# Fellow Shareholders

_Source: `DeepSeekOCR_Ardian_pruned_1k/consumer-defensive-packaged-foods/NYSE_MKC_2018/NYSE_MKC_2018.mmd` · pages 3-9_

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Fellow Shareholders:

Our prospects for continued growth are great. We are building the McCormick of the future with a keen focus on growth, performance and people. During 2018, we continued our transformational journey driving differentiated growth and creating additional shareholder value.

## We Are Delivering Top Tier Business Performance

We drove top tier business performance in 2018 with strong double-digit sales, adjusted operating income and adjusted earnings per share growth. We also delivered substantial cost savings, expanded adjusted operating margin and generated strong cash flow.

» Net Sales rose 12% driven by increases in our base business, new products and acquisitions. In constant currency, sales grew 11%. Incremental sales from our acquired Frank's \( ^{®} \)  and French's \( ^{®} \)  brands contributed 8% to the sales increase. Both our segments contributed to this strong performance with consumer and flavor solutions each contributing growth of 12%. In constant currency, consumer and flavor solutions sales rose 10% and 11%, respectively, with increases in each region.

» Operating income increased to \(903 million compared to \)702 million in 2017, driven by higher sales, favorable business mix and Comprehensive Continuous Improvement (CCI) led cost savings. Additionally, decreases of \(6 million in special charges and \)39 million in transaction and integration charges, related to the Frank's and French's acquisition, also contributed to the increase compared to 2017. Excluding these costs, adjusted operating income increased 20% to \(942 million compared to \)786 million in 2017. Excluding the impact of favorable currency rates, we grew adjusted operating income 19%. Our adjusted operating income margins expanded 110 basis points, with expansion in both the consumer and flavor solutions segments.

» Our CCI program achieved \(118 million of cost savings. These savings generated fuel for growth, which funded investments in brand marketing and new products as well as contributed to our significant adjusted gross margin expansion.

» Our earnings per share increased to \(7.00 compared to \)3.72 in 2017. The net favorable non-recurring impact of the U.S. Tax Reform, partially offset by transaction and integration expenses as well as special charges, increased earnings per share by \(2.03 in 2018. Transaction and integration expenses together with special charges

Total Annual Shareholder Return

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Total annual shareholder return has been 14% or more for the past 1-, 5-, 10- and 20-year periods.
As of 11/30/2018

52 Week Return vs. S&P 500 and S&P 500 Packaged Foods Index

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Dividends Declared (Per Share Data)

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McCormick has increased its dividend in each of the past 33 years. We have paid a dividend for 93 consecutive years.

lowered earnings per share by $0.54 in 2017. Excluding these impacts, we grew adjusted earnings per share by 17% to $4.97, which includes the impact of favorable currency rates. We drove this growth with our strong adjusted operating income performance and a lower adjusted tax rate partially offset by higher interest expense and shares outstanding.

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"Our focus on growth is relentless as we continue to drive McCormick forward. An even brighter, greater future lies ahead."

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» In 2018, we generated strong cash flow from operations, reaching a new high of \(821 million. We used a portion of this record cash flow to pay down \)798 million of our debt. Continuing our long history of returning cash to shareholders, at the end of 2018, our Board of Directors authorized a 10% increase in the quarterly dividend. We are proud to be a dividend aristocrat having paid dividends every year since 1925 with increases for the past 33 consecutive years.

The successful execution of our strategies has delivered differentiated results and reflects the engagement of our employees around the world. Our focus on growth, performance and people is driving strong long-term results, which generated double-digit shareholder return in the past 1-, 5-, 10- and 20-year periods. In the last fiscal year, we significantly exceeded the average return of both the broader market and the Packaged Food Index.

## We Are Continually Moving McCormick Forward

McCormick is a global flavor leader and is differentiated by a broad portfolio which continues to drive growth. Flavor is an advantaged global category driven by the consumer's increased desire for great tasting food and drinking experiences with rich, authentic flavor and healthy, high quality ingredients. We are perfectly positioned to inspire global flavor exploration by delivering on the consumer's interest across all eating occasions and across all cuisines and trends. This provides us deep insight into growth opportunities, which gives us a unique advantage. Our work is informed by these insights, empowered by science and technology, motivated by a passion for flavor and driven
In 2018, we successfully integrated Frank's and French's, including operations in Springfield, Missouri.

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by a commitment to do what's right for people, our communities and the planet, while we deliver top tier financial performance. Our outward and forward-facing focus ensures we stay ahead of the curve in a world that is changing at an ever-faster pace. We continue to make investments and fuel our growth to win today and move McCormick forward.

## Investing for the Future

In 2018, we celebrated the one-year anniversary of the largest acquisition in McCormick's history, Frank's and French's, and successfully completed the integration. We are thrilled with the addition of Frank's and French's to our global flavor portfolio and the impact we have had on these iconic brands. We have created value, achieved synergies and are obtaining results according to our plan. With our advancement to a leading position in condiments, we have

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The grand opening of our new Thailand manufacturing facility. It is the seventh in the Asia Pacific region.

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Our new global headquarters in Hunt Valley, Maryland

new growth opportunities across both our segments. We have put McCormick's competitive capabilities to work to drive greater awareness, excitement and loyalty for these brands. We are successfully growing Frank's and French's through strengthening distribution, category management, effective brand marketing investments and innovation. Moving forward, we are excited to build on the consumer's growing passion for Frank's and French's and remain confident we will continue to deliver against our plans and drive significant shareholder value. I'd like to thank the many employees that made our first year a strong foundation for future success.

Overall, we continue to make substantial investments to build brand equity, increasing our brand marketing by 18% in 2018 versus 2017. Our increased investments were in support of new products and new campaigns, including for our Frank's and French's portfolio, and for spices and herbs, we invested in our superiority campaign in the Americas and a sensory campaign in the Europe, Middle East and Africa region (EMEA). These campaigns, across both television and social media, highlight our commitment to quality, the great lengths we go to in care of our products and the consumer's flavor experience. We continue to invest heavily in digital focused marketing across various platforms. The effectiveness of our investments is evident in our sales growth and we expect this will continue to drive strong momentum behind our brand growth. In addition to our digital marketing driving sales growth, we were again ranked in the top five food brands by L2, a business intelligence service, in its Digital IQ Index. This marked our fifth consecutive year in the top five ranking of 100 food and beverage brands based on the effectiveness of our website, digital and social media as well as our advances in the rapidly growing e-commerce channel.
We continue to have strong global growth in e-commerce with significant opportunities still ahead of us. In 2018, we again experienced high double-digit growth in this channel which was driven by the increased resources to ensure future competitiveness. We are driving content and programs with retailers and developing products tailored to e-commerce. In 2018, we launched a direct to consumer storefront in China, which continues to gain momentum with channel specific innovation targeted specifically to millennials. Overall, our investment and resources across e-commerce are paying off and we are positioned for future acceleration.

We are investing further in our global footprint to lay a new foundation for growth. In late 2018, we opened a new regional manufacturing facility in Thailand to expand production capability and deliver on both consumer and flavor solutions growth plans in Southeast Asia. This new green-field facility is a key part of building the Asia Pacific region's business for the future following last year's opening of a new larger facility in Shanghai and a regional headquarters and Technical Innovation Center in Singapore.

We continued progress on our global program to upgrade to modern work environments. In 2018, we opened a new global headquarters in Hunt Valley, Maryland, which enabled us to bring nearly 1,000 employees from four different Maryland based office buildings into one location.

## Fueling Our Growth

We are fueling our growth investments through our cost savings programs and strong cash flow. Our CCI program realized $118 million in 2018, increasing our total cost savings generated over the last three years to $344 million. We are on track to exceed our four-year, $400 million goal that we set in early 2016. These savings funded investments

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in marketing and new products as well as driving profit realization by increasing our operating income growth at a faster rate than sales. As part of our CCI program, we continue to execute against initiatives to achieve working capital reductions, such as extending payment terms with our suppliers and inventory reduction efforts. Through these improvements and our profit growth, we are driving robust cash flow from operations to not only generate fuel for growth, but also return a portion to our shareholders through our dividend as well as to pay down debt.

## We Are Driven to Innovate

At McCormick, we are driven to continually reinvent the way we do business. Our Driven to Innovate principle reflects our unrelenting focus on the future and recognizes that innovation always has and always will propel our business forward. It is how we continue to embrace new ways of working, drive growth and differentiation, and maintain our flavor leadership position and competitive advantage after more than a century in business. We are in pursuit of what is next in flavor through unparalleled insights, global optimization and a forward focus enabled by technology to ensure McCormick is scalable, agile and relevant as we seize the future.

## Insight Driven

Our deep understanding of consumer preferences and experiences has allowed us to become a leader and expert in flavor with actionable insights that foster our competitive advantage. Our unique McCormick Flavor Forecast \( ^{®} \)  inspires culinary exploration by anticipating and driving trends, not just reacting to them. We use our insights to drive innovation and bring new flavors and varieties to market. Our focus on innovation is driving growth with 8% of our 2018 sales

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2018 new products inspired by global trends and consumer insights.

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Real time sourcing insights

from new product launches in the past three years. In our consumer segment, we launched products inspired by the consumer's pursuit of adventurous, on-trend flavors as well as products enabling experimentation, providing value and offering convenience. Capitalizing on global trends such as clean ingredients, transparency and quality, we expanded our global organic range with new offerings in each region and launched our First Choice brand renovation initiative in EMEA. We also expanded our Frank's RedHot \( ^{®} \)  portfolio beyond liquid flavor with dry seasonings and frozen wings.

We are winning with new products in our flavor solutions segment driven by our differentiated customer intimacy, insight focus and our research and development investments. We are committed to using natural ingredients in all our original products, maintaining our obsessive focus on quality while also meeting rising demands for organic flavors and furthering our product transparency and sustainability efforts. As our customers move their portfolios to clean label and better for you, they want to ensure taste is not compromised. Our distinctive food first approach achieves this and competitively differentiates us. For our U.S. customers, over 60% of product development briefs in 2018 included a better for you attribute.

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## Technically Enabled

We are committed to investing in our science and flavor capabilities and to utilize technology in new and diverse ways to further differentiate McCormick. We are embracing forward-looking technology to continuously enhance our products and processes. We are building a technically advantaged supply chain, which uses science to embed sustainability and maintain consumer-preferred quality attributes through every step of our supply chain—from sourcing to packaging. By investing in our supply chain approach, we will add value, drive efficiencies and create a competitive advantage. We have launched initiatives such as bringing cloud technology to farmers, using an integrated mobile platform to provide real-time access to agricultural best practices and improve our sourcing insights. This leverages our collaborative culture, technical expertise and innovative spirit. Our supply chain efforts are just one instance of where we are using technology to reinvent ourselves every day to build our future. Creating a more sustainable supply chain is one of many factors that has led us to be recognized as a leader in sustainability. For the third consecutive year, McCormick was named by Corporate Knights in their 2019 Global 100 Most Sustainable Corporations Index. We were ranked No. 1 in the food products industry and No. 13 overall. In 2018, we were also recognized on Barron's inaugural 100 Most Sustainable Companies list.

Our commitment to embracing technology to transform our work is visible throughout the organization. From an Information Technology (IT) standpoint, we have begun increasing the level of our investments as we modernize our systems around the world to a single, global platform, which includes starting the replacement process of our existing Enterprise Resource Planning systems. This modernization, in conjunction with the efforts of our Global Enablement organization, will better position us for the future. A standard, scalable IT platform united with our globally aligned processes will drive efficiencies, enable faster decision making, empower our digital ambitions, generate thought provoking analytics and insights, and allow us to remain steadfastly forward-focused on growth.

## Globally Optimized

Global optimization enables us to use the full force of our global, scalable and collaborative capabilities to work together toward our long-term shared objectives and vision. Our employees across the globe are challenging the status quo to continue our momentum. They aspire to meet the

## Our Five Principles

To support our vision, To Bring the Joy of Flavor to Life \( ^{TM} \) , and our mission, To Make Every Meal and Moment Better, we have five key principles that speak to our purpose, competitive advantage and ambitions.