemala,
voting shares) Nicaragua, Costa Rica, Panama, Colombia, Venezuela,
Retail Division
100%
100%
Fuel Division
100%
100%
Health Division (4) Various (3)
Various (3)
s
e
i
r
a
i
d
i
s
b
u
s
d
n
a
)
”
o
i
c
r
e
m
o
C
A
S
M
E
F
“
(
.
.
V
C
e
d
.
A
S
.
,
o
i
c
r
e
m
o
C
A
S
M
E
F
CB Equity, LLP
(“CB Equity”)
100%
100%
Other companies
100%
100%
Brazil, Argentina and Philippines (see Note 4).
At December 31, 2017, The Coca-Cola Company (TCCC)
indirectly owns 27.8% of Coca-Cola FEMSA’s capital stock.
In addition, shares representing 25% of Coca-Cola FEMSA’s
capital stock are traded on the Bolsa Mexicana de Valores
(Mexican Stock Exchange “BMV”) and on the New York
Stock Exchange, Inc (NYSE) in the form of American
Depositary Shares (“ADS”).
Small-box retail chain format operations in Mexico,
Colombia and the United States, mainly under the trade
name “OXXO” and “Big John” in Chile.
Retail service stations for fuels, motor oils, lubricants and
car care products under the trade name “OXXO GAS” with
operations in Mexico.
Drugstores operations in Chile and Colombia,
mainly under the trademark “Cruz Verde” and Mexico under
various brands such as YZA, La Moderna and Farmacon.
This Company holds Heineken N.V. and Heineken Holding
N.V. shares, which represents the aggregate of 14.8%(5)
economic interest in both entities (“Heineken”).
Companies engaged in the production and distribution of
coolers, commercial refrigeration equipment, plastic cases,
food processing, preservation and weighing equipment; as
well as logistic transportation and maintenance services to
FEMSA’s subsidiaries and to third parties.
(1) The Company controls Coca-Cola FEMSA’s relevant activities.
(2) The ownership decreased from 47.9% as of December 31, 2016 to 47.2% as of December 31, 2017 as a result of the issuance to former owners of Vonpar of shares
in Coca-Cola FEMSA (see Note 4).
(3) The former shareholders of Farmacias YZA hold a 23% stake in Cadena Comercial de Farmacias, S.A.P.I. de C.V., a subsidiary of FEMSA Comercio that holds
all pharmacy business in Mexico (which we refer to as CCF). In addition, FEMSA Comercio through one of its subsidiaries, Cadena Comercial de Farmacias
Sudamerica, S.P.A., holds a 60% stake in Grupo Socofar, see Note 4.1.2.
(4) From 2016, FEMSA Comercio – Health Division has been considered as a separate reportable segment, see Note 26.
(5) The economic interest decreased from 20.0% as of December 31, 2016 to 14.8% as of December 31, 2017 as a result of partial disposal transaction (see Note 4.2).
18
Note 2. Basis of Preparation
2.1 Statement of compliance
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as
issued by the International Accounting Standards Board (“IASB”).
The Company’s consolidated financial statements and notes were authorized for issuance by the Company’s Chief Executive Officer
Eduardo Padilla Silva and Chief Corporate Financial Officer Gerardo Estrada Attolini on February 21, 2018. These consolidated
financial statements and notes were then approved by the Company’s Board of Directors on February 27, 2018 and subsequent events
have been considered through that date (see Note 28). These consolidated financial statements and their accompanying notes will
be presented at the Company’s shareholders meeting in March 16, 2018. The Company’s shareholders have the power to approve or
modify the Company’s consolidated financial statements.
2.2 Basis of measurement and presentation
The consolidated financial statements have been prepared on the historical cost basis, except for the following:
• Available-for-sale investments.
• Derivative financial instruments.
• Long-term notes payable on which fair value hedge accounting is applied.
• Trust assets of post-employment and other long-term employee benefit plans.
The carrying values of recognized assets and liabilities that are designated as hedged items in fair value hedges that would otherwise
be carried at amortized cost are adjusted to record changes in the fair values attributable to the risks that are being hedged in effective
hedge relationship.
The financial statements of subsidiaries whose functional currency is the currency of a hyperinflationary economy are stated in terms
of the measuring unit current at the end of the reporting period.
2.2.1 Presentation of consolidated income statement
The Company classifies its costs and expenses by function in the consolidated income statement, in order to conform to the industry
practices where the Company operates.
2.2.2 Presentation of consolidated statements of cash flows
The Company’s consolidated statement of cash flows is presented using the indirect method.
2.2.3 Convenience translation to U.S. dollars ($)
The consolidated financial statements are stated in millions of Mexican pesos (“Ps.”) and rounded to the nearest million unless stated
otherwise. However, solely for the convenience of the readers, the consolidated statement of financial position as of December 31,
2017, the consolidated income statement, the consolidated statement of comprehensive income and consolidated statement of cash
flows for the year ended December 31, 2017 were converted into U.S. dollars at the exchange rate of 19.6395 Mexican pesos per U.S.
dollar as published by the Federal Reserve Bank of New York as of December 29, 2017 the last date in 2017 for available information.
This arithmetic conversion should not be construed as representation that the amounts expressed in Mexican pesos may be converted
into U.S. dollars at that or any other exchange rate. As explained in Note 2.1 above, as of February 27, 2018 (the issuance date of these
financial statements) such exchange rate was Ps. 18.5659 per U.S. dollar, a revaluation of 6% since December 31, 2017.
2.3 Critical accounting judgments and estimates
In the application of the Company’s accounting policies, which are described in Note 3, management is required to make judgments,
estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The
estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Real
results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the
period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the
revision affects both current and future periods.
2.3.1 Key sources of estimation uncertainty
The following are the key assumptions concerning the future and other key sources of estimation uncertainty at the end of the reporting
period that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next
financial year. Existing circumstances and assumptions about future developments, however, may change due to market changes or
circumstances arising beyond the control of the Company. Such changes are reflected in the assumptions when they occur.
19
2 .3 .1 .1 Impairment of indefinite lived intangible assets, goodwill and depreciable long-lived assets
Intangible assets with indefinite lives including goodwill are subject to impairment tests annually or whenever indicators of impairment
are present. An impairment exists when the carrying value of an asset or cash generating unit (CGU) exceeds its recoverable amount,
which is the higher of its fair value less costs to sell and its value in use. The fair value less costs to sell calculation is based on available
data from binding sales transactions in arm’s length transactions of similar assets or observable market prices less incremental costs for
disposing of the asset. In order to determine whether such assets are impaired, the Company initially calculates an estimation of the
value in use of the cash-generating units to which such assets have been allocated. Impairment losses are recognized in current earnings
in the period the related impairment is determined.
The Company assesses at each reporting date whether there is an indication that a long-lived asset may be impaired. If any indication
exists, or when annual impairment testing for an asset is required, the Company estimates the asset’s recoverable amount. When
the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its
recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax
discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining
fair value less costs to sell, recent market transactions are taken into account, if available. If no such transactions can be identified, an
appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded
subsidiaries or other available fair value indicators.
The key assumptions used to determine the recoverable amount for the Company’s CGUs, including a sensitivity analysis, are further
explained in Notes 3.16 and 12.
2 .3 .1 .2 Useful lives of property, plant and equipment and intangible assets with definite useful lives
Property, plant and equipment, including returnable bottles which are expected to provide benefits over a period of more than one
year, as well as intangible assets with definite useful lives are depreciated/amortized over their estimated useful lives. The Company
bases its estimates on the experience of its technical personnel as well as its experience in the industry for similar assets, see Notes 3.12,
3.14, 11 and 12.
2 .3 .1 .3 Employee benefits
The Company regularly evaluates the reasonableness of the assumptions used in its post-employment and other long-term employee
benefit computations. Information about such assumptions is described in Note 16.
2 .3 .1 .4 Income taxes
Deferred income tax assets and liabilities are determined based on the differences between the financial statement carrying amounts
and the tax bases of assets and liabilities. The Company recognizes deferred tax assets for unused tax losses and other credits and
regularly reviews them for recoverability, based on its judgment regarding the probability of the timing and level of future taxable
income, the expected timing of the reversals of existing taxable temporary differences and future tax planning strategies, see Note 24.
2 .3 .1 .5 Tax, labor and legal contingencies and provisions
The Company is subject to various claims and contingencies related to tax, labor and legal proceedings as described in Note 25. Due to
their nature, such legal proceedings involve inherent uncertainties including, but not limited to, court rulings, negotiations between
affected parties and governmental actions. Management periodically assesses the probability of loss for such contingencies and accrues a
provision and/or discloses the relevant circumstances, as appropriate. If the potential loss of any claim or legal proceeding is considered
probable and the amount can be reasonably estimated, the Company accrues a provision for the estimated loss. Management’s judgment
must be exercised to determine the likelihood of such a loss and an estimate of the amount, due to the subjective nature of the loss.
2 .3 .1 .6 Valuation of financial instruments
The Company is required to measure all derivative financial instruments at fair value.
The fair values of derivative financial instruments are determined considering quoted prices in recognized markets. If such instruments
are not traded, fair value is determined by applying techniques based upon technical models supported by sufficient reliable
and verifiable data, recognized in the financial sector. The Company bases its forward price curves upon market price quotations.
Management believes that the chosen valuation techniques and assumptions used are appropriate in determining the fair value of
financial instruments, see Note 20.
2 .3 .1 .7 Business combinations
Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is
measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the Company to, and
liabilities assumed by the Company from the former owners of the acquiree, the amount of any non-controlling interest in the acquiree,
and the equity interests issued by the Company in exchange for control of the acquiree.
20
At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognized and measured at their fair value,
except that:
• Deferred tax assets or liabilities, and assets or liabilities related to employee benefit arrangements are recognized and measured in
accordance with IAS 12, Income Taxes and IAS 19, Employee Benefits, respectively;
• Liabilities or equity instruments related to share-based payment arrangements of the acquiree or share-based payment arrangements
of the Company entered into to replace share-based payment arrangements of the acquiree are measured in accordance with IFRS
2, Share-based Payment at the acquisition date, see Note 3.24; and
• Assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5, Non-current Assets Held for Sale and
Discontinued Operations are measured in accordance with that standard.
• Indemnifiable assets are recognized at the acquisition date on the same basis as the indemnifiable liability subject to any contractual
limitations.
For each acquisition, management’s judgment must be exercised to determine the fair value of the assets acquired, the liabilities assumed
and any non-controlling interest in the acquiree, applying estimates or judgments in techniques used, especially in forecasting CGU’s
cash flows, in the computation of weighed average cost of weighted average cost of capital (WACC) and estimation of inflation during
the identification of intangible assets with indefinite live, mainly, goodwill, distribution and trademark rights.
2.3.2 Judgements
In the process of applying the Company’s accounting policies, management has made the following judgements which have the most
significant effects on the amounts recognized in the consolidated financial statements.
2 .3 .2 .1 Investments in associates
If the Company holds, directly or indirectly, 20 per cent or more of the voting power of the investee, it is presumed that it has significant
influence, unless it can be clearly demonstrated that this is not the case. If the Company holds, directly or indirectly, less than 20 per
cent of the voting power of the investee, it is presumed that the Company does not have significant influence, unless such influence
can be clearly demonstrated. Decisions regarding the propriety of utilizing the equity method of accounting for a less than 20 per cent-
owned corporate investee requires a careful evaluation of voting rights and their impact on the Company’s ability to exercise significant
influence. Management considers the existence of the following circumstances which may indicate that the Company is in a position to
exercise significant influence over a less than 20 per cent-owned corporate investee:
• Representation on the board of directors or equivalent governing body of the investee;
• Participation in policy-making processes, including participation in decisions about dividends or other distributions;
• Material transactions between the Company and the investee;
• Interchange of managerial personnel; or
• Provision of essential technical information.
Management also considers the existence and effect of potential voting rights that are currently exercisable or currently convertible
when assessing whether the Company has significant influence.
In addition, the Company evaluates certain indicators that provide evidence of significant influence, such as:
• Whether the extent of the Company’s ownership is significant relative to other shareholders (i.e., a lack of concentration of other
shareholders);
• Whether the Company’s significant shareholders, fellow subsidiaries, or officers hold additional investment in the investee; and
• Whether the Company is a part of significant investee committees, such as the executive committee or the finance committee.
2 .3 .2 .2 Joint arrangements
An arrangement can be a joint arrangement even though not all of its parties have joint control of the arrangement. When the Company
is a party to an arrangement it shall assess whether the contractual arrangement gives all the parties, or a group of the parties, control
of the arrangement collectively; joint control exists only when decisions about the relevant activities require the unanimous consent of
the parties that control the arrangement collectively. Management needs to apply judgment when assessing whether all the parties, or
a group of the parties, have joint control of an arrangement. When assessing joint control, management considers the following facts
and circumstances such as:
a) Whether all the parties or a group of the parties, control the arrangement, considering definition of joint control, as described in
Note 3.11.2; and
b) Whether decisions about the relevant activities require the unanimous consent of all the parties, or of a group of the parties.
21
As mentioned in Note 4, until January 2017, Coca-Cola FEMSA accounted for its 51% investment in Coca-Cola FEMSA Philippines,
Inc. (CCFPI) as a joint venture, this was based on the facts that Coca-Cola FEMSA and TCCC: (i) make all operating decisions jointly
during the initial four-year period and (ii) potential voting rights to acquire the remaining 49% of CCFPI were not probable to be
exercised in the foreseeable future and the fact that the call option remains “out of the money” as of December 31, 2017.
2 .3 .2 .3 Venezuela exchange rates and deconsolidation
As is further explained in Note 3.3 below, as of December 31,2017, the exchange rate used to translate the financial statements of
the Company’s Venezuelan subsidiary for reporting purposes into the consolidated financial statements was 22,793 bolivars per
U.S. dollar.
As is also explained in Note 3.3 below, effective December 31, 2017 the Company deconsolidated its Coca-Cola FEMSA subsidiary’s
operations in Venezuela due to the challenging economic environment in that country and began accounting for the operations
under the fair value method.
2.4 Application of recently issued accounting standards
The Company has applied the following amendments to IFRS during 2017:
Amendments to IAS 7, Disclosure Initiative
The amendments to IAS 7, Statement of Cash Flows, require that the following changes in liabilities arising from financing activities be disclosed
separately from changes in other assets and liabilities: (i) changes from financing cash flows; (ii) changes arising from obtaining or losing
control of subsidiaries or other businesses; (iii) the effect of changes in foreign exchange rates; (iv) changes in fair values; and (v) other changes.
Liabilities arising from financing activities are those for which cash flows were, or future cash flows will be, classified in the statement
of cash flows as cash flows from financing activities. (see Note 18.1).
Amendments to IAS 12, Recognition of Deferred Tax Assets for Unrealized Losses
The amendments clarify that the Company needs to consider whether tax law restricts the sources of taxable profits against which it
may make deductions on the reversal of that deductible temporary difference. Furthermore, the amendments provide guidance on
how an entity should determine future taxable profits and explain the circumstances in which taxable profit may include the recovery of
some assets for more than their carrying amount. The Company did not have any impact in the adoption of these amendments.
Note 3. Significant Accounting Policies
3.1 Basis of consolidation
The consolidated financial statements comprise the financial statements of the Company. Control is achieved when the Company is
exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its
power over the investee.
Specifically, the Company controls an investee if and only if the Company has:
• Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee);
• Exposure, or rights, to variable returns from its involvement with the investee; and
• The ability to use its power over the investee to affect its returns.
When the Company has less than a majority of the voting or similar rights of an investee, the Company considers all relevant facts and
circumstances in assessing whether it has power over an investee, including:
• The contractual arrangements with the other vote holders of the investee;
• Rights arising from other contractual arrangements; and
• The Company’s voting rights and potential voting rights.
The Company re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or
more of the three elements of control. Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and
ceases when the Company loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary are included in the
consolidated financial statements of income and comprehensive income from the date the Company gains control until the date the
Company ceases to control the subsidiary.
Profit or loss and each component of other comprehensive income (OCI) are attributed to the equity holders of the parent of the
Company and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. When
necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the
Company’s accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions
between members of the Company are eliminated in full on consolidation.
22
A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Company
loses control over a subsidiary, it:
• Derecognizes the assets (including goodwill) and liabilities of the subsidiary.
• Derecognizes the carrying amount of any non-controlling interests.
• Derecognizes the cumulative translation differences recorded in equity.
• Recognizes the fair value of the consideration received.
• Recognizes the fair value of any investment retained.
• Recognizes any surplus or deficit in profit or loss.
• Reclassifies the parent’s share of components previously recognized in OCI to profit or loss or retained earnings, as appropriate, as
would be required if the Company had directly disposed of the related assets or liabilities.
3.1.1 Acquisitions of non-controlling interests
Acquisitions of non-controlling interests are accounted for as transactions with owners in their capacity as owners and therefore no
goodwill is recognized as a result. Adjustments to non-controlling interests arising from transactions that do not involve the loss of
control are measured at carrying amount and reflected in shareholders’ equity as part of additional paid-in capital.
3.2 Business combinations
Business combinations are accounted for using the acquisition method at the acquisition date, which is the date on which control is
transferred to the Company. The cost of an acquisition is measured as the aggregate of the consideration transferred, which is measured
at acquisition date fair value, and the amount of any non-controlling interests in the acquiree. For each business combination, the
Company elects whether to measure the non-controlling interests in the acquiree at fair value or at the proportionate share of the
acquiree’s identifiable net assets.
Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the
acquiree, and the fair value of the Company previously held equity interest in the acquiree (if any) over the net of the acquisition-date
amounts of the identifiable assets acquired and the liabilities assumed. If, after reassessment, the net of the acquisition-date amounts
of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any non-
controlling interests in the acquiree and the fair value of the Company previously held interest in the acquiree (if any), the excess is
recognized immediately in profit or loss as a bargain purchase gain.
Costs, other than those associated with the issuance of debt or equity securities, that the Company incurs in connection with a business
combination are expensed as incurred.
Any contingent consideration payable is recognized at fair value at the acquisition date. If the contingent consideration is classified
as equity, it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent changes to the fair value of the
contingent considerations are recognized in consolidated net income.
If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs,
the Company reports provisional amounts for the items in which the accounting is incomplete, and discloses that its allocation is
preliminary in nature. Those provisional amounts are adjusted retrospectively during the measurement period (not greater than 12
months from the acquisition date), or additional assets or liabilities are recognized, to reflect new information obtained about facts and
circumstances that existed at the acquisition date that, if known, would have affected the amounts recognized at that date.
Sometimes obtaining control of an acquiree in which equity interest is held immediately before the acquisition date is considered as
a business combination achieved in stages also referred to as a step acquisition. The Company remeasures its previously held equity
interest in the acquiree at it s acquisition-date fair value and recognises the resulting gain or loss, if any, in profit or loss. Also, the changes
in the value of equity interest in the acquiree recognized in other comprehensive income shall be recognized on the same basis as required
if the Company had disposed directly of the previously held equity interest, see Note 3.11.2.
The Company sometimes obtains control of an acquiree without transferring consideration. The acquisition method of accounting for
a business combination, applies to those combinations as follows:
a) The acquiree repurchases a sufficient number of its own shares for the Company to obtain control.
b) Minority veto rights lapse that previously kept the Company from controlling an acquiree in which it held the majority voting rights.
c) The Company and the acquiree agree to combine their businesses by contract alone in which it transfers no consideration in exchange
for control and no equity interest is held in the acquiree, either on the acquisition date or previously.
23
3.3 Foreign currencies, consolidation of foreign subsidiaries and accounting for investments in associates and joint ventures
In preparing the financial statements of each individual subsidiary and accounting for investments in associates and joint ventures,
transactions in currencies other than the individual entity’s functional currency (foreign currencies) are recognized at the rates of
exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign
currencies are retranslated at the rates prevailing at that date. Non-monetary items that are measured in terms of historical cost in a
foreign currency are not retranslated.
Exchange differences on monetary items are recognized in consolidated net income in the period in which they arise except for:
• The variations in the net investment in foreign subsidiaries generated by exchange rate fluctuation which are included in other
comprehensive income, which is recorded in equity as part of accumulated translation adjustment within the cumulative other
comprehensive income.
• Intercompany financing balances with foreign subsidiaries are considered as long-term investments when there is no plan to pay
such financing in the foreseeable future. Monetary position and exchange rate fluctuation regarding this financing is recorded in the
exchange differences on translation of foreign operations within the acumulatedother comprehensive income (loss) item, which is
recorded in equity.
• Exchange differences on transactions entered into in order to hedge certain foreign currency risks.
Foreign exchange differences on monetary items are recognized in profit or loss. Their classification in the income statement depends
on their nature. Differences arising from fluctuations related to operating activities are presented in the “other expenses” line (see
Note 19) while fluctuations related to non-operating activities such as financing activities are presented as part of “foreign exchange
gain (loss)” line in the income statement.
For incorporation into the Company’s consolidated financial statements, each foreign subsidiary, associates or joint venture’s individual
financial statements are translated into Mexican pesos, as follows:
• For hyperinflationary economic environments, the inflation effects of the origin country are recognized pursuant IAS 29 Financial
Reporting in Hyperinflationary Economies, and subsequently translated into Mexican pesos using the year-end exchange rate for
the consolidated statements of financial position and consolidated income statement and comprehensive income; and
• For non-hyperinflationary economic environments, assets and liabilities are translated into Mexican pesos using the year-end
exchange rate, equity is translated into Mexican pesos using the historical exchange rate, and the income statement and comprehensive
income is translated using the exchange rate at the date of each transaction. The Company uses the average exchange rate of each
month if the exchange rate does not fluctuate significantly.
In addition, in relation to a partial disposal of a subsidiary that does not result in the Company losing control over the subsidiary,
the proportionate share of accumulated exchange differences are re-attributed to non-controlling interests and are not recognized
in profit or loss. For all other partial disposals (i.e., partial disposals of associates or joint ventures that do not result in the Company
losing significant influence or joint control), the proportionate share of the accumulated exchange differences is reclassified to profit
or loss. In September 2017, the Company sold shares equal to 5.2% of economic interest in Heineken, consequently it reclassified the
proportionate share of the accumulated exchange differences, recognized previously in other comprehensive income, for a total profit
of Ps. 6,632 to the consolidated statement of income.
Goodwill and fair value adjustments on identifiable assets and liabilities acquired arising on the acquisition of a foreign operation are
treated as assets and liabilities of the foreign operation and translated at the rate of exchange prevailing at the end of each reporting
period. Foreign exchange differences arising are recognized in equity as part of the cumulative translation adjustment.
The translation of assets and liabilities denominated in foreign currencies into Mexican pesos is for consolidation purposes and does not
indicate that the Company could realize or settle the reported value of those assets and liabilities in Mexican pesos. Additionally, this
does not indicate that the Company could return or distribute the reported Mexican peso value in equity to its shareholders.
24
Exchange Rates of Local Currencies Translated to Mexican Pesos (1)
Average Exchange Rate for
Exchange Rate as of
Country or
Zone
Functional /
Recording
Currency
2017
Guatemala
Costa Rica
Panama
Colombia
Nicaragua
Argentina
Venezuela a)
Brazil
Chile
Euro Zone
Peru
Ecuador
Philippines
(1) Exchange rates published by the Central Bank of each country where the Company operates.
Quetzal
Colon
U.S. dollar
Colombian peso
Cordoba
Argentine peso
Bolivar
Reais
Chilean peso
Euro (€)
Nuevo Sol
Peso
Philippine peso
2.57
0.03
18.93
0.01
0.63
1.15
a)
5.94
0.03
21.32
5.78
18.93
0.38
2016
2.46
0.03
18.66
0.01
0.65
1.26
a)
5.39
0.03
20.66
5.53
18.66
0.39
2015
2.07
0.03
15.85
0.01
0.58
1.71
a)
4.81
0.02
17.60
4.99
15.85
0.35
December 31,
2017
December 31,
2016
2.69
0.03
19.74
0.01
0.64
1.06
a)
5.97
0.03
23.57
6.08
19.74
0.40
2.75
0.04
20.66
0.01
0.70
1.30
a)
6.34
0.03
21.77
6.15
20.66
0.41
a) Venezuela
Effective December 31, 2017, the Company determined that the deteriorating conditions in Venezuela had led Coca-Cola FEMSA to no
longer meet the accounting criteria to consolidate its Venezuelan subsidiary. Such deteriorating conditions had significantly impacted
Coca-Cola FEMSA’s ability to manage its capital structure, its capacity to purchase raw materials and limitations of portfolio dynamics.
In addition, certain government controls over pricing, restriction over labor practices, acquisition of U.S. dollars and imports, has
affected the normal course of business. Therefore, and due to the fact that its Venezuelan subsidiary will continue doing operations
in Venezuela, as of December 31, 2017, Coca-Cola FEMSA changed the method of accounting for its investment in Venezuela from
consolidation to fair value measured using a Level 3 concept.
As a result of the deconsolidation, Coca-Cola FEMSA also recorded an extraordinary loss within other expenses for an amount of
Ps. 28,177 on December 31, 2017. Such effect includes the reclassification of Ps. 26,123 to the income statement previously recorded
within accumulated foreign currency translation losses in equity, impairment equal to Ps. 745 and Ps. 1,098 mainly from distribution
rights and property, plant and equipment, respectively, and Ps. 210 for the remeasurement at fair-value of Venezuelan investment.
Prior to deconsolidation, during 2017, Coca-Cola FEMSA’s Venezuelan operations contributed Ps. 4,005 to net sales, and losses of
Ps. 2,223 to net income. It’s total assets were Ps. 4,138 and the total liabilities were Ps. 2,889.
Beginning January 1, 2018, Coca-Cola FEMSA will recognize its investment in Venezuela under the fair value method following the
new IFRS 9 Financial Instruments standard. .
Until December 31, 2017, Coca-Cola FEMSA’s recognition of its Venezuelan operations involved a two-step accounting process in
order to translate into bolivars all transactions in a different currency than bolivars and then to translate the bolivar amounts to Mexican
Pesos.
Step-one.- Transactions are first recorded in the stand-alone accounts of the Venezuelan subsidiary in its functional currency, which
is bolivar. Any non-bolivar denominated monetary assets or liabilities are translated into bolivars at each balance sheet date using the
exchange rate at which Coca-Cola FEMSA expects them to be settled, with the corresponding effect of such translation being recorded
in the income statement. See 3.4 below.
As of December 31, 2016 Coca-Cola FEMSA had U.S. $629 million in monetary liabilities recorded using DIPRO (Divisa Protegida)
exchange rate at 10 bolivars per U.S. dollar, mainly because as of that date Coca-Cola FEMSA belived it continued to qualify for that
rate to pay for the import of various products into Venezuela, and its ability to renegotiate with their main suppliers, if necessary,
the settlement of such liabilities in bolivars. In addition, Coca-Cola FEMSA has U.S. $104 million recorded at DICOM (Divisas
Complementarias) exchange rate at 673.76 bolivars per U.S. dollar.
Step-two.- In order to integrate the results of the Venezuelan operations into the consolidated figures of Coca-Cola FEMSA, such
Venezuelan results are translated from Venezuelan bolivars into Mexican pesos.
In December 2017, Coca-Cola FEMSA translated the Venezuela entity figures at an exchange rate of 22,793 bolivars per U.S. dollar,
as such exchange rate better represents the economic conditions in Venezuela. Coca-Cola FEMSA considers that this exchange rate
provides more useful and relevant information with respect to Venezuela’s financial position, financial performance and cash flows. On
January 30, 2018, a new auction of the DICOM celebrated by Venezuela’s government resulted on an estimated exchange rate of 25,000
bolivar per U.S. dollar.
25
3.4 Recognition of the effects of inflation in countries with hyperinflationary economic environments
The Company recognizes the effects of inflation on the financial information of its Venezuelan subsidiary that operates in hyperinflationary
economic environments (when cumulative inflation of the three preceding years is approaching, or exceeds, 100% or more in addition
to other qualitative factors), which consists of:
• Using inflation factors to restate non-monetary assets, such as inventories, property, plant and equipment, intangible assets,
including related costs and expenses when such assets are consumed or depreciated;
• Applying the appropriate inflation factors to restate capital stock, additional paid-in capital, net income, retained earnings and
items of other comprehensive income by the necessary amount to maintain the purchasing power equivalent in the currency of
Venezuela on the dates such capital was contributed or income was generated up to the date those consolidated financial statements
are presented; and
• Including the monetary position gain or loss in consolidated net income.
The Company restates the financial information of subsidiaries that operate in hyperinflationary economic environment using the
consumer price index of each country (CPI).
As disclosed in Note 3.3, Coca-Cola FEMSA deconsolidated its operations in Venezuela. Consequently, there will not be financial
impacts associated to inflation adjustments in future financial statements, however, Coca-Cola FEMSA’s Venezuelan subsidiary will
continue operating.
As of December 31, 2017, 2016, and 2015, the operations of the Company are classified as follows:
Country
Mexico
Guatemala
Costa Rica
Panama
Colombia
Nicaragua
Argentina (a)
Venezuela
Brazil
Philippines
Euro Zone
Chile
Peru
Ecuador
Cumulative
Inflation
2015- 2017
12.7%
13.5%
2.5%
2.3%
17.5%
12.3%
101.5%
30,690.0%
21.1%
7.5%
2.72%
9.67%
9.28%
30.34%
Type of Economy
Non-hyperinflationary
Non-hyperinflationary
Non-hyperinflationary
Non-hyperinflationary
Non-hyperinflationary
Non-hyperinflationary
Non-hyperinflationary
Hyperinflationary
Non-hyperinflationary
Non-hyperinflationary
Non-hyperinflationary
Non-hyperinflationary
Non-hyperinflationary
Non-hyperinflationary
Cumulative
Inflation
2014- 2016
9.9%
10.6%
5.1%
2.8%
17.0%
13.1%
99.7%
2,263.0%
25.2%
5.7%
1.2%
12.2%
11.2%
8.4%
Type of Economy
Non-hyperinflationary
Non-hyperinflationary
Non-hyperinflationary
Non-hyperinflationary
Non-hyperinflationary
Non-hyperinflationary
Non-hyperinflationary
Hyperinflationary
Non-hyperinflationary
Non-hyperinflationary
Non-hyperinflationary
Non-hyperinflationary
Non-hyperinflationary
Non-hyperinflationary
Cumulative
Inflation
2013- 2015
Type of Economy
10.5% Non-hyperinflationary
10.8% Non-hyperinflationary
8.1% Non-hyperinflationary
5.1% Non-hyperinflationary
12.8% Non-hyperinflationary
15.8% Non-hyperinflationary
59.2% Non-hyperinflationary
562.9% Hyperinflationary
24.7% Non-hyperinflationary
8.3% Non-hyperinflationary
0.9% Non-hyperinflationary
12.5% Non-hyperinflationary
10.8% Non-hyperinflationary
10.0% Non-hyperinflationary
a) Argentina
As of December 2017 and 2016 there are multiple inflation indices (including combination of indices in the case of CPI) or certain
months without official available information in the case of National Wholesale Price Index (WPI), as follows:
i) CPI for the City and Greater Buenos Aires Area (New CPI-CGBA), for which the IMF noted improvements in quality, this new
consumer price index will only be provided for periods after April 2016 and does not provide national coverage.
ii) “Coeficiente de Estabilización de Referencia” (CER or Reference Stabilization Ratio) to calculate the three-year cumulative inflation
rate in Argentina, the CER is used by the government of Argentina to adjust the rate they pay on certain adjustable rate bonds they
issue. At April 30, 2017, the three-year cumulative inflation rate based on CER data is estimated to be approximately 95.5%.
iii) WPI with a cumulative inflation for three years of 92.2% at November 2016 but not including information for November and
December 2015 since it was not published by the National Bureau of Statistics of Argentina (INDEC). The WPI has historically been
viewed as the most relevant inflation measure for companies by practitioners in Argentina.
As a result of the existence of multiple inflation indices, the Company believes it necessitates an increased level of judgment in
determining whether the economy of Argentina should be considered highly inflationary.
The Company believes that general market sentiment is that on the basis of the quantitative and qualitative indicators in IAS 29, the
economy of Argentina should not be considered as hyperinflationary as of December 31, 2017. However, it is possible that certain
market participants and regulators could have varying views on this topic both during 2017 and as Argentina’s economy continues to
evolve in 2018. The Company will continue to carefully monitor the situation and make appropriate changes if and when necessary.
26
3.5 Cash and cash equivalents and restricted cash
Cash is measured at nominal value and consists of non-interest bearing bank deposits. Cash equivalents consist principally of short-
term bank deposits and fixed rate investments, both with maturities of three months or less at the acquisition date and are recorded at
acquisition cost plus interest income not yet received, which is similar to market prices.
The Company also maintains restricted cash held as collateral to meet certain contractual obligations (see Note 9.2). Restricted cash is
presented within other current financial assets given that the restrictions are short-term in nature.
3.6 Financial assets
Financial assets are classified into the following specified categories: “fair value through profit or loss (FVTPL),” “held-to-maturity
investments,” “available-for-sale” and “loans and receivables” or as derivatives designated as hedging instruments in an effective hedge,
as appropriate. The classification depends on the nature and purpose of holding the financial assets and is determined at the time of
initial recognition.
When a financial asset is recognized initially, the Company measures it at its fair value plus, in the case of a financial asset not at fair value
through profit or loss, transaction costs that are directly attributable to the acquisition of the financial asset.
The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or
liability, assuming that market participants act in their economic best interest.
The Company’s financial assets include cash, cash equivalents and restricted cash, investments with maturities of greater than three
months, loans and receivables, derivative financial instruments and other financial assets.
3.6.1 Effective interest rate method (EIR)
The effective interest rate method is a method of calculating the amortized cost of loans and receivables and other financial assets
(designated as held to-maturity) and of allocating interest income/expense over the relevant period. The effective interest rate is the
rate that exactly discounts estimated future cash receipts (including all fees on points paid or received that form an integral part of the
effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial asset, or (where
appropriate) a shorter period, to the net carrying amount on initial recognition.
3.6.2 Investments
Investments consist of debt securities and bank deposits with maturities of more than three months at the acquisition date. Management
determines the appropriate classification of investments at the time of purchase and assesses such designation as of each reporting date
(see Note 6).
3 .6 .2 .1 Held-to maturity investments are those that the Company has the positive intent and ability to hold to maturity, and after initial
measurement, such financial assets are subsequently measured at amortized cost, which includes any cost of purchase and premium
or discount related to the investment. Subsequently, the premium/discount is amortized over the life of the investment based on its
outstanding balance utilizing the effective interest method less any impairment. Interest and dividends on investments classified as
held-to maturity are included in interest income.
3.6.3 Financial assets at fair value through profit or loss (FVTPL)
Financial assets at fair value through profit or loss (FVTPL) include financial assets held for trading and financial assets designated
upon initial recognition at fair value through profit or loss. Financial assets are classified as held for trading if they are acquired for the
purpose of selling or repurchasing in the near term. Derivatives, including separated embedded derivatives are also classified as held
for trading unless they are designated as effective hedging instruments as defined by IAS 39 Financial Instruments: Recogntion and
Measurement. Financial assets at fair value through profit or loss are carried in the statement of financial position at fair value with net
changes in fair value presented as finance costs (negative net changes in fair value) or finance income (positive net changes in fair value)
in the statement of profit or loss.
3.6.4 Loans and receivables
Loans and receivables are non-derivative financial instruments with fixed or determinable payments that are not quoted in an active
market. Loans and receivables with a stated term (including trade and other receivables) are measured at amortized cost using the
effective interest method, less any impairment.
Interest income is recognized by applying the effective interest rate, except for short-term receivables when the recognition of interest
would be immaterial. For the years ended December 31, 2016 and 2015 the interest income on loans and receivables recognized in the
interest income line item within the consolidated income statements is Ps. 41 and Ps. 53, respectively.
3.6.5 Other financial assets
Other financial assets include long term accounts receivable, derivative financial instruments and recoverable contingencies acquired
from business combinations. Long term accounts receivable with a stated term are measured at amortized cost using the effective
interest method, less any impairment.
27
3.6.6 Impairment of financial assets
Financial assets, other than those at FVTPL, are assessed for indicators of impairment at the end of each reporting period. Financial
assets are considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after the
initial recognition of the financial asset, (an incurred “loss event”) and that loss event has an impact on the estimated future cash flows
of the financial assets that can be reliably estimated.
Evidence of impairment may include indicators as follows:
• Significant financial difficulty of the issuer or counterparty; or
• Default or delinquent in interest or principal payments; or
• It becoming probable that the borrower will enter bankruptcy or financial re-organization; or
• The disappearance of an active market for that financial asset because of financial difficulties.
For financial assets carried at amortized cost, the amount of the impairment loss recognized is the difference between the asset’s
carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate.
The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of
trade receivables, where the carrying amount is reduced through the use of an allowance for doubtful accounts. When a trade
receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously
written off are credited to the allowance account. Changes in the carrying amount of the allowance account are recognized in
consolidated net income.
3.6.7 Derecognition
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognized when:
• The rights to receive cash flows from the financial asset have expired, or
• The Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash
flows in full without material delay to a third party under a ‘pass-through’ arrangement; and either (a) the Company has transferred
substantially all the risks and rewards of the asset, or (b) the Company has neither transferred nor retained substantially all the risks
and rewards of the asset, but has transferred control of the asset.
3.6.8 Offsetting of financial instruments
Financial assets are required to be offset against financial liabilities and the net amount reported in the consolidated statement of
financial position if, and only when the Company:
• Currently has an enforceable legal right to offset the recognized amounts; and
• Intends to settle on a net basis, or to realize the assets and settle the liabilities simultaneously.
3.7 Derivative financial instruments
The Company is exposed to different risks related to cash flows, liquidity, market and third party credit. As a result, the Company
contracts different derivative financial instruments in order to reduce its exposure to the risk of exchange rate fluctuations between the
Mexican peso and other currencies, and interest rate fluctuations associated with its borrowings denominated in foreign currencies and
the exposure to the risk of fluctuation in the costs of certain raw materials.
The Company values and records all derivative financial instruments and hedging activities, in the consolidated statement of financial
position as either an asset or liability measured at fair value, considering quoted prices in recognized markets. If such instruments are
not traded in a formal market, fair value is determined by applying techniques based upon technical models supported by sufficient,
reliable and verifiable market data. Changes in the fair value of derivative financial instruments are recorded each year in current
earnings otherwise as a component of cumulative other comprehensive income based on the item being hedged and the effectiveness
of the hedge.
3.7.1 Hedge accounting
The Company designates certain hedging instruments, which include derivatives to cover foreign currency risk, as either fair value
hedges or cash flow hedges. Hedges of foreign exchange risk on firm commitments are accounted for as cash flow hedges.
At the inception of the hedge relationship, the Company documents the relationship between the hedging instrument and the
hedged item, along with its risk management objectives and its strategy for undertaking various hedge transactions. Furthermore, at
the inception of the hedge and on an ongoing basis, the Company documents whether the hedging instrument is highly effective in
offsetting changes in fair values or cash flows of the hedged item attributable to the hedged risk.
28
3.7.1.1 Cash flow hedges
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognized in other
comprehensive income and accumulated under the heading valuation of the effective portion of derivative financial instruments. The
gain or loss relating to the ineffective portion is recognized immediately in consolidated net income, and is included in the market value
(gain) loss on financial instruments line item within the consolidated income statements.
Amounts previously recognized in other comprehensive income and accumulated in equity are reclassified to consolidated net income
in the periods when the hedged item is recognized in consolidated net income, in the same line of the consolidated income statement as
the recognized hedged item. However, when the hedged forecast transaction results in the recognition of a non-financial asset or a non-
financial liability, the gains and losses previously recognized in other comprehensive income and accumulated in equity are transferred
from equity and included in the initial measurement of the cost of the non-financial asset or non-financial liability.
Hedge accounting is discontinued when the Company revokes the hedging relationship, when the hedging instrument expires or is
sold, terminated, or exercised, or when it no longer qualifies for hedge accounting. Any gain or loss recognized in cumulative other
comprehensive income in equity at that time remains in equity and is recognized when the forecast transaction is ultimately recognized
in consolidated net income. When a forecast transaction is no longer expected to occur, the gain or loss accumulated in equity is
recognized immediately in consolidated net income.
3.7.1.2 Fair value hedges
For hedged ítems carried at fair value, the change in the fair value of a hedging derivative is recognized in the consolidated income
statement as foreign exchange gain or loss. The change in the fair value of the hedged item attributable to the risk hedged is recorded as
part of the carrying value of the hedged item and is also recognized in the consolidated income statement as foreign exchange gain or loss.
For fair value hedges relating to items carried at amortized cost, change in the fair value of the effective portion of the hedge is
recognized first as an adjustment to the carrying value of the hedged item and then is amortized through profit or loss over the
remaining term of the hedge using the EIR method. EIR amortization may begin as soon as an adjustment exists and no later than
when the hedged item ceases to be adjusted for changes in its fair value attributable to the risk being hedged. If the hedged item is
derecognized, the unamortized fair value is recognized immediately in profit or loss.
When an unrecognized firm commitment is designated as a hedged item, the subsequent cumulative change in the fair value of the
firm commitment attributable to the hedged risk is recognized as an asset or liability with a corresponding gain or loss recognized
in the consolidated net income.
3.7.2 Hedge of net investment in a foreign business
The Company applies hedge accounting to foreign currency differences arising between the functional currency of its investments
abroad and the functional currency of the holding (Mexican peso), regardless of whether the net investment is held directly or through
a sub-holding.
Differences in foreign currency that arise in the conversion of a financial liability designated as a hedge of a net investment in a foreign
operation are recognized in other comprehensive income in the exchange differences on the translation of foreign operations and
associates caption , to the extent that the hedge is effective. To the extent that the hedge is ineffective, such differences are recognized
as market value gain or loss on financial instruments within the consolidated income statements. When part of the hedge of a net
investment is disposed, the corresponding accumulated foreign currency translation effect is recognized as part of the gain or loss on
disposal within the consolidated income statement.
3.8 Fair value measurement
The Company measures financial instruments, such as derivatives, and certain non-financial assets, at fair value at each balance sheet
date. Also, fair values of financial instruments measured at amortized cost are disclosed in Notes 13 and 18.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or
transfer the liability takes place either:
• In the principal market for the asset or liability; or
• In the absence of a principal market, in the most advantageous market for the asset or liability.
A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by
using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure
fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.
29
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value
hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
• Level 1 — Quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to
access at the measurement date.
• Level 2 — Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or
indirectly.
• Level 3 — Are unobservable inputs for the asset or liability. Unobservable inputs shall be used to measure fair value to the extent
that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or
liability at the measurement date.
For assets and liabilities that are recognized in the financial statements on a recurring basis, the Company determines whether transfers
have occurred between Levels in the hierarchy by re-assessing categorization (based on the lowest level input that is significant to the
fair value measurement as a whole) at the end of each reporting period.
The Company determines the policies and procedures for both recurring fair value measurements, such as those described in Note 20
and unquoted liabilities such as debt described in Note 18.
For the purpose of fair value disclosures, the Company has determined classes of assets and liabilities on the basis of the nature,
characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above.
3.9 Inventories and cost of goods sold
Inventories are measured at the lower of cost and net realizable value. Net realizable value represents the estimated selling price for
inventories less all estimated costs of completion and costs necessary to make the sale.
Inventories represent the acquisition or production cost which is incurred when purchasing or producing a product. The operating
segments of the Company use inventory costing methodologies to value their inventories, such as the weighted average cost method
in Coca-Cola FEMSA, retail method (a method to estimate the average cost) in FEMSA Comercio – Retail Division and FEMSA
Comercio – Health Division; and acquisition method in FEMSA Comercio – Fuel Division, except for the distribution centers which
are valued with average cost method.
Cost of goods sold includes expenses related to the purchase of raw materials used in the production process, as well as labor costs
(wages and other benefits), depreciation of production facilities, equipment and other costs, including fuel, electricity, equipment
maintenance and inspection; expenses related to the purchase of goods and services used in the sale process of the Company´s products
and expenses related to the purchase of gasoline, diesel and all engine lubricants used in the sale process of the Company.
3.10 Other current assets
Other current assets, which will be realized within a period of less than one year from the reporting date, are comprised of prepaid
assets and product promotion agreements with customers.
Prepaid assets principally consist of advances to suppliers of raw materials, advertising, promotional, leasing and insurance costs, and are
recognized as other current assets at the time of the cash disbursement. Prepaid assets are carried to the appropriate caption in the income
statement when inherent benefits and risks have already been transferred to the Company or services have been received, respectively.
The Company has prepaid advertising costs which consist of television and radio advertising airtime in advance. These expenses are
generally amortized over the period based on the transmission of the television and radio spots. The related production costs are
recognized in consolidated income statement as incurred.
Coca-Cola FEMSA has agreements with customers for the right to sell and promote Coca-Cola FEMSA’s products over a certain
period. The majority of these agreements have terms of more than one year, and the related costs are amortized using the straight-line
method over the term of the contract, with amortization presented as a reduction of net sales. During the years ended December 31,
2017, 2016 and 2015, such amortization aggregated to Ps. 759, Ps. 582 and Ps. 317, respectively.
3.11 Investments in associates and joint arrangements
3.11.1 Investments in associates
Associates are those entities over which the Company has significant influence. Significant influence is the power to participate in the
financial and operating policy decisions of the investee, but is not control over those policies.
Investments in associates are accounted for using the equity method and initially recognized at cost, which comprises the investment’s
purchase price and any directly attributable expenditure necessary to acquire it. The carrying amount of the investment is adjusted to
recognize changes in the Company’s shareholding of the associate since the acquisition date. The financial statements of the associates
are prepared for the same reporting period as the Company.
30
The consolidated financial statements include the Company’s share of the consolidated net income and other comprehensive income,
after adjustments to align the accounting policies with those of the Company, from the date that significant influence commences until
the date that significant influence ceases.
Profits and losses resulting from ‘upstream’ and ‘downstream’ transactions between the Company (including its consolidated
subsidiaries) and an associate are recognized in the consolidated financial statements only to the extent of unrelated investors’ interests
in the associate. ‘Upstream’ transactions are, for example, sales of assets from an associate to the Company. ‘Downstream’ transactions
are, for example, sales of assets from the Company to an associate. The Company’s share in the associate’s profits and losses resulting
from these transactions is eliminated.
When the Company’s share of losses exceeds the carrying amount of the associate, including any advances, the carrying amount is
reduced to nil and recognition of further losses is discontinued except to the extent that the Company has a legal or constructive
obligation to pay the associate or has to make payments on behalf of the associate.
Goodwill identified at the acquisition date is presented as part of the investment in shares of the associate in the consolidated statement
of financial position. Any goodwill arising on the acquisition of the Company’s interest in an associate is measured in accordance with
the Company’s accounting policy for goodwill arising in a business combination, see Note 3.2.
After application of the equity method, the Company determines whether it is necessary to recognize an additional impairment loss
on its investment in its associate. The Company determines at each reporting date whether there is any objective evidence that the
investment in the associates is impaired. If this is the case, the Company calculates the amount of impairment as the difference between
the recoverable amount of the associate and its carrying value, and recognizes the amount in the share of the profit or loss of associates
and joint ventures accounted for using the equity method in the consolidated income statements.
If an investment interest is reduced, but continues to be classified as an associate, the Company reclassifies to profits or losses the
proportion of the gain or loss that had previously been recognized in other comprehensive income relating to the reduction in ownership
interest if the gain or loss would be required to be reclassified to consolidated net income on the disposal of the related investment.
The Company reclassifies in each case proportionate to the interest disposed of recognized in other comprehensive income: i) foreign
exchange differences, ii) accumulated hedging gains and losses, iii) any other amount previously recognized that would had been
recognized in net income if the associate had directly disposed of the asset to which it relates.
Upon loss of significant influence over the associate, the Company measures and recognizes any retained investment at its fair value.
3.11.2 Joint arrangements
A joint arrangement is an arrangement of which two or more parties have joint control. Joint control is the contractually agreed sharing
of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the
parties sharing control. The Company classifies its interests in joint arrangements as either joint operations or joint ventures depending
on the Company’s rights to the assets and obligations for the liabilities of the arrangements.
Joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of
the arrangement. The Company recognizes its interest in the joint ventures as an investment and accounts for that investment using
the equity method, as described in Note 3.11.1. As of December 31, 2017 and 2016 the Company does not have an interest in joint
operations.
If an investment interest is reduced, but continues to be classified as joint arrangement, the Company reclassifies to profits or losses
the proportion of the gain or loss that had previously been recognized in other comprehensive income relating to the reduction in
ownership interest if the gain or loss would be required to be reclassified to consolidated net income on the partial disposal of the
related investment.
The Company reclassifies the proportion to the interest disposed of in joint ventures investment interest reduction as described in Note
3.11.1. During the years ended December 31, 2017 and 2016 the Company does not have a significat disposal or partial disposal in joint
arrangements.
Upon loss of joint control over the joint venture, the Company measures and recognizes any retained investment at its fair value.
3.12 Property, plant and equipment
Property, plant and equipment are initially recorded at their cost of acquisition and/or construction, and are presented net of
accumulated depreciation and accumulated impairment losses, if any. The borrowing costs related to the acquisition or construction of
qualifying asset is capitalized as part of the cost of that asset, if material.
Major maintenance costs are capitalized as part of total acquisition cost. Routine maintenance and repair costs are expensed as incurred.
Investments in progress consist of long-lived assets not yet in service, in other words, that are not yet ready for the purpose that they
were bought, built or developed. The Company expects to complete those investments during the following 12 months.
31
Depreciation is computed using the straight-line method over the asset’s estimated useful life. Where an item of property, plant and
equipment comprises major components having different useful lives, they are accounted and depreciated for as separate items (major
components) of property, plant and equipment. The Company estimates depreciation rates, considering the estimated useful lives of
the assets.
The estimated useful lives of the Company’s principal assets are as follows:
Buildings
Machinery and equipment
Distribution equipment
Refrigeration equipment
Returnable bottles
Leasehold improvements
Information technology equipment
Other equipment
Years
25-50
10-20
7-15
5-7
1.5-4
The shorter of lease term or 15 years
3-5
3-10
The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of
any changes in estimate accounted for on a prospective basis.
An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are expected to arise
from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment is
determined as the difference between the sales proceeds (if any) and the carrying amount of the asset and is recognized in consolidated
income statement.
Returnable and non-returnable bottles:
Coca-Cola FEMSA has two types of bottles: returnable and non-returnable.
• Non returnable: Are recorded in consolidated income statement at the time of the sale of the product.
• Returnable: Are classified as long-lived assets as a component of property, plant and equipment. Returnable bottles are recorded
at acquisition cost and for countries with hyperinflationary economies, restated according to IAS 29, Depreciation of returnable
bottles is computed using the straight-line method considering their estimated useful lives.
There are two types of returnable bottles:
• Those that are in Coca-Cola FEMSA’s control within its facilities, plants and distribution centers; and
• Those that have been placed in the hands of customers, and still belong to Coca-Cola FEMSA.
Returnable bottles that have been placed in the hands of customers are subject to an agreement with a retailer pursuant to which
Coca-Cola FEMSA retains ownership. These bottles are monitored by sales personnel during periodic visits to retailers and Coca-Cola
FEMSA has the right to charge any breakage identified to the retailer. Bottles that are not subject to such agreements are expensed
when placed in the hands of retailers.
Coca-Cola FEMSA’s returnable bottles are depreciated according to their estimated useful lives (3 years for glass bottles and 1.5 years
for PET bottles). Deposits received from customers are amortized over the same useful estimated lives of the bottles.
3.13 Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily
take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the
assets are substantially ready for their intended use or sale. Borrowing costs may include:
• Interest expense; and
• Exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs.
Interest income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted
from the borrowing costs eligible for capitalization.
All other borrowing costs are recognized in consolidated income statement in the period in which they are incurred.
32
3.14 Intangible assets
Intangible assets are identifiable non monetary assets without physical substance and represent payments whose benefits will be
received in future years. Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets
acquired in a business combination is their fair value as at the date of acquisition (see Note 3.2). Following initial recognition, intangible
assets are carried at cost less any accumulated amortization and accumulated impairment losses. The useful lives of intangible assets are
assessed as either finite or indefinite, in accordance with the period over which the Company expects to receive the benefits.
Intangible assets with finite useful lives are amortized and mainly consist of:
• Information technology and management system costs incurred during the development stage which are currently in use. Such
amounts are capitalized and then amortized using the straight-line method over their expected useful lives, with a range in useful
lives from 3 to 10 years. Expenditures that do not fulfill the requirements for capitalization are expensed as incurred.
• Long-term alcohol licenses are amortized using the straight-line method over their estimated useful lives, which range between 12
and 15 years, and are presented as part of intangible assets with finite useful lives.
Amortized intangible assets, such as finite lived intangible assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset or group of assets may not be recoverable through its expected future
cash flows.
Intangible assets with an indefinite life are not amortized and are subject to impairment tests on an annual basis as well as whenever
certain circumstances indicate that the carrying amount of those intangible assets may exceed their recoverable value.
The Company’s intangible assets with an indefinite life mainly consist of rights to produce and distribute Coca-Cola trademark products
in the Company’s territories. These rights are contained in agreements that are standard contracts that The Coca-Cola Company has
with its bottlers. Additionally, the Company´s intangible assets with an indefinite life also consist of FEMSA Comercio – Health
Division´s trademark rights which consist of standalone beauty store retail banners, pharmaceutical distribution to third-party clients
and the production of generic and bioequivalent pharmaceuticals.
As of December 31, 2017, Coca-Cola FEMSA had ten bottler agreements in Mexico: (i) the agreements for the Valley of Mexico
territory, which are up for renewal in May 2018 and June 2023, (ii) the agreement for the Southeast territory, which is up for renewal in
June 2023, (iii) three agreements for the Central territory, which are up for renewal in May 2018 (two agreements), and May 2025, (iv)
the agreement for the Northeast territory, which is up for renewal in May 2018, and (v) two agreements for the Bajio territory, which
are up for renewal in May 2018 and May 2025.
As of December 31, 2017, Coca-Cola FEMSA had nine bottler agreements in Brazil, which are up for renewal in May 2018 (seven
agreements) and April 2024 (two agreements); and one bottler agreement in each of Argentina which is up for renewal in September
2024; Colombia which is up for renewal in June 2024; Venezuela which is up for renewal in August 2026; Guatemala which is up for
renewal in March 2025; Costa Rica which is up for renewal in September 2027; Nicaragua which is up for renewal in May 2026; Panama
which is up for renewal in November 2024; and Philippines which is up for renewal in December 2022.
The bottler agreements are automatically renewable for ten-year terms, subject to the right of either party to give prior notice that it
does not wish to renew a specific agreement. In addition, these agreements generally may be terminated in the case of material breach.
Termination would prevent Coca-Cola FEMSA from selling Coca-Cola trademark beverages in the affected territory and would have
an adverse effect on the Company´s business, financial conditions, results from operations and prospects.
3.15 Non-current assets held for sale
Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered principally through a sale
transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the non-
current asset (or disposal group) is available for immediate sale in its present condition. Management must be committed to the sale,
which should be expected to qualify for recognition as a completed sale within one year from the date of classification.
When the Company is committed to a sale plan involving loss of control of a subsidiary, all of the assets and liabilities of that subsidiary
are classified as held for sale when the criteria described above are met, regardless of whether the Company will retain a non-controlling
interest in its former subsidiary after the sale.
Non-current assets (and disposal groups) classified as held for sale are measured at the lower of their previous carrying amount and fair
value less costs to sell.
33
3.16 Impairment of long-lived assets
At the end of each reporting period, the Company reviews the carrying amounts of its long-lived tangible and intangible assets
to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the
recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible
to estimate the recoverable amount of an individual asset, the Company estimates the recoverable amount of the cash-generating
unit to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also
allocated to individual CGUs, or otherwise they are allocated to the smallest CGUs for which a reasonable and consistent allocation
basis can be identified.
For the purpose of impairment testing goodwill acquired in a business combination, from the acquisition date, is allocated to each of
the group’s cash-generating units that are expected to benefit from the combination, irrespective of whether other assets or liabilities of
the acquiree are assigned to those units.
For goodwill and other indefinite lived intangible assets, the Company tests for impairment on an annual basis and whenever certain
circumstances indicate that the carrying amount of related CGU might exceed its recoverable amount.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows
are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money
and the risks specific to the asset for which the estimates of future cash flows have not been adjusted, as discussed in Note 2.3.1.1.
If the recoverable amount of an asset (or CGU) is estimated to be less than its carrying amount, the carrying amount of the asset (or
CGU) is reduced to its recoverable amount. An impairment loss is recognized immediately in consolidated net income.
Where the conditions leading to an impairment loss no longer exist, it is subsequently reversed, that is, the carrying amount of the
asset (or CGU) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not
exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (or CGU) in
prior years. A reversal of an impairment loss is recognized immediately in consolidated net income. Impairment losses related to
goodwill are not reversible.
For the year ended December 31, 2017 and December 31, 2015, the Company recognized impairment loss of Ps. 2,063 and Ps. 134,
respectively (see Note 19).
3.17 Leases
The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at inception date,
whether fulfillment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the
asset, even if that right is not explicitly specified in an arrangement.
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the
lessee. All other leases are classified as operating leases.
Assets held under finance leases are initially recognized as assets of the Company at their fair value at the inception of the lease or, if
lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the consolidated
statement of financial position as a finance lease obligation. Lease payments are apportioned between finance expenses and reduction of
the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Interest expenses are recognized
immediately in consolidated net income, unless they are directly attributable to qualifying assets, in which case they are capitalized in
accordance with the Company’s general policy on borrowing costs. Contingent rentals are recognized as expenses in the periods in
which they are incurred. Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned
assets or, where shorter, the term of the relevant lease.
Operating lease payments are recognized as an expense on a straight-line basis over the lease term, except where another systematic
basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. Contingent rentals
arising under operating leases are recognized as an expense in the period in which they are incurred. In the event that lease incentives
are received to enter into operating leases, such incentives are recognized as a liability. The aggregate benefit of incentives is recognized
as a reduction of rental expense on a straight-line basis, except where another systematic basis is more representative of the time pattern
in which economic benefits from the leased asset are consumed. Leasehold improvements on operating leases are amortized using the
straight-line method over the shorter of either the useful life of the assets or the related lease term.
3.18 Financial liabilities and equity instruments
3.18.1 Classification as debt or equity
Debt and equity instruments issued by the Company are classified as either financial liabilities or as equity in accordance with the
substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.
3.18.2 Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity
instruments issued by the Company are recognized at the proceeds received, net of direct issue costs.
34
Repurchase of the Company’s own equity instruments is recognized and deducted directly in equity. No gain or loss is recognized in
profit or loss on the purchase, sale, issue or cancellation of the Company’s own equity instruments.
3.18.3 Financial liabilities
Initial recognition and measurement
Financial liabilities within the scope of IAS 39 are classified as financial liabilities at FVTPL, loans and borrowings, or as derivatives
designated as hedging instruments in an effective hedge, as appropriate. The Company determines the classification of its financial
liabilities at initial recognition.
All financial liabilities are recognized initially at fair value less, in the case of loans and borrowings, directly attributable transaction costs.
The Company´s financial liabilities include trade and other payables, loans and borrowings, and derivative financial instruments,
see Note 3.7.
Subsequent measurement
The measurement of financial liabilities depends on their classification as described below.
3.18.4 Loans and borrowings
After initial recognition, interest bearing loans and borrowings are subsequently measured at amortized cost using the effective interest
method. Gains and losses are recognized in the consolidated income statements when the liabilities are derecognized as well as through
the effective interest method amortization process.
Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part
of the effective interest method. The effective interest method amortization is included in interest expense in the consolidated income
statements, see Note 18.
3.18.5 Derecognition
A financial liability is derecognized when the obligation under the liability is discharged, cancelled or expires. When an existing financial
liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially
modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability.
The difference in the respective carrying amounts is recognized in the consolidated income statements.
3.19 Provisions
Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable
that the Company will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.
The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the end of the
reporting period, taking into account the risks and uncertainties surrounding the obligation. When a provision is measured using the
cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows (where the effect of
the time value of money is material).
When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is
recognized as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably.
The Company recognizes a provision for a loss contingency when it is probable (i.e., the probability that the event will occur is greater
than the probability that it will not) that certain effects related to past events, would materialize and can be reasonably quantified. These
events and their financial impact are also disclosed as loss contingencies in the consolidated financial statements when the risk of loss is
deemed to be other than remote. The Company does not recognize an asset for a gain contingency until the gain is realized, see Note 25.
Restructuring provisions are recognized only when the recognition criteria for provisions are fulfilled. The Company has a constructive
obligation when a detailed formal plan identifies the business or part of the business concerned, the location and number of employees
affected, a detailed estimate of the associated costs, and an appropriate timeline. Furthermore, the employees affected must have been
notified of the plan’s main features.
3.20 Post-employment and other long-term employee benefits
Post-employment and other long-term employee benefits, which are considered to be monetary items, include obligations for pension
and retirement plans, seniority premiums and postretirement medical services, are all based on actuarial calculations, using the
projected unit credit method.
In Mexico, the economic benefits from employee benefits and retirement pensions are granted to employees with 10 years of service
and minimum age of 60. In accordance with Mexican Labor Law, the Company provides seniority premium benefits to its employees
under certain circumstances. These benefits consist of a one-time payment equivalent to 12 days wages for each year of service (at
the employee’s most recent salary, but not to exceed twice the legal minimum wage), payable to all employees with 15 or more
years of service, as well as to certain employees terminated involuntarily prior to the vesting of their seniority premium benefit. For
qualifying employees, the Company also provides certain post-employment healthcare benefits such as the medical-surgical services,
pharmaceuticals and hospital.
35
For defined benefit retirement plans and other long-term employee benefits, such as the Company’s sponsored pension and retirement
plans, seniority premiums and postretirement medical service plans, the cost of providing benefits is determined using the projected
unit credit method, with actuarial valuations being carried out at the end of each reporting period. All remeasurements effects of
the Company’s defined benefit obligation such as actuarial gains and losses are recognized directly in other comprehensive income
(“OCI”). The Company presents service costs within cost of goods sold, administrative and selling expenses in the consolidated income
statements. The Company presents net interest cost within interest expense in the consolidated income statements. The projected
benefit obligation recognized in the consolidated statement of financial position represents the present value of the defined benefit
obligation as of the end of each reporting period. Certain subsidiaries of the Company have established plan assets for the payment
of pension benefits, seniority premiums and postretirement medical services through irrevocable trusts of which the employees are
named as beneficiaries, which serve to decrease the funded status of such plans’ related obligations.
Costs related to compensated absences, such as vacations and vacation premiums, are recognized on an accrual basis.
The Company recognizes a liability and expense for termination benefits at the earlier of the following dates:
a) When it can no longer withdraw the offer of those benefits; or
b) When it recognizes costs for a restructuring that is within the scope of IAS 37 “Provisions, Contingent Liabilities and Contingent
Assets,” and involves the payment of termination benefits.
The Company is demonstrably committed to a termination when, and only when, the entity has a detailed formal plan for the termination
and is without realistic possibility of withdrawal.
A settlement occurs when an employer enters into a transaction that eliminates all further legal for constructive obligations for part
or all of the benefits provided under a defined benefit plan. A curtailment arises from an isolated event such as closing of a plant,
discontinuance of an operation or termination or suspension of a plan. Gains or losses on the settlement or curtailment of a defined
benefit plan are recognized when the settlement or curtailment occurs.
3.21 Revenue recognition
Sales of all of the Company products (including retail consumer goods, fuel and others) are recognized as revenue upon delivery to the
customer, and once all the following conditions are satisfied:
• The Company has transferred to the buyer the significant risks and rewards of ownership of the goods;
• The Company retains neither continuing managerial involvement to the degree usually associated with ownership nor effective
control over the goods sold;
• The amount of revenue can be measured reliably;
• It is probable that the economic benefits associated with the transaction will flow to the Company; and
• The costs incurred or to be incurred in respect of the transaction can be measured reliably.
All of the above conditions are typically met at the point in time that goods are delivered to the customer at the customers’ facilities. Net
sales reflect units delivered at list prices reduced by promotional allowances, discounts and the amortization of the agreements with
customers to obtain the rights to sell and promote the Company’s products.
Rendering of services and other
Revenue arising from logistic transportation, maintenance services and packing of raw materials are recognized in the revenues caption
in the consolidated income statement.
The Company recognized these transactions as revenues based upon the stage of completion of the transaction at the end of the
reporting period in accordance with the requirements established in the IAS 18 “Revenue” for delivery of goods and rendering of
services, which are:
a) The amount of revenue can be measured reliably;
b) It is probable that the economic benefits associated with the transaction will flow to the entity;
c) The stage of completion of the transaction at the end of the period can be measured reliably; and
d) The cost incurred for the transaction and the costs to complete the transaction can be measured realiably.
Interest income
Revenue arising from the use by others of entity assets yielding interest is recognized once all the following conditions are satisfied:
• The amount of the revenue can be measured reliably; and
• It is probable that the economic benefits associated with the transaction will flow to the entity.
36
For all financial instruments measured at amortized cost and interest bearing financial assets classified as held to maturity, interest
income is recorded using the effective interest rate (“EIR”), which is the rate that exactly discounts the estimated future cash or receipts
through the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial
asset. The related interest income is included in the consolidated income statements.
3.22 Administrative and selling expenses
Administrative expenses include labor costs (salaries and other benefits, including employee profit sharing “PTU”) of employees not
directly involved in the sale or production of the Company’s products, as well as professional service fees, the depreciation of office
facilities, amortization of capitalized information technology system implementation costs and any other similar costs.
Selling expenses include:
• Distribution: labor costs (salaries and other related benefits), outbound freight costs, warehousing costs of finished products, write
off of returnable bottles in the distribution process, depreciation and maintenance of trucks and other distribution facilities and
equipment. For the years ended December 31, 2017, 2016 and 2015, these distribution costs amounted to Ps. 25,041, Ps. 20,250 and
Ps. 20,205, respectively;
• Sales: labor costs (salaries and other benefits, including PTU) and sales commissions paid to sales personnel; and
• Marketing: promotional expenses and advertising costs.
PTU is paid by the Company’s Mexican subsidiaries to its eligible employees. In Mexico, employee profit sharing is computed at the
rate of 10% of the individual company taxable income. PTU in Mexico is calculated from the same taxable income for income tax,
except for the following: a) neither tax losses from prior years nor the PTU paid during the year are deductible; and b) payments
exempt from taxes for the employees are fully deductible in the PTU computation.
3.23 Income taxes
Income tax expense represents the sum of the tax currently payable and deferred tax. Income taxes are charged to consolidated income
statements as they are incurred, except when they relate to items that are recognized in other comprehensive income or directly in
equity, in which case, the current and deferred tax are also recognized in other comprehensive income or directly in equity, respectively.
3.23.1 Current income taxes
Income taxes are recorded in the results of the year they are incurred.
3.23.2 Deferred income taxes
Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the consolidated financial
statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognized
for all taxable temporary differences. Deferred tax assets are generally recognized for all deductible temporary differences, including
tax loss carryforwards and certain tax credits, to the extent that it is probable that future taxable profits, reversal of existing taxable
temporary differences and future tax planning strategies will be available against which those deductible temporary differences can be
utilized. Such deferred tax assets and liabilities are not recognized if the temporary difference arises from initial recognition of goodwill
(no recognition of deferred tax liabilities) or from the initial recognition (other than in a business combination) of other assets and
liabilities in a transaction that affects neither the taxable profit nor the accounting profit. In the case of Brazil, where certain goodwill
amounts are at times deductible for tax purposes, the Company recognizes in connection with the acquisition accounting a deferred
tax asset for the tax effect of the excess of the tax basis over the related carrying value.
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable
that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets
are re-assessed at each reporting date and are recognized to the extent that it has become probable that future taxable profits will allow
the deferred tax asset to be recovered.
Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries, associates, and
interests in joint ventures, except where the Company is able to control the reversal of the temporary difference and it is probable that
the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences
associated with such investments and interests are only recognized to the extent that it is probable that there will be sufficient taxable
profits against which to utilize the benefits of the temporary differences and they are expected to reverse in the foreseeable future.
Deferred income taxes are classified as a long-term asset or liability, regardless of when the temporary differences are expected to reverse.
Deferred tax relating to items recognized in the other comprehensive income are recognized in correlation to the underlying transaction
in OCI.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or
the asset is realized, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.
The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the
Company expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.
37
In Mexico, the income tax rate is 30% for 2017, 2016 and 2015, and it will remain at 30% for the following years.
3.24 Share-based payments arrangements
Senior executives of the Company receive remuneration in the form of share-based payment transactions, whereby employees render
services as consideration for equity instruments. The equity instruments are granted and then held by a trust controlled by the Company
until vesting. They are accounted for as equity settled transactions. The award of equity instruments is a fixed monetary value on the
grant date.
Equity-settled share-based payments to employees are measured at the fair value of the equity instruments at the grant date. The fair value
determined at the grant date of the equity-settled share-based payments is expensed and recognized based on the graded vesting method
over the vesting period, based on the Company’s estimate of equity instruments that will eventually vest. At the end of each reporting period,
the Company revises its estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates,
if any, is recognized in consolidated income statements such that the cumulative expense reflects the revised estimate.
3.25 Earnings per share
The Company presents basic and diluted earnings per share (EPS) data for its shares. Basic EPS is calculated by dividing the net
income attributable to controlling interest by the weighted average number of shares outstanding during the period adjusted for the
weighted average of own shares purchased in the year. Diluted EPS is determined by adjusting the weighted average number of shares
outstanding including the weighted average of own shares purchased in the year for the effects of all potentially dilutive securities,
which comprise share rights granted to employees described above.
3.26 Issuance of subsidiary stock
The Company recognizes the issuance of a subsidiary’s stock as an equity transaction. The difference between the book value of the
shares issued and the amount contributed by the non-controlling interest holder or third party is recorded in additional paid-in capital.
Note 4. Mergers, Acquisitions and Disposals
4.1 Mergers and acquisitions
The Company has consummated certain mergers and acquisitions during 2017 and 2016; which were recorded using the acquisition
method of accounting. The results of the acquired operations have been included in the consolidated financial statements since the
date on which the Company obtained control of the business, as disclosed below. Therefore, the consolidated income statements
and the consolidated statements of financial position in the years of such acquisitions are not comparable with previous periods. The
consolidated statements of cash flows for the years ended December 31, 2017, 2016 and 2015 show the cash outflow and inflow for the
merged and acquired operations net of the cash acquired related to those mergers and acquisitions.
4.1.1 Acquisition of Philippines
In January 25, 2013, Coca-Cola FEMSA acquired a 51.0% non-controlling majority stake in CCFPI from The Coca-Cola Company.
As mentioned in Note 20.7, Coca-Cola FEMSA has a call option to acquire the remaining 49.0% stake in CCFPI at any time during
the seven years following the closing date. Coca-Cola FEMSA also has a put option to sell its ownership in CCFPI to The Coca-Cola
Company commencing on the fifth anniversary of the closing date and ending on the sixth anniversary of the closing date. Pursuant to
the Company’s shareholders’ agreement with The Coca-Cola Company, during a four-year period that ended on January 25, 2017, all
decisions relating to CCFPI were approved jointly with The Coca-Cola Company.
Since January 25, 2017, Coca-Cola FEMSA controls CCFPI’s as all decisions relating to the day-to-day operation and management of
CCFPI’s business, including its annual normal operations plan, are approved by a majority of its board of directors without requiring
the affirmative vote of any director appointed by The Coca-Cola Company. The Coca-Cola Company has the right to appoint (and may
remove) CCFPI’s Chief Financial Officer. Coca-Cola FEMSA has the right to appoint (and may remove) the Chief Executive Officer
and all other officers of CCFPI. Commencing on February 1, 2017, Coca-Cola FEMSA started consolidating CCFPI’s financial results.
38
Coca-Cola FEMSA’s fair value of CCFPI net assets acquired to the date of acquisition (February 2017) is as follows:
Total current assets
Total non-current assets
Distribution rights
Total assets
Total liabilities
Net assets acquired
Net assets acquired attributable to the parent company (51%)
Non-controlling interest
Fair value of the equity interest at the acquisition date
Carrying value of CCFPI investment derecognized
Loss as a result of remeasuring to fair value the equity interest
Gain on derecognition of other comprehensive income
Total profit from remeasurement of previously equity interest
2017
Final Purchase
Price Allocation
Ps.
Ps.
9,645
18,909
4,144
32,698
(10,101)
22,597
11,524
(11,072)
22,109
11,690
166
2,996
2,830
During 2017, the accumulated effect corresponding to translation adjustments recorded in the other comprehensive income for an
amount of Ps. 2,996 was recognized in the income statement as a result of taking control over CCFPI. Coca-Cola FEMSA’s selected
income statement information of Philippines for the period from the acquisition date through December 31, 2017 is as follows:
Income Statement
Total revenues
Income before income taxes
Net income
2017
Ps. 20,524
1,265
896
Ps.
4.1.2 Acquisition of Vonpar
On December 6, 2016, Coca-Cola FEMSA through its Brazilian subsidiary Spal Industria Brasileira de Bebidas, S.A. completed the
acquisition of 100% of Vonpar S.A. (herein “Vonpar”) for a consideration transferred of Ps. 20,992. Vonpar was a bottler of Coca-Cola
trademark products which operated mainly in Rio Grande do Sul and Santa Catarina, Brazil. This acquisition was made to reinforce
the Company’s leadership position in Brazil. Of the purchase price of approximately Ps. 20,992 (R$ 3,508), Spal paid an amount of
approximately Ps. 10,370 (R$ 1,730) in cash on December 6, 2016.
On the same date Spal additionally paid Ps. 4,124 (R$ 688) in cash, of which in a subsequent and separate transaction the sellers
committed to capitalize for an amount of Ps. 4,082 into Coca-Cola FEMSA in exchange for approximately 27.9 million KOF series L
shares at an implicit value of Ps. 146.27. In May 4, 2017 Coca-Cola FEMSA merged with POA Eagle, S.A. de C.V., a Mexican company
100% owned by the sellers of Vonpar in Brazil, as per the announcement made on September 23, 2016. As a result of this merger, POA
Eagle, S.A. de C.V. shareholders received approximately 27.9 million newly issued KOF series L shares. POA Eagle, S.A. de C.V. merged
its net assets, principally cash for an amount of $4,082 million Mexican Pesos with Coca-Cola FEMSA.
At closing, Spal issued and delivered a three-year promissory note to the sellers, for the remaining balance of R$ 1,090 million Brazilian
reais (approximately Ps. 6,534 million as of December 6, 2016). The promissory note bears interest at an annual rate of 0.375%, and
is denominated and payable in Brazilian reais. The promissory note is linked to the performance of the exchange rate between the
Brazilian real and the U.S. dollar. The holders of the promissory note have an option, that may be exercised prior to the scheduled
maturity of the promissory note, to capitalize the Mexican peso amount equivalent to the amount payable under the promissory note
into a recently incorporated Mexican company which would then be merged into Coca-Cola FEMSA in exchange for Series L shares
at a strike price of Ps. 178.5 per share. Such capitalization and issuance of new Series L shares is subject to Coca-Cola FEMSA having a
sufficient number of Series L shares available for issuance.
As of December 6, 2016, the fair value of KOF series L (KL) shares was Ps. 128.88 per share, in addition the KL shares have not
been issued, consequently as a result of this subsequent transaction an embedded financial instrument was originated and recorded
into equity for an amount of Ps. 485. In accordance with IAS 32, in the consolidated financial statements the purchase price was also
adjusted to recognize the fair value of the embedded derivative arising from the difference between the implicit value of KL shares and
the fair value at acquisition date.
Transaction related costs of Ps. 35 were expensed by Spal as incurred, and recorded as a component of administrative expenses in the
accompanying consolidated income statements. Results of operation of Vonpar have been included in the Company’s consolidated
income statements from the acquisition date.
39
Coca-Cola FEMSA’s allocation of the purchase price to fair values of Vonpar’s net assets acquired and the reconciliation of cash flows is
as follows:
Total current assets (including cash acquired of Ps. 1,287)
Total non-current assets
Distribution rights
Net assets acquired
Goodwill
Total consideration transferred
Amount to be paid through Promissory Notes
Cash acquired of Vonpar
Amount recognized as embedded financial instrument
Net cash paid
2017
Final Purchase
Price Allocation
Ps.
2,492
1,910
14,793
19,325
2,152 (1)
21,478
(6,992)
(1,287)
485
Ps. 13,198
(1) As a result of the purchase price allocation which was finalized in 2017, additional fair value adjustments from those recognized in 2016 have been recognized as
follows: total current assets amounted to Ps. (1,898), total non-current assets amounted to Ps. (8,945), distribution rights of Ps. 5,191 and goodwill of Ps. (5,559).
Coca-Cola FEMSA expects to recover the amount recorded as goodwill through synergies related to the available production capacity.
Goodwill has been preliminary allocated to Coca-Cola FEMSA´s cash generating unit in Brazil. The goodwill recognized and expected
to be deductible for income tax purposes according to Brazil tax law, is Ps. 1,667.
Selected income statement information of Vonpar for the period from the acquisition date through to December 31, 2016 is as follows:
Income Statement
Total revenues
Income before income taxes
Net income
2016
1,628
380
252
Ps.
Ps.
4.1.3 Acquisition of Grupo Socofar
On September 30, 2015, FEMSA Comercio – Health Division completed the acquisition of 60% of Grupo Socofar. Grupo Socofar
is an operator of pharmacies in South America which operated, directly and through franchises, 643 pharmacies and 154 beauty
supply stores in Chile, and over 150 pharmacies in Colombia. Grupo Socofar was acquired for Ps. 7,685 in an all cash transaction.
Transaction related costs of Ps. 116 were expensed by FEMSA Comercio – Health Division as incurred, and recorded as a component
of administrative expenses in the accompanying consolidated income statements. Socofar was included in operating results from the
closing in September 2015.
The fair value of Grupo Socofar’s net assets acquired is as follows:
Total current assets (including cash acquired of Ps. 795)
Total non-current assets
Trademark rights
Total assets
Total liabilities
Net assets acquired
Goodwill
Non-controlling interest (2)
Total consideration transferred
2016
Final Purchase
Price Allocation
Ps. 10,499
4,240
3,033
17,772
(12,564)
5,208
4,559 (1)
(2,082)
Ps.
7,685
(1) As a result of the purchase price allocation which was finalized in 2016, additional fair value adjustments from those recognized in 2015 have been recognized as
follow: property, plant and equipment amounted of Ps. 197, trademark rights amounted of Ps. 3,033, other intangible assets with finite live amounted of Ps. 163 and
deferred tax liabilities amounted of Ps. 1,009.
(2) Measured at the proportionate share of the acquiree’s identifiable net assets.
40
FEMSA Comercio – Health Division expects to recover the amount recorded as goodwill through synergies related to the implementation
of successful practices from its existing Mexican operations such as speed and quality in execution of the customer’s value proposition
and growth. Goodwill has been allocated to FEMSA Comercio Health Division cash generating units in South America (see Note 12).
Selected income statement information of Socofar for the period from the acquisition date through December 31, 2015 is as follows:
Income Statement
Total revenues
Income before income taxes
Net income
2015
7,583
394
354
Ps.
Ps.
FEMSA Comercio – Health Division entered into option transactions regarding the remaining 40% non-controlling interest not held
by FEMSA Comercio – Health Division. The former controlling shareholders of Socofar may be able to put some or all of that interest
to FEMSA Comercio – Health Division beginning (i) 42-months after the initial acquisition, upon the occurrence of certain events and
(ii) 60 months after the initial acquisition, in any event, FEMSA Comercio – Health Division can call the remaining 40% non-controlling
interest beginning on the seventh anniversary of the initial acquisition date. Both of these options would be exercisable at the then fair
value of the interest and shall remain indefinitely.
4.1.4 Other acquisitions
During 2016, the Company completed a number of smaller acquisitions which in the aggregate amounted to Ps. 5,612. These acquisitions
were primarily related to the following: (1) acquisition of 100% of Farmacias Acuña, a drugstore operator in Bogota, Colombia; at the
acquisition date, Farmacias Acuña operated 51 drugstores.; (2) acquisition of an additional 50% of Specialty’s Café and Bakery Inc.
shares, a small coffee and bakery restaurant (“Specialty’s”), reaching an 80% of ownership, with 56 stores in California, Washington and
Illinois in the United States; (3) acquisition of 100% of Comercial Big John Limitada “Big John”, an operator of small-box retail format
stores located in Santiago, Chile; at the acquisition date, Big John operated 49 stores; (4) acquisition of 100% of Operadora de Farmacias
Generix, S.A.P.I. de C.V., a regional drugstore operator in Guadalajara, Guanajuato, Mexico City and Queretaro in Mexico; at the
acquisition date, Farmacias Generix operated 70 drugstores and one distribution center; (5) acquisition of 100% of Grupo Torrey (which
consist in many companies constituted as S.A. de C.V.), a Mexican company with 47 years of know-how in operation in the manufacture
of equipment for the processing, conservation and weighing of foods, with corporate offices in Monterrey, Mexico and (6) acquisition of
80% of Open Market, a specialized company in providing end-to-end integral logistics solutions to the local and international companies
which operate in Colombia. Transactions related costs in the aggregate amounted of Ps. 46 were expensed as incurred, and recorded as
a component of administrative expenses in the accompanying consolidated income statements.
The fair value of other acquisitions’ net assets acquired in the aggregate is as follows:
Total current assets (including cash acquired of Ps. 211)
Total non-current assets
Total assets
Total liabilities
Net assets acquired
Goodwill
Non-controling interest (1)
Equity interest held previously
Total consideration transferred
Final Purchase
Price Allocation
Ps.
Ps.
1,125
3,316
4,441
(2,062)
2,379
3,204 (2)
35
369
5,618
(1) In the case of the acquisition of Specialty’s the non-controlling interest was measured at fair value at the acquisition date, and for Open Market the non-controlling
interest was recognized at the proportionate share of the net assets acquired.
(2) As a result of the purchase price allocation which was finalized in 2017, additional fair value adjustments from those recognized in 2016 have been recognized as
follow: property, plant and equipment of Ps. 32, trademark rights of Ps. 836, other intangible assets of Ps. 983, and other liabilitesof Ps. 593.
During 2016, FEMSA Comercio has been allocated goodwill in the acquisitions in FEMSA Comercio – Retail Division in Chile and
FEMSA Comercio – Health Division in Mexico and Colombia, to each one respectively. FEMSA Comercio expects to recover the
amount recorded through synergies related to the adoption of the Company’s economic current value proposition, the ability to apply
the successful operational processes and expansion planning designed for each unit.
Other companies dedicated to the production, distribution of coolers and logistic transportation services have been allocated goodwill of
Grupo Torrey and Open Market, respectively in Mexico and Colombia. The companies dedicated to the production and distribution expect
to recover the goodwill through synergies related to operative improvements; in the case of logistic transportation services, through the know
how of specialized skills to attend pharmaceutical market and increasing new customers in the countries where the company operates.
41
Selected income statement information of other acquisitions in the aggregate amount for the period from the acquisition date through
December 31, 2016 is as follows:
Income Statement
Total revenues
Income before income taxes
Net income
2016
2,400
(66)
(80)
Ps.
Ps.
The former controlling shareholders of Open Market retain a put for their remaining 20% non-controlling interest that can be exercised
(i) at any time after the acquisition date upon the occurrence of certain events and (ii) annually from January through April, after the
third anniversary of the acquisition date. In any event, the Company through one of its subsidiaries can call the remaining 20% non-
controlling interest annually from January through April, after the fifth anniversary of the acquisition date. Both options would be
exercisable at the then fair value of the interest and shall remain indefinitely. Given that these options are exercisable at the then fair value
on exercise date, their value is not significant at the acquisition date and at December 31, 2017.
During 2015, the Company completed smaller acquisitions and mergers which in the aggregate amounted to Ps. 5,892. These
acquisitions and mergers were primarily related to the following: acquisition of 100% Farmacias Farmacon, a regional drugstore
operator in the western Mexican states of Sinaloa, Sonora, Baja California and Baja California Sur with headquarters in the city of
Culiacan, Sinaloa, at the acquisition date Farmacias Farmacon operated 215 stores; merger of 100% of PEMEX franchises in which
FEMSA Comercio – Fuel Division has been providing operational and administrative services for gasoline service stations through
agreements with third parties, using the commercial brand name “OXXO GAS”, at the acquisition date there were 227 OXXO GAS
stations; acquisition of 100% of “Zimag”, supplier of logistics services in Mexico, with experience in warehousing, distribution and
value added services over twelve cities in Mexico mainly in Mexico City, Monterrey, Guanajuato, Chihuahua, Merida and Tijuana;
acquisition of 100% of Atlas Transportes e Logistica, supplier of logistics services in Brazil, with experience in the service industry
breakbulk logistics with a network of 49 operative centers and over 1,200 freight units through all regions in Brazil. Transactions
related costs in the aggregate amounted of Ps. 39 were expensed as incurred, and recorded as a component of administrative expenses
in the accompanying consolidated income statements.
The fair value of other acquisitions’ net assets acquired in the aggregate is as follows:
Total current assets (including cash acquired of Ps. 71)
Total non-current assets
Total assets
Total liabilities
Net assets acquired
Goodwill
Total consideration transferred
Final Purchase
Price Allocation
Ps.
Ps.
1,683
2,319
4,002
(2,955)
1,047
5,027(1)
6,074
(1) As a result of the purchase price allocation which was finalized in 2016, additional fair value adjustments from those recognized in 2015 have been recognized as
follow: property, plant and equipment amounted of Ps. 130, trademark rights amounted of Ps. 453 and other liabilities amounted of Ps. 1,202.
FEMSA Comercio – Health Division and the logistic services business expect to recover the amount recorded as goodwill through
synergies related to the ability to apply the operational processes of these business units. Farmacias Farmacon goodwill have been
allocated to FEMSA Comercio – Health Division cash generating unit in Mexico and merger of PEMEX franchises goodwill have been
allocated to FEMSA Comercio – Fuel Division cash generating unit in Mexico. Zimag and Atlas Transportes e Logistica goodwill have
been allocated into logistic services business’s cash generating unit in Mexico and Brazil, respectively.
Selected income statement information of these acquisitions for the period from the acquisition date through December 31, 2015 is as
follows:
Income Statement
Total revenues
Income before income taxes
Net income
42
2015
Ps. 20,262
176
120
Ps.
Unaudited Pro Forma Financial Data
The following unaudited consolidated pro forma financial data represent the Company’s historical financial statements, adjusted to
give effect to (i) the acquisition of Coca-Cola FEMSA Philippines as if this acquisition has occurred on January 1, 2017; and (ii) certain
accounting adjustments mainly related to the pro forma depreciation of fixed assets of the acquired company. Unaudited pro forma
financial data for the acquisition included, is as follow.
Total revenues
Income before income taxes and share of the profit of associates
and joint ventures accounting for using the equity method
Net income
Basic net controlling interest income per share Series “B”
Basic net controlling interest income per share Series “D”
Unaudited pro forma financial
information for the –year
ended December 31, 2017
Ps. 462,112
39,917
37,311
2.12
2.65
Ps.
The following unaudited consolidated pro forma financial data represent the Company’s historical financial statements, adjusted to
give effect to (i) the acquisition of Vonpar, Farmacias Acuña, Specialty´s, Big John, Farmacias Generix, Grupo Torrey and Open
Market as if these acquisitions have occurred on January 1, 2016; and (ii) certain accounting adjustments mainly related to the pro
forma depreciation of fixed assets of the acquired companies. Unaudited pro forma financial data for all acquisitions and merger
included, are as follow.
Total revenues
Income before income taxes and share of the profit of associates
and joint ventures accounting for using the equity method
Net income
Basic net controlling interest income per share Series “B”
Basic net controlling interest income per share Series “D”
Unaudited pro forma financial
information for the –year
ended December 31, 2016
Ps. 410,831
29,950
28,110
1.08
1.35
Ps.
Below are unaudited consolidated pro forma data of the acquisitions made on 2015 as if Grupo Socofar, Farmacias Farmacon, Zimag,
Atlas Transportes e Logística and merger of PEMEX franchises were acquired on January 1, 2015:
Total revenues
Income before income taxes and share of the profit of associates
and joint ventures accounting for using the equity method
Net income
Basic net controlling interest income per share Series “B”
Basic net controlling interest income per share Series “D”
Unaudited pro forma financial
information for the –year
ended December 31, 2015
Ps. 340,600
27,485
25,004
0.97
1.21
Ps.
4.2. Disposal
During 2017, the Company sold a portion of its investment in Heineken, representing 5.2% of economic interest for Ps. 53,051 in an
all cash transaction. With this transaction the Company took advantage of a Repatriation of Capital Decree issued by the Mexican
government which was valid from January 19 until October 19, 2017; through this decree, a fiscal benefit was attributed to the Company
due to repatriated resources obtained from the sale of shares. The Company recognized a gain of Ps. 29,989, as a result of the sales of
shares within other income, which is the difference between the fair value of the consideration received and the book value of the net
assets disposed. The gain is net of transaction related costs of Ps. 160 and includes reclassification from other comprehensive income of
exchange differences on translation which amount to Ps. 6,632. Also, the Company reclassified from other comprehensive income to
consolidated net income a total loss of Ps. 2,431, relating to the Company’s share of hedging reserve and translation reserve of Heineken
atrributable to the portion of shares sold. None of the Company’s other disposals was individually significant (see Note 19).
43
Note 5. Cash and Cash Equivalents
For the purposes of the statement of cash flows, the cash ítem includes cash on hand and in bank deposits and cash equivalents, which
are short-term, highly liquid investments that are readily convertible to known amounts of cash and are subject to an insignificant risk
of changes in value, with a maturity date of three months or less at their acquisition date. Cash and cash equivalents at the end of the
reporting period as shown in the consolidated statements of financial position and cash flows is comprised of the following:
Cash and bank balances
Cash equivalents (see Note 3.5)
December 31,
2017
Ps.
Ps.
73,774
23,170
96,944
December 31,
2016
Ps. 18,140
25,497
Ps. 43,637
As explained in Note 3.3, Venezuela subsidiary was deconsolidated. At December 31, 2017, cash and cash equivalent balances of the
Company’s Venezuela subsidiary were Ps.170.
Note 6. Investments
As of December 31, 2017 and 2016 investments are classified as held-to maturity, the carrying value of the investments is similar to their
fair value. The following is a detail of held-to maturity investments:
Held-to Maturity (1)
Government debt securities
Acquisition cost
Accrued interest
Amortized cost
Corporate debt securities
Acquisition cost
Accrued interest
Amortized cost
Total investments
(1) Denominated in dollars at a fixed interest rate.
Note 7. Accounts Receivable, Net
Trade receivables
Allowance for doubtful accounts
The Coca-Cola Company (see Note 14)
Loans to employees
Other related parties
Heineken (see Note 14)
Former shareholders of Vonpar (see Note 14)
Others
Ps.
Ps.
2017
1,934
-
1,934
222
4
226
Ps.
2,160
Ps.
2016
-
-
-
118
2
120
120
December 31,
2017
Ps.
Ps.
26,856
(1,375)
2,054
128
-
999
1,219
2,435
32,316
December 31,
2016
Ps. 22,177
(1,193)
1,857
229
254
1,041
-
1,857
Ps. 26,222
7.1 Trade receivables
Trade receivables representing rights arising from sales and loans to employees or any other similar concept, are presented net of
discounts and the allowance for doubtful accounts.
Coca-Cola FEMSA has accounts receivable from The Coca-Cola Company arising from the latter’s participation in advertising and
promotional programs and investment in refrigeration equipment and returnable bottles made by Coca-Cola FEMSA.
The carrying value of accounts receivable approximates its fair value as of December 31, 2017 and 2016.
44
Aging of past due but not impaired (days outstanding)
60-90 days
90-120 days
120+ days
Total
7.2 Changes in the allowance for doubtful accounts
Opening balance
Allowance for the year
Charges and write-offs of uncollectible accounts
Addition from business combinations
Effects of changes in foreign exchange rates
Venezuela deconsolidation effect
Ending balance
December 31,
2017
December 31,
2016
Ps.
Ps.
Ps.
Ps.
599
269
1,206
2,074
2016
849
467
(418)
94
201
-
1,193
Ps.
Ps.
610
216
1,539
2,365
2015
456
167
(99)
401
(76)
-
849
Ps.
Ps.
2017
Ps. 1,193
530
(400)
86
(32)
(2)
Ps. 1,375
In determining the recoverability of trade receivables, the Company considers any change in the credit quality of the trade receivable
from the date credit was initially granted up to the end of the reporting period. The concentration of credit risk is limited due to the
customer base being large and disperse.
7.3 Receivable from The Coca-Cola Company
The Coca-Cola Company participates in certain advertising and promotional programs as well as in the Coca-Cola FEMSA’s refrigeration
equipment and returnable bottles investment program. Contributions received by Coca-Cola FEMSA for advertising and promotional
incentives are recognized as a reduction in selling expenses and contributions received for the refrigeration equipment and returnable
bottles investment program are recorded as a reduction in the carrying amount of refrigeration equipment and returnable bottles items.
For the years ended December 31, 2017, 2016 and 2015 contributions due were Ps. 4,023, Ps. 4,518 and Ps. 3,749, respectively.
Note 8. Inventories
Finished products
Raw materials
Spare parts
Work in process
Inventories in transit
Other
December 31,
2017
December 31,
2016
Ps.
Ps.
25,374
5,194
2,102
198
1,437
535
34,840
Ps. 22,709
5,156
2,401
144
1,188
334
Ps. 31,932
For the years ended at 2017, 2016 and 2015, the Company recognized write-downs of its inventories for Ps. 308, Ps. 1,832 and Ps. 1,290
to net realizable value, respectively.
For the years ended at 2017, 2016 and 2015, changes in inventories are comprised as follows and included in the consolidated income
statement under the cost of goods sold caption:
Changes in inventories of finished goods and work in progress
Raw materials and consumables used
Total
2017
2016
2015
Ps. 196,547
85,568
Ps. 282,115
Ps. 172,554
63,285
Ps. 235,839
Ps. 132,835
53,514
Ps. 186,349
45
Note 9. Other Current Assets and Other Current Financial Assets
9.1 Other current assets
Prepaid expenses
Agreements with customers
Short-term licenses
Other
Prepaid expenses as of December 31, 2017 and 2016 are as follows:
Advances for inventories
Advertising and promotional expenses paid in advance
Advances to service suppliers
Prepaid leases
Prepaid insurance
Others
December 31,
2017
December 31,
2016
Ps.
Ps.
2,425
192
224
47
2,888
Ps.
Ps.
3,784
179
112
34
4,109
December 31,
2017
December 31,
2016
Ps.
Ps.
1,260
370
268
218
103
206
2,425
Ps.
Ps.
2,734
171
466
164
104
145
3,784
Advertising and promotional expenses recorded in the consolidated income statement for the years ended December 31, 2017, 2016
and 2015 amounted to Ps. 6,236, Ps. 6,578 and Ps. 4,613, respectively.
9.2 Other current financial assets
Restricted cash
Derivative financial instruments (see Note 20)
Short term note receivable (1)
December 31,
2017
December 31,
2016
Ps.
Ps.
504
233
19
756
Ps.
Ps.
774
1,917
14
2,705
(1) The carrying value approximates its fair value as of December 31, 2017 and 2016.
The Company has pledged part of its cash in order to fulfill the collateral requirements for the accounts payable in different currencies.
As of December 31, 2017 and 2016, the carrying of restricted cashpledged were:
Venezuelan bolivars
Brazilian reais
Colombian pesos
December 31,
2017
December 31,
2016
Ps.
Ps.
-
65
439
504
Ps.
Ps.
183
73
518
774
During 2016 due to a jurisdictional order with the municipal sewage system services, the Colombian authorities withheld all the cash
that Coca-Cola FEMSA has in the bank account, the total amount of which was reclassified as a restricted cash according with the
Company’s accounting policy.
46
Note 10. Investments in Associates and Joint Ventures
Details of the Company’s associates and joint ventures accounted for under the equity method at the end of the reporting period are
as follows:
Ownership Percentage
Carrying Amount
Investee
Heineken (1) (2)
Coca-Cola FEMSA:
Joint ventures:
Compañía Panameña de Bebidas, S.A.P.I. de C.V.
Dispensadoras de Café, S.A.P.I. de C.V.
Estancia Hidromineral Itabirito, L.T.D.A
Coca-Cola FEMSA Philippines, Inc.
(“CCFPI”) (4)
Fountain Agua Mineral, L.T.D.A
Associates:
Promotora Industrial Azucarera, S.A. de C.V.
(“PIASA”)
Industria Envasadora de Queretaro,
S.A. de C.V. (“IEQSA”)
Industria Mexicana de Reciclaje, S.A. de C.V.
(“IMER”)
Jugos del Valle, S.A.P.I. de C.V.
KSP Partiçipações, L.T.D.A.
Leao Alimentos e Bebidas, L.T.D.A.
UBI 3 Participações Ltda (Ades)
Other investments in Coca-Cola FEMSA’s
companies
FEMSA Comercio:
Café del Pacifico, S.A.P.I. de C.V. (Caffenio) (1)
Other investments (1) (3)
Principal
Activity
Place of
Incorporation
December 31, December 31, December 31, December 31,
2017
2016
2017
2016
Beverages The Netherlands 14.8%
20.0%
Ps. 83,720 Ps. 105,268
Beverages
Services
Bottling
and distribution
Bottling
Panama
Mexico
50.0%
50.0%
Brazil
Philippines
-
-
50.0%
50.0%
50.0%
51.0%
2,036
153
1,911
145
-
-
96
11,460
Beverages
Brazil
50.0%
50.0%
784
765
Sugar production Mexico
36.4%
36.4%
2,933
2,657
Canned bottling Mexico
26.5%
26.5%
Recycling
Mexico
35.0%
35.0%
Beverages
Beverages
Beverages
Beverages
Mexico
Brazil
Brazil
Brazil
26.3%
38.7%
24.7%
26.0%
26.3%
38.7%
27.7%
-
177
121
1,560
117
3,001
391
177
100
1,574
126
3,282
-
Various
Various Various
Various
228
64
Coffee
Various
Mexico
40.0%
Various Various
40.0%
Various
539
338
493
482
Ps. 96,098 Ps. 128,601
(1) Associate.
(2) As of December 31, 2017 comprised of 8.63% of Heineken, N.V. and 12.26% of Heineken Holding, N.V., which represents an economic interest of 14.76% in
Heineken Group and as of December 31, 2016, comprised of 12.53% of Heineken, N.V. and 14.94% of Heineken Holding, N.V., which represented an economic
interest of 20% in Heineken. The Company has significant influence, mainly, due to the fact that it participates in the Board of Directors of Heineken Holding, N.V.
and the Supervisory Board of Heineken N.V.; and for the material transactions between the Company and Heineken.
(3) Joint ventures.
(4) See Note 4.1.2
As mentioned in Note 4, in December 2016, Coca-Cola FEMSA through its subsidiary Spal, completed the acquisition of 100% of
Vonpar. As part of this acquisition Spal increased its equity interest by 3.36% in Leao Alimentos e Bebidas, LTDA.
During 2017 the Coca-Cola FEMSA received dividends from Industria Envasadora de Queretaro, S.A. de C.V., and Promotora Mexicana
de Embotelladores, S.A. de C.V. in the amount of Ps. 16 and Ps. 17, respectively.
During 2017 Coca-Cola FEMSA made capital contributions to Compañía Panameña de Bebidas, S.A.P.I. de C.V. and Promotora
Industrial Azucarera, S.A. de C.V. in the amounts of Ps. 349 and Ps. 182, respectively, and there were no changes in the ownership
percentage as a result of capital contributions made by the other shareholders. On June 25, 2017, the Coca-Cola FEMSA through its
Brazilian subsidiary Spal Industria Brasileria de Bebidas, S.A. sold 3.05% of their participation in Leao Alimentos e Bebidas, LTDA for
an amount of Ps. 198.
On March 28, 2017 as part of AdeS acquisition the Coca-Cola FEMSA acquired indirect participations in equity method investees in
Brazil and Argentina for an aggregate amount of Ps. 587. During 2017, Itabirito marged with Spal this transaction did not generated any
cash flow.
As mentioned in Note 4, on December 6, 2016 the Coca-Cola FEMSA through its subsidiary Spal completed the acquisition of 100% of
Vonpar. As part of acquisition Spal increase its equity interest by 3.36% in Leao Alimentos e Bebidas, LTDA.
47
During 2016 Coca-Cola FEMSA made capital contributions to Leao Alimentos e Bebidas, LTDA, Compañía Panameña de Bebidas,
S.A.P.I. de C.V. and Promotora Industrial Azucarera, S.A. de C.V. in the amounts of Ps. 1,273, Ps. 419 and Ps. 376, respectively, there
were no changes in the ownership percentage as a result of capital contributions made by the other shareholders.
During 2016 Coca-Cola FEMSA received dividends from Industria Envasadora de Queretaro, S.A. de C.V., and Estancia Hidromineral
Itabirito, LTDA in the amount of Ps. 5 and Ps. 190, respectively.
As disclosed in Note 4.1.1, commencing on February 1, 2017, the Coca-Cola FEMSA started consolidating CCFPI’s financial results in
its financial statements.
On April 30, 2010, the Company acquired an economic interest of 20% of Heineken Group. Heineken’s main activities are the production,
distribution and marketing of beer worldwide. On September 18, 2017 the Company concluded the sale of a portion of its investment,
representing 5.2% combined economic interest, consisting of 22,485,000 Heineken N.V. shares and 7,700,000 Heineken Holding N.V.
shares at the price of €. 84.50 and €. 78.00 per share, respectively, (see Note 4.2). The Company recognized an equity income of Ps.
7,847, Ps. 6,342, and Ps. 5,879 net of taxes based on its economic interest in Heineken for the years ended December 31, 2017, 2016
and 2015, respectively. The economic interest for the year 2017 was 20% for the first eight months and 14.8% for the last four months
and 20% for the years 2016 and 2015. The Company’s share of the net income attributable to equity holders of Heineken exclusive of
amortization of adjustments amounted to Ps. 7,656 (€. 357 million), Ps. 6,430 (€. 308 million) and Ps. 6,567 (€. 378 million), for the
years ended December 31, 2017, 2016 and 2015, respectively. Summarized financial information in respect of the associate Heineken
accounted for under the equity method is set out below.
December 31, 2017
December 31, 2016
Million of
Peso
Million of
Euro
Million of
Peso
Ps. 194,429
772,861
246,525
378,463
342,302
314,015
Ps. 499,818
423,764
Ps. 48,850
43,903
(26,524)
Ps. 22,326
€. 8,248
32,786
10,458
16,055
14,521
13,321
€. 22,029
18,677
€. 2,153
1,935
(1,169)
984
€.
Ps. 177,176
679,004
226,385
312,480
317,315
288,246
Ps. 427,019
370,563
35,636
31,558
(19,037)
16,599
Ps.
Ps.
Million of
Euro
€. 8,137
31,184
10,397
14,351
14,573
13,238
€. 20,838
18,083
€. 1,739
1,540
(929)
810
€.
19,989
881
13,525
660
Total current assets
Total non-current assets
Total current liabilities
Total non-current liabilities
Total equity
Net income attributable to equity holders of Heineken
Total revenue and other income
Total cost and expenses
Net income
Net income attributable to equity holders of Heineken
Other comprehensive income
Total comprehensive income
Total comprehensive income attributable to equity
holders of Heineken
48
Reconciliation from the equity of the associate Heineken to the investment of the Company.
Equity attributable to equity holders of Heineken
Economic ownership percentage
Investment in Heineken exclusive of goodwill and
others adjustments
Effects of fair value determined by Purchase Price Allocation
Goodwill
Investment in Heineken
December 31, 2017
December 31, 2016
Million of
Peso
Million of
Euro
Million of
Peso
Ps. 314,018
14.76%
€. 13,321
14.76%
Ps. 288,090
20%
Ps. 46,349
16,610
20,761
Ps. 83,720
€. 1,966
705
881
€. 3,552
Ps.
57,618
21,495
26,116
Ps. 105,229
Million of
Euro
€. 13,238
20%
€. 2,648
988
1,200
€. 4,836
As of December 31, 2017 and 2016, the fair value of Company’s investment in Heineken N.V. Holding and Heineken N.V. represented
by shares equivalent to 14.8% and 20% of its outstanding shares amounted to Ps. 141,693 (€. 6,011 million) and Ps. 173,857 (€. 7,989
million) based on quoted market prices of those dates. As of February 27, 2017, issuance date of these consolidated financial statements,
fair value amounted to €. 5,938 million.
During the years ended December 31, 2017, 2016 and 2015, the Company received dividends distributions from Heineken, amounting
to Ps. 3,250, Ps. 3,263 and Ps. 2,343, respectively.
For the years ended December 31, 2017, 2016 and 2015 the total net income corresponding to the immaterial associates of Coca-Cola
FEMSA was Ps. 235, Ps. 31 and Ps. 185, respectively.
For the years ended December 31, 2017, 2016 and 2015 the total net income (loss) corresponding to the immaterial joint ventures of
Coca-Cola FEMSA was Ps. (175), Ps. 116 and Ps. (30), respectively.
The Company’s share of other comprehensive income from equity investees, net of taxes for the year ended December 31, 2017, 2016
and 2015 are as follows:
Items that may be reclassified to consolidated net income:
Valuation of the effective portion of derivative financial instruments
Exchange differences on translating foreign operations
Total
Items that may not be reclassified to consolidated
net income in subsequent periods:
Remeasurements of the net defined benefit liability
2017
2016
Ps.
252
(2,265)
Ps. (2,013)
Ps.
Ps.
614
(2,842)
(2,228)
Ps.
Ps.
2015
213
69
282
Ps.
69
Ps.
(1,004)
Ps.
169
49
Note 11. Property, Plant and Equipment, Net
Cost
Land
Buildings
Machinery
and
Equipment
Refrigeration
Equipment
Returnable
Bottles
Investments
in Fixed
Assets in
Progress
Leasehold
Improvements
Other
Total
Cost as of
January 1, 2015
Additions
Additions from business acquisitions
Transfer of completed projects in progress
Transfer (to)/from assets
Ps. 7,211
675
30
59
Ps.
Ps. 15,791 Ps.
1,688
251
1,289
50,519
5,122
870
3,251
-
(56)
-
(219)
(10)
(2,694)
12,466
851
-
1,168
-
(972)
Ps.
9,402
1,655
-
662
-
(103)
Ps. 7,872
6,942
-
(8,143)
Ps.
12,250 Ps.
41
862
1,714
1,075 Ps. 116,586
17,485
2,013
-
511
-
-
-
-
-
(356)
-
(40)
(10)
(4,440)
classified as held for sale
Disposals
Effects of changes in foreign
exchange rates
Changes in value on the recognition
of inflation effects
Capitalization of borrowing costs
Cost as of
December 31, 2015
(595)
(1,352)
(4,330)
(1,216)
(266)
(1,004)
(23)
(848)
(9,634)
245
-
503
-
957
-
295
-
301
-
91
57
-
-
229
-
2,621
57
Ps. 7,569
Ps. 17,951 Ps.
53,685
Ps.
12,592
Ps. 11,651
Ps. 5,815
Ps.
14,488 Ps.
927 Ps. 124,678
Cost as of
January 1, 2016
Additions
Additions from business acquisitions
Changes in fair value of past acquisitions
Transfer of completed projects in progress
Transfer (to)/from assets
Ps. 7,569
328
163
50
46
classified as held for sale
Disposals
Effects of changes in foreign exchange rates
Changes in value on the recognition
of inflation effects
Capitalization of borrowing costs
-
(88)
260
854
-
Ps.
Ps. 17,951 Ps.
877
763
-
1,039
53,685
6,499
1,521
85
2,445
-
(202)
2,643
1,470
-
(36)
(2,461)
5,858
2,710
61
12,592
73
105
-
1,978
-
(574)
1,953
851
-
Ps. 11,651
2,236
23
-
779
Ps. 5,815
8,667
45
-
(8,493)
Ps.
14,488 Ps.
36
668
115
2,206
927 Ps. 124,678
19,083
367
3,288
-
250
-
-
-
-
(139)
1,271
122
-
-
(2)
569
415
(38)
-
(474)
329
-
-
-
(19)
(132)
942
1
(36)
(3,959)
12,751
7,364
24
Cost as of
December 31, 2016
Ps. 9,182
Ps. 24,541 Ps.
70,367
Ps.
16,978
Ps. 15,943
Ps. 6,978
Ps.
17,368 Ps.
2,086 Ps. 163,443
Cost as of
January 1, 2017
Additions
Additions from business acquisitions
Changes in fair value of past acquisitions
Transfer of completed projects in progress
Transfer (to)/from assets
Ps. 9,182
465
5,115
-
6
Ps. 24,541 Ps.
1,474
1,634
-
676
classified as held for sale
Disposals
Effects of changes in foreign exchange rates
Changes in value on the recognition
-
(144)
(1,018)
-
(588)
(1,964)
70,367
6,150
5,988
-
3,073
(42)
(3,147)
(2,817)
Ps.
16,978
389
482
-
1,967
-
(800)
(1,523)
Ps. 15,943
3,201
3,324
-
558
Ps. 6,978
8,878
821
-
(8,572)
Ps.
17,368 Ps.
57
145
-
2,295
2,086 Ps. 163,443
20,838
17,509
-
-
224
-
-
(3)
-
(193)
(1,216)
-
-
(720)
-
(352)
153
(58)
(12)
(1,201)
(100)
(5,236)
(10,306)
of inflation effects
527
1,016
2,030
689
(2)
226
(544)
(817)
(1,300)
(717)
(83)
(221)
-
-
638
5,124
(646)
(4,328)
Ps. 13,589
Ps. 25,972 Ps.
80,302
Ps.
17,465
Ps. 21,532
Ps. 7,390
Ps.
19,666 Ps.
1,028 Ps. 186,944
Venezuela deconsolidation effect
(see Note 3.3)
Cost as of
December 31, 2017
50
Accumulated Depreciation
Land
Buildings
Machinery
and
Equipment
Refrigeration
Equipment
Returnable
Bottles
Investments
in Fixed
Assets in
Progress
Leasehold
Improvements
Other
Total
Accumulated Depreciation as
of January 1, 2015
Depreciation for the year
Disposals
Effects of changes in foreign
exchange rates
Changes in value on the
recognition of inflation effects
Accumulated Depreciation as
of December 31, 2015
Accumulated Depreciation as
of January 1, 2016
Depreciation for the year
Transfer to/(from) assets
classified as held for sale
Disposals
Effects of changes in foreign
exchange rates
Changes in value on the
recognition of inflation effects
Accumulated Depreciation as
of December 31, 2016
Accumulated Depreciation as
of January 1, 2017
Depreciation for the year
Transfer to/(from) assets
classified as held for sale
Disposals
Effects of changes in foreign
exchange rates
Venezuela deconsoldiation effect
Venezuela impairment
Changes in value on the
recognition of inflation effects
Accumulated Depreciation as
of December 31, 2017
Ps.
Ps.
Ps.
Ps.
Ps.
Ps.
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Ps. (3,726) Ps.
(515)
172
(21,382) Ps.
(4,864)
2,001
(6,644)
(1,184)
946
Ps.
(5,205)
(1,984)
80
Ps.
498
2,222
1,044
(187)
(426)
(166)
167
(436)
Ps. (3,758) Ps.
(22,449 ) Ps.
(6,004)
Ps.
(7,378)
Ps.
Ps. (3,758) Ps.
(734)
(22,449) Ps.
(5,737)
(6,004)
(1,723)
Ps.
(7,378)
(2,235)
Ps.
-
132
16
2,101
-
672
(600)
(3,093)
(1,147)
(593)
(1,101)
(521)
-
227
(847)
(33)
Ps. (5,553) Ps.
(30,263) Ps.
(8,723)
Ps. (10,266)
Ps.
Ps. (5,553) Ps.
(887)
(30,263) Ps.
(6,928)
(8,723)
(2,186)
Ps. (10,266)
(3,365)
Ps.
44
40
518
481
(257)
7
3,125
437
1,186
(841)
-
683
1,157
626
-
-
103
93
56
-
(437)
(1,031)
(553)
(44)
Ps. (6,051) Ps. (34,308) Ps.
(8,996)
Ps. (13,423)
Ps.
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Ps.
(3,614) Ps.
(1,071)
270
(386) Ps. (40,957)
(9,761)
(143)
3,471
2
22
1
212
4,165
(86)
(1,300)
Ps.
(4,392) Ps.
(401) Ps. (44,382)
Ps.
(4,392) Ps.
(1,447)
(401) Ps. (44,382)
(12,076)
(200)
-
364
(81)
-
9
39
16
3,505
(5,729)
-
(306)
(2,554)
Ps.
(5,556) Ps.
(859) Ps. (61,220)
Ps.
(5,556) Ps.
(1,562)
(859) Ps. (61,220)
(15,613)
(685)
-
300
(138)
-
-
5
940
335
-
51
4,256
3,007
2,684
(1,098)
-
(234)
(2,299)
Ps.
(6,956) Ps.
(498) Ps. (70,232)
Carrying Amount
Land
Buildings
Machinery
and
Equipment
Refrigeration
Equipment
Returnable
Bottles
Investments
in Fixed
Assets in
Progress
Leasehold
Improvements
Other
Total
As of December 31, 2015
As of December 31, 2016
As of December 31, 2017
Ps. 7,569
Ps. 14,193 Ps.
31,236
Ps. 9,182
Ps. 18,988 Ps.
40,104
Ps. 13,589
Ps. 19,921 Ps.
45,994
Ps.
Ps.
Ps.
6,588
8,255
8,469
Ps.
Ps.
Ps.
4,273
5,677
8,109
Ps. 5,815
Ps. 6,978
Ps. 7,390
Ps.
Ps.
Ps.
10,096 Ps.
526 Ps. 80,296
11,812 Ps.
1,227 Ps. 102,223
12,710 Ps.
530 Ps. 116,712
During the years ended December 31, 2016 and 2015 the Company capitalized Ps. 61 and Ps. 57, respectively of borrowing costs in
relation to Ps. 99 and Ps. 993 in qualifying assets. The effective interest rates used to determine the amount of borrowing costs eligible for
capitalization were 4.5% and 4.1%, respectively. For the year ended December 31, 2017, the Company did not recognize any capitalization
of borrowing costs.
For the years ended December 31, 2017, 2016 and 2015 interest expense, interest income and net foreign exchange losses and gains are
analyzed as follows:
Interest expense, interest income and net foreign exchange
Amount capitalized (1)
Net amount in consolidated income statements
(1) Amount of interest capitalized in property, plant and equipment and intangible assets.
2017
Ps. 4,602
-
Ps. 4,602
2016
7,285
69
7,216
Ps.
Ps.
2015
8,031
85
7,946
Ps.
Ps.
51
Commitments related to acquisitions of property, plant and equipment are disclosed in Note 25.8
Note 12. Intangible Assets
Rights to
Produce and
Distribute
Coca-Cola
Trademark
Products
Other
Indefinite
Total
Lived Unamortized
Technology
Costs and
Intangible Management
Goodwill
Trademark
Rights
Intangible
Assets
Assets
Systems in
Systems Development
Alcohol
Licenses
Ps.
63 Ps. 97,014 Ps.
3,225 Ps. 1,554 Ps. 1,027 Ps.
Ps. 70,263 Ps. 25,174 Ps. 1,514
-
-
-
-
-
-
11,369
-
-
-
-
-
-
-
1,238
12,607
480
328
458
-
-
-
-
-
1,085
(150)
(1,085)
(242)
(4,992)
(2,693)
(33)
(19)
(7,737)
(94)
(2)
1,121
-
-
-
-
-
-
-
1,121
-
(12)
28
-
-
Total
Amortized
Intangible
Assets
Other
Total
Intangible
Assets
671 Ps. 6,477 Ps. 103,491
1,219
1,219
83
199
527
13,134
-
(77)
-
(469)
-
(469)
(16)
(112)
(7,849)
-
-
(12)
1,109
28
28
198
-
-
-
-
-
-
Cost
Cost as of January 1, 2015
Purchases
Acquisitions from
business combinations
Transfer of completed
development systems
Disposals
Effect of movements in
exchange rates
Changes in value on the
recognition of
inflation effects
Capitalization of
borrowing costs
Cost as of
December 31, 2015
Ps. 66,392 Ps. 33,850 Ps. 1,481
Ps. 1,282 Ps. 103,005 Ps.
4,890 Ps.
683 Ps. 1,225 Ps.
860 Ps. 7,658 Ps. 110,663
Cost as of
January 1, 2016
Purchases
Acquisitions from
business combinations
(see Note 4)
Changes in fair value
of past acquisitions
Transfer of completed
development systems
Disposals
Effect of movements in
exchange rates
Changes in value on the
recognition of
inflation effects
Capitalization
of borrowing costs
Cost as of
December 31, 2016
Cost as of
January 1, 2017
Purchases
Acquisitions from
business combinations
(see Note 4)
Changes in fair value
of past acquisitions
Transfer of completed
development systems
Disposals
Effect of movements in
exchange rates
Changes in value on the
recognition of
inflation effects
Venezuela deconsolidation
effect
Cost as of
December 31, 2017
52
Ps. 66,392 Ps. 33,850 Ps. 1,481
3
-
-
Ps. 1,282 Ps. 103,005 Ps.
4,890 Ps.
-
3
345
683 Ps. 1,225 Ps.
609
191
860 Ps. 7,658 Ps. 110,663
1,296
1,291
146
9,602
12,276
239
1,067
23,184
-
-
-
(2,385)
4,315
(554)
1,376
-
-
-
-
-
-
-
-
318
-
304
(336)
3
-
(304)
-
8,124
8,116
187
392
16,819
451
(193)
1,220
-
-
-
-
-
-
-
1,220
-
141
11
-
-
-
-
-
-
-
-
-
174
495
23,679
1,078
1,078
2,372
-
(24)
-
(360)
-
(360)
104
362
17,181
-
-
141
11
1,361
11
Ps. 85,338 Ps. 51,857 Ps. 6,225
Ps. 2,187 Ps. 145,607 Ps.
6,124 Ps.
798 Ps. 1,416 Ps. 2,338 Ps. 10,676 Ps. 156,283
Ps. 85,338 Ps. 51,857 Ps. 6,225
-
1,288
-
4,144
140
5
Ps. 2,187 Ps. 145,607 Ps.
6,124 Ps.
6
-
1,294
464
4,289
6
5,167
(7,022)
836
9
(1,010)
(188)
-
-
-
-
-
-
-
-
-
-
(2,563)
(1,526)
119
91
(3,879)
(727)
-
-
-
-
-
-
(727)
-
-
412
110
175
-
-
798 Ps. 1,416 Ps. 2,338
445
221
920
Ps. 10,676 Ps. 156,283
3,344
2,050
-
-
(412)
-
(15)
-
-
-
-
-
-
-
-
-
80
892
-
-
52
86
704
-
110
212
4,375
(306)
-
110
(3,667)
175
175
(552)
(139)
(139)
(139)
Ps. 92,647 Ps. 43,449 Ps. 7,185
Ps. 2,293 Ps. 145,574 Ps.
7,103 Ps. 1,291 Ps. 1,637 Ps. 3,843 Ps. 13,874 Ps. 159,448
Amortization and
Impairment Losses
Amortization as of
January 1, 2015
Amortization expense
Disposals
Effect of movements in
exchange rates
Amortization as of
December 31, 2015
Amortization as of
January 1, 2016
Amortization expense
Impairment losses
Disposals
Effect of movements in
exchange rates
Amortization as of
December 31, 2016
Amortization as of
January 1, 2017
Amortization expense
Impairment losses
Disposals
Venezuela deconsolidation
effect
Venezuela impairment
Effect of movements in
exchange rates
Amortization as of
Rights to
Produce and
Distribute
Coca-Cola
Trademark
Products
Other
Indefinite
Total
Lived Unamortized
Technology
Costs and
Intangible Management
Goodwill
Trademark
Rights
Intangible
Assets
Assets
Systems in
Systems Development
Total
Amortized
Intangible
Assets
Other
Total
Intangible
Assets
Alcohol
Licenses
Ps.
Ps.
Ps.
Ps.
Ps.
- Ps.
-
-
- Ps.
-
-
-
-
- Ps.
- Ps.
- Ps.
-
-
-
- Ps.
-
-
-
-
-
- Ps.
- Ps.
- Ps.
-
-
-
- Ps.
-
-
-
-
(745)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Ps.
(36) Ps.
-
-
-
(36) Ps. (1,343) Ps.
-
-
-
(461)
126
59
- Ps.
-
-
(235) Ps.
(67)
-
(350) Ps. (1,928) Ps. (1,964)
(604)
(604)
(76)
168
168
42
-
-
19
78
78
Ps.
(36) Ps.
(36) Ps. (1,619) Ps.
- Ps.
(302) Ps.
(365) Ps. (2,286) Ps. (2,322)
Ps.
(36) Ps.
-
-
-
-
(36) Ps. (1,619) Ps.
-
-
-
-
(630)
-
313
(1)
- Ps.
-
-
-
(302) Ps.
(74)
-
-
(365) Ps. (2,286) Ps. (2,322)
(1,006)
(302)
(1,006)
-
-
349
36
-
349
-
-
(35)
(36 )
(36)
Ps.
(36) Ps.
(36) Ps. (1,937) Ps.
- Ps.
(376) Ps.
(666) Ps. (2,979) Ps. (3,015)
Ps.
(36) Ps.
-
-
-
-
-
-
(36) Ps. (1,937) Ps.-
- Ps.
-
-
-
-
(745)
(961)
(110)
-
-
-
-
(254)
-
-
-
-
-
(376) Ps.
(81)
-
-
(666) Ps. (2,979) Ps. (3,015)
(1,259)
(1,259)
(217)
(110)
(110)
-
-
-
-
-
-
-
(120)
-
(120)
-
(120)
(745)
148
(106)
(106)
Ps.
(36) Ps.
(781) Ps. (3,262) Ps.
- Ps.
(457) Ps.
(855) Ps. (4,574) Ps. (5,354)
December 31, 2017
Ps.
(745) Ps.
- Ps.
Carrying Amount
As of December 31, 2015
As of December 31, 2016
As of December 31, 2017
Ps. 66,392 Ps. 33,850 Ps. 1,481
Ps. 85,338 Ps. 51,857 Ps. 6,225
Ps. 91,901 Ps. 43,449 Ps. 7,185
Ps. 1,246 Ps. 102,969 Ps.
Ps. 2,151 Ps. 145,571 Ps.
Ps. 2,257 Ps. 144,793 Ps.
683 Ps.
495 Ps. 5,372 Ps. 108,341
3,271 Ps.
798 Ps. 1,040 Ps. 1,672 Ps. 7,697 Ps. 153,268
4,187 Ps.
3,841 Ps. 1,291 Ps. 1,180 Ps. 2,988 Ps. 9,300 Ps. 154,093
923 Ps.
During the years ended December 31, 2016 and 2015 the Company capitalized Ps. 8 and Ps. 28, respectively of borrowing costs in
relation to Ps. 28 and Ps. 410 in qualifying assets, respectively. The effective interest rates used to determine the amount of borrowing
costs eligible for capitalization were 4.1% and 4.1%, respectively. For the year ended December 31, 2017, the Company did not recognize
any capitalization of borrowing costs.
On March 28, 2017 Coca-Cola FEMSA acquired distribution rights and other intangibles of AdeS soy-based beverages in it’s territories in
Mexico and Colombia for an aggregate amount of Ps. 1,287. This acquisition was made to reinforce Coca-Cola FEMSA leadership position.
For the years ended 2017, 2016 and 2015, allocation for amortization expense is as follows:
Cost of goods sold
Administrative expenses
Selling expenses
2017
Ps.
132
627
500
Ps. 1,259
2016
82
727
207
1,016
Ps.
Ps.
2015
61
407
136
604
Ps.
Ps.
The average remaining period for the Company’s intangible assets that are subject to amortization is as follows:
Technology Costs and Management Systems
Alcohol Licenses
Years
3-10
12 - 15
53
Coca-Cola FEMSA Impairment Tests for Cash-Generating Units Containing Goodwill and Distribution Rights
For the purpose of impairment testing, goodwill and distribution rights are allocated and monitored on an individual country basis,
which is considered to be CGU.
The aggregate carrying amounts of goodwill and distribution rights allocated to each CGU are as follows:
Mexico
Guatemala
Nicaragua
Costa Rica
Panama
Colombia
Venezuela
Brazil
Argentina
Philippines
Total
December 31,
2017
Ps.
56,352
488
484
1,520
1,185
5,824
-
48,345
50
3,882
Ps. 118,130
December 31,
2016
Ps. 55,137
499
532
1,622
1,241
5,988
1,225
52,609
67
-
Ps. 118,920
Goodwill and distribution rights are tested for impairments annually.
The recoverable amounts are based on value in use. The value in use of CGUs is determined based on the method of discounted
cash flows. The key assumptions used in projecting cash flows are: volume, expected annual long-term inflation, and the weighted
average cost of capital (“WACC”) used to discount the projected cash flows. The cash flow forecasts could differ from the results
obtained over time; however, Coca-Cola FEMSA prepares its estimates based on the current situation of each of the CGUs.
To determine the discount rate, Coca-Cola FEMSA uses the WACC as determined for each of the cash generating units in real terms
and as described in following paragraphs.
The estimated discount rates to perform impairment test for each CGU consider market participants’ assumptions. Market
participants were selected taking into consideration the size, operations and characteristics of the businesses that are similar to
those of Coca-Cola FEMSA.
The discount rates represent the current market assessment of the risks specific to each CGU, taking into consideration the time value
of money and individual risks of the underlying assets that have not been incorporated in the cash flow estimates. The discount rate
calculation is based on the opportunity cost to a market participant, considering the specific circumstances of Coca-Cola FEMSA
and its operating segments and is derived from its WACC. The WACC takes into account both debt and equity. The cost of equity is
derived from the expected return on investment by Company’s investors. The cost of debt is estimated based on the interest bearing
borrowings Coca-Cola FEMSA is obliged to service, which is equivalent to the cost of debt based on the conditions that a creditor
would asses in the market for credit to the CGUs. Segment-specific risk is incorporated by applying beta factors which are evaluated
annually based on publicly available market data.
Market participant assumptions are important because, not only do they include industry data for growth rates, management also
assesses how the CGU’s position, relative to its competitors, might change over the forecasted period.
The key assumptions used for the value-in-use calculations are as follows:
• Cash flows were projected based on actual operating results and the five-year business plan. Cash flows for a further five-year were
forecasted maintaining the same stable growth and margins per country of the last year base. Coca-Cola FEMSA believes that this
forecasted period is justified due to the non-current nature of the business and past experiences.
• Cash flows after the first ten-year period were extrapolated using a perpetual growth rate equal to the expected annual population
growth, in order to calculate the terminal recoverable amount.
• A per CGU-specific Weighted Average Cost of Capital (“WACC”) was applied as a hurdle rate to discount cash flows to get the
recoverable amount of the units; the calculation assumes, size premium adjustments.
54
The key assumptions by CGU for impairment test as of December 31, 2017 were as follows:
CGU
Mexico
Colombia
Costa Rica
Guatemala
Nicaragua
Panama
Argentina
Brazil
Philippines
Pre-tax WACC
Post-tax WACC
Expected Annual
Long-Term Inflation
2018-2027
Expected Volume
Growth Rates
2018-2027
7.3%
9.1%
11.5%
13.9%
16.6%
8.3%
11.0%
9.7%
9.7%
5.3%
6.6%
7.8%
10.7%
10.6%
6.5%
7.3%
6.2%
5.9%
3.7%
3.1%
3.3%
4.7%
5.0%
2.3%
10.7%
4.1%
3.6%
2.2%
3.2%
2.7%
7.1%
4.9%
3.4%
3.1%
1.3%
3.4%
The key assumptions by CGU for impairment test as of December 31, 2016 were as follows:
CGU
Mexico
Colombia
Venezuela
Costa Rica
Guatemala
Nicaragua
Panama
Argentina
Brazil
Pre-tax WACC
Post-tax WACC
Expected Annual
Long-Term Inflation
2017-2026
Expected Volume
Growth Rates
2017-2026
6.8%
7.9%
17.5%
8.4%
9.9%
10.6%
7.8%
9.1%
8.7%
6.3%
7.5%
17.0%
8.3%
9.5%
10.1%
7.4%
8.5%
8.1%
3.7%
3.2%
117.3%
4.4%
5.0%
4.2%
3.0%
12.2%
4.4%
1.2%
4.0%
1.0%
4.7%
13.2%
5.7%
4.9%
4.1%
2.9%
The values assigned to the key assumptions represent management’s assessment of future trends in the industry and are based on both
external sources and internal sources (historical data). Coca-Cola FEMSA consistently applied its methodology to determine CGU
specific WACC’s to perform its annual impairment testing.
During the year ended December 31, 2017 and due to the worsened economic and operational conditions in Venezuela, Coca-Cola
FEMSA has recognized an impairment for distribution rights in such country for an amount of Ps. 745, such effect has been recorded
in other expenses in the consolidated financial statements.
Sensitivity to Changes in Assumptions
At December 31, 2017, Coca-Cola FEMSA performed an additional impairment sensitivity calculation, taking into account an adverse
change in post-tax WACC, according to the country risk premium, using for each country the relative standard deviation between equity
and sovereign bonds and an additional sensitivity to the volume of 100 basis points and concluded that no impairment would be recorded.
CGU
Mexico
Colombia
Costa Rica
Guatemala
Nicaragua
Panama
Argentina
Brazil
Philippines
(1) Compound Annual Growth Rate (CAGR).
Change in WACC
Change in Volume
Growth CAGR (1)
Effect on Valuation
+0.16%
+0.19%
+0.64%
+1.52%
+4.27%
+0.12%
+4.39%
+0.26%
+0.46%
-1.0%
-1.0%
-1.0%
-1.0%
-1.0%
-1.0%
-1.0%
-1.0%
-1.0%
Passes by 5.2x
Passes by 2.5x
Passes by 2.3x
Paases by 7.4x
Passes by 3.1x
Passes by 12.1x
Passes by 299x
Passes by 3.6x
Passes by 2.1x
55
FEMSA Comercio Impairment Test for Cash-Generating Units Containing Goodwill
For the purpose of impairment testing, goodwill is allocated and monitored on an individual country basis by operating segment.
FEMSA Comercio has integrated its cash generating units as follow: Retail Division and Health Division are integrated as Mexico, for
each of them and Fuel Division includes only Mexico.
As of December 31, 2017 in Health Division there is a significant carrying amount of goodwill allocated in Chile and Colombia as a
group of cash generating (South America) with a total carrying amount of Ps. 6,048.
Goodwill is tested for impairments annually.
The recoverable amounts are based on value in use. The value in use of CGUs is determined based on the method of discounted cash
flows. The key assumptions used in projecting cash flows are: sales, expected annual long-term inflation, and the weighted average cost
of capital (“WACC”) used to discount the projected cash flows. The cash flow forecasts could differ from the results obtained over time;
however, FEMSA Comercio prepares its estimates based on the current situation of each of the CGUs or group of CGUs.
To determine the discount rate, FEMSA Comercio uses the WACC as determined for each of the cash generating units or group of the
cash generating units in real terms and as described in following paragraphs.
The estimated discount rates to perform the IAS 36 “Impairment of assets”, impairment test for each CGU or group of CGUs consider
market participants’ assumptions. Market participants were selected taking into consideration the size, operations and characteristics
of the businesses that are similar to those of FEMSA Comercio.
The discount rates represent the current market assessment of the risks specific to each CGU or group of CGUs, taking into consideration
the time value of money and individual risks of the underlying assets that have not been incorporated in the cash flow estimates. The
discount rate calculation is based on the opportunity cost to a market participant, considering the specific circumstances of FEMSA
Comercio and its operating segments and is derived from its WACC. The WACC takes into account both debt and cost of equity. The
cost of equity is derived from the expected return on investment by Company’s investors. The cost of debt is base don the interest
bearing borrowings the Coca-Cola FEMSA is obliged to service, wich is equivalent to the cost of debt based on the conditions that a
creditor would asses in the market. Segment-specific risk is incorporated by applying beta factors which are evaluated annually based
on publicly available market data.
Market participant assumptions are important because, not only do they include industry data for growth rates, management also
assesses how the CGU’s position, relative to its competitors, might change over the forecasted period.
The key assumptions used for the value-in-use calculations are as follows:
• Cash flows were projected based on actual operating results and the five-year business plan. FEMSA Comercio believes that this
forecasted period is justified due to the non-current nature of the business and past experiences.
• Cash flows projected based on actual operating results and five-year business plan were calculated using a perpetual growth rate
equal to the expected annual population growth, in order to calculate the terminal recoverable amount.
• A per CGU-specific Weighted Average Cost of Capital (“WACC”) was applied as a hurdle rate to discount cash flows to get the
recoverable amount of the units; the calculation assumes size premium adjustments.
The key assumptions by CGU for impairment test as of December 31, 2017 were as follows:
CGU
Pre-tax WACC
Post-tax WACC
Expected Annual
Long-Term Inflation
2018-2027
Expected Volume
Growth Rates
2018-2027
South America
(Health Division)
6.9%
6.2%
3%
2%
The key assumptions by CGU for impairment test as of December 31, 2016 were as follows:
CGU
Pre-tax WACC
Post-tax WACC
Expected Annual
Long-Term Inflation
2017-2026
Expected Volume
Growth Rates
2017-2026
South America
(Health Division)
7.5%
7.3%
3%
13%
The values assigned to the key assumptions represent management’s assessment of future trends in the industry and are based on both
external sources and internal sources (historical data). FEMSA Comercio consistently applied its methodology to determine CGU
specific WACC’s to perform its annual impairment testing.
56
Sensitivity to Changes in Assumptions
At December 31, 2017, FEMSA Comercio performed an additional impairment sensitivity calculation, taking into account an adverse
change in post-tax WACC, according to the country risk premium, using for each country the relative standard deviation between
equity and sovereign bonds and a sensitivity analysis of sales that would be affected considering a contraction in economic conditions
as a result of lower purchasing power of customers, which based on management estimation considered to be reasonably possible an
effect of 100 basis points in the sale’s compound annual growth rate (CAGR), concluding that no impairment would be recognized.
CGU Group
Health Division
(South America)
(1) Compound Annual Growth Rate.
Change in WACC
Change in Sales
Growth CAGR (1)
Effect on Valuation
+0.3%
-1.0%
Passes by 7.03x
Note 13. Other Assets and Other Financial Assets
13.1 Other assets
Agreement with customers
Long term prepaid advertising expenses
Guarantee deposits (1)
Prepaid bonuses
Advances to acquire property, plant and equipment
Recoverable taxes
Indemnifiable assets from business combinations (2)
Recoverable taxes from business combinations
Others
December 31,
2017
December 31,
2016
Ps.
Ps.
849
298
3,491
151
266
1,674
4,510
458
828
12,525
Ps.
793
392
3,757
103
173
1,653
8,081
-
1,230
Ps. 16,182
(1) As it is customary in Brazil, the Company is required to collaterize tax, legal and labor contingencies by guarantee deposits including those related to business
acquisitions (see Note 25.7).
(2) Corresponds to indemnifiable assets that are warranteed by former Vonpar owners as per the share purchase agreement.
13.2 Other financial assets
Non-current accounts receivable
Derivative financial instruments (see Note 20)
Investments in other entities (1)
Others
December 31,
2017
December 31,
2016
Ps.
Ps.
733
10,137
1,039
164
12,073
Ps.
511
14,729
-
105
Ps. 15,345
(1) Investment in Venezuela subsidiary, Coca-Cola FEMSA determined that the deteriorating conditions in Venezuela had led the Company to no longer meet the
accounting citeria to consolidate its Venezuelan subsidiary, the impacts of such deconsolidation are discussed in Note 3.3 above.
As of December 31, 2017 and 2016, the fair value of long term accounts receivable amounted to Ps. 707 and Ps. 541, respectively. The fair
value is calculated based on the discounted value of contractual cash flows whereby the discount rate is estimated using rates currently
offered for receivable of similar amounts and maturities, which is considered to be level 2 in the fair value hierarchy.
57
Note 14. Balances and transactions with related parties and affiliated companies
Balances and transactions between the Company and its subsidiaries have been eliminated on consolidation and are not disclosed in
this note.
The consolidated statements of financial positions and consolidated income statements include the following balances and transactions
with related parties and affiliated companies:
Balances
Due from The Coca-Cola Company (see Note 7) (1) (8)
Balance with BBVA Bancomer, S.A. de C.V. (2)
Balance with JP Morgan Chase & Co. (2)
Balance with Banco Mercantil del Norte S.A.
Grupo Industrial Saltillo S.A.B. de C.V. (3)
Due from Heineken (1) (3) (7)
Former shareholders of Vonpar
Other receivables (1) (4)
Due to The Coca-Cola Company (5) (6) (8)
Due to BBVA Bancomer, S.A. de C.V. (5)
Due to Caffenio (6) (7)
Due to Heineken (6) (7)
Other payables (6)
(1) Presented within accounts receivable.
(2) Presented within cash and cash equivalents.
(3) Presented within other financial assets.
(4) Presented within other current financial assets.
(5) Recorded within bank loans and notes payable.
(6) Recorded within accounts payable.
(7) Associates.
(8) Non controlling interest.
December 31,
2017
December 31,
2016
Ps.
Ps.
2,054
1,496
6,907
806
141
2,673
1,219
209
3,731
352
293
4,403
1,508
Ps.
Ps.
1,857
2,535
-
-
128
2,622
-
237
4,454
395
76
4,458
1,047
Balances due from related parties are considered to be recoverable. Accordingly, for the years ended December 31, 2017 and 2016, there
was no expense resulting from the uncollectibility of balances due from related parties.
Transactions
2016
2017
2015
Income:
Services to Heineken (1)
Logistic services to Grupo Industrial Saltillo, S.A. de C.V. (3)
Logistic services to Jugos del Valle (1)
Other revenues from related parties
Expenses:
Purchase of concentrate from The Coca-Cola Company (2)
Purchases of raw material and beer from Heineken (1)
Purchase of coffee from Caffenio (1)
Purchase of baked goods and snacks from Grupo Bimbo, S.A.B. de C.V. (3)
Advertisement expense paid to The Coca-Cola Company (2) (4)
Purchase of juices from Jugos del Valle, S.A.P.I. de C.V. (1)
Purchase of sugar from Promotora Industrial Azucarera, S.A. de C.V. (1)
Interest expense and fees paid to BBVA Bancomer, S.A. de C.V. (3)
Purchase of sugar from Beta San Miguel (3)
Purchase of sugar, cans and aluminum lids from Promotora Mexicana
de Embotelladores, S.A. de C.V. (3)
Purchase of canned products from IEQSA (1)
Purchase of inventories to Leao Alimentos e Bebidas, L.T.D.A. (1)
Advertising paid to Grupo Televisa, S.A.B. (3)
Insurance premiums for policies with Grupo Nacional Provincial, S.A.B. (3)
Donations to Fundación FEMSA, A.C. (3)
Donations to Difusión y Fomento Cultural, A.C. (3)
Interest expense paid to The Coca-Cola Company (2)
Other expenses with related parties
Ps. 3,570
457
587
620
Ps. 33,898
24,942
2,397
4,802
1,392
3,905
1,885
40
1,827
839
804
4,010
107
32
23
44
-
751
Ps.
Ps.
3,153
427
555
857
38,146
16,436
2,064
4,184
2,354
3,310
1,765
26
1,349
759
798
3,448
193
63
62
49
-
618
Ps.
3,396
407
564
644
Ps. 27,330
14,467
1,774
3,740
1,316
3,082
1,236
68
1,264
587
731
3,359
175
58
30
59
1
470
(1) Associates.
(2) Non controlling interest.
(3) Members of the board of directors in FEMSA participate in board of directors of this entity.
(4) Net of the contributions from The Coca-Cola Company of Ps. 4,023, Ps. 4,518 and Ps. 3,749, for the years ended in 2017, 2016 and 2015, respectively.
58
Commitments with related parties
Related Party
Heineken
Commitment
Supply
Conditions
Supply of all beer products in Mexico’s OXXO stores. The contract
may be renewed for five years or additional periods. At the end of
the contract OXXO will not hold exclusive contract with another
supplier of beer for the next 3 years. Commitment term, Jan 1st,
2010 to Jun 30, 2020.
The benefits and aggregate compensation paid to executive officers and senior management of the Company were as follows:
Short-term employee benefits paid
Postemployment benefits
Termination benefits
Share based payments
2017
Ps. 1,699
48
74
351
Ps.
2016
1,510
39
192
468
Ps.
2015
1,162
42
63
463
Note 15. Balances and Transactions in Foreign Currencies
Assets, liabilities and transactions denominated in foreign currencies are those realized in a currency different than the functional
currency of the Company. As of December 31, 2017 and for each of the three years ended on December 31, 2017, assets, liabilities and
transactions denominated in foreign currencies, expressed in Mexican pesos (contractual amounts) are as follows:
Balances
As of December 31, 2017
U.S. dollars
Euros
Other currencies
Total
As of December 31, 2016
U.S. dollars
Euros
Other currencies
Total
Transactions
For the year ended December 31, 2017
U.S. dollars
Euros
Other currencies
Total
For the year ended December 31, 2016
U.S. dollars
Euros
Other currencies
Total
For the year ended December 31, 2015
U.S. dollars
Euros
Other currencies
Total
Assets
Liabilities
Short-Term
Long-Term
Short-Term
Long- Term
Ps. 69,772
25
46
Ps. 69,843
Ps. 17,796
246
5
Ps. 18,047
Ps.
148
-
1,674
Ps. 1,822
Ps.
696
-
1,581
Ps. 2,277
Ps.
Ps.
Ps.
Ps.
4,241
1,881
340
6,462
4,540
345
246
5,131
Ps. 73,115
23,573
1
Ps. 96,689
Ps. 88,611
21,774
1,190
Ps. 111,575
Other
Operating
Revenues
Purchases
of Raw
Materials
Revenues
Interest
Expense
Consulting
Asset
Fees Acquisitions
Other
Ps. 1,909 Ps. 1,677 Ps. 16,320 Ps. 2,534 Ps. 267 Ps. 272 Ps. 4,052
20
-
Ps. 1,909 Ps. 1,679 Ps. 16,407 Ps. 2,986 Ps. 302 Ps. 276 Ps. 4,072
452
-
23
12
87
-
4
-
2
-
-
-
Ps. 4,068 Ps. 1,281 Ps. 14,961 Ps. 3,173 Ps. 182 Ps. 407 Ps. 3,339
5
4
Ps. 4,103 Ps. 1,431 Ps. 15,065 Ps. 3,678 Ps. 410 Ps. 407 Ps. 3,348
355
150
104
-
43
185
-
150
6
29
-
-
Ps. 1,891 Ps.
-
20
Ps. 1,911 Ps.
472 Ps. 11,710 Ps. 1,973 Ps. 34 Ps. 75 Ps. 2,035
37
204
473 Ps. 11,712 Ps. 1,973 Ps. 36 Ps. 75 Ps. 2,276
2
-
2
-
1
-
-
-
-
-
59
Mexican peso exchange rates effective at the dates of the consolidated statements of financial position and at the issuance date of the
Company’s consolidated financial statements were as follows:
U.S. dollar
Euro
Note 16. Employee Benefits
December 31,
2017
19.7354
23.5729
2016
20.6640
21.7741
February 27,
2018
18.5659
21.1430
The Company has various labor liabilities for employee benefits in connection with pension, seniority and post-retirement medical
benefits . Benefits vary depending upon the country where the individual employees are located. Presented below is a discussion of
the Company’s labor liabilities in Mexico, which comprise the substantial majority of those recorded in the consolidated financial
statements.
During 2016, Coca-Cola FEMSA settled its pension plan in Colombia and consequently Coca-Cola FEMSA recognized the
corresponding effects of the settlement as disclosed below. The settlement of the complementary pension plan was only for certain
executive employees.
16.1 Assumptions
The Company annually evaluates the reasonableness of the assumptions used in its labor liability for post-employment and other non-
current employee benefits computations.
Actuarial calculations for pension and retirement plans, seniority premiums and post-retirement medical benefits, as well as the
associated cost for the period, were determined using the following long-term assumptions for Mexico:
Mexico
Financial:
Discount rate used to calculate the defined benefit obligation
Salary increase
Future pension increases
Healthcare cost increase rate
Biometric:
Mortality (1)
Disability (2)
Normal retirement age
Employee turnover table (3)
Measurement date December:
(1) EMSSA. Mexican Experience of social security.
(2) IMSS. Mexican Experience of Instituto Mexicano del Seguro Social.
(3) BMAR. Actuary experience.
December 31,
2017
December 31,
2016
December 31,
2015
7.60%
4.50%
3.50%
5.10%
7.60%
4.50%
3.50%
5.10%
7.00%
4.50%
3.50%
5.10%
EMSSA 2009
IMSS-97
60 years
BMAR 2007
EMSSA 2009
IMSS-97
60 years
BMAR 2007
EMSSA 2009
IMSS-97
60 years
BMAR 2007
In Mexico the methodology used to determine the discount rate was the Yield or Internal Rate of Return (“IRR”) which involves a yield
curve. In this case, the expected rates of each period were taken from a yield curve of Mexican Federal Government Treasury Bonds
(known as CETES in Mexico) because there is no deep market in high quality corporate obligations in Mexican pesos.
In Mexico upon retirement, the Company purchases an annuity for the employee, which will be paid according to the option chosen
by the employee.
Based on these assumptions, the amounts of benefits expected to be paid out in the following years are as follows:
2018
2019
2020
2021
2022
2023 to 2027
60
Ps.
Pension and
Retirement
Plans
611
233
351
263
270
2,115
Ps.
Seniority
Premiums
53
52
50
48
47
254
Ps.
Post
Retirement
Medical
Services
19
20
22
24
25
158
Ps.
Total
683
305
423
335
342
2,527
16.2 Balances of the liabilities for employee benefits
Pension and Retirement Plans:
Defined benefit obligation
Pension plan funds at fair value
Net defined benefit liability
Seniority Premiums:
Defined benefit obligation
Seniority premium plan funds at fair value
Net defined benefit liability
Postretirement Medical Services:
Defined benefit obligation
Medical services funds at fair value
Net defined benefit liability
Total employee benefits
December 31,
2017
December 31,
2016
Ps.
Ps.
Ps.
Ps.
Ps.
Ps.
Ps.
7,370
(3,131)
4,239
783
(109)
674
524
(64)
460
5,373
Ps.
Ps.
Ps.
Ps.
Ps.
Ps.
Ps.
5,702
(2,216)
3,486
663
(102)
561
460
(60)
400
4,447
16.3 Trust assets
Trust assets consist of fixed and variable return financial instruments recorded at market value, which are invested as follows:
Type of Instrument
Fixed return:
Traded securities
Bank instruments
Federal government instruments of the respective countries
Variable return:
Publicly traded shares
December 31,
2017
December 31,
2016
18%
5%
62%
15%
100%
15%
4%
63%
18%
100%
In Mexico, the regulatory framework for pension plans is established in the Income Tax Law and its Regulations, the Federal Labor
Law and the Mexican Social Security Institute Law. None of these laws establish minimum funding levels or a minimum required level
of contributions.
In Mexico, the Income Tax Law requires that, in the case of private plans, certain notifications must be submitted to the authorities and
a certain level of instruments must be invested in Federal Government securities among others.
The Company’s various pension plans have a technical committee that is responsible for verifying the correct operation of the plan
with regard to the payment of benefits, actuarial valuations of the plan, and supervise the trustee. The committee is responsible
for determining the investment portfolio and the types of instruments the fund will be invested in. This technical committee is also
responsible for reviewing the correct operation of the plans in all of the countries in which the Company has these benefits.
The risks related to the Company’s employee benefit plans are primarily attributable to the plan assets. The Company’s plan assets are
invested in a diversified portfolio, which considers the term of the plan so as to invest in assets whose expected return coincides with
the estimated future payments.
Since the Mexican Tax Law limits the plan asset investment to 10% for related parties, this risk is not considered to be significant for
purposes of the Company’s Mexican subsidiaries.
In Mexico, the Company’s policy is to invest at least 30% of the fund assets in Mexican Federal Government instruments. Guidelines
for the target portfolio have been established for the remaining percentage and investment decisions are made to comply with these
guidelines insofar as the market conditions and available funds allow.
61
In Mexico, the amounts and types of securities of the Company in related parties included in portfolio fund are as follows:
Debt:
Cementos Mexicanos. S.A.B. de C.V.
Grupo Televisa, S.A.B. de C.V.
Grupo Financiero Banorte, S.A.B. de C.V.
BBVA Bancomer S.A. de C.V.
El Puerto de Liverpool, S.A.B. de C.V.
Grupo Industrial Bimbo, S.A.B. de C. V.
Gentera, S.A.B. de C.V.
Capital:
Grupo Industrial Bimbo, S.A.B. de C.V.
December 31,
2017
December 31,
2016
Ps.
Ps.
-
28
-
10
30
5
-
-
7
45
7
-
5
19
8
6
During the years ended December 31, 2017, 2016 and 2015, the Company did not make significant contributions to the plan assets and
does not expect to make material contributions to the plan assets during the following fiscal year. The plan assets include securities of
the Company in portfolio fund in amount of Ps. 114, as of December 31, 2016. There are no restrictions placed on the trustee’s ability to
sell those securities. As of December 31, 2017, the plan assets did not include securities of the Company in portfolio funds.
16.4 Amounts recognized in the consolidated income statements and the consolidated statement of comprehensive income
December 31, 2017
Pension and retirement plans
Seniority premiums
Postretirement medical services
Total
December 31, 2016
Pension and retirement plans
Seniority premiums
Postretirement medical services
Total
December 31, 2015
Pension and retirement plans
Seniority premiums
Postretirement medical services
Post-employment Venezuela
Total
Income Statement
AOCI (1)
Current
Service
Cost
Past
Service
Cost
Gain or Loss
on Settlement
or Curtailment
Net Interest
on the Net
Defined
Benefit
Liability
Remeasurements
of the Net
Defined
Benefit
Liability
Ps.
Ps.
Ps.
Ps.
Ps.
Ps.
341
106
24
471
245
93
21
359
233
88
16
6
343
Ps.
Ps.
Ps.
Ps.
Ps.
Ps.
10
-
-
10
45
-
-
45
3
-
-
-
3
Ps.
Ps.
Ps.
Ps.
Ps.
Ps.
(2)
(1)
-
(3)
(61)
-
-
(61)
(120)
(9)
-
-
(129)
Ps.
Ps.
Ps.
Ps.
Ps.
Ps.
267
41
30
338
224
34
24
282
212
32
23
9
276
Ps.
Ps.
Ps.
Ps.
Ps.
Ps.
1,060
46
184
1,290
1,102
18
151
1,270
913
39
119
-
1,071
(1) Amounts accumulated in other comprehensive income as of the end of the period.
For the years ended December 31, 2017, 2016 and 2015, current service cost of Ps. 408, Ps. 359 and Ps. 343 has been included in the
consolidated income statement as cost of goods sold, administrative and selling expenses.
Remeasurements of the net defined benefit liability recognized in accumulated other comprehensive income are as follows:
Amount accumulated in other comprehensive income as of the
beginning of the period, net of tax
Actuarial losses arising from exchange rates
Remeasurements during the year, net of tax
Actuarial gains and (losses) arising from changes in financial assumptions
Amount accumulated in other comprehensive income as of the end of
the period, net of tax
December 31,
2017
December 31,
2016
December 31,
2015
Ps.
966
(2)
295
(367)
Ps.
810
123
288
(255)
Ps.
942
(12)
(46)
(74)
Ps.
892
Ps.
966
Ps.
810
62
Remeasurements of the net defined benefit liability include the following:
• The return on plan assets, excluding amounts included in net interest expense.
• Actuarial gains and losses arising from changes in demographic assumptions.
• Actuarial gains and losses arising from changes in financial assumptions.
16.5 Changes in the balance of the defined benefit obligation for post-employment
Pension and Retirement Plans:
Initial balance
Current service cost
Past service cost
Interest expense
Effect on curtailment
Remeasurements of the net defined benefit obligation
Foreign exchange loss (gain)
Benefits paid
Acquisitions
Ending balance
Seniority Premiums:
Initial balance
Current service cost
Interest expense
Settlement
Effect on curtailment
Remeasurements of the net defined benefit obligation
Benefits paid
Acquisitions
Ending balance
Postretirement Medical Services:
Initial balance
Current service cost
Interest expense
Remeasurements of the net defined benefit obligation
Benefits paid
Ending balance
Post-employment:
Initial balance
Current service cost
Certain liability cost
Reclasification to certain liability cost
Foreign exchange (gain)
Ending balance
16.6 Changes in the balance of plan assets
Total Plan Assets:
Initial balance
Actual return on trust assets
Foreign exchange loss (gain)
Life annuities
Benefits paid
Acquisitions
Ending balance
December 31,
2017
December 31,
2016
December 31,
2015
Ps. 5,702
341
10
491
(2)
263
(79)
(550)
1,194
Ps. 7,370
Ps.
Ps.
Ps.
Ps.
663
106
49
(1)
-
28
(68)
6
783
460
24
34
32
(26)
524
Ps.
Ps.
Ps.
Ps.
Ps.
Ps.
Ps.
Ps.
5,308
245
45
369
(61)
(67)
150
(287)
-
5,702
610
93
41
-
-
(43)
(55)
17
663
404
22
27
30
(23)
460
135
-
-
(135)
-
-
Ps.
Ps.
Ps.
Ps.
Ps.
Ps.
Ps.
Ps.
5,270
233
3
353
(120)
(154)
39
(316)
-
5,308
563
88
38
-
(9)
(34)
(45)
9
610
338
16
26
44
(20)
404
194
5
73
-
(137)
135
December 31,
2017
December 31,
2016
December 31,
2015
Ps. 2,378
213
86
65
(136)
698
Ps. 3,304
Ps.
Ps.
2,228
40
4
107
(1)
-
2,378
Ps.
Ps.
2,158
65
7
61
(63)
-
2,228
63
As a result of the Company’s investments in life annuities plan, management does not expect it will need to make material contributions
to plan assets in order to meet its future obligations.
16.7 Variation in assumptions
The Company decided that the relevant actuarial assumptions that are subject to sensitivity and valuated through the projected
unit credit method, are the discount rate, the salary increase rate and healthcare cost increase rate. The reasons for choosing these
assumptions are as follows:
• Discount rate: The rate that determines the value of the obligations over time.
• Salary increase rate: The rate that considers the salary increase which implies an increase in the benefit payable.
• Healthcare cost increase rate: The rate that considers the trends of health care costs which implies an impact on the postretirement
medical service obligations and the cost for the year.
The following table presents the amount of defined benefit plan expense and OCI impact in absolute terms of a variation of 0.5% in the
assumptions on the net defined benefit liability associated with the Company’s defined benefit plans. The sensitivity of this 0.5% on the
significant actuarial assumptions is based on a projected long-term discount rates for Mexico and a yield curve projections of long-term
sovereign bonds:
+0.5%:
Income Statement
Discount rate used to calculate the
defined benefit obligation and the
net interest on the net defined
benefit liability
Pension and retirement plans
Seniority premiums
Postretirement medical services
Post-employment
Total
Expected salary increase
Pension and retirement plans
Seniority premiums
Postretirement medical services
Post-employment
Total
Assumed rate of increase in
healthcare costs
Current
Service Cost
Past Service
Cost
Ps.
Ps.
Ps.
Ps.
322
102
23
-
447
355
112
-
-
467
Ps.
Ps.
Ps.
Ps.
9
-
-
-
9
10
-
-
-
10
Gain or Loss
on Settlement
or Curtailment
Effect of Net
Interest on the Net
Defined Benefit
Liability
(Asset)
Ps.
Ps.
Ps.
Ps.
(2)
(1)
-
-
(3)
(2)
(1)
-
-
(3)
Ps.
Ps.
Ps.
Ps.
264
41
33
-
338
286
43
-
-
329
OCI (1)
Remeasurements
of the Net Defined
Benefit Liability
(Asset)
Ps.
Ps.
Ps.
Ps.
1,289
44
178
-
1,511
1,496
42
-
-
1,538
Postretirement medical services
Ps.
26
Ps.
-
Ps.
-
Ps.
33
Ps.
265
(1) Amounts accumulated in other comprehensive income as of the end of the period.
64
-0.5%:
Income Statement
Discount rate used to calculate the
defined benefit obligation and the
net interest on the net defined
benefit liability
Pension and retirement plans
Seniority premiums
Postretirement medical services
Post-employment
Total
Expected salary increase
Pension and retirement plans
Seniority premiums
Postretirement medical services
Post-employment
Total
Assumed rate of increase in healthcare costs
Current
Service Cost
Past Service
Cost
Gain or Loss
on Settlement
or Curtailment
Effect of Net
Interest on the Net
Defined Benefit
Liability
(Asset)
Ps.
Ps.
Ps.
Ps.
355
111
26
-
492
323
100
-
-
423
Ps.
Ps.
Ps.
Ps.
10
-
-
-
10
9
-
-
-
9
Ps.
Ps.
Ps.
Ps.
(2)
(1)
-
-
(3)
(2)
(1)
-
-
(3)
Ps.
Ps.
Ps.
Ps.
268
40
31
-
339
253
38
-
-
291
OCI (1)
Remeasurements
of the Net Defined
Benefit Liability
(Asset)
Ps.
Ps.
Ps.
Ps.
1,506
46
267
-
1,819
1,291
56
-
-
1,347
Postretirement medical services
Ps.
23
Ps.
-
Ps.
-
Ps.
28
Ps.
179
(1) Amounts accumulated in other comprehensive income as of the end of the period.
16.8 Employee benefits expense
For the years ended December 31, 2017, 2016 and 2015, employee benefits expenses recognized in the consolidated income statements
as cost of goods sold, administrative and selling expenses are as follows:
Wages and salaries
Social security costs
Employee profit sharing
Post employment benefits
Share-based payments
Termination benefits
Note 17. Bonus Programs
2017
Ps. 53,056
9,860
1,209
815
351
455
Ps. 65,746
2016
39,459
6,114
1,506
625
468
503
48,675
Ps.
Ps.
2015
Ps. 39,459
6,114
1,243
493
463
503
Ps. 48,275
17.1 Quantitative and qualitative objectives
The bonus program for executives is based on complying with certain goals established annually by management, which include
quantitative and qualitative objectives, and special projects.
The quantitative objectives represent approximately 50% of the bonus, and are based on the Economic Value Added (“EVA”)
methodology. The objective established for the executives at each entity is based on a combination of the EVA generated per entity
and the EVA generated by the Company, calculated at approximately 70% and 30%, respectively. The qualitative objectives and special
projects represent the remaining 50% of the annual bonus and are based on the critical success factors established at the beginning of
the year for each executive.
The bonus amount is determined based on each eligible participant’s level of responsibility and based on the EVA generated by the
applicable business unit the employee works for. This formula is established by considering the level of responsibility within the
organization, the employees’ evaluation and competitive compensation in the market. The bonus is paid to the eligible employee on an
annual basis and after withholding applicable taxes.
65
17.2 Share-based payment bonus plan
The Company has implemented a stock incentive plan for the benefit of its senior executives. As discussed above, this plan uses as its
main evaluation metric the EVA. Under the EVA stock incentive plan, eligible employees are entitled to receive a special annual bonus
(fixed amount), to be paid in shares of FEMSA or Coca-Cola FEMSA, as applicable or stock options (the plan considers providing stock
options to employees; however, since inception only shares of FEMSA or Coca-Cola FEMSA have been granted).
The plan is managed by FEMSA’s chief executive officer (CEO), with the support of the board of directors, together with the CEO
of the respective sub-holding company. FEMSA’s Board of Directors is responsible for approving the plan’s structure, and the annual
amount of the bonus. Each year, FEMSA’s CEO in conjunction with the Evaluation and Compensation Committee of the board of
directors and the CEO of the respective sub-holding company determine the employees eligible to participate in the plan and the bonus
formula to determine the number of shares to be received. Until 2015 the shares were vested ratably over a six year period, beginning
with January 1, 2016 onwards they were ratably vest over a four year period, with retrospective effects, on existing grants recognized in
2016. FEMSA accounts for its share-based payment bonus plan as an equity-settled share based payment transaction as it will ultimately
settle its obligations with its employees by issuing its own shares or those of its subsidiary Coca-Cola FEMSA.
The Company contributes the individual employee’s special bonus (after taxes) in cash to the Administrative Trust (which is
controlled and consolidated by FEMSA), who then uses the funds to purchase FEMSA or Coca-Cola FEMSA shares (as instructed
by the Administrative Trust’s Technical Committee), which are then allocated to such employee. The Administrative Trust tracks the
individual employees’ account balance. FEMSA created the Administrative Trust with the objective of conducting the purchase of
FEMSA and Coca-Cola FEMSA shares by each of its subsidiaries with eligible executives participating in the stock incentive plan. The
Administrative Trust’s objectives are to acquire FEMSA shares, or shares of Coca-Cola FEMSA and to manage the shares granted to the
individual employees based on instructions set forth by the Technical Committee. Once the shares are acquired following the Technical
Committee’s instructions, the Administrative Trust assigns to each participant their respective rights. As the trust is controlled and
therefore consolidated by FEMSA, shares purchased in the market and held within the Administrative Trust are presented as treasury
stock (as it relates to FEMSA’s shares) or as a reduction of the noncontrolling interest (as it relates to Coca-Cola FEMSA’s shares) in
the consolidated statement of changes in equity, on the line issuance (purchase) of shares associated with share-based payment plans.
Should an employee leave prior to their shares vesting, they would lose the rights to such shares, which would then remain within
the Administrative Trust and be able to be reallocated to other eligible employees as determined by the Company. The incentive plan
target is expressed in months of salary, and the final amount payable is computed based on a percentage of compliance with the goals
established every year. For the years ended December 31, 2017, 2016 and 2015, the compensation expense recorded in the consolidated
income statement amounted to Ps. 351, Ps. 468 and Ps. 463, respectively.
All shares held in the Administrative Trust are considered outstanding for diluted earnings per share purposes and dividends on shares
held by the trust are charged to retained earnings.
As of December 31, 2017 and 2016, the number of shares held by the trust associated with the Company’s share based payment plans
is as follows:
Beginning balance
Shares acquired by the administrative trust to employees
Shares released from administrative trust to
employees upon vesting
Forfeitures
Ending balance
Number of Shares
FEMSA UBD
KOFL
2017
2016
2017
2016
3,625,171
1,311,599
4,246,792
2,375,196
1,068,327
344,770
1,160,311
695,487
(1,991,561)
-
2,945,209
(2,996,817)
-
3,625,171
(477,198)
-
935,899
(787,471)
-
1,068,327
The fair value of the shares held by the trust as of the end of December 31, 2017 and 2016 was Ps. 673 and Ps. 712, respectively, based on
quoted market prices of those dates.
66
Note 18. Bank Loans and Notes Payables
At December 31, (1)
2018
2019
2020
2021
2022
2023 and
Thereafter
Carrying
Value at
Carrying
Value at
December 31, December 31, December 31,
2016 (1)
Fair
Value at
2017
2017
(in millions of Mexican pesos)
Short-term debt:
Fixed rate debt:
Argentine pesos
Bank loans
Interest rate
Chilean pesos
Bank loans
Interest rate
U .S . dollars
Bank loans
Interest rate
Variable rate debt:
Colombian pesos
Bank loans
Interest rate
Chilean pesos
Bank loans
Interest rate
Ps. 106
22.4%
Ps.
- Ps.
-
Ps.
- Ps.
-
Ps.
-
-
-
-
-
-
-
-
-
-
-
-
-
-
770
3.1%
-
-
1,951
7.3%
3
6.1%
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2,498
8.3%
92
5.8%
-
-
-
-
17
3.2%
-
-
-
-
2,607
-
-
-
-
-
-
-
-
-
-
-
Ps.
106 Ps.
107 Ps.
22.4%
770
3.1%
-
-
-
770
-
-
-
1,951
7.3%
1,949
-
644
32.0%
338
4.3%
206
3.4%
723
9.1%
3
6.1%
1
10.0%
Ps. 2,830 Ps. 2,829 Ps. 1,912
3
-
-
-
-
-
-
-
-
-
- Ps.
Ps.
Ps.
- Ps. 23,449
1.8%
-
-
-
-
-
-
-
-
-
-
-
-
-
78
5.8%
-
-
-
-
-
-
29,425
4.4%
5,852
2.9%
13,510
4.4%
-
-
-
-
15,981
6.7%
73
5.8%
-
-
-
-
-
-
Ps. 23,449 Ps. 24,697 Ps. 21,627
1.8%
1.8%
-
48,043
4.1%
5,852
2.9%
13,510
4.4%
13
3.8%
-
-
18,479
6.9%
1,033
5.7%
6,707
0.4%
40
7.9%
98
3.5%
51,938
-
5,870
-
14,539
-
13
-
-
-
17,035
-
1,055
-
6,430
-
40
-
98
-
61,703
3.8%
6,117
2.9%
14,128
4.4%
20
3.9%
3,245
4.2%
9,991
6.2%
742
5.3%
7,022
0.4%
164
7.0%
114
3.4%
-
-
-
-
-
-
-
-
78 Ps. 88,290
Ps.
728
9.6%
17
4.2%
758
9.6%
-
-
Ps. 117,969 Ps. 122,473 Ps. 125,631
741
-
17
-
-
-
- Ps.
-
-
- Ps.
Total short-term debt
Ps. 2,830 Ps.
Long-term debt:
Fixed rate debt:
Euro
Senior unsecured notes
Interest rate
U .S . dollars
Yankee bond
Interest rate
Bank of NY
(FEMSA USD 2023)
Interest rate (1)
Bank of NY
(FEMSA USD 2043)
Interest rate (1)
Finance leases
Interest rate (1)
Mexican pesos
Units of investment (UDIs)
Interest rate
Domestic senior notes
Interest rate
Brazilian reais
Bank loans
Interest rate
Notes payable (2)
Interest rate
Chilean pesos
Bank loans
Interest rate
Finance leases
Interest rate
Colombian pesos
Bank loans
Interest rate
Finance leases
Interest rate
Subtotal
Ps.
Ps.
-
-
- Ps.
-
Ps.
-
-
8,774
2.4%
-
-
-
-
6
4.0%
-
-
-
-
391
5.7%
-
-
40
7.9%
27
3.8%
-
-
-
-
-
-
5
3.8%
-
-
-
-
247
5.8%
6,707
0.4%
-
-
28
3.7%
9,844
4.6%
-
-
-
-
2
3.5%
-
-
-
-
152
5.8%
-
-
-
-
26
3.4%
728
9.6%
6
4.0%
Ps. 9,972
-
-
6
4.0%
-
-
5
4.0%
Ps. 6,993 Ps. 10,029
Ps.
(1) All interest rates shown in this table are weighted average contractual annual rates.
67
(in millions of Mexican pesos)
2018
2019
2020
2021
2022
2023 and
Thereafter
At December 31, (1)
Carrying
Value at
Carrying
Value at
December 31, December 31, December 31,
2016 (1)
Fair
Value at
2017
2017
Variable rate debt:
U .S . dollars
Bank loans
Interest rate (1)
Mexican pesos
Domestic senior notes
Interest rate (1)
Argentine pesos
Bank loans
Interest rate
Brazilian reais
Bank loans
Interest rate
Notes payable
Interest rate
Colombian pesos
Bank loans
Interest rate
Chilean pesos
Bank loans
Interest rate
Subtotal
Total long-term debt
Current portion of long term debt
Ps.
-
-
-
-
-
-
284
8.5%
10
0.4%
-
-
Ps.
- Ps.
-
-
-
-
-
284
8.5%
5
0.4%
-
-
-
-
-
-
-
-
229
8.5%
-
-
-
-
1,110
494
4.1%
4.3%
Ps. 788
1,339
Ps. 10,760 Ps. 7,946 Ps. 11,368
664
4.2%
953 Ps.
Ps.
-
-
-
-
66
8.5%
-
-
-
-
732
4.0%
4,830
7,437
Ps.
Ps.
Ps.
4,032
2.1%
Ps.
- Ps.
-
-
-
-
-
-
-
-
-
-
-
-
-
Ps. 4,032 Ps. 4,313 Ps. 4,218
1.6%
2.1%
-
1,496
7.7%
1,500
-
-
-
870
8.5%
15
0.4%
-
-
-
-
883
-
14
-
-
-
-
-
40
27.8%
1,864
5.5%
26
0.4%
1,206
9.6%
1,496
7.7%
-
-
7
8.5%
-
-
-
-
385
751
3.9%
4.1%
Ps. 2,254 Ps.
385
Ps. 2,332 Ps. 88,675
4,135
-
4,136
4.1%
4,351
3.7%
Ps. 10,549 Ps. 10,845 Ps. 11,705
Ps. 128,518 Ps. 133,318 Ps. 137,336
(5,369)
Ps. 131,967
(10,760)
Ps. 117,758
(1) All interest rates shown in this table are weighted average contractual annual rates.
(2) Promissory note denominated and payable in Brazilian reais; however, it is linked to the performance of the exchange rate between the Brazilian real and the U.S.
dollar. As a result, the principal amount under the promissory note may be increased or reduced based on the depreciation or appreciation of the Brazilian real
relative to the U.S. dollar.
68
Hedging Derivative
Financial Instruments (1)
Cross currency swaps:
Units of investments to Mexican
pesos and variable rate:
Fixed to variable
Interest pay rate
Interest receive rate
U .S . dollars to Mexican pesos
Fixed to variable (2)
Interest pay rate
Interest receive rate
Fixed to fixed
Interest pay rate
Interest receive rate
U .S . dollars to Brazilian reais
Fixed to variable
Interest pay rate
Interest receive rate
Variable to variable
Interest pay rate
Interest receive rate
Chilean pesos
Variable to fixed
Interest pay rate
Interest receive rate
Interest rate swap:
Mexican pesos
Variable to fixed rate:
Interest pay rate
Interest receive rate
Variable to fixed rate:
Interest pay rate
Interest receive rate
Variable to fixed rate (2):
Interest pay rate
Interest receive rate
2018
2019
2020
2021
2022
(notional amounts in millions of Mexican pesos)
2023 and
Thereafter
Total
2017
Total
2016
Ps.
- Ps.
-
-
- Ps. 2,500
5.9%
-
4.2%
-
Ps.
- Ps.
-
-
-
-
-
-
-
-
8,782
6.3%
2.7%
15,571
6.7%
2.6%
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
6,263
5.2%
0.4%
-
-
-
-
-
-
65
6.5%
3.7%
-
-
-
-
Ps.
Ps.
-
-
-
-
-
-
9,868
9.0%
3.9%
4,571
6.6%
2.9%
-
-
-
620
6.9%
3.9%
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
4,046
6.1%
1.9%
-
-
-
Ps.
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
11,403
8.9%
4.0%
9,951
9.1%
4.0%
-
-
-
-
-
-
-
-
-
650
7.6%
3.8%
875
6.6%
4.5%
1,925
5.8%
4.5%
-
-
-
-
-
-
-
-
-
-
-
-
11,403
8.9%
4.0%
19,818
9.1%
3.9%
19,617
6.0%
2.0%
19,617
6.6
2.5
620
6.9%
3.9%
3,515
5.8%
4.5%
-
-
7.2%
8.9%
11,403
7.4%
4.0%
19,451
8.8%
4.1%
21,210
11.9%
1.9%
22,834
12.4%
2.0%
827
6.9%
6.2%
3,591
6.4%
5.1%
5.9%
6.0%
7.2%
7.4%
(1) All interest rates shown in this table are weighted average contractual annual rates.
(2) Interest rate swaps with a notional amount of Ps. 11,403 that receive a variable rate of 8.9% and pay a fixed rate of 7.2%; joined with a cross currency swap, which
covers U.S. dollars to Mexican pesos, that receives a fixed rate of 4.0% and pay a variable rate of 8.9%.
For the years ended December 31, 2017, 2016 and 2015, the interest expense is comprised as follows:
Interest on debts and borrowings
Capitalized interest
Finance charges for employee benefits
Derivative instruments
Finance operating charges
Finance charges payable under finance leases
2017
Ps. 6,409
(10)
317
4,339
69
-
Ps. 11,124
2016
5,694
(32)
282
3,519
183
-
9,646
Ps.
Ps.
2015
4,586
(60)
276
2,894
79
2
7,777
Ps.
Ps.
69
In March 14, 2016, the Company issued long-term debt on the Irish Stock Exchange (ISE) in the amount of €1,000, which was made up
of senior notes with a maturity of 7 years, a fixed interest rate of 1.75% and a spread of 155 basis points over the relevant benchmark mid-
swap, for a total yield of 1.824%. The Company has designated this non-derivative financial liability as a hedge on the net investment
in Heineken. For the year ended December 31, 2017, a foreign exchange loss, net of tax, has been recognized as part of the exchange
differences on translation of foreign operations within the cumulative other comprehensive income of Ps. 1,259.
In August 18, 2017, Coca-Cola FEMSA partially prepaid U.S. $555 of a dollar denominated bond due in 2018, reducing the outstanding
senior note to U.S. $445 with interest at a fixed rate of 2.38%.
Coca-Cola FEMSA has the following bonds: a) registered with the Mexican stock exchange: i) Ps. 2,500 (nominal amount) with a
maturity date in 2021 and fixed interest rate of 8.27% and ii) Ps. 7,500 (nominal amount) with a maturity date in 2023 and fixed interest
rate of 5.46% Ps. 1,500 (nominal amount) with a maturity date 2022 and floating interest rate of TIIE + 0.25% iv) Ps. 8,500 (nominal
amount) with a maturity date 2027 and fixed interest rate of 7.87%; and b) registered with the SEC: i) Senior notes of U.S. $500 with
interest at a fixed rate of 4.63% and maturity date on February 15, 2020, ii) Senior notes of U.S. $445 with interest at a fixed rate of
2.38% and maturity date on November 26, 2018, iii) Senior notes of U.S. $900 with interest at a fixed rate of 3.88% and maturity date on
November 26, 2023 and iv) Senior notes of U.S. $600 with interest at a fixed rate of 5.25% and maturity date on November 26, 2043 all
of which are guaranteed by Coca-Cola FEMSA subsidiaries: Propimex, S. de R.L. de C.V., Comercializadora La Pureza de Bebidas, S.
de R.L. de C.V., Controladora Interamericana de Bebidas, S. de R.L. de C.V., Grupo Embotellador Cimsa, S. de R.L. de C.V., Refrescos
Victoria del Centro, S. de R.L. de C.V., Distribuidora y Manufacturera del Valle de Mexico, S. de R.L. de C.V (as successor guarantor of
Servicios Integrados Inmuebles del Golfo, S. de R.L. de C.V.) and Yoli de Acapulco, S. de R.L. de C.V. (“Guarantors”).
The Company has financing from different institutions under agreements that stipulate different restrictions and covenants, which
mainly consist of maximum levels of leverage and capitalization as well as minimum consolidated net worth and debt and interest
coverage ratios. As of the date of these consolidated financial statements, the Company was in compliance with all restrictions and
covenants contained in its financing agreements.
18.1 Reconciliation of liabilities arising from financing activities
Bank loans
Notes payable
Lease liabilities
Carrying Value at
December 31,
2016
Cash Flows
Acquisition
Non-Cash Flows
Foreign
Exchange
Movement
Carrying Value at
December 31,
2017
Others
Ps. 14,497 Ps.
123,859
892
(949) Ps.
(3,574)
(8)
- Ps.
-
-
190 Ps.
4,954
-
(69) Ps. 13,669
117,551
128
(7,688)
(756)
Total liabilities from financing activities
Ps. 139,248 Ps.
(4,531) Ps.
- Ps.
5,144 Ps.
(8,513) Ps. 131,348
Bank loans
Notes payable
Lease liabilities
Carrying Value at
December 31,
2015
Cash Flows
Acquisition
Non-Cash Flows
Foreign
Exchange
Movement
Ps.
7,357 Ps.
83,945
562
(2,597) Ps.
24,234
(466)
377 Ps.
(50) Ps.
-
9
15,790
-
Carrying Value at
December 31,
2016
Others
9,410 Ps. 14,497
123,859
(110)
892
786
Total liabilities from financing activities
Ps.
91,864 Ps. 21,171 Ps.
386 Ps. 15,740 Ps. 10,086 Ps. 139,248
70
Note 19. Other Income and Expenses
Gain on sale of shares (see Note 4.2)
Gain on sale of Heineken shares
Gain on sale of long-lived assets
Sale of waste material
Write off-contingencies (see Note 25.5)
Recoveries from previous years
Insurance rebates
Foreign exchange gain
Consolidation of Philippines
Others
Other income
Contingencies associated with prior acquisitions or disposals
Loss on sale of equity financial assets
Loss on sale of other assets
Impairment of long-lived assets (2)
Disposal of long-lived assets (1)
Suppliers provisions
Foreign exchange losses related to operating activities
Non-income taxes from Colombia
Severance payments
Donations
Legal fees and other expenses from past acquisitions
Venezuela impact
Other
Other expenses
2017
Ps.
123
29,989
209
3
-
(35)
6
(4)
2,830
1,620
Ps. 34,741
39
Ps.
-
148
2,063
451
398
2,524
636
363
242
612
26,123
359
Ps. 33,958
2016
-
-
170
50
329
466
10
-
-
132
1,157
1,582
8
159
-
238
-
2,370
53
98
203
241
-
957
5,909
Ps.
Ps.
Ps.
Ps.
2015
14
-
249
41
-
16
17
-
-
86
423
93
-
-
134
416
-
917
30
285
362
223
-
281
2,741
Ps.
Ps.
Ps.
Ps.
(1) Charges related to fixed assets retirement from ordinary operations and other long-lived assets.
(2) Includes Venezuela impairment of Ps. 2,053 (see Note 3.3).
Note 20. Financial Instruments
Fair Value of Financial Instruments
The Company’s financial assets and liabilities that are measured at fair value are based on level 2 applying the income approach method,
which estimates the fair value based on expected cash flows discounted to net present value. The following table summarizes the
Company’s financial assets and liabilities measured at fair value, as of December 31, 2017 and 2016:
Derivative financial instrument (current asset)
Derivative financial instrument (non-current asset)
Derivative financial instrument (current liability)
Derivative financial instrument (non-current liability)
December 31, 2017
December 31, 2016
Level 1
22
-
26
-
Level 2
211
10,137
3,921
1,769
Level 1
374
-
-
-
Level 2
1,543
14,729
264
6,403
20.1 Total debt
The fair value of bank loans is calculated based on the discounted value of contractual cash flows whereby the discount rate is estimated
using rates currently offered for debt of similar amounts and maturities, which is considered to be level 2 in the fair value hierarchy.
The fair value of the Company’s publicly traded debt is based on quoted market prices as of December 31, 2017 and 2016, which is
considered to be level 1 in the fair value hierarchy.
Carrying value
Fair value
2017
2016
Ps. 131,348
136,147
Ps. 139,248
140,284
71
20.2 Interest rate swaps
The Company uses interest rate swaps to offset the interest rate risk associated with its borrowings, pursuant to which it pays
amounts based on a fixed rate and receives amounts based on a floating rate. These instruments have been designated as cash flow
hedges and are recognized in the consolidated statement of financial position at their estimated fair value. The fair value is estimated
using formal technical models. The valuation method involves discounting to present value the expected cash flows of interest,
calculated from the rate curve of the cash flow currency, and expresses the net result in the reporting currency. Changes in fair
value are recorded in cumulative other comprehensive income, net of taxes until such time as the hedged amount is recorded in the
consolidated income statements.
At December 31, 2017, the Company has the following outstanding interest rate swap agreements:
Maturity Date
2019
2020
2021
2022
2023
Notional
Amount
4,089
3,669
3,709
875
13,328
Fair Value Liability
December 31,
2017
Fair Value Asset
December 31,
2017
(35)
(17)
(103)
(34)
(77)
-
-
-
-
984
At December 31, 2016, the Company has the following outstanding interest rate swap agreements:
Maturity Date
2017
2019
2021
2022
2023
Notional
Amount
Ps. 1,250
77
727
929
13,261
Fair Value Liability
December 31,
2016
Fair Value Asset
December 31,
2016
Ps.
-
(4)
(87)
(35)
(73)
Ps.
10
-
-
-
1,028
The net effect of expired contracts treated as hedges are recognized as interest expense within the consolidated income statements.
20.3 Forward agreements to purchase foreign currency
The Company has entered into forward agreements to reduce its exposure to the risk of exchange rate fluctuations between the
Mexican peso and other currencies. Foreign exchange forward contracts measured at fair value are designated hedging instruments
in cash flow hedges of forecast inflows in Euros and forecast purchases of raw materials in U.S. dollars. These forecast transactions
are highly probable.
These instruments have been designated as cash flow hedges and are recognized in the consolidated statement of financial position
at their estimated fair value which is determined based on prevailing market exchange rates to terminate the contracts at the end of
the period. The price agreed in the instrument is compared to the current price of the market forward currency and is discounted to
present value of the rate curve of the relevant currency. Changes in the fair value of these forwards are recorded as part of cumulative
other comprehensive income, net of taxes. Net gain/loss on expired contracts is recognized as part of cost of goods sold when the raw
material is included in sale transaction, and as a part of foreign exchange when the inflow in Euros are received.
At December 31, 2017, the Company had the following outstanding forward agreements to purchase foreign currency:
Maturity Date
2018
Notional
Amount
Fair Value Liability
December 31,
2017
Fair Value Asset
December 31,
2017
Ps. 7,739
Ps.
(20)
Ps.
172
At December 31, 2016, the Company had the following outstanding forward agreements to purchase foreign currency:
Maturity Date
2017
72
Notional
Amount
Fair Value Liability
December 31,
2016
Fair Value Asset
December 31,
2016
Ps. 8,265
Ps.
(247)
Ps.
364
20.4 Options to purchase foreign currency
The Company has executed call option and collar strategies to reduce its exposure to the risk of exchange rate fluctuations. A call option
is an instrument that limits the loss in case of foreign currency depreciation. A collar is a strategy that combines call and put options,
limiting the exposure to the risk of exchange rate fluctuations in a similar way as a forward agreement.
These instruments have been designated as cash flow hedges and are recognized in the consolidated statement of financial position at
their estimated fair value which is determined based on prevailing market exchange rates to terminate the contracts at the end of the
period. Changes in the fair value of these options, corresponding to the intrinsic value, are initially recorded as part of “cumulative
other comprehensive income”. Changes in the fair value, corresponding to the extrinsic value, are recorded in the consolidated income
statements under the caption “market value gain/ (loss) on financial instruments,” as part of the consolidated net income. Net gain/
(loss) on expired contracts including the net premium paid, is recognized as part of cost of goods sold when the hedged item is recorded
in the consolidated income statements.
At December 31, 2017, the Company paid a net premium of Ps. 7 millions for the following outstanding collar options to purchase
foreign currency:
Maturity Date
2018
Notional
Amount
Fair Value Liability
December 31,
2017
Fair Value Asset
December 31,
2017
Ps.
266
Ps.
(5)
Ps.
17
20.5 Cross-currency swaps
The Company has contracted for a number of cross-currency swaps to reduce its exposure to risks of exchange rate and interest rate
fluctuations associated with its borrowings denominated in U.S. dollars and other foreign currencies. Cross-Currency swaps contracts
are designated as hedging instruments through which the Company changes the debt profile to its functional currency to reduce
exchange exposure.
These instruments are recognized in the consolidated statement of financial position at their estimated fair value which is estimated
using formal technical models. The valuation method involves discounting to present value the expected cash flows of interest,
calculated from the rate curve of the cash foreign currency, and expresses the net result in the reporting currency. These contracts are
designated as financial instruments at fair value through profit or loss. The fair values changes related to those cross currency swaps are
recorded under the caption “market value gain (loss) on financial instruments,” net of changes related to the long-term liability, within
the consolidated income statements.
The Company has cross-currency contracts designated as cash flow hedges and are recognized in the consolidated statement of financial
position at their estimated fair value. Changes in fair value are recorded in cumulative other comprehensive income, net of taxes until
such time as the hedge amount is recorded in the consolidated income statement.
At December 31, 2017, the Company had the following outstanding cross currency swap agreements:
Maturity Date
2018
2019
2020
2021
2023
2026
2027
Notional
Amount
24,760
6,263
18,428
4,853
14,446
888
6,907
Fair Value
Liability
2017
Fair Value Asset
December 31,
2017
(3,878)
(205)
(927)
(12)
-
(192)
-
-
-
567
24
8,336
-
51
73
At December 31, 2016, the Company had the following outstanding cross currency swap agreements:
Maturity Date
2017
2018
2019
2020
2021
2023
2026
2027
Notional
Amount
Ps. 2,707
39,262
7,022
19,474
5,076
12,670
925
5,476
Fair Value
Liability
2016
Fair Value Asset
December 31,
2016
Ps.
(10)
(4,837)
(265)
(842)
(128)
-
(131)
-
Ps.
1,165
3,688
-
798
28
9,057
-
125
20.6 Commodity price contracts
The Company has entered into various commodity price contracts to reduce its exposure to the risk of fluctuation in the costs of
certain raw material. The fair value is estimated based on the market valuations to terminate the contracts at the end of the period.
These instruments are designated as Cash Flow Hedges and the changes in the fair value are recorded as part of “cumulative other
comprehensive income.”
The fair value of expired commodity price contract was recorded in cost of goods sold where the hedged item was recorded also in cost
of goods sold.
At December 31, 2017, Coca-Cola FEMSA had the following sugar price contracts:
Maturity Date
2018
2019
At December 31, 2016, Coca-Cola FEMSA had the following sugar price contracts:
Maturity Date
2017
At December 31, 2016, Coca-Cola FEMSA had the following aluminum price contracts:
Maturity Date
2017
Fair Value Liability
December 31,
Notional
Amount
Ps.
Ps.
992
150
Ps.
Ps.
Fair Value Asset
December 31,
Notional
Amount
Ps.
572
Ps.
Fair Value Liability
December 31,
Notional
Amount
Ps.
74
Ps.
2017
(7)
3
2016
370
2016
5
20.7 Option embedded in the Promissory Note to fund the Vonpar’s acquisition
As disclosed in Note 4.1.2, on December 6, 2016, as part of the purchase price paid for the Coca-Cola FEMSA’s acquisition of Vonpar,
Spal issued and delivered a three-year promissory note to the sellers, for a total amount of 1,090 million Brazilian reais (approximately
Ps. 6,503 and Ps. 7,022 million as of December 31, 2017 and 2016, respectively). The promissory note bears interest at an annual rate
of 0.375%, and is denominated and payable in Brazilian reais. The promissory note is linked to the performance of the exchange rate
between the Brazilian real and the U.S. dollar. As a result, the principal amount under the promissory note may be increased or reduced
based on the depreciation or appreciation of the Brazilian real relative to the U.S. dollar. The holders of the promissory note have an
option, that may be exercised prior to the scheduled maturity of the promissory note, to capitalize the Mexican peso amount equivalent
to the amount payable under the promissory note into a recently incorporated Mexican company which would then be merged into the
Coca-Cola FEMSA in exchange for Series L shares at a strike price of Ps. 178.5 per share. Such capitalization and issuance of new Series
L shares is subject to Coca-Cola FEMSA having a sufficient number of Series L shares available for issuance.
Coca-Cola FEMSA uses Black & Scholes valuation technique to measure the call option at fair value. The call option had an estimated
fair value of Ps. 343 million at inception of the option and Ps. 242 million and 368 million as of December 31, 2017 and 2016, respectively.
The option is recorded as part of the Promissory Note disclosed in Note 18.
Coca-Cola FEMSA estimates that the call option is “out of the money” as of December 31, 2017 and 2016 by approximately 30.4% and
35.9% or U.S. $82 million and U.S. $93 million with respect to the strike price.
74
20.8 Net effects of expired contracts that met hedging criteria
Type of Derivatives
Cross currency swap (1)
Cross currency swap (1)
Forward agreements to purchase foreign currency
Commodity price contracts
Options to purchase foreign currency
Forward agreements to purchase foreign currency
Impact in Consolidated
Income Statement
Interest expense
Foreign exchange
Foreign exchange
Cost of goods sold
Cost of goods sold
Cost of goods sold
Ps.
2017
2,102
-
(40)
(6)
-
89
Ps.
2016
-
-
160
(241)
-
(45)
Ps.
2015
2,595
(10,911)
(180)
619
(21)
(523)
(1) This amount corresponds to the settlement of cross currency swaps portfolio in Brazil presented as part of the other financial activities.
20.9 Net effect of changes in fair value of derivative financial instruments that did not meet the hedging criteria for accounting purposes
Type of Derivatives
Cross currency swaps
Others
Impact in Consolidated
Income Statement
gain (loss) on
financial instruments
Ps.
2017
-
-
Ps.
2016
-
-
Ps.
20.10 Net effect of expired contracts that did not meet the hedging criteria for accounting purposes
Type of Derivatives
Impact in Consolidated
Income Statement
2017
2016
Cross-currency swaps
Market value gain on financial instruments
Ps.
(438)
Ps.
-
Ps.
2015
(20)
56
2015
204
20.11 Market risk
Market risk is the risk that the fair value of future cash flow of a financial instrument will fluctuate because of changes in market prices.
Market prices include currency risk and commodity price risk.
The Company’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates and commodity prices.
The Company enters into a variety of derivative financial instruments to manage its exposure to foreign currency risk, and commodity
prices risk including:
• Forward Agreements to Purchase Foreign Currency in order to reduce its exposure to the risk of exchange rate fluctuations.
• Cross-Currency Swaps in order to reduce its exposure to the risk of exchange rate fluctuations.
• Commodity price contracts in order to reduce its exposure to the risk of fluctuation in the costs of certain raw materials.
The Company tracks the fair value (mark to market) of its derivative financial instruments and its possible changes using scenario analyses.
75
The following disclosures provide a sensitivity analysis of the market risks management considered to be reasonably possible at the end
of the reporting period based on a stress test of the exchange rates according to an annualized volatility estimated with historic prices
obtained for the underlying asset over a period of time, in the cases of derivative financial instruments related to foreign currency risk,
which the Company is exposed to as it relates to in its existing hedging strategy:
Change in
Exchange Rate
+13% MXN/EUR
+8% CLP/USD
-13% MXN/EUR
-8% CLP/USD
+12% MXN/USD
+9% COP/USD
+14% BRL/USD
+10% ARS/USD
-12% MXN/USD
-9% COP/USD
-14% BRL/USD
-10% ARS/USD
-17% MXN/EUR
+17% MXN/EUR
+11% CLP/USD
-11% CLP/USD
-18% BRL/USD
+18% BRL/USD
-17% MXN/USD
+17% MXN/USD
-18% COP/USD
+18% COP/USD
-14% MXN/EUR
+14% MXN/EUR
+10% CLP/USD
-10% CLP/USD
-11% MXN/USD
+11% MXN/USD
+21% BRL/USD
+17% COP/USD
-36% ARS/USD
+36% ARS/USD
-21% BRL/USD
-17% COP/USD
+17% COP/USD
Effect on Equity
Ps.
Ps.
Ps.
(141)
2
141
(2)
626
73
234
29
(625)
(73)
(234)
(29)
293
(293)
12
(12)
(203)
203
(916)
916
(255)
255
319
(319)
9
(9)
197
(197)
(387)
(113)
231
(231)
387
113
(113)
Foreign Currency Risk
2017
FEMSA (1)
Coca-Cola FEMSA
2016
FEMSA (1)
Coca-Cola FEMSA
2015
FEMSA (1)
Coca-Cola FEMSA
(1) Does not include Coca-Cola FEMSA.
76
Cross Currency Swaps (1) (2)
2017
FEMSA (3)
Coca-Cola FEMSA
2016
FEMSA (3)
Coca-Cola FEMSA
2015
FEMSA (3)
Coca-Cola FEMSA
Change in
Exchange Rate
Effect on
Equity
Effect on
Profit or Loss
+8% CLP/USD
-8% CLP/USD
+12% MXN/USD
-12% MXN/USD
+9% COP/USD
-9% COP/USD
+14% MXN/BRL
-14% MXN/BRL
+12% MXN/USD
+14% BRL/USD
-12% MXN/USD
-14% BRL/USD
-11% CLP/USD
+11% CLP/USD
-17% MXN/USD
+17% MXN/USD
-18% COP/USD
+18% COP/USD
+17% MXN/USD
+18% BRL/USD
-17% MXN/USD
-18% BRL/USD
-11% MXN/USD
+11% MXN/USD
-11% MXN/USD
+11% MXN/USD
-21% BRL/USD
+21% BRL/USD
Ps.
Ps.
Ps.
Ps.
-
-
-
-
-
-
-
-
3,540
7,483
(3,540)
(7,483)
-
-
-
-
-
-
3,687
9,559
(3,687)
(9,559)
Ps.
Ps.
-
-
-
-
(4,517)
4,517
373
(373)
3,651
(3,651)
304
(304)
23
(23)
-
-
-
-
(549)
549
(3,836)
3,836
(448)
448
1,790
-
(1,790)
-
(2,043)
2,043
(938)
938
(1,086)
1,086
(1) The sensitivity analysis effects include all subsidiaries of the Company.
(2) Includes the sensitivity analysis effects of all derivative financial instruments related to foreign exchange risk.
(3) Does not include Coca-Cola FEMSA.
77
Net Cash in Foreign Currency (1)
2017
FEMSA (2)
Coca-Cola FEMSA
2016
FEMSA (2)
Coca-Cola FEMSA
2015
FEMSA (2)
Coca-Cola FEMSA
(1) The sensitivity analysis effects include all subsidiaries of the Company.
(2) Does not include Coca-Cola FEMSA.
Commodity Price Contracts (1)
2017
Coca-Cola FEMSA
2016
Coca-Cola FEMSA
2015
Coca-Cola FEMSA
Change in
Exchange Rate
Effect on
Profit or Loss
+13% EUR/ +12% USD
-13% EUR/ -12% USD
Ps.
8,077
(8,077)
+12% USD
-12% USD
(553)
553
+17% EUR/ +17% USD
-17% EUR/ -17% USD
Ps.
3,176
(3,176)
+17% USD
-17% USD
+14% EUR/ +11%USD
-14% EUR/ -11%USD
Ps.
+11%USD
-11%USD
(105)
105
504
(504)
(1,112)
1,112
Change in
U.S.$ Rate
Effect on
Equity
Sugar - 30%
Ps.
(32)
Sugar - 33%
Aluminum - 16%
Ps.
(310)
(13)
Sugar - 31%
Aluminum - 18%
Ps.
(406)
(58)
(1) Effects on commodity price contracts are only in Coca-Cola FEMSA.
20.12 Interest rate risk
Interest rate risk is the risk that the fair value or future cash flow of a financial instrument will fluctuate because of changes in market
interest rates.
The Company is exposed to interest rate risk because it and its subsidiaries borrow funds at both fixed and variable interest rates. The
risk is managed by the Company by maintaining an appropriate mix between fixed and variable rate borrowings, and by the use of the
different derivative financial instruments. Hedging activities are evaluated regularly to align with interest rate views and defined risk
appetite, ensuring the most cost-effective hedging strategies are applied.
78
The following disclosures provide a sensitivity analysis of the interest rate risks management considered to be reasonably possible at the
end of the reporting period, which the Company is exposed to as it relates to its fixed and floating rate borrowings, which it considers
in its existing hedging strategy:
Interest Rate Swap (1)
2017
FEMSA (2)
Coca-Cola FEMSA
2016
FEMSA (2)
2015
FEMSA (2)
Change in
Bps.
Effect on
Equity
(100 Bps.)
Ps.
(452)
(100 Bps.)
(234)
(100 Bps.)
Ps.
(550)
(100 Bps.)
Ps.
(542)
(1) The sensitivity analysis effects include all subsidiaries of the Company.
(2) Does not include Coca-Cola FEMSA.
Interest Effect of Unhedged Portion Bank Loans
Change in interest rate
Effect on profit loss
2017
2016
2015
+100 Bps.
(251)
Ps.
+100 Bps.
(354)
Ps.
+100 Bps.
(192)
Ps.
20.13 Liquidity risk
Each of the Company’s sub-holding companies generally finances its operational and capital requirements on an independent basis. As
of December 31, 2017 and 2016, 64.3% and 64.5%, respectively of the Company’s outstanding consolidated total indebtedness was at
the level of its sub-holding companies. This structure is attributable, in part, to the inclusion of third parties in the capital structure of
Coca-Cola FEMSA. Currently, the Company’s management expects to continue financing its operations and capital requirements when
it is considering domestic funding at the level of its sub-holding companies, otherwise; it is generally more convenient that its foreign
operations would be financed directly through the Company because of better market conditions obtained by itself. Nonetheless, sub-
holdings companies may decide to incur indebtedness in the future to finance their own operations and capital requirements of the
Company’s subsidiaries or significant acquisitions, investments or capital expenditures. As a holding company, the Company depends
on dividends and other distributions from its subsidiaries to service the Company’s indebtedness.
The Company’s principal source of liquidity has generally been cash generated from its operations. The Company has traditionally been
able to rely on cash generated from operations because a significant majority of the sales of Coca-Cola FEMSA and FEMSA Comercio
are on a cash or short-term credit basis, and FEMSA Comercio’s OXXO stores are able to finance a significant portion of their initial
and ongoing inventories with supplier credit. The Company’s principal use of cash has generally been for capital expenditure programs,
acquisitions, debt repayment and dividend payments.
Ultimate responsibility for liquidity risk management rests with the Company’s board of directors, which has established an appropriate
liquidity risk management framework for the management of the Company’s short-, medium- and long-term funding and liquidity
requirements. The Company manages liquidity risk by maintaining adequate cash reserves and continuously monitoring forecast and
actual cash flows, and with a low concentration of maturities per year.
The Company has access to credit from national and international banking institutions in order to meet treasury needs; besides, the
Company has the highest rating for Mexican companies (AAA) given by independent rating agencies, allowing the Company to
evaluate capital markets in case it needs resources.
As part of the Company’s financing policy, management expects to continue financing its liquidity needs with cash from operations.
Nonetheless, as a result of regulations in certain countries in which the Company operates, it may not be beneficial or, as in the
case of exchange controls in Venezuela, practicable to remit cash generated in local operations to fund cash requirements in other
countries. Exchange controls like those in Venezuela may also increase the real price of remitting cash from operations to fund debt
requirements in other countries. In the event that cash from operations in these countries is not sufficient to fund future working capital
requirements and capital expenditures, management may decide, or be required, to fund cash requirements in these countries through
local borrowings rather than remitting funds from another country. In addition, the Company’s liquidity in Venezuela could be affected
by changes in the rules applicable to exchange rates as well as other regulations, such as exchange controls. In the future the Company
management may finance its working capital and capital expenditure needs with short-term or other borrowings.
79
The Company’s management continuously evaluates opportunities to pursue acquisitions or engage in joint ventures or other
transactions. We would expect to finance any significant future transactions with a combination of cash from operations, long-term
indebtedness and capital stock.
The Company’s sub-holding companies generally incur short-term indebtedness in the event that they are temporarily unable to finance
operations or meet any capital requirements with cash from operations. A significant decline in the business of any of the Company’s
sub-holding companies may affect the sub-holding company’s ability to fund its capital requirements. A significant and prolonged
deterioration in the economies in which we operate or in the Company’s businesses may affect the Company’s ability to obtain short-
term and long-term credit or to refinance existing indebtedness on terms satisfactory to the Company’s management.
The Company presents the maturity dates associated with its long-term financial liabilities as of December 31, 2017, see Note 18. The
Company generally makes payments associated with its long-term financial liabilities with cash generated from its operations.
The following table reflects all contractually fixed pay-offs for settlement, repayments and interest resulting from recognized financial
liabilities. It includes expected net cash outflows from derivative financial liabilities that are in place as of December 31, 2017. Such
expected net cash outflows are determined based on each particular settlement date of an instrument. The amounts disclosed are
undiscounted net cash outflows for the respective upcoming fiscal years, based on the earliest date on which the Company could
be required to pay. Cash outflows for financial liabilities (including interest) without fixed amount or timing are based on economic
conditions (like interest rates and foreign exchange rates) existing at December 31, 2017.
Non-derivative financial liabilities:
Notes and bonds
Loans from banks
Obligations under finance leases
Derivative financial liabilities
2018
2019
2020
2021
2022
2023 and
thereafter
Ps. 9,961
4,915
49
(3,452)
Ps. 7,828
1,239
39
26
Ps. 10,939
1,480
33
654
Ps. 3,574
4,917
16
190
Ps. 2,532 Ps. 97,602
414
-
(4,831)
766
-
236
The Company generally makes payments associated with its non-current financial liabilities with cash generated from its operations.
20.14 Credit risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Company.
The Company has adopted a policy of only dealing with creditworthy counterparties, where appropriate, as a means of mitigating
the risk of financial loss from defaults. The Company only transacts with entities that are rated the equivalent of investment grade
and above. This information is supplied by independent rating agencies where available and, if not available, the Company uses
other publicly available financial information and its own trading records to rate its major customers. The Company’s exposure
and the credit ratings of its counterparties are continuously monitored and the aggregate value of transactions concluded is spread
amongst approved counterparties. Credit exposure is controlled by counterparty limits that are reviewed and approved by the risk
management committee.
The Company has a high receivable turnover; hence management believes credit risk is minimal due to the nature of its businesses,
which have a large portion of their sales settled in cash. The Company’s maximum exposure to credit risk for the components of the
statement of financial position at December 31, 2017 and 2016 is the carrying amounts (see Note 7).
The Company manages the credit risk related to its derivative portfolio by only entering into transactions with reputable and credit-
worthy counterparties as well as by maintaining in some cases a Credit Support Annex (CSA) that establishes margin requirements,
which could change upon changes to the credit ratings given to the Company by independent rating agencies. As of December 31, 2017,
the Company concluded that the maximum exposure to credit risk related with derivative financial instruments is not significant given
the high credit rating of its counterparties.
80
Note 21. Non-Controlling Interest in Consolidated Subsidiaries
An analysis of FEMSA’s non-controlling interest in its consolidated subsidiaries for the years ended December 31, 2017 and 2016
is as follows:
Coca-Cola FEMSA
Other
The changes in the FEMSA’s non-controlling interest were as follows:
Balance at beginning of the year
Net income of non controlling interest
Other comprehensive income (loss):
Exchange differences on translation of foreign operation
Remeasurements of the net defined benefits liability
Valuation of the effective portion of derivative financial instruments
Capitalization of issued shares to former owners of Vonpar in Coca-Cola FEMSA
Other acquisitions and remeasurments
Contribution from non-controlling interest
Equity instruments
Dividends
Share based payment
Balance at end of the year
Non controlling accumulated other comprehensive loss is comprised as follows:
Exchange differences on translation foreign operation
Remeasurements of the net defined benefits liability
Valuation of the effective portion of derivative financial instruments
Accumulated other comprehensive loss
December 31,
2017
Ps.
Ps.
82,366
4,255
86,621
December 31,
2016
Ps. 70,293
3,973
Ps. 74,266
2017
Ps. 74,266
(5,202)
7,240
7,349
30
(139)
2,867
(50)
11,072
-
(3,622)
50
Ps. 86,621
2016
60,332
6,035
9,463
9,238
(63)
288
-
1,710
892
(485)
(3,690)
9
74,266
Ps.
Ps.
2015
Ps. 59,649
5,593
(2,999)
(3,110)
75
36
-
1,133
250
-
(3,351)
57
Ps. 60,332
December 31,
2017
December 31,
2016
Ps.
Ps.
7,150
(274)
56
6,932
Ps.
Ps.
(199)
(304)
195
(308)
Coca-Cola FEMSA shareholders, especially the Coca-Cola Company which hold Series D shares, have some protective rights about
investing in or disposing of significant businesses. However, these rights do not limit the continued normal operations of Coca-Cola
FEMSA.
Summarized financial information in respect of Coca-Cola FEMSA is set out below:
Total current assets
Total non-current assets
Total current liabilities
Total non-current liabilities
Total revenue
Total consolidated net (loss) income
Total consolidated comprehensive income
Net cash flow from operating activities
Net cash flow from used in investing activities
Net cash flow from financing activities
December 31,
2017
Ps.
55,657
230,020
55,594
89,373
Ps. 203,780
(11,654)
3,315
33,323
(10,890)
(10,775)
Ps.
December 31,
2016
Ps. 45,453
233,803
39,868
110,155
Ps. 177,718
10,527
Ps. 27,171
32,446
(26,915)
(9,734)
81
Note 22. Equity
22.1 Equity accounts
The capital stock of FEMSA is comprised of 2,161,177,770 BD units and 1,417,048,500 B units.
As of December 31, 2017 and 2016, the capital stock of FEMSA was comprised of 17,891,131,350 common shares, without par value
and with no foreign ownership restrictions. Fixed capital stock amounts to Ps. 300 (nominal value) and the variable capital may not
exceed 10 times the minimum fixed capital stock amount.
The characteristics of the common shares are as follows:
• Series “B” shares, with unlimited voting rights, which at all times must represent a minimum of 51% of total capital stock;
• Series “L” shares, with limited voting rights, which may represent up to 25% of total capital stock; and
• Series “D” shares, with limited voting rights, which individually or jointly with series “L” shares may represent up to 49% of total
capital stock.
The Series “D” shares are comprised as follows:
• Subseries “D-L” shares may represent up to 25% of the series “D” shares;
• Subseries “D-B” shares may comprise the remainder of outstanding series “D” shares; and
• The non-cumulative premium dividend to be paid to series “D” shareholders will be 125% of any dividend paid to series “B”
shareholders.
The Series “B” and “D” shares are linked together in related units as follows:
• “B units” each of which represents five series “B” shares and which are traded on the BMV; and
• “BD units” each of which represents one series “B” share, two subseries “D-B” shares and two subseries “D-L” shares, and which are
traded both on the BMV and the NYSE.
As of December 31, 2017 and 2016, FEMSA’s capital stock is comprised as follows:
Units
Shares:
Series “B”
Series “D”
Subseries “D-B”
Subseries “D-L”
Total shares
“B” Units
“BD” Units
Total
1,417,048,500
2,161,177,770
3,578,226,270
7,085,242,500
-
-
-
7,085,242,500
2,161,177,770
8,644,711,080
4,322,355,540
4,322,355,540
10,805,888,850
9,246,420,270
8,644,711,080
4,322,355,540
4,322,355,540
17,891,131,350
The net income of the Company is subject to the legal requirement that 5% thereof be transferred to a legal reserve until such reserve
equals 20% of capital stock at nominal value. This reserve may not be distributed to shareholders during the existence of the Company,
except as a stock dividend. As of December 31, 2017 and 2016, this reserve amounted to Ps. 596.
Retained earnings and other reserves distributed as dividends, as well as the effects derived from capital reductions, are subject to
income tax at the rate in effect at the date of distribution, except when capital reductions come from restated shareholder contributions
and when the distributions of dividends come from net taxable income, denominated “Cuenta de Utilidad Fiscal Neta” (“CUFIN”).
Dividends paid in excess of CUFIN are subject to income tax at a grossed-up rate based on the current statutory rate. Since 2003, this
tax may be credited against the income tax of the year in which the dividends are paid, and in the following two years against the income
tax and estimated tax payments. A new Income Tax Law (LISR) went into effect on January 1, 2014; such law no longer includes
the tax consolidation regime which allowed calculating the CUFIN on a consolidated basis; therefore, beginning in 2014, distributed
dividends must be taken from the individual CUFIN balance of FEMSA, which can be increased with the subsidiary companies’
individual CUFINES through the transfers of dividends. The sum of the individual CUFIN balances of FEMSA and its subsidiaries as of
December 31, 2017 amounted to Ps. 193,348. Dividends distributed to its stockholders who are individuals and foreign residents must
withhold 10% for LISR purposes, which will be paid in Mexico. The foregoing will not be applicable when distributed dividends arise
from the accumulated CUFIN balances as December 31, 2013.
At an ordinary shareholders’ meeting of FEMSA held on March 19, 2015, the shareholders approved a dividend of Ps. 7,350 that was
paid 50% on May 7, 2015 and other 50% on November 5, 2015; and a reserve for share repurchase of a maximum of Ps. 3,000. As of
December 31, 2015, the Company has not repurchased shares. Treasury shares resulted from share-based payment bonus plan are
disclosed in Note 17.
82
At an ordinary shareholders’ meeting of Coca-Cola FEMSA held on March 12, 2015, the shareholders approved a dividend of Ps. 6,405
that was paid 50% on May 5, 2015 and other 50% on November 3, 2015. The corresponding payment to the non-controlling interest
was Ps. 3,340.
At an ordinary shareholders’ meeting of FEMSA held on March 8, 2016, the shareholders approved a dividend of Ps. 8,355 that was
paid 50% on May 5, 2016 and other 50% on November 3, 2016; and a reserve for share repurchase of a maximum of Ps. 7,000. As of
December 31, 2016, the Company has not repurchased shares. Treasury shares resulted from share-based payment bonus plan are
disclosed in Note 17.
At an ordinary shareholders’ meeting of Coca-Cola FEMSA held on March 7, 2016, the shareholders approved a dividend of Ps. 6,945
that was paid 50% on May 3, 2016 and other 50% on November 1, 2016. The corresponding payment to the non-controlling interest
was Ps. 3,621.
At an ordinary shareholders’ meeting of FEMSA held on March 16, 2017, the shareholders approved a dividend of Ps. 8,636 that was
paid 50% on May 5, 2017 and other 50% on November 3, 2017; and a reserve for share repurchase of a maximum of Ps. 7,000. As of
December 31, 2017, the Company has not repurchased shares. Treasury shares resulted from share-based payment bonus plan are
disclosed in Note 17.
At an ordinary shareholders’ meeting of Coca-Cola FEMSA held on March 16, 2017, the shareholders approved a dividend of Ps. 6,991
that was paid 50% on May 3, 2017 and other 50% on November 1, 2017. The corresponding payment to the non-controlling interest
was Ps. 3,622.
For the years ended December 31, 2017, 2016 and 2015 the dividends declared and paid by the Company and Coca-Cola FEMSA were
as follows:
FEMSA
Coca-Cola FEMSA (100% of dividend)
2017
Ps. 8,636
6,991
Ps.
2016
8,355
6,945
Ps.
2015
7,350
6,405
For the years ended December 31, 2017 and 2016 the dividends declared and paid per share by the Company are as follows:
Series of Shares
“B”
“D”
2017
2016
Ps. 0.43067
0.53833
Ps. 0.41666
0.52083
22.2 Capital management
The Company manages its capital to ensure that its subsidiaries will be able to continue as going concerns while maximizing the
return to shareholders through the optimization of its debt and equity balance in order to obtain the lowest cost of capital available.
The Company manages its capital structure and makes adjustments to it in light of changes in economic conditions. To maintain or
adjust the capital structure, the Company may adjust the dividend payment to shareholders, return capital to shareholders or issue
new shares. No changes were made in the objectives, policies or processes for managing capital during the years ended December 31,
2017 and 2016.
The Company is not subject to any externally imposed capital requirements, other than the legal reserve (see Note 22.1) and debt
covenants (see Note 18).
The Company’s finance committee reviews the capital structure of the Company on a quarterly basis. As part of this review, the
committee considers the cost of capital and the risks associated with each class of capital. In conjunction with this objective, the
Company seeks to maintain the highest credit rating both national and international, currently rated AAA and A- respectively, which
requires it to have a debt to earnings before interest, taxes, depreciation and amortization (“EBITDA”) ratio lower than 1.5. As a result,
prior to entering into new business ventures, acquisitions or divestures, management evaluates the optimal ratio of debt to EBITDA
in order to maintain its credit rating.
Note 23. Earnings per Share
Basic earnings per share amounts are calculated by dividing consolidated net income for the year attributable to controlling interest by
the weighted average number of shares outstanding during the period adjusted for the weighted average of own shares purchased in
the period.
Diluted earnings per share amounts are calculated by dividing consolidated net income for the year attributable to controlling interest
by the weighted average number of shares outstanding during the period adjusted for the effects of dilutive potential shares (originated
by the Company’s share based payment program).
83
Shares expressed in millions:
Weighted average number of shares for
basic earnings per share
Effect of dilution associated with non-vested
shares for share based payment plans
Weighted average number of shares adjusted
2017
2016
2015
Per Series
“B” Shares
Per Series
“D” Shares
Per Series
“B” Shares
Per Series
“D” Shares
Per Series
“B” Shares
Per Series
“D” Shares
9,243.14
8,631.57
9,242.48
8,628.97
9,241.91
8,626.69
3.29
13.14
3.94
15.74
4.51
18.02
for the effect of dilution (Shares outstanding)
9,246.42
8,644.71
9,246.42
8,644.71
9,246.42
8,644.71
Dividend rights per series
(see Note 22.1)
100%
125%
100%
125%
100%
125%
Weighted average number of shares further
adjusted to reflect dividend rights
Allocation of earnings, weighted
Net Controlling Interest Income Allocated
9,246.42
46.11%
19,555 Ps.
10,805.89
53.89%
22,853 Ps.
Ps.
Note 24. Income Taxes
9,246.42
46.11%
10,805.89
53.89%
9,246.42
46.11%
9,748 Ps. 11,392 Ps. 8,154 Ps.
10,805.89
53.89%
9,529
On January 1, 2018, a tax reform became effective in Argentina. This reform reduced the income tax rate from 35.0% to 30.0% for 2018
and 2019, and then to 25.0% for the following years. In addition, such reform imposed a new tax on dividends paid to non-resident
stockholders and resident individuals at a rate of 7.0% for 2018 and 2019, and then to 13.0% for the following years. For sales taxes in
the province of Buenos Aires, the tax rate decreased from 1.75% to 1.5% in 2018; however, in the City of Buenos Aires, the tax rate
increased from 1.0% to 2.0% in 2018, and will be reduced to 1.5% in 2019, 1.0% in 2020, 0.5% in 2021 and 0.0% in 2022.
On January 1, 2018, a new tax reform became effective in the Philippines. This reform mainly (i) reduced the income tax rate imposed
on individuals in approximately 65.0%, (ii) increased the income tax rate from 5.0% on net capital gains from the sale of shares traded
on or outside the stock exchange that do not exceed $100,000 Philippine pesos and 10.0% when the sale of shares exceeded $100,000
Philippine pesos, to a general tax rate of 15.0% on net capital gains from the sale of shares traded outside of the stock exchange by
companies and individuals that are resident and non-resident, (iii) imposed an excise tax of 6.00 Philippine pesos per liter for sweetened
beverages using caloric and non-caloric sweeteners, except for high fructose corn syrup (HFCS), and 12.00 Philippine pesos per liter
for sweetened beverages using HFCS, (iv) imposed the obligation to issue electronic invoices and electronic sales reports, and (v)
reduced the time period for keeping books and accounting records from 10 years to three years.
On January 1, 2017, a new general tax reform became effective in Colombia. This reform modifies the income tax rate to 33.0%, starting
with a 34.0% for 2017 and then 33.0% for the next years. In addition, this reform includes an extra income tax rate of 6.0% for 2017 and
4.0% for 2018, for entities located outside free trade zone. Regarding taxpayers located in free trade zone, the special income tax rate
increase to 20% for 2017. In 2016 the rate is 15.0%. Additionally, the supplementary income tax (9.0 %) the temporary contribution to
social programs (5.0 % to 9.0 % for 2015 to 2018), and the tax on net equity which were included in tax reform 2015 were eliminated.
For 2017, the dividends received by individuals that are Colombian residents will be subject to a withholding of 35.0%; the dividends
received by foreign individuals or entities non-residents in Colombia will be subject to a withholding of 5.0%. Finally, regarding the
presumptive income on patrimony, the rate increased to a 3.5% for 2017 instead of 3.0% in 2016. Starting in 2017, the Colombian
general rate of value-added tax (VAT) increased to 19.0%, replacing the 16.0% rate in effect till 2016.
During 2017, the Mexican government issued the Repatriation of Capital Decree which vas valid from January 19 until October 19, 2017.
Through this decree, a fiscal benefit was attributed to residents in Mexico by applying an income tax of 8% (instead of the statutory
rate of 30% normally applicable) to the total amount of income returned to the country resulting from foreign investments held until
December 2016.
Additionally, the Repatriation of Capital Decree sustains that the benefit will solely apply to income and investments returned to the
country throughout the period of the decree. The resources repatriated must be invested during the fiscal year of 2017 and remain in
national territory for a period of at least two years from the return date.
84
Also in Brazil, starting 2016 the rates of value-added tax in certain states will be changed as follows: Mato Grosso do Sul – from 17.0%
to 20.0%; Rio Grande do Sul from 18.0% to 20.0%; Minas Gerais - the tax rate will remain at 18.0% but there will be an additional 2.0%
as a contribution to poverty eradication just for the sales to non-taxpayer (final consumers); Rio de Janeiro - the contribution related to
poverty eradication fund will be increased from 1.0% to 2.0% effectively in April; Paraná - the rate will be reduced to 16.0% but a rate
of 2.0% as a contribution to poverty eradication will be charged on sales to non-taxpayers.
Additionally in Brazil, starting on January 1st, 2016, the rates of federal production tax will be reduced and the rates of the federal sales
tax will be increased. Coca-Cola FEMSA estimates of these taxes is 16.2% over the net sales. For 2017, we expected the average of these
taxes will range between 15.0% and 17.0% over the net sales.
On April 1, 2015, the Brazilian government issued Decree No. 8.426/15 to impose, as of July 2015, PIS/COFINS (Social Contributions
on Gross Revenues) of 4.65% on financial income (except for foreign exchange variations).
On January 1, 2015, a general tax reform became effective in Colombia. This reform included the imposition of a new temporary tax
on net equity through 2017 to Colombian residents and non-residents who own property in Colombia directly or indirectly through
branches or permanent establishments. The relevant taxable base will be determined annually based on a formula. For net equity
that exceeds 5.0 billion Colombian pesos (approximately US$2.1 million) the rate will be 1.15% in 2015, 1.00% in 2016 and 0.40% in
2017. In addition, the tax reform in Colombia imposed that the supplementary income tax at a rate of 9.0% as contributions to social
programs, which was previously scheduled to decrease to 8.0% by 2015, will remain indefinitely. Additionally, this tax reform included
the imposition of a temporary contribution to social programs at a rate of 5.0%, 6.0%, 8.0% and 9.0% for the years 2015, 2016, 2017 and
2018, respectively. Finally, this reform establishes an income tax deduction of 2.0% of value-added tax paid in the acquisition or import
of hard assets, such as tangible and amortizable assets that are not sold or transferred in the ordinary course of business and that are
used for the production of goods or services. Some of these rules were changed again through a new tax reform introduced at the end
of 2016 and be effective in 2017, as described below.
On December 30, 2015, the Venezuelan government enacted a package of tax reforms that became effective in 2016. This reform mainly
(i) eliminated the inflationary adjustments for the calculation of income tax as well as the new investment tax deduction, and (ii)
imposed a new tax on financial transactions effective as of February 1, 2016, for those identified as “special taxpayers,” at a rate of 0.75%
over certain financial transactions, such as bank withdrawals, transfer of bonds and securities, payment of debts without intervention of
the financial system and debits on bank accounts for cross-border payments, which will be immediately withheld by the banks. Given
the inherent uncertainty as to how the Venezuelan Tax Administration will require that the aforementioned inflation adjustments be
applied, starting 2016 the Company decided to recognize the effects of elimination of the inflationary adjustments.
24.1 Income Tax
The major components of income tax expense for the years ended December 31, 2017, 2016 and 2015 are:
Current tax expense
Deferred tax expense:
Origination and reversal of temporary differences
(Recognition) application of tax losses, net
Change in the statutory rate
Total deferred tax income
Recognized in Consolidated Statement of Other Comprehensive Income (OCI)
Income tax related to items charged or
recognized directly in OCI during the year:
Unrealized loss on cash flow hedges
Exchange differences on translation of foreign operations
Remeasurements of the net defined benefit liability
Share of the other comprehensive income of associates and joint ventures
Total income tax cost recognized in OCI
2017
2016
2015
Ps. 18,801
Ps.
13,548
Ps.
9,879
(7,385)
(823)
(10)
(8,218)
Ps. 10,583
2017
Ps.
(191)
387
(154)
(1,465)
Ps. (1,423)
(3,947)
(1,693)
(20)
(5,660)
7,888
2016
745
4,478
(49)
(1,385)
3,789
Ps.
Ps.
Ps.
826
(2,789)
16
(1,979)
7,932
2015
93
1,699
49
193
2,034
Ps.
Ps.
Ps.
85
A reconciliation between tax expense and income before income taxes and share of the profit or loss of associates and joint ventures
accounted for using the equity method multiplied by the Mexican domestic tax rate for the years ended December 31, 2017, 2016 and
2015 is as follows:
Mexican statutory income tax rate
Difference between book and tax inflationary values and translation effects
Annual inflation tax adjustment
Difference between statutory income tax rates
Repatriation of capital benefit decree
Non-deductible expenses
(Non-taxable) income
Hedge of a net investment in foreign operations
Effect of changes in Venezuela tax law
Income tax credits
Philippines consolidation profit
Venezuela desconsolidation effect
Others
Deferred Income Tax Related to:
2017
30.0%
(6.2%)
0.4%
1.8%
(20.2%)
2.4%
-
(1.4%)
-
(1.8%)
(2.2%)
23.4%
0.3%
26.5%
2016
30.0%
(2.4%)
0.6%
1.2%
-
2.8%
(0.4%)
(2.2%)
3.6%
(3.9%)
-
-
(1.6%)
27.6%
2015
30.0%
(1.3%)
(1.5%)
0.4%
-
3.3%
(0.3%)
-
-
-
-
-
0.8%
31.5%
Consolidated Statement
of Financial Position as of
Consolidated Statement
of Income
Allowance for doubtful accounts
Inventories
Other current assets
Property, plant and equipment, net (3)
Investments in associates and joint ventures
Other assets
Finite useful lived intangible assets
Indefinite lived intangible assets
Post-employment and other long-term employee benefits
Derivative financial instruments
Provisions
Temporary non-deductible provision
Employee profit sharing payable
Tax loss carryforwards
Tax credits to recover (2)
Accumulated other comprehensive income (1)
Exchange differences on translation of foreign
operations in OCI
Other liabilities
Deferred tax income
Deferred tax income net recorded in share of the profit
of associates and joint ventures accounted for
using the equity method
Deferred tax income, net
Deferred income taxes, net
Deferred tax asset
Deferred tax liability
Ps.
December 31,
2016
December 31,
2017
(152) Ps. (172) Ps.
(151)
101
(2,733)
(6,989)
254
894
9,957
(965)
84
(3,500)
(222)
(351)
(10,218)
(2,308)
239
(112)
64
(471)
(1,227)
257
201
9,376
(692)
255
(2,956)
(3,450)
(340)
(8,889)
(1,150)
537
2017
16
(1)
34
(2,537)
(5,094)
(155)
207
968
(217)
(171)
(557)
(144)
(11)
(823)
(705)
(224)
Ps.
2016
(17) Ps.
(151)
(80)
670
75
234
(1,506)
7,391
(34)
128
(411)
(9,118)
(29)
(1,693)
(1,150)
-
2015
93
(14)
21
(314)
684
(52)
201
84
86
165
(8)
735
(43)
(2,789)
-
-
7,168
(828)
7,694
59
(9,720)
(15,853)
Ps. 6,133
(1,016)
(12,053)
Ps. 11,037
-
1,220
-
(113)
Ps. (8,194) Ps. (5,589) Ps. (1,264)
-
102
(24)
(683)
Ps. (8,218) Ps. (5,660) Ps. (1,947)
(71)
(1) Deferred tax related to derivative financial instruments and remeasurements of the net defined benefit liability.
(2) Correspond to income tax credits arising from dividends received from foreign subsidiaries to be recovered within the next ten years accordingly to the Mexican
Income Tax law as well as effects of the exchange of foreign currencies with a related and non-related parties.
(3) As a result of the change in the application of the law, the Company recognized a deferred tax liability in Venezuela for an amount of Ps. 1,107 with their
corresponding impact on the income tax of the year as disclosed in the effective tax rate reconciliation.
As a result of the change in the application of the law, the Company recognized a deferred tax liability in Venezuela for an amount of
Ps. 1,107 with their corresponding impact on the income tax of the year as disclosed in the effective tax rate reconciliation. The liability
was derecognized in 2017 upon deconsolidation of Coca-Cola FEMSA’s Venezuelan operations.
86
Deferred tax related to Accumulated Other Comprehensive Income (AOCI)
Income tax related to items charged or
recognized directly in AOCI as of the year:
Unrealized loss on derivative financial instruments
Remeasurements of the net defined benefit liability
Total deferred tax loss (income) related to AOCI
The changes in the balance of the net deferred income tax asset are as follows:
Initial balance
Deferred tax provision for the year
Deferred tax income net recorded in share of the profit of associates and
joint ventures accounted for using the equity method
Acquisition of subsidiaries (see Note 4)
Effects in equity:
Unrealized loss on cash flow hedges
Exchange differences on translation of foreign operations
Remeasurements of the net defined benefit liability
Retained earnings of associates
Cash flow hedges in foreign investments
Restatement effect of the year and beginning balances associated with
hyperinflationary economies
Deconsolidation of subsidiaries
Ending balance
2017
641
(402)
239
2016
847
(306)
541
Ps.
Ps.
Ps.
Ps.
2017
Ps. (1,016)
(8,218)
Ps.
2016
(2,063)
(5,660)
Ps.
2015
(2,635)
(1,979)
(67)
(367)
(83)
(1,472)
131
(38)
(540)
71
1,375
1,008
3,260
(479)
(224)
(618 )
683
(161)
184
1,729
121
(396)
-
1,689
261
Ps. (9,720)
2,314
-
(1,016)
359
-
(2,063)
Ps.
Ps.
The Company offsets tax assets and liabilities if and only if it has a legally enforceable right to set off current tax assets and current tax
liabilities and the deferred tax assets and deferred tax liabilities related to income taxes are levied by the same tax authority.
Tax Loss Carryforwards
The subsidiaries in Mexico, Colombia and Brazil have tax loss carryforwards. The tax losses carryforwards and their years of expiration
are as follows:
Year
2018
2019
2020
2021
2022
2023
2024
2025
2026 and thereafter
No expiration (Brazil and Colombia)
Tax Loss
Carryforwards
Ps.
665
98
111
116
122
479
86
410
10,681
16,719
Ps. 29,487
The Company recorded certain goodwill balances due to acquisitions that are deductible for Brazilian income tax reporting purposes.
The deduction of such goodwill amortization has resulted in the creation of NOLs in Brazil. NOLs in Brazil have no expiration, but
their usage is limited to 30% of Brazilian taxable income in any given year. As of December 31, 2017, The Company believes that it is
more likely than not that it will ultimately recover such NOLs through the reversal of temporary differences and future taxable income.
Accordingly the related deferred tax assets have been fully recognized.
87
The changes in the balance of tax loss carryforwards are as follows:
Balance at beginning of the year
Reserved
Additions
Usage of tax losses
Translation effect of beginning balances
Balance at end of the year
2017
27,452
-
5,673
(3,157)
(481)
29,487
Ps.
Ps.
2016
Ps. 16,463
(2)
6,349
(168)
4,810
Ps. 27,452
There were no withholding taxes associated with the payment of dividends in either 2017, 2016 or 2015 by the Company to its
shareholders.
The Company has determined that undistributed profits of its subsidiarieswill not be distributed in the foreseeable future. The
temporary differences associated with investments in subsidiaries, associates and joint ventures, for which a deferred tax liability has
not been recognized, aggregate to Ps. 41,915 (December 31, 2016: Ps. 41,204 and December 31, 2015: Ps. 44,082).
24.2 Recoverable taxes
Recoverable taxes are mainly integrated by higher provisional payments of income tax during 2017 in comparison to prior year, which
will be compensated during 2018.
The operations in Guatemala, Panama, Philippines and Colombia are subject to a minimum tax, which is based primary on a percentage
of assets and gross margin, except in the case of Panama. Any payments are recoverable in future years, under certain conditions.
Note 25. Other Liabilities, Provisions, Contingencies and Commitments
25.1 Other current financial liabilities
Sundry creditors
Derivative financial instruments (see Note 20)
Others
Total
December 31,
2017
December 31,
2016
Ps.
Ps.
9,116
3,947
16
13,079
Ps.
Ps.
7,244
264
75
7,583
The carrying value of short-term payables approximates its fair value as of December 31, 2017 and 2016.
25.2 Provisions and other long term liabilities
December 31,
2017
Ps.
Ps.
12,855
458
1,233
14,546
December 31,
2016
Ps. 16,428
508
1,457
Ps. 18,393
December 31,
2017
Ps.
Ps.
1,769
1,028
2,797
December 31,
2016
Ps.
Ps.
6,403
917
7,320
Provisions
Taxes payable
Others
Total
25.3 Other financial liabilities
Derivative financial instruments (see Note 20)
Security deposits
Total
88
25.4 Provisions recorded in the consolidated statement of financial position
The Company has various loss contingencies, and has recorded reserves as other liabilities for those legal proceedings for which it
believes an unfavorable resolution is probable. Most of these loss contingencies are the result of the Company’s business acquisitions.
The following table presents the nature and amount of the loss contingencies recorded as of December 31, 2017 and 2016:
Indirect taxes
Labor
Legal
Total
25.5 Changes in the balance of provisions recorded
25.5.1 Indirect taxes
Balance at beginning of the year
Penalties and other charges
New contingencies (see Note 19)
Contingencies added in business combination (1)
Cancellation and expiration
Payments
Brazil amnesty adoption
Effects of changes in foreign exchange rates
Balance at end of the year
25.5.2 Labor
Balance at beginning of the year
Penalties and other charges
New contingencies
Contingencies added in business combination (1)
Cancellation and expiration
Payments
Effects of changes in foreign exchange rates
Venezuela deconsolidation effect
Balance at end of the year
25.5.3 Legal
Balance at beginning of the year
Penalties and other charges
New contingencies
Contingencies added in business combination (1)
Cancellation and expiration
Payments
Brazil amnesty adoption
Effects of changes in foreign exchange rates
Venezuela deconsolidation effect
Balance at end of the year
December 31,
2017
Ps.
Ps.
6,836
2,723
3,296
12,855
December 31,
2016
Ps. 11,065
2,578
2,785
Ps. 16,428
December 31,
2017
December 31,
2016
December 31,
2015
Ps.
Ps.
11,065
362
91
861
(796)
(947)
(3,321)
(479)
6,836
Ps.
Ps.
1,725
173
768
7,840
(106)
(6)
-
671
11,065
Ps.
Ps.
2,271
21
84
-
(205)
(214)
-
(232)
1,725
December 31,
2017
December 31,
2016
December 31,
2015
Ps.
Ps.
2,578
56
283
-
(32)
(92)
(69)
(1)
2,723
Ps.
Ps.
1,372
203
397
500
(186)
(336)
628
-
2,578
Ps.
Ps.
1,587
210
44
-
(102)
(114)
(253)
-
1,372
December 31,
2017
December 31,
2016
December 31,
2015
Ps.
Ps.
2,785
121
186
783
(16)
(417)
7
(151)
(2)
3,296
Ps.
Ps.
318
34
196
2,231
(46)
(81)
-
133
-
2,785
Ps.
Ps.
427
-
-
-
(33)
-
-
(76)
-
318
(1) Coca-Cola FEMSA recognized an amount of Ps. 7,840 corresponding to tax claims with local Brazil IRS (including a contingency of Ps. 5,321 related to the
deductibility of a tax goodwill balance). The remaining contingencies relate to multiple claims with loss expectations assessed by management and supported by
the analysis of legal counsels as possible, the total amount of contingencies guaranteed agreements amounts to Ps. 8,081. During 2017, Coca-Cola FEMSA took
advantage of a Brazilian tax amnesty program. The settlement of certain outstanding matters under that amnesty program generated a benefit of Ps. 1,874 which
has been offset against the corresponding indemnifiable assets.
89
While provision for all claims has already been made, the actual outcome of the disputes and the timing of the resolution cannot be
estimated by the Company at this time.
25.6 Unsettled lawsuits
The Company has entered into several proceedings with its labor unions, tax authorities and other parties that primarily involve
Coca-Cola FEMSA and its subsidiaries. These proceedings have resulted in the ordinary course of business and are common to the
industry in which the Company operates. The aggregate amount being claimed against the Company resulting from such proceedings
as of December 31, 2017 is Ps. 70,830. Such contingencies were classified by legal counsel as less than probable but more than remote
of being settled against the Company. However, the Company believes that the ultimate resolution of such several proceedings will not
have a material effect on its consolidated financial position or result of operations.
Included in this amount Coca-Cola FEMSA has tax contingencies, most of which are related to its Brazilian operations, amounting
to approximately Ps. 51,014, with loss expectations assessed by management and supported by the analysis of legal counsel consider
as possible. Among these possible contingencies, are Ps. 12,346 in various tax disputes related primarily to credits for ICMS (VAT)
and Ps. 33,217 related to tax credits of IPI over raw materials acquired from Free Trade Zone Manaus. Possible claims also include
Ps. 4,787 related to compensation of federal taxes not approved by the IRS (Tax authorities) and Ps. 664 related to the requirement
by the Tax Authorities of State of São Paulo for ICMS (VAT), interest and penalty due to the alleged underpayment of tax arrears for
the period 1994-1996. Coca-Cola FEMSA is defending its position in these matters and final decision is pending in court. In addition,
the Company has Ps. 6,272 in unsettled indirect tax contingencies regarding indemnification accorded with Heineken over FEMSA
Cerveza. These matters are related to different Brazilian federal taxes which are pending final decision.
In recent years in its Mexican and Brazilian territories, Coca-Cola FEMSA has been requested to present certain information regarding
possible monopolistic practices. These requests are commonly generated in the ordinary course of business in the soft drink industry
where this subsidiary operates. The Company does not expect any material liability to arise from these contingencies.
25.7 Collateralized contingencies
As is customary in Brazil, Coca-Cola FEMSA has been required by the tax authorities there to collateralize tax contingencies currently
in litigation amounting to Ps. 9,433, Ps. 8,093 and 3,569 as of December 31, 2017, 2016 and 2015, respectively, by pledging fixed assets
and entering into available lines of credit covering the contingencies (see Note 13).
25.8 Commitments
As of December 31, 2017, the Company has contractual commitments for finance leases for computer equipment and operating leases
for the rental of production machinery and equipment, distribution and computer equipment, and land for FEMSA Comercio’s
operations.
The contractual maturities of the operating lease commitments by currency, expressed in Mexican pesos as of December 31, 2017, are
as follows:
Not later than 1 year
Later than 1 year and not later than 5 years
Later than 5 years
Total
Mexican Pesos
U.S. Dollars
Others
Ps. 6,553
26,098
25,131
Ps. 57,782
Ps.
Ps.
426
3,145
280
3,851
Ps.
5,700
27,581
4,749
Ps. 38,030
Rental expense charged to consolidated net income was Ps. 9,468, Ps. 8,202 and Ps. 6,088 for the years ended December 31, 2017, 2016
and 2015, respectively.
Future minimum lease payments under finance leases with the present value of the net minimum lease payments are as follows:
2017
Minimum
Payments
Present
Value of
Payments
2016
Minimum
Payments
Present
Value of
Payments
Ps.
Ps.
41
91
-
132
16
116
Ps.
34
82
-
116
-
116
32 Ps.
103
-
135
23
112
(68)
83
97
112
-
112
Not later than 1 year
Later than 1 year and not later than 5 years
Later than 5 years
Total mínimum lease payments
Less amount representing finance charges
Present value of minimum lease payments
90
Note 26. Information by Segment
The analytical information by segment is presented considering the Company’s business units (as defined in Note 1) based on its
products and services, which is consistent with the internal reporting presented to the Chief Operating Decision Maker. A segment
is a component of the Company that engages in business activities from which it earns renenues, and incurs the related costs and
expenses, including revenues, costs and expenses that relate to transactions with any of Company’s other components. All segments’
operating results are reviewed regularly by the Chief Operating Decision Maker, which makes decisions about the resources that would
be allocated to the segment and to assess its performance, and for which financial information is available.
Inter-segment transfers or transactions are entered into and presented under accounting policies of each segment, which are the same
to those applied by the Company. Intercompany operations are eliminated and presented within the consolidation adjustment column
included in the tables below.
Coca-Cola
FEMSA
FEMSA
Comercio
FEMSA
Comercio
Retail Division Health Division
FEMSA
Comercio
Fuel Division
Ps.
Ps. 203,780 Ps.
4,678
91,685
-
-
-
-
8,810
887
-
154,204
198
58,245
-
-
-
-
1,317
298
-
47,421 Ps.
-
14,213
-
-
-
-
685
23
-
38,388 Ps.
-
2,767
-
-
-
-
156
47
-
CB Equity
Other (1)
Consolidation
Adjustments
Consolidated
- Ps.
-
-
-
-
-
-
-
23
-
35,357 Ps.
13,818
7,186
-
-
-
-
2,359
2,491
-
(18,694) Ps.
(18,694)
(3,828)
-
-
-
-
(2,203)
(2,203)
-
460,456
-
170,268
16,512
111,456
34,741
33,959
11,124
1,566
6,342
a) By Business Unit:
2017
Total revenues
Intercompany revenue
Gross profit
Administrative expenses
Selling expenses
Other income
Other expenses
Interest expense
Interest income
Other net finance expenses (3)
Income before income taxes
and share of the profit of
associates and joint ventures
accounted for using the
equity method
Income taxes
Share of the profit of associates
(7,162)
4,554
11,518
734
and joint ventures accounted
for using the equity method,
net of taxes
Consolidated net income
Depreciation and amortization (2)
Non-cash items other than
depreciation and amortization
Investments in associates and
joint ventures
Total assets
Total liabilities
Investments in fixed assets (4)
60
-
11,657
1,714
11,500
285,677
144,968
14,612
5
-
4,403
296
642
68,820
49,696
8,563
956
434
-
-
942
31
-
38,496
25,885
774
146
23
-
-
118
18
-
4,678
4,091
291
30,000
(5,132)
4,472
9,970
(64)
-
39,866
10,583
7,848
-
-
-
83,720
76,555
1,343
-
10
-
545
255
235
150,816
62,147
1,311
-
-
-
-
-
(36,501)
(36,501)
(371)
7,923
37,206
17,665
2,314
96,097
588,541
251,629
25,180
(1) Includes other companies (see Note 1) and corporate.
(2) Includes bottle breakage.
(3) Includes foreign exchange loss, net; loss on monetary position for subsidiaries in hyperinflationary economies; and market value gain on financial instruments.
(4) Includes acquisitions and disposals of property, plant and equipment, intangible assets and other long-lived assets.
91
2016
Total revenues
Intercompany revenue
Gross profit
Administrative expenses
Selling expenses
Other income
Other expenses
Interest expense
Interest income
Other net finance expenses (3)
Income before income taxes
and share of the profit of
associates and joint ventures
accounted for using the
equity method
Income taxes
Share of the profit of associates
and joint ventures accounted
for using the equity method,
Coca-Cola
FEMSA
FEMSA
Comercio
FEMSA
Comercio
Retail Division Health Division
FEMSA
Comercio
Fuel Division
CB Equity
Other (1)
Consolidation
Adjustments
Consolidated
Ps.
177,718 Ps.
4,269
79,662
-
-
-
-
7,473
715
-
Ps.
137,139
-
50,990
-
-
-
-
809
246
-
43,411 Ps.
-
12,738
-
-
-
-
654
31
-
28,616 Ps.
-
2,248
-
-
-
-
109
37
-
- Ps.
-
-
-
-
-
-
-
20
-
29,491 Ps.
12,599
6,114
-
-
-
-
1,580
1,229
-
(16,868) Ps.
(16,868)
(3,548)
-
-
-
-
(979)
(979)
-
399,507
-
148,204
14,730
95,547
1,157
5,909
9,646
1,299
3,728
14,308
3,928
11,046
719
net of taxes
Consolidated net income
Depreciation and amortization (2)
Non-cash items other than
depreciation and amortization
Investments in associates
and joint ventures
Total assets
Total liabilities
Investments in fixed assets (4)
147
-
8,666
2,908
22,357
279,256
150,023
12,391
15
-
3,736
288
611
59,740
42,211
7,632
914
371
-
-
855
8
-
35,862
24,368
474
182
16
-
-
92
17
-
3,649
3,132
299
9
3
2,218
2,851
(121)
-
28,556
7,888
6,342
-
-
-
105,229
108,976
7,132
-
3
-
360
630
404
90,429
64,876
1,671
-
-
-
-
-
(32,289)
(32,289)
(312)
6,507
27,175
13,709
3,851
128,601
545,623
259,453
22,155
(1) Includes other companies (see Note 1) and corporate.
(2) Includes bottle breakage.
(3) Includes foreign exchange loss, net; loss on monetary position for subsidiaries in hyperinflationary economies; and market value gain on financial instruments.
(4) Includes acquisitions and disposals of property, plant and equipment, intangible assets and other long-lived assets.
92
2015
Total revenues
Intercompany revenue
Gross profit
Administrative expenses
Selling expenses
Other income
Other expenses
Interest expense
Interest income
Other net finance expenses (3)
Income before income taxes
and share of the profit of
associates and joint ventures
accounted for using the
equity method
Income taxes
Share of the profit of associates
and joint ventures accounted
for using the equity method,
Coca-Cola
FEMSA
FEMSA
Comercio
FEMSA
Comercio
Retail Division Health Division
FEMSA
Comercio
Fuel Division
CB Equity
Other (1)
Consolidation
Adjustments
Consolidated
Ps.
152,360 Ps.
3,794
72,030
-
-
-
-
(6,337)
414
-
Ps.
119,884
46
43,649
-
-
-
-
(612)
149
-
13,053 Ps.
-
3,688
-
-
-
-
(148)
8
-
18,510 Ps.
-
1,420
-
-
-
-
(78)
35
-
- Ps.
-
-
-
-
-
-
-
18
-
22,774 Ps.
11,152
5,334
-
-
-
-
(1,269)
1,067
-
(14,992) Ps.
(14,992)
(2,942)
-
-
-
-
667
(667)
-
311,589
-
123,179
11,705
76,375
423
(2,741)
(7,777)
1,024
(865)
14,725
4,551
9,714
859
net of taxes
Consolidated net income
Depreciation and amortization (2)
Non-cash items other than
depreciation and amortization
Investments in associates and
joint ventures
Total assets
Total liabilities
Investments in fixed assets (4)
155
-
7,144
1,443
17,873
210,249
101,514
11,484
(10)
-
3,132
296
744
44,677
30,661
5,731
416
97
-
-
204
(16)
-
22,534
14,122
317
164
28
-
-
63
17
19
3,230
2,752
228
8
2
208
2,395
(72)
-
25,163
7,932
5,879
-
-
-
92,694
95,502
4,202
-
21
-
282
326
401
49,213
30,298
1,448
-
-
-
-
-
(16,073)
(16,073)
(323)
6,045
23,276
10,825
2,066
111,731
409,332
167,476
18,885
(1) Includes other companies (see Note 1) and corporate.
(2) Includes bottle breakage.
(3) Includes foreign exchange loss, net; loss on monetary position for subsidiaries in hyperinflationary economies; and market value gain on financial instruments.
(4) Includes acquisitions and disposals of property, plant and equipment, intangible assets and other long-lived assets.
b) By Geographic Area:
The Company aggregates geographic areas into the following for the purposes of its consolidated financial statements: (i) Mexico
and Central America division (comprising the following countries: Mexico, Guatemala, Nicaragua, Costa Rica and Panama) and
(ii) the South America division (comprising the following countries: Brazil, Argentina, Colombia, Chile and Venezuela). Venezuela
operates in an economy with exchange controls and hyper-inflation; and as a result,it is not aggregated into the South America area,
(iii) Europe (comprised of the Company’s equity method investment in Heineken) and (iv) the Asian division comprised of Philippines
commencing on February 1, 2017, started to consolidated in the Company financial statements. The Company’s results for 2017 reflect
a reduction in the share of the profit of associates and joint ventures accounted for using the equity method, net of taxes, as a result of
this consolidation (see Note 4.1.2).
93
Geographic disclosure for the Company is as follow:
2017
Mexico and Central America (1)
Asia
South America (2)
Venezuela
Europe
Consolidation adjustments
Consolidated
2016
Mexico and Central America (1)
South America (2)
Venezuela
Europe
Consolidation adjustments
Consolidated
2015
Mexico and Central America (1)
South America (2)
Venezuela
Europe
Consolidation adjustments
Consolidated
Total
Revenues
Ps. 301,463
20,524
135,608
3,932
-
(1,071)
Ps. 460,456
Total
Non Current
Assets
Ps. 176,174
17,233
130,225
1
83,720
-
Ps. 407,353
Ps. 267,732
113,937
18,937
-
(1,099)
Ps. 399,507
Ps. 176,613
138,549
7,281
105,229
-
Ps. 427,672
Ps. 228,563
74,928
8,904
-
(806)
Ps. 311,589
Ps. 158,506
67,568
3,841
92,694
-
Ps. 322,609
(1) Central America includes Guatemala, Nicaragua, Costa Rica and Panama. Domestic (Mexico only) revenues were Ps. 288,783, Ps. 254,643 and Ps. 218,809 during
the years ended December 31, 2017, 2016 and 2015, respectively. Domestic (Mexico only) non-current assets were Ps. 170,547 and Ps. 168,976, as of December 31,
2017, and December 31, 2016, respectively.
(2) South America includes Brazil, Argentina, Colombia, Chile and Venezuela, although Venezuela is shown separately above. South America revenues include
Brazilian revenues of Ps. 64,345, Ps. 48,924 and Ps. 39,749 during the years ended December 31, 2017, 2016 and 2015, respectively. Brazilian non-current assets
were Ps. 89,137 and Ps. 97,127, as of December 31, 2017 and December 31, 2016, respectively. South America revenues include Colombia revenues of Ps. 17,545,
Ps. 17,027 and Ps. 14,283 during the years ended December 31, 2017, 2016 and 2015, respectively. Colombia non-current assets were Ps. 18,396 and Ps. 18,835, as
of December 31, 2017 and December 31, 2016, respectively. South America revenues include Argentina revenues of Ps. 13,938, Ps. 12,340 and Ps. 14,004 during the
years ended December 31, 2017, 2016 and 2015, respectively. Argentina non-current assets were Ps. 3,052 and Ps. 3,159, as of December 31, 2017 and December 31,
2016, respectively. South America revenues include Chile revenues of Ps. 40,660 and Ps. 36,631 during the year ended December 31, 2017 and 2016, respectively.
Chile non-current assets were Ps. 19,590 and Ps. 19,367, as of December 31, 2017 and 2016, respectively.
Note 27. Future Impact of Recently Issued Accounting Standards not yet in Effect
The Company has not applied the following standards and interpretations that are issued, but not yet effective, up to the date of issuance
of the Company’s financial statements are disclosed below. The Company intends to adopt these standards, if applicable, when they
become effective.
IFRS 15, Revenue from Contracts with Customers
In May 2014, the IASB issued the IFRS 15 Revenue from Contracts with Customers, which establishes a 5-step model to determine the
timing and amount to be applied when recognizing revenues from contracts with costumers. The new standard replaces existing revenue
recognition guidelines, including the IAS 18 Revenue, IAS 11 Construction Contracts and IFRIC 13 Customer Loyalty Programmes.
The standard is effective for annual periods beginning on January 1, 2018 and its earlier adoption is permitted. The standard permits
to elect between the retrospective method and modified retrospective approach. The Company plans to adopt the IFRS 15 in its
consolidated financial statements on January 1, 2018 using modified retrospective approach (prospective method).
The transition considerations that the Company takes into account by applying the modified retrospective approach (prospective
method) in the adoption of the IFRS 15 involve the recognition of the cumulative effect of the adoption of the IFRS 15 as of
January 1, 2018; consequently, there is no obligation under this method to restate the comparative financial information for the years
ended December 31, 2016 and 2017, nor to adjust the amounts that arise as a result of the accounting differences between the current
accounting standard IAS 18 and the new standard, IFRS 15.
94
The Company has conducted a qualitative and quantitative evaluation of the impacts that the adoption of the IFRS 15 will have in its
consolidated financial statements. The evaluation includes, among others, the following activities:
• Analysis of contracts with customers and their main characteristics;
• Identification of the performance obligations included in such contracts;
• Determination of the transaction price and the effects derived from variable consideration;
• Allocation of the transaction price to each performance obligation;
• Analysis of the timing when the revenue should be recognized, either at a point in time or over time, as appropriate;
• Analysis of the disclosures required by the IFRS 15 and their impacts on internal processes and controls; and
• Analysis of the potential costs of obtaining and fulfilling contracts with customers that should be capitalized in accordance with the
requirements of the new IFRS 15.
As of today, the Company has completed the analysis of the new standard and has concluded that there will be no significant impacts
on the consolidated financial statements derived from the adoption of the IFRS 15. However, IFRS 15 provides presentation and
disclosure requirements, which are more detailed than under current IFRS. The presentation requirements represent a significant
change from current practice and significantly increases the volume of disclosures required in the consolidated financial statements. In
2017 the Company developed and started testing of appropriate systems, internal controls, policies and procedures necessary to collect
and disclose the required information.
As of December 31, 2017, the consolidated and business unit level accounting policies in regards to revenue recognition have been
modified and submitted for approval of the Audit Committee of the Company, with the objective that these are fully implemented as of
January 1, 2018, which will establish the new bases of accounting for revenues from contracts with customers under IFRS 15. Similarly,
the Company has analyzed and evaluated the aspects related to internal control derived from IFRS 15 adoption, with the objective of
ensuring that the Company’s internal control environment is appropriate for financial reporting purposes once the standard is adopted.
IFRS 9, Financial Instruments
IFRS 9 Financial Instruments, sets out requirements for recognizing and measuring financial assets, financial liabilities and some
contracts to buy or sell non-financial items. This standard replaces IAS 39 Financial Instruments: Recognition and Measurement. IFRS
9 contains a new classification and measurement approach for financial assets that reflects the business model in which assets and cash
flow are managed. IFRS 9 contains three principal classification categories for financial assets: measured at amortized cost, FVOCI and
FVTPL. The standard eliminates the existing IAS 39 categories of held to maturity, loans and receivables and available for sale.
IFRS 9 replaces the ‘incurred loss’ model in IAS 39 with a forward-looking ‘expected credit loss’ (ECL) model. This will require
considerable judgement about how changes in economic factors affect ECLs, which will be determined on a probability-weighted
basis. The new impairment model will apply to financial assets measured at amortized cost and FVOCI, except for investments in
equity instruments, and to contract assets.
Furthermore, IFRS 9 requires the Company to ensure that hedge accounting relationships are aligned with the Group’s risk management
objectives and strategy and to apply a more qualitative and forward-looking approach to assessing hedge effectiveness. IFRS 9 also
introduces new requirements on rebalancing hedge relationships and prohibits voluntary discontinuation of hedge accounting. IFRS 9
largely retains the existing requirements in IAS 39 for the classification of financial liabilities.
This standard is effective for annual periods beginning on or after January 1, 2018 and the Company plans to adopt IFRS 9 in its
consolidated financial statements on January 1, 2018. For Hedge Accounting, IFRS 9 will be adopted prospectively. Regarding
Classification and Measurement, the Company will not reestablish financial information for the comparative year given that the business
models of financial assets will not originate any accounting difference between the adoption and comparative year. Therefore the
comparative figures under IFRS 9 and IAS 39 will be consistent. In relation to Impairment, the adoption approach will be prospective;
however, financial information will not be reestablished for comparative periods (year ended December 31, 2017 and 2016).
The Company performed a qualitative and quantitative assessment of the impacts of IFRS 9. The activities that have been carried out are:
• Review and documentation of the business models for managing financial assets, accounting policies, processes and internal controls
related to financial instruments.
• Analysis of financial assets and the impact of the expected loss model required under IFRS 9.
• Update of documentation of the hedging relationships, as well as the policies for hedge accounting, and internal controls.
• Determination of the model to compute the loss allowances based on the Expected Loss model.
• Analysis of the new disclosures required by IFRS 9 and its impacts on internal processes and controls for the Company.
The Company has carried out an analysis for the business models that best suit the current management of its financial assets.
95
For classification and measurement and hedge accounting there were no significant changes identified, except those related to the
documentation of the business model and their cash flow characteristics. There was also a need to update the hedge relationships
documentation. Therefore, no significant impacts are expected in the financial information that require adjustments for the adoption of
IFRS 9 in the consolidated financial statements in relation to the Classification, Measurement and Hedge Accounting.
An analysis was carried out to determine the impact of the new Expected Loss model of financial assets to calculate the provisions that
should be recorded. An increase is not expected for the provisions of financial assets under the new standard because the accounts
receivable are characterized by recovering in the short term, which results in estimates of expected loss that converge to the provisions
under IAS39.
As of December 31, 2017, the Company has defined policies and procedures for the adoption of the new standard, strengthening the
control of information, and has prepared Manuals and Processes for Operation, Management and Risk Management.
IFRS 16, Leases
In January 2016, the IASB issued IFRS 16 Leases, with which it introduces a unique accounting lease model for lessees. The lessee
recognizes an asset by right of use that represents the right to use the underlying asset and a lease liability that represents the obligation
to make lease payments.
The standard is effective for the annual periods started on January 1, 2019. Early adoption is permitted for entities applying IFRS 15 on
the initial application date. The Company plans to adopt the new IFRS 16 in its consolidated financial statements on January 1, 2019,
using the modified retrospective approach (prospective method).
The transition considerations required to be taken into account by the Company by the modified retrospective approach that it will use
to adopt the new IFRS 16 involve recognizing the cumulative effect of the adoption of the new standard as from January 1, 2019. For
this reason, the financial information will not be reestablished by the exercises to be presented (exercises completed as of December
31, 2017 and 2018). Likewise, as of the transition date of IFRS 16 ( January 1, 2019), the Company may elect to apply the new definition
of “leasing” to all contracts, or to apply the practical file of “Grandfather” and continue to consider as contracts for leasing those who
qualified as such under the previous accounting rules “IAS 17 – Leases” and “IFRIC 4 – Determination of whether a contract contains
a lease”.
Currently, the Company is conducting a qualitative and quantitative assessment of the impacts that the adoption of IFRS 16 will
originate in its consolidated financial statements. The evaluation includes, among others, the following activities:
• Detailed analysis of the leasing contracts and the characteristics of the same that would cause an impact in the determination of the
right of use and the financial liabilities;
• Identification of the exceptions provided by IFRS 16 that may apply to the Company;
• Identification and determination of costs associated with leasing contracts;
• Identification of currencies in which lease contracts are denominated;
• Analysis of renewal options and improvements to leased assets, as well as amortization periods;
• Analysis of the revelations required by the IFRS 16 and the impacts of the same in internal processes and controls of the Company; and
• Analysis of the interest rate used in determining the present value of the lease payments of the different assets for which a right of use
must be recognized.
The main impacts at a consolidated level, as well as the business unit level are derived from the recognition of leased assets as rights of
use and liabilities for the obligation to make such payments. In addition, the linear operating lease expense is replaced by a depreciation
expense for the right to use the assets and the interest expense of the lease liabilities that will be recognized at present value.
Based on the analysis carried out by the Company, FEMSA Comercio’s business units will particularly generate a significant effect
on the Company’s consolidated financial statements as a result of the number of leases in effect as of the date of analysis, as well as an
increase of them on daily basis.
At the date of issuance of these consolidated financial statements, the Company still has not decided whether or not to use the optional
exemptions or practical files that the new standard allows, so it is still in the process of quantifying the impact of the adoption of
IFRS 16 on the consolidated financial statements of the Company.
96
Annual Improvements 2014-2016 Cycle (issued in December 2016)
These improvements include:
IFRS 2, Classification and Measurement of Share-based Payment Transactions
The IASB issued amendments to IFRS 2 Share-based Payment that address three main areas: the effects of vesting conditions on
the measurement of a cash-settled share-based payment transaction; the classification of a share-based payment transaction with net
settlement features for withholding tax obligations; and accounting where a modification to the terms and conditions of a share-based
payment transaction changes its classification from cash settled to equity settled.
On adoption, entities are required to apply the amendments without restating prior periods, but retrospective application is permitted
if elected for all three amendments and other criteria are met. The amendments are effective for annual periods beginning on or after
1 January 2018, with early application permitted. The Company does not expect the effect of the amendments to be significant to its
consolidated financial statements.
IFRIC 22 Foreign Currency Transactions and Advance Consideration
The Interpretation clarifies that, in determining the spot exchange rate to use on initial recognition of the related asset, expense or
income (or part of it) on the derecognition of a non-monetary asset or non-monetary liability relating to advance consideration, the
date of the transaction is the date on which an entity initially recognises the non-monetary asset or non-monetary liability arising from
the advance consideration. If there are multiple payments or receipts in advance, then the entity must determine the transaction date
for each payment or receipt of advance consideration. Entities may apply the amendments on a fully retrospective basis.
Alternatively, an entity may apply the Interpretation prospectively to all assets, expenses and income in its scope that are initially
recognised on or after:
i) The beginning of the reporting period in which the entity first applies the interpretation; or
ii) The beginning of a prior reporting period presented as comparative information in the financial statements of the reporting period
in which the entity first applies the interpretation.
The Interpretation is effective for annual periods beginning on or after 1 January 2018. Early application of interpretation is permitted
and must be disclosed. However, since the Company’s current practice is in line with the Interpretation, the Company does not expect
any effect on its consolidated financial statements.
IFRIC 23 Uncertainty over Income Tax Treatment
The Interpretation addresses the accounting for income taxes when tax treatments involve uncertainty that affects the application of
IAS 12 and does not apply to taxes or levies outside the scope of IAS 12, nor does it specifically include requirements relating to interest
and penalties associated with uncertain tax treatments. The Interpretation specifically addresses the following:
i) Whether an entity considers uncertain tax treatments separately;
ii) The assumptions an entity makes about the examination of tax treatments by taxation authorities;
iii) How an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates; and
iv) How an entity considers changes in facts and circumstances.
An entity must determine whether to consider each uncertain tax treatment separately or together with one or more other uncertain
tax treatments. The approach that better predicts the resolution of the uncertainty should be followed. The interpretation is effective
for annual reporting periods beginning on or after 1 January 2019, but certain transition reliefs are available. The Company is still in the
process of quantifying the impact of the adoption of the IFRIC 23 in the consolidated financial statements.
Note 28. Subsequent Events
In January, 2018, Eduardo Padilla Silva replaced Carlos Salazar Lomelin as Chief Executive Officer.
97
GRI Content Index
GRI Standard
GRI Standard Content Index
GRI
Standard
102-02
102-04
102-06
102-07
102-08
Contents
Answer or reference
Activities, brands,
products, and
services
Location of
operations
Markets served
Scale of the
organization
Information on
employees and other
workers
See inside front cover.
General Disclosure
See page 2 Our Presence.
See pages 1-3.
See page 3 Operational Overview.
At the end of 2017, FEMSA had 295,027 employees.
Employees by type of contract
Business Unit
FC
FSB
KOF
•
•
•
•
•
•
•
•
•
•
•
•
● Employees
20.3%
● Unionized
54.9%
● Outsourcing
5.4%
● Sales commissioners OXXO 19.4%
Employees by gender
● Male
● Female
65.2%
34.8%
•
•
•
Employees by country / region
● Mexico
● Central America
● Colombia
● Brazil
● Argentina
● Chile
● Venezuela
● Philippines
● Other
71.0%
2.4%
4.3%
9.2%
1.0%
4.1%
1.9%
5.6%
0.5%
Information gathered from internal sources.
Percentages of employees by gender do not include 9% of FEMSA’s employees.
2
KOF: Coca-Cola FEMSA • FC: FEMSA Comercio • FNE: FEMSA Strategic Businesses
GRI
Standard
102-09
Contents
Answer or reference
Supply chain
The supplier network of FEMSA and its Business Units consists of 53,992 suppliers,
98% of which are from the same country as the operation to which they supply
services. Our value chain generated an economic flow of Ps.171,791.26 billion
equivalent to US$ 8,704.73 million.
102-10
102-11
Significant changes
to the organization
and its supply chain
Precautionary
principle or
approach
102-12
External initiatives
Excludes: Suppliers of merchandise (OXXO merchandise), finished product, employees or sales representatives,
donations, inter-company transfers, government offices, unions, information of operations of Solistica in Brazil
and Coca-Cola FEMSA in the Philippines.
See page 8 Dear Shareholders.
Our risk management focus is aimed at detecting, measuring and evaluating risk,
formulating strategies to control it and establishing follow-up measures to ensure that
they function efficiently. This management entails specific responsibilities for FEMSA’s
Board of Directors, through its Audit Committee, which is in charge of overseeing
procedures for identifying contingencies, lawsuits and business risks, including
environmental risks. To address the possible environmental impact of our operations,
we have a Strategic Sustainability Framework, which includes the guideline pillar Our
Planet, in order to minimize the environmental impact of our operations.
Since 2005, FEMSA has adopted the 10 principles of the United Nations Global
Compact, focused on the issues of human rights, labor conditions and the
environment.
We also continue to participate in efforts that promote the measurement of
Greenhouse Gases and the development of capacities to identify opportunities and
risks regarding climate change, among them: the GEI Mexico Program and Carbon
Disclosure Project, in its Climate Change and Water version.
Business Unit
FC
FSB
KOF
•
•
•
•
•
•
•
•
•
•
•
•
3
Contents
Answer or reference
Business Unit
FC
FSB
KOF
GRI
Standard
102-13
Membership of
associations
Some of the associations to which we belong:
Argentina
• Asociación de Fabricantes Argentinos de Coca-Cola (AFACC)
• Cámara Argentina de la Industria de Bebidas sin Alcohol (CADIBSA)
• Cámara de Comercio Argentino Mexicana (CCAM)
• Coordinadora de las Industrias de Productos Alimenticios (COPAL)
Brazil
• Sindicato das Empresas de Transportes de Carga de São Paulo (SETCESP)
• Associação Brazileira das Indústrias de Refrigerantes e de Bebidas Não Alcoólicas (ABIR)
• Associação Brazileira de Indústria de Água Mineral (ABINAN/SINDNAN)
• Associação Brasileira Pró-Desenvolvimento Regional Sustentável (ADIAL)
Colombia
• Asociación Nacional de Empresarios de Colombia (ANDI)
• Asociación de Industriales de Tocancipá (ASIENORTE)
Central America
• American Chamber (AMCHAM) Costa Rica, Guatemala, Nicaragua and Panama
• Cámara Comercio Costa Rica, Guatemala, Nicaragua y Panamá
Philippines
• Beverage Industry Association of the Philippines
• Philippine Alliance for Recycling and Materials Sustainability
Mexico
• Cámara Nacional de la Industria de Transformación (CANACINTRA)
• Confederación de Cámaras Industriales (CONCAMIN)
• Confederación Patronal de la República Mexicana (COPARMEX)
• Confederación de Cámaras Nacionales de Comercio, Servicios y Turismo (CONCANACO
SERVYTUR)
• Asociación Nacional de Tiendas de Autoservicio y Departamentales (ANTAD)
• Consejo Coordinador Empresarial (CCE)
• Comisión de Estudios para el Desarrollo Sustentable del Consejo Coordinador Empresarial
(CESPEDES)
• Consejo Mexicano de la Industria de Productos de Consumo (CONMEXICO)
• Asociación Nacional de Productores de Refrescos y Aguas Carbonatadas (ANPRAC)
• Asociación Nacional de Transporte Privado (ANTP)
• Consejo Mexicano de Negocios
• Consejo Consultivo del Agua
• Ecología y Compromiso Empresarial, A. C. (ECOCE)
• Bolsa Mexicana de Valores
• Centro Mexicano para la Filantropía (CEMEFI)
• Red SumaRSE
•
Iniciativa Gemi
• Asociación de Embotelladoras Mexicanas de Coca-Cola A.C.
• Consejo Mexicano de Asuntos Internacionales (COMEXI)
• Fundación Mexicana para la Salud (FUNSALUD)
Venezuela
• Asociación de Industriales y Comerciantes de los Cortijos y los Ruices (ASICOR)
• Asociación Nacional de Bebidas Refrescantes (ANBER)
• Cámara de Comercio e Industria Venezolana Mexicana (CAVEMEX)
International
• American Beverage Associations (ABA)
•
• Alianza Latinoamericana de Asociaciones de la Industria de Alimentos y Bebidas (ALAIAB)
• Consumer Goods Forum
• Business International Advisory Council (BIAC)
• Consejo Empresarial Alianza del Pacífico (CEAP)
• RedEAmérica
• Coporate EcoForum (CEF)
• World Trade Organization (WTO)
• World Economic Forum (WEF)
• World Environment Center (WEC)
• US Mexico Foundation
• LLILAS Benson Latinamerican Center
See page 8 Dear Shareholders.
International Council of Beverage Associations (ICBA)
•
•
•
•
•
•
102-14
Statement from
senior decision-
maker
4
GRI
Standard
102-15
Contents
Answer or reference
Key impacts, risks,
and opportunities
Some of our principal business risks are:
Business Unit
FC
FSB
KOF
Coca-Cola FEMSA
• Our business depends on its relationship with The Coca-Cola Company, and
changes in this relationship may adversely affect our business, financial condition,
results of operations and prospects.
• Changes in consumer preferences and public concern about health issues could
reduce the demand for some of our products.
• Brand reputation or violations of brand ownership rights.
• Negative or inadequate information on social media.
• Competition could adversely influence our financial performance.
• Water shortages or any failure to maintain existing concessions.
• Increases in the prices of raw materials would increase our production costs.
• Taxes and regulations in the regions where we operate.
• Weather conditions may adversely affect our results.
FEMSA Comercio
• Competition from other retailers may affect our performance.
• Impact on sales in economic conditions in the markets where we operate.
• Significant changes in regulations or taxes.
• Changes, failures or disruption of information technology systems.
• Increase in electricity prices.
• Likelihood of being unable to sustain the historic pace of growth.
• Changes in energy and/or environmental regulations may affect the performance of
FEMSA Comercio’s Energy Division.
Risks relating to the countries where we operate:
• Economic or political conditions.
• Depreciation of local currencies.
• Crime rates.
•
•
•
The Comprehensive Business Risk Management System is a tool used by senior
management to manage, evaluate, control and monitor business-related risks.
See pages 24 Our People and 37 Code of Ethics.
For more information on the Code of Ethics, visit: http://ir.femsa.com/code_ethics.cfm
•
•
•
102-16
102-17
Values, principles,
standards, and
norms of behavior
Mechanisms for
advice and concerns
about ethics
One of the mechanisms for ensuring compliance with the FEMSA Code of Business
Ethics is our Whistleblower System, through which we can receive information on
illegal practices, inappropriate conduct, or violations of the Code of Ethics detected
in our operations. It is also used to identify possible risk situations of any kind, acts
of corruption, privacy or human rights violations. This system, which is managed by
an independent firm, is available 24/7, both for employees and stakeholders, by four
different channels, all confidential and anonymous: phone, webpage, e-mail and chat.
Complaints may cover issues ranging from labor or sexual harassment, discrimination,
human rights violations, theft, corruption, improper use of information, negative
impact on the community and the environment, among others.
See page 34 Board of Directors.
102-18
102-19
102-20
102-22
Governance
structure
Delegating authority See page 34 Board of Directors.
This is the highest body of governance at FEMSA, and its authority permeates and is
distributed throughout the organization.
See page 36 Executive Management.
For more information on our management team, visit: http://www.femsa.com/en/
meet-femsa/corporate-governance/management-team/
See page 34 Board of Directors.
Executive-level
responsibility
for economic,
environmental, and
social topics
Composition of the
highest governance
body and its
committees
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
5
GRI
Standard
102-23
102-24
102-25
Contents
Answer or reference
Business Unit
FC
FSB
KOF
Chair of the highest
governance body
Nominating and
selecting the highest
governance body
See page 36 Executive Management.
Board members are appointed by company shareholders in the Ordinary Annual
Shareholders’ meeting. According to FEMSA’s bylaws, shareholders owning series B
shares appoint a minimum of 11 regular board members, while series D shareholders
appoint 5 regular members. Furthermore, shareholders may appoint alternative
board members. Committee members are also appointed at the Ordinary Annual
Shareholders’ Meeting and must be board members. Every member of the Audit
Committee and Corporate Practices Committee is an independent board member,
in keeping with the Securities Market Act and the applicable provisions of the NYSE.
(for more information: see http://ir.femsa.com/documents.cfm)
•
•
•
•
•
•
Conflicts of interest The Corporate Practices Committee is responsible for preventing or reducing the
risk of transactions that could damage the value of our company or that benefit a
particular group of shareholders. The committee may call a shareholders’ meeting and
include matters on the agenda for that meeting that it deems appropriate, approve
policies on the use of our company’s assets or related party transactions, approve the
compensation of the chief executive officer and key executives, and support the board
of directors in drafting reports on the accounting and reporting policies and criteria
followed in preparing financial information.
102-26
102-27
Role of highest
governance body
in setting purpose,
values, and strategy
Collective
knowledge of
highest governance
body
102-28
Evaluating the
highest governance
body’s performance
102-29
102-30
102-31
102-32
102-33
102-35
Identifying and
managing economic,
environmental, and
social impacts
Effectiveness of
risk management
processes
Review of economic,
environmental, and
social topics
Highest governance
body’s role in
sustainability
reporting
Communicating
critical concerns
Remuneration
policies
Each member of the Corporate Practices Committee is an independent director, as
required by the Mexican Securities Market Act.
For more information, see: http://ir.femsa.com/corporate-governance-document.
cfm?DocumentID=412
See page 36 Executive Management.
For more information on our management team, visit: http://www.femsa.com/en/
meet-femsa/corporate-governance/management-team/
The Committees of the Board of Directors are established as a mechanism of assisting
the Board of Directors in its functions and to support it in making decisions on various
issues, whether economic, social or environmental. Board Committees may ask board
members, directors, employees, external consultants, or others, to attend meetings or
to meet with one or more of its members to provide relevant information as necessary.
At FEMSA, the members of the management team as well as the rest of the employees
establish goals and targets based on their contribution level and responsibilities;
progress is tracked against these goals at least four times a year. This evaluation is
carried out in conjunction with the employee’s direct superior, which permits an
open, close and ongoing dialogue to ratify or correct strategies followed to achieve the
established goals and generate economic and social value in a manner consistent with
our vision.
The management team keeps track of the main risks to which FEMSA and its Business
Units are exposed. Each Business Unit is responsible for identifying and tracking
internal and external business risks, including social and environmental risks.
Business Units establish measures to mitigate and manage risks, which are validated in
the annual risk identification process.
The Management Team and the Business Units conduct a strategic planning review at
least four times a year, discussing the present business risks and opportunities, and any
social and environmental issues that may arise.
The Sustainability Department is responsible of providing sustainability information
for the Annual Report.
See page 34 Corporate Governance.
Board Member compensation is approved in the General Shareholders’ Meeting. The
compensation policy for senior management is reviewed by the Corporate Practices
Committee, based on compensation in the industry and/or historic practices and
compensation levels at FEMSA.
6
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
GRI
Standard
102-36
102-40
102-41
102-42
Contents
Answer or reference
Business Unit
FC
FSB
KOF
Process for
determining
remuneration
List of stakeholder
groups
Collective
bargaining
agreements
Identifying
and selecting
stakeholders
See standard 102-35.
At FEMSA we have various stakeholders with whom we engage, among them
nonprofit organizations, investors, industry, specialized institutions, government,
consumers, clients, suppliers, employees, society and the media.
Of our total work force (221,789 of our own employees), 73% belong to a union, all of
which are covered by a contract, agreement or collective agreement.
Every year, since 2014, we approach our stakeholders for their input on our
Sustainability actions. By the end of 2016, we carried out an exercise in conjunction
with The Partnering Initiative to strengthen the process and improve understanding of
our stakeholders.
•
•
•
•
•
•
•
•
•
This process included interviews with various areas of the company that interact with
FEMSA’s different stakeholders, and an industry-wide analysis of how the various
stakeholder groups are served.
•
•
•
102-43
Approach to
stakeholder
engagement
102-44
102-45
Key topics and
concerns raised
Entities included
in the consolidated
financial statements
102-46
Defining report
content and topic
boundaries
102-47
102-48
List of material
topics
Restatements of
information
This led us to develop a proposal for our main shareholders, aligned with FEMSA’s
Strategic Sustainability Framework, on the basis of which an engagement proposal is
developed.
We have approached our stakeholders for their input on our Sustainability Report and
the actions reported in it.
In addition to the consultations focused on the report, throughout the year we
interacted individually with each group, through mechanisms such as surveys,
conferences, breakfasts, work groups, among others.
We continue to act on the basis of the results obtained in 2016, where we identified
a need to continue strengthening communication and synergies in the area of
sustainability, in keeping with our business strategy.
The entities covered in our consolidated financial statements are:
• FEMSA Servicios
• Coca-Cola FEMSA
• FEMSA Comercio
• FEMSA Strategic Businesses
The sustainability content of this report is based on the issues defined as material in our
Strategic Sustainability Framework. We have followed the GRI Standards Guidelines,
and its reporting principles (stakeholders' inclusion, sustainability context, materiality
and exhaustivity) in preparing this table and the sustainability section.
The information contained in this document is provided on a good-faith basis, with the
intention of broadening understanding of the organization’s non-financial performance.
Although the information is considered to be correct at the time of publication, we
cannot accept responsibility for any loss or damage caused by a person or organization
acting or refraining from acting as a result of the information contained herein.
See page 22 Sustainability.
Based on our regular process of internally verifying information, we found that we had
counted consumption of renewable energy at Coca-Cola FEMSA in Mexico twice for
the years 2014 and 2015. Restating those figures results in a reduction in total energy
consumption reported for those years. The new updated values are 8,036,777 GJ (2014)
and 8,184,713 GJ (2015).
102-49
Changes in reporting There are no significant changes in the scope and material aspects addressed in the
sustainability section and GRI table, compared to previous reports. As of this year, the
GRI Content Index was based on the GRI Standards.
102-50
Reporting period The information from the section on materiality and the GRI table in this annual report
covers the period from January 1 to December 31, 2017 and corresponds to FEMSA
and its Business Units only. It does not include the performance of Heineken because,
since 2010, FEMSA has only an equity stake--not an operating influence--in that
business. Businesses that were acquired less than a year ago are not included in the
sustainability information.
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
7
Contents
Answer or reference
GRI
Standard
102-51
102-52
Date of most recent
report
Reporting cycle
102-53
Contact point for
questions regarding
the report
102-54
Claims of reporting
in accordance with
the GRI standards
The last report published was for fiscal year 2016, published in 2017.
The information from the section on materiality and the GRI table in this annual report
covers the period from January 1 to December 31, 2017 and corresponds to FEMSA
and its Business Units only. It does not include the performance of Heineken, because
since 2010, FEMSA has only an equity stake--not an operating influence--in that
business. Businesses that were acquired less than a year ago are not included in the
sustainability report.
Sustainability
Víctor Manuel Treviño Vargas
Gabriel Adrián González Anaya
Phone: 52 (55) 5249 6800
sostenibilidad@femsa.com.mx
This report has been prepared in accordance with the GRI Standards, Comprehensive
option, and the materiality standards have been independently reviewed by EY Mexico
(see verification letter at the end of this GRI Content Index).
The information contained in this document is provided on a good-faith basis, with the
intention of broadening understanding of the organization’s non-financial performance.
Although the information is considered to be correct at the time of publication, we
cannot accept responsibility for any loss or damage caused by a person or organization
acting or refraining from acting as a result of the information contained herein.
102-55
102-56
GRI content index This table reports on the GRI Content Index.
External assurance
Independent Verification Letter.
Management focus
103-1
103-2
201-1
201-2
Explanation of the
material topic and its
boundary
The management
approach and its
components
Direct economic
value generated and
distributed
Financial
implications and
other risks and
opportunities due to
climate change
201-3
Defined benefit
plan obligations and
other retirement
plans
204-1
Proportion of
spending on local
suppliers
The Strategic Sustainability Framework defines material issues as those in which
internal and external stakeholders consider FEMSA or its Business Units as capable of
impacting them either positively or negatively.
See page 22.
See page 22 Sustainability.
See page 4 Value Creation Highlights.
Economic
Risks:
• Changes in the availability of natural resources.
• Greater likelihood of excess precipitation or drought.
• Increase in average temperature.
• Change in the behavior of meteorological phenomena.
Consequences:
• Reduction or impact on production capacity.
• Increase in operating costs.
Employees receive the benefits established by law, and incentives in keeping with
their performance. 100% of our full‐time and temporary employees receive at least
the benefits required by law. In Mexico, the Savings Fund covers 100% of employees
and FEMSA contributes with a percentage. 100% of our employees are eligible for
the Voluntary Retirement Savings Plan, and together with FEMSA contribute an
additional percentage.
The percentage of expenses corresponding to local suppliers in 2017 was 86.75%. Local
suppliers are defined as suppliers from the country where the purchase is made.
Excludes: Suppliers of merchandise (OXXO suppliers), finished product, employees or sales representatives,
donations, inter-company transfers, government offices, unions, information of operations of Solistica in Brazil
and Coca-Cola FEMSA in the Philippines.
8
Business Unit
FC
FSB
KOF
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
GRI
Standard
205-1
205-2
205-3
206-1
Contents
Answer or reference
In all of our operations, we encourage and facilitate the detection of illegal practices
and/or inappropriate conduct, through open communication and formal mechanisms
introduced in accordance with the provisions of our Code of Ethics, and we promptly
report on any violations of it.
The Whistleblower System is a formal mechanism introduced in all the Business Units
that provides an open channel for people to notify the company of illegal practices or
inappropriate conduct detected anywhere in our organization.
See page 37 Code of Ethics.
Our Code of Ethics also requires us to comply with the laws on fair competition in all
the countries where we operate.
Operations assessed
for risks related to
corruption
Communication and
training about anti-
corruption policies
and procedures
Confirmed incidents
of corruption and
actions taken
Legal actions for
anti-competitive
behavior, anti-trust,
and monopoly
practices
301-1
301-2
Materials used by
weight or volume
Recycled input
materials used
Environmental
Used materials
(Metric tons)
Total packaged materials amounted to 518,319 metric tons.
2017
2016
2015
2014
518,319
515,095
359,520
309,906
● Plastic
7.8%
● PET
56.9%
● Paper and cardboard 35.3%
● Virgin material
64.9%
● Recycled material 34.4%
● Biopolymer
0.7%
301-3
302-1
Reclaimed products
and their packaging
materials
Energy consumption
within the
organization
Does not include information of Solistica and Imbera.
See standard 301-2.
Direct consumption of stationary energy
(GJ)
2017
2016
2015
2014
2,243,677
2,144,534
2,694,817
2,682,630
Indirect consumption of stationary energy
(GJ)
2016
10,340,135
2016
2015
2014
8,803,031
8,418,810
8,246,774
Argentina
Brazil
Colombia
Costa Rica
Philippines
Guatemala
Mexico
Nicaragua
Panama
Venezuela
Argentina
Brazil
Colombia
Costa Rica
Philippines
Guatemala
Mexico
Nicaragua
Panama
Venezuela
6.21%
16.95%
10.47%
2.71%
17.94%
1.61%
37.25%
1.62%
1.14%
4.10%
1.27%
3.48%
1.93%
0.37%
4.23%
0.26%
86.71%
0.42%
0.28%
1.05%
302-2
Energy consumption
outside of the
organization
Indirect consumption of FEMSA Comercio for November and December are estimated.
6,416,235.25 GJ in Mexico.
*This indicator includes only fuel consumption by our clients through the use of our fleet.
** Coca-Cola FEMSA information is estimated.
*** The scope of the information is only for Mexico.
Business Unit
FC
FSB
KOF
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
9
GRI
Standard
302-3
Contents
Answer or reference
Energy intensity
Intensive direct and indirect consumption of energy
(GJ/ total FEMSA revenues in Ps. million)
● Indirect 1 ● Direct mobile 2 ● Direct stationary 3
31.3
19.28
10.18
2014
27.02
17.34
8.65
2015
22.03
13.05
5.37
2016
22.46
13.93
4.87
2017
Business Unit
FC
FSB
KOF
•
•
•
302-4
302-5
Reduction of energy
consumption
Reductions in
energy requirements
of products and
services
1. Includes stationary consumption of non-renewable sources.
2. Includes fuel consumption by company-owned units.
3. Includes consumption from indirect renewable and non-renewable sources.
At Coca-Cola FEMSA, we have the goal of supplying 85% of the Mexican
manufacturing power consumption with clean energy sources by 2020, and we were
57% of the way toward that goal at the close of 2017. In our operations in Brazil, 100%
of the electrical energy supplied comes from clean sources.
•
•
FEMSA Comercio continued installing the Smart Automation and Energy Control
System in different workplaces. By the end of 2017, 13,944 OXXO stores, 16 Distribution
Centers and 17 offices in Mexico have installed this system, which uses sensors, alarms
and controls for regulating refrigeration equipment, air conditioning and lighting circuits.
Additionally, 23% of our OXXO stores are supplied with clean energy.
4
4
9
3
1
,
0
3
4
2
1
,
6
0
1
,
1
1
2
0
0
0
1
,
•
•
2014
2015 2016
2017
OXXO Stores operating with the Smart
Automation and Energy Control System
303-1
Water withdrawal by
source
See page 26 Our Planet.
Breakdown of water consumption by source
FEMSA water consumption: 37.6 million m3
2017
2016
2015
2014
65.0
67.6
64.8
64.1
33.7
27.8
32.4
33.3
1.3
4.6
2.7
2.6
•
•
•
● Ground ● Supply ● Surface Does not include information on FEMSA Comercio from 2015 through 2016.
We have wastewater treatment plants at 100% of our bottling plants.
•
Direct and indirect greenhouse gas emissions
Metric tons of CO2e (stationary and indirect)
2017
2016
2015
2014
1,177,584
1,050,751
1,266,732
1,207,727
Argentina
Brazil
Colombia
Costa Rica
Philippines
Guatemala
Mexico
Nicaragua
Panama
Venezuela
1.49%
2.22%
1.35%
0.36%
6.26%
0.36%
86.28%
0.59%
0.29%
0.80%
•
•
•
303-3
305-1
305-2
Water recycled and
reused
Direct (Scope 1)
GHG emissions
Energy indirect
(Scope 2) GHG
emissions
10
GRI
Standard
305-3
Contents
Answer or reference
Business Unit
FC
FSB
KOF
Other indirect
(Scope 3) GHG
emissions
Metric tons of CO2e from employee flights
2017
2016 2
2015 1
2014
16,227
14,011
8,857
8,299
•
•
•
1. Does not include 206 routes on which data was not available, and which represent 1% of total flights.
2. Routes are calculated based on the International Civil Aviation Organization calculator. Takes into account
organic and non‐organic growth of the organization.
305-4
GHG emissions
intensity
Total intensive emissions Scope 1 (stationary) + Scope 2
Metric tons of CO2e/total FEMSA revenues in Ps. million
● S1 Stationary 1 ● S1 Mobile 2 ● S2 3
3.80
1.38
0.78
2014
3.31
1.28
0.75
2015
2.08
0.96
0.55
2016
2.17
0.80
0.39
2017
1. Includes stationary consumption of non-renewable sources.
2. Includes fuel consumption by company-owned units.
3. Includes fuel consumption of indirect renewable and non-renewable sources.
At Coca-Cola FEMSA, we work to reduce the energy consumption of our products,
benefiting our consumers and the environment. Over the past 12 years, we have
succeeded in reducing the energy requirement of our main equipment by 44%. We are
focusing efforts on our goal of using environmentally-friendly refrigerant gases in 80%
of the equipment we make, by the year 2021. In 2017, we achieved a 30% reduction
(compared to 2014) in the use of R134 and 141B refrigerant gases. To reduce our CO2e
emissions, we have implemented several initiatives, such as the use of recycled resin
and bioPET, renewable energy consumption, initiatives for PET lightweighting and
improved energy consumption in our manufacturing plants, which have achieved
significant benefits and savings.
Thanks to the renewable electrical energy supplied by wind farms to FEMSA, in 2017
we avoided the emission of 280,133 metric tons of CO2, and since August 2015 we have
avoided the emission of more than 500,000 metric tons of CO2 (see Page 26, Our Planet).
Discharge of wastewater by quality and destination
305-5
Reduction of GHG
emissions
306-1
Water discharge
by quality and
destination
•
•
•
•
•
•
● WWTP owned 92.5%
● WWTP local
7.5%
•
WWTP: Wastewater treatment plant.
100% of our water discharge is sent to a WWTP (local or owned).
11
Business Unit
FC
FSB
KOF
•
•
•
•
•
•
•
GRI
Standard
306-2
306-4
Contents
Answer or reference
Waste by type and
disposal method
Transport of
hazardous waste
Waste generated
Metric tons
2017
2016
2015
2014
166,604
209,318
202,479
212,346
307-1
308-1
308-2
Non-compliance
with environmental
laws and regulations
New suppliers that
were screened using
environmental
criteria
Negative
environmental
impacts in the
supply chain and
actions taken
All hazardous waste is channeled to companies that specialize in its correct handling and disposal.
Does not include wood waste by FEMSA Comercio.
At FEMSA, we have processes for complying with the environmental laws that apply to
our operations.
As of today, we have conducted 735 supplier evaluations for issues of human rights,
the environment and labor practices, 538 of them according to FEMSA's Supplier
Guiding Principles since 2014, and 197 according the The Coca-Cola Company
principles since 2013.
*The information provided applies only to Coca-Cola FEMSA.
With the support of Trucost, in 2017 we carried out the excercise to quantify the
environmental impact of our direct and supply chain operations, extending the process
to our supply of raw materials.
•
•
•
401-1
New employee
hires and employee
turnover
In 2017, we hired a total of 178,089 new employees.
Social
1. New hires by gender:
● Male
● Female
52%
48%
2. New hires by age group:
•
•
•
● 18-34
● 35-44
● 45 and over
77%
14%
9%
Does not include information of IMBERA and PTM.
12
GRI
Standard
401-2
Contents
Answer or reference
Benefits provided to
full-time employees
that are not provided
to temporary or
part-time employees
These are some of the benefits our employees enjoy:
• Annual bonus.
• Complementary annual compensation.
• Savings fund.
• Scholarships.
Additionally, through Sociedad Cuauhtémoc y Famosa (SCYF) in Monterrey, Nuevo
León, Mexico, we offer comprehensive development programs for our employees,
along with medical care, recreation, food and financial services, to promote a culture of
work and savings that encourages family stability.
401-3
Parental leave
Benefits are offered to full-time as well as temporary employees.
The return work rate after the parental leave in 2017 was 92% for men and 67% for
women.
403-2
Types of injury
and rates of injury,
occupational
diseases, lost days,
and absenteeism,
and number of work-
related fatalities
403-3
403-4
404-1
404-2
Workers with high
incidence or high
risk of diseases
related to their
occupation
Health and safety
topics covered in
formal agreements
with trade unions
Average hours of
training per year per
employee
Programs for
upgrading employee
skills and transition
assistance programs
This information does not include data for Imbera or PTM.
In 2017, the index of days lost due to work-related incidents per 100 workers was
reduced from 40.36 days in 2016 to 28.56 in 2017, which is a 29% improvement in that
period. The accident frequency rate / Accident Index was reduced by 1.4% from 2.13 in
2016 to 2.10 in 2017. The index of days lost due to general illness increased 2% from 332
to 338 days for every 100 workers, due mainly to increases in Brazil and Mexico. The
general illness incidence index decreased by 14%, from 47.25 cases per 100 workers
to 40.7 in 2017. In 2017, there were five work-related fatalities among our employees
(four in Mexico and one in Colombia). Of these, two were the result of social violence
(crime) and the other three were transit accidents. The work-related illness rate
(WRIR) was 0.03 for every 100 workers, and 70% of these cases were in Mexico and
Colombia. In line with global labor safety and health indicators and practices, we are
migrating to indicators based on work-hours, with the following results: index of days
lost due to work-related accidents, 24.75; accident frequency rate, 1.79; days lost due
to general illness 287.89; general illness cases 34.67; work-related illness rate (WRIR)
0.026; and Lost Time incident Rate (LTIR) 1.819.
For the company, creating safe and healthy working conditions is a crucial part of our
Occupational Health and Safety policy, so it includes all people. Separating accident
and fatality indicators by gender makes no difference in implementation of preventive
and corrective measures in the various Occupational Health and Safety Systems of
FEMSA’s Business Units.
Through our Occupational Health Management Model and 20 preventive programs,
we promote and maintain the highest level of physical, mental and social wellness in
all of our Business Units, by encouraging our employees to adopt healthy lifestyles,
minimizing the risk of work-related illness and complying with the laws of all the
countries where we operate.
Our collective bargaining agreements include a commitment to fulfill occupational
health and safety obligations, prevent accidents through mixed committees and
provide safety equipment consistent with the duties performed.
Employees of FEMSA and its Business Units received an average of 33.9 hours of
training in 2017.
Does not include information of IMBERA and PTM.
The comprehensive development of our employees, both professionally and personally,
is of the utmost importance to FEMSA. We maintain a number of programs to pursue
this objective, for example through Sociedad Cuauhtémoc y Famosa (SCYF) in
Monterrey, México, we support programs to help employees transition to retirement
through the Life and Development Program (PLAVIDE). The program is designed for
employees approaching retirement, along with their partners, to prepare for this new
phase, understanding it as a natural process in life.
For more information on this standard, see Page 24, Our People.
Business Unit
FC
FSB
KOF
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
13
Contents
Answer or reference
Business Unit
FC
FSB
KOF
Percentage
of employees
receiving regular
performance and
career development
reviews
Diversity of
governance bodies
and employees
Operations and
suppliers in which
the right to freedom
of association and
collective bargaining
may be at risk
Operations and
suppliers at
significant risk for
incidents of child
labor
Operations and
suppliers at
significant risk for
incidents of forced
or compulsory labor
Security personnel
trained in human
rights policies or
procedures
Operations that
have been subject
to human rights
reviews or impact
assessments
Employee training
on human rights
policies or
procedures
Significant
investment
agreements and
contracts that
include human
rights clauses or that
underwent human
rights screening
Operations with
local community
engagement, impact
assessments, and
development
programs
New suppliers that
were screened using
social criteria
As part of our talent management, during the year, 23,350 employees received
individual performance and professional development evaluations.
Structure of Board of Directors, See page 34; See standard 102-08.
FEMSA has a policy of respecting employees' freedom of association and union
affiliation; and their right to create or join a union, voluntarily and freely, without fear
of reprisals or intimidation. In our work centers and among our significant suppliers,
we have identified no threats or violations of the freedom of association and right to
adhere to collective bargaining contracts.
In every country where we operate, FEMSA has a policy of operating in keeping with
national and international laws regarding minimum hiring age and working conditions.
•
•
•
•
•
•
•
•
•
•
•
•
For FEMSA, human beings are the fundamental factor in the organization, and must
be treated with dignity. Accordingly, we prohibit any form of labor that is not mutually
agreed upon, and we reject all types of unpaid work, servitude, slavery or withholding
of documents as a condition of employment.
•
•
•
80% of our security personnel received human rights training in 2017.
This percentage does not include security personnel from FEMSA Comercio, Imbera and PTM.
•
•
At FEMSA we have a Workplace Information System through which each work center
can conduct a self-evaluation that includes specific human right issues. To date, no
potential impacts have been identified. Also, at Coca-Cola FEMSA, operations are
audited by an external party for issues relating to human rights, among others.
See standard 404-1.
FEMSA’s Code of Ethics is one of the ways we give our unconditional support to
a sense of respect, honesty and integrity in our organization. These values are an
essential part of our corporate culture, and enable us to ensure our businesses are
properly managed. The Code encourages all our suppliers to follow good human rights
practices, and we provide every supplier of goods and services a copy of our Supplier
Guiding Principles.
See page 28 Our Community.
See standard 308-1.
•
•
•
•
•
•
•
•
•
•
•
•
•
GRI
Standard
404-3
405-1
407-1
408-1
409-1
410-1
412-1
412-2
412-3
413-1
414-1
14
Contents
Answer or reference
Business Unit
FC
FSB
KOF
GRI
Standard
417-1
Requirements for
product and service
information and
labeling
417-2
417-3
418-1
419-1
Incidents of
non-compliance
concerning product
and service
information and
labeling
Incidents of
non-compliance
concerning
marketing
communications
Substantiated
complaints
concerning breaches
of customer privacy
and losses of
customer data
Non-compliance
with laws and
regulations in the
social and economic
area
To enable our consumers to make informed dietary decisions across every one
of our operations, our product labels include easy-to-access nutritional content
information, including the nutrients, fats, sugar, sodium, and calories in each of our
products. Calculated on the basis of a two-thousand-calorie diet, our nutritional
labeling strategy is based on recommended Dietary Daily Allowance Guidelines and on
applicable regulations in each country.
As part of our commitment to the wellbeing of our consumers, our advertising adheres
to The Coca-Cola Company’s Responsible Marketing Policy and Global School
Beverage Guidelines. We do not market any of our products directly to children under
the age of 12 and also we don’t place any of our brands’ marketing in any media that
directly targets children under 12—media in which 35% or more of the audience is
composed of children under 12. We further voluntarily refrain from offering our
caloric beverages for sale in primary and secondary schools. In this and other ways, we
underscore our devotion to the healthy habits of our consumers.
Furthermore, to ensure that our products comply with the highest quality standards—
including ISO-9001 and ISO-22000 certifications—our manufacturing processes
adhere to the Coca-Cola Operation Requirements (KORE) and to the Food Safety
Management System. Accordingly, we guarantee the quality of our products
throughout our plants’ production chain, which are in turn certified in food safety
through the Food Safety System Certification 22000 (FSSC 22000).
There were no monetary fines and/or sanctions relating to non-compliance with laws
or regulations or voluntary codes regarding information or labeling of products and
services.
There were no incidents relating to non-compliance with regulations on marketing
communications, including advertising, promotion and sponsorship.
There were no claims of violation of privacy for our clients, or loss of client data.
There were no incidents relating to non-compliance with social or environmental laws.
•
•
•
•
•
•
•
•
•
•
•
•
•
15
Independent Limited Verification Report
Av. Ejército Nacional 843-B
Antara Polanco
11520 México, D.F.
Phone: +55 5283 1300
Fax: +55 5283 1392
ey.com/mx
To the Board of Directors of Fomento Económico Mexicano, S.A.B de C.V.:
Independent Limited Verification Report
Scope of our Work
We have undertaken an independent limited verification of the information and performance indicators included in Exhibit A
and presented in the 2017 Annual Report (the “Report”) of Fomento Económico Mexicano (“FEMSA” or the “Company”), in
accordance with the reporting criteria set forth in the GRI Standards (the “Criteria”).
The preparation of this report is the responsibility of FEMSA’s Management. FEMSA’s Management is also responsible for the
information and the assertions contained therein, defining the scope of the Report and the management and control of the
information systems that provided the information reported.
Our work was conducted in accordance with International Standard on Assurance Engagements (ISAE) 3000 issued by the
International Auditing and Assurance Standards Board (IAASB) of the International Federation of Accountants (IFAC). This
standard requires that we plan and perform our engagement to obtain limited assurance about whether the report is free from
material misstatement and that we comply with ethical requirements, including the independence requirements included in
the Code of Ethics of the International Ethics Standards Board for Accountants (IESBA).
Standards and verification procedures
The verification procedures we performed focused on the following:
Interviews with the individuals responsible for the information in order to understand the activities performed and the
procedures used to gather the information.
Review of the structure and content of the Report in accordance with the GRI Standards.
Understanding of the procedures used in compiling and consolidating quantitative and qualitative data, as well as their
traceability.
Review of the support documentation through analysis and recalculations, as well as sampling, to have more certainty of
the indicators reported.
It is worth mentioning that the scope of this review is substantially less than a reasonable assurance engagement. Therefore,
the assurance provided is also less. This Report shall in no way be considered to be an audit report.
The information and performance indicators that were verified are the following
102-4
102-18
102-26
102-31
102-46
102-15
102-19
102-27
102-41
102-48
102-16
102-20
102-28
102-42
102-17
102-22
102-29
102-45
103-1
103-2
204-1
301-1
301-2
302-3
303-1
305-4
401-2
404-2
-
-
-
-
-
-
-
-
-
Total number of employees
Total number of employees by labor contract
Total number of employees by gender
Total number of employees by region
Direct stationary energy consumption
Indirect energy consumption
Direct and indirect GHG emissions (scope 1 and 2)
Indirect GHG emissions due to business trips (scope 3)
Percentage of water discharged by destination
A Member Practice of Ernst & Young Global Limited
16
-
-
-
-
-
-
-
-
Total tons of waste generated
Number of suppliers assessed on issues regarding human rights, the environment, and labor practices
Number of new hires
Accident rate
General illness rate
Average number of training hours
Number of employees with performance assessments
Number of work centers enabled with the Model for Addressing Risks and Relations with the Community (MARRCO)
Conclusions
Based on our work described in this Report, nothing has come to our attention that causes us to believe that the information
and performance indicators selected are not presented, in all material respects, in accordance with the applicable criteria.
This report has been exclusively prepared for the Board of Directors of Fomento Económico Mexicano, S.A.B. de C.V., in
accordance with the terms of our engagement agreement.
Mancera, S.C.
A Member Practice of Ernst & Young Global Limited
Saúl García
Partner
February 21, 2018; Mexico City
A Member Practice of Ernst & Young Global Limited
17
Exhibit A: Information and performance indicators exhibit
Information
GRI
Information name
102-4 Location of operations
GRI
102-29
Information name
Identifying and managing economic, environmental, and social
impacts
102-15 Key impacts, risks, and opportunities
102-31
Review of economic, environmental, and social topics
102-16 Values, principles, standards, and norms of behavior
102-42
Identifying and selecting stakeholders
102-17 Mechanisms for advice and concerns about ethics
102-45
Entities included in the consolidated financial statements
102-18 Governance structure
102-46
Defining report content and topic Boundaries
102-19 Delegating authority
102-48
Restatements of information
102-20
Executive-level responsibility for economic, environmental, and
social topics
103-1
Explanation of the material topic and its Boundary
102-22 Composition of the highest governance body and its committees 103-2
The management approach and its components
102-26
Role of highest governance body in setting purpose, values, and
strategy
102-27 Collective knowledge of highest governance body
401-2
404-2
Benefits provided to full-time employees that are not provided to
temporary or part-time employees
Programs for upgrading employee skills and transition assistance
programs
102-28 Evaluating the highest governance body’s performance
Performance indicators
GRI
Name of performance indicator
Scope
Information
reported
Unit
Total number of employees
FEMSA and its business units
295,027
Employees
Total number of employees by labor
contract
FEMSA and its business units
Total number of employees by gender
FEMSA and its business unitsi
Total number of employees by region
FEMSA and its business units
20.3
54.9
5.4
19.5
34.8
65.2
71.0
2.4
4.3
9.2
1.0
4.1
1.9
5.6
0.5
102-41 Collective bargaining agreements
FEMSA and its business units
73.0
% of employees
% of unionized employees
% of external services
% of sales commissions
% of female employees
% of male employees
% in Mexico
% in Central America
% in Colombia
% in Brazil
% in Argentina
% in Chile
% in Venezuela
% in the Philippines
% in other countries
% of own employees covered by
collective bargaining agreements
18
204-1 Proportion of spending on local suppliers
FEMSA and its business unitsii
86.8
% of spending on local suppliers
518,319
Tons of resin and packaging material
34.4
% of recycled input materials
301-1 Materials used by weight or volume
301-2 Recycled input materials
Direct stationary energy consumption
Coca Cola FEMSA, FEMSA
Comercio and PTM
Coca Cola FEMSA, FEMSA
Comercio and PTM
Coca Cola FEMSA and
Imbera
2,243,678
Indirect energy consumption
FEMSA and its business units
10,340,135
Direct stationary energy intensity
302-3
Coca Cola FEMSA and
Imbera
Indirect energy intensity
FEMSA and its business units
303-1
Water withdrawal by source
FEMSA and its business units
4.9
22.5
37.6
65.0
33.7
1.3
GJ
GJ
GJ/FEMSA’s total revenue in millions of
Mexican pesos
GJ/FEMSA’s total revenue in millions of
Mexican pesos
Millions of cubic meters
% underground
% supply
% surface
Direct and indirect GHG emissions (scope 1
and 2)
Indirect GHG emissions due to business
trips (scope 3)
Direct stationary GHG emissions intensity
Direct emissions: Coca Cola
FEMSA and Imbera
Indirect emissions: FEMSA
and its business units
FEMSA and its business
unitsiii
Coca Cola FEMSA and
Imbera
Indirect stationary GHG emissions intensity
FEMSA and its business units
305-4
Percentage of water discharged by
destination
Coca Cola FEMSA
1,177,584
Tons of CO2 equivalent
16,227
Tons of CO2 equivalent
0.4
2.2
92.5%
7.5%
Tons of CO2 equivalent/FEMSA’s total
revenue in millions of Mexican pesos
Tons of CO2 equivalent/FEMSA’s total
revenue in millions of Mexican pesos
% of discharge into own wastewater
treatment plant
% of discharge into local wastewater
treatment plant
Total tons of waste generated
FEMSA and its business units
166,604
Tons of waste
Number of suppliers assessed on issues
regarding human rights, the environment,
and labor practices
Coca Cola FEMSA
735
Suppliers
Number of new hires
FEMSA and its business units
178,089
New hires
Accident rate
General illness rate
FEMSA and its business units
FEMSA and its business units
Average number of training hours
FEMSA and its business units
2.1
40.7
33.9
Number of accidents per 100 employees
Number of cases per 100 employees
Training hours
Number of employees with performance
assessments
Number of work centers enabled with the
Model for Addressing Risks and Relations
with the Community (MARRCO)
FEMSA and its business units
23,350
Employees
Coca Cola FEMSA
18
Work centers
iThe percentages don’t include 9% of FEMSA’s employees.
ii Excludes: Suppliers or merchandise (OXXO merchandise), finished product, employees or sales representatives, donations, inter-company transfers,
government offices, unions, information of operations of FEMSA Logística in Brazil and Coca-Cola FEMSA in Philippines.
iii1% of the flights are not included.
19
Contact
General Counsel
Carlos E. Aldrete Ancira
General Anaya Nº 601 Pte.
Colonia Bella Vista Monterrey,
Nuevo León, Mexico, C.P. 64410
Phone: +52 (81) 83 28 61 80
Independent Accountant
Mancera, S.C.
A Member Practice of Ernst & Young Global Limited
Av. Lázaro Cárdenas Nº 2321 Pte. Floor 5
Col. Residencial San Agustín
San Pedro Garza García, Nuevo León, Mexico,
C.P. 66260
Phone: +52 (81) 81 52 18 00
Depositary Bank and Registrar
BNY Mellon Shareowner Services
PO Box 505000
Louisville, KY 40233-5000
Direct Mailing for overnight packages:
BNY Mellon Shareowner Services
462 South 4th Street, Suite 1600
Louisville, KY 40202
Toll free number for U.S. calls: +1 888 269 2377
International calls: +1 201 680 6825
Website: www.mybnymdr.com
e-mail: shrrelations@cpushareownerservices.com
Stock Markets and Symbols
Fomento Económico Mexicano, S.A.B. de C.V. stock trades
on the Bolsa Mexicana de Valores (BMV) in the form of units
under the symbols FEMSA UBD and FEMSA UB. The FEMSA
UBD units also trade on The New York Stock Exchange, Inc.
(NYSE) in the form of ADRs under the symbol FMX.
Investor Relations
Juan Fonseca
Gerardo Lozoya
Phone: +52 (81) 83 28 61 67
Fax: +52 (81) 83 28 60 80
e-mail: investor@femsa.com.mx
Corporate Communication
Mauricio Reyes
Alma Beltrán
Phone: +52 (55) 52 49 68 43
Fax: +52 (55) 52 49 68 61
e-mail: comunicacion@femsa.com.mx
Sustainability
Víctor Manuel Treviño Vargas
Gabriel Adrián González Ayala
Phone: +52 (81) 83 28 60 00
e-mail: sostenibilidad@femsa.com.mx
For more information visit us at:
www.femsa.com
www.femsa.com/investor
investor@femsa.com.mx
General Anaya Nº 601 Pte. Colonia Bella Vista Monterrey,
Nuevo León, Mexico, C.P. 64410
Phone: +52 (81) 83 28 61 80
design: signi.com.mx
Fomento Económico Mexicano,
S.A.B. de C.V.
General Anaya 601 Pte.
Col. Bella Vista C.P. 64410
Monterrey, Nuevo León, Mexico
investor@femsa.com.mx
www.annualreport.femsa.com
www.femsa.com