Our 2004 consolidated results show a continuing improvement in our overall operations and steady growth in our major markets. As in the past few years, the performance of Gruma Corporation was the primary driver of our consolidated results, with robust sales growth in both existing and new markets. Also contributing to the overall improvement in our results were our Mexico operations, which grew volumes and net sales in a challenging market, and our operations in Central America, whose stronger sales force and customer service contributed to volume growth.

We believe that our 2004 performance in Venezuela better reflects the economic and competitive realities of that country’s market than did our 2003 results. We will continue to work to increase market shares and maximize efficiencies by capitalizing on our flexibility, strong customer relationships, and superior products. We think that these attributes will help us to thrive—in what continues to be a challenging operating environment—throughout the coming year.

We continue to focus on capturing opportunities to profitably grow our enterprise, and Gruma Corporation’s continuing strong performance provides just such an opportunity. We are expanding our operations in the United States to satisfy ever greater demand and to reach new markets. We are also extending our presence in Europe, as evidenced by the two European acquisitions we closed midyear.

GRUMA’s net sales increased 7% to Ps 24,992 million, while sales volume was virtually flat. Net sales increased due to higher average prices resulting from a change in the mix toward higher-priced products and price increases on some products, which were implemented to offset cost increases. Most of the increase in net sales came from Gruma Corporation and, to a lesser extent, GIMSA and Gruma Centroamérica.

Cost of sales as a percentage of net sales increased to 64.2% from 63.7%. Gruma Corporation and Gruma Venezuela were the primary drivers of this increase, which was due to (1) the fact that prices were insufficient to offset cost increases, especially for raw materials, and (2) a change in the mix toward lower-margin products. In absolute terms, cost of sales rose 8% due primarily to higher raw-material costs and, to a lesser extent, higher energy, packaging, and other costs.This increase was driven mainly by Gruma Corporation and, to a lesser extent, GIMSA and Gruma Venezuela.

Selling, general, and administrative expenses (SG&A) as a percentage of net sales improved to 28.1% from 28.7% due primarily to better expense absorption in Gruma Corporation. In absolute terms, SG&A increased 5%, mostly as a result of higher sales volume in Gruma Corporation.

GRUMA’s operating income increased 10% to Ps 1,940 million, and operating margin improved to 7.8% from 7.6%. Both were driven mainly by higher sales volume in Gruma Corporation and increased business in the technology division, mostly in connection with capacity expansions in Gruma Corporation.

The Ps 399 million decrease in comprehensive financing cost, net, resulted from (1) gains in connection with equity swaps of GRUMA shares, (2) lower foreign-exchange losses due to lower average peso depreciation, (3) lower interest expense due to lower average debt level, and (4) higher monetary gains.

The Ps 110 million increase in other expenses, net, resulted mainly from write-offs of some fixed assets at GIMSA’s Chalco plant and at PRODISA and, to a lesser extent, goodwill and preoperating expenses and brands. These write offs resulted from the application of Bulletin C 15, “Impairment in the Value of Long-Lived Assets and their Disposal.”

Income taxes and employees’ profit sharing increased 14% to Ps 773 million in connection with higher pretax income.

GRUMA’s equity in earnings of associated companies, net (e.g., Grupo Financiero Banorte), grew 19% to Ps 282 million.

The 60% increase in total net income and the 85% increase in majority net income were due mainly to higher operating profits and lower comprehensive financing cost.

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