Dear Grupo Herdez shareholders,

Relevant events around the world full of surprises and jolts were part of 2016, first with Brexit and ending in the results of the United States elections, in addition to terrorist acts, government crises in Spain and Brazil, the death of Fidel Castro, among many others. It was a time of turbulent change that created the ideal environment for disinformation, uncertainty and hasty decision-making.

Given this context, Grupo Herdez opted for well-founded information as well as a clear-headed and prudent decision-making, while reinforcing our strengths, focused on preserving our reputation, and above all, moving forward on our plans. This factors help explain our achievements this year.

Results

In 2016, we achieved a new record: Grupo Herdez’s net sales increased by $1,824 million, or 11.2%, reaching $18,180 million. Putting these figures into perspective, $1,824 million is equivalent to 70% of annual sales of the Frozen segment. The best performing categories in the Preserves segment were: canned vegetables, home-style salsas, marmalades, mole sauce, pasta and tomato purée.

Grupo Herdez in motion

What this means is we are seeking a balance between market share and profitability. When our margin is compromised by cost increases, we partially transfer the effect to the market in order to remain competitive.

Gross margin declined by only 1.6 percentage points due to the implementation of a series of initiatives to streamline the supply chain, which offset increases in the cost of raw materials and packaging materials as a result of the rising value of the dollar.

Consolidated net income was $1,593 million, an increase of 23.2 percent. This figure is higher than the previous year reflecting the impairment charge on long-term assets.

EBITDA operating cash flow remained unchanged compared to the previous cycle, while net profit reached $717 million.

MegaMex

Our business in the United States is also on the move: MegaMex profits grew 37.7%. As if that were not enough, I am proud to share with you three recognitions we received during 2016. The first recognition was the Editor’s Choice by the Progressive Grocer magazine for our Herdez® Guacamole Sauce, for its innovation, flavor, functionality and value. The second recognition was for our Don Miguel® The Bomb Chipotle Chicken Burrito which was listed as a purchase recommendation in the Convenience Store Decisions magazine. In November, the Progressive Grocer magazine once again recognized MegaMex with the Captain award in the Ethnic Food category.

Frozen Foods

Innovation is thriving in Helados Nestlé®. The new Emperador® sandwich surpassed sales expectations, and Danesa 33® positioned itself among young people as a renewed brand.

The growth of Helados Nestlé® in the direct distribution channel was 14.5 percent.

Regarding Nutrisa®, our actions focused on profitability. We closed stores that were not generating cash, streamlined the product portfolio, implemented promotions to generate traffic, and reorganized senior management. These measures will enable us to resume growth in a more orderly, sustained and profitable manner.

Financial Situation

From a financial standpoint, the Company’s consolidated cost-bearing debt less cash to EBITDA ratio was 2.3 times as of December 31, 2016

Resources generated were allocated to two main areas:

• An investment in fixed assets of $985 million.
• A dividend payments of $961 million.

Consolidated shareholders’ equity increased 5.2 percent, while the yield on majority capital increased from 6.0 percent to 10.2 percent.

Consolidated

EBITDA

2.3 times

ROE

10.2%

+4.2 percentage points

Investment in Fixed Assets

Out of the $985 million investment in fixed assets, we could highlight the new distribution center in Los Mochis, the expansion of the salsa production capacity in San Luis Potosí, and the new freezers for Helados Nestlé.

CAPEX

$985 million

Kudos to our People

Our people are also on the move. The work done by the marketing team to further connect with consumers has been fabulous. The strategy to listen, integrate and speak to them in their own language has breathed new life into our brands. Today our consumers actively participate in sharing recipes, creating designs for lithographed containers, and many other initiatives.

We were selected as a best food supplier by Sam’s Club, and I am proud to share that Walmart Mexico and Central America named Grupo Herdez the best supplier of the year. My highest commendation to the entire marketing team.

Sustainability

Saber Nutrir® taught one million hours of food education in 459 elementary schools across the country. The program also built 219 productive projects that allowed more than 400 families from rural communities in the states of Estado de Mexico and Chiapas to improve their nutrition, and develop skills to boost the local economy, while also improving their eating habits to promote food safety. This year’s results bring the total hours taught to five million since the program began.

Regarding the environment, we were able to reduce the intensity of emissions by production unit by 12.3% thanks to the use of wind energy.

I would like to close this message by expressing my deepest thanks to the 9,177 employees at Grupo Herdez, for their enthusiasm and dedication to delivering results; to you, our shareholders for your confidence; to our suppliers for their support, and of course, to the millions of people who every day choose and enjoy our products.

We view the future with optimism and serenity. We will remain vigilant in order to continue making well-grounded decisions under the current global market uncertainties. We will invest and work hard to continue to grow, and remain relevant among consumers.

We are experience in motion.

S i n c e r e l y

Héctor Hernández-Pons Torres

Chairman of the Board of Directors and Chief Executive Officer

Food

education

1 million hours

9,177

Employees