Financial Information

Financial Summary

Amounts expressed in millions of Mexican pesos (Ps.)
as of December 31:

           
  2013   2012   2011 (1)
Income Statement          
Net sales 256,804 Ps. 236,922 Ps. 200,426
Total revenues 258,097   238,309   201,540
Cost of goods sold 148,443   137,009   117,244
Gross profit 109,654   101,300   84,296
Operating expenses 79,797   72,073   59,812
Income from operations (2) 29,857   29,227   24,484
Other non-operating expenses (income), net 326   (345)   625
Financing expenses, net 4,249   1,904   196
Income before income taxes and share of the profit of associates and joint ventures accounted for using the equity method 25,282   27,668   23,663
Income taxes 7,756   7,949   7,618
Share of the profit of associates and joint ventures accounted for using the equity method, net of taxes 4,629   8,332   4,856
Consolidated net income 22,155   28,051   20,901
Controlling Interest 15,922   20,707   15,332
Non-Controlling Interest 6,233   7,344   5,569
Ratios to total revenues (%)          
Gross margin 42.5%   42.5%   41.8%
Operating margin 11.6%   12.3%   12.1%
Consolidated net income 8.6%   11.8%   110.4%
Other information          
Depreciation 8,805   7,175   5,694
Amortization and other non cash charges to income from operations 1,208   1,278   1,320
Operative Cash Flow (EBITDA) 39,870   37,680   31,498
Capital expenditures (3) 17,882   15,560   12,609
           
  2013   2012   2011 (1)
Balance Sheet          
Assets          
Current assets 73,569   75,455   59,983
Investments in associates and joint ventures 98,330   83,840   78,643
Property, plant and equipment, net (4) 73,955   61,649   54,563
Intangible assets, net 103,293   67,893   63,030
Other assets, net 10,045   7,105   7,143
Total assets 359,192   295,942   263,362
Liabilities          
Short-term bank loans and current portion of long-term bank loans and notes payable 3,827   8,702   5,573
Other current liabilities 45,042   39,814   33,752
Long-term bank loans and notes payableo 72,921   28,640   23,819
Post-employment and other long-term employee benefits 4,074   3,675   2,584
Deferred income taxes liabilities 2,993   700   414
Other long-term liabilities 7,785   4,250   5,049
Total liabilites 136,642   85,781   71,191
Total equity 222,550   210,161   192,171
Controlling interest 159,392   155,259   144,222
Non-controlling interest 63,158   54,902   47,949
Financial ratios (%)        
Liquidity 1.505   1.555   1.525
Leverage 0.614   0.408   0.370
Capitalization 0.26   0.16   0.10
Data per share          
Controlling interest book value (5) 8.909   8.678   8.061
Net controlling interest income (6) 0.890   1.157   0.857
Dividends paid (7)          
Series B shares 0.667   0.309   0.229
Series D shares 0.833   0.386   0.287
Number of employees (8) 209,232   182,260   168,370
Number of outstanding shares (9) 17,891.13   17,891.13   17,891.13

(1) 2011 figures were restated for comparison with 2013 and 2012 as a result of transition to International Financial Reporting Standards (IFRS).

(2) Company’s key performance indicator.

(3) Includes investments in property, plant and equipment, as well as deferred charges and intangible assets.

(4) Includes bottles and cases

(5) Controlling interest divided by the total number of shares outstanding at the end of each year.

(6) Net controlling interest income divided by the total number of shares outstanding at the end of the each year.

(7) Expressed in nominal pesos of each year.

(8) Includes incremental employees resulting from mergers & acquisitions made during the year.

(9) Total number of shares outstanding at the end of each year expressed in millions.

Management’s Discussion and Analysis

Audited Financial Results for the twelve months ended December 31, 2013. Compared to the twelve months ended December 31, 2012.

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). 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”), which engages in the operation of small format stores.

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”).

The 2013 and 2012 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 31, 2013, which was 13.0980 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.

FEMSA Consolidated

2013 amounts in millions of Mexican pesos

  Total Revenues   % Growth vs ‘12   Gross Profit   % Growth vs ‘12
FEMSA Consolidated 258,097   8.3%   109,654   8.2%
Coca-Cola FEMSA 156,011   5.6%   72,935   6.3%
FEMSA Comercio 97,572   12.9%   34,586   14.3%

FEMSA’s consolidated total revenues increased 8.3% to Ps. 258,097 million in 2013 compared to Ps. 238,309 million in 2012. All of FEMSA’s operations—beverages and retail—contributed positively to this revenue growth. Coca-Cola FEMSA’s total revenues increased 5.6% to Ps. 156,011 million, driven by the integration of the beverage divisions of Grupo Fomento Queretano and Yoli in Mexico and Fluminense and Spaipa in Brazil. FEMSA Comercio’s revenues increased 12.9% to Ps. 97,572 million, mainly driven by the opening of 1,120 net new stores combined with an average increase of 2.4% in same-store sales.

Consolidated gross profit increased 8.2% to Ps. 109,654 million in 2013 compared to Ps. 101,300 million in 2012, driven by FEMSA Comercio. Gross margin remained stable compared to 2012 at 42.5% of consolidated total revenues.

Consolidated operating expenses increased 10.7% to Ps. 79,797 million in 2013 compared to Ps. 72,073 million in 2012. The majority of this increase resulted from Coca-Cola FEMSA and additional operating expenses at FEMSA Comercio, resulting from accelerated store expansion. As a percentage of total revenues, consolidated operating expenses increased from 30.2% in 2012 to 30.9% in 2013.

Consolidated administrative expenses increased 4.3% to Ps. 9,963 million in 2013 compared to Ps. 9,552 million in 2012. As a percentage of total revenues, consolidated administrative expenses decreased from 4.0% in 2012 to 3.9% in 2013.

Consolidated selling expenses increased 12.1% to Ps. 69,574 million in 2013 as compared to Ps. 62,086 million in 2012. This increase was attributable to greater selling expenses at Coca-Cola FEMSA and FEMSA Comercio. As a percentage of total revenues, selling expenses increased 0.9 percentage points, from 26.0% in 2012 to 26.9% in 2013.

Consolidated income from operations increased 2.2% to Ps. 29,857 million in 2013 as compared to Ps. 29,227 million in 2012, driven by FEMSA Comercio. As a percentage of total revenues, operating margin decreased 0.7 percentage points, from 12.3% in 2012 to 11.6% in 2013.

Some of our subsidiaries pay management fees to us in consideration of corporate services we provide to them. These payments 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 increased to Ps. 4,249 million from Ps. 1,904 million in 2012, driven by an interest expense of Ps. 4,331 million in 2013 compared to Ps. 2,506 million in 2012 resulting from higher financing expenses related to bonds issued by FEMSA and Coca-Cola FEMSA.

Income before income taxes and share of the profit in Associates results decreased 8.6% to Ps. 25,282 million in 2013 compared with Ps. 27,668 million in 2012, mainly driven by higher financing expenses, which were partially offset by the growth in income from operations.

Our accounting provision for income taxes in 2013 was Ps. 7,756 million, as compared to Ps. 7,949 million in 2012, resulting in an effective tax rate of 30.7% in 2013, as compared to 28.7% in 2012.

Consolidated net income was Ps. 22,155 million in 2013 compared to Ps. 28,051 million in 2012, resulting from a tough comparable base caused by a non-cash exceptional gain related to the revaluation of certain equity interests held by Heineken in Asia in 4Q12, as well as by higher financing expenses, which were slightly offset by the growth in income from operations. Controlling interest amounted to Ps. 15,922 million in 2013 compared to Ps. 20,707 million in 2012, which difference was also due principally by a tough comparable base caused by a non-cash exceptional gain related to the revaluation of certain equity interests held by Heineken in Asia in 4Q12. Controlling interest in 2013 per FEMSA Unit 1 was Ps. 4.45 (US$ 3.40 per ADS).

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, 2013 was 3,578,226,270, equivalent to the total number of FEMSA Shares outstanding as of the same date, divided by 5.


Coca-Cola FEMSA

Coca-Cola FEMSA total revenues increased 5.6% to Ps. 156,011 million in 2013, as compared to 2012, driven by the integration of the beverage divisions of Grupo Fomento Queretano and Yoli in Mexico and Fluminense and Spaipa in Brazil. Excluding the non-comparable effect of the recently integrated territories in Mexico and Brazil, total revenues reached Ps. 149,210. On a currency neutral basis and excluding the non-comparable effect of Foque, Yoli, Fluminense and Spaipa, total revenues increased 16.3% in 2013.

Coca-Cola FEMSA gross profit increased 6.3% to Ps. 72,935 million in 2013, as compared to 2012. Lower sugar prices in most of our territories in combination with the appreciation of the average exchange rate of the Mexican peso, compensated for the depreciation of the average exchange rate of the Venezuelan bolivar, the Argentine peso, the Brazilian real and the Colombian peso as applied to our U.S. dollar-denominated raw material costs. Reported gross margin reached 46.7%, an expansion of 20 basis points as compared to 2012.

The components of cost of goods sold include raw materials (principally soft drink concentrate and sweeteners), packaging materials, depreciation costs attributable to our production facilities, wages and other employment costs associated with the 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 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 10.3% to Ps. 51,485 million in 2013 compared with Ps. 46,673 million in 2012, largely driven by (i) higher labor and freight costs in our South America division and (ii) continued marketing investments to support our marketplace execution and bolster our returnable packaging base.

Administrative expenses increased 4.3% to Ps. 6,487 million in 2013, compared with Ps. 6,217 million in 2012. Selling expenses increased 11.4% to Ps. 44,828 million in 2013 compared with Ps. 40,223 million in 2012.

Income from operations decreased 2.3% to Ps. 21,450 million in 2013 compared with Ps. 21,957 million in 2012.

FEMSA Comercio

FEMSA Comercio total revenues increased 12.9% to Ps. 97,572 million in 2013 compared to Ps. 86,433 million in 2012, primarily as a result of the opening of 1,120 net new stores during 2013, together with an average increase in same-store sales of 2.4%. As of December 31, 2013, there were a total of 11,721 stores in Mexico. FEMSA Comercio same-store sales increased an average of 2.4% compared to 2012, driven by a 2.8% increase in average customer ticket that offset a 0.5% decrease in store traffic.

Cost of goods sold increased 12.1% to Ps. 62,986 million in 2013, below total revenue growth, compared with Ps. 56,183 million in 2012. As a result, gross profit reached Ps. 34,586 million in 2013, which represented a 14.3% increase from 2012. Gross margin expanded 0.4 percentage points to reach 35.4% of total revenues. This increase reflects (i) a positive mix shift due to the growth of higher margin categories, and (ii) a more effective collaboration and execution with our key supplier partners, including higher and more efficient joint use of promotion-related marketing resources, as well as objective-based incentives.

Operating expenses increased 13.7% to Ps. 26,680 million in 2013 compared with Ps. 23,472 million in 2012, largely driven by the growing number of stores and distribution centers and specialized routes as well as incremental expenses related to new initiatives.

Administrative expenses increased 13.0% to Ps. 1,883 million in 2013, compared with Ps. 1,666 million in 2012; however, as a percentage of sales, they remained stable at 1.9%. Selling expenses increased 13.9% to Ps. 24,707 million in 2013 compared with Ps. 21,686 million in 2012.

Income from operations increased 16.6% to Ps. 7,906 million in 2013 compared with Ps. 6,778 million in 2012, resulting in an operating margin expansion of 0.3 percentage points to 8.1% as a percentage of total revenues for the year, compared with 7.8% in 2012.

Key Events During 2013

Coca-Cola FEMSA finalizes the acquisition of 51% of The Coca-Cola Company’s Philippines’ bottling operation

On January 24, 2013 Coca-Cola FEMSA, finalized the acquisition of 51% of Coca-Cola Bottlers Philippines, Inc. (CCBPI) from The Coca-Cola Company (NYSE: KO), the world’s largest beverage company, for an amount of US$688.5 million in an all-cash transaction. The closing of this transaction will be effective on January 25, 2013. This purchase price represents an aggregate enterprise value for 100% of the bottler of US$1,350 million. As part of the agreement, Coca-Cola FEMSA will have an option to acquire the remaining 49% of CCBPI at any time during the seven years following the closing and will have a put option to sell its ownership to The Coca-Cola Company any time during year six. Coca-Cola FEMSA will recognize the results of CCBPI through the equity method as of the closing date.

Coca-Cola FEMSA shareholders approved dividend payment in the amount of Ps. 5,950 million

On March 5, 2013 Coca-Cola FEMSA, held its Annual Ordinary General Shareholders Meeting, during which its shareholders approved the annual report presented by the Board of Directors, the Company’s consolidated financial statements for the year ended December 31, 2012, the declaration of dividends corresponding to fiscal year 2012 and the composition of the Board of Directors and the Finance and Planning, Audit, and Corporate Practices Committees for 2013. Shareholders approved the payment of a cash dividend in the amount of Ps. 5,950 million or the equivalent of Ps. 2.90 per share to be paid in two equal installments as of May 2, 2013 and November 5, 2013. In accordance with Mexican legislation requirements, shareholders approved the maximum amount that can potentially be used for our share repurchase program during 2013, the amount of Ps. 400 million.

FEMSA Shareholders Approved Ps. 6,684 Million Dividend

On March 15, 2013 FEMSA held its Annual Ordinary General Shareholders Meeting, during which the shareholders approved the Company’s annual report for 2012 prepared by the Chief Executive Officer, the Company’s consolidated financial statements for the year ended December 31, 2012, the declaration of dividends for the 2012 fiscal year and the election of the Board of Directors and its Committees for 2013. The shareholders approved the payment of a cash dividend in the amount of Ps. 6,684 million, consisting of Ps. 0.416666 per each Series “D” share and Ps. 0.333333 per each Series “B” share, which amounts to Ps. 2.00 per “BD” Unit (BMV: FEMSAUBD) or Ps. 20.00 per ADS (NYSE: FMX), and Ps. 1.666667 per “B” Unit (BMV: FEMSAUB). The dividend payment will be split in two equal payments, payable on May 7, 2013 and November 7, 2013. In addition, the shareholders established the amount of Ps. 3,000 million as the maximum amount that could potentially be used for the Company’s share repurchase program during 2013.

FEMSA closes the acquisition of Farmacias Yza

On May 2, 2013 FEMSA announced that its retail subsidiary, FEMSA Comercio, has closed the acquisition of a 75% stake in Farmacias YZA after obtaining all regulatory approvals. Farmacias YZA is a leading drugstore operator in Southeast Mexico. Headquartered in Merida, Yucatan, Farmacias YZA currently operates more than three hundred stores. FEMSA believes that it can contribute its significant expertise in the development of small-box retail formats to what is already a successful regional player in this industry. In turn, this transaction opens a new avenue for growth for FEMSA Comercio.

FEMSA Announces Successful Issuance in US Dollar Bond Market

On May 10, 2013 FEMSA announced the placement of two tranches of US Dollar-denominated bonds in the international capital markets. FEMSA successfully issued US$300 million in 10 year bonds at a yield of 10-year Treasuries plus 1.125%, and US$700 million in 30 year bonds at a yield of 30-year Treasuries plus 1.45%. The transaction was oversubscribed more than 8 times. The coupon for the 10-year bond represents the lowest ever achieved by a Latin American corporate issuer in the US Dollar bond market. This issuance received credit ratings of BBB+ from Standard & Poor’s and A from Fitch Ratings. The proceeds from this issuance will be used for general corporate purposes, improving FEMSA’s cost of debt and significantly extending its maturity profile. FEMSA has now increased its financial flexibility under extremely favorable conditions in order to continue to advance its long-term growth strategy.

FEMSA announces acquisition of Farmacias Moderna

On May 13, 2013 FEMSA announced that its retail subsidiary FEMSA Comercio has acquired Farmacias Moderna, a leading drugstore operator in the western state of Sinaloa. This transaction follows the recent acquisition of a controlling stake in Farmacias Yza in the southeast of Mexico, as FEMSA Comercio advances in its strategy to establish a relevant position in this attractive small-box retail segment. Headquartered in the city of Mazatlan, Sinaloa, Farmacias FM Moderna currently operates over one hundred stores.

Coca-Cola FEMSA Announces 10 Year Bond Issuance in Mexican Market

On May 22, 2013 Coca-Cola FEMSA announced the placement of peso denominated bonds (“Certificados Bursátiles”) in the Mexican market. KOF issued Ps. 7,500 million in a 10 year bond at a yield of 5.46%. The coupon for the 10-year bond represents the lowest ever achieved by a corporate issuer in the Mexican Peso bond market. This issuance received credit ratings of Aaa.mx from Moody’s and AAAmex from Fitch. The use of the proceeds will be used by the Company for general corporate purposes, including capital expenditure and working capital.

Coca-Cola FEMSA and Grupo Yoli successfully merge their bottling operations

On May 24, 2013 Coca-Cola FEMSA and Grupo Yoli, and its shareholders announced the successful merger of Grupo Yoli with Coca-Cola FEMSA. As a result of the merger, Grupo Yoli’s shareholders will receive approximately 42.4 million KOF series L shares. Through this transaction, Coca-Cola FEMSA became the owner of an additional 10.14% stake in Promotora Industrial Azucarera, S.A. de C.V. (—PIASA—), a participant in the Mexican sugar industry. Proyectos Financieros Especializados, S.C. (Profit) and Creel, García-Cuéllar, Aiza y Enríquez acted as exclusive financial and legal advisors, respectively, to Grupo Yoli on this transaction. Deloitte Galaz, Yamazaki, Ruiz Urquiza, S.C. and Raz Guzmán Abogados acted as financial and legal advisors, respectively, to Coca-Cola FEMSA on this transaction.

Coca-Cola FEMSA Successfully Closes the Acquisition of Companhia Fluminense de Refrigerantes in Brazil

On Aug 22, 2013 Coca-Cola FEMSA, announced that it has successfully closed the acquisition of 100% of Companhia Fluminense de Refrigerantes (“Companhia Fluminense”) in an all-cash transaction. Companhia Fluminense represents a geographic link between our São Paulo and Minas Gerais footprint and expands our presence in Brazil to parts of the state of Rio de Janeiro. During the last twelve months ended March 31, 2013, this franchise sold 56.6 million unit cases of beverages, including beer, generating approximately US$ 232 million in net revenues and an estimated pro forma consolidated EBITDA of US$ 40 million. Through this transaction, Coca-Cola FEMSA will increase its participation in Leao Alimentos, the leading non-carbonated beverage player in the country, from 19.7% to 21.8%.

Coca-Cola FEMSA Selected as Member of Dow Jones Sustainability Indices

On Sep 17, 2013 Coca-Cola FEMSA, announced that it has been selected as a member of the Dow Jones Sustainability Indices (“DJSI”). Effective September 23, 2013, Coca-Cola FEMSA will be a part of the Dow Jones Sustainability Emerging Markets Index, comprised of a group of 81 emerging markets companies.

FEMSA announces acquisition of Doña Tota

On September 23, 2013 FEMSA announced that its retail subsidiary FEMSA Comercio has agreed to acquire an investment stake representing 80% of Doña Tota, a leading quick-service restaurant operator, with the founding shareholders staying as partners with the remaining 20%. Founded in the state of Tamaulipas, Doña Tota currently operates 204 units across Mexico and 11 units in the United States (Texas). FEMSA Comercio believes that it can contribute its significant expertise in the development of small-box retail formats to what is already a successful player in the quick-service restaurant industry. In turn, this transaction brings relevant capabilities in the area of prepared food operation to FEMSA Comercio, while opening a compelling new avenue for growth. Doña Tota has built a strong brand and will continue to operate as a stand-alone format. The transaction is pending customary regulatory approvals.

FEMSA to separate the roles of Chairman of the Board and Chief Executive Officer

On October 24, 2013 FEMSA announced that its Board of Directors agreed to separate the roles of Chairman of the Board and CEO, ratifying José Antonio Fernández Carbajal as Executive Chairman and naming Carlos Salazar Lomelín as the new Chief Executive Officer of FEMSA.

The objective is to provide even more focus on the responsibilities of each role, ensuring from the position of the Executive Chairman of the Board the proper functioning of the various levels of governance; the management of strategic relationships with key stakeholders such as partners, authorities and shareholders; a clear strategic path in alignment with FEMSA’s shareholders; the development and management of talent to ensure the sustainability of FEMSA into the future, and the adherence to the highest business and corporate governance practices, consistent with the values of our company. For his part, the Chief Executive Officer will be able to direct all his efforts to the day-to-day stewardship of FEMSA’s businesses, leading and managing his senior team; proposing to the Board of Directors the short- and long-term plans and strategies; and developing the talent required to support growth and the necessary succession processes.These changes will become effective on January 1st, 2014.

Coca-Cola FEMSA Appoints New Chief Executive Officer

On Oct 24, 2013 Coca-Cola FEMSA, announced that its Board of Directors has appointed John Santa Maria Otazua as Chief Executive Officer (“CEO”), effective January 1, 2014. Mr. Santa Maria is currently Chief Operating Officer of the Company’s South America Division and succeeds Mr. Carlos Salazar Lomelín, who has served as the Company’s CEO since 2000.

Coca-Cola FEMSA Successfully Closes the Acquisition of Spaipa S.A. Industria Brasileira de Bebidas in Brazil

On Oct 29, 2013 Coca-Cola FEMSA, announced that it has successfully closed the acquisition of 100% of Spaipa S.A. Industria Brasileira de Bebidas (“Spaipa”) in an all-cash transaction. Spaipa’s strategic footprint is a perfect geographic fit which links Coca-Cola FEMSA’s operations in the state of Mato Grosso do Sul and the state of São Paulo. This transaction will increase our volume in Brazil by 40%, allowing us to reach 39% of the Coca-Cola system’s volume in the country. During the last twelve months ended June 30, 2013, Spaipa sold 233.3 million unit cases of beverages, including beer, generating approximately US$905 million in net revenues and an estimated pro forma EBITDA of US$134 million. Our combined territories will allow Coca-Cola FEMSA to serve more than 66 million consumers -- a third of the population in Brazil. In addition, Coca-Cola FEMSA will increase its participation in Leão Alimentos, the leading non-carbonated beverage player in the country, to 26%.

Coca-Cola FEMSA Places US$2.15 Billion of Senior Notes in the International Capital Markets

On Nov 19, 2013 Coca-Cola FEMSA, announced the placement of three tranches of U.S. dollar-denominated bonds in the international capital markets (the “Senior Notes”). The Company successfully sold US$ 1.0 billion of 5-year bonds at a yield of US Treasury + 105 basis points, with a coupon of 2.375%; US$ 750 million of 10-year bonds at a yield of US Treasury + 135 basis points, with a coupon of 3.875%; and US$ 400 million of 30-year bonds at a yield of US Treasury + 155 basis points, with a coupon of 5.250%. The transaction was multiple times oversubscribed with broad participation from investment grade dedicated investors. This issuance received credit ratings of A2 from Moody’s, A- from Standard & Poor’s, and A from Fitch Ratings. The proceeds will be used for general corporate purposes, including partial debt refinancing. As a result of this issuance, Coca-Cola FEMSA will increase the average life of its debt maturity profile from 4.1 years to 7.9 years.

FEMSA Shareholders Approved Ps. 6,684 Million Dividend

On December 6, 2013 FEMSA held its Annual Ordinary General Shareholders Meeting, during which the shareholders approved the payment of a cash dividend in the amount of Ps. 6,684 million, consisting of Ps. 0.416666 per each Series “D” share and Ps. 0.333333 per each Series “B” share, which amounts to Ps. 2.00 per “BD” Unit (BMV: FEMSAUBD) or Ps. 20.00 per ADS (NYSE: FMX), and Ps. 1.666667 per “B” Unit (BMV: FEMSAUB). The dividend will be payable as of December 18, 2013.

Annual Report of the Audit Committee

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, 2013. 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:

Internal Control

We verified the compliance by management of its responsibilities regarding internal control, the establishment of general guidelines and the procedures necessary for their application and compliance. Additionally, we reviewed the comments and suggestions made by the 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 performed by the Company to be reported for the year 2013. Throughout this process, we verified the preventive and corrective measures implemented.

Risk Assessment

We periodically evaluated the effectiveness of the Risk Management System, which is established to identify, measure, record, assess, and control the Company’s risks, as well as the implementation of the related controls 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.

External Audit

We recommended to the Board of Directors to approve the external auditors for the Company and its subsidiaries for fiscal year 2013. 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 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 audit and other permitted services, and made sure 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 the fiscal year 2013.

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 SAROX. For its preparation, the Internal Audit area participated in the process of identifying risks, reviewing controls and testing them.

We received periodic reports regarding the progress of the approved work program, their findings and the causes thereof.

We followed up the implementation of the observations developed by Internal Audit.

We confirmed the existence of an Annual Training program.

We reviewed 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 their preparation and recommended the Board of Directors its approval and authorized their publication. As part of this process, we took into account the opinions and remarks of the external auditors and made sure 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 Company’s financial situation, its operating results and cash flows for the fiscal year ending December 31, 2013.

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 with the same accounting criteria used 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 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 accounting standards for the Company that became effective in 2013, 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 the 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. We validated the incorporation of a compliance provision with the Anti-Money Laundering laws in the countries where we operate, as well as compliance with anti corruption laws (FCPA) recommending its approval to the Board of Directors.

With the support from 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.

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 to 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

February 26, 2014
José Manuel Canal Hernando

Independent Auditor’s Report

The Board of Directors and Shareholders of
Fomento Económico Mexicano, S.A.B. de C.V.

Report on the Consolidated Financial Statements

We have audited the accompanying consolidated financial statements of Fomento Económico Mexicano, S.A.B. de C.V. and its subsidiaries, which comprise the consolidated statements of financial position as at December 31, 2013 and 2012, and the 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 December 31, 2013, and a summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these 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.

Auditor’s Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements 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 entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Fomento Económico Mexicano, S.A.B. de C.V. and its subsidiaries as at December 31, 2013 and 2012, and their financial performance and cash flows for each of the three years in the period ended December 31, 2013, in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.


Mancera, S.C.
A member practice of Ernst & Young Global



Agustín Aguilar Laurents

March 3, 2014
Monterrey, N.L. MEXICO

Consolidated Statements of Financial Position

As of December 31, 2013 and 2012.
Amounts expressed in millions of U.S. dollars ($) and in millions of Mexican pesos (Ps.)

  Note   December
2013 (*)
  December
2013
  December
2012
ASSETS
Current Assets:
             
Cash and cash equivalents 5 $ 2,081 Ps. 27,259 Ps. 36,521
Investments 6   10   126   1,595
Accounts receivable, net 7   977   12,798   10,837
Inventories 8   1,396   18,289   116,345
Recoverable taxes     698   9,141   6,277
Other current financial assets 9   304   3,977   2,546
Other current assets 9   151   1,979   1,334
Total current assets     5,617   73,569   75,455
Investments in associates and joint ventures 10   7,507   98,330   83,840
Property, plant and equipment, net 11   5,646   73,955   61,649
Intangible assets, net 12   7,886   103,293   67,893
Deferred tax assets 24   290   3,792   2,028
Other financial assets 13   210   2,753   2,254
Other assets, net 13   267   3,500   2,823
TOTAL ASSETS 13 $ 27,423 Ps. 359,192 Ps. 295,942
LIABILITIES AND EQUITY
Current Liabilities:
             
Bank loans and notes payable 18 $ 40 Ps. 529 Ps. 4,213
Current portion of long-term debt 18   252   3,298   4,489
Interest payable     31   409   207
Suppliers     2,033   26,632   24,629
Accounts payable     528   6,911   6,522
Taxes payable     515   6,745   5,048
Other current financial liabilities 25   332   4,345   3,408
Total current liabilities     3,731   48,869   48,516
Long-Term Liabilities:              
Bank loans and notes payable 18   5,567   72,921   28,640
Post-employment and other long-term employee benefits 16   311   4,074   3,675
Deferred tax liabilities 24   229   2,993   700
Other financial liabilities 25   127   1,668   480
Provisions and other long-term liabilities 25   467   6,117   3,770
Total long-term liabilities     6,701   87,773   37,265
Total liabilities     10,432   136,642   85,781
Equity:              
Controlling interest: 25   467   6,117   3,770
Capital stock     255   3,346   3,346
Additional paid-in capital     1,942   25,433   22,740
Retained earnings     9,989   130,840   128,508
Cumulative other comprehensive (loss) income     (17)   (227)   665
Total controlling interest     12,169   159,392   155,259
Non-controlling interest in consolidated subsidiaries 21   4,822   63,158   54,902
Total equity     16,991   222,550   210,161
TOTAL LIABILITIES AND EQUITY   $ 27,423 Ps. 359,192 Ps. 295,942

(*) 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.

Consolidated Income Statements

For the years ended December 31, 2013, 2012 and 2011.
Amounts expressed in millions of U.S. dollars ($) and in millions of Mexican pesos (Ps.), except per share amounts.


  Note   2013   2013   2012   2011
Net sales   $ 19,606 Ps. 256,804 Ps. 236,922 Ps. 200,426
Other operating revenues     99   256,804   236,922   200,426
Total revenues     19,705   258,097   238,309   201,540
Cost of goods sold     11,333   148,443   137,009   117,244
Gross profit     8,372   109,654   101,300   84,296
Administrative expenses     761   9,963   9,552   8,172
Selling expenses     5,312   69,574   62,086   50,685
Other income 19   50   651   1,745   381
Other expenses 19   (110)   (1,439)   (1,973)   (2,072)
Interest expense 18   (331)   (4,331)   (2,506)   (2,302)
Interest income     94   1,225   783   1,014
Foreign exchange (loss) gain, net     (55)   (724)   (176)   1,148
Monetary position (loss) gain, net     (33)   (427)   (13)   53
Market value gain (loss) on financial instruments     1   8   8   (109)
Income before income taxes and share of the profit of associates and joint ventures accounted for using the equity method     1,915   25,080   27,530   23,552
Income taxes 24   597   7,756   7,949   7,618
Share of the profit of associates and joint ventures accounted for using the equity method, net of taxes 10   369   4,831   8,470   4,967
Consolidated net income   $ 1,692 Ps. 22,155 Ps. 28,051 Ps 20,901
Attributable to:                  
Controlling interest     1,216   15,922   20,707   15,332
Non-controlling interest     476   6,233   7,344   5,569
Consolidated net income $ Ps. 1,692 Ps. 22,155 Ps. 28,051 Ps. 20,901
Basic net controlling interest income:                  
Per series “B” share 23 $ 0.06 Ps. 0.79 Ps. 1.03 Ps. 0.77
Per series “D” share 23   0.08   1.00   1.30   0.96
Diluted net controlling interest income:                  
Per series “B” share 23   0.06   0.79   1.03   0.76
Per series “D” share 23   0.08   0.99   1.29   0.96

(*) Convenience translation to U.S. dollars ($) – See Note 2.2.3

The accompanying notes are an integral part of these consolidated income statements.

Consolidated Statements of Comprehensive Income

For the years ended December 31, 2013, 2012 and 2011.
Amounts expressed in millions of U.S. dollars ($) and in millions of Mexican pesos (Ps.)


  Note   2013(*)   2013   2012   2011
Consolidated net income   $ 1,692 Ps. 22,155 Ps. 28,051 Ps. 20,901
Other comprehensive income:                  
Items that may be reclassified to consolidated net income, net of tax:                  
Unrealized (loss) gain on available for sale securities 6   -   (2)   (2)   4
Valuation of the effective portion of derivative financial instruments                  
Exchange differences on translating foreign operations     88   1,151   (5,250)   9,008
Share of other comprehensive income of associates and joint ventures 10   (201)   (2,629)   (781)   (1,395)
Total items that may be reclassified 10   (132)   (1,726)   (6,276)   7,735
Items that will not to be reclassified to consolidated net income in subsequent periods, net of tax:                  
Remeasurements of the net defined benefit liability 15   (9)   (112)   (279)   (59)
Total items that will not be reclassified     (9)   (112)   (279)   (59)
Total other comprehensive (loss) income, net of tax     (141)   (1,838)   (6,555)   7,676
Consolidated comprehensive income, net of tax   $ 1,551 Ps. 20,317 Ps. 21,496 Ps. 28,577
Controlling interest comprehensive income     1,147   15,030   15,638   20,986
Reattribution to non-controlling interest of other comprehensive income by acquisition of Grupo YOLI     (3)   (36)   -   -
Reattribution to non-controlling interest of other comprehensive income by acquisition of FOQUE     -   -   29   -
Reattribution to non-controlling interest of other comprehensive income by acquisition of Grupo Tampico     -   -   -   37
Reattribution to non-controlling interest of other comprehensive income by acquisition of Grupo CIMSA     -   -   -   50
Controlling interest, net of reattribution   $ 1,144 Ps. 14,994 Ps. 15,667 Ps. 21,073
Non-controlling interest comprehensive income     404   5,287   5,858   7,591
Reattribution from controlling interest of other comprehensive income by acquisition of Grupo YOLI     3   36   -   -
Reattribution from controlling interest of other comprehensive income by acquisition of FOQUE     -   -   (29)   -
Reattribution from controlling interest of other comprehensive income by acquisition of Grupo Tampico     -   -   -   (37)
Reattribution from controlling interest of other comprehensive income by acquisition of Grupo CIMSA     -   -   -   (50)
Non-controlling interest, net of reatribution   $ 407 Ps. 5,323 Ps. 5,829 Ps. 7,504
Consolidated comprehensive income, net of tax   $ 1,551 Ps. 20,317 Ps. 21,496 Ps. 28,577

(*) 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.

Consolidated Statements of Changes in Equity

For the years ended December 31, 2013, 2012 and 2011.
Amounts expressed in millions of Mexican pesos (Ps.)

    Capital Stock   Additional Paid-in Capital   Retained Earnings   Unrealized Gain (Loss) on Available for Sale Securities   Valuation of the Effective Portion of Derivative Financial Instrument   Exchange Differences on Translation of Foreign Operations   Remeasurements of the Net Defined Benefit Liability   Total Controlling Interest   Non-Controlling Interest   Total Equity
Balances at January 1, 2011 Ps. 3,345 Ps. 14,757 Ps. 103,695 Ps. - Ps. 139 Ps. - Ps. (59) Ps. 121,877 Ps. 31,521 Ps. 153,398
Net income           15,332                   15,332   5,569   20,901
Other comprehensive income, net of tax               4   228   5,810   (301)   5,741   1,935   7,676
Comprehensive income           15,332       228   5,810   (301)   21,073   7,504   28,577
Dividends declared           (4,600)                   (4,600)   (2,025)   (6,625)
Issuance (repurchase) of shares associated with share-based payment plans       50               50       50   (19)   31
Acquisition of Grupo Tampico through issuance of Coca-Cola FEMSA shares (see Note 4)       2,854           (1)   (39)   3   2,817   5,011   7,828
Acquisition of Grupo CIMSA through issuance of Coca-Cola FEMSA shares (see Note 4)       3,040           (1)   (54)   5   2,990   6,027   9,017
Other transactions of non-controlling interest       (45)                       (45)   (70)   (115)
Other movements of equity method of associates, net of taxes           60                   60   -   60
Balances at December 31, 2011   3,345   20,656   114,487   4   365   5,717   (352)   144,222   47,949   192,171
Net income           20,707                   20,707   7,344   28,051
Other comprehensive income, net of tax               (2)   (17)   (3,725)   (1,296)   (5,040)   (1,515)   (6,555)
Comprehensive income           20,707   (2)   (17)   (3,725)   (1,296)   15,667   5,829   21,496
Dividends declared           (6,200)                   (6,200)   (2,986)   (9,186)
Issuance (repurchase) of shares associated with share-based payment plans   1   (50)           1   (50)       (49)   (12)   (61)
Acquisition of Grupo Fomento Queretano through issuance of Coca-Cola FEMSA shares (see Note 4)       2,134                                
Other transactions of non-controlling interest                               -   (50)   (50)
Other movements of equity method of associates, net of taxes           (486)                   (486)   -   (486)
Balances at December 31, 2012   3,346   22,740   128,508       349   1,961   (1,647)   155,259   54,902   210,161
Net income           15,922                   15,922   6,233   22,155
Other comprehensive income, net of tax                   (170)   (1,214)   458   (928)   (910)   (1,838)
Comprehensive income           15,922       (170)   (1,214)   458   14,994   5,323   20,317
Dividends declared           (13,368)                   (13,368)   (3,125)   (16,493)
Issuance (repurchase) of shares associated with share-based payment plans       (172)                       (172)   (7)   (179)
Acquisition of Grupo Yoli through issuance of Coca-Cola FEMSA shares (see Note 4)       2,865           2   32   2   2,901   5,120   8,021
Other acquisitions (see Note 4)                               -   430   430
Increase in share of non-controlling interest                               -   515   515
Other movements of equity method of associates, net of taxes           (222)                   (222)   -   (222)
Balances at December 31, 2013 Ps. 3,346 Ps. 25,433 Ps. 130,840 Ps. - Ps. 181 Ps. 779 Ps. (1,187) Ps. 159,392 Ps. 63,158 Ps. 222,550

The accompanying notes are an integral part of these consolidated statements of changes in equity.

Consolidated Statements of Cash Flows

For the years ended December 31, 2013, 2012 and 2011.
Amounts expressed in millions of U.S. dollars ($) and in millions of Mexican pesos (Ps.)


    2013(*)   2013   2011   2011
Cash flows from operating activities:                
Income before income taxes $ 2,284 Ps. 29,911 Ps. 36,000 Ps. 28,519
Adjustments for:                
Non-cash operating expenses   58   752   1,683   474
Employee profit sharing   147   1,936   1,650   1,237
Depreciation   672   8,805   7,175   5,694
Amortization   68   891   715   469
Gain on sale of long-lived assets   (3)   (41)   (132)   (95)
Gain on sale of shares   -   -   (2,148)   -
Disposal of long-lived assets   9   122   133   656
Impairment of long-lived assets   -   -   384   146
Share of the profit of associates and joint ventures accounted for using the equity method, net of taxes   (369)   (4,831)   (8,470)   (4,967)
Interest income   (94)   (1,225)   (783)   (1,014)
Interest expense   331   4,331   2,506   2,302
Foreign exchange loss (gain), net   55   724   176   (1,148)
Monetary position loss (gain), net   33   427   13   (53)
Market value (gain) loss on financial instruments   (1)   (8)   (8)   109
Cash flow from operating activities before changes in operating accounts   3,190   41,794   38,894   32,329
Accounts receivable and other current assets   (149)   (1,948)   (746)   (2,990)
Other current financial assets   (115)   (1,508)   (977)   (94)
Inventories   (118)   (1,541)   (2,289)   (2,277)
Derivative financial instruments   31   402   (17)   (43)
Suppliers and other accounts payable   39   517   3,833   1,364
Other long-term liabilities   (8)   (109)   (18)   (391)
Other current financial liabilities   32   417   329   116
Post-employment and other long-term employee benefits   (24)   (317)   (209)   (348)
Cash generated from operations   2,878   37,707   38,800   27,666
Income taxes paid   (683)   (8,949)   (8,015)   (6,419)
Net cash generated by operating activities   2,195   28,758   30,785   21,247
Cash flows from investing activities:                
Acquisition of Grupo Tampico, net of cash acquired (see Note 4)   -   -   -   (2,414)
Acquisition of Grupo CIMSA, net of cash acquired (see Note 4)   -   -   -   (1,912)
Acquisition of Grupo Fomento Queretano, net of cash acquired (see Note 4)   -   -   (1,114)   -
Acquisition of Grupo Yoli, net of cash acquired (see Note 4)   (80)   (1,046)   -   -
Acquisition of Companhia Fluminense de Refrigerantes, net of cash acquired (see Note 4)   (355)   (4,648)   -   -
Acquisition of Spaipa S.A. Industria Brasileira de Bebidas, net of cash acquired (see Note 4)   (1,760)   (23,056)   -   -
Other acquisitions, net of cash acquired (see Note 4)   (231)   (3,021)   -   -
Investment in shares of Coca-Cola Bottlers Philippines, Inc. CCBPI (see Note 10)   (680)   (8,904)   -   -
Other investments in associates and joint ventures (see Note 10)   (26)   (335)   (1,207)   (955)
Disposals of subsidiaries and associates, net of cash   -   -   1,055   -
Purchase of investments   (9)   (118)   (2,808)   (1,351)
Proceeds from investments   114   1,488   2,534   68
Interest received   93   1,224   777   1,029
Derivative financial instruments   9   119   94   6
Dividends received from associates and joint ventures   134   1,759   1,697   1,661
Long-lived assets acquisitions   (1,251)   (16,380)   (14,844)   (12,046)
Proceeds from the sale of long-lived assets   19   252   362   535
Acquisition of intangible assets   (82)   (1,077)   (441)   (639)
Investment in other assets   (109)   (1,436)   (1,264)   (1,147)
Investment in other financial assets   (4)   (52)   -   (924)
Collection in other financial assets   -   -   56   -
Net cash used in investing activities $ (4,218) Ps. (55,231) Ps. (14,643) Ps. (18,089)
Cash flows from financing activities:                
Proceeds from borrowings $ 6,025 Ps. 78,907 Ps. 14,048 Ps. 6,606
Payments of bank loans   (3,051)   (39,962)   (5,872)   (3,732)
Interest paid   (234)   (3,064)   (2,172)   (2,020)
Derivative financial instruments   53   697   (209)   (359)
Dividends paid   (1,259)   (16,493)   (9,186)   (6,625)
Acquisition of non-controlling interests   -   -   (6)   (115)
Increase in shares of non-controlling interest   39   515   -   -
Other financing activities   (1)   (16)   (21)   (13)
Net cash generated by (used in) financing activities   1,572   20,584   (3,418)   (6,258)
(Decrease) increase in cash and cash equivalents   (451)   (5,889)   12,724   (3,100)
Initial balance of cash and cash equivalents   2,788   36,521   25,841   26,705
Effects of exchange rate changes and inflation effects on cash and cash equivalents held in foreign currencies   (256)   (3,373)   (2,044)   2,236
Ending balance of cash and cash equivalents $ 2,081 Ps. 27,259 Ps. 36,521 Ps. 25,841

(*) 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.

Notes to the Consolidated Financial Statements