2022 INTEGRATED ANNUAL REPORT
LETTER FROM
OUR CEO
To the Grupo Herdez’s shareholders:
There is no manual to describe, step by step, how to become one of the leading food companies in the country. However, with admirable willpower, we have achieved and maintained this for over a century at Grupo Herdez.
Three years after the pandemic’s start, the global outlook does not cease to surprise us. Supply chains and in-store traffic continue to not return to normal, inflation has remained a constant, input prices and the availability of commodities were unpredictable, water scarcity has continued, and we saw the outbreak of a war with implications that are hard to predict.
However, throughout 2022, we demonstrate that we are capable of not failing our customers; we defy the limits of what is known, and we bet on innovative ways to achieve results in our areas of impact.
WE DEFY OUR ENVIRONMENT: OUR FINANCIAL PERFORMANCE
With the proactiveness and flexibility that characterize us, we are experiencing a year of great economic challenges for our country and for the world. The post-pandemic recovery demanded our best, having to face scenarios of greater uncertainty.
We achieved a new record on our Consolidated Net Sales of $31,646 million pesos increasing 21.0%.
The Preserves segment grew 20.8% to reach $25,343 million pesos. We attribute this to price increases, and to a lesser extent, to greater sales volumes.
In this context, consumption has remained solid, and Mexicans demonstrated loyalty to their traditional brands, causing half of the portfolio to have stellar performance. This allowed us to gain market share in our main categories, especially mayonnaise, pasta, tomato puree, and canned vegetables.
In the Impulse segment, sales increased 19.7% to $3,917 million pesos, resulting from a continuous recovery of in-store traffic, and an increase in the average ticket above the numbers we had been seeing in 2019.
At Helados Nestlé®, we decided to optimize our portfolio, prioritizing profitability, and we promoted premium products in our traditional channel, which brought us a 19.0% increase in sales.
Sales in the Export segment increased 25.3% to reach $2,386 million pesos, with mole and homemade salsas being the fastest growing categories.
We saw a 1.5 percent reduction in our consolidated gross margin resulting from an increase in commodity prices, which was partially compensated with our own price adjustments, thus resulting in a 35.4% margin.
Additionally, our focus on operating leverage and expense discipline was fundamental to revert the pressure on our gross margin. SG&A as a proportion of sales saw a 1.4 percent drop.
Our EBIT before other income and expenses increased by 20.3%, reaching the unprecedented amount of $3,712 million pesos. The Preserves segment saw a 16.4% increase in this indicator. Consolidated EBIT saw a 27.4% increase year-over-year with an expansion in our margin of 0.6% to reach 12.1%.
Likewise, our EBITDA was $4,943 million pesos, 25.3% above 2021 levels, with an increase in our margin of 0.5% to reach 15.6%.
With respect to our interest in associated companies in the Income Statement, we saw a 42.0% reduction mainly due to the performance of MegaMex, which, even though it had a net increase in sales of 11.4% vis-à-vis 2021, for a total of $16,337 million pesos, was strongly impacted by the high cost of distribution or avocado in the US, causing a reduction in net profit of 42.8%, taking it to $870 million pesos.
This resulted in a 9.0% only increase in the Group’s the consolidated net income to reach $2,266 million pesos, while majority net income was $777 million pesos, a 7.0% increase year-over-year, with a margin of 2.5%, just 0.3 percentage points below the margin of the previous year.
The combination of our financial results and our sustainability strategy made it possible to successfully issue $3,000 million pesos in a sustainability-linked bond in the domestic market, with the lowest rate differential in the history of the Company.
With these funds, we paid a bank loan, we invested $726 million pesos in assets, we repurchased shares for $421 million, we invested $587 million in the acquisition of Interdeli and Deli Dips & Snacks, and even considering this, we ended with a cash position of $2,406 million, a $190 million increase from 2021.
The Group’s total debt at year end was $11,274 million pesos, with a slight increase of 3.4% year-over-year. The net debt to EBITDA ratio dropped from 2.2 to 1.8.
Total investor return was at 7.1%, considering share repurchases and dividends paid.
These yearly results remind us and demonstrate that, in spite of persistent adversities, we are prepared to deal with any challenges that we may face.
WE DEFY THE SCOPE OF OUR PORTFOLIO
Our customers are at the core of our strategy, we enter new categories or develop innovative technological tools to decipher behaviors, always seeking more and better ways to satisfy them.
Through our associate Herdez Del Fuerte, we entered the Mediterranean food segment by acquiring Interdeli and Deli Dips & Snacks, thus expanding our portfolio with the Libanius®, Flaveur®, and Liguria® brands, among others, which are pioneers in the production and marketing of Lebanese products ready for consumption in Mexico.
This opens the door for us in the dip category, which showed 8.6% growth in 2022 nationwide, to develop the “Mexiterrenean” concept, an explosive fusion between both cuisines.
And just like we helped McCormick & Company enter the Mexican market 75 years ago with the lemon mayonnaise recipe, we now receive their support to launch in the UK one of the most iconic products in our catalog and in the country: Herdez salsa.
It should be of no surprise to anyone that there is great consumer appetite for authentic Mexican products and flavors in an international market that is currently dominated by Tex-Mex. As the fourth international cuisine with the most demand, the Mexican food category in the UK is growing fast, at a 19.0% rate year-over-year, with a market value of £228 million.
Our product portfolio that we bring to European households -which includes food kits, salsas, and condiments- gives consumers the inspiration and ingredients that they need to enjoy and celebrate the true flavors of Mexico.
With this launch, we reaffirm ourselves as recognized ambassadors of Mexican cuisine that, in less than a year, obtained a 5.5% market share in the shelves of the Tesco supermarket chain, which recognized us as the best performing international cuisine launch of 2022.
Lastly, we continue advancing at an accelerated rate to strengthen our digital transformation.
The following objective is to integrate these artificial intelligence tools in all our supply chain processes, and even predict sales in our retail stores and cafeterias.
Through our positioning and interaction efforts in digital platforms, we increased our sales through e-commerce channels by 7x and we reached at least 32 prints during the year for each Mexican with an internet connection. This is due to our constant digital efforts and a rigorous study of data to better understand our role in the kitchen.
This is the point of innovation: never ceasing to expand our capacity to adapt and anticipate, in order to be one step ahead of current conditions.
WE DEFY OUR SUSTAINABLE PERFORMANCE STANDARDS
One decade after joining the United Nations (UN) Global Pact, we reaffirm our commitment to comply with Agenda 2030. This year, we have convincing and measurable efforts that contribute to the Sustainable Development Goals of Zero Hunger, Responsible Consumption and Production, Clean Water and Sanitation, Climate Action, Decent Work and Economic Growth, and Gender Equality.
After being recognized for the fourteenth consecutive year as a Socially Responsible Company, the Centro Mexicano para la Filantropía granted us for the first time the labels “1% Social Investment “ and “Social Inclusion”. We invest 2.5% of our net income on an annual basis in social programs.
We issued our first sustainability linked bond
Additionally, staying congruent with the UN CFO Coalition and finance being a trigger for sustainable development, our first sustainability-linked bond commits us to reduce water consumption by 25% per ton produced by 2030, taking 2018 as the base year.
We obtained a 52/100 rating in the S&P Corporate Sustainability Assessment (CSA), an annual assessment of sustainable practices, being ranked 14th globally among the companies of the sector.
We also signed the Pacto por la Comida, a national initiative promoted by Banco de Alimentos de México where companies voluntarily commit to reduce food loss and waste by 50% in the next ten years.
This type of alliances strengthen us and solidify our commitments with the global sustainability agenda.
In our restless effort to promote Mexican cuisine, we opened the doors of Casa Doña María Pons, an extension of the Foundation in San Luis Potosí, and we renewed the permanent exhibition at Museo Galería Nuestra Cocina Duque de Herdez in the Historical Downtown of Mexico City.
Our social responsibility program Saber Nutrir®, which has more than 15 years in operation in the State of Mexico, Chiapas, and Yucatán expanded its scope to reach the community of Santa Elena in Lagos de Moreno, Jalisco, where our ice cream plant operates.
With this new project, we train and work closely with 20 families to install 20 vegetable gardens, 20 water collection systems, and 20 water and sanitation systems. Additionally, we perform nutritional monitoring for 60 children under 12 years old.
To conclude, strengthening the vision and leadership of our collaborators, we started the first stage of the Diversity and Inclusion Program – based on the results of the diagnostic that we obtained in 2020 – and we signed the UN Women Empowerment Principles, the purpose of which is promote equity in work spaces, the labor market, and communities.
WE DEFY WHAT IS POSSIBLE
Defying limits is not only about overcoming obstacles, but also about trusting ourselves and our ability to do extraordinary things.
At the closing of one more operating year with encouraging results, it is evident how the culture of innovation, trust, and excellence has become deeply rooted in the structure of Grupo Herdez.
It is thanks to the commitment of our shareholders, partners, and suppliers, together with the preference of our consumers and clients, we have been able to achieve our most ambitious goals, exceeding our highest expectations and most challenging circumstances.
The ability of our people to propose creative solutions, work as a team, and persevere to achieve a positive impact in all that we do is a great example for our industry. It is our way to contribute to the development of Mexico.
Let nothing stop us from going beyond what we think possible.
Héctor Hernández-Pons Torres
Chairman of the Board and Chief Executive Officer
