Coca Cola FEMSA (KOF)

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1 Mexico and Brazil posted good results, and fully offset the decreases in Central America and Venezuela. Mexico has not slowed down its growth rate. Both prices and volumes performed positively. Brazil is the territory that shows the major increase among the Panamco regions. Venezuela and Central America, with decreases due to the strong competition. Once again the margins expanded, despite the increase in the prices of PET. The outlook is positive. Once the results are incorporated, the EV/EBITDA multiple stands at 7.71x. Revenues from the operations in Mexico were 3.5% higher, due to the 3.3% increase in volumes, as the prices remained relatively stable. The gross margin expanded by 30 bp despite the increase in the PET prices. This was motivated by the lower prices of the sweeteners, and the peso appreciation. The operating margin decreased by 20 bp due to several strategies implemented in the region. Central America continues with weak results. The lower volumes and prices per box caused the revenues to fall by 5.6%. The operating margin diminished by 140 bp, because of the lower absorption of fixed costs and less revenues. The weak results are attributable to a more competitive environment in most of the territories. At Colombia, the growing trend has decreased; however, it continues showing good results. Revenues increased by 3%, despite the decrease in prices. Volumes grew by 6%. The costs significantly increased, in such a way, that the gross margin fell by 250 bp, mainly due to a change in packaging toward non-returnable presentations. The higher marketing expenses put the operating margin under pressure, decreasing by 160 bp.. VALUATION T12 MULTIPLES Shares Outstanding 1,846.5 EV / EBITDA 7.71x Trading Value* 2.1 P / E 12.57x Market Cap. 57,649 P / BV 1.71x Total Debt 20,368 Cash & Equivalents 1,958 T12 PROFITABILITY Net Debt 18,410 ROA 24.90% Minority 959 ROE 14.29% Enterprise Value 77,017 T12 Net Sales 50,460 FINANCIAL ANALYSIS T12 EBITDA 9,990 Debt/Total Equity 0.59x T12 Net Profit 4,586 Interest Coverage 4.19x Book Value 18.3 Total Debt/EBITDA 2.04x * Daily average in million Pesos VE/UAFIDA IBMV F-05 A-05 M-05 J-05 A-05 S-05 N-05 D-05 E-06 VALUACION HISTORICA Dic-99 Jun-00 Dic-00 Jun-01 Dic-01 Jun-02 Dic-02 Jun-03 KOF Promedio Histórico VE/UAFIDA Dic-03 Jun-04 Dic-04 Jun-05 Dic-05 21,155 19,331 17,507 15,683 13,859 12,035 10, P/U 1

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3 QUARTERLY RESULTS 4Q05 4Q04 3Q05 (millions of constant pesos as of Dec 31,2005) Net Sales 13,107 12, % 12,717 Gross Profit 6,496 6, % 6,280 Operating Expenses 4,046 3, % 4,079 Operating Profit 2,450 2, % 2,201 ICF % 357 Pretax Income 2,280 2, % 1,747 Taxes % 587 Non-Consolidated Subsidiaries 0 0 #N/A 0 Extraordinary Items (Gains) 0 0 #N/A 0 Minority Interest % 7 Net Income 1,428 1, % 1,152 EPS EBITDA 2,791 2, % 2,530 MARGINS 4Q05 4Q04 3Q05 Gross Margin 49.6% 49.4% 49.4% EBITDA Margin 21.3% 20.8% 19.9% Operating Margin 18.7% 18.4% 17.3% Net Margin 10.9% 11.4% 9.1% BALANCE SHEET SUMMARY Dic-05 Sep-05 Dic-04 (millions of constant pesos as of Dec 31,2005) Total Assets 67,146 67,891 69,619 Current Assets 7,421 8,017 9,179 Cash & Equivalents 1,958 2,720 3,782 Accounts Receivables 2,523 1,797 2,220 Inventory 2,168 2,665 2,301 LT Assets PP&E 18,555 18,548 19,654 Deferred Assets 40,694 40,778 40,342 Total Liabilities 32,418 34,084 38,464 Current Liabilities 12,098 8,254 11,157 ST Debt 4,694 1,533 3,714 LT Liabilities 15,673 20,972 22,475 LT Debt 15,673 20,972 22,447 Deferred Liabilities 994 1,008 1,430 Other Liabilities 3,653 3,851 3, Shareholders Equity 34,728 33,807 31,155 Minority Interest Majority Interest 33,769 33,070 30,415 The results at Venezuela were darkened by the lower volumes. This happened despite the increase in prices. The total sales were lower by 5.2%. The gross profit significantly decreased due to pressures over the input prices, as well as to a change in the mix of the packaging toward non-returnable presentations. Argentina: accelerating the rhythm. The volumes increased by 6.7%, and the price by 2.1%; therefore the revenues grew by 7.6%. The deterioration trend in the margins was reversed as a result of higher revenues. The gross margin showed an expansion by 140 bp, and the operating margin by 40 bp. Brazil: the star of Panamco. It is amazing to see how the company has achieved to turn around the results of its operations at that country. The revenues were 6.6% higher, mainly because of the increase in volumes. The gross margin shows a growth by 450 bp, due to the appreciation of the Brazilian real, as well as to manufacturing efficiencies. The operating margin also expanded by 430 bp, due to operating improvements and higher revenues. The outlook is positive. The growth trend in revenues will continue in the year. We expect that the prices will continue positive in real terms, and that PET and sugar costs will decrease, thus we might see margins improvements. The multiple trades at 7.71x, which we believe is fair, as, despite the good results, the low marketability of the company s shares counteracts the good outlook. Our recommendation is BUY-High Risk, with a 12 months target price of Ps plus a dividend of Ps

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5 Analyst Certification I, Alejandra Marcos Iza, hereby certify that the views expressed in this research report accurately reflect my personal views about the subject company(ies), its (their) affiliate(s) and its (their) securities. I also certify that I have not been, am not, and will not be receiving direct or indirect compensation in exchange for expressing the specific opinion(s) in this report. Material Disclosures Casa de Bolsa Banorte and its affiliates, including Grupo Financiero Banorte, provide a vast array of services in addition to investment banking, such as corporate banking, among others, to a large number of corporations in Mexico and abroad. The reader should assume that Casa de Bolsa Banorte or its affiliates receive compensation for those services from such corporations. Under Mexican laws currently in force, Research Analysts are permitted to directly hold long positions in shares of companies listed on the Bolsa Mexicana de Valores and mutual funds. However, Research Analysts must keep observance of certain bylaws that regulates their participation in the market preventing, among other things, misuse of private information in their own benefit. Analyst compensation Analyst compensation is based on activities and services intended for the benefit of investor clients of Casa de Bolsa Banorte and its affiliates. Compensation is determined on the basis of individual performance and impacted by overall firm profitability. However, investors should note that our analysts do not receive any direct compensation for any specific transaction in investment banking. Investment Banking Activities over the Past Twelve Months Casa de Bolsa Banorte or its affiliates have received compensation for investment banking services from the following companies or their affiliates, which may be the subject of analysis in this report: Alfa, Cablemas, CEMEX, Corporación GEO, DeMet, G. Acción, Grupo Financiero Banorte, Hylsamex, Hipotecaria Nacional, Jugos Del Valle, Su Casita, Urbi, Xignux. Investment Banking Activities during the Next Three Months Casa de Bolsa Banorte or its affiliates expect to receive or intend to seek compensation for investment banking services from companies or their affiliates that may be discussed in this report. Guide to Investment Ratings RATING is a parameter that indicates the expected total RETURN over the next twelve months. The total return required for a given rating depends on each stock's level of RISK. The following table outlines the parameters used to determine the rating given in the document attached hereto. These parameters are placed under revision on a regular basis, and modified as a function of several factors, including interest rate levels and future expected interest rate performance, as well as equity market trends and volatility.: Risk Rating Low Medium High BUY >13.5% >16.5% >19.5% HOLD <13.5% > 9.0% < 16.5% > 11% < 19.5% > 13% SELL <9.0% <11% <13% Risk takes into account three factors: 1) relative volatility to the local index, 2) the stock's marketability, 3) the company s financial strength. With these factors we construct a "Risk Index", which is used to group securities to three levels of risk: Low, Medium and High. Although this document offers a general investment criterion, we urge readers to seek the counsel of their own Financial Consultants or Advisors, should any given security mentioned herein fit the reader s investment goals, risk profiles, and financial positions. Determining Price Targets In calculating price targets, Casa de Bolsa Banorte uses a combination of methodologies that are generally accepted among financial analysts, including, but not limited to, analysis of multiples, discounted cash flows, sum-of-parts, or any other method that might be applied on a case-by-case basis. There can be no assurance that price targets calculated by Casa de Bolsa Banorte will be attained, as this depends on numerous endogenous and exogenous factors affecting both the company s performance and trends in the stock market on which it is listed. THE INFORMATION CONTAINED HEREIN HAS BEEN OBTAINED FROM SOURCES THAT WE BELIEVE TO BE RELIABLE, BUT WE MAKE NO REPRESENTATION AS TO ITS ACCURACY OR COMPLETENESS. NEITHER CASA DE BOLSA BANORTE, S.A. DE C.V. NOR BANORTE SECURITIES INTERNATIONAL ACCEPTS ANY LIABILITY FOR ANY LOSS ARISING FROM ANY USE OF THIS REPORT OR ITS CONTENTS. 5