Grupo Herdez B de C : 2020 Annual Report (spanish)

We advance together

2020 ANNUAL REPORT

2 0 2 0 A N N U A L R E P O R T G R U P O H E R D E Z

W E A D VA N C E T O G E T H E R

Dear reader

The year 2020 demanded and took a lot from us, it reminded us of our vulnerability, but also of our collective resis- tance. Its lessons, though painful, have invited us to value what we used to take for granted, to prioritize what is im- portant; to give thanks for what we have and what others do for us.

Today, we are more grateful than ever for the tireless will and commitment of all people that are part of the Grupo Herdez family. We thank our shareholders, customers, collaborators, consumers, partners, and suppliers for the trust they have placed upon us for more than 106 years, which strengthened us during this complicated year, and is also the compass that guides us to the future.

In this Integrated 2020 Annual Report, we want to tell you about what we achieved through the faces, stories, and testimony of the Grupo Herdez family. Thanks to the work of each of them, we were able to ensure the availability of our products in Mexican homes, and we were able to look out for the wellbeing of our collaborators and our families.

From 2020, we want to keep the feeling of union, joint res- ponsibility, and solidarity that we live every single day and share with all our value chain, maintaining our firm commitment to promote the development and wellbeing of Mexico.

WHO WE ARE

In this section, you will find the essence of who we are, what we do, and what moves us to continue taking the best of Mexican food to the world, and the best of the world to the Mexican people. Addi- tionally, you can check the balance of the year in the words of our CEO and our leadership team who, with their decisions, build our resilience and future performance.

ECONOMIC IMPACT

Here you will find the details of our financial perfor- mance, and business results.

2

2 0 2 0 A N N U A L R E P O R T G R U P O H E R D E Z

W E A D VA N C E T O G E T H E R

SOCIAL IMPACT

Here you will learn about the initiatives through which we impact the well-being and quality of life of our stakeholders: customers, consumers, emplo- yees, suppliers and communities.

ENVIRONMENTAL IMPACT

In this chapter, we leave a record of our actions and results in water, waste, recycling and emissions management, seeking to reduce our impact on the planet with tangible, measurable, and constant results.

We have lived and learned that the world is dynamic, that flexibility and resilience are required to adapt to change; that the sum of experiences, contexts, and opinions to address the challenges that we face, are fundamental. This year, we strengthened our capacity to adapt and persevere, but most of all, the sense of belonging to the large Grupo Herdez Family. As a result of this, today we look back at 2020 with gratitude.

In this report, we honor each of our collaborators that drove in this complex year, our partners, customers, and suppliers, which, jointly with us, took the opportunity to transform into a better team, a better company; and we also honor our customers for their preference. Because now and forever: We Advance Together.

3

2 0 2 0 A N N U A L R E P O R T G R U P O H E R D E Z

W E A D VA N C E T O G E T H E R

Letter to

Shareholders

TO THE SHAREHOLDERS OF GRUPO HERDEZ

The year 2020 will be remembered as a tragic year for humanity, but also as a year where the rules of work for human beings and companies were redefined. Many businesses perished, while others flourished, capitalizing on opportunities through adaptability, quickness and, above all, determination to evolve. For Grupo Herdez, 2020 was a year of solidarity, results, learning, and being grateful.

At the start of the pandemic, we planned for two main objectives

1. TAKING CARE OF	2. NOT INTERRUPTING
SUPPLYING
OUR PEOPLE.	OPERATIONS TO OUR
	CLIENTS.

At Grupo Herdez, we feel proud to have fully met our goals.

FINANCIAL RESULTS

In 2020, we set another sales record by selling over $24 billion.

Sales of the Preserves segment grew 10.6% to reach $19.4 billion. We increased the market share in spices, ice cream, mayonnaise, jams, mole, tomato purée, and tea.

Sales of the Frozen segment fell by 19.2% to $2.6 billion, as a result of the impact of the mobility restrictions in the country, which affected traffic in ice cream shops, cafeterias, and stores in the traditional channel.

4

2 0 2 0 A N N U A L R E P O R T G R U P O H E R D E Z

W E A D VA N C E T O G E T H E R

Export sales reached $2.0 billion, a 23% increase with respect to the previous year.

Gross margins of Preserves and Exports increased 0.4 and

7.9 percentage points, respectively, while gross margin for Frozen fell by 8.2 percentage points as a result of lower sales due to the contingency and to the unfavorable sales mix at Helados Nestlé.

Consolidated SG&A remained at 25.5% as a share of net sales, practically in line with the previous year. The afore- mentioned, as a result of expenses discipline implemented throughout the Company.

EBIT before other income reached $2.8 billion, in line with the previous year, while the margin fell by 0.9 percentage points to 11.8%. In the Preserves segment, EBIT before other income was $3.3 billion, a 24% increase, while the Export segment went from $110 to $301 million.

Additionally, we obtained extraordinary income for $408 million, mainly from the divestment of the tuna business, and income derived from the liquidation of a Hispanic company investment fund in the United States.

Earnings before Interest, Taxes, Depreciation, and Amortization (EBITDA) -including extraordinary income-, reached $4.2 billion, thanks to a 28.7% and 111.9% growth in Preserves and Exports, respectively. In Frozen, EBITDA was negative for $205 million.

Equity Investment in Associated Companies was $757 mi- llion, 2.4% less than in 2019 due to a reduction in sales to restaurants in MegaMex, as well as to the strengthening of the Dollar.

Additionally, consolidated net income of the Group totaled $2.4 billion, 6.5% more than in 2019, while the majority net income was $828 million, 18.4% less than in 2019, affected by the Frozen segment.

Free cash flow -without considering the divestment of the tuna business- was $1.3 billion, equivalent to 5.5% and 7.5% of net sales and shareholders' equity, respectively.

We invested $680 million in fixed assets, mainly in mole packaging equipment and expansions in tomato and vegetable collection capacity.

In 2020, we acquired 31.6 million of our own shares for $1.1 billion pesos, or 8.1% of the outstanding shares as of De- cember 31, 2019. This amount, jointly with the payment of ordinary dividends represented a return to shareholders of 9.3% on the average market capitalization of the company.

SUSTAINABILITY

In the Persons pillar, the two most important initiatives of the year were related to SDG 5, Gender Equality. On one hand, at the end of the year, we started the first Diagnostic of Diversity and Inclusion within the Group, the results of which will help us focus our efforts to contribute to a more equitable Mexico, aligning with the United Nations sustainable development goals. On the other, we launched "Semillero Nutrisa", an initiative that promotes the development of small and medium-sized companies led by women. This project will strengthen our product portfolio with innovative local proposals. In its first edition, Semi- llero gave 12 scholarships in a training program to strengthen its business model and develop them as potential suppliers of the Group.

In the Community pillar, the majority of our efforts were focused on fighting the effects of the pandemic on the most vulnerable sectors.

First, jointly with Sanfer and La Costeña, we prepared more than 35 thousand baskets with food, health, cleaning, and medication products that benefited more than 175 thousand Mexicans in a vulnerable situation.

5