Grupo Lala B de C : Earnings Release

GRUPO LALA REPORTS SECOND QUARTER 2021 RESULTS

Mexico City, July 26, 2021 - Grupo LALA, S.A.B. de C.V., a Mexican Company focused on the healthy food industry, ("LALA") (BMV: LALAB), today reported results for the second quarter of 2021. The following information has been presented based on International Financial Reporting Standards (IFRS) and in nominal terms.

Quarter Highlights:

• +3.7% YOY increase in constant currency sales driven by Mexico
• 9.1% consolidated EBITDA margin; -100 bps YOY. 9.5% Adjusted(1) EBITDA margin, -60 bps YOY
• 12% EBITDA margin for Mexico; +10 bps YOY expansion
• $160m in Net Income; 0.8% net margin, -130 bps YOY. $262m Adjusted(1) Net Income, 1.3% net margin and -80 bps YOY
• -0.7%Consolidated Working Capital; a 120 bps YOY improvement
• Leverage ratio: reported 3.0x Net Debt / EBITDA

The following chart provides an abridged Income Statement, in millions of pesos. The margin for each figure represents its ratio to net sales for the second quarter ended on June 30, 2021 as compared to the same period in 2020.

	MXN$ in millions			Q2'20		% Sales		Q2'21			% Sales		Var. %	Var. bps
	Net Sales			20,048		100%		20,162			100%		0.6%
	Gross Profit	6,854	34.2%	6,566		32.6%	(4.2%)	(160 bps)
	Operating Income			1,228		6.1%		958			4.8%		(21.9%)	(130 bps)
	EBITDA(2)	2,028	10.1%	1,826(1)		9.1%	(10.0%)	(100 bps)
	Net Income			418		2.1%		160			0.8%		(61.6%)	(130 bps)

1. Adjusted EBITDA and Net Income exclude BRL 36.6m of one-offs recognized as part of the Anápolis plant closure and corporate restructure in Brazil
2. EBITDA is defined as operating income before depreciation and amortization

MESSAGE FROM MANAGEMENT

Arquímedes Celis, Grupo LALA's CEO, commented:

"In a complex operating environment still subject to an unpredictable health pandemic and inflationary pressures, our results this quarter reflect a commitment to improving our performance in LALA's core markets. Consumers' enduring preference for our brands and broad product portfolio supported stable sales relative to last year's quarter, which benefited from a pantry - loading tailwind. Although LALA is experiencing inflation pressures from a wide range of raw materials - like most sectors of the economy - our Mexico business benefited from the structural changes we made last year. Similarly, we continue strengthening the foundations of our CAM and US operations. As the Brazilian market and the inflationary dynamics there have been particularly challenging, we have also taken steps to improve the profitability of that business."

He continued, "These actions reflect our unwavering focus on creating value for all LALA stakeholders through operational and financial discipline in every market."

Results

Q2 2021

VOLUNTARY PUBLIC ACQUISITION OFFER

A group of LALA shareholders announced their intention on May 21, 2021 to initiate the process to launch a Voluntary Public Acquisition Offering (VPAO) for up to all of the outstanding LALAB publicly traded shares, representing approximately one fourth of the Company's outstanding shares. On June 14, 2021, this group of offerors filed for the necessary approvals with the CNBV. As per the announcement, after the VPAO closing, if the necessary number of shares have been acquired, the offerors intend to request cancellation of the security listing. It is worth noting that the timing of these events is subject to regulatory approvals.

CONSOLIDATED RESULTS

THE SECOND QUARTER 2021

Net Sales: Second quarter 2021 total net sales increased 0.6% year-on-year to reach $20,161 million pesos; a 3.7% increase on a constant currency basis. Said total net sales increased despite a challenging year-on-year comparison due to pandemic- related pantry stocking in April 2020, as well as an unfavorable currency translation effect during the second quarter 2021 resulting from 13.1% and 14.3% depreciation of the BRL (relative to MXN) and MXN (relative to USD) respectively.

Sales by Region:

Second quarter 2021 Mexico sales increased by 3.8% YOY, to $16,172 million pesos, with sales growth across segments and particularly solid performance in UHT milk, cream, and cold-cuts, also driven by channel growth and tactical price adjustments. COVID-19 pandemic related at-home food consumption continued to be reflected within certain categories, with yogurt and on- the-go presentations showing initial signs of recovery within this market.

Grupo LALA's Brazil operations reported $2,490 million pesos in second quarter net sales; a 7.1% year-on-year increase in BRL and a 6.9% decrease in MXN. This BRL increase was due to price actions intended to pass through cost inflation, as well as the performance in creams, cheeses and requejião. During the quarter, the previously announced termination of a co-packing contract adversely impacted volume within this market. Excluding this impact, YOY volumes remained flat, while sales in BRL increased by 21.8%. While the Foodservice channel has improved sequentially in this market, COVID-19 related restrictions have hindered a full recovery to pre-pandemic levels.

Second quarter 2021 U.S. net sales reached $788 million pesos; a 0.5% increase in constant currency and a -13.9% decrease in Mexican pesos. Volumes remained steady during the quarter due to 1) Growth in UHT milk and blended yogurt; and 2) an increased Promised Land milk distribution footprint, while yogurt sales remained stable.

LALA's Central America operations reported a -6.0% YOY sales decrease in USD and a -19.5% decrease in MXN, to reach $712 million pesos in second quarter 2021 sales. This decrease was primarily the reflection of the December 2020 closure of LALA's Costa Rica operations. Nicaragua and Guatemala second quarter 2021 sales increased 9.9% YOY in USD due to strong milk, yogurt and ice-cream performance as well as growth from innovations into white spaces.

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Results

Q2 2021

Net Sales by Region
MXN$ in millions	Q2'20	Q2'21	Var. %

Mexico	15,574	16,172	3.8%
Brazil	2,676	2,490	(6.9%)
USA	915	788	(13.9%)
CAM	883	712	(19.5%)
Total Sales	20,048	20,162	0.6%

Constant currency

Var. % (1)

3.8%

7.1%

0.5%

(6.0%)

3.7%

1. Constant currency uses constant BRL for Brazil and USD for the United States and Central America

Net Sales by Region	2%	Net Sales by Segment
as reported Q2'21	as reported Q2'21
4% 4%	3%			Milk
Mexico
			Other Dairy
12%
Brazil	40%
USA	55%		Beverages and Others
80%				Raw Materials and
CAM

Others

Sales by Segment:

Milk stable sales driven by increased UHT Milk volumes despite a high comparable base due to pandemic-relatedpantry-loading sales during the second quarter of 2020.

Other Dairy increased sales across all regions. Strong performance in cream and cheese, while yogurt showed signs of recovery.

Beverages and Others growing due to robust cold cuts performance.

Net Sales by Segment
MXN$ in millions	Q2'20	Q2'21	Var. %

Milk	11,108	11,118	0.1%
Other Dairy	7,932	8,027	1.2%
Beverages and Others	462	574	24.3%
Raw Materials and Others	546	444	(18.8%)
Total Sales	20,048	20,162	0.6%

Constant currency

Var. % (1)

1.5%

7.2%

27.1%

(18.8%)

3.7%

1. Constant currency uses constant BRL for Brazil and USD for the United States and Central America

Costs and Gross Profit: Second quarter 2021 cost of goods sold increased by 3.0%, resulting in $6,567 million pesos gross profit with a 160 bps gross margin decrease, to reach 32.6% of Net Sales. The year-on-year gross margin contraction was due to raw material cost inflation in all geographies, which impacted Brazil more significantly.

Expenses and Operating Income: Second quarter operating expenses decreased by 0.9% year-on-year, to $5,550 million pesos. Operating expenses as a percentage of sales decreased 40 bps to 27.5%. This expense improvement was the result of operational efficiencies in logistics, waste control, and overhead expenses.

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Results

Q2 2021

Second quarter 2021 operating income was $958 million pesos; a 21.9% year-on-year decrease with a 4.8% reported operating margin.

EBITDA: Second quarter 2021 reported EBITDA reached $1,826 million pesos with a 9.1% EBITDA margin; a 10% year-on- year decrease with a 100 bps margin contraction. This was primarily due to raw materials inflationary pressures across regions, as well as one-time expenses incurred in Brazil during the quarter.

Q2'21 EBITDA by Region

Reported

MXN$ in millions Q2'20 % NS Q2'21 % NS Var. bps

Mexico

Brazil

United States

Central America

Total EBITDA

1,846

11.9%

1,943

12.0%

10

146

5.5%

(185)

(7.4%)

(1,290)

31	3.4%	22	2.8%	(60)
5	0.6%	46	6.5%		590
2,028	10.1%	1,826	9.1%	(100)

In Mexico, second quarter 2021 EBITDA was $1,943 million pesos with a 12.0% margin; a 10 bps year-on-year increase. This result was due to a significant raw materials inflation; partially offset by operational efficiencies in 1) improved logistics management; 2) waste control; and 3) reduction of overhead expenses.

LALA's Brazil operation closed the second quarter 2021 with a $185 million pesos EBITDA loss and a -7.4% margin; a 1290bps year-on-year decrease. This was due to 1) continued raw materials cost pressure, primarily in raw milk, soybean oil, as well as packaging and resins; and 2) one-time impacts related to the Anápolis plant closure and corporate restructure after the co- packing contract termination. Adjusting for these one-offs, EBITDA margin for Brazil was -4.3%.

The Company's US operation reported a 2.8% EBITDA margin; a 60 bps year-on-year decrease. LALA's US operation closed the second quarter 2021 with a $22 million peso EBITDA, primarily due to cost inflation partially offset by lower expenses.

Second quarter 2021 reported EBITDA for LALA's Central America operations reached $46 million pesos with a 6.5% EBITDA margin; a 590 bps margin expansion. This was due to 1) solid operational performance in Nicaragua and Guatemala, 2) sales and distribution cost controls and 3) the discontinuation of LALA's Costa Rica business that operated with negative EBITDA.

EBITDA* by Region as reported Q2'21

0% 1% 2%

		Mexico
		Brazil
		USA
97%		CAM

*Only showing positive EBITDA values

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Results

Q2 2021

Net Financial Expenses: Second quarter 2021 net financial expenses were $542 million pesos; a 12.2% year-on-year decrease. This was mainly due to the reduction in the weighted average cost of debt given the lower Mexico TIIE and Brazil CDI interest rates, as well as a decrease in net debt.

Taxes: Second quarter 2021 reported tax expense was $268 million pesos. The effective tax rate based on Net Income Before Taxes was 62.5%, impacted by the annual inflation adjustment on outstanding debt.

Net Income: Second quarter 2021 reported net income was $160 million pesos with a 0.8% net margin; a 130 bps year on year decrease due to lower operating income and the effect of the annual inflation adjustment on outstanding debt. Adjusting for the BRL 36.6 million one-off expenses recognized as part of the Anápolis plant closure and corporate restructure in Brazil, Net Income was $262 million pesos, representing an 80 bps YOY decrease with a 1.3% net margin.

					Reported
	MXN$ in millions		Q2'20		Q2'21		Var %
	Operating Income	1,228	958	(21.9%)
	Financing Expenses	617	542	(12.2%)
	Results of associated companies	15	12	(20.2%)
	Net income before taxes		626		428		(31.5%)
	% NS		3.1%		2.1%		(100 bps)
	Taxes	208	268	29.1%
	Effective tax rate	33.2%	62.5%
	Net Income		418		160		(61.6%)
	% NS		2.1%		0.8%		(130 bps)

CONSOLIDATED

FINANCIAL POSITION

Capital Investment: The Company invested $974 million pesos in capacity expansion and maintenance Capex as of June 30, 2021. This is comprised of $686 million pesos in property plant and equipment acquisitions and $288 million pesos in vehicle, machinery, and equipment leasing. This represents a Capex-to-Sales ratio of 2.4% year-to-date.

Cash and Cash Equivalents: As of June 30, 2021, Grupo LALA had a cash position of $4,514 million pesos; a 2.4% year-on- year decrease due to the payment of short-term debt.

Working Capital: As of June 30, 2021, LALA's consolidated working capital over sales ratio improved by -120 bps year-on-year to reach -0.7%, driven by a negative working capital ratio of -2.1% of sales achieved in Mexico and cash conversion cycle improvements in the other regions.

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