GRUMA ANNUAL REPORT 2004 |

It is important to understand our global expansion in the context of the international economic environment. During 2004, the U.S. economy resumed its growth despite high oil prices. Europe had a modest but significant recovery, and Japan began to emerge from its long recession.

A favorable economic environment—mainly price increases and stronger demand for raw materials—drove the growth in emerging markets. Mexico in particular, which grew 4.4%, benefited from the U.S. economy and higher oil prices. Despite the fact that inflation was slightly higher than expected, Mexico’s economy is judged by international experts as one of the world’s best managed, thanks to the strict discipline of our government’s fiscal and monetary policies.

China is an attractive growth market for us because of its size, rapid modernization, growing global purchasing power, and high, sustained growth.

In this global context, we are pleased with our 2004 consolidated results: we saw a 7% rise in net sales and operating income growth of 10%. As has been the case over the past few years, Gruma Corporation (our U.S. and European operations) was the primary driver of our steadily improving consolidated performance. Gruma Corporation achieved net sales growth of 14% due to better sales coverage, expansion into new markets, and the success of our product innovations. The subsidiary’s 22% increase in operating income came mainly from its growth in sales volume and a change in the mix toward value-added products.

We made progress in our other regions of operation as well. For the second year in a row our corn flour business in Mexico achieved volume growth in a difficult market environment. Our operations in Central America benefited from a restructuring of our sales department during 2004 that enabled us to better serve our customers and optimize promotional and advertising expenses. With regard to our Venezuela operations, we believe that our 2004 performance presents a more realistic reflection of the economic and competitive environment than did our 2003 results. We are working hard to increase market shares and maximize efficiencies. We are confident that our flexibility, strong customer relationships, and superior products will enable us to thrive in Venezuela’s challenging operating environment in the coming year.

In 2004 we made a strategic decision to expand our operations to address rising demand for our products. The primary focus of these efforts is the United States. We are adding capacity to our corn flour plant in Evansville, Indiana, and expect to complete this project in mid-2005. Also in mid-2005, we will open a new tortilla plant in Mountaintop, Pennsylvania, which we expect to bring synergies in terms of both manufacturing and distribution. In addition, in 2004 we acquired a tortilla plant in Las Vegas, Nevada.

We extended our presence in Europe through two acquisitions, a tortilla company in the Netherlands and a controlling interest in a corn flour company in Italy. Both of these acquisitions were immediately accretive to our cash flow generation and will bring benefits in terms of synergies with our existing operations in Europe. They enable us to better serve our current markets and expand our presence in other markets in the region.

We also see growth potential in the Asian markets. We already enjoy a presence in some Asian countries through several major customers and are evaluating opportunities to increase our presence in those countries and reach others in the region through greenfield operations.

Our investment criteria have not changed. Any new investment must profitably build on and enhance our core businesses of tortillas, corn flour, and wheat flour.

We continued to improve our financial performance throughout the year, aided by stronger cash generation accompanied by stable debt levels. I am proud to report that GRUMA now holds an investment-grade debt rating with two of the major ratings agencies. This rating reflects our company’s prospects for profitable growth and our ability to maintain our competitive position and good standing with the capital markets.

We reaffirmed our commitment to maintain this rating by continuing to improve our financial ratios.

Two major financing transactions helped us to improve our debt profile. We obtained a US$250 million, five-year, syndicated senior credit facility in October. And in November we took advantage of our investmentgrade rating, a favorable interestrate environment, and investors’ appetite for long-term debt instruments and issued a US$300 million perpetual bond. The bond—the first perpetual bond by a private-sector corporation in the global emerging markets—was very well received in Asia, Europe, and the United States. As a result of these two transactions, GRUMA has no significant debt maturities until 2009. Our improved performance enabled us to pay our shareholders a cash dividend of Ps 0.70 per share in nominal terms. This dividend, paid in May, represented a 3.6% dividend yield.

I also want to highlight that the price of our shares rose 73% over the course of the year, and beginning February 2005 the Bolsa Mexicana de Valores (Mexico’s Stock Exchange) included our shares in its IPC Index—which comprises the 35 most liquid stocks on the market. Our liquidity ranking on the Bolsa also improved—from 41 in December 2003 to 28 as of December 2004.

We owe a great deal of our success to the talent and dedication of our executive officers and employees. We see our relationship with them as a virtuous cycle. Their commitment and professional development help our company to prosper; in turn, our growth offers them expanded professional and cultural opportunities.

I also want to thank our other stakeholders—our customers and all who enjoy our products, our board members and suppliers, and our investors—for your participation in our company. We appreciate the confidence you have placed in us, and we trust you will continue to share our optimism about the future of GRUMA.

Roberto González Barrera
Chairman of the Board and Chief Executive Officer