Dear Grupo Herdez Shareholders
For more than a century, Grupo Herdez has adapted to numerous changes, from economic, social and political cycles, to changing consumer tastes. We have weathered many storms by trendsetting and innovating in many facets of the Company and of the market.
Results
In 2018, we faced lower-than-forecasted consumption. Customers streamlined their inventory, and costs for certain raw materials and other consumables increased significantly. Interest rates continued to rise and the dollar experienced volatility.
Despite these headwinds, our results were satisfactory. The Group’s consolidated net sales grew 4.5 percent to a total of MXN 20.9 billion, MXN 906 million more than in 2017.
Consolidated operating income grew 7.4 percent to MXN 2.9 billion, and MegaMex income grew 12.1 percent — after having posted an extraordinary tax benefit in 2017 — while majority net income grew 10.5 percent to a new record of MXN 1.2 billion.
In the Preserves segment, net sales surpassed MXN 16 billion, 3.1 percent higher than in 2017.
Net sales in the Frozen division were MXN 2.9 billion, 3.6 percent higher than in the previous year, and the EBITDA operating margin expanded 1.5 percentage points to 11.1 percent.
Exports grew 24.5 percent to MXN 1.5 billion, which was seven percent of total net sales.
MegaMex posted net sales of MXN 13.3 billion, an increase of 9.0 percent compared to the previous year, thanks to increased household penetration, especially in home-style salsas and guacamole.
Consolidated
Net Sales Grew
4.5%
Consolidated
Operating
Income Grew
7.4%
Innovation
Innovation is present throughout the Company, adding value to all areas of our portfolio.
Herdez launched three of the five winning salsas in the “Show Off Your Salsa” competition which, along with our guacamole salsa, invigorated the salsa category with sales posting in the double digits.
Our new presentations of Barilla Collezione increased market share in the retail channel.
A few months after launching La Lechera frozen pops, they had gained a position among the top sellers in the convenience channel. In combination with take-home presentations, the frozen pops increased our retail market share significantly.
We refreshed the Nutrisa image so that it better reflects the natural and wellness lifestyles that it promotes.
We distributed French’s mustard and Frank’s RedHot spicy salsa, which are market leaders in the United States in their respective categories.
McCormick tempted palates with a guacamole-flavored mayonnaise, increasing its market share in that category.
MegaMex launched Herdez taqueria street sauce, with four flavors that have helped Herdez become the fastest-growing salsa brand in the United States.
"Show Off Your Salsa"
Herdez launched the first three varieties of this successful campaign of sauces made by Mexicans, for Mexicans
Awards
We are proud to announce the awards we received in 2018.
We received a bronze EFFIE for “Show Off Your Salsa” in the “New Product Launch” category, and another for “Recycle the Can” in the “Positive Environmental Impact” category. The EFFIEs are the most important awards in the marketing communications industry.
Walmart México and Central America named Grupo Herdez the best grocery supplier of the year.
Calimax also named us the best supplier of the year.
Nutrisa received the Famous Brand Inscription from the Mexican Institute of Industrial Property, joining the family of brands that share this distinction: Búfalo, Del Fuerte, Doña María and Herdez. We now claim a total of five of the 89 most famous brands in Mexico.
The Herdez taqueria street sauce received an Editor’s Choice award from Progressive Grocer, the most important food retail association in the United States.
Our Herdez guacamole salsa received the Innovation and Creativity Award from GMA, the association that represents the largest food, beverage and consumer product companies in the world.
I join these groups in applauding the dedication and efforts of our team, without whom these awards would not be possible.
Nutrisa
Received the declaration
of
Famous Brand, being
undisputed
leader in
your segment thanks to the
constant
innovation and renovation.
Herdez in U.S.A.
Herdez taqueria-style sauces received the editor's selection award by Progressive Grocer.
Guacamole Salsa
Received the GMA innovation and creativity award in the United States.
Financial Position
Our consolidated cash flow was MXN 2.1 billion, 3.5 percent higher than in 2017, which allowed us to finance investments in assets, pay dividends, and acquire treasury stock.
Net asset investments totaled MXN 496 million, and were mainly allocated to infrastructure maintenance, freezer acquisition, and Helados Nestlé distribution trucks.
In 2018 we acquired 7.1 million treasury shares for MXN 287.4 million, equivalent to two-thirds of the dividend paid by Grupo Herdez. This means that the total yield for you, our shareholders — dividends plus treasury stock acquisition — was MXN 712 million, or four percent of the Company’s average capitalization value.
The Company’s low leverage allowed us to take advantage of growth opportunities and to implement projects that improve the Company’s profitability.
Consolidated Cash Flow was 3.5% more than in 2017
The Future
We have defined five directives that govern the Group’s growth strategy under a strict criterion of profitability.
These directives are:
- Drive business intelligence to boost growth
- Deploy technology
- Develop talent and infrastructure
- Foster sustainable growth
- Exercise responsible corporate citizenship
We transformed our sustainability strategy to align it with the Sustainable Development Goals issued by the United Nations. Seven of those goals are right in line with our essential pillars of Quality of Life, Culture of Legality, Environment, and Community Outreach.
We are committed to the following goals:
- Zero hunger
- Gender equality
- Clean water and sanitation
- Decent work and economic growth
- Responsible consumption and production
- Climate action
- Life below water
Our brand resilience and focus on execution support our confidence in our optimistic outlook for the future, and for continuing to adapt successfully to the changing environments of our industry and Mexico. We have done so for 104 years and we will continue to do so for many more.
I would like to recognize the dedication of our employees, as well as the trust of our consumers, customers, suppliers, partners and you, our shareholders, with whom we share this year’s results.
Héctor Hernández –Pons Torres
Chairman of the Board and CEO