Buy. COCA-COLA FEMSA: Initiation of coverage Solid organic and inorganic growth: In search of greater consolidation in the industry.

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1 1 Changing Opinion Updating Estimates/Price Target News Other Summary: We are initiating coverage of (KOF) with a BUY recommendation and a 12 month price target of MXN per share, with an implicit return at current prices of 13.5%, including the dividend. Sector leader: In our opinion, KOF offers one of the most interesting investment options in the Mexican beverage sector today, highlighting its leadership in the sector (it is currently the number 1 COCA-COLA system bottling company in Latin America and number 2 worldwide, both in terms of volume of sales). With the recent situation in Mexico, it has been the least affected by the recession as its franchise covers the center of the country (including Mexico City) and the southeast (including the Gulf region), compared to other bottling companies, particularly those based in the north where the region is dependent on the economic performance of the United States. In addition, its international expansion in Latin America has allowed the company to diversify its income and take advantage of the growth offered by these markets. At the end of 2009, 64% of income and 57% of EBITDA were generated through operations outside Mexico. The investment thesis: Our reasoning: Brand portfolio with good positioning in the domestic and international markets strengthened by the COCA-COLA brand. Aggressive commercial strategy with effective market segmentation, identifying the most efficient ways to get to the end-consumer. Highly developed distribution system that delivers to its different distribution channels. Important investment in advertising, in new business platforms, innovation of product portfolio and investment in returnable bottles. Positive outlook: We believe that KOF shows positive organic as well as inorganic growth perspective, strengthened by a commercial strategy focused on promoting its extensive product portfolio and capitalizing its significant base of clients. Its acquisitions in South America (Remil in Brazil, Brisa in Colombia) have capitalized solid growth for the region. Its financial situation in terms of liquidity, generation of cash and payment of debt is positive, allowing a margin to consolidate its expansion in the industry. In our view, the main risks are political (possible expropriation in Venezuela) and a deterioration in macroeconomic variables. Considering the potential yield at current prices compared to the IPC (Bolsa Index), our recommendation is to BUY at a 12 month target price of MXN % 3m10 % 2010E % 2011E % Sales 102, % 23, % 108, % 116, % EBITDA 19,746 19% 4,476 19% 20,978 19% 22,567 19% Net Income 8,523 8% 2,110 9% 9,849 9% 10,607 9% EPS BVPS DPS ROE 12.4% 13.9% 13.2% 12.0% ROA 14.3% 13.4% 14.1% 13.8% P/BV 2.4x 2.4x 2.1x 1.8x P/E 18.7x 17.1x 16.2x 15.0x EV/EBITDA 8.5x 8.3x 7.8x 6.9x Jun-08 Relative Performance Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 KOFL, base = on 2-Jul-2007 IPyC, base = 31,421 on 2-Jul-2007 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Ticker Marco Montañez Torres Food, Beverages & Retailers mmontanezt@actinver.com.mx +52 (55) Paulino Musi Treviño pmusi@actinver.com.mx +52 (55) ext Jun-09 Corporate Headquarters: 1200 Guillermo González Camarena Pisos 9-11, Santa Fé México, D.F Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 KOFL Last Price MXN Implied return 12.2% Dividend Yield 1.3% Expected Total Return 13.5% Outstanding Shares (mill.) 1,847 Float 14.7% Mkt. Cap. (Mill.) MXN 159,189 Enterprise Value (Mill.) MXN 166,066 T12 Price Range T12 VaR@alpha=1.50% (3.91%) Dec-09 Jan-10 Buy Target Price MXN Feb-10 Mar-10 Time Apr-10 May-10 Jun-10

2 Our Valuation Methodology The valuation technique used to calculate the target price of the company stock is the weighted average of 3 methodologies: 1. Target EV/EBITDA multiple: Based on the relative valuation table which presents information about companies similar to KOF, we expect a target multiple of 6.9x for 2011, which we calculate by applying the estimated percentage of reduction for most of the industry (8%) to the estimated multiple for KOF, and assuming a stable performance in EBITDA. It is important to note that our investment thesis does not take into account a possible acquisition by the company that could cause an increase in the multiple. Considering previous experiences (PANAMCO over 8x, REMIL in Brazil acquired in a multiple of 7.5x), we think that if the opportunity arises for inorganic growth, the multiple could fluctuate within this range. Under these conditions, the target price could reach MXN Comparative chart of similar companies: What is the right benchmark? Name Last Px Mkt Cap Est P/E Est P/E Nxt Yr EV/EBITDA Curr Yr EV/EBITDA Nxt Yr P/B COCA-COLA FEMSA SAB-SER L $ $ 12, x 14.8x 8.3x 7.5x 2.4x CIA DE BEBIDAS DAS AME-PREF $ $ 59, x 15.4x 9.6x 8.9x 4.7x DR PEPPER SNAPPLE GROUP INC $ $ 9, x 13.9x 8.9x 8.3x 2.6x EMBOTELLADORAS ARCA SAB-NOM $ $ 2, x 13.2x 7.5x 7.0x 2.3x EMBOTELLADORA ANDINA-A PREF $ 1, $ 2, x 11.6x 7.8x 7.1x 3.5x GRUPO CONTINENTAL S.A.B- * $ $ 2, x 13.0x 8.1x 7.4x 2.7x COTT CORPORATION $ 6.06 $ x 7.7x 4.2x 3.6x 1.6x COCA-COLA EMBONOR SA-B $ $ x 9.4x 5.7x 5.5x 1.4x Average 13.5x 12.0x 7.4x 6.8x 2.7x P/E EV/EBITDA Industry multiple expected contraction -11% -8% Target multiple 13.3x 6.9x Relative valuation of similar companies in the industry Source: Bloomberg 2. Target P/E multiple: Based on the relative valuation table which presents information about similar companies, we expect a target multiple of 13.3x for 2011 which we calculate by applying the estimated percentage of reduction for most of the industry (11%) to the estimated multiple for KOF, assuming a stable performance in the profit per share. As mentioned in the previous paragraph, we are not taking into account a possible acquisition by the company so as not to distort the multiple estimate. The result of this calculation is a target price of MXN ACTINVER 2

3 3. Discounted cash flow: We used the following assumptions to make this calculation: Calculation of the Weighted Average Cost of Capital (WACC): The estimated beta is 0.76, based on observation over 24 months and taking into account the expected sensitivity of the market. We take a risk premium on the capital of 5.5% based on empirical studies of the market. For the risk free rate in the United States, we take the estimate for the 10 year US Treasury bond in 3.5%. We consider the sovereign premium rate to be 1.5%. The spread of estimated implicit credit will be 200 additional basis points on the US bond used as the point of reference. For the tax rate, we consider an effective interest rate of 30%. We estimate that the debt / (debt + capital) ratio will be 18%. Using the above figures, the calculation of WACC is 8.4%. Residual growth: We think that even though the Mexican beverage market is already mature, the presence of the company in Latin American markets with good potential for growth is significant and the reason why we forecast a residual rate of 2.0%. Weighting of the Methods The weighting of the methods used in the calculation is as follows: 30% is assigned to the target EV/EBITDA multiple, 30% to the target P/E multiple, and 40% is weighted on Discounted Cash Flow. Although the P/BV multiple isn t taken into account for the valuation, it is worth noting that it shows a positive trend to reduce from the 2.4x estimate for 2010 to 2.0x for 2011 (implicit valuation). Taking the above into account, the weighted target price will be MXN in 12 months. If we take the closing price of the share from the day before in MXN 86.21, plus an expected yield per dividend of 1.3%, the total estimated yield will be 13.5%. Evaluating the potential market yield measured by the Prices and Quotations Index (IPC), our recommendation for KOF is BUY. Comparative table of sales vs. EBITDA of leading companies in the beverage sector: Millions KOF ARCA CONTAL ANDINA EMBONOR B Var Var Var CAGR Net sales 61,726 69,251 82, , % 19.8% 23.9% 18.5% EBITDA $ 12,797 14,434 17,117 19, % 18.6% 15.4% 15.6% Net sales 16,671 18,586 20,255 24, % 9.0% 19.6% 13.3% EBITDA $ 4,172 4,472 4,715 4, % 5.4% 3.7% 5.4% Net sales 11,468 12,283 12,826 13, % 4.4% 5.5% 5.7% EBITDA $ 2,352 2,498 2,683 2, % 7.4% 3.6% 5.7% Net sales 206, , , , % 12.1% 0.5% 7.8% EBITDA $ 57,388 61,868 63,785 57, % 3.1% -9.6% 0.2% Net sales 183, , , , % 25.0% 3.8% 13.9% EBITDA $ 44,109 50,155 60,689 63, % 21.0% 4.6% 12.9% Source: Economática ACTINVER 3

4 4 Valuation KOF 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E (US$m) EBITDA 1,651 1,790 1,978 2,249 2,477 2,655 2,873 3,136 3,453 3,836 Cash taxes (343) (372) (436) (502) (544) (594) (653) (724) (808) (907) Changes in w orking capital (118) (87) (50) (97) (116) (137) (163) (195) (235) (285) Capex (465) (557) (616) (703) (749) (806) (875) (959) (1,059) (1,180) Unlevered free cash flow ,067 1,118 1,181 1,258 1,350 1,463 1,813 1,991 2,187 2,402 2,637 2,896 3,181 3,493 3,836 Cost of equity US risk free rate (10-year US Treasury) 3.5% Equity risk premium 5.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% Equity beta % Adjusted equity risk premium 4.2% 9.4% % Country risk premium 1.5% 8.4% % Total cost of equity 9.2% 7.4% % Cost of debt 6.4% US risk free rate (10-year US Treasury) 3.5% Implied credit spread 2.0% WACC Country risk premium 1.5% 5.9x 6.4x 6.9x 7.4x 7.9x 8.4x Cost of debt (pretax) 7.0% 10% Non-Expected Change in EBITDA Residual Growth EV/EBITDA Target Multiple 5% Effective tax rate 30.0% 0% (5%) Total cost of debt 4.9% (10%) Debt/capitalization (target) 17.9% P/E Target Multiple WACC 8.4% 12.3x 12.8x 13.3x 13.8x 14.3x 14.8x 10% NPV of cash flows ,737 5% Non-Expected Change in EPS Residual grow th 2.0% 0% Residual value 22,805 (5%) NPV of residual value 10,166 (10%) Total net present value 16,903 Weight Net Debt 81 EV/EBITDA 30% Implied Valuation Minorities 217 P/E 30% E 2011E DCF 40% P/E 18.1x 16.8x Equity Value 16,605 Weighted Average Price Target P/BV 2.4x 2.0x Shares outstanding 1,847 Expected Dividend Yield 1.3% - EV/EBITDA 8.7x 7.8x NPV per share Expected Total Return 13.5%

5 5 Financial Analysis 1. Profitability: For 2010 we expect slight pressure on the gross profit margin due to increases in the price of sweeteners in the domestic market. It is worth mentioning that although the price of sugar on an international level has remained fairly stable over the last few months (see graph on the next page), prices in Mexico have not followed suit and in general are higher in Mexico due to specific characteristics in the industry on a national level. The behavior of this raw material is important as it represents around 20% of the total sales cost. In other countries, such as Brazil, the price of sugar reflects the behavior of the commodities markets to a much greater extent, and can even present opportunities for hedging. Net sales Vs EBITDA Millions MXN 140, , , , % 82, , , % 19.4% 116, , % 19.2% 25.0% 20.0% 60, % 40, , % E 2011E 2012E Net Sales EBITDA % 5.0% Estimates in the price of sugar over the next quarters seem more positive due to better harvests in the main producing countries which we hope will create more stability in the price. According to the futures market, the price of sugar will be fluctuating around an average of USD cents per pound for the next two years. This will be a significant decrease compared to the maximum price of the last 16 months when it reached USD cents per pound in January this year. Regarding the behavior of the prices in the product portfolio, despite heavy competition in the national industry, we do not expect negative effects on the prices of the product portfolio since the company has historically always been able to increase prices in line with inflation or even higher. In the markets outside Mexico, there are also favorable conditions for taking prices.

6 6 $30.00 $28.00 $26.00 $24.00 $22.00 $20.00 $18.00 $16.00 $14.00 $12.00 $10.00 Sugar prices (US cents per pound) On another level, we expect stability in operating costs, a large part of which include advertising, a focus on strengthening innovation in products, developing the non-carbonated platform and maintaining the base business. However, for international operations, particularly in Venezuela and Argentina, there could be pressure on margins due to the high labor costs in these countries. (For more information about the financial statements, please see page 14). Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jul '10 Oct '10 Mar '11 May '11 Jul '11 Oct '11 Mar '12 May '12 Jul '12 Oct '12 Mar '13 May '13 Sugar, Free Market, Coffee Sugar and Cocoa Exchange (CSCE) contract no.11 nearest future position, US cents per pound. Source: International Monetary Fund. 2. Balance Sheet: A. Operating cycle: Due to the nature of the business of mass consumption and distribution, we expect that the investment in working capital will continue to be an important factor to consider in the expansion of the business. At the end of 2009, the working capital (calculated as the arithmetic addition of the collection of debts, inventories and suppliers, to isolate other non operational factors) had a positive margin of MXN 1.56 billion and for 2012 we expect an average compound growth of 19% (very much in line with the growth in sales). B. Liquidity: At the close of 2009 the current assets / current liabilities (CA/CL) ratio was 1.0x. For 2010, we estimate an increase to 1.7x and to 2.1x for 2011 based on a substantial increase in cash, already reported during 1Q10 triggered by an increase in the cash position. C. Debt: At the close of 2009, the Total Debt / EBITDA ratio ended in 0.8x. For 2010, due to the emission of debt in February 2010, we don t expect any change on the figure reported in For 2011 and 2012, we estimate levels of 0.7x and 0.5x respectively. 3. Free cash flow: As well as the considerations above such as EBITDA and the investment in working capital, the required investment in Capex (Capital Expenditure) in 2010 and 2012 will fluctuate between MXN 6,500 and MXN 9,400 respectively. This investment will be divided mainly between: maintenance (approximately 30% of the total), growth initiatives (aprox. 40% of the total) and an increase in coverage of coolers and returnable bottles (the rest of the total investment). For dividend payments, we are making a forecast based on an average historical rate of the declared dividend / EPS ratio, which we think will rise due to the great capacity to generate cash.

7 7 KOF Company Overview In 1979, FEMSA, the current parent company of KOF, acquired soft drink bottling companies through one of its subsidiaries. At the time, the recently acquired bottling companies had 13 distribution centers and a production capacity of 83 million unit cases (unit of measurement that equals 24 servings), operating 701 routes of distribution. FEMSA, transferred these new acquisitions to FEMSA Refrescos S.A. de C.V., the predecessor of Coca Cola Femsa S.A.B. de C.V. (KOF). KOF s strategy has been very clear from its beginnings: organic growth in territories and in acquisitions of new bottling companies in order to take advantage of the opportunities in these territories. Between 1994 and 1997, KOF acquired new territories in the south of Mexico as well as in Argentina. By 2003, it had acquired Panamerican Beverages (Panamco), which made it Coca Cola s most important bottling company in Latin America and a reference in the industry, as Panamco produced and distributed Coca Cola products in Guatemala, Nicaragua, Costa Rica, Panama, Colombia, Venezuela and Brazil, as well as bottled water, beer and other drinks in some of these territories. In November 2007, a partnership between The Coca Cola Company (TCCC) and KOF acquired in equal proportions, 100% of the representative shares of the capital of Jugos del Valle, S.A.B. de C.V. In December 2008 part of the stock of Jugos del Valle was sold to other Coca Cola Mexico bottling companies, leaving KOF with a 20% indirect share in Jugos del Valle. In turn, Jugos del Valle sold its operation in Brazil to KOF and other bottling companies of Coca Cola products and a subsidiary of TCCC. In May 2008, a purchase agreement was signed with TCCC to acquire in partnership a franchise in the state of Minas Gerais (REMIL) in Brazil. Continuing the strategy of expansion, KOF acquired Agua de los Ángeles, a 5- gallon water bottling company, in July 2008 from Grupo Embotellador CIMSA S.A. de C.V., one of Coca Cola s bottling companies in Mexico. In 2009, KOF acquired the Brisa bottled water company in Colombia, owned by Bavaria, a subsidiary of SABMiller. It was acquired together with TCCC in an agreement where KOF acquired the production and distribution assets and TCCC the Brisa brand. Lastly, in May 2009, KOF and TCCC came to an agreement to develop the bottled water brand, Crystal, in Brazil. The history of KOF is very much linked to TCCC in its operations. This synergy has been beneficial for both, as the positioning of the Coca Cola brand is just as important as the know-how for the operation and distribution of its products: something that KOF has been very successful at, representing around 40% of the total sales in Latin America and 10% of the global sales of TCCC, as well as being the second largest bottling company of Coca Cola worldwide. 1,227 Total Sales Volume (MUC) In the graph on the right, we show the distribution of the volume of sales per region of KOF:

8 Mexico has the highest amount of assets By the end of 2009, Coca Cola FEMSA had 31 bottling plants and 210 distribution centers across Mexico, Latincentro and Mercosur. Mexico has the highest number of assets due to the fact that it is the most attractive market, being the country with the highest per capita consumption of soft drinks in the world, second to the United States where the per capita consumption is 158 liters Plants & Distribution centers Plants Distribution centers According to the company, the per capita consumption of its soft drinks is liters of the 140 liters of its products that are consumed per capita in Mexico, representing around 70% of its sales of the total mix. Soft drinks consumption (per capita) Points of Sale: highest consumption levels in SA KOF has around 620,255 points of sale in Mexico, serving a population of 49.6 million. We can compare this to Colombia, for example, where it reaches 45.6 million people in a country with a similar population to Mexico, but with a difference in per capita consumption of liters of soft drink per year. As can be appreciated here, the low per capita consumption figures in South America represent a clear opportunity to develop operations outside Mexico Population served (Millions) ,255 Points of sale 368, ,749 MEXICO COLOMBIA VENEZUELA BRAzIL 189,838 80, ,189 CENTRAL AMERICA ARGENTINA ACTINVER 8

9 9 Distribution Channels Distibution Channels KOF s main distribution channel is the so-called traditional channel which includes retailers and represents approximately 70% of the company s total volume of sales. Its other channels are made up of food and beverage outlets including bars, restaurants, and related businesses (on premise channel), and the modern channel, including all supermarket formats, convenience stores and other specialized channels. 30% 70% Traditional Channel ON-Premise/Modern channels/others Source: Actinver estimates Product sales per category in the territories where KOF operates are divided mainly into: soft drinks, which has the highest percentage of sales with 81%, followed by bottled water (including 5-gallon bottles), and in less proportion, non-carbonated drinks. Although the share of the last categories is low compared to soft drinks, their average compound growth rate is much faster. 14% Sales distribution 5% Sparkling beverages The following chart shows the distribution of sales per region, with Mexico having the lowest percentage in the category of soft drinks due to the positioning of the other categories on a national level and the fact that in Mexico, the per capita consumption of bottled water is the highest in the world at 234 liters per year. 81% Water & Bulk water Still beverages Distribution of sales per region Sparkling Water Bulk Water Still Mexico 73.40% 4.10% 17.30% 5.10% Centroamérica 87.30% 4.10% 0.30% 8.20% Colombia 74.60% 9.00% 9.00% 7.50% Venezuela 91.70% 4.60% 1.20% 2.60% Brasil 91.80% 5.00% 0.30% 2.80% Argentina 92.50% 0.80% 0.40% 6.20%

10 10 KOF is producer, distributor and promoter of products such as Coca Cola, Sprite, Fanta, Jugos del Valle and other registered brand drinks. It carries out these activities in the following territories: 1. Mexico: most of the center and south of Mexico. 2. Guatemala: Guatemala City and surrounding area. 3. Nicaragua: whole country. 4. Costa Rica: whole country. 5. Panama: whole country. 6. Colombia: most of the territory. 7. Venezuela: whole country. 8. Brazil: São Paulo, Campiñas, Santos, the state of Mato Grosso do Sul, part of the state of Goias and part of the state of Minas Gerais. 9. Argentina: Capital and surrounding area. Company Footprint by Region KOF share structure : Owner Outstanding Capital Stock PercentaPercentage of OutstandVoting Rights FEMSA (Series A Shares) 992,078,519 54% 63% The Coca-Cola Company (Series D) 583,545,678 32% 37% Public (Series L Shares) 270,906,004 15% --- Source: 20F Report, 2008 Total 1,846,530, % 100% Public traded shares are the L Series with limited voting rights, listed on the Mexican Stock Exchange (BMV: KOF L) and on the New York Stock Exchange (NYSE: KOF) as American Depositary Receipts (ADR). Each ADR represents ten L Series shares.

11 11 Industry Geographic footprint of the main competitors in Latin America KOF Positioning vs. Peers The most important bottling companies for The Coca Cola Company in Latin America are the Embotelladora Andina S.A., Coca Cola Embonor S.A, Coca Cola Polar, ARCA, CONTAL and Coca Cola FEMSA (KOF), this last being the most important in sales for TCCC in all Latin America. The bottling industry in Mexico is very important due to the high per capita consumption of the market. In Mexico, we are among the highest consumers of bottled water at 234 liters per capita and soft drinks at 149 liters, for which companies are in strong competition to win greater market share. The most important Coca Cola product bottling companies in Mexico are ARCA, CONTAL and KOF. This last one, as can be seen in the graph, represents the highest volume of sales followed by ARCA. It is worth noting that CONTAL is a Mexican company which only operates on a national level and ranked 4 th place in volume of sales above bottlers such as EMBONOR and POLAR which operate in more than one country. This information more than confirms the importance of Mexico as an attractive market for beverage companies Total Sales Volume (MUC) Name Country Territory Embotelladora Andina S.A Chile Region Metropolitana, San Antonio, Cachapoal Brasil Rio de Janeiro, Espiritu Santo Argentina Mendoza, San Juan, San luis, Cordoba, Santa Fe, Entre Ríos Coca Cola Embonor S.A Chile De Arica - Parinacota, de Tarapáca, de Maule, Valparaíso, Libertador General Bernardo O' H, del Bío Bío, Arauncanía, de los Ríos y de los Lagos Bolivia La Paz, Cochabamba, Oruro, Potosi Tarija, Chuquisaca y Santa Cruz. Embotelladora ARCA S.A de C.V Mexico Tamaulipas, Nuevo Leon, Coahuila, Chihuahua, Sonora, Sinaloa, Baja California y Baja California Sur San luis Potosi y Zacatecas Argentina Norte de Argentina Coca Cola Polar Chile Santiago, Antofagasta, Coquimbo, P. Arenas Argentina B. Blanca, Chacabuco, La Pampa, Neuquen C. Rivadavia, Trelew, T. del Fuego Paraguay Asuncion, Coronel Oviedo, Ciudad del Este Grupo Continental S.A.B Mexico Aguascalientes, Coahuila, Colima, Durango, Jalisco, San Luis Potosi y Zacatecas. NOTE: None of these companies shares distribution in the same territory Eco-Friendly biodegradable bottles On another level, Coca Cola is the leader in the industry in introducing a new ecological bottle. The PET bottle is made using up to 30% plant byproducts and has a 20% lower carbon footprint than the previous bottle used. This new bottle, called PlantBottle, is 100% recyclable and isn t biodegradable, guaranteeing that the energy contained in its materials is always recoverable Source: Annual reports 2009, Companies In 2010, Coca Cola produced 2 billion of these innovative bottles. On a worldwide level, during the first year of production, it will reduce its consumption of oil by an equivalent of the amount needed to generate more than 11 million liters of gasoline. The introduction of this product in the Mexican market will begin in Valle de Mexico, Monterrey and Guadalajara in presentations of Coca Cola Classic, 400 and 600 milliliters. To date, only 6 countries in the world have this innovative technology: Denmark, the United States, Canada, Japan, Brazil and Mexico.

12 Market Mexico doesn t have access to good quality drinking water which has turned it into the country with the highest per capita consumption of bottled water. Beverage Marketing Corporation confirms this number one ranking for Mexico, with a per capita consumption of 234 liters of bottled water per year. This consumption is higher than the United States with 110 liters and Spain which consumes around 119 liters. The consumption of bottled water in Mexico represents 13% of total worldwide sales, and has been increasing continually at 8.1% per year. Just between 2003 and 2009, this market grew 40%. Currently, the sale of bottled water reaches levels of 26 billion liters per year, of which it is estimated that 18.2 billion (70%) is sold in 5-gallon bottles and 7.8 billion (30%) in individual bottles, not to mention the consequences this has on the family budget and, particularly, the environment. The per capita consumption of soft drinks is 149 liters, a difference of 57% compared to the consumption of bottled water. However, the amount spent on soft drinks is much higher. Even though soft drinks contain a lot of sugar, no nutrients and in some cases are considered damaging to the health, Mexicans are the second highest consumers of soft drinks per capita in the world Source: Beverage Digest Soft Drinks Consumption (Per capita - liters) Average spending on water vs. soft drinks Average Spending on Water Average spending on Soft Drinks $129 $147 $172 $176 $189 $200 $96 $93 $117 $130 $227 $248 $267 $121 $133 $134 $147 $153 $285 $172 Mexican families spend more on soft drinks than on water, according to the 2004 National Survey of Household Income and Expenses (Encuesta Nacional de Ingresos y Gastos de los Hogares ENIGH). Low income families spend 3.7% of their total income on soft drinks and carbonated waters and 2.5% on water. Source: INEGI, ENIGH Expenditure updated with 2009 inflation rate. ACTINVER 12

13 13 Analysis of Strengths, Weaknesses, Opportunities, and Threats. To summarize and conclude our outlook on KOF with regards to external and internal factors of the business, we present here a SWOT analysis (acronym for Strengths, Weaknesses, Opportunities and Threats) that shows the strengths and risks that we perceive for the company. Strengths Positioning of the COCA COLA brand in the market. Financial strength and solid balance with high credit rating. Weaknesses The percentage of stock in the hands of the public investor compared to the total number of shares in circulation is low and could limit the marketability of the stock. The current franchise owners have low availability to sell its rights, particularly in Mexico and Brazil, which could limit the inorganic growth opportunities. Highly developed distribution arm. Cutting edge technology. Diverse product portfolio and capacity to innovate. Highly competent managerial team with extensive experience in operations and acquisitions. Opportunities Presence in markets with a great potential for development in per capita consumption of drinks, particularly in Latincentro and Mercosur. Presence in markets with an interesting population bonus compared to developed countries. Development of new lines of business, taking advantage of new tendencies and dynamics in consumer preferences. Perception that some products are part of the regular diet. Consumer habits linked to deep routed national culinary customs. Threats Coca Cola Company establishes the cost of concentrates in the franchise territories. Drinks market highly competitive with introduction of competitively priced products. Dependence on international prices for raw materials: sweeteners, energy supplements, packaging. Political risk: nationalization of assets, restriction on foreign investment. Regulatory risk: regulations for food, public health, taxes and competition. Climate conditions: in general terms, its territories enjoy climate conditions that stimulate the consumption of beverages.

14 14 COCA-COLA FEMSA Financial statements summary from 2009 to 2012E Figures in MXN million, except multiples and indicators Income Statement ( E) Balance Sheet ( E) Concept E 2011E 2012E Concept E 2011E 2012E Net Sales 102, , , ,061 Total Assets 110, , , ,123 COGS 54,952 58,433 62,939 68,707 Current Assets 23,639 31,485 39,366 45,673 Gross Profit 47,815 49,576 53,670 58,354 Cash 9,740 15,886 22,082 27,121 SG&A 31,980 33,088 35,868 39,082 Accounts Receivable 5,931 7,313 7,896 8,603 EBIT 15,835 16,487 17,803 19,271 Inventories 5,002 5,729 6,191 6,621 Other Expenses (Income) 1,448 1,284 1,298 1,351 Other Current Assets 2,967 2,557 3,197 3,328 Net Financial Cost 1, Income before taxes 13,013 14,623 15,679 17,709 Properties Plants & Equipment 31,132 29,922 32,154 34,511 Taxes and Profit Sharing 4,043 4,365 4,680 5,286 Long Term Assets 2,822 2,357 2,459 2,559 Minority Interest Intangibles 50,898 51,365 53,573 55,762 Mayority Net Income 8,523 9,849 10,607 11,980 Assets in other Subsidiaries 2,170 1,490 1,554 1,618 D&A 3,911 4,490 4,765 5,114 Total Liabilities 42,189 38,980 37,253 34,273 EBITDA 19,746 20,978 22,567 24,385 Current Liabilities 23,448 18,788 18,996 19,412 Accounts Payables 9,368 9,979 9,929 10,465 Shares (m) 1,847 1,847 1,847 1,847 Short Term Debt 5,427 2,362 2,305 1,908 Book Value per Share Other Current Liabilities 8,653 6,447 6,762 7,038 EPS EBITDA per Share Long Term Liabilities 18,741 20,192 18,257 14,861 Long Term Debt 10,495 14,551 14,034 10,466 Net Sales Growth 23.9% 5.1% 8.0% 9.0% Other Liabilities 8,245 5,640 4,223 4,396 EBIT Growth 15.6% 4.1% 8.0% 8.2% Net Income Growth 52.3% 15.6% 7.7% 12.9% Equity 68,472 77,640 91, ,850 EBITDA Growth 15.4% 6.2% 7.6% 8.1% Minorities 2,296 2,763 3,269 3,767 Majority Equity 66,176 74,877 88, ,083 Gross Margin 46.5% 45.9% 46.0% 45.9% EBITDA Margin 19.2% 19.4% 19.4% 19.2% Total Debt 15,922 16,914 16,339 12,374 EBIT Margin 15.4% 15.3% 15.3% 15.2% Net Debt 6,182 1,028-5,743-14,747 Net Margin 8.3% 9.1% 9.1% 9.4% Source: Actinv er Estimates Source: Actinv er Estimates Concept E 2011E 2012E Concept E 2011E 2012E EBITDA 19,746 20,978 22,567 24,385 Liquidity 1.0x 1.7x 2.1x 2.4x Net Interests 1, Acid - Test Ratio 0.8x 1.4x 1.7x 2.0x Cash taxes 4,568 4,209 4,370 4,936 Total Debt / EBITDA 0.8x 0.8x 0.7x 0.5x Net Debt / EBITDA 0.3x 0.0x -0.3x -0.6x Fixed Asset Investment 5,751 5,920 6,997 7,471 Interest Coverage Ratio 11.1x 18.9x 16.1x 22.3x Changes in Working Capital 199-1,499-1, Days in Inventory Dividends 1,344 2,046 2,365 2,547 Days Receivables Debt Variation 4, ,965 Days Payables Others -2,012 2,997 2,190 1,203 Operating Cycle Free Cash Flow 3,548 6,146 6,196 5,039 ROA 14.3% 14.1% 13.8% 13.8% ROE 12.9% 13.2% 12.0% 11.7% Source: Actinv er Estimates Cash Flow ( E) Indicators ( E) Source: Actinv er Estimates

15 Disclaimer Analyst Certification for the following Analysts: Juan Carlos Sotomayor Jaime Ascencio Pablo Duarte Roberto Galván Marco Montañez Ramón Ortiz Karla Peña The analyst(s) responsible for this report, certifies(y) that the opinion(s) on any of the securities or issuers mentioned in this document, as well as any views or forecasts expressed herein accurately reflect their personal view(s). No part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this document. Any of the business units of Grupo Actinver or its affiliates may seek to do business with any company discussed in this research document. Any past or potential future compensation received by Grupo Actinver or any of its affiliates from any issuer mentioned in this report has not had and will not have any effect our analysts compensation. However, as for any other employee of Grupo Actinver and its affiliates, our analysts compensation is affected by the overall profitability of Grupo Actinver and its affiliates. Guide to our Rating Methodology Total Expected Return on any security under coverage includes dividends and/or other forms of wealth distribution expected to be implemented by the issuers, in addition to the expected stock price appreciation or depreciation over the next twelve months based on our analysts price targets. Analysts uses a wide variety of methods to calculate price targets that, among others, include Discounted Cash Flow models, models based on expected risk-adjusted multiples, Sum-of-Parts valuation techniques, break-up scenarios and relative valuation models. Changes in our price targets and/or our recommendations. Companies under coverage are under constant surveillance and as a result of such surveillance our analysts update their models resulting in potential changes to their price targets. Changes in general business conditions potentially affecting either the cost of capital and/or growth prospects of all companies under coverage, or a given industry, or a group of industries are typical triggers for revisions to our price targets and/or recommendations. Other micro- and macroeconomic events could materially affect the overall prospects of an individual company under coverage and, as a result, such event-driven factors could lead to changes in our price targets and/or recommendation of the company affected. Even if our overall expectations for a given company under coverage have not materially changed, our recommendations are subject to revision if the stock price has changed significantly, as it will affect total expected return. Terms such as "price targets, our price targets, total expected return, analyst's price targets or any other similar phrase are used in this document as complementary to our recommendation or as a condition that could change in our point of view and, according to article 188 of Securities Market Act, do not imply in any way that Actinver, its agents, or its related companies are in any form providing assurance or guarantee, nor assuming any responsibility for the risks associated with any investment in the discussed securities. Recommendations for companies under coverage forming part of the Indice de Precios y Cotizaciones (IPyC) Index. For stocks included in the IPyC we have two possible recommendations: a) Underweight, or b) Overweight. A stock classified as Underweight (UW) is expected to yield returns either very similar to or lower than that of the IPyC Index. We argue that for stocks expected to yield returns similar to the IPyC Index it is in the best interest of the investor to buy either a passive mutual fund or an ETF replicating the performance of the IPyC Index, since the diversification inherent in such products will reduce overall risk for the investor. Stocks rated as Overweight (OW) are expected to yield returns considerably higher than the IPyC Index. Recommendations for companies under coverage that do not belong to the Indice de Precios y Cotizaciones (IPyC) Index. For companies within this group, we have two possible recommendations: a) BUY, or b) SELL. For a security rated as Buy total expected return should outperform that of the IPyC Index and should also yield returns in excess of 2.5 times the 364-day expected yield on Mexican Certificados de la Tesoreria de la Federación (CETES). Rating Distribution as of December 31, 2009 Companies that belong to the IPyC Companies not part of the IPyC Underweight: 36% Sell: 33% Overweight: 64% Buy: 67% ACTINVER Octubre 6,

16 Octubre 6, Research Juan Carlos Sotomayor Salinas Head of Equity Research (52) (52) x5030 Jaime Ascencio Economist (52) x5032 Ramón Ortiz Airports, Cement, Construction & Homebuilders (52) x5034 Karla Peña Telcos & Media (52) x5035 Pablo Duarte Conglomerates (52) x5031 Marco Montañez Food, Beverages and Retail Stores (52) x5033 Roberto Galván Technical Analysis (52) x5039 Sales & Trading Jose Pedro Valenzuela Managing Director (52) Gerardo Roman Head, Sales & Trading (52) Julie Roberts Head, Institutional Sales (210) Tulio Chávez Institutional Sales (52) Gerardo Sienra Institutional Sales (52) José María Celorio Institutional Sales (52) Corporate Headquarters Guillermo González Camarena 1200, Floors 9-11, Santa Fé, México, D.F