MESSAGE FROM THE CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
TO ALL WHO MAKE OUR RECIPE POSSIBLE:
We live in a world in motion, marked by constant and inevitable changes, more and more vertiginous day by day; featured by changes that are often unexpected, of a global and external nature, and that require a different reaction in accordance with each new challenge. The complexity of the times we are currently experiencing, among the most challenging that humanity has ever faced, forces us to stop in our tracks and distance ourselves from our fellow humans in order to protect the health of everyone. We could never have imagined such a time, but I can with full confidence say that once more, Mexicans will show the fortitude and solidarity for which we are known.
Grupo Herdez is facing this crisis with the strong conviction that we are prepared, bolstered by our own history across more than a century, with a portfolio of products of the highest quality and by the invaluable efforts of a dedicated group of workers and managers.
In this context, I want to express my appreciation to all those persons who are members of the Grupo Herdez family, including all our partners in the Company’s supply chain, for their commitment toward ensuring the delivery or our products to Mexican homes despite all obstacles.
Our motto “Con toda confianza…” (With all confidence…”) is not an empty phrase. It is a saying that implies a great responsibility, since we are a part of the daily lives of millions of Mexicans who have placed their confidence in us and in our work for more than 100 years. Our recipe would not be possible without the dedication of our workers, the collaboration of partners and suppliers, the confidence of our clients and shareholders and, of course, the preference of our consumers.
Background and results
The year 2019 was a period marked by uncertainty and volatility, due in large part to geopolitical and trade conflicts that caused the global economy to record its lowest growth in the decade. In Mexico we experienced a slowdown in consumption.
consolidated
net sales
MXM 22.4 billion
Despite this environment, our consolidated net sales were MXN 22.4 billion, a 6.9% increase compared to the previous year.
Net sales in the Preserves segment grew 6.7% to MXN 17.6 billion, with mayonnaise, vegetables and pasta being the categories with the best performance. The Frozen segment showed the same growth tendency, with net sales of MXN 3.2 billion, an increase of 8.1% above 2018, mainly driven by the growth recorded in convenience and traditional store sales. At the end of 2019, this segment represented 14% of the Group’s total sales. As for the Exports segment, we achieved an increase of 6.5% in sales, for a total of MXN 1.6 billion.
Operating income MXM 3.0 billion
Consolidated gross margin in 2019 was 38.5%, a reduction of 80 basis points compared to the previous year. This result was due to an unfavorable sales mix in the Preserves segment, consisting of a greater amount of sales of canned tuna. Operating income for the year was MXN 3.0 billion, with a margin of 13.3%, one percentage point lower than 2018, due mainly to the impact from sales mix and the one-time charge of MXN 60 million for uncollectible receivables in the Frozen segment.
Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA), including other non-cash items, was MXN 3.8 billion in the year, while the margin increased by 20 basis points to 17.0%, benefiting from the adoption of IFRS16 – Leases. Excluding this effect, the margin for the year would have contracted by 130 basis points.
Megamex sales +4.0%
The stake in the results of associated companies was MXN 776 million, 15.3% below 2018 results, affected especially by the performance of our businesses in the United States. In that market, MegaMex sales increased by 4.0% for a total equivalent to MXN 13.8 billion, driven by the good performance of the guacamole, home-style salsa and taco sauce categories. However, the operating margin decreased by 3.5 percentage points, ending at 12.1%, due to the significant increase in the price of avocados. Finally, the net income saw a decrease of 14.8% to MXN 1.5 billion.
As for the Group’s net consolidated income, it decreased by 8.2% to MXN 2.2 billion.
capital expenditures mxn 2.2 billion
At year-end, the Company’s cash position was MXN 2.3 billion , 14.0% above the previous year, as a result of having bought back 22.2 million of our own shares, capital expenditures for MXN 886 million , and the acquisition of the Cielito Querido Café and Moyo brand for a combined investment of MXN 480 million .
Our leverage is at a very healthy level, which gives us the financial flexibility needed to take advantage of opportunities in the future. Our total debt at the end of 2019 was MXN 8.9 billion , that is, MXN 2.2 billion more than in 2018. The Company’s debt was integrally denominated in Mexican pesos, 63% at a fixed rate.
The consolidated net debt-to-EBITDA ratio stood at 1.7 times, while the net debt-to-equity ratio was 0.36 times for the year.
we align our sustainability strategy with 7 of the sustainable development goals
Social and environmental commitment
In 2019 we decided to align our sustainability strategy with seven of the Sustainable Development Goals that are a part of the 2030 Agenda of the United Nations for the eradication of poverty, protection of the planet, and an improvement of the lives and future of people all over the world.
Therefore, in 2019 we inaugurated our first seven lactation rooms for the purpose of conciliating family life and the workplace in a practical and satisfactory manner. This is a project that seeks to recognize and acknowledge the valuable contribution of women to all industries, and to pave the way to a closure of the gender gap in the workplace.
In the framework of Saber Nutrir, social responsibility program, our actions in this regard have benefited more than 700 families in 28 communities. The nutritional follow-up carried out this year to 69 children from 41 families who have been assisted since the program began has revealed that, compared against the base line established in 2013, malnutrition levels have decreased by 10% and obesity by 5%. These represented a small but relevant step toward the achievement of better and healthier nutrition and consequently a better life.
we instituted 25 productive projects with Pro mazahua foundation
Our efforts in alliance with the Pro Mazahua foundation continue to bear fruit. In 2019 we instituted 25 productive projects with the participation of 73 families. The Mazahua communities are now marketing tomatoes, nopal , strawberries, poultry and sheep as a result of these projects, and those families have now doubled their monthly income.
Our initiatives for the planet have won First Place in the ranking of the 20 Mexican Companies with a High Environmental Commitment in 2019 in the Empresas Verdes (Green Companies) website, and fifth place in the Corporate Reputation Business Monitor’s Social Responsibility and Corporate Governance ranking. We can proudly affirm that 63% of our energy comes from clean sources; that we recycle approximately 75% of the residues we generate; that we managed to store 76 million liters of rainwater; that our tuna fishing fleet operates in one of the most regulated zones of the world; and that we have invested more than MXN 30 million in environmental programs.
This year, continuing our movement Por un mundo más vivo (“For a healthier world”), more than one thousand volunteers were added to the task force dedicated to the cleanup of nine beaches in Mexico, representing 302 kilometers of coastline, for a total of 657 kilometers of coastline and 23 beaches since 2018. We also collected 60 tons of seaweed and 2,888 kilograms of waste. And, in our continuous passion to promote the culture of recycling, we installed – as we have in previous years – can collection centers in various locations across the country.
Sustainability has always been present in Grupo Herdez strategic planning process. We have traveled a long road in this quest, with tangible results and a positive impact. We are well aware that many things remain to be carried out on this front, and that our leadership in this endeavor must also be reflected in the environment.
To all of you who are taking an active role in these recipes, I wish to express my most sincere gratitude and appreciation.
we incorporated to our portfolio Cielito Querido café and moyo
Innovation
In 2019, we expanded and strengthened our portfolio with the incorporation of two great brands, loved and respected in the country because of their innovative and very Mexican ways of doing business: Cielito Querido Café and Moyo.
Unstoppable in the innovation of products and with a great desire to continue in the exploration of the many shades of Mexican gastronomy, we launched, through McCormick, a new generation of jams and gelatin with chili , earning the leadership in the Mexican jam category with a 45% market share.
On another note, Café Blasón renewed its image, to emphasize even more its 100% Mexican roots and to thereby render homage to the coffee-growing regions of the country.
Likewise, the Wholly Guacamole brand continued to lead in innovation for the guacamole category in the United States. In that regard, our products Wholly Avocado, Simply Avocado Dip and Spread, Wholly Guacamole Snack Cups and Herdez Taqueria Street Taco Sauces were heralded in the “Best New Product” category in the Editors’ Picks section of the specialized publication Progressive Grocer.
Thank you for the support to our extended family of collaborators, clients, suppliers, partners, shareholders and consumers
The future
We are facing a future with major challenges. In this respect, I know that with determination, optimism and concentration we will emerge stronger than ever. Because our experience and our heritage are also promises for the future.
It will become clear that this report will be our best tool to communicate our awareness that we are a fundamental piece for creating value – the value that we bring to the dinner tables of families in our country and beyond our borders. Moreover, it is the ideal tool with which to recapitulate and show everything we have created and to feel pride in what we have accomplished.
Across more than 100 years Grupo Herdez has demonstrated its resilient nature, which is one of the Group’s greatest virtues. In these uncertain times, brought about by a health contingency whose repercussions can still not be clearly understood or seen, I feel certain that our strengths will prove to be a competitive advantage, and that those same adversities will translate into new opportunities. With the support of our collaborators, clients, suppliers , partners, shareholders and consumers, we will manage to maintain the continuity of our operations and the availability of our products at the dinner tables of Mexico, the country that is our home and that needs and trust us for the years to come.
Con toda confianza… México saldrá adelante.
With all confidence, Mexico will overcome.
Héctor Hernández-Pons Torres
Chairman of the Board and Chief Executive Officer