Grupo Bimbo, S.A.B. de C.V.

Good morning and thank you very much for joining us today. With me on the call are our CFO, Diego Gaxiola; our U.S.

President, Fred Penny; and several members of our finance team. I will begin with a review of the results for the year and share an update on our global operations.

Diego will cover our financial results in more detail, and then, we can continue with questions from those joining us on the call. For the year, we achieved nearly MXN 292 billion in revenue, driven by our operations in Mexico and EAA, especially our QSR business and the snacks category globally, as well as strategic bolt-on acquisitions, basically Mankattan in China, and Nutra Bien in Chile.

Our continued focus on becoming a linear company as well as aggressive restructuring efforts were necessary enabled us to grow EBITDA in almost every region. In 2019, we put in place cost control efforts to reduce our SG&A by leveraging our global shared services model, managing procurement globally, and enhancing our zero-based budgeting methodologies.

In addition, we proactively invested in restructuring opportunities, streamlining our manufacturing footprint by closing seven plants globally. We are also reinvesting in our business to drive growth with new distribution centers in Mexico and Latin America, and five plants in EAA, and Latin America.

Before turning to a discussion of our results by region, I would take a moment to discuss our operations in China as it relates to the coronavirus. We have 10 plants in China, and one of them is in Wuhan, which serves our QSR customers.

This plant is temporarily closed, and operations will resume once the Chinese authorities give their approval to resume business in Wuhan. I am happy to report that none of our Bimbo China associates have been infected with the virus.

Although, we do expect softness during the first quarter of 2020, considering these circumstances, we are confident about our future growth and profitability in the EAA region. Now, I will begin with our largest market, North America.

For the full-year 2019, net sales were flat versus prior year, which is strong growth in the sweet baked goods and the snack categories overall. In Canada, we captured additional market share, driven by strength in the bread buns, and rolls, and English muffins categories.

Offsetting these gains was our portfolio optimization initiative implemented in Q2 '19. This initiative resulted in temporary volume softness, as we eliminated close to 16% of our branded SKU, SKUs across premium bread, mainstream bread, and breakfast categories.

Despite significant inflation challenges in the U.S., EBITDA margin expanded 60 basis points in North America as a result of excellent performance in Canada and in our snack businesses. As we continued our journey towards world-class efficiency, we closed five plants and five production lines during the year, and continue to invest in our manufacturing footprint, automation, and [a rough] [ph] structure in order to support profitable growth.

Just after the end of the year, we acquired the Landers Bagel business from ConAgra. We are pleased to add this iconic brand to Grupo Bimbo's portfolio, and we fully expect this business to be complementary and accretive to our existing powerful bagel business.

Looking ahead, we expect growth from our core branded portfolio to continue as we execute a strong pipeline of innovative products, and we continue to leverage our DSD capability. We also expect lower inflation than 2019.

Finally, we will continue to look for opportunities to optimize our overall supply chain, and administrative structure. Turning next to Mexico, we achieved both sequential and year-over-year growth.

The growth in Mexico for the year reflects increases in volume across most categories, and every channel with certain categories such as buns, cookies and cakes, as well as the convenience channel outperforming the prior-year. We are constantly working on becoming more competitive, making our products more accessible to our consumer base, and creating a flexible portfolio of offerings to adjust to market and consumer needs.

In Latin America, we faced a challenging year in our main markets: Argentina and Brazil. The first due to the macroeconomic conditions in the country, and the latter due to a challenging competitive environment as well as extraordinary expenses.

Partially offsetting these effects were Latin Centro and Latin Sur divisions with Peru and Chile outperforming. We experienced good results in the bread, sweet baked goods, and the cookies categories.

Lastly, the Europe, Asia, and Africa top line expansion was generated by the continued strong performance of our quick service restaurant business, as well as good resource and market share gains in Iberia. The business in Iberia performed well overall, in part, driven by the launch of natural crustless bread, as well as strength in the sweet baked goods category, more specifically with our Donuts brand.

We achieved a 13 fold increase in EBITDA in the EAA region. This enormous profit improvement reflected synergies achieved from the acquisition of Donuts Iberia, lower integration expenses, and the strong performance of Bimbo QSR.

As you saw, last week, we announced a joint venture with Food Town, exclusive bun supplier and franchisee of McDonald's in Kazakhstan. This JV will strengthen our manufacturing footprint within the high-growth QSR industry, and alliance our relationships with our QSR customers across Central Asia.

Regarding our sustainability initiatives, 2019 was a year where we reached several milestones in our commitment to the environment, having signed agreements related to the food waste, electric energy, and plastics. This past Monday we launched over 140 sustainable vehicles in Mexico, which represents our first delivery, and our commitment to increase the electric vehicles fleet to 4,000 in 2024.

We are actively working on these initiatives to achieve our purpose of building a sustainable, highly-productive, and deeply humane company. As we wrap up 2019, we are pleased with the significant progress that we have achieved despite challenging environments in most geographies.

We're carrying momentum into the new year and in the long-term, driven by improvements in Iberia, and Canada, solid execution and improved trends in our Mexico business, excellent momentum in the quick service restaurant business, as well as our opportunity to increase our penetration to marketing investments in our global and emerging market brands. We remain committed to reinvesting in our business to drive long-term growth and shareholder value.

And at this time, I would like to turn the call over to Diego to cover our results for the year in a little more detail. Please, Diego, go ahead.

Thank you, Danielle, and good morning everyone. Thank you for joining us on the call today.

I would like to walk you through our full-year 2019 results, which are exceptional, considering the challenging comparison due to the strong results that we posted in 2018. Despite these difficult comparisons, excluding FX, net revenues increased 2.5%, EBITDA rose 5.4%, and our margin expanded by 50 basis points.

These results are indicative of the measures we have undertaken to effectively manage our cost and expenses, the positive effect of past restructuring initiatives, and to grow organically in a productive and sustainable way. This strong operating performance across most regions was partially offset by restructuring investments in North America, impairment charges in North America and Latin America, as well as the MEPPs related non-cash charges and the extraordinary expenses in Brazil, which were related to fiscal labor provisions.

Although 2019 was a very challenging year in Brazil, we are encouraged about the potential of this market in the mid to long-term, as we have begun a turnaround process, with identified tracks to generate value in this high-potential market. Full-year results also reflected a 22% increase in our financing cost, mainly associated with a one-time expense related to the $600 million liability management transaction for the 2020 notes, a loss from the net monetary asset position in Argentina and the effect of the adoption of IFRS 16 in our financial statements.

The cumulative effective tax rate for the period closed at 39.1%, which is slightly below the guidance we provided for this year-end at the net effect of this factors yielded an 8.8% increase in net income and expansion of 20 basis points in our net margin closing up 2.2% and at 40 basis point improvement in return on equity. Turning to the balance sheet, we ended the year with a net debt to adjusted EBITDA ratio 2.4 times.

In terms of our debt profile and our liquidity position, we feel very comfortable closing the year with an average tenure of 13.3 years with only $200 million coming to you in the next two years. Under the debt currency mix, we have a well-balanced mix aligned with our financing needs and the assets behind.

With respect to the free cash flow and capital allocation, our working capital shows a sequential delay in the collection of positive balances of the VAT in Mexico. However, our net operating working capital that mainly considers account receivables inventories and supplier has improved significantly by almost four ways, which is the equivalent of MXN 3.1 billion, mainly due to an improvement in our accounts receivable processes and their supply chain finance program implemented in North America.

This program is in the first phase, and we expect additional benefits over the course of 2020. We closed the year having invested nearly $680 million in capital expenditure, of which 75% was allocated to our manufacturing footprint, mainly focused on increasing our production efficiency and improving production capacity where needed.

The balance was dedicated to streamlining our distribution network and investments in IP efforts. As a result, free cash flow before appreciations, dividends and share buybacks total MXN 2.4 billion.

Looking into 2020, let me remind everyone of the guidance we provided on our recent Investor Day, we expect a low to mid-single digit top line growth, coming from solid organic growth across every region, and a mid to high single-digit EBITDA growth as a result of lower raw material costs, productivity benefits from restructuring investments that we have enabled to achieve in the past, as well as continuous improvement in our SG&A. We also anticipate that our tax rate will be similar to the one that we had in 2019.

And finally, we expect that our CapEx will be between $700 million and $800 million. With that, let me turn the call back over to our operator.

So, please, Alicia, go ahead.

Good morning, everyone. Thank you for the call.

I have a couple of questions. First of all, when -- in the Investor Day last year, you guys provided an EBITDA guidance for 2020, and based on the initiatives that you guys implementing mainly in the U.S., but outside of Mexico overall, and considering the acquisitions that you recently announced, how can we think about the EBITDA guidance for 2020, which I understand was between mid to high single-digit growth this year?

And the second question, in the U.S., would you guys give us an idea of what would have been the sales performance if we exclude this optimization in the portfolio in the quarter as well as in full-year 2019, and how can we think about this growth going forward? Thank you.

Yes. Hi, Isabella.

Good morning. So, let me probably first take the question regarding the guidance for 2020, and I will probably let Fred take the second question.

As I mentioned earlier in my script, what we expect in terms of the growth for EBITDA for 2020, it will be in the range of mid to high single-digit, and we expect these because of several factors. First, we do expect to have an organic growth across the different regions.

Second, we expect to start to see -- again, as this has been the case in the past, the positive effects from past restructuring efforts, and also we will have a positive effect from commodities or the main commodities that in fact we have already hedged, as well as with the exchange rate for the Mexico operations that we have a slight positive effect in our P&L. So, all in, we feel confident, and we're maintaining the same guidance that we provided in the Investor Day like in November.

Isabella, yes, I'd like to -- I'll give you a little -- I'll give you some color on your question on the top line. I don't want to be specific on forward guidance on the number.

We do that at the GB level, but I will say that, if you look at the full-year, if you look at the quarter, our top line was essentially flat, varied a bit by quarter with growth in our core brands and our core categories, largely offsetting the impact of portfolio optimization, and we're going to cycle through that as we exit Q1 into Q2. And then I would expect that we'd see net top line growth.

Thank you.

Good morning, Daniel, and Diego, and team. Thanks for the space for questions.

So, just one on my side, as I look at the history of acquisitions and capital deployment that Bimbo has had, I look at your moves to Mexico and Latin America, and to developed markets like the U.S., Canada, and Europe, and it seems like your M&A strategy has morphed more recently, and I can think of three axes, where things have changed. I describe those as size of the stage of the market that you're targeting and also the product focus, and size is obvious, I mean, you've been making acquisitions that have been less transformational, but you've also moved away from low-growth and high-penetration markets like North America and Europe, and now you're looking at high-growth and low-penetration markets like Asia with the risks that that brings, right, and the additional focus on the product side is QSR.

So, I'm wondering if you can walk us through the lessons learned from the past and how this has shaped the new M&A strategy. Thank you.

Yes. Good morning, and thank you very much for your sharing your views.

Let me tell you that, yes, all-in, we are pursuing more bolt-on acquisitions than larger, bigger ones than the ones that we had in the past. So, there's clearly a size distinction from what we were doing in previous years, but we're doing opportunities all across our business, all the time, and wherever we see fit, we pursue those leads, that's why we went for a small bolt-on acquisition in the U.S.

recently, and we pursued the dealing in Spain that provided us a very relevant position with the largest customer. So, we're not necessarily eyeing just one particular region, as you mentioned, or a particular line of business in our company.

We're constantly looking for opportunities of organic growth and inorganic growth throughout all -- across the geographies and our categories.

Okay, thank you.

Hi, good morning. Congratulations on the results.

My first question is related to the impairment charges you mentioned on your press release about North America, Argentina and Brazil. So I wanted to know, at least what percentages is attributed to North America, to Argentina and Brazil, and can you give us a little bit more color about this expense?

And my second question is related to volumes, expectations in Mexico. What are your expectations in volume for the upcoming year?

Hi, Rafael, this is Diego. As you know, we booked heap of MXN 1.1 billion from impairments.

This has to do with in North America mainly because of the portfolio optimization that we recognized an impairment in some of the brands that we're pushing less than what we were doing in the past. We had small amount also coming from Brazil.

In Argentina, it's quite challenging because you know that in one hand we have because of being an inflationary economy, we have to reinstate the value of the assets and with a very high inflation adjustment, but at the same time, the expected cash flow for the future is not being adjusted in the same magnitude. So we're kind of offering them accounting prop, let me put it this way that created these negative effect and it might be probably to have the same effect because of carrying outside of the P&L, these adjustment from the assets on the value of the assets on the balance sheet and not necessarily having the same magnitude on the expectations on the cash flow.

Now, originally, we do not disclose a specific information. I mean just directional, I can tell you that those were the reasons on recognizing the various impairments that we have.

And regarding Mexico, we feel positive about the growth that we had in the quarter and the outlook for the year. It's still a low growth economy, but we're seeing resilience in the categories and we are executing in a very positive manner.

So all in, I think we're positive. We have a positive sentiment towards the region.

Perfect. Thank you very much.

Hi guys, thank you. Two quick ones from my side, first, a follow-up here on the issue that you were just talking about on the volumes in Mexico, just wondering if you could comment if the issues you had there in the past specifically in the South part of Mexico have now faded away and if you're seeing any kind of differentiation in trends across the country, and the second one, I was wondering if you can maybe give a bit more color on timeline and some of the specific opportunities that you have identified there for the Brazil business turn around?

Thank you.

Yes, on the volume side, we're seeing more growth in the northern part of Mexico and that was sort of a thing view that we had last year, but in general the market has some offtaking and we're executed as I was saying in a very efficient manner. So the plan is this is working and we're also making efforts on all aspects of the company to improve our profitability as well there.

Regarding Brazil, we underwent a major review of all the operations in company, I was there a few months back and I came out, I came back with a very positive sentiment of the team, the structure put in place for this restructuring. So we're quite hopeful that that many streams of work that we have launched will render positive results.

Some of them will be more short-term in its timing and others will take more time rolling a very positive outlook of this new big project that we have out there.

Thank you so much guys.

Hi, good morning. Thanks for taking my question.

Well, actually, some of my questions have already been asked but the follow-up would be on China, the impact of the virus, do you have an estimate or is it too soon to tell? Thanks.

It's early to tell because as events unfold in China, we'll see how long will the effect will take to impact our operations, it's clearly is affecting both the QSR business in China as well as the branded business we have out there. More specifically in Wuhan, but in general, in the whole country we're facing a softness in volume.

China is a relatively small part of the whole EAA business, but it still will have an impact in the quarter, and we'll see how much the impact will be for the full-year.

Okay, and in terms of profitability, are these -- the QSR branded business being in Wuhan, do they have higher or lower margins than the average operations in the region?

We do not disclose the margin by the country unless by region. What I can tell you is that these will -- as Daniel mentioned, will have a negative impact for the country, which is more part of EAA, and of course a small part of our Grupo Bimbo results.

Okay, perfect. Thanks.

Hi, thanks for the call. The question is for Diego.

I was wondering if you could provide some additional color on the small tax reform change concerning the deductibility of interest in Mexico, and if you would expect some form of impact from this change [indiscernible]? Thank you.

Hi, Alvaro. Well, you know that still the ruling hasn't come out.

So I couldn't answer with that hundred percent certainty, because it not only depend on how the ruling -- is specifically written. Now, if we consider the amount of interest that we have at the Grupo Bimbo level, as a percentage of our EBITDA, we will have no impact from this change.

Great, that's very helpful to know that. And then just one follow-up, I was wondering if you could provide me additional color on the new packaging laws.

I understand we're still in this back and forth phase with the government, but what are your sort of expectations given what you know today? Thank you.

Yes, also, I mean in regard of the packaging rulings and the possible impact that this regulation might have in our operations, it is still too soon to know, since it has not been published yet.

Okay, thank you very much.

Yes, thank you. So, may be a couple of small follow-up since we don't have so many people on the line today.

Álvaro already asked about the laboring law, but I wanted to ask you whether you feel that the lessons that you learned from the Andean countries, namely Ecuador, Peru, and Chile, which already passed these types of laws, what type of impact you had in those historically, and then, the other one is, as I understand it from talking to Stefania, you've already started the reformulation process. So it kind of feels like you've gotten a head start before there's an implementation of the labeling law.

And then the second follow-up I have was on Argentina. I know you don't disclose the weight of different countries within the regions, Diego, but I was hoping maybe you could tell us how hyperinflation has affected the weight of the country within results.

Obviously, the sales growth for the quarter was somewhat of an underperformance in Latin America, and I'm wondering how much of that is just Argentina versus the rest, so any color that would be great. Thank you.

Yes. I want to say, Felipe, that definitely by being a global company, we have had various experiences in the past, including markets such as Chile, Ecuador, Peru; we have been able to adapt and we feel very confident that we're going to be able to adapt and to comply with however the relation comes.

Again, we still have to wait and see and learn the specifics, and also the transition on how long it's going to take to have the implementation in the country. It's important to mention that the regulation is really not promoting the reformulation on the product, just labeling issue for the packaging.

In terms of the impact of Argentina, I would say as you mentioned we do not disclose specific information by market. What I can tell you that the biggest impact that we had in the EAA came from Brazil and mainly in Latin - I am sorry, came from Brazil, sorry, and this was mainly because of the extraordinary expenses that I mentioned that we have to recognize in the fourth quarter, which are onetime non-expense.

Great, and talking about reformulation, I know the law doesn't require reformulation, but the history of Latin America with these types of labeling laws has been that very often companies would reformulate the products to avoid the labels. So that's what I was talking about whether you have started to move to reduce different contents, for example, sugar to avoid labels on products that are kind of on the margin where you do affect the recipe too much, but you can avoid the label?

We are always on continuous effort to reformulate our products and adapt to consumer needs. Now again this law is not really focused or promoting the reformulation, and it's very different to the one that has been in Latin America.

Okay, thank you.

Well, thank you all for your time today. And please do not hesitate to contact us with any further comments or questions you might have in the future.