Annual Stockholder Meeting Q and A
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The Hershey Company 2021 Annual Meeting of Stockholders Q&A 1.) What is the long-term strategy for mix of business between Candy and Better-for-you snacks? First, let me emphasize that candy is and will remain our #1 priority. This company is comprised of iconic candy brands and they are a key component of our future growth strategy. And we will continue to invest in them because consumers love great tasting indulgent snacks. And as a reminder, because of our strength in confection, we are the #2 snacking player in the U.S. It’s our goal to capture more opportunity by expanding our portfolio of products to engage with our consumers who are snacking throughout the day, and who may be looking for savory or better-for- you snacks as well as the portfolio of products that we currently offer. We are fortunate to have the financial flexibility to not only invest in our candy brands, as we always have, and deliver strong returns to our shareholders at the same time, but to also invest in capturing these new incremental snacking occasions. Our long term aspiration is for our snacking portfolio to represent approximately 15-20% of our global sales. 2.) When will Hershey offer a greater selection of sugar free chocolate products? We know there is a growing number of consumers that are looking for great tasting treats with less sugar. As the #1 U.S. confection manufacturer, we are focused on leading the category to make better-for-you candy more affordable and accessible for everyone. This year, for example, we relaunched and rebranded our sugar free offerings and made more packaging sizes available to our customers as well. We’ve also invested in a start-up company with innovations in plant-based food ingredients using rare sugar alternatives that will enable us to deliver great taste to the consumer. And our R&D team has been working for years to create great-tasting, break through recipes that use these rare natural sugars that will enable us to continue to bring products to market as consumers demand them, as our investment in some of these technologies helps to increase the availability of them and also to decrease them as an ingredient cost. We’ll have more to share on that as we move forward. 3.) According to the Philadelphia Inquirer, Pennsylvania is the launching pad for 14 legislative proposals to restrict or complicate access to voting... the most of any state. What are you doing to add your corporate voice to the efforts against these measures? This is a very important issue, and we have been spending a lot of time speaking with and listening to all our stakeholders on a wide-range of societal issues. For voting specifically, we have recently joined a non-partisan alliance, along with many other companies, to voice our support at the federal level for the John Lewis Voting Rights Advancement Act. This act has bipartisan support, is research-backed, and aims to prevent voter abuses before they happen. We believe this bill will help ensure a healthy democracy, which we think is critical for the stability of society and for our economic system, and in turn for our business. May 21, 2021 Page 1 of 11 4.) Can you comment on the 630:1 CEO pay ratio and what you feel is an appropriate target for executive pay? I do not believe peer comparison of executive comparison is always appropriate if the corporate "herd mentality" is ever-larger increasing ratios We take many things into consideration as we look at compensation for all of our employees, including our executives. As a publicly traded company our approach is performance-based, market competitive, and aligns with our short- and long-term goals. We believe our compensation practices are in the best interests of all our key stakeholders – including shareholders and employees. 5.) How much chocolate is still made in Hershey? Nearly half of the chocolate and candy that we sell in the U.S. is made right here in Hershey, PA at our 2 iconic plants right down the road from Milton Hershey’s house. Over 60% is made in the state of Pennsylvania and we manufacture approximately 85% of what is consumed in the U.S., in the U.S. We’re proud that in the past 2 years we have invested over $500M in capital expansion across our Pennsylvania facilities as well as our plants in Virginia, Illinois and Tennessee, and these investments have created approximately 500 new jobs in the U.S. And we are continuing to hire as we speak. 6.) Please tell us management's philosophy on returning cash to shareholders. Dividend increases vs. share buy backs. In addition, please tell us management's guidance on debt management. Our capital allocation priorities are centered around investing in the business and returning cash to shareholders. These priorities have been pretty consistent over the past several years. Our number one priority is business investment, including things like adding capacity at our plants or making investments in our digital capabilities. New capabilities that enable us to continue to win and thrive in the marketplace. Our dividend is a close #2 in terms of priorities. And we have paid that consecutively for over 90 years. We are committed to sharing at least 50% of our earnings with our shareholders. From a debt perspective, both our target and current levels of debt are below many of our peers as we generate a lot of cash. While we are willing to take on additional debt for strategic acquisitions, it is always with a clear path back to our target levels so that we can maintain our strong balance sheet and financial flexibility. One of the great and advantaged things about this company is our advantaged financial structure that enables us to satisfy all of these needs. And we still have additional cash to participate in share buybacks to further bolster our shareholder returns. 7.) What percentage of your company products are labeled as fair trade? I’d like to take this in two parts. The first is specific to Fair Trade - our barkTHINS brand, which we acquired several years ago and is sold in the U.S. and Canada, is both fair trade and non GMO. Secondly, Fair Trade is one of many different third-party environmental and social standards used in responsible sourcing, and responsible sourcing is one of our key sustainability priorities. More than 60% of our ingredients are certified to third-party environmental and/or social standards, including 100% of our cocoa. - Representative standards include Fair Trade USA, Rainforest Alliance, Roundtable on Sustainable Palm Oil, and Bonsucro. May 21, 2021 Page 2 of 11 8.) Can you repeat how we can get our free box of chocolate and chocolate world discount? I appreciate the enthusiasm and passion for our products. To receive your free gift box, please go to thehersheycompany.com/ASM2021 to enter your name, address and control number by May 24th. This link can be found under the Investors tab. We are also offering our shareholders 20% off their online order and free shipping at shop.hersheys.com between now and June 30th. For your online order, just enter the code ENJOY20 upon checkout. 9.) My wife and I enthusiastically endorse your willingness to bring out new products using your existing brands (Reese's Snack Cakes) and licensing your brands to prestigious companies such as Kraft Heinz Foods (Colliders) and Flowers Foods (Mrs. Freshley's). What can we look forward to the rest of the year? I’m glad you are enjoying our broad array of products. We have some exciting innovation this year. You can look forward to Kit Kat Thins and Kit Kat Mocha, Reese’s Stuffed with Pretzels, Reese’s Snack Cakes, Chocolately PayDay, organic versions of Hershey and Reese, as well as more sizes of our Zero Sugar items. 10.) Many more branded (Hershey, Reese, Kit Kat, Payday) goods are now produced using confectioner's coating where palm oil replaces cocoa butter. This shift away from real chocolate produces bottom-line numbers while diminishing the brand. These products have no redeeming value other than to fill the belly. All while European manufacturers continue to grow by delivering quality, real chocolate products. Why has Management taken this approach to growth when the industry is under the intense scrutiny for aiding obesity? We stay very close to our consumers and let them be our guide to meet a wide variety of their needs. We take great pride in our ability to produce high-quality at a price that's affordable for our consumers. We always start with sourcing the highest-quality raw ingredients, including cocoa, dairy, sugar, and all our other key ingredients. And then we use the highest-quality manufacturing processes to make sure that we have quality as well as safety. We do regular testing in all of our manufacturing facilities, and also with consumers, to make sure that our products taste as great as they ever have. All of our Hershey’s, Reese, Kit Kat chocolate products use cocoa butter. 11.) Why don't you buy the cocoa farms from the farmers? Then employ the former owners as managers at a wage that is more than they make from their crop. Insist that they employ adults and not children. We take this very seriously and are committed to responsibly sourcing our ingredients. We have taken several steps to address child labor and to ensure farmers earn a living wage. We are one of the only chocolate manufacturers to achieve 100% certified cocoa.