Insperia

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G4-1

To the Shareholders of Grupo Herdez,

Resilience, as we know, is the ability to overcome adverse conditions and move forward on our feet and without losing the way. As such, it can be said that if nothing else Mexico showed the world its resilient character in 2015. One fact alone enough to confirm this: our economy grew 2.5% over the previous year despite oil prices falling by half and the 16% rise in the dollar. This positive result was broadly due to favorable performance in consumption and private investment, and the development of non-oil manufacturing.

The same can be said of Grupo Herdez, which, in a particularly uncertain economic year, has been an example of resilience by achieving record levels of sales and EBITDA as a result of flawless execution in all areas of the organization and increasing efficiency in the value chain.

In addition, the acquisition of Helados Nestlé strengthened our competitive position in a category with high growth potential, positioning us as the second largest participant in the ice cream category with presence in all sales channels.

Results

I am pleased to report that the Company’s total sales were Ps. 16,356 million, an increase of 14.2%

compared to the previous year. Half of this growth is attributable to the incorporation of Helados

Nestlé, and the remainder to a commercial strategy that resulted in substantial improvements in our share of the home-style salsas, jams, ketchup, teas and vegetables categories, primarily.

EBITDA, which totaled Ps. 2,887 million, was 19.5% higher than in 2014 and represented a margin

of 17.7%. The notable efforts that led to these results include:

  • An effective pricing policy
  • Lower production costs in the two new plants for mayonnaise and vegetables
  • Containment of raw material and packaging Prices
  • Exchange rate risk management.

The operating cash flow totaled Ps. 1,861 million, 18.3% more than in 2014.

Free cash flow, that is, after investments in fixed assets, totaled Ps. 822 million.

Helados Nestlé

The performance of Helados Nestlé was very positive thanks to the increased number of freezers to secure new points of sale.

Excluding refrigerated distribution, in just nine months we integrated the operation thanks to the

determination of a great team of employees in all areas of the Group. My sincere appreciation to all of them.

Nutrisa

The key indicators at Nutrisa showed sequential improvements throughout 2015. That is, the number of transactions and average ticket increased during the year.

It should be noted that new products were introduced to strengthen the commercial offering and that during the period covered by this report 58 net new stores were opened, to end the year with 487 stores and as of today, we have more than 500.

Despite the favorable trend, a Ps. 450 million non-cash charge to earnings was registered, corresponding to Nutrisa’s goodwill following the application of International Accounting Standard 36 “Impairment of assets.” This accounting charge does not change the potential of the brand, and even less so the confidence we have in this business. We are here for the long term.

Our passion for serving 60,000 people a day in our stores is also resilient.

MegaMex

The measures put in place to improve the profitability of our MegaMex partnership paid off. The management team was strengthened, product portfolio rationalized, and Don Miguel plant substantially improved, while we grew our market share in sauces and refrigerated guacamole.

Financial Position

The Company’s consolidated cash position was Ps. 1,483 million, while debt totaled Ps. 5,960 million. At year-end, our leverage ratios remained stable following the three main uses of resources:

  • The acquisition of Helados Nestlé for Ps. 1,060 million
  • CAPEX of Ps. 1,039 million
  • Dividends to majority and minority shareholders of Ps. 1,087 million.

Among the notable investments in fixed assets was the modernization of the Los Mochis distribution center, the purchase of the “El Duque” tuna vessel, the opening of Nutrisa stores, and the acquisition of freezers for Helados Nestlé.

Without a doubt, we can say that our financial strength is resilient.

Sustainability

At Grupo Herdez, our commitment to sustainability community and the environment is also an example of resilience.

In social matters, with Saber Nutrir we continue to work to change the eating habits of more than 160,000 elementary school children in the country. During the year we provided one million additional hours of nutrition education, with activities in ten states of Mexico. With this million, we have already reached four million. We also built 404 productive projects in the State of Mexico and Chiapas, which will transform the quality of life for 384 families.

We participated in the remodeling of the Papalote Children’s Museum in Mexico.

Meanwhile, Fundación Herdez, whose main objective is to preserve Mexican cuisine and value the country’s basic foods, received more than 9,000 visitors to its museum and published the book “Ahuácatl: delicious and nutritious fruit,” in addition to supporting non-profit organizations with inkind donations.

On the environmental side, thanks to the wind power generation project we reduced CO2e emissions by 48%. Also, efficiencies in production processes at the Santa Rosa, Celaya and Barilla plants allowed for a 20% reduction in waste generation. Although there is still some way to go, our actions in this regard contribute positively today to transforming the environment in the communities where we operate.

Outlook

2016 will undoubtedly be a year of consolidation for the Frozen division. We are confident that it will be one of the main drivers of profitable growth for the Company.

The transformation that Grupo Herdez has undergone throughout its history speaks of its lexibility and adaptability, virtues that define us and strengthen our leadership.

This leadership is the result of the resilient enthusiasm of 8,772 employees whose commitment and effort are the cornerstone of achieving results. To all of them, I extend my deepest gratitude.

Similarly I would like to thank you, our shareholders, for the confidence you place in us; our suppliers for their support; of course to our customers and consumers for allowing us to be at the tables and on the palates of millions of Mexicans; and in general to the people who enjoy our products.

Rest assured that we will continue transforming that confidence into results. To meet the challenges that await us on the way, we are equipped with determination and optimism. The confidence I have in our future is also resilient.

Sincerely,

Héctor Hernández-Pons Torres Chairman of the Board and Chief Executive Officer