Corporate Profile

We are a Mexican company with over 66 years of experience in expertly producing, innovating, and marketing dairy and derived products focusing on the healthy and nutritious food industry.

Our commitment is to offer a wide range of products with the uttermost quality to satisfy the needs of every one of our consumers.

We operate

The Lala fleet (with more than 7,000 vehicles) distributes its products, which can be found in over 550,000 points of sale. LALA® and Nutri Leche® are two examples of the most outstanding brands in our portfolio.

The Lala Philosophy

[G4-56]

The steering team and collaborators from different areas worked together to update our vision, mission and values to reaffirm our conviction of continuing our growth in the healthy food industry, and expanding our presence in the entire region.

This philosophy states what we are as a company and as the Lala team. It defines our framework for decision-making and action.

Values

Letter from the chairman

[G4-1, G4-2]

Dear shareholders,

2015 represented a period of transformation for our Company, which set the course for us in the coming years.

During 2015, the Mexican economy grew 2.5% exceeding the 2.1% growth of the previous year, despite an important drop in oil prices in the international market.

The Mexican peso depreciated 17.8%, nevertheless, accumulated inflation was barely 2.1%, the lowest level ever recorded.

Mexico will soon join the world’s top 10, due to important inflows of foreign investment; a better qualified, young and growing work force; and to recently approved constitutional reforms already being implemented, among other developments.

At Lala we are moving forward and doing our share to continue delivering solid results. These results show a positive evolution because we have deployed a strategy that favors organic sales growth and improved efficiency in our operations and commercial models. These actions have translated into higher volumes, wider margins and favorable performance in our share price, resulting from the trust displayed by our stockholders.

In 2015 we implemented new processes that brought about important changes in our strategy and operations. Thousands of employees together with the Executive Board worked collaboratively to reaffirm our commitment to continue growing in the health and nutritious food industry, as we expand our presence in the region.

Sustainability constitutes a fundamental pillar of our philosophy. We have analyzed priority issues for our company and thereby designed our own sustainability model to more clearly reflect the strategic areas we are involved in, and define our short, medium, and long-term goals. Today we have a Lala Sustainable Model that focuses more on relevant issues, economic impact, and public business affairs.

We are committed to delivering results that generate value for our stakeholders and drive sustainable development. Our actions focus on adding value to what is relevant and beneficial for everybody.

The Lala Foundation continues to uphold its commitment to supporting healthy diets among poor and marginalized children. In 2015, the Foundation invested close to 100-million pesos to generate a monthly impact on the lives of 568,000 people living in the communities where we are present. According to data issued by SAT, the Lala Foundation is among the five institutions of its kind that make the largest capital investments in social affairs in Mexico.

We continue to progress in our pursuit of opportunities and strategic partnerships that may generate value to our business model. Examples of these efforts include our acquisition of Eskimo in Nicaragua in late 2014. Our new San Benito facilities started operating in May 2015. We also invested in processes and additional capabilities in Mexico, which should begin to generate results and savings during the second half of 2016.

The consumption environment appears favorable in 2016, although uncertainty and volatility will still be present in the national economy as well as in the most important economies of the world. We will therefore remain constantly alert for any situation that could influence our development.

We feel thankful for our employees’ vision, hard work and passion; for the trust of our clients and consumers; for the quality and commitment of our suppliers; and for the support and endorsement of our shareholders. We owe ourselves to all of you, which is why we will continue working on delivering good results so we may all attain our vision.

Yours truly,
Eduardo Tricio Haro
Chairman of the Board of Directors

Message from the CEO

[G4-1, G4-2]

2015 was a year of many challenges, but also one of many accomplishments. It was the year Lala prepared to face the future as it continued to consolidate sound results in the present. The year also saw the beginning of a process to update our vision, mission and values, all for the unique purpose of becoming the preferred dairy company in the Americas.

All through the year our implementations of different commercial and business strategies became decisive factors which allowed us to increase sales and profits.

This year, net sales increased 7.1% compared to the figures reported in 2014 and grew from 44,993 million pesos to 48,183 million pesos. This improvement was the result of higher sales volumes, accelerated growth in added value products, and growth in Central America.

Gross profit grew another 2,546 million pesos to 18,858 million pesos, while gross margin was 39.1% vs. 36.3% in 2014. This 280-basis point improvement in our margin can be mainly attributed to a product mix with higher added value, to lower conversion costs as a result of our investments in productivity, and to controlling the cost of raw materials.

EBITDA grew 24.5% in 2015, and accounted for 6,810 million pesos vs. 5,471 million pesos in the same period last year, while EBITDA margin rose from 12.2% in 2014 to 14.1%, thus growing 190 basis points. This improvement in EBITDA is mainly due to a 26.2% increase in operational profit in 2015 over 2014.

Lala not only offers healthy products, but also maintains healthy finances. At the end of 2015 our net debt was negative, which enabled us to have a favorable position to pursue potential investment opportunities in the future. Our cash position stands at 9,300-million pesos.

Net operating cash flow amounted to more than 5,900 million pesos and constituted a significant increase relative to 2014. It mainly resulted from higher operating revenue, as well as from changes in our financial expenses and lower working capital requirements.

In order to continue growing in 2016, we will escalate our production capacity and process efficiency in Mexico and Central America by investing an estimated 3,000 million pesos. This investment will focus on innovative products and improving operating capabilities. The strategy reflects our confidence in our ability to capitalize on consumer trends favoring healthy and natural foods like the ones Grupo Lala has to offer.

Our fundamental strategies for 2016 are the following:

  1. Accelerate organic growth in Mexico by expanding our installed capacity and developing our portfolio with client-focused innovation. We will bring our clients new products, new packaging, improved execution at points of sale, and several innovative solutions.
  2. Develop internal capacities centered on launching products, supplying raw materials, supply chain, administrative control, and operating efficiency.
  3. Expand and consolidate our Central American operation. In the past three years, Lala has invested close to 150 million dollars in the region. We are creating infrastructure that will enable us to bring quality products at the lowest cost to consumers in the entire region.
  4. Pursue acquisitions and partnership opportunities by continuously assessing alternatives that will allow us to potentiate and accelerate growth. This strategy focuses on the American continent, on companies in the dairy product and dairy substitute business that may contribute scale and talent to Lala.

I am certain that by following these strategies with the professional work of all Lala employees, we will achieve good results in 2016.

I’d like to express my special thanks to the Executive Board at Lala for contributing their talent and commitment to the success of the team. I also want to thank Lala leaders and employees for their great pride and passion for the Company, and for their dedication to every task we entrust to them.

Yours truly,
Scot Rank
Chief Executive Officer