# Fellow Shareholders

_Source: `DeepSeekOCR_Ardian_pruned_1k/consumer-defensive-packaged-foods/NYSE_MKC_2020/NYSE_MKC_2020.mmd` · pages 7-13_

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Fellow Shareholders,

Purpose has always been at the core of McCormick. We stand for the future of flavor and we believe that flavor has the potential to improve lives and the world we know. Our purpose, as a global leader in flavor, is more than selling great-tasting, high-quality products. We must also stand with our stakeholders—our employees, our communities, our consumers and our customers. In today's rapidly changing world, we are committed to delivering top-tier financial results while also helping to improve the health and well-being of people, build vibrant communities and make a positive impact on our planet.

2020 has been an extraordinary year. We continue to maintain focus on our long-term objectives, strategies and values that have made us successful, while working through the challenges of a global pandemic. Since the COVID-19 crisis began, we have had three priorities. First, to ensure the health and safety of our employees and the quality and integrity of our products. Second, to keep our brands and our customers' brands in supply and maintain the financial strength of our business and third, to make sure we emerge from this crisis stronger.

## TOP-TIER BUSINESS
PERFORMANCE

We delivered strong results in 2020 despite great disruption, proving the strength of our business model and the value of our products and capabilities, as well as the successful execution of our strategies. We drove outstanding underlying operating performance while protecting our

TOTAL SHAREHOLDER RETURN

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As of 11/30/2020

employees and recognizing their exceptional performance, making investments in our supply chain and brand marketing and supporting our communities through relief efforts.

Net Sales rose 5%, with minimal impact from currency. Our Consumer segment growth of 10%, also with minimal currency impact, was driven by consumers cooking and eating more at home. COVID-19 restrictions in most markets as well as consumers' reluctance to dine-out reduced demand from our restaurant and other foodservice customers, driving our Flavor Solutions segment sales to decline 3%, or 2% in constant currency. Taken together, our segments' results demonstrate the strength of our diverse offering. Our breadth and reach create a balanced portfolio to drive consistency in our performance in a volatile environment.

Operating income increased 4% driven by higher sales, favorable business mix and Comprehensive Continuous Improvement (CCI) led cost savings. Excluding special charges and transaction expenses, adjusted operating income increased 4%, or in constant currency 5%.

Our earnings per share increased to \(2.78 in 2020 from \)2.62 in 2019. Excluding the impact of special charges and transaction expenses, adjusted earnings per share grew to \(2.83 in 2020 from \)2.68 in 2019, driven primarily by higher adjusted operating income. This increase of 6% includes an unfavorable impact from foreign currency.

Our strategies and commitment to best-in-class execution have delivered consistent results and generated double-digit shareholder returns. Our fundamentals are strong and our performance gives us confidence that the momentum of our business is sustainable as we continue

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to build long-term shareholder value. Looking ahead, we remain steadfast in our focus on growth, performance and people, as well as our commitment to purpose.

## WIN WITH LEADERSHIP

We will win with leadership through the successful execution of our growth strategies. We are continuing to drive undisputed leadership in spices and seasonings, accelerate our condiment and flavor global platforms and fuel our growth in emerging markets and channels. We are also strengthening our connection with the consumer and driving growth through our best-in-class customer engagement in Flavor Solutions. The combination of our breadth and reach and our alignment with consumer trends is one of our greatest competitive advantages and sustainably positions us for continued growth.

## SUSTAINABLY POSITIONED FOR GROWTH

The foundation of our sales growth is the global demand for flavor. We are capitalizing on the growing consumer interests in healthy and flavorful cooking, trusted brands and digital engagement, as well as purpose-minded practices. These long-term trends have not only remained intact during the pandemic, but have accelerated. Our alignment with them positions us well to meet increased consumer demand, both through our products and our Flavor Solutions customers' products.
Research indicates a majority of consumers are cooking more from scratch, enjoying the cooking experience and adding flavor to their meal occasions. These behaviors are driving an increased and sustained preference for cooking at home. Many consumers are also adding flavor with spices, sauces or condiments they have at home to carry out or delivery meals. We believe these trends will continue globally and further benefit our Consumer segment.

Our Flavor Solutions segment has a diverse customer base. Demand from our consumer packaged food and quick service restaurant, or QSR, customers is similar to pre-pandemic levels. The rest of the restaurant industry and other foodservice venues were most significantly impacted, and their recovery will take time. We have positive fundamentals in place to navigate through this period and remain confident in the long-term growth trajectory of this segment.

Underlying consumer demand continues to underpin our growth. Our growth initiatives were yielding results before the pandemic. Overall, our growth plans did not need to change, although some were adjusted and even strengthened as we responded with agility to changes in the environment and consumer behavior. We leveraged our initiatives to capitalize on the opportunity to help our consumers and our customers navigate through this unprecedented time.

## MANAGEMENT COMMITTEE

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LAWRENCE KURZIUS

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LISA MANZONE

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MIKE SMITH

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NNEKA RIMMER

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BRENDAN FOLEY

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MALCOLM SWIFT

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ROBUST PIPELINE
OF NEW
2021
INNOVATION

Millions
OF HOUSEHOLDS WITH NEW
CONSUMERS GAINED IN 2020

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## Strengthening Customer Intimacy and Consumer Connection

We further differentiated our customer engagement by collaborating with our Flavor Solutions customers to adapt to the changing environment, from managing demand volatility to collaborating on solutions for new operating models. For our consumers, digital experiences were already increasingly important to them before the pandemic and we were scaling up our digital programs and activating more opportunities for them to connect with us on their digital flavor journey. Our efforts to strengthen our consumer connection and bridge their physical and digital experiences with flavor became even more relevant as they looked online for flavor inspiration.

E-commerce growth accelerated significantly in 2020. We were well prepared for this change in consumers' shopping behavior from our past investments as well as the opportunities we activated this year, such as continuing to make touch points

"shoppable." Our 2020 global e-commerce growth was outstanding, and we are even better positioned for the opportunities still ahead. Our digital leadership is an advantage. In 2020, we were again recognized as the #1 U.S. Food brand with the highest designation of Genius, by Gartner L2 Research in their Digital IQ rankings. This is the seventh year in a row we were ranked in the top-five food and beverage brands.
75%
OF U.S. CONSUMERS
ENJOY COOKING
MORE THAN
PRE-PANDEMIC

## Fueling Growth through Health and Wellness

Consumers' focus on health and wellness has been amplified as a result of the pandemic. Our products add flavor through healthy choices and we are the global brand leader in organic spices and seasonings. We are raising the awareness of many of our products' clean and healthy labels as well as making investments through our McCormick Science Institute to promote their health benefits. We are pleased spices and herbs were included in the new 2020 – 2025 Dietary Guidelines for Americans as a way to help flavor food when reducing sugar, fat and sodium, as well as adding enjoyment to eating occasions. In Flavor Solutions, our broad technology platform, combined with our culinary foundation, enables us to create consumer-preferred natural flavor solutions for our customers who are migrating their portfolios to better-for-you products without compromising taste. We are committed to using natural ingredients, focusing on quality and furthering our product transparency and sustainability efforts. Helping consumers achieve their health and wellness goals is an exciting growth opportunity.

## Driving Category Leadership

We are driving category leadership with strong category management initiatives, brand marketing and new product innovation.

In the U.S., we began our initiative to reinvent the in-store experience for spices and seasonings' consumers by introducing new merchandising elements to improve navigation and drive inspiration. Our roll-out will continue in 2021 and with increased cooking at home expected to continue, this initiative is even more exciting.

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In 2020, we gained millions of new households and saw strong, sustained repeat purchase rates. The combination of significant increases in household penetration and repeat purchases indicates a high level of consumer usage
and speaks to the strength of our products. We increased brand marketing investments this past year, as planned, with some adjustments to our messaging in light of the pandemic. We launched campaigns focused on consumer education and building confidence in the kitchen and targeted additional messaging to focus on cooking at home. Through our strong brand marketing investments, we are capitalizing on the momentum we have gained, further building brand equity and driving growth.

Our new products launched early in 2020, such as Frank's RedHot \( ^{®} \)  Thick Sauces, Stubb's \( ^{®} \)  reduced sugar barbeque sauce, Schwartz \( ^{TM} \)  One Pan recipe mixes and Vahine \( ^{®} \)  baking products, built significant momentum with exceptional trial. The sell-in of our new product launches and big-bet innovation from our customers slowed in 2020 due to the focus on keeping core items on retail shelves. Longer-term, we believe new product innovation from leading brands will be a key differentiator and we are excited about the strong pipeline both we and our customers are carrying into 2021.

Overall, our plans and portfolio are even more relevant today than before the pandemic. We expect consumer trends, particularly the increase in cooking at home, to persist, bolstering our confidence that we will drive future growth. In these uncertain times, consumers are finding comfort in the brands they trust. We are here for our consumers and customers as we have been for over 130 years, and we are incredibly proud that our McCormick brands have earned that trust.

## ACCELERATING CONDIMENT AND FLAVORS PLATFORMS

Acquisitions are a key part of our long-term growth strategy, and we are excited with the recent addition of two new trusted brands to our global portfolio—Cholula \( ^{®} \)  and FONA. McCormick has a strong history of creating value through acquisitions and we are confident both Cholula and FONA will add to that history.

## Leading Consumer Brands
ACROSS THE GLOBE

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## DIFFERENTIATED VALUE PROPOSITION

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Beloved premium brand with a passionate consumer base

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Proudly made in Mexico with a unique blend of fresh peppers and regional spices

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Outpacing U.S. category growth

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Leading Mexican Hot Sauce

Cholula, an iconic brand known for authentic bold and spicy Mexican flavors, is highly complementary to our existing hot sauce portfolio and will broaden our flavor offerings in this attractive, high-growth category. We plan to accelerate momentum, expand distribution and drive further growth of Cholula by optimizing category management and brand marketing, while also expanding channel penetration. Our operational expertise and infrastructure will allow us to elevate Cholula's brand awareness, increase the availability of its products and extend its offerings into new flavors, formats and eating occasions to drive trial and household penetration. We will strengthen Cholula's go-to-market model through leveraging our e-commerce investments as well as our broad presence across all foodservice channels. Cholula is a great strategic addition which will accelerate the growth of our global condiment platform.
FONA, a leading North American manufacturer of flavors, increases the scale of our global flavors platform with the addition of its highly complementary portfolio to our Flavor Solutions segment and further migrates our portfolio to more value-added products. FONA also expands our technology platform and capabilities, including expertise in health and performance nutrition which advances our health and wellness portfolio. The combination of our portfolios strengthens our clean and natural leadership and uniquely positions us to provide our customers with a more comprehensive product offering to meet the growing demand for clean and flavorful eating, drinking and nutrition experiences. FONA's customer-centric culture is very similar to ours and the combined power of our organizations will enable us to collaborate with a wider range of customers and enhance our partnerships. McCormick and FONA's shared passion for our customers and flavor is a key differentiator in driving growth. FONA is a great strategic addition and will be the cornerstone for accelerating our flavors platform in the Americas.

The acquisitions of Cholula and FONA reinforce McCormick's position as a global leader in flavor. We are confident they will continue to support differentiated growth and performance and further position us for success in 2021 and beyond.

## INDUSTRY-RENOWNED FLAVOR HOUSE

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» Capabilities in attractive & fast-growing categories

» Focus on nutritional & natural products

» Complementary flavor & technical talent

» State-of-the-art manufacturing facility & technical innovation center

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## WIN WITH RESULTS

Our performance strategies are designed to win with results. In 2020, we delivered superior results with purpose and continued to create value. We will continue delivering industry-leading financial performance by accelerating our fuel for growth and transforming to create capacity.

## FUELING OUR GROWTH

We are fueling our growth through our cost savings program and strong cash flow. Our CCI program realized \(113 million of savings in 2020 which funded investments in brand marketing, new product innovation, information technology systems and our supply chain. We have a proven history of consistently delivering cost savings through our powerful CCI program and with a strong pipeline of opportunities ahead, we are confident in continuing that momentum.

We are making excellent progress reducing our working capital, which combined with our profit growth, is driving strong cash flow. In 2020, we reached another new high of $1 billion, our ninth consecutive year of record cash flow from operations.
$1B
IN CASH FLOW
FROM OPERATIONS
This cash was not only used to generate fuel for growth, but also to fully pay off the term loans related to the acquisition of our Frank's RedHot and French's \( ^{®} \)  brands as well as return a portion to our shareholders through our dividend. Our robust cash generation further differentiates McCormick and accelerates our growth.

## TRANSFORMING TO CREATE CAPACITY

We are making transformative investments which will enable us to sustainably meet growing demand and enhance competitiveness for years to come. In 2020, we initiated strategic investments across all regions to expand our global infrastructure and capabilities which will further drive our momentum in delivering the base business growth to which we aspire.

Late in 2020, in the Americas, we announced plans for a new state-of-the art Northeast Distribution Center in Maryland which will optimize our distribution network by adding distribution capacity, enhancing our customer response time and driving efficiencies enabled by automation. The facility, scheduled to open in the second half of 2022, will be our largest distribution center in the world and will position us well to accommodate future growth in the Americas. In the Europe, Middle East and Africa region (EMEA), we began construction on a new Flavor Solutions manufacturing facility in the U.K. which will

Groundbreaking ceremony for EMEA's state-of-the-art Flavor Solutions manufacturing facility in the U.K.

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Groundbreaking ceremony for 1.8 million square-foot Northeast Distribution Center in the U.S.

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Our employees demonstrated and advanced their skills, agility and resilience during a highly challenging time.

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be completed in 2021. The new facility creates further opportunities to support the region's strong and growing customer base.

We are also investing in our Asia/Pacific region. In China, we are investing in flavor capabilities to further drive Flavor Solutions growth. In Australia, we have commissioned a new facility with a technical innovation center, a state-of-the-art logistics center and a new headquarters office. Scheduled to open in late 2021, this facility is a continuation of the modernization of our workplaces, incorporating sustainability principles and advancing our operational efficiencies. These investments will all create capacity which will be a new foundation for growth.

These investments will also incorporate principles related to sustainability, an area within our broader purpose-led performance principle, for which we continue to be recognized. For the fifth year in a row, McCormick was named by Corporate Knights in their 2021 Global 100 Most Sustainable Corporations Index. We were ranked No. 1 in the Packaged and Processed Foods and Ingredients sector and No. 6 overall. In 2020, for the third consecutive year we were recognized on Barron's 100 Most Sustainable Companies list.

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BARRON'S
Most
Sustainable
Companies
2020

## WIN WITH TALENT

We will win with talent as McCormick employees are core to executing on our growth and performance strategies. Our success is driven by our people and high-performance culture which began with C.P. McCormick's introduction of The Power of People in the 1930's. We have an unwavering commitment to putting people first with a culture rooted in our shared values and respect for every employee's contributions. We believe in living our Power of People principle which cannot be successful without all employees, encourages participation and inclusion and requires every person be treated with respect and dignity. This is more important now than ever.

Our actions in the face of the pandemic crisis showcased our employees' dedication and creativity and the resiliency of our organization. We quickly adapted our ways of working, including a flawless migration of many employees to remote, virtual working environments and supply chain employees adapting to increased safety protocols to remain on-site and maintain product supply. The health and safety of our employees has remained a top priority as we launched new initiatives, including those to help maintain mental health during this uncertain period. I am inspired by the way our employees responded during this time. The collective power of our approximately 13,000 employees worldwide drove our strong results, which is a testament to our capabilities.

In 2020, we also faced a crisis in social and racial justice. As our Power of People principle includes standing up for the fair and equal treatment of all, we pledged our dedication to help uplift McCormick's workforce and communities through dialogue, education and engagement.