UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 20-F

 

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

 

OR

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Fiscal Period Ended December 31, 2022

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from __________ to __________

 

OR

 

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Date of event requiring this shell company report __________

 

Commission file number 001-39251

 

BETTERWARE DE MÉXICO, S.A.P.I. DE C.V.

(Exact name of Registrant as specified in its charter)

 

Not Applicable

(Translation of Registrant’s name into English)

 

MEXICO

(Jurisdiction of incorporation or organization)

 

Luis Campos, Board Chairman

+52 (33) 3836-0500

Luis Enrique Williams 549

Colonia Belenes Norte

Zapopan, Jalisco, 45145, México

(Name, Telephone, E-mail and or Facsimile number and Address Company Contact Person)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol   Name of each exchange in which registered
Ordinary Shares, no par value per share   BWMX   The Nasdaq Stock Market LLC

 

Securities registered pursuant to Section 12(g) of the Act: None

 

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

 

 

 

 

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: 37,316,546 Ordinary Shares, as of December 31, 2022.

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

 

☐ Yes  ☒ No

 

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

 

☐ Yes  ☒ No

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

Yes  ☐ No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

 

Yes  ☐ No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

     
Large accelerated filer ☐ Accelerated filer Non-accelerated filer ☐
    Emerging growth company

 

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

 

Yes  ☐ No

 

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

 

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

 

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

U.S. GAAP ☐ International Financial Reporting Standards as issued
by the International Accounting Standards Board ☒
Other ☐

 

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

 

☐ Item 17  ☐ Item 18

 

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

☐ Yes   No

 

 

 

 

 

 

TABLE OF CONTENTS

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS ii
  CERTAIN CONVENTIONS iii
  CURRENCY PRESENTATION iii
  PRESENTATION OF FINANCIAL INFORMATION iii
  PRESENTATION OF INDUSTRY AND MARKET DATA vii
PART I 1
  ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS 1
  ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE 1
  ITEM 3. KEY INFORMATION 1
  ITEM 4. COMPANY INFORMATION 17
  ITEM 4A. UNRESOLVED SEC STAFF COMMENTS 25
  ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS 26
  ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES 41
  ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS 47
  ITEM 8. FINANCIAL INFORMATION 47
  ITEM 9. THE OFFER AND LISTING 48
  ITEM 10. ADDITIONAL INFORMATION 49
  ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES REGARDING MARKET RISK 58
  ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES 61
PART II CONTROLS AND PROCEDURES 62
  ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES 62
  ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS 62
  ITEM 15. CONTROLS AND PROCEDURES 62
  ITEM 16. Reserved 65
  ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT 65
  ITEM 16B. CODE OF ETHICS 66
  ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES 66
  ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES 66
  ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS 67
  ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT 67
  ITEM 16G. CORPORATE GOVERNANCE 67
  ITEM 16H. MINE SAFETY DISCLOSURE 67
  ITEM 16I. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS 67
PART III 68
  ITEM 17. FINANCIAL STATEMENTS 68
  ITEM 18. FINANCIAL STATEMENTS 68
  ITEM 19. EXHIBITS 69
SIGNATURES   70

 

i

 

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This annual report contains a number of forward-looking statements, including statements about the financial conditions, results of operations, earnings outlook and prospects and may include statements for the period following the date of this annual report. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. Forward-looking statements are typically identified by words such as “plan,” “believe,” “expect,” “anticipate,” “intend,” “outlook,” “estimate,” “forecast,” “project,” “continue,” “could,” “may,” “might,” “possible,” “potential,” “predict,” “should,” “would” and other similar words and expressions, but the absence of these words does not mean that a statement is not forward-looking.

 

The forward-looking statements are based on the current expectations of the management of the Company (See “Presentation of Financial Information”), as applicable, and are inherently subject to uncertainties and changes in circumstance and their potential effects and speak only as of the date of such statement. There can be no assurance that future developments will be those that have been anticipated. These forward-looking statements involve a number of risks, uncertainties or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. Given these uncertainties, you should not rely upon forward looking statements as predictions of future events. These risks and uncertainties include, but are not limited to, those factors described in “Risk Factors,” those discussed and identified in public filings made with the Securities and Exchange Commission (“SEC”) by Betterware and the following:

 

the inability to profitably expand into new markets;

 

the possibility that the Group may be adversely affected by external economic, business and/ or competitive factors;

 

operational risk;

 

financial performance;

 

litigation and regulatory enforcement risks, including the diversion of management time and attention and the additional costs and demands on the Group’s resources;

 

changes in our investment commitments or our ability to meet our obligations thereunder;

 

natural disaster-related losses which may not be fully insurable;

 

epidemics, pandemics and other public health crises, particularly the COVID-19 pandemic;

 

geopolitical risk and changes in applicable laws or regulations;

 

fluctuations in exchange rates between the peso and the U.S. dollar; and

 

changes in interest rates or foreign exchange rates.

 

Should one or more of these risks or uncertainties materialize or should any of the assumptions made by the management of the Company prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. Except to the extent required by applicable law or regulation, the Company undertakes no obligation to update these forward-looking statements to reflect events or circumstances after the date of this annual report or to reflect the occurrence of unanticipated events.

 

ii

 

 

CERTAIN CONVENTIONS

 

Betterware de México, S.A.P.I. de C.V. (formerly Betterware de México, S.A.B. de C.V.), a Mexican sociedad anónima promotora de inversión de capital variable, was incorporated under the laws of Mexico in 1995. Unless otherwise stated or unless the context otherwise requires, the terms (i) “we,” “us,” “our,” “Company,” the “Group” refer to Betterware de México, S.A.P.I. de C.V. and subsidiaries on a consolidated basis, (ii) “Betterware,” “BTW,” “BWM” and “BW” refer to Betterware de México, S.A.P.I. de C.V. on a standalone basis, and (iii) “JAFRA” or “Jafra” refers to Jafra Cosmetics International, Inc., Jafra Mexico Holding Company, B.V., Distribuidora Comercial Jafra, S.A. de C.V., Jafra Cosmetics International, S.A. de C.V., Jafra Cosmetics, S.A. de C.V., Serviday, S.A. de C.V., Jafrafin, S.A. de C.V. and Distribuidora Venus, S.A. de C.V., on a consolidated basis. See “Company Information—Organizational Structure.”

 

CURRENCY PRESENTATION

 

In this annual report, unless otherwise specified or the context otherwise requires:

 

“$,” “US$” and “U.S. dollar” each refer to the United States dollar; and

 

“MX$,” “Ps.” and “peso” each refer to the Mexican peso.

 

Certain numbers and percentages included in this annual report have been subject to rounding adjustments. Accordingly, figures shown for the same category presented in various tables or other sections of this annual report may vary slightly, and figures shown as totals in certain tables may not be the arithmetic aggregation of the figures that precede them.

 

PRESENTATION OF FINANCIAL INFORMATION

 

This annual report contains our Audited Consolidated Financial Statements as of December 31, 2022 and 2021, and for the year ended December 31, 2022 (the “2022 period”) and 2021 (the “2021 period”), and the 53 weeks ended January 3, 2021 (the “2020 period”) (collectively, our “Audited Consolidated Financial Statements”).

 

Until and including the 2020 period, Betterware’s financial year was a 52- or 53-weeks period ending on the Sunday nearest to December 31. However, due to the fact that in 2021 Betterware issued debt on the Mexican Stock Exchange and in order to comply with the Mexican General Corporate Law, our financial period is required to end on the last day of the calendar year. Therefore, the financial information for the 2022 and 2021 periods is presented as of December 31, 2022 and December 31, 2021, respectively, and for the years then ended. The comparative financial year of 2020 consisted of 53 weeks ended on January 3, 2021, but was not adjusted to calendar year because the effects of the change are not significant.

 

During the preparation of the Company’s consolidated financial statements as of and for the 2022 period, management concluded that certain prior year errors that were deemed to be immaterial, on an individual and aggregate basis, to the Company’s previously reported consolidated financial statements as of and for the 2021 period under the SEC’s Staff Accounting Bulletin No. 99, could not be corrected on an out-of-period basis in the current year financial statements because to do so would cause a material misstatement in those financial statements. Due to the decrease in profit before taxes from 2021 to 2022, materiality levels in the 2022 period for accounting purposes decreased to approximately half of the materiality levels established in the 2021 period. Therefore, the Company referred to the guidance prescribed by the SEC’s Staff Accounting Bulletin No. 108 which specifies, among other things, that the errors must be corrected as an immaterial restatement of the prior year financial statements the next time those financial statements are filed. See “Operating and Financial Review and Prospects—Previously Issued Financial Statement Corrections.”

 

For purposes of this annual report, the term fiscal year is synonymous with financial year and refers to the periods covered by our Audited Consolidated Financial Statements.

 

We prepare our Audited Consolidated Financial Statements in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”). We have applied IFRS issued by the IASB effective at the time of preparing our Audited Consolidated Financial Statements. Our Audited Consolidated Financial Statements for the 2022 period have been audited by PricewaterhouseCoopers, S. C. (“PWC”), and independent registered public accounting firm, whose report dated May 15, 2023, is also included in this annual report. Our Audited Consolidated Financial Statements for the 2021 and 2020 periods were audited by Galaz, Yamazaki, Ruiz Urquiza, S.C. member of Deloitte Touche Tohmatsu Limited (“Deloitte”), an independent registered public accounting firm, whose report dated April 28, 2022, is also included in this annual report.

 

iii

 

 

The Audited Consolidated Financial Statements include the position and results of operations of the Group formed by Betterware, BLSM Latino America Servicios, S.A. de C.V. (“BLSM”), GurúComm, S.A.P.I. de C.V., Innova Catálogos, S.A. de C.V., Programa Lazos, S.A. de C.V., Betterware de Guatemala, S.A., Finayo, S.A.P.I. de C.V. SOFOM ENR, and JAFRA (See “The Business Combination—Organizational Structure”). The transactions, balances and unrealized gains or losses arising from intra-group transactions have not been considered for the preparation of the Audited Consolidated Financial Statements.

 

Our Audited Consolidated Financial Statements are presented in thousands of Pesos.

 

Non-IFRS Measures

 

We define “EBITDA” as profit for the year adding back the depreciation of property, plant and equipment and right-of-use assets, amortization of intangible assets, financing cost, net and total income taxes. EBITDA is not measure required by or presented in accordance with IFRS. The use of EBITDA has limitations as an analytical tool, and you should not consider it in isolation from, or as a substitute for analysis of, our results of operations or financial condition as reported under IFRS.

 

The Group believes that this non-IFRS financial measure is useful to investors because (i) The Group uses this measure to analyze its financial results internally and believes it represents a measure of operating profitability and (ii) this measure will serve investors to understand and evaluate the Group’s EBITDA and provide more tools for their analysis as it makes the Group’s results comparable to industry peers that also use this metric. See “Operating and Financial Review and Prospects—Operating ResultsReconciliation Of Non-IFRS Measures.”

 

The Business Combination

 

The Initial Public Offering

 

On October 16, 2018, DD3 Acquisition Corp., a British Virgin Islands company (“DD3”), consummated its initial public offering of 5,000,000 units and on October 23, 2018, the underwriters for DD3’s initial public offering purchased an additional 565,000 units pursuant to the partial exercise of their over-allotment option. The units in DD3’s initial public offering were sold at an offering price of US$10.00 per unit, generating total gross proceeds of US$55,650,000.

 

The Merger

 

On August 2, 2019, DD3 entered into a Combination and Stock Purchase Agreement (as amended, the “Combination and Stock Purchase Agreement”) with Campalier, S.A. de C.V., a Mexican sociedad anónima de capital variable (“Campalier”), Promotora Forteza, S.A. de C.V., a Mexican sociedad anónima de capital variable (“Forteza”), Strevo, S.A. de C.V., a Mexican sociedad anónima de capital variable (“Strevo”, and together with Campalier and Forteza, “Sellers”), Betterware, BLSM, and, solely for the purposes of Article XI therein, DD3 Mex Acquisition Corp, S.A. de C.V., pursuant to which DD3 agreed to merge with and into Betterware (the “Merger”) in a Business Combination that resulted in Betterware surviving the Merger and BLSM becoming a wholly-owned subsidiary of Betterware.

 

As part of the Combination and Stock Purchase Agreement, and prior to the closing of the Merger, DD3 was redomiciled out of the British Virgin Islands and continued as a Mexican corporation pursuant to Section 184 of the Companies Act and Article 2 of the Mexican General Corporations Law.

 

Betterware’s Restructure

 

Following the execution of the Combination and Stock Purchase Agreement, on February 21, 2020, Betterware’s shareholders approved, a corporate restructure in Betterware (the “Betterware Restructure”) which implied, among other things (i) Betterware’s by-laws amendment in order to issue Series C and Series D non-voting shares, and (ii) a redistribution of Betterware’s capital stock as follows: (a) fixed portion of Betterware’s capital stock represented by 3,075,946, Series A, ordinary voting shares, and (b) the variable portion of Betterware’s capital stock represented by (x) 1,961,993, Series B, ordinary voting shares, (y) 897,261, Series C, ordinary non-voting shares (“Series C Shares”), and (z) 168,734, Series D, ordinary non-voting shares (“Series D Shares”). In addition, Strevo transferred one Series A ordinary voting share of Betterware to Campalier (the “Campalier Share”), which remained under certain Share Pledge Agreement, dated July 28, 2017, entered between Strevo, as pledgor, MCRF P, S.A. de C.V. SOFOM, E.N.R. (“CS”), as pledgee, and Betterware.

 

iv

 

 

Immediately after consummation of Betterware Restructure and the transfer of the Campalier Share to Campalier, Forteza indirectly, through Banco Invex, S.A., Invex Grupo Financiero (“Invex”), as trustee of the irrevocable management and security trust No. 2397 (the “Invex Security Trust”), dated March 26, 2016, owned approximately 38.94% of the outstanding common stock of Betterware, and Campalier indirectly, through the Invex Security Trust, owned approximately 61.06% of the outstanding common stock of Betterware.

 

On March 9, 2020, the Invex Security Trust released the Series C Shares and the Series D Shares to Campalier and Forteza, respectively, that were held under the Invex Security Trust.

 

On March 10, 2020, CS, as pledgee, entered into a Termination of the Share Pledge Agreement over the Campalier Share with Campalier, as pledgor, and Betterware. In addition, CS, as beneficiary, Invex, as trustee, and Campalier, as settlor, entered into a Transfer Agreement, where Campalier transferred the Campalier Share to the Invex Security Trust.

 

Upon such transfer to the Invex Security Trust, Betterware’s shareholders approved (i) the sale of all or a portion of such Betterware’s Series C and Series D shares to DD3 Acquisition Corp., S.A. de C.V. (the “DD3 Acquisition”), (ii) the Merger, (iii) the amendment of Betterware’s by-laws to become a sociedad anónima promotora de inversion de capital variable, (iv) the increase of Betterware’s capital stock by MX$94,311,438.00, through the issuance of 2,211,075 ordinary shares, without nominal value, subscribed by the shareholders of DD3 Acquisition Corp., S.A. de C.V., and (v) the increase of Betterware’s capital stock by MX$872,878,500.00 through the issuance of 4,500,000 ordinary treasury shares without nominal value, offered for subscription and payment under Betterware’s public offering in the U.S. completed and filed with the SEC under our Registration Statement on Form F-1, which became effective on January 22, 2020. On March 10, 2020, Betterware’s corporate name changed from Betterware de México, S.A. de C.V. to Betterware de México, S.A.P.I. de C.V.

 

The DD3 Acquisition was closed on March 13, 2020, and as a result, all of Betterware shares that were issued and outstanding immediately prior to the closing date were canceled and new shares were issued. The DD3 Acquisition was accounted as a capital reorganization, whereby Betterware issued shares to the DD3 shareholders and obtained US$22,767 (Ps.498,445) in cash through the acquisition of DD3 and, simultaneously settled liabilities and related transaction costs on that date, for net cash earnings of US$7,519 (Ps.181,734) on such date. In addition, Betterware assumed the obligation of the warrants issued by DD3, a liability inherent to the transaction, equivalent to the fair value of Ps.55,810 of the warrants. No other assets or liabilities were transferred as part of the transaction that required adjustment to fair value as a result of the acquisition.

 

On the same date, a total of 2,040,000 of Betterware shares, that were offered for subscription and payment under its public offering on Nasdaq Capital Market (“Nasdaq”), were subscribed and paid for by various investors.

 

On July 14, 2020, Betterware’s corporate name changed from Betterware de México, S.A.P.I. de C.V. to Betterware de México, S.A.B. de C.V. For purposes of this annual report, the Merger, the Betterware Restructure and all related actions undertaken in connection thereto are referred to as the “Business Combination.”

 

Closing of the Business Combination

 

Upon satisfaction of certain conditions and covenants as set forth under the Combination and Stock Purchase Agreement, the Business Combination was consummated and closed on March 13, 2020 (the “Closing”). At Closing, the following actions occurred:

 

(i)DD3 issued to the Sellers as consideration for the purchase of a portion of the Series C and Series D shares and the BLSM shares outstanding as of January 3, 2021, a debt acknowledgement in an amount equal to $15,000,546.

 

(ii)all of Betterware shares issued and outstanding immediately prior to the Closing were canceled and, Campalier and Forteza received, directly and indirectly (through the Invex Security Trust), 18,438,770 and 11,761,175, respectively, of Betterware’s shares; and

 

(iii)all of DD3’s ordinary shares issued and outstanding immediately prior to the Closing were canceled and exchanged for Betterware shares on a one-for-one basis.

 

v

 

 

On the Closing date, 2,040,000 shares of Betterware offered for subscription and payment under Betterware’s public offering in the U.S. on the Nasdaq were subscribed and paid for by various investors.

 

As part of the Merger, Betterware assumed an obligation that granted existing warrant holders the option to purchase (i) a total of 5,804,125 Betterware shares at a price of US$11.50 per share that would expire on or before March 25, 2025, and (ii) a total of 250,000 units that automatically became an option to issue 250,000 Betterware shares and warrants to buy 250,000 additional Betterware shares. Betterware registered the warrants to be traded on OTC Markets, which had an observable fair value. The following events occurred in 2020 as part of the warrants agreement:

 

(i)During July and August 2020, Betterware repurchased 1,573,888 warrants. During August and October 2020, 895,597 warrants were exchanged for 621,098 shares, of which, 462,130 warrants were settled on a cash basis by exchanging 1 warrant for 1 share at a price of US$11.44 for share, which resulted in receiving cash by an amount of Ps.116,419. The remaining 433,467 warrants were exchanged on a cashless basis by exchanging 1 warrant for 0.37 shares.

 

(ii)In September 2020, the purchase option of units was exercised by their holders on a cashless basis, which resulted in the issuance of 214,020 Betterware shares.

 

(iii)Additionally, in October 2020, and as part of the terms of the warrant agreement, Betterware exercised the redemption of the warrants on a cashless basis by exchanging 3,087,022 warrants for 1,142,325 of Betterware’s shares. A total of 8,493 public warrants were not exercised by their holders during the redemption period that expired on November 9, 2020, therefore, they were paid by Betterware for a price of US$0.01 per warrant.

 

(iv)In December 2020, holders exercised a total of 239,125 private warrants on a cashless basis and exchanged for 156,505 of Betterware’s shares.

 

(v)As of the January 3, 2021, the warrant holders redeemed all of the outstanding warrants and purchase option of units and Betterware recognized a loss for the increase in the fair value of the warrants of Ps.851,520, which was recognized under the heading “Loss in valuation of warrants” in the consolidated and combined statement of profit or loss. As of the date of this annual report, all of the warrants have been redeemed.

 

On August 2, 2021, Betterware’s corporate name changed from Betterware de México, S.A.B. de C.V. to Betterware de México, S.A.P.I. de C.V.

 

The Forteza Merger

 

On December 14, 2020, Betterware and Forteza (Betterware’s shareholder), entered into a merger agreement pursuant to which Forteza agreed to merge with and into Betterware, surviving Betterware as the acquiror (the “Forteza Merger”). On December 16, 2020, the merger was consummated. Consequently, shares in Betterware were delivered to Forteza’s shareholders in proportion to their shareholding in Betterware, without implying an increase in our share capital or in the total number of outstanding shares of Betterware.

 

Other Transactions during 2020

 

On December 3, 2020, we acquired 70% of the shares of Betterware de Guatemala, S.A., a company focused on the distribution of our line of products and providing home solutions in Guatemala.

 

On December 16, 2020, in conjunction with Finvek Advisors, S.A. de C.V., we incorporated Programa Lazos, S.A. de C.V. (“Programa Lazos”), focused on granting loans and financial leasing or financial factoring operations in Mexico. We own 70% of the voting shares of Programa Lazos.

 

vi

 

 

Other Transactions during 2021 and Subsequent Events during 2022

 

On March 12, 2021, Betterware entered into an agreement to acquire 60% of GurúComm, S.A.P.I. de C.V. (“GurúComm”), for Ps.45 million. GurúComm is a mobile virtual network operator and communications software developer, with an enterprise value of Ps.75 million (approximately US$3.5 million). On March 28, 2022, the shareholders of GurúComm approved, and Betterware agreed to, the redemption of the shares owned by Betterware in GurúComm. Therefore, the 55,514 shares that had been previously fully subscribed and paid by Betterware were redeemed. The additional 37,693 shares that were subscribed but not yet paid, were canceled. GurúComm’s redemption and Betterware’s investment withdrawal was mainly due to the fact that the business was not growing according to shareholders expectations, and consequently, Betterware’s investment return would take longer than anticipated. The financial impact that the redemption transaction had at a consolidated level was a loss in sale of shares of Ps.16.6 million.

 

Until June 30, 2021, BLSM (formerly a related party of Betterware) provided administrative, technical, and operational services to Betterware. On July 1, 2021, all of BLSM’s employees were transferred to Betterware, without having a material impact on a consolidated basis.

 

On July 22, 2021, Betterware entered into an agreement to acquire 70% of Innova Catálogos, S.A. de C.V. (“Innova”), for Ps.5 million. Innova focuses on purchase and sale of clothing, footwear and accessories. On November 18, 2022, we withdrew our investment and cancelled all of the 238 subscribed and paid shares that we held in Innova. The investment withdrawal and the redemption of Betterware’s shares in Innova was mainly due to the fact that the business was not growing according to shareholders expectations. The financial impact that the redemption transaction had at a consolidated level was a loss in sale of shares of approximately Ps.5 million.

 

On March 25, 2021, Betterware and Programa Lazos, S.A acquired 2% and 98%, respectively, of the shares of Finayo, S.A.P.I. de C.V., a Mexican sociedad anónima promotora de inversión de capital variable for the aggregate purchase price of Ps.1.1 million. Finayo, S.A.P.I. de C.V. focuses on granting loans, financial leasing and factoring operations.

 

The JAFRA Acquisition

 

On January 18, 2022, Betterware entered into a stock purchase agreement to acquire the operations of Jafra Cosmetics International, Inc. and Jafra Mexico Holding Company, B.V. in Mexico and the United States from the Vorwerk Group based in Germany for a total cash consideration of US$255 million (equivalent to Ps. 5,355 million), on a debt and cash-free basis (the “JAFRA Acquisition”). See “Company Information—Organizational Structure.”

 

JAFRA is a leading global company in direct sales in the beauty and personal care (B&PC) industry with strong presence in Mexico and the United States through independent leaders and consultants who sell JAFRA’s unique products. The JAFRA Acquisition was approved by the Federal Economic Competition Commission on March 24, 2022, and consummated on April 7, 2022. The funds necessary to pay the purchase price, and other associated expenses, under the JAFRA Acquisition were obtained from (i) a long-term syndicated loan of Ps.4,499 million, and (ii) US$30 million from available cash of Betterware. See “Indebtedness—Long Term Syndicated Credit Line.”

 

As of the date of this annual report and as consequence of the transactions described before, the total number of outstanding shares of the Company is 37,316,546.

 

PRESENTATION OF INDUSTRY AND MARKET DATA

 

In this annual report, we rely on, and refer to, information regarding our business and the markets in which we operate and compete. The market data and certain economic and industry data and forecasts used in this annual report were obtained from internal surveys, market research, governmental and other publicly available information, and independent industry publications. Industry publications, surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable, but that the accuracy and completeness of such information is not guaranteed. We believe that these industry publications, surveys, and forecasts are reliable, but we have not independently verified them and cannot guarantee their accuracy or completeness.

 

Certain market share information and other statements presented herein regarding our position relative to our competitors are not based on published statistical data or information obtained from independent third parties, but reflects our best estimates. We have based these estimates upon information obtained from publicly available information from our competitors in the industry in which we operate.

 

vii

 

 

PART I

 

ITEM 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

 

Not applicable.

 

ITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLE

 

Not applicable.

 

ITEM 3. KEY INFORMATION

 

A.[Reserved]

 

B.CAPITALIZATION AND INDEBTEDNESS

 

Not applicable.

 

C.REASONS FOR THE OFFER AND USE OF PROCEEDS

 

Not applicable.

 

D.RISK FACTORS

 

An investment in our Ordinary Shares carries a significant degree of risk. You should carefully consider the following risk factors, together with all of the other information included in this annual report, before making a decision to invest in our ordinary shares. The risks described below are those which the Group believes are the material risks that it faces. Some statements in this annual report, including such statements in the following risk factors, constitute forward-looking statements. See the section entitled “Cautionary Note Regarding Forward-Looking Statements.” If any of the following events occur, our business, financial condition and operating results may be materially adversely affected. In that event, the trading price of our securities could decline, and you could lose all or part of your investment.

 

Risks Related to Our Business

 

If we are unable to retain our existing, or recruit new, independent distributors, leaders and consultants, our results of operations could be negatively affected.

 

We distribute almost all of our products through our independent distributors, leaders and consultants, and we depend on them directly for the sale of our products. We experience high turnover among distributors, leaders and consultants from year to year since they can terminate their services at any time. As a result, we need to make significant efforts to retain existing and recruit or attract others.

 

To increase our revenue, we must increase the number and/or the productivity of our distributors, leaders and consultants. The number and productivity of our distributors, leaders and consultants also depends on several additional factors, including:

 

adverse publicity regarding of any company of the Group, our products or our distribution channel;

 

aggressive new competitors in the market looking to increase their market share;

 

failure to motivate our distributors, leaders and consultants with new products;

 

failure to provide an attractive compensation plan for distributors, leaders and consultants;

 

1

 

 

issues with our new product’s quality;

 

the public’s perception of our products;

 

competition for distributors, leaders and consultants from other direct selling companies;

 

the public’s perception of our distributors, leaders and consultants, and direct selling businesses in general; and

 

general economic and business conditions.

 

Our operations would be harmed if we fail to generate continued interest and enthusiasm among our distributors, leaders and consultants or we fail to attract new, or if our distributors, leaders and consultants are unable to operate due to internal or external factors.

 

The number of our active distributors, leaders and consultants, may not increase and could decline in the future. Our operating results could be harmed if existing and new business opportunities and products do not generate sufficient interest to retain existing distributors, leaders and consultants recruit new of them.

 

The loss of key high-level distributors, leaders or consultants could negatively impact our growth and our revenue.

 

As of December 31, 2022, BWM had approximately 778,845 active associates and 39,413 distributors, and JAFRA had approximately 492,191 and 21,385 active consultants and leaders, respectively. BWM’s distributors and JAFRA’s leaders and consultants, together with their extensive networks of downline distributors or leaders, account for an important part of our net revenue. As a result, the loss of a high-level distributors, leaders or consultants, could negatively impact our network growth and our net revenue.

 

A decline in our customers’ purchasing power or consumer confidence or in customers’ financial condition and willingness to spend could materially and adversely affect our business.

 

The sale of our products strongly correlates to the level of consumer spending generally, and thus is significantly affected by the general state of the economy and the ability and willingness of consumers to spend on discretionary items. Reduced consumer confidence and spending generally may result in reduced demand for our products and limitations on our ability to maintain or increase prices. A decline in economic conditions or general consumer spending in any of our major markets could have a material adverse effect on our business, financial condition and results of operations.

 

Failure to successfully develop new products could harm our business.

 

An important component of our business is our ability to develop new products that create enthusiasm among our customers. If we fail to introduce new products planned for the future, our distributors, leaders and consultants’ productivity could be harmed. In addition, if our new products fail to gain market acceptance, are restricted by regulatory requirements, or have quality problems, this would harm our results of operations. Factors that could affect our ability to continue to introduce new products include, among others, government regulations, proprietary protections of competitors that may limit our ability to offer comparable products and any failure to anticipate changes in consumer tastes and buying preferences.

 

We depend on multiple contract manufacturers mostly located in China, and the loss of the services provided by any of our manufacturers could harm our business and results of operations.

 

We outsource product manufacturing to third-party contractors located mainly in China. During the 2022 period, products supplied by Chinese manufacturers accounted for approximately 93% of BWM’s revenues.

 

If these suppliers have unscheduled downtime or are unable to fulfill their obligations under these manufacturing agreements because of political or regulatory restrictions, equipment breakdowns, labor strikes, natural disasters, health diseases or health epidemics, such as the COVID-19 pandemic, or any other cause, this could adversely affect our overall operations and financial condition.

 

Also, although we provide all of the formulations used to manufacture our products, we have limited control over the manufacturing process itself. As a result, any difficulties encountered by the third-party manufacturer that result in product defects, production delays, cost overruns, or the inability to fulfill orders on a timely basis, due to, for instance, sanctions or blocks imposed to Chinese products, could have a material adverse effect on our business, financial condition and operating results

 

2

 

 

Disruptions or delays at our facility in Queretaro, Mexico could have a material adverse effect on our business, particularly with respect to the beauty and personal care segment.

 

Our facility in Queretaro, Mexico, manufactures a substantial portion of the products of our beauty and personal care segment, which accounts 85% of JAFRA sales, and as of December 31, 2022 represented 38% of our total sales at a consolidated level. Significant unscheduled downtime or a reduction in capacity at this facility, whether due to equipment breakdowns, power failures, natural disasters (due to climate change or otherwise), pandemics (including COVID-19), weather conditions hampering delivery schedules, shortages of raw materials and products, technology disruptions or other disruptions, including those caused by transitioning manufacturing across these facilities, or any other cause could have a material adverse effect on our ability to provide products to our leaders, consultants and customers, which could have a material adverse effect on our sales, business, prospects, reputation, results of operations, financial condition and/or cash flows.

 

Additionally, some of our employees at this facility are members of labor unions. In the past, we have experienced labor-union related work strikes in Mexico which have affected our operations. Also, negotiating labor contracts, either for new locations or to replace expiring contracts, is time consuming or may not be accomplished on a timely basis. If we are unable to satisfactorily negotiate those labor contracts with the labor unions on terms acceptable to us or without a strike or work stoppage, the effects on our business could be materially adverse. Any strike or work stoppage could disrupt our business, adversely affecting our results of operations and our public image could be materially adversely affected by such labor disputes. In addition, existing labor contracts may not prevent a strike or work stoppage, and any such work stoppage could have a material adverse effect on our business.

 

Volatility in costs, along with delays and disruptions in the supply of materials and services, as a result of the recent global supply chain disruptions, could have a material adverse effect on our business, prospects, results of operations, financial condition and/or cash flows.

 

We purchase raw materials, including essential oils, alcohols, chemicals, containers and packaging components, from various third-party suppliers. Substantial cost increases delays and the unavailability of raw materials or other commodities, as a result of continued global supply chain disruptions, and higher costs for energy, transportation and other necessary services have adversely affected and may continue to adversely affect our beauty and personal care segment profit margins if we are unable to wholly or partially offset them, such as by achieving cost efficiencies in its supply chain, manufacturing and/or distribution activities. In addition, we purchase certain finished goods, raw materials, packaging and other components from single-source suppliers or a limited number of suppliers and if we are required to find alternative sources of supply, these new suppliers may have to be qualified under applicable industry, governmental and Company-mandated vendor standards, which can require additional investment and be time-consuming.

 

Any significant disruption to our manufacturing or sourcing of products or raw materials, packaging and other components for any reason (including the continued global supply chain disruptions) could materially impact our inventory levels and interrupt and delay our supply of products to its leaders and consultants. Such events, if not promptly remedied, could have a material adverse effect on our business, prospects, reputation, results of operation, financial condition and/or cash flows.

 

Competition could have a material adverse effect on our business, prospects, results of operations, financial condition and/or cash flows.

 

The markets in which we operate are competitive. Our results of operations may be harmed by market conditions and competition in the future. Many competitors have greater name recognition and financial resources than we have, which may give them a competitive advantage.

 

We compete against a number of multi-national manufacturers, some of which are larger and have substantially greater resources than us, and which may therefore have the ability to spend more aggressively than us on new business acquisitions, research and development activities, technological advances to evolve in their e-commerce capabilities and advertising, promotional, social media and/or marketing activities and have more flexibility than us to respond to changing business and economic conditions.

 

Also, our products compete directly with branded, premium retail products. We currently do not have significant patent or other proprietary protection, and competitors may introduce products with the same ingredients that we use in our products.

 

We also compete with other companies for distributors, leaders and consultants. Some of these competitors have a longer operating history, better name recognition and greater financial resources than we do. Some of our competitors have also adopted and could continue to adopt some of our business strategies. Consequently, to successfully compete in this market and attract and retain distributors, leaders and consultants, we must ensure that our business opportunities and compensation plans are financially rewarding. We may not be able to continue to successfully compete in this market for distributors, leaders and consultants, which would ultimately, affect our business operations.

 

3

 

 

If the industry in which we operate, our business or our products are subject to adverse publicity, our business may suffer.

 

We are very dependent upon our distributors, leaders, consultants and the general public perception of the overall integrity of our business, as well as the safety and quality of our products and similar products distributed by other companies. The number and motivation of our distributors, leaders and consultants and the acceptance by the general public of our products may be negatively affected by adverse publicity regarding:

 

the legality of network-marketing systems in general or our network-marketing system specifically;

 

the safety and quality of our products;

 

regulatory investigations of our products;

 

the actions of our distributors, leaders and consultants;

 

management of our distributors, leaders and distributors; and

 

the direct selling industry.

 

Any event that negatively affects the general public perception of our industry, business or products could have a material effect in our results of operations.

 

Failure of our technology initiatives to create sustained enthusiasm in our distributors, leaders and consultants and incremental cost savings could negatively impact our business.

 

We constantly develop and implement strategies to continue using technology to attract distributors, leaders and consultants and provide them new technology to facilitate taking orders of our products. In certain demographic markets, we have experienced some success implementing our technology strategies to improve our operating efficiency. However, any cost savings from our technology strategies may not prove to be significant, or we may not be successful in adapting and implementing these strategies to other markets in which we operate. This could result in our inability to service our distributors, leaders and consultants in the manner they expect, which could ultimately affect our results of operations.

 

We are dependent on information and communication technologies, and our systems and infrastructures face certain risks, including cybersecurity risks.

 

The operation of complex infrastructures and the coordination of the many actors involved in our operation require the use of several highly specialized information systems, including both our own information technology systems and those of third-party service providers, such as systems that monitor our operations or the status of our facilities, communication systems to inform the public, access control systems and closed circuit television security systems, infrastructure monitoring systems and radio and voice communication systems used by our personnel. In addition, our accounting and fixed assets, payroll, budgeting, human resources, supplier and commercial, hiring, payments and billing systems and our websites are key to our functioning. The proper functioning of these systems is critical to our operations and business management. These systems may, from time to time, require modifications or improvements as a result of changes in technology, the growth of our business and the functioning of each of these systems.

 

The risk of cyber-crime continues to augment across all industries and geographies as infiltrating technology is becoming increasingly sophisticated. If we are unable to prevent a significant cyber-attack, such attack could materially disrupt our operations, damage our reputation and lead to regulatory penalties and financial losses. To prevent such disruptions to our operations we have implemented a multi-layer security framework, from strategic corporate policies to operational procedures and controls. To support this framework, we use sophisticated technologies to secure our perimeter, computing equipment, networks, servers, storage and databases.

 

Information technology systems cannot be completely protected against certain events such as natural disasters, fraud, computer viruses, hacking, communication failures, equipment breakdown, software errors and other technical problems. However, our security framework allows us to minimize and manage these risks through the use of enabling technologies such as, but not limited to, firewalls, mail & web filtering, end point protection, antivirus and anti malware, access lists, encryption and hardening.

 

4

 

 

In addition, our business operations routine involves gathering personal information about vendors, distributors, leaders, consultants, customers and employees among others, through the use of information technologies. Breaches of our systems or those of our third-party contractors, or other failures to protect such information, could expose such people’s personal information to unauthorized use. Any such event could give rise to a significant potential liability and reputational harm.

 

During 2022 and 2021, BWM encountered an increased number of non-material phishing attempts which consisted of fake e-mails requesting minor payments and/or confidential information and e-mails with malicious files successfully quarantined and contained as well as sporadic attempted attacks, minor and unsuccessful, on our infrastructure. None of these attempts were material nor had any major consequences for our operations or our customers. However, we cannot guarantee any future events will not affect our operations or customers. We are constantly seeking to improve and strengthen our security strategy by aligning it with Security Frameworks and Best Practices such as NIST and ISO 27000.

 

During 2021 (prior to consummation of the JAFRA Acquisition), JAFRA received various attacks with at least one impacting IT servers such as email, SharePoint, and other Information Technology support services. None of these attacks affected our core servers or our customers’ personal information. In 2022, JAFRA implemented a Security Operation Center for purposes of identifying and preventing cybersecurity attacks. This Security Operation Center has prevented a considerable number of incidents such as: ransomware attacks (nine in total), malware execution via USB, malicious URLs, malicious content from email, various JAFRA account login attempts and phishing. No attacks were materialized during the 2022 period. We expect align JAFRA’s operations with the NIST CSF and ISO 27000 frameworks.

 

Because of the costs and difficulties inherent in managing cross-border business operations, our results of operations may be negatively impacted.

 

Managing our business, operations, personnel or assets in multiple jurisdictions is challenging and costly. Management may be inexperienced in cross-border business practices and unaware of significant differences in accounting rules, legal regimes and labor practices. Even with a seasoned and experienced management team, the costs and difficulties inherent in managing cross-border business operations, personnel and assets can be significant (and much higher than in a purely domestic business) and may negatively impact our financial and operational performance.

 

Our distributors, leaders and consultants are independent contractors and not employees. If regulatory authorities were to determine, however, that our distributors leaders and consultants are legally our employees, we could have significant liability under social benefit laws.

 

Distributors, leaders and consultants are self-employed and are not our employees. Periodically, the question of the legal status of our distributors, leaders and consultants has arisen, usually with regard to possible coverage under social benefit laws that would require us to make regular contributions to social benefit funds. We cannot guarantee there will not be a future judicial or administrative determination adverse to the current criteria, which would substantial and materially adversely affect our business and financial condition.

 

Inflation could adversely affect our business and results of operations.

 

While inflation in the United States and global markets has been relatively low in recent years, during 2021 and 2022, the economy in the United States and global markets encountered a material increase in the level of inflation. The impact of COVID-19, geopolitical developments such as the Russia-Ukraine conflict and global supply chain disruptions continue to increase uncertainty in the outlook of near-term and long-term economic activity, including whether inflation will continue and how long, and at what rate. Increases in inflation raise our costs for commodities, labor, materials and services and other costs required to grow and operate our business, and failure to secure these on reasonable terms may adversely impact our financial condition. Additionally, increases in inflation has caused, and may in the future cause, global economic uncertainty and uncertainty about the interest rate environment, which may make it more difficult, costly or dilutive for us to secure additional financing. A failure to adequately respond to these risks could have a material adverse impact on our financial condition, results of operations or cash flows.

 

5

 

 

Goodwill, property, plant and equipment and intangible assets represent a significant portion of the Group’s statement of financial position, and our operating results may suffer from possible impairments.

 

Goodwill, property, plant and equipment and intangible assets in our statement of financial position derived from past business combinations carried out by the Group, are further explained in the notes to the consolidated financial statements located elsewhere in this annual report. Goodwill and intangible assets with indefinite useful lives are tested for impairment at least annually. Property, plant and equipment and intangible assets with definite useful lives are tested for impairment whenever there is an indication that these assets may be impaired. In the case of an impairment, we will recognize charges to our operating results based on the impairment assessment processes. In addition, future acquisitions may be made by the Group and a portion of the purchase price of these acquisitions may be allocated to acquired goodwill, property, plant and equipment and intangible assets. An impairment on property, plant and equipment or goodwill of acquired businesses could have a material adverse effect on our financial condition and results of operations.

 

The COVID-19 virus (nCoV), as well as any other public health crises that may arise in the future, has had and may continue to have a negative impact on our gross margins and in our results of operation.

 

In late December 2019, a notice of pneumonia of unknown cause originating from Wuhan, Hubei province of China was reported to the World Health Organization. A novel COVID-19 virus (nCoV) was identified, with cases soon confirmed in multiple provinces in China, as well as in several other countries. The Chinese government placed Wuhan and multiple other cities in Hubei province under quarantine, with approximately 60 million people affected. On March 11, 2020, the World Health Organization declared the coronavirus outbreak a pandemic. The COVID-19 pandemic has resulted in several cities be placed under quarantine, increased travel restrictions from and to several countries, such as the U.S., China, Italy, Spain and Mexico which had forced extended shutdowns of certain businesses in certain regions.

 

Our operations were not interrupted as a result of the COVID-19 pandemic in 2021 and 2020. However, during 2022, after the COVID-19 pandemic effects eased, we suffered a decline in the number of associates and distributors due to the contraction of the market size for home goods and in consumer spending. Consequently, our net revenue related to our home organization segment decreased by 37.0%.

 

Also, as consequence of the COVID-19 pandemic, we faced external headwind as supply chain disruption in China, specifically increases in sea freight prices and the rationing of energy, has caused partial and total shutdowns of some factories. If these events continue, our results of operations could be negatively impacted. We cannot predict future events that could disrupt our supply chain.

 

Although impact of COVID-19 pandemic has eased as restrictions have been or are being lifted in most of the countries we operate, the continuing impact of COVID-19 pandemic remains uncertain and may continue to affect our operations and the markets in which we operate, for so long as the health crisis and the virus impact continues, including the emergence of new strains such as the Omicron or Delta variant, of the virus arise.

 

Material weaknesses have been identified in Betterware’s internal control over financial reporting, and if we fail to establish and maintain proper and effective internal controls over financial reporting, our results of operations and our ability to operate our business may be harmed.

 

As of December 31, 2022, our management assessed the effectiveness of our internal control over financial reporting based on the criteria for effective internal control over financial reporting established in Internal Control - Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.

 

Our results conclude thar we did not design and maintain effective controls over the (i) business combination transaction process; (ii) period-end financial reporting and consolidation process; and (iii) certain information technology (“IT”) general controls for information systems that are relevant to the preparation of our consolidated financial statements.

 

We are in the process of implementing several measures to strength our internal control over financial reporting such as the deployment of IT applications to enable and automate the consolidation and ITGC process. For details of the controls and remediation plan, see “Item 15—Controls and Procedures—Disclosure Controls and Procedures.”

 

6

 

 

In 2021, the Company changed its status from an emerging growth company to an large accelerated filer, and during 2022 the Company change its status again to an accelerated filer. Therefore, the Company keep working and improving about the implementation of a formal internal control over financial reporting program based on a top-down risk assessment to validate the existence of controls over significant, accounts, processes, applications and IT environments. See “Disclosure Controls and Procedures—Control and Procedures.”

 

If we fail to establish and maintain proper and effective internal controls over financial reporting or adequately resolve our existing material weaknesses, our results of operations and our ability to operate our business may be harmed.

 

Our controlling shareholder may have interests that conflict with your interests.

 

As of the date of this annual report, Campalier owns approximately 53.65% of our outstanding Ordinary Shares. As the controlling shareholder, Campalier may take actions that are not in the best interests of the Group’s other shareholders. These actions may be taken in many cases even if they are opposed by the Group’s other shareholders. In addition, this concentration of ownership may discourage, delay or prevent a change in control which could deprive you of an opportunity to receive a premium for your Ordinary Shares as part of a sale of the Group.

 

Our business and results of operations may be adversely affected by the increased strain on our resources from complying with the reporting, disclosure and other requirements applicable to public companies in the United States promulgated by the U.S. Government, Nasdaq or other relevant regulatory authorities.

 

Compliance with existing, new and changing corporate governance and public disclosure requirements adds uncertainty to our compliance policies and increases our costs of compliance. Changing laws, regulations and standards include those relating to accounting, corporate governance and public disclosure, including the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Sarbanes-Oxley Act of 2002, new SEC regulations and the Nasdaq listing guidelines. Application of these laws, regulations and guidelines may evolve over time as new guidance is provided by regulatory and governing bodies. In particular, compliance with Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”) and related regulations regarding required assessment of internal controls over financial reporting and our external auditor’s audit of that assessment, requires the commitment of significant financial and managerial resources. We also expect the regulations to increase our legal and financial compliance costs, making it more difficult to attract and retain qualified officers and members of our board of directors, particularly to serve on our audit committee, and make some activities more difficult, time-consuming and costly.

 

Existing, new and changing corporate governance and public disclosure requirements could result in continuing uncertainty regarding compliance matters and higher costs of compliance as a result of ongoing revisions to such governance standards. Our efforts to comply with evolving laws, regulations and standards have resulted in, and are likely to continue to result in, increased general and administrative expenses. In addition, new laws, regulations and standards regarding corporate governance may make it more difficult for our company to obtain director and officer liability insurance. Further, our board members and senior management could face an increased risk of personal liability in connection with their performance of duties. As a result, we may face difficulties attracting and retaining qualified board members and senior management, which could harm our business. If we fail to comply with new or changed laws or regulations and standards differ, our business and reputation may be harmed.

 

Our revenue and profitability may be affected if we fail to acquire new companies or integrate those that we have already acquired, such as JAFRA.

 

We consider acquisitions a useful instrument to complement our organic growth. We opportunistically explore acquiring other businesses and assets, such as the JAFRA Acquisition.

 

However, we may face financial, managerial and operational challenges, including diversion of management attention and resources needed for existing operations, difficulties with integrating acquired businesses, such as JAFRA, integration of different corporate cultures, increased expenses, potential dilution of our brand, assumption of unknown liabilities, potential disputes with the sellers and the need to evaluate the financial systems of and establish internal controls for acquired entities. Further, we seek out acquisitions of companies that maintain the same high quality standards that we maintain, and if we misjudge or overestimate products quality standards, we may not be able to use these products or implement the strategies that were the primary reason for the corresponding acquisition, such as may be the case with the JAFRA Acquisition, which would lead to a significant loss both financially and in time spent by our teams trying to integrate the products or implement the strategy.

 

7

 

 

In addition, our ability to realize the benefits we anticipate from our acquisition activities, including the JAFRA Acquisition, including any anticipated sales growth, cost synergies and other anticipated benefits, will depend in large part upon whether we are able to integrate such businesses efficiently and effectively. Integration is an ongoing process, and we may not be able to fully integrate such businesses smoothly or successfully, and the process may take longer than expected. Further, the integration of certain operations and the differences in operational culture following such activity will continue to require the dedication of significant management resources, which may distract management’s attention from day-to-day business operations.

 

There may also be unasserted claims or assessments that we failed or were unable to discover or identify in the course of performing due diligence investigations of target businesses. While we normally negotiate representation and warranties and related indemnification in relation to such acquisitions, these may not be enough to cover our exposure if a significant liability arises in connection with any acquisition agreement, including the JAFRA Acquisition. We cannot assure you that these indemnification provisions will protect us fully or at all, and as a result we may face unexpected liabilities that could adversely affect our business, financial condition and results of operations.

 

If we are unable to successfully integrate the operations of JAFRA, or any other acquired business, into our business, we may be unable to realize the sales growth, cost synergies and other anticipated benefits of such transactions, and our business, results of operations and cash flow could be adversely affected.

 

Our indebtedness and any future inability to meet any of our obligations under our indebtedness, could adversely affect us by reducing our flexibility to respond to changing business and economic conditions.

 

As of December 31, 2022, we had Ps.6,441 million of outstanding indebtedness (current and non-current borrowings, and leases). We rely on obtaining financing and refinancing of existing indebtedness in order to operate our business, implement our strategy and grow our business. Recent disruptions in the global credit markets and their effect on the global and Mexican economies could materially adversely affect our business. We may also incur additional working capital lines of credit to meet future financing needs, subject to certain restrictions under our indebtedness, which would increase our total indebtedness. We may be unable to generate sufficient cash flow from operations and future borrowings, and other financing may be unavailable in an amount sufficient to enable us to fund our current and future financial obligations or our other liquidity needs, which would have a material adverse effect on our business, prospects, financial condition, liquidity and results of operations as well as reduce the availability of our cash flow to fund working capital, operations, capital expenditures, dividend payments, strategic acquisitions, expansion of our operations and other business activities. Our indebtedness could have material negative consequences on our business, prospects, financial condition, liquidity, results of operations and cash flows, including the following:

 

limitations on our ability to obtain additional debt financing sufficient to fund growth, such as working capital and capital expenditures requirements or to meet other cash requirements, in particular during periods in which credit markets are weak;

 

a downgrade in our credit ratings;

 

a limitation on our flexibility to plan for, or react to, competitive challenges in our business and industry;

 

the possibility that we are put at a competitive disadvantage relative to competitors with less debt or debt with more favorable terms than us, and competitors that may be in a more favorable position to access additional capital resources and withstand economic downturns;

 

limitations on our ability to execute business development activities to support our strategies or ability to execute restructuring as necessary; and

 

limitations on our ability to invest in recruiting, retaining and servicing our distributors, leaders and consultants.

 

Certain of our indebtedness contain customary covenants, including, among other things, limits on the ability of the company and any restricted subsidiary to, subject to certain exceptions, incur liens, incur debt, merge, consolidate or dispose of all or substantially all of its assets.

 

8

 

 

Changes in taxes and other assessments may adversely affect us.

 

The legislatures and tax authorities in the tax jurisdictions in which we are subject to tax regularly enact reforms to the tax and other assessment regimes to which we, our distributors, leaders and consultants, and our customers are subject. Such reforms include changes in tax rates and, occasionally, enactment of temporary taxes, the proceeds of which are earmarked for designated governmental purposes. In addition, the interpretation of tax laws by courts and taxation authorities is constantly evolving. The effects of these changes and any other changes that result from enactment of additional tax reforms or changes to the manner in which current tax laws are applied cannot be quantified and there can be no assurance that any such reforms or changes would not have an adverse effect upon our business directly or indirectly (e.g., by affecting the business of our consultants and representatives).

 

For example, Latin American governments have often increased taxes or changed tax legislation as a response to macroeconomic crises or other developments affecting their respective jurisdictions. These and any other possible future changes in tax policy laws in the countries where we are subject to tax may adversely affect our business, financial condition and results of operations.

 

We are subject to environmental laws and regulations risks that could affect our operations and results of operations

 

Our operations are subject to a wide range of environmental laws and regulations in each of the jurisdictions in which we operate. These laws and regulations impose increasingly rigorous environmental protection standards. According to Mexican General Law of Ecological Balance and Environmental Protection (Ley General de Equilibrio Ecológico y la Protección al Ambiente or LGEEPA in Spanish), organizations must comply with the following, among others: (i) guarantee the human right of every person to a healthy environment for their development and well-being; (ii) the preservation, restoration and improvement of the environment; (iii) the preservation and protection of biodiversity, as well as the establishment and administration of protected natural areas; (iv) the sustainable use, preservation and, where appropriate, restoration of soil, water and other natural resources, so that they are compatible for obtaining economic benefits and the activities of society with the preservation of the ecosystems; and (v) prevention and control of air, water and soil pollution, among others. The establishment of these controls and security measures exposes us to a risk of significant environmental costs and responsibilities, such as taxes, investment in equipment and technology, investment in spaces for development and well-being, fines and penalties. In addition, we are exposed to the fact that, over time, these laws and regulations may become more stringent over existing ones, which could lead to the imposition of new risks and costs resulting in a decrease in our profitability.

 

Environmental requirements can restrict trade which could lead to increased transportation and import costs for the products we sell to our customers.

 

Environmental, social and corporate governance (ESG) issues, including those related to climate change and sustainability, may have an adverse effect on our business, financial condition and results of operations and damage our reputation.

 

There is an increasing focus from certain investors, customers, consumers, employees and other stakeholders concerning ESG matters. Additionally, public interest and legislative pressure related to public companies’ ESG practices continue to grow. If our ESG practices fail to meet regulatory requirements or investor, customer, consumer, employee or other stakeholders’ evolving expectations and standards for responsible corporate citizenship in areas including environmental stewardship, support for local communities, board of director and employee diversity, human capital management, employee health and safety practices, product quality, supply chain management, corporate governance and transparency, our reputation, brand and employee retention may be negatively impacted, and our customers and suppliers may be unwilling to continue to do business with us. See “Company Information—Environment, Social and Governance.”

 

Customers, consumers, investors and other stakeholders are increasingly focusing on environmental issues, including climate change, energy and water use, plastic waste and other sustainability concerns. Concern over climate change may result in new or increased legal and regulatory requirements to reduce or mitigate impacts to the environment. Changing customer and consumer preferences or increased regulatory requirements may result in increased demands or requirements regarding plastics and packaging materials, including single-use and non-recyclable plastic products and packaging, other components of our products and their environmental impact on sustainability, or increased customer and consumer concerns or perceptions (whether accurate or inaccurate) regarding the effects of substances present in certain of our products. Complying with these demands or requirements could cause us to incur additional manufacturing, operating or product development costs.

 

If we do not adapt to or comply with new regulations, or fail to meet evolving investor, industry or stakeholder expectations and concerns regarding ESG issues, investors may reconsider their capital investment in our Company, and customers and consumers may choose to stop purchasing our products, which could have a material adverse effect on our reputation, business or financial condition.

 

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Our products are subject to federal, state and international regulations that could have a material adverse effect on our business, prospects, results of operations, financial condition and/or cash flows.

 

Our business is subject to numerous laws, regulations and trade policies. We are subject to regulation by the FTC and the FDA in the U.S., as well as various other federal, state, local and foreign regulatory authorities, including those in the countries in which the Company operates. Our facility located in Queretaro, Mexico is registered with the FDA as a drug manufacturing establishment, permitting the manufacture of cosmetics and other beauty-care products that contain over-the-counter drug ingredients, such as sunscreens, anti-perspirant deodorants and anti-dandruff hair-care products. Regulations in the U.S., the EU, Canada and other countries in which we operate are designed to protect consumers or the environment, such as regulations enacted to address the impacts of climate change, have an increasing influence on our product claims, ingredients and packaging. To the extent federal, state, local and/or foreign regulatory changes occur in the future, whether due to changes in applicable laws or regulations or evolving interpretations and enforcement policies by regulatory authorities, they could require us to reformulate or discontinue certain of our products or revise its product packaging or labeling, any of which could result in, among other things, increased our costs, delays in product launches, product returns or recalls and lower net sales, and therefore could have a material adverse effect on our business, prospects, results of operations, financial condition and/or cash flows

 

Risks Related to Mexico

 

Since more that 90% our operations are concentrated in Mexico, economic developments in Mexico may adversely affect our business and results of operations.

 

Currently, almost all of our operations are conducted, and almost all of our customers are located, in Mexico. Accordingly, our ability to raise revenues, our financial condition and results of operations are substantially dependent on the economic conditions prevailing in Mexico. As a result, our business may be significantly affected by the Mexican economy’s general condition, by the depreciation of the Mexican peso, by inflation and high interest rates in Mexico, or by political developments in Mexico. Declines in growth, high rates of inflation and high interest rates in Mexico have a generally adverse effect on our operations. If inflation in Mexico increases while economic growth slows, our business, results of operations and financial condition will be affected. In addition, high interest rates and economic instability could increase our costs of financing. For the years ended December 31, 2021, and 2022, GDP increased 4.8% and decreased to 3.1%, respectively.

 

During 2022, Mexico’s sovereign debt rating has been confirmed and a stable outlook has been maintained. We cannot ensure that the rating agencies will not announce an outlook revision and/or any downgrades of Mexico or any of its state owned companies. These revisions and downgrades could adversely affect the Mexican economy and, consequently, our business, financial condition, operating results and prospects.

 

In the event that the Mexican economy continues to experience a deterioration of economic conditions such as rising inflation, additional interest rate increases, downgrade of sovereign debt, among other factors, the activities, financial situation, operating results, cash flows and/or prospects of the Group, could be adversely and significantly affected.

 

Developments in other countries could materially affect the Mexican economy and, in turn, our business, financial condition and results of operations.

 

Mexico’s economy is vulnerable to global market downturns and economic slowdowns. The global economy, including Mexico’s economy, has been materially and adversely affected by a significant lack of liquidity, disruption in the credit markets, reduced business activity, rising unemployment, interest rates changes and erosion of consumer confidence during the global pandemic and its effects. This situation has had a direct adverse effect on the purchasing power of our customers in Mexico. The macroeconomic environment in which we operate is beyond our control, and the future economic environment may continue to be less favorable than in recent years. There is no assurance of a strong economic recovery or that the current economic conditions will ameliorate. The risks associated with current and potential changes in the Mexican economy are significant and could have a material adverse effect on our business and results of operations.

 

The market prices of securities issued by companies with Mexican operations are affected to varying degrees by the economic and market situation in other places, including the United States, China, the rest of Latin America and other countries with emerging markets. Therefore, investors’ reactions to events in any of these countries could have an adverse effect on the market price of securities issued by companies with Mexican operations. Past economic crises that have occurred in the United States, China or in countries with emerging markets could cause a decrease in the levels of interest in the securities issued by companies with Mexican operations.

 

In the past, the emergence of adverse economic conditions in other emerging countries has led to capital flight and, consequently, to decreases in the value of foreign investments in Mexico. The financial crisis that arose in the United States during the third quarter of 2008, unleashed a global recession that directly and indirectly affected the economy and the Mexican stock markets and caused, among other things, fluctuations in purchase prices the sale of securities issued by publicly traded companies, shortage of credit, budget cuts, economic slowdowns, volatility in exchange rates, and inflationary pressures.

 

Financial problems or an increase in risk related to investment in emerging economies or a perception of risk could limit foreign investment in Mexico and adversely affect the Mexican economy. Mexico has historically experienced uneven periods of economic growth and the economy as a whole has recently been adversely affected by the current expectation of a recession or slowdown in the United States and other countries’ economies. There can be no assurance that the overall business environment in which we operate will improve and we cannot predict the impact any future economic downturn could have on our results of operations and financial condition. However, consumer demand generally decreases during economic downturns, which will negatively affect our business and results of operations.

 

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The political situation in Mexico could negatively affect our operating results.

 

Mexican political events may significantly affect our business operations. As of this date, the president’s political party and its allies hold a majority in the Chamber of Deputies and the Senate and a strong influence in various local legislatures. The federal administration has significant power to implement substantial changes in law, policy and regulations in Mexico, including Constitutional reforms, which could negatively affect our business, results of operations, financial condition and prospects. We cannot predict whether potential changes in Mexican governmental and economic policy could adversely affect Mexico’s economic conditions or the sector in which we operate. We cannot provide any assurances that political developments in Mexico, over which we have no control, will not have an adverse effect on our business, results of operations, financial condition and prospects.

 

After the mid-term elections held on June 6, 2021, the political party Movimiento Regeneración Nacional (National Regeneration Movement, or “Morena”) lost the absolute majority in the Cámara de Diputados (Chamber of Deputies) that it had held since 2018. However, Morena continues to hold the most seats relative to any other political party. In July 2024, federal elections will be held in Mexico to elect new president and both houses of congress. We cannot predict the impact that political developments in Mexico will have on the Mexican economy nor can provide any assurances that these events, over which we have no control, will not have an adverse effect on our business, financial condition and results of operations.

 

The Mexican federal government has made significant changes to policies and regulations and may continue to do so in the future. For instance, the Mexican federal government drastically cut spending for the 2019 budget and it may cut spending in the future which may adversely affect economic growth. On July 2, 2019, the new Mexican Federal Republican Austerity Law (Ley Federal de Austeridad Republicana) was approved by the Mexican Senate. Federal government actions, such as those implemented to control inflation, federal spending cuts and other regulations and policies may include, among other measures, increases in interest rates, changes in tax policies, price controls, currency devaluations, capital controls and limits on imports. Our business, financial condition and results of operations may be adversely affected by changes in governmental policies or regulations involving or affecting our management, operations and tax regime.

 

We cannot predict the impact that economic, social and political instability in or affecting Mexico could adversely affect our business, financial condition and results of operations, as well as market conditions and prices of our securities. These and other future developments, over which we have no control, in the Mexican economic, political or social environment may cause disruptions to our business operations and decreases in our sales and net income.

 

Currency exchange rate fluctuations, particularly with respect to the US dollar/Mexican peso exchange rate, could lower margins.

 

The value of the Mexican peso has been subject to significant fluctuations with respect to the U.S. dollar in the past and may be subject to significant fluctuations in the future. Historically, BWM has been able to raise their prices generally in line with local inflation, thereby helping to mitigate the effects of devaluations of the Mexican peso. However, BWM may not be able to maintain this pricing policy in the future, or future exchange rate fluctuations may have a material adverse effect on our ability to pay suppliers.

 

Given Betterware’s inability to predict the degree of exchange rate fluctuations, it cannot estimate the effect these fluctuations may have upon future reported results, product pricing or our overall financial condition. Although we attempt to reduce our exposure to short-term exchange rate fluctuations by using foreign currency exchange contracts, it cannot be certain that these contracts or any other hedging activity will effectively reduce exchange rate exposure. In particular, BWM currently employs a hedging strategy comprised of forwards U.S. dollar–Mexican peso derivatives that are designed to protect us against devaluations of the Mexican peso. The hedging contracts cover 100% of the home organization product needs until August 2023. In addition, we generally purchase our hedging instruments on a rolling twelve-month basis; instruments protecting it to the same or a similar extent may not be available in the future on reasonable terms. Unprotected declines in the value of the Mexican peso against the U.S. dollar will adversely affect our ability to pay our dollar-denominated expenses, including our supplier obligations.

 

Any adverse changes in our business operations in Mexico would adversely affect our revenue and profitability.

 

The following factors, among others, could harm our business in Mexico:

 

worsening economic conditions, including a recession in the United States and/or Mexico;

 

fluctuations in currency exchange rates and inflation;

 

longer collection cycles;

 

potential adverse changes in tax laws or price controls;

 

changes in labor conditions;

 

burdens and costs of compliance with a variety of laws;

 

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political, social and economic instability;

 

increases in taxation; and

 

outbreaks of disease and health epidemics, such as the COVID-19 pandemic.

 

Economic and political developments in Mexico and the United States may adversely affect Mexican economic policy.

 

The U.S. economy heavily influences the Mexican economy, and therefore, the deterioration of the United States’ economy, the termination of the United States-Mexico-Canada trade agreement (“USMCA)”, claims or disputes thereunder or other related events may impact the economy of Mexico. Economic conditions in Mexico have become increasingly correlated to economic conditions in the United States as a result of the North American Free Trade Agreement (“NAFTA”), and, subsequently, the USMCA, which has induced higher economic activity between the two countries and increased the remittance of funds from Mexican immigrants working in the United States to Mexican residents. On an annual basis, as of 2022, close to 81% of Mexico’s total exports are purchased by the United States, the single country with the highest share of trade with Mexico. Due to its recent entry into force, it is currently unclear what the results of the USMCA and its implementation will be. The new terms of the USMCA could have an impact on Mexico’s economy generally and job creation in Mexico, which could significantly adversely affect our business, financial performance and results of operations.

 

Likewise, any action taken by the current U.S. or Mexico administrations, including changes to the USMCA and/or other U.S. government policies that may be adopted by the U.S. administration, could have a negative impact on the Mexican economy, such as reductions in the levels of remittances, reduced commercial activity or bilateral trade or declining foreign direct investment in Mexico. In addition, increased or perceptions of increased economic protectionism in the United States, Mexico and other countries could potentially lead to lower levels of trade and investment and economic growth, which could have a similarly negative impact on the Mexican economy. These economic and political consequences could adversely affect our business, operating results and financial condition.

 

We cannot make assurances that any events in the United States or elsewhere will not materially and adversely affect us.

 

Mexico is an emerging market economy, with attendant risks to our results of operations and financial condition.

 

The Mexican government has exercised, and continues to exercise, significant influence over the Mexican economy. Accordingly, Mexican governmental actions concerning the economy and state-owned enterprises could have a significant impact on Mexican private sector entities in general, as well as on market conditions, prices and returns on Mexican securities. The national elections held on July 2, 2018 ended six years of rule by the Institutional Revolutionary Party or PRI with the election of President Andres Manuel Lopez Obrador, a member of the Morena Party, and resulted in the increased representation of opposition parties in the Mexican Congress and in mayoral and gubernatorial positions. Multiparty rule is still relatively new in Mexico and could result in economic or political conditions that could materially and adversely affect our operations. We cannot predict the impact that this new political landscape will have on the Mexican economy. Furthermore, our financial condition, results of operations and prospects and, consequently, the market price for our shares, may be affected by currency fluctuations, rising inflation, rising interest rates, price controls, regulation, taxation, social instability and other political, social and economic developments in or affecting Mexico.

 

The Mexican economy in the past has suffered balance of payment deficits and shortages in foreign exchange reserves. There are currently no exchange controls in Mexico; however, Mexico has imposed foreign exchange controls in the past. Pursuant to the provisions of the United States-Mexico-Canada Agreement, if Mexico experiences serious balance of payment difficulties or the threat thereof in the future, Mexico would have the right to impose foreign exchange controls on investments made in Mexico, including those made by U.S. and Canadian investors.

 

Securities of companies in emerging market countries tend to be influenced by economic and market conditions in other emerging market countries. Emerging market countries, including Argentina and Venezuela, have recently been experiencing significant economic downturns and market volatility. These events could have adverse effects on the economic conditions and securities markets of other emerging market countries, including Mexico.

 

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investments in Mexican companies entail substantial risk; the Mexican government has exercised, and continues to exercise, an important influence on the Mexican economy

 

Investments in Mexico carry significant risks, including the risk of expropriation or nationalization laws being enacted or imposing exchange controls, price controls, taxes, inflationary, hyperinflationary, exchange rate risk, credit risk, among other governmental or political restrictions. We are incorporated under the laws of Mexico and most of our operations and assets are located in Mexico. As a consequence of the foregoing, our financial situation and operating results could be negatively affected.

 

The Mexican government has exercised, and continues to exercise, a strong influence on the country’s economy. Consequently, Mexican federal government actions and policies related to the economy, state-owned and controlled companies, and financial institutions financed or influenced, could have a significant impact on private sector entities in general, including us, in particular and on market conditions, prices and returns on Mexican securities, including counterparty risk. The Mexican federal government has made major policy and regulatory changes and may do so again in the future. Actions to control inflation and other regulations and policies have involved, among other measures, an increase in interest rates, changes in fiscal policies, price controls, currency devaluations, capital controls and limits on imports. Tax and labor legislation, in particular, in Mexico is subject to continuous change, and we cannot guarantee that the Mexican government will maintain current economic or other policies in force or if any the changes to such laws and policies would have a material adverse effect on us or on our financial performance. The measures adopted by the government could have a significant effect on private sector entities in general, as well as on the market situation and on the price of our shares.

 

Additionally, the Mexican federal government has implemented protectionist policies in the past and could implement certain national policies in the future that could restrict our operations, including restrictions on imports from certain countries.

 

Mexico may experience high levels of inflation in the future, which could affect our results of operations.

 

Historically, inflation in Mexico has led to higher interest rates, depreciation of the Mexican peso and the imposition of substantial government controls over exchange rates and prices. The annual rate of inflation for the last three years, as measured by changes in the Mexican National Consumer Price Index (Índice Nacional de Precios al Consumidor), as provided by INEGI and as published by Banco de México, was 3.2% in 2020, 7.4% in 2021 and 8.03% in 2022. If Mexico experiences high levels of inflation as it has in the past, these might adversely affect our operations and financial performance. For example, during 2021, due to inflation effects, our business was impacted by a sluggish consumer in Mexico and by external factors related to cost pressures and supply chain disruptions prevailing globally.

 

In addition, increased inflation would raise our cost of funding, which we may not be able to fully pass on to our customers, given that doing so could adversely affect our business. Our financial condition and profitability may be adversely affected by the level of, and fluctuations in, interest rates, which affect our ability to earn a spread between the interest received on our loans or the rentals and fees charged on our leases and the cost of our funding. Although we have taken measures to minimize the potential impact of inflation by ensuring that the majority of our liabilities have fixed interest rates, if the rate of inflation increases or becomes uncertain and unpredictable, our business, financial condition and results of operations could be adversely affected.

 

Security violence risks in Mexico could increase, and this could adversely affect our results.

 

Mexico is currently experiencing high levels of violence and crime due to, among others, the activities of organized crime. Despite the measures adopted by the Mexican government efforts, organized crime (especially drug-related crime) continues to exist and operate in Mexico. These activities, their possible escalation and the violence associated with them have had and may have a negative impact on the Mexican economy or on our operations in the future. The presence of violence among drug cartels, and between these and the Mexican law enforcement and armed forces, or an increase in other types of crime, pose a risk to our business, and might negatively impact business continuity.

 

The regulatory environment in which we operate is evolving, and our operations may be modified or otherwise harmed by regulatory changes, subjective interpretations of laws or an inability to work effectively with national and local government agencies.

 

Although our reviews applicable local laws in developing our plans, our efforts to comply with them may be harmed by an evolving regulatory climate and subjective interpretation of laws by the authorities. Any determination that our operations or activities are not in compliance with applicable regulations could negatively impact our business and our reputation with regulators in the markets in which we operate.

 

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Laws and regulations may restrict our direct sales efforts and harm our revenue and profitability.

 

Various government agencies throughout the world regulate direct sales practices. These laws and regulations are generally intended to prevent fraudulent or deceptive schemes, often referred to as “pyramid” schemes, that compensate participants for recruiting additional participants irrespective of product sales and/or which do not involve legitimate products. The laws and regulations in our current markets often:

 

impose on it order cancellations, product returns, inventory buy-backs and cooling-off rights for consumers, distributors, leaders and consultants;

 

require us or our distributors, leaders and consultants to register with governmental agencies;

 

impose on it reporting requirements to regulatory agencies; and/or

 

require it to ensure that distributors, leaders and consultants are not being compensated solely based upon the recruitment of new of them.

 

Complying with these sometimes inconsistent rules and regulations can be difficult and requires the devotion of significant resources on the Group’s part.

 

In addition, Mexico could change its laws or regulations to negatively affect or prohibit completely network or direct sales efforts. Government agencies and courts in Mexico may also use their powers and discretion in interpreting and applying laws in a manner that limits our ability to operate or otherwise harms our business. If any governmental authority were to bring a regulatory enforcement action against the Group that interrupts our business, our revenue and earnings would likely suffer.

 

You may have difficulty enforcing your rights against Betterware and our directors and executive officers.

 

Betterware is a company incorporated in Mexico. Most of our directors and executive officers are non-residents of the U.S. You may be unable to effect service of process within the U.S. on Betterware, its directors and executive officers. In addition, as all of our assets and substantially all of the assets of our directors and executive officers are located outside of the U.S., you may be unable to enforce against BWM and our directors and executive officers’ judgments obtained in the U.S. courts, including judgments predicated upon civil liability provisions of the U.S. federal securities laws or state securities laws. There is also doubt as to the enforceability, in original actions in Mexican courts, of liabilities including those predicated solely on U.S. federal securities laws and as to the enforceability in Mexican courts of judgments of U.S. courts obtained in actions, including those predicated upon the civil liability provisions of U.S. federal securities laws. There is no bilateral treaty currently in effect between the United States and Mexico that covers the reciprocal enforcement of civil foreign judgments. In the past, Mexican courts have enforced judgments rendered in the United States by virtue of the legal principles of reciprocity and comity, consisting of the review in Mexico of the United States judgment, in order to ascertain, among other matters, whether Mexican legal principles of due process and public policy (orden público) have been complied with, without reviewing the merits of the subject matter of the case.

 

Risks Related to Ownership of our Ordinary Shares

 

As a “foreign private issuer” under the rules and regulations of the SEC, Betterware is permitted to, and is expected to, file less or different information with the SEC than a company incorporated in the United States or otherwise subject to these rules and is expected to follow certain home country corporate governance practices in lieu of certain Nasdaq requirements applicable to U.S. issuers.

 

Betterware is considered a “foreign private issuer” under the Securities Exchange Act (the “Exchange Act”) and therefore exempt from certain rules under the Exchange Act, including the proxy rules, which impose certain disclosure and procedural requirements for proxy solicitations for U.S. and other issuers. Moreover, the Group is not required to file periodic reports and financial statements with the SEC as frequently or within the same time frames as U.S. companies with securities registered under the Exchange Act. We currently prepare our financial statements in accordance with IFRS. The Group is not required to file financial statements prepared in accordance with or reconciled to U.S. GAAP so long as our financial statements are prepared in accordance with IFRS. The Group is not required to comply with Regulation FD, which imposes restrictions on the selective disclosure of material information to shareholders. In addition, BWM’s officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions of Section 16 of the Exchange Act and the rules under the Exchange Act with respect to their purchases and sales of Company securities.

 

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In addition, as a “foreign private issuer” whose shares are listed on Nasdaq, the Company is permitted to, and is expected to, follow certain home country corporate governance practices in lieu of certain Nasdaq requirements. A foreign private issuer must disclose in its annual reports filed with the SEC each Nasdaq requirement with which it does not comply followed by a description of its applicable home country practice. As a Mexican corporation listed on Nasdaq, the Company is expected to follow our home country practice with respect to the composition of the board of directors and nominations committee and executive sessions. Unlike the requirements of Nasdaq, the corporate governance practices and requirements in Mexico do not require the Company to (i) have a majority of its board of directors to be independent, (ii) establish a nominations committee, and (iii) hold regular executive sessions where only independent directors shall be present. Such home country practices of Mexico may afford less protection to holders of Company shares than under U.S. standards.

 

The Company could lose its status as a “foreign private issuer” under current SEC rules and regulations if more than 50% of the Company’s outstanding voting securities become directly or indirectly held of record by U.S. holders and one of the following is true: (i) the majority of the Company’s directors or executive officers are U.S. citizens or residents; (ii) more than 50% of the Company’s assets are located in the United States; or (iii) the Company’s business is administered principally in the United States. If the Company loses its status as a foreign private issuer in the future, it will no longer be exempt from the rules described above and, among other things, will be required to file periodic reports and annual and quarterly financial statements as if it were a company incorporated in the United States. If this were to happen, the Company would likely incur substantial costs in fulfilling these additional regulatory requirements and members of the Company’s management would likely have to divert time and resources from other responsibilities to ensuring these additional regulatory requirements are fulfilled.

 

If securities or industry analysts do not publish or cease publishing research or reports about Betterware, our business, or markets, or if they change their recommendations regarding the Company shares adversely, the price and trading volume of the Company shares could decline.

 

The trading market for the Company shares is influenced by the research and reports that industry or securities analysts may publish about the Company, our business, market or competitors. Securities and industry analysts do not currently, and may never, publish research on the Company. If no securities or industry analysts commence coverage of the Company, the price and trading volume of the Company shares would likely be negatively impacted. If any of the analysts who may cover the Company change their recommendation regarding the Company shares adversely, or provide more favorable relative recommendations about the Company’s competitors, the price of the Company shares would likely decline. If any analyst who may cover the Company were to cease coverage of the Company or fail to regularly publish reports on it, the Company could lose visibility in the financial markets, which in turn could cause our share price or trading volume to decline.

 

There can be no assurance that Betterware will be able to comply with the continued listing standards of Nasdaq.

 

Betterware’s shares are listed on Nasdaq under the symbol “BWMX.” If Nasdaq delists the Company’s securities from trading on its exchange for failure to meet the listing standards, the Company and its shareholders could face significant material adverse consequences including:

 

a limited availability of market quotations for the Company’s securities;

 

a determination that the Company shares are “penny stock” which will require brokers trading in the Company shares to adhere to more stringent rules, possibly resulting in a reduced level of trading activity in the secondary trading market for the Company shares;

 

a limited amount of analyst coverage; and

 

a decreased ability to issue additional securities or obtain additional financing in the future.

 

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If Betterware is characterized as a passive foreign investment company, or a PFIC, adverse U.S. federal income tax consequences may result for U.S. holders of Company shares.

 

Based on the projected composition of our income and assets, including goodwill, it is not expected that the Company will be a PFIC for the foreseeable future. However, the tests for determining PFIC status are applied annually after the close of the taxable year, and it is difficult to predict accurately future income and assets relevant to this determination. Accordingly, there can be no assurance that the Company will not be considered a PFIC for any taxable year.

 

If the Company is a PFIC for any year during which a U.S. holder holds Company shares, a U.S. holder generally would be subject to additional taxes (including taxation at ordinary income rates and an interest charge) on any gain realized from a sale or other disposition of the Company shares and on any “excess distributions” received from the Company. Certain elections may be available that would result in alternative treatments of the Company shares.

 

We urge U.S. holders to consult their own tax advisors regarding the possible application of the PFIC rules to the ownership of Company shares.

 

An investor may be subject to adverse U.S. federal income tax consequences in the event the IRS were to disagree with the U.S. federal income tax consequences described herein.

 

The Tax Cuts and Jobs Act of 2017, or the TCJA, was signed into law on December 22, 2017. The TCJA changes many of the U.S. corporate and international tax provisions, and certain of the provisions are unclear. No ruling has been or will be requested from the IRS as to any U.S. federal income tax consequences described herein. The IRS may disagree with the descriptions of U.S. federal income tax consequences contained herein, and its determination may be upheld by a court. Any such determination could subject an investor or the Company to adverse U.S. federal income tax consequences that would be different than those described herein. Accordingly, each prospective investor is urged to consult a tax advisor with respect to the specific tax consequences of the acquisition, ownership and disposition of DD3’s or the Company’s securities, including the applicability and effect of state, local or non-U.S. tax laws, as well as U.S. federal tax laws.

 

The Amended and Restated Charter of Betterware provides for the exclusive jurisdiction of the federal courts in Mexico City, Mexico for substantially all disputes between the Company and its shareholders, which could limit Company shareholders’ ability to obtain a favorable judicial forum for disputes with the Company or its directors, officers, other employees or shareholders.

 

The Amended and Restated Charter of the Company provides for the exclusive jurisdiction of the federal courts located in Mexico City, Mexico for the following civil actions:

 

any action between the Company and its shareholders; and

 

any action between two or more shareholders or groups of shareholders of the Company regarding any matters relating to the Company.

 

This exclusive jurisdiction provision may limit a shareholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with the Company or any of its directors, officers, other employees or shareholders, which may discourage lawsuits with respect to such claims, although the Company’s shareholders will not be deemed to have waived the Company’s compliance with U.S. federal securities laws and the rules and regulations thereunder applicable to foreign private issuers. Alternatively, if a court were to find the exclusive jurisdiction provision contained in the Amended and Restated Charter to be inapplicable or unenforceable in an action, the Company may incur additional costs associated with resolving such action in other jurisdictions, which could harm the Company’s business, operating results and financial condition. The exclusive jurisdiction provision would not prevent derivative shareholder actions based on claims arising under U.S. federal securities laws from being raised in a U.S. court and would not prevent a U.S. court from asserting jurisdiction over such claims. However, there is uncertainty whether a U.S. court would enforce the exclusive jurisdiction provision for actions for breach of fiduciary duty and other claims.

 

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The anti-takeover protections included in our Bylaws and others provided under Mexican Law may deter potential acquirors.

 

Our bylaws provide that, subject to certain exceptions as explained below, prior written approval from the board of directors shall be required for any person, or group of persons to acquire, directly or indirectly, any of our common shares or rights to our common shares, by any means or under any title whether in a single event or in a set of consecutive events, such that its total shares or rights to shares would represent 20% or more of our outstanding shares.

 

These provisions could make it substantially more difficult for a third party to acquire control of us. These provisions in our bylaws may discourage certain types of transactions involving the acquisition of our securities. These provisions could discourage transactions in which our shareholders might otherwise receive a premium for their shares over the then current market price. Holders of our securities who acquire shares in violation of these provisions will not be able to vote, or receive dividends, distributions or other rights in respect of, these securities and would be obligated to pay us a penalty. For a description of these provisions, see “Item 10. Additional Information—Bylaws——Anti-takeover Protections.”

 

ITEM 4. INFORMATION ON THE COMPANY

 

The Company makes its filings in electronic form under the EDGAR filing system of the SEC. Our filings are available through the EDGAR system at www.sec.gov. The Company’s filings are also available to the public through the Internet at our website at https://investors.betterware.com.mx. Such filings and other information on our website are not incorporated by reference in this annual report. Interested parties may request a copy of this filing, and any other report, at no cost, by writing to the following email address: ir@better.com.mx.

 

A.HISTORY AND DEVELOPMENT OF THE COMPANY

 

Founded in 1995, Betterware is a leading direct-to-costumer company in Mexico. Betterware is focused on the home organization segment, with a wide product portfolio including home solutions, kitchen and food preservation, technology and mobility, among other categories.

 

On August 2, 2019, DD3 entered into a Combination and Stock Purchase Agreement with Sellers, Betterware, BLSM, pursuant to which DD3 agreed to merge with and into Betterware in a Business Combination. See “The Business Combination.”

 

In August 2019, Betterware started building a distribution center which was completed in the first quarter of 2021. As of December 2022, the total investment amounted to Ps.1,108,458.

 

On March 13, 2020, the Merger with DD3 was closed and consummated.

 

On December 14, 2020, the Forteza Merger was closed and consummated.

 

On August 2, 2021, Betterware’s corporate name changed from Betterware de México, S.A.B. de C.V. to Betterware de México, S.A.P.I. de C.V.

 

On August 30, 2021, we completed an offering of a two-tranche sustainability bond issuance for a total of Ps.1,500,000, with maturities across 4 and 7 years, offered in the Mexican Market. See” Indebtedness—Long Term Bond Offering.”

 

On January 18, 2022, we entered into a share purchase agreement to acquire 100% of JAFRA’s operations in Mexico and the United States. The transaction was consummated on April 7, 2022. See “—Presentation of Financial Information—The JAFRA Acquisition—Organizational Structure.” JAFRA is a leading global brand in direct sales in the beauty and personal care (B&PC) industry with a strong presence in Mexico and the United States founded in 1956.

 

B.BUSINESS OVERVIEW

 

We are a leading company in the direct sales industry, offering a product portfolio divided two segments:

 

  Home organization segment (BWM) integrated by six different categories: kitchen and food preservation, home solutions, bathroom, laundry & cleaning, tech and mobility and bedroom. For the 2022 period, this segment represented 55.1% of our net revenue in a consolidated basis.

 

  Beauty and personal care (B&PC) segment (JAFRA) integrated by four main categories: fragrance, color, skin care and toiletries. For the 2022 period, this segment represented 44.9% of our net revenue in a consolidated basis.

 

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Home Organization Segment (BWM):

 

Betterware is a leading direct-to-customer company in Mexico. Our home organization segment is focused on creating innovative products that solve specific needs regarding organization, practicality, space-saving and hygiene within the household, with a wide product portfolio including home solutions, kitchen and food preservation, technology and mobility, bedroom, bathroom, laundry and cleaning and other categories that include products and solutions for every corner of the household.

 

Our home organization segment’s products are sold through monthly catalogues published throughout the year. During 2022, BWM launched 568 new products (compared to 338 during 2021), with a balance of 397 new developments (compared to 281 during 2021) and 171 bring-backs (compared to 57 during 2021). Despite the 6.4% reduction in the number of “Stock Keeping Unit” (SKU’s) displayed per catalogue (driven by change to monthly catalogues), increased innovation allowed Betterware to exhibit more than 3,800 SKU’s throughout the year (achieving a 12% growth compared to 3,395 during 2021). All of our home organization’s products are branded with unique characteristics and manufactured by +365 certified manufactures in China and México, and then delivered to BWM’s warehouse in Guadalajara, Jalisco where we process and pack the products.

 

We sell our home organization segment’s products through a unique two-tier sales model., As of December 31, 2022, more than 39,413 distributors and 778,845 associates across Mexico, who serve + 23% household penetration in Mexico; and 79% of distributors and 28% of associates place orders every week. Our distributors and associates are monitored tightly through an in-house developed business intelligence platform that tracks weekly performance and has a detailed mapping system of the country to identify potential areas to penetrate and increase the network.

 

Our home organization segment business model is tailored to Mexico’s unique geographic, demographic and economic dynamics, where communities are small and scattered across the country, with very low retail penetration and difficult to fulfill last mile logistics. Additionally, our business model is resilient to economic downturns and seasonal fluctuations given low average sales price to consumers.

 

We have a zero last mile cost, because our distributors and associates deliver our products to final consumers, which means that our state-of-the-art infrastructure allows us to safely deliver products to every part of the country in a timely and efficient manner. Our infrastructure is backed by the strategic location of our distribution center in Jalisco, Mexico.

 

Supported by our top-notch product innovation, business intelligence and technology units, which provide daily monitoring of key metrics and product intelligence, our home organization product segment has been able to achieve sustainable double-digit growth rates by successfully expanding our household penetration.

 

Beauty and Personal Care Segment (JAFRA)

 

Our beauty and personal care segment has a portfolio of more than 500 products within four main categories: fragrances, color, skin care and toiletries. JAFRA has been leader in the fragrance market since 2015. In 2022, our beauty and personal care segment’s products were sold through 12 promotional catalogues published on a monthly basis offering 300 products in average per catalogue, as well as a brochure with annually available products at regular price. JAFRA develops approximately 200 new products in average for all categories every year.

 

Almost all of our beauty and personal care segment’s products are produced in our facility located in Queretaro, México and distributed across Mexico and in some cities of the United States through our distribution center located in Lerma, Mexico. Our beauty and personal care segment’s products are sold through a generational multilevel model, reaching more than 7,500 cities in Mexico.

 

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Industry Overview

 

We operate under “Direct selling” retail industry. The direct selling industry differs from broader retail mainly in the avenue where entrepreneurial-minded individuals can work independently to build a business with low start-up and overhead costs.

 

Our direct selling representatives as distributors, leaders and consultants, are not employees of the Company and work on their own, retaining their freedom to run a business and have other sources of income.

 

Our independent distributors, leaders and consultants earn sales commissions as a freelancer. They set their own hours, create their own marketing plans, determine whether to build a sales team and how to mentor those within it and how to serve their customers.

 

Competitive Strengths

 

Unique Business Intelligence and Data Analytics Unit

 

Our in-house business intelligence unit plays a crucial role within the operations and strategy of the Company. The unit’s team is comprised of geographers, anthropologists, actuaries, among others, in order to diversify the way of thinking and create the best analyses and business strategies.

 

The main functions of the business intelligence unit are:

 

1.Clear strategy development;

 

2.Tight monitoring; and

 

3.Product intelligence.

 

Product Development and Innovation Program

 

We offer a product portfolio with great depth in:

 

Øthe home organization segment through six different categories: kitchen and food preservation, home solutions, bathroom, laundry & cleaning, tech and mobility and bedroom, and

 

Øthe beauty and personal care segment through four different categories: fragrances, color, skin care and toiletries.

 

We update our catalogues content and focus on constant product innovation and incentive plans in order to attract clients’ repeated purchases.

 

We perform industry analyses and product development and monitoring to support and decide our commercial strategy.

 

Distributors, Associates, Leaders and Consultants Network & Loyalty and Reward Programs

 

Our home organization segment has a unique two-tier sales model and one of the most robust networks with more than 39,413 distributors and 778,845 associates as of December 31, 2022.

 

Our home organization segment’s distributors and associates serve around 23% Household Penetration in Mexico and 79% of distributors and 28% of associates place orders every week.

 

Our beauty and personal care segment has a multilevel program, with 10 levels of seniority determined by the amount of sales and consultants they have, offering attractive benefits and incentives. As of December 31, 2022, we had a network of more than 21,385 leaders and 492,191 consultants.

 

Our beauty and personal care segment has one of the biggest distribution networks of leaders and consultants in Mexico reaching more than 7,500 cities. Also, 92% of leaders and 54% of consultants place orders on a monthly basis.

 

We have a rewards program intended to attract, retain, and motivate distributors, associates, leaders and consultants through product discounts, points, trips, gifts and more.

 

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Unparalleled Logistics and Supply Chain Platform

 

Our home organization segment’s products are manufactured by more than 365 third-party certified factories located in China and Mexico following BWM’s quality standards. All of our beauty and personal care segment’s products are internally manufactured in our facility located in Queretaro, Mexico.

 

Experienced Management & Meritocratic Culture

 

Our Board Chairman, Mr. Luis Campos, has more than 30 years of experience in the direct-to-consumer selling sector across the Americas and a strong track record of delivering value to its shareholders with commitment to excellence.

 

Top management has worked at the Company, in average, seven years.

 

Our culture is based on the following principles:

 

1.Result driven management:

 

Incentives based on results; and

 

Highly professional operation and no bureaucracy.

 

2.Meritocratic culture:

 

Culture focused on solutions, delivery, discipline and commitment.

 

3.Closeness to salesforce:

 

Management is close and visible to distributors, associates, leaders and consultants; and

 

Open office spaces for efficient flow of information and data allows fast decision making.

 

Expansion Strategy

 

We have a plan for growth, which includes organic and inorganic initiatives. The main strategies divided by timeline are the following:

 

Short Term

 

1.New product categories;

 

2.Web marketing/E-commerce; and

 

3.Increase service capacity.

 

Medium Term

 

1.New product lines;

 

2.International expansion to North America and Latin America; and

 

3.Strategic business acquisitions.

 

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Customers

 

We are 100% committed to provide products to our customers that serve as everyday solutions for modern space organization and beauty and personal care for all kind of clients. We also have the objective of providing products that are accessible to anyone.

 

Most of our end customers are adult men and women with the desire of optimizing their homes organization and care about beauty and personal care.

 

Sales & Marketing

 

Our main advertising expenditures are sales catalog design and printing expenses, particularly with respect to our catalogues that are delivered to our distributors, associates, leaders and consultants who then distribute them to customers. As of December 31, 2022, sales and marketing expenses represented 3.9% of our net revenue. In addition, another advertising costs includes videos, radio and tv spots, social media, promotional campaigns, marketing campaigns, billboards and transit advertising in bus lines and subways, which as of December 31, 2022, represented 0.5% of our net revenue.

 

Environmental, Social and Governance (ESG)

 

Sustainability events during 2021

 

In 2021, we issued a Ps.1,500 million Sustainable Bond Program to, among other things, acquire certain assets intended to help us achieve a resilient economy with low greenhouse gas emissions. The bond program was also intended to help us developing social projects that meet one or more goals of the Sustainable Development Goals (SDG), established in the 2030 Agenda for Sustainable Development, adopted by the United Nations (UN). These environmental and social impact projects are mainly focused on:

 

Allowing us to reduce electricity and water consumption.

 

Using recyclable materials for construction of our products.

 

Developing products with environmentally friendly packaging.

 

Developing internal tools for measuring our environmental impact.

 

Employment generation through new sources of income.

 

Supporting vulnerable groups and empowering women.

 

Strong relationship with local suppliers.

 

In addition, the financing obtained under such bonds was allocated to finance the construction of the Campus Betterware, which was built to: (i) concentrate activities; (ii) promote care for the environment and the individual well-being of our employees, and (iii) improve life quality of the communities surrounding the Campus.

 

The construction of the Campus respects the ecosystem and took advantage of natural light and ventilation to reduce the environmental footprint. Likewise, we took advantage of the characteristics of the land, and we incorporated local flora species of the place into the outdoor recreation areas.

 

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Some of the environmental friendly practices that were implemented in the construction of the Campus, include:

 

Approximately, 90% of the materials were recyclable materials such as glass and aluminum.

 

Installation of LED lighting throughout the Campus.

 

Insulating materials were used to prevent the walls of the buildings from raising their temperatures, avoiding the excessive use of air conditioners.

 

Installation of drip irrigation systems to take care of the local vegetation.

 

Installation of a nursery to care for endemic trees and plants.

 

We focus and seek to protect labor rights and promote a safe and secure work environment for all workers by increasing the number of workers using Campus Betterware amenities, including a hair salon, infirmary, coffee shop, library, training room, basketball and soccer fields, a gym, laundry, and a meditation garden. On December 14, 2021, Betterware received a Fitwell certification for the “Campus Betterware” project.

 

Sustainability Events during 2022

 

During 2022, we developed a comprehensive “Materiality Assessment” that involved all our stakeholders and followed recognized international standards. In this assessment, we analyzed information from our employees, distributors, associates, leaders, consultants, clients, suppliers, community and investors. This broad focus on our stakeholders gave us a specific materiality matrix that was used to prioritize the key subjects that are material for the Group. We were able to identify our “Sustainable Development Goal” standards (SDGs).

 

In performing the assessment, we followed the “Global Reporting Initiative” standards (GRIs) and the “Sustainability Accountant Standards Board” (SASB).

 

Once we had all the material issues identified, we created a comprehensive ESG model with focus, dimension, and lines of action. Also, this model recognizes specific SDGs that we will focus on within the sustainability strategy. Specifically, we will focus on ten SDGs:

 

 

Strategic Sustainability Model

 

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Within the three ESG’s dimensions, environment, social and governance, we determined several focuses and action lines. We developed a strategic sustainability model around these focuses and action lines.

 

Some of the initiatives that have been developed during 2022 include:

 

Environment:

 

BWM Environment:

 

All the carboard boxes that come from China are recycled and all our catalogs are printed in paper PEFC (Program for the Endorsement of Forest Certification) certified.

 

Around 55% of the collaborators use the collective transport service provided by BWM and 2% is in the carpooling scheme, under which BWM provides money for gas and a preferred parking spaces.

 

We are promoting ECO products so that their participation within our catalog becomes more significant.

 

Twice a year, we deliver an endowment of ecological bags to all its distributors according to their registered associates. The idea of these reusable ecological bags is to replace the distribution of their catalog products using disposable plastic bags, causing less environmental impact.

 

JAFRA environment:

 

Energy efficiency: we have implemented a system that produces heat and electricity simultaneously in a single plant (Co-generation “CHP”), which allows to reduce our greenhouse gas emissions up to 92 tons CO2e annually.

 

Energy saving: we implemented good energy consumption practices such as natural lighting in operational areas and warehouses, use of LED technology for facilities’ lighting, photocells for outdoor lighting, automatic lighting shutdown program and awareness campaigns on the efficient use of electrical energy.

 

Waste reduction and recovery: we have also focused on waste recovery processes, which have allowed to recover more than 90% of the waste generated, reducing the load on landfills, and integrating them into reuse or recycling processes, in addition to the 10% reduction in waste generation for each product produced.

 

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Water saving: good water consumption practices have also been implemented, such as improving the efficiency of the demineralization process, installation of water-saving technologies, reuse of discharge water, treatment of water discharges and awareness campaigns on the efficient use of water. A 19% reduction in drinking water consumption has been achieved for each product produced.

 

Reforest team: JAFRA has reforestation activities, integration of trees and maintenance of species. This activity is conducted through our collaborators and their families in protected areas of the state of Querétaro, Mexico. With this program we have managed to offset carbon emissions, contributing to the conservation of forests, promoting environmental and social awareness among employees and families.

 

Reciclatón & Recolectrón” Programs: consist of collecting waste generated at the collaborators homes (Paper / cardboard / electronics) and offering alternatives for the correct disposal of waste. Due to this program, the waste load in the landfills has been reduced, the percentage of waste use has increased and the culture of recycling in the collaborators had also encouraged.

 

Tapitas por Vidas” Program: In alliance with the civil association “Banco de Tapitas,” we gather and donate plastic lids in support of the fight against childhood cancer. In addition to the important social impact, it is possible to reduce the burden of waste in the landfills of the town and increase the percentage of waste recycling.

 

Social

 

We implemented a platform called “Betterware experts” for use of our distributors with tools and learning programs to increase recruiting of new associates or customers, increase sales and to promote their personal development.

 

Emotional Assistance Program is focused on improving our employee’s, and their direct relatives, life quality through professional advice.

 

Workplace climate survey update. We conduct a survey on employees’ experience (Workplace Climate Survey) that helps us understand better, from the perspective of our employees, which organizational, digital, physical, and interpersonal elements of our company need to be reinforced or developed to offer a positive work experience to our employees.

 

Equal and competitive compensation between women and men and balance in work opportunities and promotions.

 

Daycare in Campus Betterware available for all BWM’s employees to support them during their workday.

 

Governance

 

We promote and encourage full and effective participation of women and equal leadership opportunities at all decision-making levels.

 

Women occupy key positions within the Company, including chief executive officer, chief financial officer, quality and development director, credit and collection director, international commercial director, national sales director, as well as a high number of managers from the different areas of the Company. On March 8, 2023, Silvia Davila was appointed as the first woman to become Independent Board Member of the Company. This action is in line with our commitment to include at least two women in our Board of Directors by 2025.

 

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C.ORGANIZATIONAL STRUCTURE

 

The following diagram depicts the organizational structure of the Group as of the date of this annual report:

 

 

 

D.PROPERTY, PLANT AND EQUIPMENT

 

We own the following properties in Mexico:

 

BWM’s principal executive offices are located in El Arenal, Jalisco, Mexico. We built this facility to concentrate our corporate offices, storage and distribution of our home organization segment activities. The facility was completed in 2021 and the total investment amounted to Ps.1,108 million.

 

JAFRA’s production facility was built in October 2008, and is located in Querétaro, Mexico. All of our beauty and personal care segment’s products are produced in this facility. The total investment amounted to Ps.735 million.

 

JAFRA’s main corporate offices are located in Mexico City, Mexico.

 

As of the date of this annual report, we do not have plans to build, expand or improve any new or existing facilities. We have not identified any environmental issues that may affect our assets.

 

ITEM 4A. UNRESOLVED SEC STAFF COMMENTS

 

We have no unresolved comments from the staff of the SEC with respect to its periodic reports under the Exchange Act.

 

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ITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTS

 

Our discussion and analysis of our results of operations and financial condition are based upon our Audited Consolidated Financial Statements, which have been prepared in accordance with IFRS. Our operating and financial review and prospects should be read in conjunction with our Audited Consolidated Financial Statements, the accompanying notes thereto and other financial information appearing elsewhere in this annual report.

 

A.Operating Results

 

Factors Affecting Our Results of Operations of the Group

 

A number of factors have a significant impact on our business and results of operations, the most important of which are regulations, fluctuations in exchange rates in the currencies in which we operate, external factors, such as the COVID-19 pandemic and our capital investment plans.

 

Betterware’s distributors and associates

 

BWM sells its products through a unique two-tier sales model that is comprised of distributors and associates. Distributors act as link between BWM and the associates. BWM distributes products in a weekly basis to distributors’ domicile, who in turn deliver the products to the associates. BWM provides distributors a two-week credit line for them to pay BWM back the price for the products.

 

JAFRA’s leaders and consultants

 

JAFRA sells its products through a multilevel program with 10 levels of leaders and consultants. Leaders and consultants are the link between JAFRA and final customers. JAFRA provides a 30-day credit line to leaders and consultants to pay JAFRA back for the price of the products.

 

Net Revenue

 

We generate revenue mainly through sale of products within two main segments:

 

ØHome organization segment, under the Betterware® brand. Some of the categories through which Betterware offers its product line include kitchen and food preservation, home solutions, bathroom, laundry & cleaning, tech and mobility and bedroom. BWM’s products are sold through catalogues and are distributed to the end customer by its network of distributors and associates. BWM sells its products to a wide array of customers but focuses on the C and D segments of the Mexico’s socioeconomic pyramid; and

 

ØBeauty and personal care (B&PC) segment, under JAFRA’s brand. Our beauty and personal care segment includes four main categories: fragrance, color, skin care and toiletries. JAFRA’s products are sold through 12 promotional catalogues published on a monthly basis and are distributed to the end customer by its network of leaders and consultants. JAFRA offers monthly promotions focused on the “D” segment of the Mexico’s socioeconomic pyramid.

 

For the year ended December 31, 2022, our revenue increased mainly due to the revenue provided by JAFRA after consummation of the JAFRA Acquisition. For the year ended December 31, 2022, JAFRA contributed with 44.9% of our consolidated net revenue. Results for the year were also ahead of expectations due to positive trends in our sales network and positive results of our strategies since consummation of the JAFRA Acquisition. This was offset by Betterware’s revenue decrease due to a decrease in the number of distributors and associates in our network.

 

We report net revenue, which represents its gross revenue less sales discounts, adjustments and allowances. We also have deferred revenue due to undelivered performance obligations related to the promotional points program as per IFRS 15 “Revenue from Contracts with Customers.” Deferred revenue relates to the accumulated points than distributors, associates, leaders and consultants have gained from their purchases and recruitment of new sales force. They can redeem these points for rewards (furniture, electronics, domestic appliances, among others). Revenue from the points program are recognized when points are actually redeemed and exchanged by distributors, associates, leaders and consultants.

 

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Our revenue is recognized using a five-step model:

 

Identify the contract with client (verbal or written).

 

Identify the performance obligations committed in the contract.

 

Consider the contractual terms and our business model in order to determine the transaction price. The transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer, excluding amounts collected on behalf of third parties.

 

Allocate the transaction price to the performance obligations identified in the contract (generally each distinct good or service), to depict the amount of consideration to which an entity expects to be entitled in exchange for transferring the promised goods or services to the customer.

 

Recognize revenue when or as it satisfies a performance obligation by transferring a good or service to a customer, either at a point in time (when) or over time (as).

 

Cost of Sales

 

Our cost of sales consists of the purchase of raw materials, finished goods, air and maritime freight costs, land freight costs, customs costs, provisions for defective inventory, among others.

 

Selling Expenses

 

Our selling expenses include all costs related to the sale of products, such as printing and design of sales catalogues, packaging materials, events, marketing and advertising, promotional points program expenses, and employee compensation and social contributions. Costs related to sales catalog and rewards or points program products account for most of the weight of total selling expenses.

 

Administrative Expenses

 

Administrative expenses primarily include employees compensation, social contributions and associated expenses. Also, includes research and development, leases, professional services relating to our statutory corporate audit and tax advisory fees, legal fees, outsourcing fees relating to information technology, and corporate site and insurance costs.

 

Distribution Expenses

 

Distribution expenses include the cost to carry the products from distribution centers to the final distributors.

 

Financing Income (Cost)

 

Our financing income (cost) consists primarily of: (i) interest expense and charges in connection with financings, (ii) income derived from investments of excess cash, (iii) loss/gains from foreign exchange changes, and (iv) loss /gains in valuation of derivative financial instruments.

 

Income Taxes

 

We are subject to (i) a 30% income tax rate under Mexican Income Tax Law, (ii) 25% income tax rate under Guatemalan law, and (iii) 21% income tax rate under U.S. law. See “Taxation” section below for more information.

 

Fluctuations in Exchange Rates in the Currencies in which We Operate

 

Our primary foreign currency exposure gives rise to market risks associated with exchange rate movements of the, Mexican Peso against the U.S. dollar See “—Quantitative and Qualitative Disclosure about Market Risk—Exchange Rate Risk.”

 

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Previously Issued Financial Statement Corrections

 

During the preparation of the Company’s consolidated financial statements as of and for the 2022 period, management concluded that certain prior year errors that were deemed to be immaterial, on an individual and aggregate basis, to the Company’s previously reported consolidated financial statements as of and for the 2021 period under the SEC’s Staff Accounting Bulletin No. 99, could not be corrected on an out-of-period basis in the current year financial statements because to do so would cause a material misstatement in those financial statements. Due to the decrease in profit before taxes from 2021 to 2022, materiality levels in the 2022 period for accounting purposes decreased to approximately half of the materiality levels established in the 2021 period. Therefore, the Company referred to the guidance prescribed by the SEC’s Staff Accounting Bulletin No. 108 which specifies, among other things, that the errors must be corrected as an immaterial restatement of the prior year financial statements the next time those financial statements are filed.

 

Accordingly, we made corrections of immaterial errors related to our consolidated financial statements for the 2021 period and the 2020 period. Below we provide a representation of the effects of these immaterial corrections:

 

Consolidated Statement of Financial Position as of December 31, 2021
                
Assets  Adjusted   Previously Presented   Difference   Reference
Current assets:               
Trade accounts receivable, net  $745,593    778,054    (32,461)  a
Inventories   1,286,155    1,339,378    (53,223)  a, b
Prepaid expenses   35,596    69,224    (33,628)  c
Total current assets   3,352,747    3,472,059    (119,312)   
Total assets  $5,185,229    5,304,541    (119,312)   
                   
Liabilities and stockholders’ equity                  
Current liabilities:                  
Accrued expenses  $159,354    142,169    17,185   b
Provisions   118,468    115,192    3,276   d
Income Tax payable   97,634    88,679    8,955   f
Total current liabilities  $2,449,919    2,420,503    29,416    
                   
Non-current liabilities:                  
Deferred income tax  $38,975    80,907    (41,932)  a, b, c, d
Total non-current liabilities   1,535,107    1,577,039    (41,932)   
Total liabilities  $3,985,026    3,997,542    (12,516)   
                   
Stockholder’s equity                  
Capital stock  $321,312    294,999    26,313   e
Retained earnings (deficit)   856,994    990,103    (133,109)  a, b, c, d, e, f
Equity attributable to owners of the Group   1,185,548    1,292,344    (106,796)   
Total stockholders’ equity   1,200,203    1,306,999    (106,796)   
Total liabilities and stockholders’ equity  $5,185,229    5,304,541    (119,312)   

  

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Consolidated Statement of Profit or Loss and Other Comprehensive Income for the year ended December 31, 2021
                
   Adjusted   Previously Presented   Difference   Reference
                
Net revenue  $10,067,683    10,039,668    28,015   a
                   
Cost of sales   4,498,008    4,399,164    98,844   a, b
                   
Gross profit   5,569,675    5,640,504    (70,829)   
                   
Administrative expenses   1,247,742    1,247,436    306   d
Selling expenses   1,256,289    1,264,581    (8,292)  c
Distribution expenses   463,779    463,779    -    
    2,967,810    2,975,796    (7,986)   
                   
Operating income   2,601,865    2,664,708    (62,843)   
                   
Income before income taxes   2,562,495    2,625,338    (62,843)   
                   
    Income taxes:                  
Current income tax   791,856    782,901    8,955   f
Deferred income tax   22,700    41,553    (18,853)  a, b, c, d
                   
Net income for the year  $1,747,939    1,800,884    (52,945)   

 

Consolidated Statement of Financial Position as of January 3, 2021
                
Assets  Adjusted   Previously Presented   Difference   Reference
Current assets:               
Trade accounts receivable, net  $735,026    757,806    (22,780)  a
Inventories, net   1,284,672    1,274,026    10,646   a
Prepaid expenses   52,581    94,501    (41,920)  c
Total current assets   2,852,516    2,906,570    (54,054)   
Total assets  $4,359,706    4,413,760    (54,054)   
                   
Liabilities and stockholders’ equity                  
Current liabilities:                  
Provisions   153,978    151,008    2,970   d
Total current liabilities  $2,870,367    2,867,397    2,970    
                   
Non-current liabilities:                  
Deferred income tax  $39,852    56,959    (17,107)  a, b, c, d
Total non-current liabilities   607,363    624,470    (17,107)   
Total liabilities  $3,477,730    3,491,867    (14,137)   
                   
Stockholder’s equity                  
Capital stock   308,035    281,722    26,313    
Retained earnings (deficit)  $(334,769)   (268,539)   (66,230)  a, b, c, d, e
Equity attributable to owners of the Group   881,976    921,893    (39,917)   
Total stockholders’ equity   881,976    921,893    (39,917)   
Total liabilities and stockholders’ equity  $4,359,706    4,413,760    (54,054)   

 

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Consolidated Statement of Profit or Loss and Other Comprehensive Income for the year ended January 3, 2021
                
   Adjusted   Previously Presented   Difference   Reference
                
Net revenue  $7,237,628    7,260,408    (22,780)  a
                   
Cost of sales   3,280,348    3,290,994    (10,646)  a
                   
Gross profit   3,957,280    3,969,414    (12,134)   
                   
Administrative expenses   667,647    664,677    2,970   d
Selling expenses   895,275    853,355    41,920   c
Distribution expenses   331,023    331,023    -    
    1,893,945    1,849,055    44,890    
                   
Operating income   2,063,335    2,120,359    (57,024)   
                   
Income before income taxes   824,105    881,129    (57,024)   
                   
Deferred income tax   (51,173)   (34,066)   (17,107)   
                   
Net income for the year  $298,444    338,361    (39,917)   

 

The adjustments relate to the following matters:

 

(a)Cut-off for revenue where control was not transferred to the customer.

 

  (b) Cost of inventory overstated on the international freight standard cost assumption; offset by overstated accruals liabilities on import expenses.

 

  (c) Cost of catalogues that had a non-GAAP treatment as prepaids and were expensed at the same time the revenues were realized; instead of when catalogues were received as IFRS states.

 

(d)Immaterial provisions for labor and tax matters not recorded.

 

  (e) Reclassification between capital stock and retained earnings for combination instead of consolidation of capital in 2020.

 

  (f) Accrual for the tax contingency explained in note 28 was not recorded previously.

 

Results of Operations — 2022 Period compared with the 2021 Period (as adjusted):

 

All amounts discussed are in thousands of Mexican pesos unless otherwise noted.

 

Net Revenue

 

   December 31,   December 31, 
   2022  2021
The Group’s net revenue      (as adjusted) 
BWM  Ps.6,343,344    10,067,683 
JAFRA   5,164,205    - 
Total net revenue  Ps.11,507,549    10,067,683 

 

The Group:

 

Net revenue increased by 14.3%, or MX$1,439,866, to MX$11,507,549 for the 2022 period compared to MX$10,067,683 for the 2021 period, due to the fact that in 2022 as a result of the JAFRA Acquisition we increased the number of consultants and leaders by 492,191 and 21,385, respectively, which contributed to increase our consolidated net revenue by MX$5,164,205 in our beauty and personal care product segments sales with: (i) MX$3,472,919 from the fragrances product line, (ii) MX$642,876 from color product line, (iii) MX$611,905 from skin care product line, and (iv) MX$321,806 from toiletries product line. This increase was offset by a decrease of 37.0% in our net revenue from our home organization segment in comparison to prior year due to a decline in the number of distributors and associates by 22.7% and 26.8%, respectively.

 

30

 

 

BWM:

 

Net revenue decreased by 37.0%, or MX$3,724,339, to MX$6,343,344 for the 2022 period compared to MX$10,067,683 for the 2021 period, due to the decline in the number of distributors and associates that integrate our sales network in the outcome of the COVID-19 pandemic in comparison to the extraordinary growth during the year ended December 31, 2021. During the year ended December 31, 2022, distributors decreased by 22.7% to 39,413 (compared to 50,972 in 2021), and associates decreased by 26.8% to 778,845 (compared to 1,063,720 in 2021).

 

Cost of Sales

 

  

December 31,

   December 31, 
   2022   2021 
The Group’s cost of sales      (as adjusted) 
BWM  Ps.2,576,179    4,498,008 
JAFRA   1,002,914    - 
Total cost of sales  Ps.3,579,093    4,498,008 

 

The Group:

 

Cost of sales decreased 20.4%, or MX$918,915, to MX$3,579,093 for the 2022 period compared to MX$4,498,008,218 for the 2021 period, mainly because JAFRA historically has had higher gross margins than BWM, as a result of manufacturing most of its products within Mexico and not having to bear international freight costs as BWM. Gross profit increased by MX$2,358,781 from MX$5,569,675 for the 2021 period to MX$7,928,456 for the 2022 period. As a percentage of net revenue, cost of sales was 31.1% for the 2022 period and 44.7% for the 2021 period.

 

BWM:

 

Cost of sales decreased 42.7%, or MX$1,921,829, to MX$2,576,179 for the 2022 period compared to MX$4,498,008 for the 2021 period as a result of decreased revenue, resulting in a gross profit of MX$3,767,165 for the 2022 period compared to MX$5,569,675 for the 2021 period. As a percentage of net revenue, cost of sales was 40.6% for the 2022 period and 44.7% for the 2021 period. The decrease of cost of sales as a percentage of net revenues was primarily due to a decrease in international air and sea freight costs during 2022.

 

Administrative Expenses

 

  

December 31,

   December 31, 
   2022   2021 
The Group’s administrative expenses      (as adjusted) 
BWM  Ps.1,098,426    1,247,742 
JAFRA   1,498,216    - 
Total administrative expenses  Ps.2,596,642    1,247,742 

 

The Group:

 

Administrative expenses increased 108.1%, or MX$1,348,900, to MX$2,596,642 for the 2022 period compared to MX$1,247,742 for the 2021 period primarily due to an increase of (i) 105.3% in wages paid to employees and social security contributions, (ii) 82.9% in repairs, maintenance and other general expenses, and (iii) 250.3% in depreciation. All these expenses increased mainly as a result of the JAFRA Acquisition.

 

BWM:

 

Administrative expenses decreased 12.0%, or MX$149,316, to MX$1,098,426 for the 2022 period compared to MX$1,247,742 for the 2021 period primarily due to the restructuring completed during the second half of 2022 in BWM’s operating expenses to stabilize the budgeted sales level, which resulted in a reduction in, among other things, wages paid to employees, advertising, warehouse rent payments and the impairment loss on trade account receivable mostly offset by the increase in depreciation primarily from the new distribution center of Betterware in El Arenal, Jalisco, Mexico. As a percentage of net revenues, administrative expenses represented 17.3% and 12.4% for the 2022 and 2021 periods, respectively. Increase in administrative expenses as a percentage of net revenues was due to a loss of operating leverage because the decrease in sales.

 

31

 

 

Administrative expenses by department are as follows:

 

   December 31,
2022
  

December 31,
2021

         
   BWM   JAFRA   GROUP   (as adjusted)   Var. $   Var.% 
Operations  Ps.641,575    785,416    1,426,991    849,271    577,720    68.0%
Depreciation   109,055    178,647    287,702    82,122    205,580    250.3%
IT   107,304    172,392    279,696    89,007    190,689    214.2%
Finance   128,832    148,450    277,282    115,405    161,877    140.3%
Marketing   44,562    146,516    191,078    38,099    152,979    401.5%
Quality   27,845    -    27,845    26,716    1,129    4.2%
Others   39,253    66,795    106,048    47,122    58,926    125.0%
Total  PS.1,098,426    1,498,216    2,596,642    1,247,742    1,348,900    108.1%

 

Selling Expenses

 

   December 31,
2022
  

December 31,
2021

 
The Group’s selling expenses        (as adjusted) 
BWM  Ps.1,021,281    1,256,289 
JAFRA   1,786,749    - 
Total of selling expenses  Ps.2,808,030    1,256,289 

 

The Group:

 

Selling expenses increased 123.5%, or MX$1,551,741, to MX$2,808,030 for the 2022 period compared to MX$1,256,289 for the 2021 period, primarily due to an increase in sales promotions and incentives, commissions, packaging material costs, events, market research, among others, related to the incorporation of the beauty and personal care segment upon consummation of the JAFRA Acquisition.

 

BWM:

 

Selling expenses decreased 18.7%, or MX$235,008, to MX$1,021,281 for the 2022 period compared to MX$1,256,289 for the 2021 period, primarily due to a decrease, mainly, in our rewards program and sales catalogues expenses. BWM’s selling expenses were 16.1% of net revenue for the 2022 period compared to 12.5% of net revenue for the 2021 period. The increase in selling expenses as a percentage of net revenues was mainly associated with an increase of sales bonuses and wages to hire new staff to promote sales, and the increase in events and conventions expenses.

 

The selling expenses major line items include:

 

   December 31,
2022
  

December 31,
2021

         
   BWM   JAFRA   GROUP   (as adjusted)   Var. $   Var.% 
Rewards Program  Ps.364,945    525,818    890,763    502,976    387,787    77.1%
Sales commissions   -    853,198    853,198    -    853,198    100.0%
Sales Catalogue   345,265    100,488    445,753    417,185    41,583    6.8%
Sales Bonuses and ages   117,235    108,941    226,176    105,520    120,656    114.3%
Events and Conventions   34,966    38,477    73,443    29,939    43,504    145.3%
Others   158,870    159,827    318,697    200,332    118,365    59.1%
Total  Ps.1,021,281    1,786,749    2,808,030    1,256,289    1,551,741    123.5%

 

32

 

 

Distribution Expenses

 

   December 31,
2022
  

December 31,
2021

 
The Group’s distribution expenses        (as adjusted) 
BWM  Ps.218,084    463,779 
JAFRA   255,432    - 
Total of distribution expenses  Ps.473,516    463,779 

 

The Group:

 

Distribution expenses increased 2.1%, or MX$9,737, to MX$473,516 for the 2022 period compared to MX$463,779 for the 2021 period. This increase was mainly the result of a 55.1% increase in freight costs in our beauty and personal care segment after consummation of the JAFRA Acquisition, which was partially offset by a 53.0% decrease in freight costs in our home and organization segment as a result of the decrease in sales.

 

BWM:

 

Distribution expenses decreased 53.0%, or MX$245,695, to MX$218,084 for the 2022 period compared to MX$463,779 for the 2021 period. This decrease relates to the decrease in sales and an 8% average discount in freight costs agreed with our carriers during 2022.

 

Financing Income (Cost)

 

   December 31,
2022
  

December 31,
2021

         
Financing Income (Cost)  BWM   JAFRA   GROUP   (as adjusted)   Var. $   Var.% 
Interest Expense (1)  Ps.(532,282)   (11,039)   (543,321)   (75,818)   (467,503)   616.6%
Interest Income   10,607    18,082    28,689    25,872    2,817    10.9%
Unrealized (Loss) Gain in Valuation of Financial Derivative Instruments (2)   (43,522)   -    (43,522)   330,315    (373,837)   (113.2)%
Foreign Exchange Loss, Net (3)   (81,212)   (2,156)   (83,368)   (319,739)   236,371    (73.9)%
Financing Income (Cost)  Ps.(646,409)   4,887    (641,522)   (39,370)   (602,152)   1,529.5%

 

(1)Interest expenses increased 616.6% or MX$467,503 in 2022 as compared to 2021, due to interest payment of the long-term syndicated loan obtained to fund the JAFRA Acquisition and interest payments associated with our bond issuance in Mexico (See “—Liquidity and Capital Resources—Indebtedness”).
(2)To reduce the risks related to fluctuations in the exchange rate of the US dollar, we use derivative financial instruments such as forwards to mitigate foreign currency exposure resulting from inventory purchases made in US dollars. As of December 31, 2022, Betterware had US$41.8 million of forwards contracts with an average exchange rate of Ps. 20.31 compared to US$134.1 million of forwards contracts as of December 31, 2021 with an average exchange rate of Ps.20.66. The difference between the average exchange rate of the forward contracts and the real average exchange rate of Ps.20.12 and Ps.20.28 in each period represents the (loss) and gain in 2022 and 2021, respectively.
(3)Our exposure to currency exchange rate fluctuations and how we mitigate this risk can be found in the section entitled “Risk Factors—Risks Related to Mexico” and “Currency Exchange Rate Fluctuations.” In addition, the unrealized gain in valuation of financial derivative instruments from 2021 was converted in foreign exchange loss when forwards were paid during 2022.

 

33

 

 

Income Tax Expense

 

   December 31,
2022
   December 31,
2021
         
   BWM   JAFRA   GROUP   (as adjusted)   Var. $   Var.% 
Current   350,320    183,202    533,522    791,856    (258,334)   (32.6)%
Deferred   16,846    (33,448)   (16,602)   22,700    (39,302)   (173,1)%
Total Income Tax Expense   367,166    149,754    516,920    814,556    (297,636)   (36.5)%

  

Income taxes decreased 36.5% or MX$297,636 to MX$516,920 for the 2022 period compared to MX$814,556 for the 2021 period due to higher pre-tax profits paid during the 2021 period as compared to the 2022 period. The effective income tax rate is 37.3% in 2022 and 31.8% in 2021, the difference is derived principally from certain non-deductible expenses of JAFRA.

 

Reconciliation Of Non-IFRS Measures

 

Non IFRS Financial Measures

 

We define “EBITDA” as profit for the year adding back the depreciation of property, plant and equipment and right of use assets, amortization of intangible assets, financing cost, net and total income taxes. EBITDA is not a measure required or presented in accordance with IFRS. The use of EBITDA has limitations as an analytical tool, and you should not consider it in isolation from, or as a substitute for analysis of, our results of operations or financial condition as reported under IFRS.

 

We believe that this non-IFRS financial measure is useful to investors because (i) We use this measure to analyze our financial results internally and believe they represent a measure of operating profitability and (ii) this measure will serve investors to understand and evaluate our EBITDA and provide more tools for their analysis as it makes our result comparable to industry peers that also prepare this measure.

 

EBITDA Reconciliation to Net Income/(Loss) from Continuing Operations

 

  

December 31,

2022

   December 31,
2021
 
In thousands of Mexican Pesos  BWM   JAFRA   GROUP   (as adjusted) 
Net Income for the period  Ps.376,902    493,062    869,964    1,747,939 
Add: Total Income Taxes   367,166    149,754    516,920    814,556 
Add: Financing Cost, net   661,104    (19,582)   641,522    39,370 
Add: Depreciation and Amortization   109,055    178,647    287,702    82,122 
EBITDA  Ps.1,514,227    801,881    2,316,108    2,683,987 

 

The Group:

 

For the 2022 period, consolidated EBITDA decreased 13.7% or Ps.367,879, to Ps.2,316,108 from Ps.2,683,987 in 2021, mostly due to lower operating leverage in Betterware, which led to an 653bps consolidated EBITDA margin contraction. Comparable EBITDA margin for the year contracted 279bps mainly explained by a lower operating leverage, partially offset by gross margin expansion and the reduction of fixed operating costs to align with our current level of sales in Betterware.

 

34

 

 

Betterware’s Capital Expenditures

 

Our capital expenditures were mainly related to the construction settlements after guarantee period of our new headquarters and distribution center in Jalisco, Mexico. Our capital expenditures for this property in 2022, 2021 and 2020 periods amounted to MX$37,500, MX$397,000 and MX$508,958, respectively. The total investment amounted to MX$1,108,458.

 

Betterware’s Results of Operations — 2021 Period adjusted compared with the 2020 Period (as adjusted)

 

All amounts discussed are in thousands of Mexican pesos unless otherwise noted.

 

Net Revenue

 

   December 31, 2021   January 3, 2021 
  

Previously
Presented

   Adjusted   Previously
Presented
   Adjusted 
Net Revenue  Ps.10,039,668    10,067,683    7,260,408    7,237,628 

 

Net revenue increased by 39.1%, or MX$2,830,055, to MX$10,067,683 for the 2021 period compared to MX$7,237,628 for the 2020 period, primarily due to: (i) an increase in volume of units sold of 185.5 million in 2021 compared to 133.7 million in 2020 mainly as a result of certain commercial actions implemented during 2021, such as increasing the share of lower price items and offer new products in our catalogues, (ii) focus on retention and recruitment of distributors and associates and improving in-person interaction with them, and (iii) since the second half of 2021, we applied a general increase of 12% in the price of our products. 

 

Cost of Sales

 

   December 31, 2021   January 3, 2021 
   Previously
Presented
   Adjusted   Previously
Presented
   Adjusted 
Cost of Sales  Ps.4,399,164    4,498,008    3,290,994    3,280,348 

 

Cost of sales increased 37.1%, or MX$1,217,660, to MX$4,498,008 for the 2021 period compared to MX$3,280,348 for the 2020 period as a result of increased revenue, resulting in a gross profit of MX$5,569,675 for the 2021 period compared to MX$3,957,280 for the 2020 period. As a percentage of net revenue, cost of sales was 44.7% for the 2021 period and 45.3% for the 2020 period. The decrease of cost of sales as a percentage of net revenues was primarily because in the second half of 2021, we applied a general price increase of 12% to our products to offset the impact of the increase in air and sea freight costs to meet the demand.

 

Administrative Expenses

 

   December 31, 2021   January 3, 2021 
   Previously Presented   Adjusted   Previously
Presented
   Adjusted 
Administrative Expenses  Ps.1,247,436    1,247,742    664,677    667,647 

 

Administrative expenses increased 86.9%, or MX$580,095, to MX$1,247,742 for the 2021 period compared to MX$667,647 for the 2020 period primarily due to increases in wages paid to employees, fees paid of software as a services license, a one-time consulting corporate services fee payment, and the increase in depreciation primarily from the new office center business of the Company on Jalisco, Mexico. As a percentage of net revenues, these expenses represented 12.4% and 9.2% for the 2021 and 2020 periods, respectively.

  

35

 

 

Administrative expenses by department are as follows:

 

   December 31, 2021   January 3, 2021     
   Previously
Presented
   Adjusted  

Previously

Presented

   Adjusted   Var. $   Var.% 
Operations  Ps.849,271    849,271    406,856    406,856    442,415    108.7%
Finance   115,405    115,405    94,886    94,886    20,519    21.6%
IT   89,007    89,007    45,355    45,355    43,652    96.2%
Depreciation   82,122    82,122    43,612    43,612    38,510    88.3%
Marketing   38,099    38,099    24,936    24,936    13,163    52.8%
Quality   26,716    26,716    25,383    25,383    1,333    5.3%
Others   46,816    47,122    23,649    26,619    20,503    77.0%
Total  Ps.1,247,436    1,247,742    664,677    667,647    580,095    86.9%

 

Selling Expenses

 

   December 31, 2021   January 3, 2021 
   Previously Presented   Adjusted   Previously Presented   Adjusted 
Selling Expenses  Ps.1,264,581    1,256,289    853,355    895,275 

 

Selling expenses increased 40.3%, or MX$361,014, to MX$1,256,289 for the 2021 period compared to MX$895,275 for the 2020 period, primarily due to an increase in our rewards program, expenses incurred in printing a higher volume of sales catalogues in order to satisfy demand from Distributors and Associates and packing materials. At the same time, the sales bonuses and wages decreased because of the reduction in the number of sales managers within the Company. The Company’s selling expenses were 12.5% of net revenue for the 2021 period compared to 12.4% of net revenue for the 2020 period. The selling expenses major line items include:

 

   December 31, 2021   January 3, 2021     
   Previously Presented   Adjusted  

Previously

Presented

   Adjusted   Var. $   Var.% 
Rewards Program  Ps.502,976    502,976    172,177    172,177    330,799    192.1%
Sales Catalogue   425,477    417,185    247,250    289,170    128,015    44.3%
Sales Bonuses and Wages   105,520    105,520    288,658    288,658    (183,138)   -63.4%
Events and Conventions   29,939    29,939    19,237    19,237    10,702    55.6%
Others   200,669    200,669    126,033    126,033    74,636    59.2%
Total  Ps.1,264,581    1,256,289    853,355    895,275    361,014    40.3%

 

Distribution Expenses

 

   December 31,   January 03, 
   2021   2021 
Distribution Expenses  Ps.463,779    331,023 

 

Distribution expenses increased 40.1%, or MX$132,756 to MX$463,779 for the 2021 period compared to MX$331,023 for the 2020 period. This increase relates to the fact that distribution expenses are driven primarily by sales volume, which increased 39.1% for the 2021 period, compared to the 2020 period.

 

36

 

 

Financing Income (Cost)

 

   December 31,   January 03, 
   2021   2021 
Financing Income (Cost)        
Interest Expense (1)  Ps.(75,818)   (80,253)
Interest Income   25,872    10,930 
Unrealized gain (loss) in Valuation of Financial Derivative Instruments (2)   330,315    (287,985)
Changes in fair value of warrants (3)   -    (851,520)
Foreign Exchange Loss, Net (4)   (319,739)   (30,402)
Financing Cost, Net   (39,370)   (1,239,230)

 

(1)Interest expenses decreased 5.5% or MX$4,435 in 2021 as compared to 2020, due to prepayment of loans in August 2021. The variation did not represent a high percentage because in September 2021, those interest payments were compensated by the interest expenses associated with our bond issuance in Mexico (See “Indebtedness”).
(2)In connection with the secured line of credit for up to Ps.400,000 contracted with Banamex (see —“Indebtedness—Banamex Term Loans”), and in order to mitigate the risk of future increases in interest rates, we entered into a derivatives contract with Banamex, which consists of an interest rate swap. By using this interest rate swap, we converted our variable interest rates into fixed rates. The swap and the initial secured line were fully prepaid on August 31, 2021. In addition, to reduce the risks related to fluctuations in the exchange rate of the US dollar, we use derivative financial instruments such as forwards to mitigate foreign currency exposure resulting from inventory purchases made in US dollars. As of December 31, 2021, the Company had USD$134.1 million with an average rate of Ps. 20.66. The difference between the average exchange rate of the forward contracts and the real average exchange rate of Ps. 21.53 and Ps. 20.28 in each period represents the (loss) and gain in 2020 and 2021.
(3)During the 2020 period, we assumed the obligation associated with outstanding warrants upon the Merger with DD3. Changes in the fair value of the warrant obligations, which increased during the year in direct correlation with the increase in our share price, was recognized in financing income/costs. As of December 31, 2021, we do not have outstanding warrants.
(4)Our exposure to currency exchange rate fluctuations and how we mitigate this risk can be found in the section entitled “Risk Factors—Risks Related to Mexico” and “Currency Exchange Rate Fluctuations.” Additionally, the unrealized loss in valuation of financial derivative instruments from 2020 was converted in foreign exchange loss when forwards were paid during 2021.

 

Income Tax Expense

 

   December 31, 2021   January 3, 2021 
   Previously
Presented
   Adjusted   Previously
Presented
   Adjusted 
Current  Ps.782,901    791,856    576,834    576,834 
Deferred   41,553    22,700    (34,066)   (51,173)
Total Income Tax Expense  Ps.824,454    814,556    542,768    525,661 

 

Income taxes increased 55.0% or MX$288,895 to MX$814,556 for the 2021 period compared to MX$525,661 for the 2020 period due to higher pre-tax profits. The effective income tax rate is 31.8% in 2021 and 63.8% in 2020, the difference is derived from the effect of fair value of warrants for Ps.851,520, that affects the accounting result before taxes in the year 2020.

 

Reconciliation Of Non-IFRS Measures

 

Non IFRS Financial Measures

 

We define “EBITDA” as profit for the year adding back the depreciation of property, plant and equipment and right of use assets, amortization of intangible assets, financing cost, net and total income taxes. EBITDA is not a measure required or presented in accordance with IFRS. The use of EBITDA has limitations as an analytical tool, and you should not consider it in isolation from, or as a substitute for analysis of, our results of operations or financial condition as reported under IFRS.

 

We believe that this non-IFRS financial measure is useful to investors because (i) We use this measure to analyze our financial results internally and believe they represent a measure of operating profitability and (ii) this measure will serve investors to understand and evaluate our EBITDA and provide more tools for their analysis as it makes our result comparable to industry peers that also prepare this measure.

 

37

 

 

EBITDA Reconciliation to Net Income/(Loss) from Continuing Operations

 

   December 31, 2021   January 3, 2021 
   Previously Presented   Adjusted   Previously Presented   Adjusted 
In thousands of Mexican Pesos                
Net Income for the period  Ps.1,800,884    1,747,939    338,361    298,444 
Add: Total Income Taxes   824,454    814,556    542,768    525,661 
Add: Financing Cost, net   39,370    39,370    1,239,230    1,239,230 
Add: Depreciation and Amortization   82,122    82,122    43,688    43,688 
EBITDA  Ps.2,746,830    2,683,987    2,164,047    2,107,023 

  

For the 2021 period, consolidated EBITDA increased 27.4% to Ps.2,683,987 from Ps.2,107,023 in 2020, mostly due to higher sales. Comparable EBITDA margin for the year contracted 264bps mainly explained by a lower operating leverage, partially offset by gross margin expansion.

 

B.LIQUIDITY AND CAPITAL RESOURCES

 

Our primary source of liquidity is cash flow generated from our two main operating segments, sales of home organization products and beauty and personal care (B&PC). Variation in sales of our products directly affects our cash flow. We have historically met our short- and long-term working capital and capital expenditure requirements through net cash flow provided by operating activities. Our capital expenditures expenses requirements are mainly related to investment in technology, and, in prior years, to the construction of our distribution center. We financed the JAFRA Acquisition through a long-term debt instrument, and despite the current inflationary environment, we believe we will have sufficient resources to meet our debt service obligations in a timely manner.

 

In order to maintain sufficient liquidity, we strive to maintain a minimum cash and cash equivalent monthly balance of Ps.400,000 in order to cover our Selling, General and Administrative expenses. As of December 31, 2022, our cash and cash equivalents was Ps.815,644, above the minimum cash and cash equivalent monthly balance.

 

For the 2022 period, BWM imported 93% of its products. Such imports are paid in dollars. To reduce the risk related to fluctuations in exchange rates, BWM uses derivative financial instruments as “forwards” to moderate the exchange risks resulting from future inventory and purchases in dollars. The hedging forwards contracts cover 100% of the product needs until August 2023. The acquisition of JAFRA is essential for our future growth opportunities, since it is expected to incorporate an attractive portfolio of products that will diversify our offer, with unique brands in different market segments in Mexico and the United States, giving greater stability to our financial strength in changing business environments.

 

Cash Flow

 

Year ended December 31, 2022 compared with year ended December 31, 2021

 

Cash Flows from Operating Activities

 

Cash flow provided by operating activities decreased 3.8%, or MX$55,895, to MX$1,409,702 for the 2022 period compared to MX$1,465,597 for the 2021 period, mainly derived from a decline in net income in our home organization segment of MX$1,371,037, decreasing from MX$1,747,939 in 2021 to MX$376,902 in 2022, mainly as a result of lower contribution margin driven by lower net sales, which was partially offset by the MX$493,062 increase in net income arising from our beauty and personal care segment in 2022. Additionally, there was (i) an increase of MX$287,987 in trade accounts receivable due to the JAFRA Acquisition , (ii) a decrease of MX$875,340 in accounts payable related to decreased in sales of BWM which derived in lower purchases of inventories, and (iii) an increase in interest expense cashflows of MX$467,503 derived from the long-term syndicated loan obtained during 2022 to pay the purchase price and other associated expenses under and in connection with the JAFRA Acquisition. Historically, Betterware did not invest in working capital because it is financed by the days payable to suppliers (sales are higher, cash collection from sales is faster than payments made to suppliers). However, during the 2022 period and due to the decrease in sales, we did an investment in working capital of Ps.659,652 as inventory turnover increased from 104 days during the 2021 period, to 174 during the 2022 period, days of payables decreased from 165 during the 2021 period to 171 during the 2022 period, and days of receivables were maintained at 27 days for the years ended December 31, 2021 and 2022.

 

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Cash Flows from Investing Activities

 

Cash flows used in investing activities increased by 1,406.1%, or MX$(4,504,844), to MX$(4,825,222) for the 2022 period compared to MX$(320,378) for 2021 period mainly due to an increase in investing activities associated with the purchase price and other associated expenses under and in connection with the JAFRA Acquisition. Cash flows used in investing activities include investment in business acquisitions, technological platform, product innovation, equipment, and property.

 

Cash Flows from Financing Activities

 

Cash flows generated from (used in) financing increased by 593.0%, or MX$3,675,807, to MX$3,055,966 for the 2022 period compared to MX$(619,841) for the 2021 period. During 2022, we received MX$4,498,695 under the long-term financing agreement entered with a group of banks integrated by Banamex, HSBC, BBVA, BanBajio, Bancopel and Scotiabank, which was used to pay the purchase price and other associated expenses under and in connection with the JAFRA Acquisition. Additionally, funds for MX$1,320,010 were disbursed under the short-term financing agreements as follows: (i) MX$250,000 by Banamex, (ii) MX$620,000 by HSBC, and (iii) MX$450,010 by BBVA. As of the date of this annual report, we have repaid an aggregate amount of MX$1,120,025 under these short-term financing agreements, of which: (i) MX$50,000 was paid to Banamex, (ii) MX$620,000 was paid to HSBC, and (iii) MX$450,010 was paid to BBVA. For the year ended December 31, 2022 and 2021, we paid dividends in the amount of MX$949,610 and MX$1,400,000, respectively. For the year ended December 31, 2022 period, we paid interests for MX$502,847, a 923.6% increase compared to MX$49,123 paid for the year ended December 31, 2021 period, mainly due to the repayments made under the different financing agreements with financial institutions. See “—Liquidity and Capital Resources—Indebtedness.”

 

Year ended December 31, 2021 adjusted compared with year ended January 3, 2021 adjusted

 

Cash flows from Operating, Investing and Financing Activities did not chance for the immaterial adjustments made to the financial statements as of December 31, 2021 and January 3, 2021, because all adjustments were reconciled between operating activities.

 

Indebtedness

 

Long Term Syndicated Credit Line

 

On March 31, 2022, Betterware entered into a credit agreement with Banamex, HSBC, BBVA, BanBajio, BanCoppel and Scotiabank, as syndicated lenders, for a credit line of up to Ps.4,498,695. The funds under the credit line were entirely allocated to pay the purchase price and other associated expenses under and in connection with the JAFRA Acquisition in Mexico and the United States. The maturity date is set up to be five years as from March 2022 and pays monthly interest at the 28-day TIIE rate plus the applicable margin established in the contract. During the initial 24 months as from entering into the credit line, Betterware is not required to make any principal repayments. Starting on month 25, Betterware will require make incremental monthly capital repayments until reaching repayment of the principal outstanding amount by month 60. Certain JAFRA’s subsidiaries are jointly liable under this credit agreement.

 

Long Term Bond Offering

 

On August 30, 2021, Betterware successfully concluded the offering of a two-tranche sustainability bond issuance for a total of Ps.1,500,000, with maturities across 4 and 7 years, offered in the Mexican Market. The first offer of sustainability bonds for Ps.500,000 started paying interest at 5.15% rate plus 0.40% and for the subsequent monthly payments, the rate will be based on the 29-day TIIE rate issued by Banxico plus 0.40%, and the second offer of Ps.1,000,000 will pay interest semi-annually at a fixed rate of 8.35% during the sustainability bond term. Capital payments will have to be made at the maturity date for each tranche under this bond issuance.

 

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Banamex - Unsecured credit line

 

Betterware has an unsecured credit line with Banamex of up to Ps.400,000 TIIE plus 110 basis points. As of December 31, 2022, Betterware has withdrawn Ps.250,000 under such credit line, of which Ps.50,000 has been reimbursed to Banamex.

 

BBVA-Credit line

 

On April 5, 2022, we entered into a credit line with BBVA for up to Ps.400,000. On May 31, 2022, we entered into an amendment pursuant to which the available amount under the credit line was increased by Ps.800,000. The line of credit bears interest at the 28-day TIIE rate plus 206 basis points, payable monthly, with a term of 36 months from the date of signing the original contract. During 2022, Betterware withdrew Ps.450,010 under the credit line, which were fully repaid before the end of the year.

 

HSBC-Credit line

 

On March 10, 2020, Betterware entered into a credit line agreement with HSBC México, S.A., for an amount of Ps.50,000. BLSM is jointly liable under this credit line. On May 4, 2020, we entered into an amendment pursuant to which the funds available under the credit line were increased to Ps.150,000. The maturity date of this credit line is March 10, 2024, and it bears interest at the TIIE rate plus 200 basis points. During 2022, 2021 and 2020, the we withdraw funds under this credit line in the amounts of Ps.620,000, Ps.20,000 and Ps.115,000, respectively. All of such amount have been fully repaid as of the date of this annual report.

 

C.RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.

 

Our research and development efforts consist of constant product innovation with the objectives of refreshing our catalogue content and attracting clients’ repeated purchases and data analytics unit technology in order to improve product development processes. For further details, see “Item 4.B. Information on the Company-Business Overview-Research and Development.”

 

D.TREND INFORMATION

 

COVID-19 Virus Impact

 

As a result of the coronavirus (COVID-19) outbreak and its global spread to a large number of countries, the World Health Organization classified the viral outbreak as a pandemic on March 11, 2020. See “Risk Factors—The COVID-19 virus (nCoV), as well as any other public health crises that may arise in the future, has had and may continue to have a negative impact on our gross margins and in our results of operation.”

 

Our operations since beginning of the COVID-19 pandemic, were not interrupted, due to our product lines include hygiene and cleaning solutions, qualified as an essential activity in Mexico. However, the effects of the return to normality have been amplified by a softer-than-expected economic environment and a weaker consumer spending. During 2022 and after the restrictions imposed in connection with the COVID-19 pandemic were relaxed, BWM’s network of associates and distributors declined.

 

Inflation and Supply Chain

 

During the first half of 2022, the disproportionate increase in supply and demand was reflected in high freight costs that we had to pay. To offset the effect and stabilize the profit margin in the sale of products, we implemented an emergency plan and increased the general price of our products. During the second half of 2022, global logistics chains were stabilized, and costs are currently on a downward trend.

 

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Russia and Ukraine Conflict

 

During 2022, manufacture of our beauty and personal care segment products was affected by the shortage of aluminum produced and export by Russia, which is one of the largest producers of this input worldwide, as a consequence of the conflict with Ukraine. This shortage generated an increase in prices and delays in delivery times for valves and aerosols. This situation caused several consequences in our operation, including delays and non-compliance in the arrival of materials from suppliers, decreases in absorption of operating expenses, increases in energy costs, and increases in the prices of raw materials such as alcohol and some components.

 

Other than as disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events, that are reasonably likely to have a material adverse effect in our revenues, income, profitability, liquidity or capital resources, or that would cause the reported financial information in this annual report to be not necessarily indicative of future operating results or financial conditions.

 

E.CRITICAL ACCOUNTING JUDGMENTS AND ESTIMATES

 

Not applicable.

 

ITEM 6.DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

 

A.DIRECTORS AND SENIOR MANAGEMENT

 

Set forth below is information concerning our officers and directors as of the date of this annual report. Our executive officers are appointed by the board of directors to serve in their roles. Each executive officer is appointed for such term as may be prescribed by the board of directors or until a successor has been chosen and qualified or until such officer’s death, resignation or removal. Unless otherwise indicated, the business address of all of our executive officers and directors is Luis Enrique Williams, 549, Colonia Belenes Norte, Zapopan Jalisco, México C.P.45145.

 

Name  Age  Position Held
Luis Campos  70  Chairman of the Board
Andres Campos  40  Chief Executive Officer and Board Member
Alejandro Ulloa  49  Chief Corporate Financial Officer
Mauricio Alvarez  53  Chief Corporate Information Officer
Diana Jones  41  Chief Financial Officer of Betterware
Santiago Campos  31  Board Member
Jose de Jesus Valdez  70  Independent Board Member
Dr. Martín M. Werner  60  Independent Board Member
Dr. Guillermo Ortiz  74  Independent Board Member
Federico Clariond  49  Independent Board Member
Salvador Alva  62  Independent Board Member
Joaquin Gandara  52  Independent Board Member
Silvia Davila  52  Independent Board Member
Reynaldo Vizcarra  57  Secretary

 

Background of Our Officers and Directors

 

The Group’s board of directors is composed of the following members and a non-member Secretary:

 

Luis Campos has been in the direct to consumer business for more than 30 years. He has been chairman of Betterware de México since he bought the Company in 2001. Prior to Betterware, Mr. Campos served as Chairman of Tupperware Americas (1994 – 1999), Chairman of Sara Lee — House of Fuller Mexico (1991 – 1993), and Chairman of Hasbro Mexico (1984 – 1990). Mr. Luis Campos is an active member of the “Consejo Nacional de Comunicación”, an active member of the “Consejo Consultivo” of Banamex and he was an active member of the Direct Selling Association, The Latin America Regional Managers’ Club, The Conference Board, and a board member of the Economic Development Commission of Mid Florida, Casa Alianza-Covenant House, The Metro Orlando International Affairs Commission, SunTrust Bank and Casa de Mexico de la Florida Central, Inc. Mr. Campos was selected to serve on Betterware’s board of directors due to his extensive experience in consumer product companies, especially in the direct sales, as well as his relevant top-level experience in American public multinational companies. Luis Campos is the father of Andres and Santiago Campos.

 

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Andres Campos has been CEO of Betterware de México since 2018. Prior to becoming CEO, within the Company, Andres Campos served as Commercial Director (2014 – 2018) and Strategy and New Businesses Director (2012 – 2014). Prior to Betterware, Mr. Campos worked in Banamex Corporate Banking area (2012 – 2014) and in KPMG as an Auditor (2004 – 2005). Andres holds a bachelor’s degree in Business Administration from Instituto Tecnológico y de Estudios Superiores de Monterrey and an MBA from Cornell University. Andres Campos is son of Luis Campos and brother of Santiago Campos.

 

Alejandro Ulloa  joined Betterware with extensive experience at large and multinational companies including Citelis (Organización Ramírez), where he served as Chief Financial Officer; General Electric, where he was Director of Equity; and Banamex Citigroup, where he held various positions of increasing responsibility, including Vice President of Financial Institutions at the Corporate and Investment Banking, Manager of Relations with Financial Institutions and Corporate and Investment Bank, Relationship Manager for Institutional Remedial Management and Credit Analyst. Mr. Ulloa also served as a member of Banorte’s regional Board. He has a bachelor’s degree in Economics from ITAM, where he also received a Diploma in Credit and Financial Risk Management; and also holds an MBA from Yale University and has an Executive Diploma in Real Estate Management from Harvard University.

 

Mauricio Alvarez joined to Betterware as CIO in August 2020 responsible for information technology spanning applications, data, cybersecurity and infrastructure, all a vital part of nearly every aspect of our customer and service experience. Mauricio joined Betterware from multinational customer experience companies including Atento where he was Chief Information Officer for the US, Mexico and Central America. Before Atento, Mauricio co-founded Flip Technologies, a SaaS provider for nonprofit organizations and held various IT & Innovation leadership roles of increasing responsibility at The Coca-Cola Company globally. Mauricio holds a bachelor’s degree in Computer Systems from the Universidad Iberoamericana in Mexico City.

 

Diana Jones has served as Betterware CFO since 2020. Mrs. Jones previously performed as Betterware’s Director of Comptroller (2018-2019) and Director of Finance Planning (2019-2020). Prior joining the Company, she worked as Director of External Audit in KPMG Cardenas Dosal, S.C., (2003-2018), including a term at New York City from 2008 to 2010. Mrs. Jones holds a degree in Public Accounting and Finance from the Monterrey Institute of Technology and Higher Education (ITESM), as well as an MBA with specialty in Finance from Tecmilenio University. She is also a Certified Public Accountant on behalf of the Mexican Institute of Public Accountants.

 

Santiago Campos has served as Director of Innovation and Communication at Betterware since 2018. Prior to joining Betterware, Santiago Campos served as Commercial Director at EPI Desarrollos, a Real Estate Development company, coordinating efforts between marketing, sales, finance and also taking care of administration, he was involved in achieving successful projects in a span of 2.5 years where 100% sales were accomplished before finishing construction. Santiago holds a bachelor’s degree in public accounting and finance from Instituto Tecnológico y de Estudios Superiores de Monterrey. Mr. Campos was selected to serve on Betterware’s board of directors due to his natural instinct in product innovation and household needs in BWM market target group. Santiago Campos is son of Luis Campos and brother of Andres Campos.

 

Jose de Jesus Valdez serves as CEO of Alpek since 1988. Mr. Valdez joined Alpek in 1976 and has held several senior management positions such as CEO of Petrocel, Indelpro and Polioles. He was also president of the “Asociación Nacional de la Industria Química” (ANIQ), of the “Comisión Energética de la Confederación de Cámaras Industriales de los Estados Unidos Mexicanos” (CONCAMIN) and of the “Cámara de la Industria de Transformación de Nuevo León” (CANAINTRA). Mr. Valdez is a mechanical engineer and has an MBA from Tecnológico de Monterrey (ITESM) and a master’s degree in industrial engineering from Stanford University. Mr. Valdez was selected to serve on the Company’s board of directors due to his vast experience in Mexican, US and Latin American business and market economy.

 

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Dr. Martín M. Werner, who has served as DD3’s Chief Executive Officer and Chairman of the Board since inception, is a founding partner of DD3 Capital. Prior to founding DD3 Capital in 2016, Dr. Werner worked at Goldman Sachs for 16 years (2000 – 2016) becoming a Managing Director in 2000 and a Partner in 2006. He was co-head of the Investment Banking Division for Latin America and the country head of the Mexico office. Dr. Werner continues to serve as the Chairman of the board of directors of Red de Carreteras de Occidente (RCO), which is one of Mexico’s largest private concessionaires and operates more than 760 kilometers of toll roads and is owned by Goldman Sachs Infrastructure Partners. Prior to his time with Goldman Sachs, Dr. Werner served in the Mexican Treasury Department as the General Director of Public Credit from 1995 to 1997, and as Deputy Minister from 1997 to 1999. Among his numerous activities, he was in charge of restructuring Mexico’s Public debt after the financial crisis of 1994 and 1995. Dr. Werner is the second largest investor of Banca Mifel, a leading mid-market Mexican bank with $3.3 billion in assets and a credit portfolio of $2.0 billion; he is also member of the Board of Directors of Grupo Comercial Chedraui, a leading supermarket chain in Mexico and the United States; the Board of Directors of Grupo Aeroportuario Centro Norte, one of Mexico’s largest airport operators; and he is a member of Yale University’s School of Management Advisory Board. Dr. Werner holds a bachelor degree in economics from Instituto Tecnológico Autónomo de Mexico (ITAM) and a Ph.D. in economics from Yale University.

 

Dr. Guillermo Ortiz has served as Chairman of BTG Pactual Latin America ex-Brazil, a leading Brazilian financial services company with operations throughout Latin America, the U.S. and Europe, since 2015. Prior to joining BTG, from 2010 to 2015, he was Chairman of the Board of Grupo Financiero Banorte-Ixe, the largest independent Mexican financial institution. Dr. Ortiz also served two consecutive six-year terms as Governor of Mexico’s Central Bank from 1998 to 2009. From 1994 to 1997, Dr. Ortiz served as Secretary of Finance and Public Credit in the Mexican Federal Government where he guided Mexico through the “Tequila” crisis and contributed to the stabilization of the Mexican economy, helping return the nation to growth in 1996. He has served on the Board of Directors of the International Monetary Fund, the World Bank and the Interamerican Development Bank. Dr. Ortiz is Chairman of the Pe Jacobsson Foundation, a member of Group of Thirty, Board of Directors of the Center for Financial Stability, Board of Directors of the Globalization and Monetary Policy Institute, Board of Directors in the Federal Reserve Bank of Dallas and Board of Directors of the China’s International Finance Forum. He is also an Officer of Zurich Insurance Group Ltd. and a Member of the Board of Directors of Wetherford International, a leading company in the oil and equipment industry, as well as of a number of Mexican companies, including Aeropuertos del Sureste, one of Mexico’s largest airport operators, Mexichem, a global leading petrochemical group, and Vitro, a leading glass manufacturer company in Mexico. Dr. Ortiz is also a member of the Quality of Life Advisory board of the Government of Mexico City. Dr. Ortiz holds a bachelor’s degree in economics from Universidad Nacional Autónoma de México (UNAM), a master’s degree and a Ph.D. in economics from Stanford University. Dr. Ortiz was selected to serve on our board of directors due to his significant government service and finance experience.

 

Federico Clariond has served as CEO of Valores Aldabra, a single-family office with investments in financial services, aluminum, packaging and consumer goods companies, since 2011, and as CEO of Buro Inmobiliario Nacional, a Real Estate investment vehicle with holdings in the hospitality, industrial, office, and commercial spaces throughout Mexico, since 2015. Prior to Valores Aldabra and Buro Inmobiliario Nacional, from 2007 to 2011, Mr. Clariond served as CEO of Stabilit Mexico, a manufacturer of fiber glass reinforced plastics with operations in Mexico, the United States and Europe, and from 2004 to 2007, as Commercial VP of IMSA Acero. Additionally, he is board member of several companies ranging from the financial services, aluminum, packaging and consumer goods industries. Mr. Clariond is a mechanical engineer and has an MBA from Stanford University. Mr. Clariond was selected to serve on Betterware’s board of directors due to his vast business experience in Mexico’s private investment matters.

 

Salvador Alva is a consultant, entrepreneur and member of various boards and civil associations. He was President of the Instituto Tecnologico y de Estudios Superiores de Monterrey from 2011 to 2020, President of PepsiCo Latin America from 1983 to 2008 and Vice President of Marketing and Planning of Cerveceria Moctezuma from 1972 to 1982. Mr. Alva holds a Barchelor´s degree in Chemical Engineering from UNAM and an MBA from Universidad de las Americas.

 

Joaquin Gandara serves as CEO of Stone Financial Awareness since 2017. Prior to Stone Financial Awareness, he worked at Scotiabank for 24 years where he held several positions in different departments such as Credit, Consumer Banking, Branch Operations and Corporate Banking. Mr. Gandara was selected to serve on the Company’s board of directors due to his extensive knowledge in the financial and banking field.

 

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Silvia Davila is a proven leader with over 30 years of experience working with leading consumer companies in various roles and possesses deep knowledge of the Latin American market. Silvia Davila currently serves as President of Danone LATAM. She has vast experience in financial and digital transformation achieving sustained business growth. Her leadership style is based on empowerment and team development, consistently building high-performing teams to simplify operations, adding value through processes, and promoting ideas that generate sustained growth. She is determined, committed and passionate, and always a strategic leader who develops people. Silvia joined Danone in 2017 as Regional President LATAM for dairy products, and since 2020, she is a member of the Global Executive Committee and responsible for the operation in Mexico and for all categories in LATAM. Prior to Danone, she worked in Mars (2004-2017), Procter & Gamble (1992-2003) and McDonald´s Mexico (1989-1992). Silvia holds a Bachelor´s degree in Marketing from UNITEC, where she graduated with honors, a Master´s degree in Business Economics form ITESM and post-graduate studies from Harvard, IMD and INSEAD.

 

Reynaldo Vizcarra (non-member Secretary) is a member of Baker & McKenzie’s Corporate and Transactional Practice Group. He is a professor at the University Anáhuac del Norte where he teaches foreign investment as part of the master of laws program, and an instructor at Universidad Panamericana’s Baker McKenzie Seminar. He joined Baker & McKenzie’s Mexico City office in 1986, handling foreign investments, banking and finance matters and international agreements. He also worked in the Chicago office’s Latin America Practice Group, advising on investments and acquisitions in Latin America (1996 – 1997). In 2000, Mr. Vizcarra co-founded Baker & McKenzie’s Guadalajara office, where he led the Banking & Finance Practice Group. In August 2005, he transferred to Baker McKenzie’s Cancun office as a founding member and director mainly handling tourism and real estate projects. In 2009, he transferred back to the Mexico City office, where he was local managing partner for four years and thereafter became National Managing Partner of the Firm in Mexico until August 2018.

 

B.COMPENSATION

 

For the 2022 period, we paid our top management a fix aggregate compensation of approximately MX$39 million plus a variable aggregate compensation for bonuses of approximately MX$8 million. The amounts payable under the performance bonus depend on the results achieved and include certain qualitative and/or quantitative objectives. Overall, the total executive compensation for the 2022 period was MX$47 million.

 

On July 30, 2020, Betterware modified the share-based plan incentive granted to the Chairman of the Board and certain executives and directors of the Company on August 15, 2019 (the “Incentive Plan”). The purpose of the Incentive Plan is to provide certain members of the top management with the opportunity to receive share-based incentives to encourage them to contribute significantly to the growth of the Company and to align the economic interests of those individuals with those of the shareholders. The Incentive Plan is aligned with the shareholders’ interest in terms of the management capacity to obtain operating results that potentially benefit the share price. If the pre-determined results are achieved, it will cause a gradual delivery of shares over a period of four to five years (see Note 23 of the Audited Consolidated Financial Statements). As of December 31, 2022, we have issued and delivered 731,669 shares to Campalier, a wholly owned entity of the Chairman of the Board, under the Incentive Plan.

 

C.BOARD PRACTICES

 

Board Committees

 

The Group’s Audit and Corporate Practices Committee has the following specifications:

 

Composition

 

The Audit and Corporate Practices Committee of the Group consists of three members appointed by the board itself, in accordance with the provisions of Nasdaq, the Group’s bylaws and other legal provisions, in the understanding, however, that the chairman of the Audit and Corporate Practices Committee will be elected by the General Assembly of Shareholders of the Group.

 

The members of the Audit and Corporate Practices Committee are independent as under Nasdaq requirements.

 

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The Audit and Corporate Practices Committee may create one or more sub-committees, to receive support in the performance of its functions. The Audit and Corporate Practices Committee is empowered to designate and remove the members of said sub-committees and to determine their powers.

 

As of the date of this annual report, the members of the Audit and Corporate Practices Committee are:

 

i.Joaquin Gandara Ruiz Esparza — Chairman — Mr. Gandara serves as CEO of Stone Financial Awareness since 2017. Prior to Stone Financial Awareness, he worked at Scotiabank for 24 years where he held several positions in different departments such as Credit, Consumer Banking, Branch Operations and Corporate Banking.

 

ii.America Taracido serves as Managing Partner at Consultores en Alta Direccion y Gestión de Empresas, S.C. and, she joined Desarrolladora de Ciudad as CFO. Mrs. Taracido served in various positions in countries such as Peru, the United States and Mexico and worked in important positions in companies such as “Ernst & Young México, Avon Cosmetics, Finanzas & CFO at Smurfit Kappa Group México”, and others. She is an active member of the Council of Americas and was a president of “Instituto Mexicano de Ejecutivos de Finanzas”. Mrs. Taracido holds a master degree in Administration in “Tecnológico Autonómo de México (ITAM)”. Since April 2020 she is part of the Audit Committee for Betterware Mexico.

 

iii.Federico Clariond has served as CEO of Valores Aldabra, since 2011, and as CEO of Buro Inmobiliario Nacional. Prior to Valores Aldabra and Buro Inmobiliario Nacional, from 2007 to 2011, Mr. Clariond served as CEO of Stabilit Mexico, a manufacturer of fiber glass reinforced plastics with operations in Mexico, the United States and Europe, and from 2004 to 2007, as Commercial VP of IMSA Acero. Additionally, he is board member of several companies. Mr. Clariond is a mechanical engineer and has an MBA from Stanford University. Mr. Clariond was selected to serve on Betterware’s board of directors due to his vast business experience in Mexico’s private investment matters.

 

Sessions Frequency

 

The Audit and Corporate Practices Committee and its sub-committees meet with the necessary frequency for the performance of their duties, at the request of any of its members, the Board of Directors or its Executive President or the General Assembly of Shareholders; in the understanding that it must meet at least 4 (four) times during a calendar year.

 

The sessions of the Audit and Corporate Practices Committee and its sub-committees may be held by telephone or videoconference, with the understanding that the Secretary of the respective session must take the corresponding minutes, which must in any case be signed by the Executive President and the respective Secretary, and collect the signatures of the members who participated in the session.

 

Functions

 

Regarding Corporate Practices, the Audit and Corporate Practices Committee will have the functions referred to in the Securities Market Law, especially the provisions of section I (first) of its Article 42 (forty-two), and other applicable legal provisions, as well as those determined by the General Assembly of Shareholders. They will also perform all those functions of which they must render a report in accordance with the provisions of the Securities Market Law. In an enunciative way, but not limited to, it will have the following functions:

 

Provide opinions regarding transactions between related parties to the General Assembly of Shareholders and the Board of Directors.

 

Develop, recommend and review corporate governance guidelines and guidelines of the Group.

 

Recommend modifications to the bylaws of the Group.

 

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Analyze and review all legislative, regulatory and corporate governance developments that may affect the operations of the Group, and make recommendations in this regard to the Board of Directors.

 

Prepare and propose the different manuals necessary for the corporate governance of the Group or for compliance with the applicable provisions.

 

Define the compensation and performance evaluation policies of the senior executives of the Group.

 

Use the best compensation practices to align the interests of the Shareholders and the senior executives of the Group, being able to hire any independent expert necessary for the development of this function.

 

Ensure access to market data and best corporate practices through external consultants specialized in the field.

 

Develop a plan for the succession of senior executives of the Group.

 

In matters of Audit, the Audit and Corporate Practices Committee will have the functions referred to in the Securities Market Law especially the provisions of section II of its Article 42 (forty-two), and other applicable legal provisions, as well as those determined by the General Assembly of Shareholders. They will also perform all those functions of which they must render a report in accordance with the provisions of the Securities Market Law. In an enunciative way, but not limited to, it will have the following functions:

 

Determine the need and viability of the fiscal and financial structures of the Group.

 

Comment on the financial and fiscal structure of the international expansion of the Group.

 

Comment on the financial reports, accounting policies, control and information technology systems of the Group.

 

Evaluate and recommend the external auditor of the Group.

 

Ensure the independence and efficiency of the internal and external audits of the Group.

 

Evaluate the transactions between related parties of the Group, as well as identify possible conflicts of interest derived from them.

 

Analyze the financial structure of the Group, in the short, medium and long term, including any financing and refinancing transactions.

 

Review and comment on the management of the Group’s treasury, risk and exposure to fluctuations in exchange rates and hedging instruments of the Group, whatever their nature or denomination.

 

Evaluate the processes and selection of insurance brokers, as well as the coverage and premiums of the Group’s insurance policies.

 

D.EMPLOYEES

 

The following table provides information regarding the number of our employees for the 2022, 2021 and 2020 periods, respectively:

 

   Number of Employees 
   December 31,   December 31,   January 03, 
   2022   2021   2021 
Operations   1,528    977    962 
Finance, administration, human resources, IT   502    128    184 
Sales and marketing   147    167    148 
Total   2,177    1,272    1,294 

 

E.SHARE OWNERSHIP

 

Not applicable.

 

F.DISCLOSURE OF A REGISTRANT’S ACTION TO RECOVER ERRONEOUSLY AWARDED COMPENSATION

 

Not applicable.

 

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ITEM 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

 

A.MAJOR SHAREHOLDERS

 

The following table sets forth information with respect to the beneficial ownership of our shares as of the date of this annual report:

 

each shareholder, or group of affiliated shareholders, who we know beneficially owns more than 5% of our outstanding shares;

 

each of our directors and executive officers individually; and

 

all directors and executive officers as a group.

 

As of the date of this annual report, we had 37,316,546 issued and outstanding ordinary shares. Beneficial ownership is determined in accordance with the rules of the SEC and generally includes any shares over which a person exercises sole or shared voting and/or investment power. Except as otherwise indicated, we believe the beneficial owners of the shares listed below, based on information furnished by them, have sole voting and investment power with respect to the number of shares listed opposite their names. The address for Campalier is Av. Acueducto 6075-A, Local A, Puerta de Hierro, Zapopan, Jalisco, 45116, Mexico.

 

   Ordinary shares 
   Beneficially 
   Owned as of 
   date of this 
   annual report 
   Ordinary Shares 
   Number   % 
Five Percent or More Holders          
Campalier S.A. de C.V.(1)   20,019,793    53.65%
Cede & Co.   17,224,127    46.16%
Our executive officers and directors:          
Luis Campos        
Andres Campos        
Alejandro Ulloa        
Mauricio Alvarez        
Diana Jones        
Santiago Campos        
Jose de Jesus Valdez        
Dr. Martín M. Werner        
Dr. Guillermo Ortiz        
Federico Clariond        
Salvador Alva        
Joaquin Gandara        
Silvia Davila        
Reynaldo Vizcarra        
All directors and executive officers as a group (fourteen individuals)        

 

(1)This entity is controlled by Luis Campos, our Board Chairman.

 

B.RELATED PARTY TRANSACTIONS

 

Other than as disclosed in this annual report and the Audited Consolidated Financial Statements attached hereto and other than in the ordinary course of business, since the beginning of our preceding three financial years, have transactions or loans with the Group’s related parties as follow:

 

On June 23, 2022, our subsidiary Programa Lazos, as borrower, entered into a loan agreement for an amount of Ps.150 million with Campalier, as lender. As of December 31, 2022, Lazos has withdrawn Ps.120 million under such loan. Principal amount bears a monthly variable interest rate of TIIE plus 349 basis points, and it does not foresee a specific maturity date.

 

C.INTERESTS OF EXPERTS AND COUNSEL

 

Not applicable.

 

ITEM 8.FINANCIAL INFORMATION

 

A.CONSOLIDATED AND COMBINED STATEMENTS AND OTHER FINANCIAL INFORMATION

 

Our Audited Consolidated Financial Statements are included in Item 18. The Audited Consolidated Financial Statements were audited by independent registered public accounting firm and are accompanied by their audit reports.

 

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Legal Proceedings

 

We are not involved in or threatened by any material proceeding that we it is not adequately insured or indemnified or which, if determined adversely, would have a material adverse effect on our consolidated and combined financial position, results of operations and cash flows.

 

On August 12, 2014, the International Inspection Administration “4” (“AFI” for its acronym in Spanish), under the Central Administration of International Control, in relation to the General Administration of Large Taxpayers of the Tax Administration Service (“SAT”, for its acronym in Spanish), requested information regarding the Group´s 2010 income tax filing, which was provided at the time. On February 20, 2017, the final agreement was signed with the Taxpayer Advocacy Office (“PRODECON”, for its acronym in Spanish) regarding this SAT review. On March 2, 2017, the SAT notified us, about certain issues on which an agreement was not reached. As a result, we filed a lawsuit for annulment before the SAT’s resolution, which is still in progress’. Based on the evaluation of the Group’s Management, tax liabilities are not expected to arise as a result of this matter. As of December 31, 2022, the maximum exposure was considered not significant.

 

Dividend Distribution Policy

 

We have created an Investment Committee which evaluates and recommends the Board of Directors whether or not to pay dividends. As of the date of this annual report, we have not implemented a dividend policy.

 

B.SIGNIFICANT CHANGES

 

Please see Note 29 of the Audited Consolidated Financial Statements elsewhere in this annual report.

 

ITEM 9.THE OFFER AND LISTING

 

A.OFFER AND LISTING DETAILS

 

Our ordinary shares are listed on Nasdaq under the symbol “BWMX.”

 

B.PLAN OF DISTRIBUTION

 

Not applicable.

 

C.MARKETS

 

Our ordinary shares began trading on Nasdaq under the symbol “BWMX,” in connection with our initial public offering, on March 13, 2020.

 

D.SELLING SHAREHOLDERS

 

Not applicable.

 

E.DILUTION

 

Not applicable.

 

F.EXPENSES OF THE ISSUE

 

Not applicable.

 

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ITEM 10. ADDITIONAL INFORMATION

 

A.SHARE CAPITAL

 

Not applicable.

 

B.MEMORANDUM AND ARTICLES OF ASSOCIATION

 

The following is a summary of some of the terms of our ordinary shares, based on our articles of association in place. The following summary is not complete and is subject to, and is qualified in its entirety by reference to, the provisions of our articles of association, and applicable Mexican law, including Mexican corporate law.

 

General

 

Betterware is a company incorporated under the General Corporations Law. As Betterware is a Mexican corporation, the rights of holders of Betterware’s shares will be governed directly by Mexican law and the Amended and Restated Charter.

 

Shareholder Meetings

 

Held at the corporate domicile of the company or, in the case of unanimous resolutions, the place where the shareholders are met.

 

Notice:

 

A copy of the notice of any shareholders’ meeting shall be published not fewer than fifteen (15) calendar days prior to the date of the proposed meeting in the electronic system of the Corporations Publications of the Mexican Ministry of Economy.

 

Shareholders’ Voting Rights

 

Any person authorized to vote may be represented at a meeting by a proxy who may speak and vote on behalf of the member.

 

Depending on the matter that requires shareholders’ approval, the by-laws and Mexican law provide a fixed quorum.

 

The annual ordinary shareholders’ meeting must have a quorum of at least 50% plus one of the outstanding shares of the company’s capital stock and all resolutions shall be approved with the affirmative vote of at least the majority of the present shares. In the event of a second or subsequent call, the general ordinary stockholders’ meeting may be validly held regardless of the number of shares represented, and its resolutions shall be valid when adopted by majority vote of the shares represented at the meeting.

 

The extraordinary shareholders’ meetings must have a quorum of at least 75% of the outstanding shares of the company’s capital stock and all resolutions must be approved with the affirmative vote of at least 50% of the outstanding voting shares of the company. In the event of a second or subsequent call, extraordinary general stockholders’ meetings may be validly held if 50% of the outstanding voting shares of the company is represented, and their resolutions will be valid if adopted by the favorable vote of shares representing at least 50% of the outstanding voting shares of the company.

 

Notwithstanding the provisions of the preceding paragraph, the favorable vote of shares with or without voting rights representing (i) 75% (seventy-five percent) of the Company’s outstanding capital stock shall be required to amend the Company’s by-laws and (ii) 95% (ninety-five percent) of the capital stock of the Company to resolve and request from the National Banking and Securities Commission the cancellation of the registration of the shares of the Company in the National Securities Registry, under the terms provided in the Securities Market Law and other applicable provisions.

 

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For special meetings, the rules provided for general extraordinary meetings shall apply considering only the shares of the applicable series or class.

 

The annual ordinary shareholders’ meeting shall:

 

approve the chief executive officer and board of directors’ annual reports; the appointment of the members of the board of directors and statutory examiners; and if applicable, the members of the board or statutory examiners’ fees.

 

discuss and approve on the re-appointment, revocation and/or appointment, if any, of one third of the proprietary members and respective alternates of the board of directors that the annual general ordinary meeting resolves to re-appoint, revoke and/or appoint;

 

evaluate the independence of independent directors;

 

appoint the chairmen of the corporate practices and audit committees;

 

decide on the use of the company’s profit, if any;

 

if applicable, determine the maximum amount of resources that may be used for the acquisition of its own shares;

 

approve the execution of transactions whether simultaneously or subsequently by the company or the legal entities it controls within the same fiscal year that may be considered as one and the same transaction that the company when they represent 20% or more of the consolidated assets of the company, based on figures corresponding to the close of the immediately preceding quarter, regardless of the way in which they are applied. Stockholders holding shares with limited or restricted voting rights may vote at such meetings; and

 

any other matter that shall be convened with by the general ordinary meeting in accordance with applicable law or that is not specifically reserved for an extraordinary meeting.

 

An extraordinary shareholders’ meeting shall approve:

 

extension of the company’s term;

 

anticipated dissolution of the company;

 

any increase or decrease in the capital stock of the company;

 

any amendment in the company’s corporate purpose;

 

any change in the company’s nationality;

 

the company’s change in any other type of entity or company;

 

any merger;

 

issuance of shares different than ordinary shares and bonds;

 

redemption of shares; and

 

any amendment to the company’s by-laws.

 

50

 

 

Directors

 

The board of directors shall have a minimum of 9 and a maximum of 21 members.

 

Any shareholder, or group of shareholders, that have 10% or more of the capital stock of the Company has the right to appoint one member of the board of directors.

 

The members of the board shall hold office for one year or until the shareholders that have appointed them revoke such appointment. The directors may be reelected as many times as deemed convenient and shall continue in office until their successors have been appointed and taken office.

 

Fiduciary Duties

 

Members of the board owe fiduciary duties in accordance with the Securities Market Law and in the applicable provisions of the stock exchange in which the shares are listed as follows:

 

The members of the board of directors must act in accordance with the duty of loyalty provided under Mexican law and in the applicable provisions of the stock exchange in which the shares are listed. The directors and the secretary, in the event they have a conflict of interest, must abstain from participating in the relevant matter and from being present in the deliberation and voting of said matter, without it affecting the quorum required for the installation of the board.

 

The members of the board of directors must act in accordance with the duty of care. For such purposes, they shall have the right to request, at any time and in accordance with the terms they deem appropriate, information from the company’s officers and the legal entities controlled by the company.

 

The breach of any director to his duty of care shall make him jointly and severally liable with other directors who have breached their duty of care or are responsible, for the damages and losses caused to the company, which shall be limited to direct damages and losses, but not punitive or consequential, caused to the company and to the events in which such director acted fraudulently, in bad faith, with gross negligence or unlawfully.

 

Shareholders’ Derivative Actions

 

The liability resulting from the breach of the duty of care or the duty of loyalty shall be exclusively in favor of the company or of the legal entity controlled by it or over which it has a significant influence and may be exercised by the company or by the stockholders who, individually or jointly, hold ordinary shares or shares with limited voting rights, restricted or without voting rights, representing 5% or more of the corporate capital in accordance with the provisions of Article 38 of the Securities Market Law.

 

The members of the board of directors shall not incur in liability for damages caused to the company or to the legal entities it controls, when a director acts in good faith.

 

Indemnification of Directors and Officers

 

The company shall indemnify and hold harmless the members and the secretary of the board of directors, any of the members of the company’s committees, and the relevant officers of the company, in connection with any liability arising from the performance of their duties, including any indemnification for any damage or injury, the necessary amounts to reach any settlement, and any fees and expenses incurred by such persons in connection with the above. Such indemnity shall not apply if any of such persons incurred or committed fraudulent acts, unlawful acts or omissions, or acted in bad faith.

 

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Inspection of Books and Records

 

Members of the general public, on payment of a nominal fee, can obtain copies of the public records of the company available at the Public Registry of Commerce, which will include an extract of the company’s articles of incorporation with the initial capital stock and any increase in its fixed portion, the initial stockholders and members of the Board, as well as any merger, dissolution or liquidation provision.

 

Any person that is registered as a stockholder in the company’s stockholder registry book can inspect, with prior written notice to the company, any of the company’s books or records.

 

Anti-takeover Protections

 

The Board of Directors needs to approve, with at least 66% of its Members present in a duly conveyed meeting and with at least 66% of its Members favorable vote, any change in Control of the Betterware or the transfer of the 20% or more of Betterware’s shares. Such change of Control or transfer must be notified to Betterware and Betterware’s shareholders.

 

The Board of Directors must approve the transfer within the following 90 calendar days after having all documentation the Board deems necessary for its consideration and approval.

 

In the event the Board of Directors authorizes the transaction, in addition to the Board approval, prior to the closing of the transaction, the person asking for the Board’s approval shall make a tender offer for 100% of the outstanding capital stock of the Company, at a price payable in cash not less than the highest of the following:

 

the book value per share, in accordance with the latest quarterly financial statements approved by the Board of Directors and presented to the National Banking and Securities Commission or to the applicable securities exchange; or

 

the highest closing price per share with respect to transactions in the securities exchange where the shares are placed, published in any of the 365 days prior to the date of the application filed or the authorization granted by the Board of Directors; or

 

the highest price paid with respect to the purchase of any shares, during the 365 days immediately before sending of the request or the authorization granted by the Board of Directors.

 

In each of these cases (items (i) to (iii) above), a premium equal to or greater than 15% shall be paid in respect of the price per share payable in connection with the requested transaction, it the understanding that the Board of Directors may modify, upwards or downwards, the amount of such premium, taking into account the opinion of a reputable investment bank.

 

The public tender offer must be completed within 90 days of the date of the Board of Directors’ authorization, on the understanding that such term may be extended for an additional period of 60 days if the applicable governmental authorizations continues to be pending on the date of expiration of the initial term referred to above.

 

In the event that the Board of Directors receives on or before closing, an offer from a third party, requesting to make the acquisition of at least the same number of shares, on better terms for the stockholders or holders of shares of Betterware, the Board of Directors shall have the capacity to consider and, if applicable, authorize such second request, revoking the authorization previously granted.

 

If the transaction is not (i) an acquisition representing the 20% of the capital stock of Betterware, or (ii) a change of Control, it shall be registered in Betterware’s Shares Registry Book once authorized by the Board of Directors.

 

In the event the Board of Directors rejects the transaction, the Secretary of the Board shall summon, within a period of 10 calendar days following such rejection (or within 20 calendar days prior to the termination of the term for the Board of Directors to decide on such request), to a General Ordinary Stockholders’ Meeting at which the shareholders may, by the simple majority of the votes of the outstanding shares, ratify the decision of the Board of Directors or revoke such decision. In such case, the shareholders’ resolution shall be deemed as final and shall replace any prior rejection by the Board of Directors.

 

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Control” means in respect of any person, through a person or group of persons, (i) the power to impose, directly or indirectly, by any means, resolutions or decisions, or to veto or prevent such resolutions or decisions from being taken, in any sense, at General Shareholders Meetings, or to appoint or remove the majority of the directors, administrators, managers or their equivalents of said person; (ii) maintain the ownership of any class of shares or rights related thereto which permit, directly or indirectly, the exercise of voting rights in respect of more than 50% of the shares, of whatever nature, with voting rights of such person, and/or (iii) the power to direct, determine, influence, veto or impede, directly or indirectly, the policies and/or decisions of the Board of Directors or of the management, strategy, activities, operations or principal policies of such person, whether through ownership of shares, by contract or agreement, written or oral, or by any other means, regardless of whether such control is apparent or implied.

 

A copy of the Articles of Association, as amended, is furnished under Item 19. “Exhibits”.

 

C.MATERIAL CONTRACTS

 

We do not have material contracts to disclose.

 

D.EXCHANGE CONTROLS

 

None.

 

E.TAXATION

 

Material U.S. Federal Income Tax Considerations

 

The following is a summary of the material U.S. federal income tax consequences to U.S. Holders (as defined below) of the ownership and disposition of our ordinary shares. This summary is based upon U.S. federal income tax laws (including the U.S. Internal Revenue Code of 1986, as amended (the “Code”) final, temporary and proposed Treasury regulations, rulings, judicial decisions and administrative pronouncements), all as of the date hereof and such authorities may be repealed, revoked or modified, possibly with retroactive effect, so as to result in United States federal income tax consequences different from those discussed below.

 

As used herein, the term U.S. Holder means a beneficial owner of one or more of our ordinary shares:

 

that is for U.S. federal income tax purposes one of the following:

 

an individual citizen or resident (as defined in Section 7701(b) of the Code) of the United States,

 

a corporation (or other entity that is treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States or any political subdivision thereof (including the District of Columbia).

 

an estate the income of which is subject to U.S. federal income taxation regardless of its source; or

 

trust if (1) a court within the United States can exercise primary supervision over it, and one or more United States persons have the authority to control all substantial decisions of the trust, or (2) the trust has a valid election in effect under applicable U.S. Treasury regulations to be treated as a United States person;

 

who holds the ordinary shares as capital assets for U.S. federal income tax purposes;

 

who owns, directly, indirectly or by attribution, less than 10% of the share capital or voting shares of the Company; and

 

whose holding is not effectively connected with a business carried on through a permanent establishment in Mexico.

 

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The discussion does not cover all aspects of U.S. federal income taxation that may be relevant to, or the actual tax effect that any of the matters described herein will have on, the acquisition, ownership or disposition of our ordinary shares by particular investors (including consequences under the alternative minimum tax or net investment income tax), and does not address state, local, non-U.S. or other tax laws.

 

This summary also does not address all of the tax considerations that may apply to holders that are subject to special tax rules, such as U.S. expatriates or former long-term residents of the United States, insurance companies, individual retirement accounts and other tax-deferred accounts, tax-exempt organizations, certain financial institutions, dealers and certain traders in securities, persons holding ordinary shares as part of a straddle, hedging, conversion or other integrated transaction, controlled foreign corporations or passive foreign investment companies, persons who are required to accelerate the recognition of any item of gross income with respect to the shares of the Company as a result of such income being recognized on an applicable financial statement, persons who acquired their ordinary shares pursuant to the exercise of employee shares options or otherwise as compensation, entities or arrangements classified as partnerships for U.S. federal income tax purposes or persons whose functional currency is not the U.S. dollar. Such holders may be subject to U.S. federal income tax consequences different from those set forth below.

 

If an entity or arrangement treated as a partnership for U.S. federal income tax purposes holds ordinary shares, the tax treatment of a partner generally will depend upon the status of the partner and the activities of the partnership. An entity or arrangement treated as a partnership for U.S. federal income tax purposes, or partner in a partnership, is urged to consult its own tax advisor regarding the specific tax consequences of owning and disposing of the ordinary shares.

 

Except as otherwise noted, this summary assumes that the Company is not a passive foreign investment company (a “PFIC”) for U.S. federal income tax purposes, which the Company believes to be the case. The Company’s possible status as a PFIC must be determined annually and therefore may be subject to change. If the Company were to be a PFIC in any year, materially adverse consequences could result for U.S. Holders.

 

Potential investors in our ordinary shares should consult their own tax advisors concerning the specific U.S. federal, state and local tax consequences of the ownership and disposition of our ordinary shares in light of their particular situations as well as any consequences arising under the laws of any other taxing jurisdiction.

 

Taxation of distributions

 

Distributions received by a U.S. Holder on ordinary shares, including the amount of any Mexican taxes withheld, generally will constitute foreign source dividend income to the extent paid out of the Company’s current or accumulated earnings and profits (as determined for U.S. federal income tax purposes). Distributions in excess of current and accumulated earnings and profits will be treated as a non-taxable return of capital to the extent of the U.S. Holder’s basis in the ordinary shares and thereafter as capital gain. Because the Company does not maintain calculations of its earnings and profits under U.S. federal income tax principles, it is expected that such distributions (including any Mexican taxes withheld) will be reported to U.S. Holders as dividends. U.S. Holders should consult their own tax advisers with respect to the appropriate U.S. federal income tax treatment of any distribution received from the Company. Corporate U.S. Holders who own less than 10% of the share capital or voting shares of the Company will not be entitled to claim the dividends received deduction with respect to dividends paid by the Company. A non-corporate recipient of dividend income will generally be subject to tax on dividend income from a “qualified foreign corporation” at a reduced capital gains rate rather than the marginal tax rates generally applicable to ordinary income provided that the holding period requirement is met. A non-U.S. corporation (other than a corporation that is classified as a PFIC (defined below) for the taxable year in which the dividend is paid or the preceding taxable year) generally will be considered to be a qualified foreign corporation with respect to any dividend it pays on stock which is readily tradable on an established securities market in the United States. The ordinary shares are listed on Nasdaq, and should qualify as readily tradable on an established securities market in the United States so long as they are so listed. Therefore, the Company believes that it will be a qualified foreign corporation for purposes of the reduced tax rate, although no assurance can be given that it will continue to be treated as a qualified foreign corporation in the future. Non-corporate U.S. Holders should consult their own tax advisors to determine whether they are subject to any special rules that limit their ability to be taxed at this favorable rate.

 

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Dividends received on ordinary shares will be treated, for United States foreign tax credit purposes, as foreign source income. A U.S. Holder may be eligible, subject to a number of complex limitations, to claim a foreign tax credit in respect of any non-United States withholding taxes imposed on dividends received on ordinary shares. Instead of claiming a credit, a U.S. Holder may elect to deduct foreign taxes (including any Mexican taxes) in computing its taxable income, subject to generally applicable limitations. An election to deduct foreign taxes (instead of claiming foreign tax credits) applies to all taxes paid or accrued in the taxable year to foreign countries and possessions of the United States. The limitations on foreign taxes eligible for credit is calculated separately with respect to specific classes of income. The rules governing foreign tax credits are complex. Therefore, U.S. Holders should consult their own tax advisors regarding the availability of foreign tax credits in their particular circumstances.

 

Taxation upon sale or other disposition of ordinary shares

 

A U.S. Holder generally will recognize U.S. source capital gain or loss on the sale or other disposition of ordinary shares, which will be long-term capital gain or loss if the U.S. Holder has held such ordinary shares for more than one year. The amount of the U.S. Holder’s gain or loss will be equal to the difference between such U.S. Holder’s tax basis in the ordinary shares sold or otherwise disposed of and the amount realized on the sale or other disposition. Net long-term capital gains of non-corporate U.S. Holders, including individuals, may be eligible for reduced rates of taxation. The deductibility of capital losses is subject to limitations. Any gain or loss that a U.S. Holder recognizes generally will be treated as gain or loss from sources within the United States for U.S. foreign tax credit limitation purposes.

 

Additional tax on net investment income

 

An additional 3.8% federal income tax may be assessed on net investment income (including dividends, other distributions, and gain realized on the sale of ordinary shares) earned by certain U.S. Holders. This tax does not apply to U.S. Holders who hold ordinary shares in the ordinary course of certain trades or businesses.

 

Passive foreign investment company rules

 

The Company believes that it was not a PFIC for its 2022 taxable year and does not expect to be a PFIC for its 2023 taxable year or in the foreseeable future. A non-U.S. corporation will be a PFIC in any taxable year in which, after taking into account the income and assets of the corporation and certain subsidiaries pursuant to applicable “look-through rules,” either (i) at least 75% of its gross income is “passive income” or (ii) at least 50% of the average value of its assets is attributable to assets which produce passive income or are held for the production of passive income. However, because PFIC status depends upon the composition of the Company’s income and assets and the market value of its assets (including, among others, less than 25% owned equity investments) from time to time, there can be no assurance that the Company will not be considered a PFIC for any taxable year.

 

If the Company were a PFIC for any taxable year during which a U.S. Holder held ordinary shares, unless the U.S. Holder makes a mark-to-market election as discussed below, gain recognized by a U.S. Holder on a sale or other disposition of an ordinary shares would be allocated ratably over the U.S. Holder’s holding period for the ordinary shares. The amounts allocated to the taxable year of the sale or other disposition and to any year before the Company became a PFIC would be taxed as ordinary income. The amount allocated to each other taxable year would be subject to tax at the highest rate in effect for individuals or corporations, as appropriate, and an interest charge at the rates generally applicable to underpayments of tax payable in those years would be imposed on the resulting tax liability. The same treatment would apply to any distribution in respect of ordinary shares to the extent such distribution exceeds 125% of the average of the annual distributions on ordinary shares received by the U.S. Holder during the preceding three years or the U.S. Holder’s holding period, whichever is shorter. Certain elections may be available that would result in alternative treatments (such as mark-to-market treatment) of the ordinary shares.

 

In addition, if the Company were treated as a PFIC in a taxable year in which it pays a dividend or in the prior taxable year, the reduced rate discussed above with respect to dividends paid to certain non-corporate U.S. Holders would not apply.

 

In certain circumstances, instead of being subject to the excess distribution rules discussed above, a U.S. Holder may make an election to include gain on the ordinary shares of a PFIC as ordinary income under a mark-to-market method, provided that the ordinary shares are regularly traded on a qualified exchange. Under current law, the mark-to-market election is only available for ordinary shares that are regularly traded within the meaning of U.S. Treasury regulations on certain designated U.S. exchanges and foreign exchanges that meet trading, listing, financial disclosure and other requirements to be treated as a qualified exchange under applicable U.S. Treasury regulations. Nasdaq is a qualified exchange.

 

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If a U.S. Holder makes a mark-to-market election, the U.S. Holder will include each year as ordinary income, rather than capital gain, the excess, if any, of the fair market value of the U.S. Holder’s ordinary shares at the end of the taxable year over such U.S. Holder’s adjusted basis in the ordinary shares and will be permitted an ordinary loss in respect of the excess, if any, of the adjusted basis of these ordinary shares over their fair market value at the end of the taxable year, but only to the extent of the net amount previously included in income as a result of the mark-to-market election. A U.S. Holder’s basis in the ordinary shares will be adjusted to reflect any such income or loss amounts. Any gain or loss on the sale of the ordinary shares will be ordinary income or loss, except that this loss will be ordinary loss only to the extent of the previously included net mark-to-market gain.

 

A U.S. Holder who owns, or is treated as owning, PFIC stock during any taxable year in which the Company is a PFIC would generally be required to file IRS Form 8621 annually. Prospective purchasers should consult their tax advisors regarding the requirement to file IRS Form 8621 and the potential application of the PFIC regime.

 

Information reporting and backup withholding

 

Under U.S. federal income tax law and the Treasury regulations, certain categories of U.S. Holders must file information returns with respect to their investment in, or involvement in, a foreign corporation. For example, U.S. Holders that hold certain specified foreign financial assets in excess of U.S.$50,000 are subject to U.S. return disclosure obligations (and related penalties). The definition of specified foreign financial assets includes not only financial accounts maintained in foreign financial institutions, but also, unless held in accounts maintained by a financial institution, any stock or security issued by a non-U.S. person, any financial instrument or contract held for investment that has an issuer or counterparty other than a U.S. person and any interest in a foreign entity. U. S. Holders may be subject to these reporting requirements unless their ordinary shares are held in an account at a domestic financial institution. Penalties for failure to file certain of these information returns are substantial.

 

Payments of dividends and sales proceeds with respect to ordinary shares by a U.S. paying agent or other U.S. intermediary will be reported to the IRS and to the U.S. Holder as may be required under applicable regulations. Backup withholding may apply to these payments if the U.S. Holder fails to provide a correct taxpayer identification number or certification that it is not subject to backup withholding. Certain U.S. Holders are not subject to backup withholding. The amount of any backup withholding from a payment to a U.S. Holder will be allowed as a credit against the U.S. Holder’s U.S. federal income tax liability and may entitle such U.S. Holder to a refund, provided that the required information is timely furnished to the Internal Revenue Service. U.S. Holders should consult their tax advisors about these rules and any other reporting obligations that may apply to the ownership or disposition of ordinary shares, including requirements related to the holding of certain foreign financial assets.

 

Material Mexico Income Tax Considerations

 

The following is a summary of the material Mexican federal income tax consequences to US holders of the purchase, ownership and disposition of our shares. The summary of Mexican tax considerations does not purport to be a comprehensive description of all the Mexican tax considerations that may be relevant to a decision to purchase, own or dispose of shares and does not address all of the Mexican tax consequences that may be applicable to specific holders of the shares (including a holder that controls the Company, an investor that holds 10% or more of shares by vote or value or holders that constitute a group of persons for purposes of Mexican law that controls the Company or that holds 10% or more of the shares by vote or value, or a holder that is a resident of Mexico or that is a corporation resident in a tax haven (as defined in the Mexican Income Tax Law)). In addition, the summary does not address any U.S. or Mexican state or local tax considerations that may be relevant to a U.S. holder.

 

The summary is based upon the federal income tax laws of the United Mexican States (hereinafter “Mexico”) as in effect on the date of this annual report on Form 20-F, including the provisions of The Convention between the Government of the United States of America and the Government of the United Mexican States for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income, together with related Protocols and Competent Authority Agreements (hereinafter “Tax Treaty”), all of which are subject to change, possibly with retroactive effect in the case of U.S. federal income tax law. Prospective investors in our shares should consult their own tax advisors as to the U.S., Mexican or other tax consequences of the purchase, ownership and disposition of shares, including, in particular, the effect of any foreign, state or local tax laws and their entitlement to the benefits, if any, afforded by the Tax Treaty.

 

For purposes of this summary, the term “non-Mexican holder” shall mean a holder that is not a resident of Mexico for federal tax purposes and that does not hold shares or a beneficial interest therein in connection with the conduct of a trade or business through a permanent establishment or fixed base in Mexico.

 

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For purposes of Mexican taxation, the definition of residency is highly technical and residency results in several situations. Generally, an individual is a resident of Mexico if he or she has established his or her home in Mexico, and a corporation is a resident if it has its place of effective management or center of interest in Mexico. An individual who has a home in Mexico and another country will be considered to be a resident of Mexico if Mexico is the individual’s significant center of interest. However, any determination of residence should take into account the particular situation of each person or legal entity. If a legal entity or an individual is deemed to have a permanent establishment in Mexico for Mexican tax purposes, all income attributable to that permanent establishment will be subject to Mexican income taxes, in accordance with applicable tax laws.

 

Taxation of Dividends

 

Under the Mexican Income Tax Law, dividends paid to Mexican individuals, or any foreign residents are subject to a 10% withholding tax if paid from earnings generated during and after 2014 but are not subject to Mexican withholding tax if paid from earnings generated before 2014. Non-Mexican holders may be subject to withholding tax at reduced rates if they are eligible for benefits under an applicable tax treaty with Mexico.

 

Taxation of Dispositions of Shares

 

Subject to applicable tax treaties, any gain on the sale of our shares by any holder is subject to a 10% withholding tax in Mexico on the net gain from the sale if the transaction is carried out through the Mexican Stock Exchange. These taxes are paid through withholdings made by the financial intermediary. However, these withholdings will not be applicable to a non-resident holder that demonstrates (before the relevant financial intermediary) residence in a country with which Mexico holds a tax treaty to avoid double taxation. The non-resident holder must provide the financial intermediary with a signed document stating that the non-resident holder is a foreign resident and that their country of residence has a tax treaty to avoid double taxation with Mexico and provide their Tax ID.

 

The sale or transfer of shares outside of the Mexican Stock Exchange will give rise to a 25% Mexican withholding tax on the gross proceeds realized from the transaction. Subject to certain exceptions, a non-Mexican holder may elect to pay taxes on the gains realized from the sale of shares on a net basis at a rate of 35.0%.

 

Other Mexican Taxes

 

There are no Mexican inheritance, gift, succession or value-added taxes applicable to the ownership, transfer or disposition of the Shares by non-Mexican holders; provided, however, that gratuitous transfers of shares may in certain circumstances cause a Mexican federal tax to be imposed upon the recipient. There are no Mexican stamp, issue, registration or similar taxes or duties payable by non-Mexican holders of shares.

 

Material Guatemala Income Tax Considerations

 

The tax system of Guatemala is a unitary system, whereby income of all kinds, other than capital gains, is lumped together and subject to a single tax. The components of gross income subject to tax are usually business income, interest, dividends, rent, salaries, and services. Companies are subject to income tax only on their Guatemala-source income. Dividends and other income payable abroad are taxed separately by way of withholding taxes (WHTs).

 

For income tax purposes, there are two main systems that taxpayers may subscribe to: the system on earnings from lucrative activities and the simplified optional system on income from lucrative activities. The taxpayer chooses what system the company is registered for. Once a system is chosen, it cannot be modified until the next tax period. The request for the modification must be requested before the tax authorities at least one month prior to the new tax period.

 

System on earnings from lucrative activities: Under the system on earnings from lucrative activities, the tax is determined and paid at the end of each quarter, without prejudicing the end-of-period final tax liquidation. The tax rate is 25% on net income. This system allows taxpayers to deduct costs and expenses incurred during the period, according to requirements established by law.

 

Simplified optional system on income from lucrative activities: Under the simplified optional system on income from lucrative activities, the tax is payable under flat tax withholdings (the tax is to be retained by either the customer or the recipient of services) or by direct remittances to the tax office made monthly within the first ten working days of the month following the invoice date. The tax rate is 5% on gross income that ranges from 0.01 Guatemalan quetzales (GTQ) to GTQ 30,000 and 7% on the excess.

 

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Local income taxes: There are no specific state or provincial government taxes on income other than the two systems previously described.

 

F.DIVIDENDS AND PAYING AGENTS.

 

Not applicable.

 

G.STATEMENT BY EXPERTS

 

Not applicable.

 

H.DOCUMENTS ON DISPLAY

 

We make our filings in electronic form under the EDGAR filing system of the SEC. Our filings are available through the EDGAR system at www.sec.gov. Our filings are also available to the public through the Internet at our website at https://investors.betterware.com.mx/. Such filings and other information on our website are not incorporated by reference in this annual report. Interested parties may request a copy of this filing, and any other report, at no cost, by writing to the following email address: ir@better.com.mx.

 

I.SUBSIDIARY INFORMATION

 

Not applicable.

 

J.ANNUAL REPORT TO SECURITY HOLDERS

 

Not applicable.

 

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES REGARDING MARKET RISK

 

We are exposed to market risks arising from our normal business activities, which mainly consists of exchange rate risk and interest rate risk. These market risks principally involve the possibility that fluctuations in exchange rates and interest rates will adversely affect the value of our financial assets and liabilities, or future cash flows and earnings. Market risk is the potential loss arising from adverse changes in market rates and prices.

 

Market risk

 

Our activities expose it primarily to the financial risks of changes in exchange rates and interest rates (see below). We entered into a variety of derivative financial instruments to manage its exposure to interest rate and foreign currency risk, including:

 

In order to reduce the risks related to fluctuations in the exchange rate of foreign currency, we use derivative financial instruments such as forwards to adjust exposures resulting from foreign exchange currency.

 

Additionally, the Group occasionally used interest rate swaps to adjust its exposure to the variability of the interest rates or to reduce their financing costs. The Group’s practices vary from time to time depending on judgments about the level of risk, expectations of change in the movements of interest rates and the costs of using derivatives.

 

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   December 31,   December 31,   January 03, 
   2022   2021   2021 
   Long-term
debt
   Long-term
debt
   Borrowings 
             
   Fair value.(1)  Ps.6,489,926    1,499,867    634,992 

 

(1)The fair value of the long term bond in 2022 and 2021, was calculated based on level 1 of the value hierarchy, since its price is quoted in an active market on that date, meanwhile the fair value of borrowings in 2022 and 2020 periods, was calculated using the discounted cash flow method and the Interbank Equilibrium Interest Rate (“TIIE”, for its acronym in Spanish), adjusted for credit risk, and used to discount future cash flows.

 

Exchange risk management

 

We undertake transactions denominated in foreign currencies, mainly U.S. dollars; consequently, exposures to exchange rate fluctuations arise. Exchange rate exposures are managed within approved policy parameters utilizing forward foreign exchange contracts.

 

Our carrying amounts of U.S. dollars, Euro (“€”) and India rupee (“Rp”) and denominated financial assets and financial liabilities at the reporting date are as follows:

 

   December 31,   January 03,   January 03, 
   2022   2021   2021 
   US$   €$   Rp$   US$   US$ 
Financial assets   13,006    105    60,340    10,686    29,559 
Financial liabilities   (23,142)   (78)   -    (35,148)   (49,570)
Net position   (10,136)   27    60,340    (24,462)   (20,011)
Closing exchange rate of the year   19.3615    20.7693    0.0013    20.5157    19.9352 

 

Exchange rate sensitivity analysis

 

We are mainly exposed to variations in the Mexican Peso / the U.S. Dollar exchange rate. For sensitivity analysis purposes, we have determined a 10% increase and decrease in Ps. currency units against the U.S. dollar (“relevant currency”). A 10% is the sensitivity rate used when reporting foreign currency risk internally to key management personnel and represents management’s assessment of the reasonably possible change in foreign exchange rates. The sensitivity analysis includes only outstanding foreign currency denominated financial assets/liabilities and adjusts their translation at the year-end for a 10% change in foreign currency rates. Given that the foreign exchange currency net position results in a liability, a positive number below indicates an increase in profit where currency units strengthen 10% against the relevant currency. For a 10% weakening of currency units against the relevant currency, there would be a comparable impact on the net income, and the balances below would be negative.

             
   December 31,   December 31,   January 03, 
   2022   2021   2021 
Impact on net income  US$19,490   US$50,186   US$39,982 

 

Foreign exchange forward contracts

 

We enter into foreign exchange forward contracts to manage the foreign currency risk associated with anticipated purchase transactions up to six months. Basis adjustments are made to the initial carrying amounts of inventories when the anticipated purchases take place.

 

See Note 19 to our Audited Consolidated Financial Statements for details on foreign currency forward contracts outstanding at the end of the reporting period. Foreign currency forward contract liabilities are disclosed in the line item ‘Derivative financial instruments’ within the consolidated and combined statement of financial position.

 

We have entered into contracts to purchase raw materials from suppliers in China, with such purchases denominated in U.S. dollars. We have entered into foreign exchange forward contracts to hedge the exchange rate risk arising from these anticipated future purchases.

 

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Interest rate risk management

 

We are exposed to interest rate risk from borrowings at variable interest rates. We manage the risk by maintaining an appropriate balance between fixed and variable rate borrowings and the use of interest rate swap contracts. Hedging activities were evaluated regularly to align with interest rate views and defined risk appetite; ensuring the most cost-effective hedging strategies are applied.

 

Our exposures to interest rates on financial assets and financial liabilities are detailed in the section of liquidity risk management in our Audited Consolidated Financial Statements.

 

As of December 2022 and 2021, we did not have any SWAP contracted.

 

Credit risk management

 

Our exposure to credit risk is not significant as no customer represents more than 10% of sales and receivables. The concentration of credit risk is limited due to the fact that the customer base is large and unrelated, spread across diverse geographical areas. Credit policy has been implemented for each customer establishing purchase limits. Customers who do not satisfy the credit references set out by us, can only carry out transactions with the Group through prepayment.

 

See Note 6 in our Audited Consolidated Financial Statements, for further details on trade account receivables and the expected credit loss estimate.

 

Collateral held as security and other credit enhancements

 

We do not hold any collateral or other credit enhancements to cover its credit risks associated with its financial assets.

 

Our exposure to credit risk

 

Our exposure to credit risk concentration is not significant as no customer represents more than 10% of sales and receivables. The concentration of credit risk is limited due to the fact that the customer base is large and unrelated, spread across diverse geographical areas. Credit policy has been implemented for each customer establishing purchase limits. Customers who do not satisfy our credit references, can only carry out transactions with us through prepayment.

 

For trade receivables, we have applied the simplified approach to measure the loss allowance at lifetime ECL. We determine the expected credit losses on these items by using a provision matrix, estimated based on historical credit loss experience based on the past due status of the debtors, adjusted as appropriate to reflect current conditions and estimates of future economic conditions. Accordingly, the credit risk profile of these assets is presented based on their past due status in terms of the provision matrix. Our Note 6 in our Audited Consolidated Financial Statements includes further details on the loss allowance for these assets.

 

Liquidity risk management

 

The ultimate responsibility for liquidity risk management rests with the board of directors, which has established an appropriate liquidity risk management framework for management of our short, medium and long-term funding and liquidity management requirements. We manage liquidity risk by maintaining adequate reserves, banking facilities, and reserve borrowing facilities, by continuously monitoring the forecast and actual cash flows, and by matching the maturity profiles of financial assets and liabilities.

 

Liquidity maturity analysis

 

We manage our liquidity risk by maintaining adequate reserves of cash and bank credit lines available and consistently monitoring its projected and actual cash flows. The maturity analysis of lease liabilities and long-term debt maturities effectives in 2022, 2021 and 2020 are presented in Note 14 and 16, respectively in our Audited Consolidated Financial Statements. We have access to financing facilities as described below.

             
Bank credit lines and long term debt  2022   2021   2020 
Amount used  Ps.6,198,695    1,500,000    626,554 
Amount not used   1,380,000    250,000    297,828 
Total credit lines and long term debt  Ps.7,578,695    1,750,000    924,382 

 

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ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

 

A.DEBT SECURITIES

 

Not applicable.

 

B.WARRANTS AND RIGHTS

 

Not applicable.

 

C.OTHER SECURITIES

 

Not applicable.

 

D.AMERICAN DEPOSITARY SHARES

 

Not applicable.

 

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PART II

 

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

 

None.

 

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

 

Not applicable.

 

ITEM 15. CONTROLS AND PROCEDURES

 

A.DISCLOSURE CONTROLS AND PROCEDURES

 

Our Chief Executive Officer (CEO) and Chief Corporate Financial Officer (CCFO) are responsible for implementing disclosure controls and procedures to ensure that the information required to be disclosed by the Group in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. Such information is necessary for our officers who certify our financial reports and for other members of senior management and the CEO and CCFO as appropriate to allow timely decisions regarding required disclosure. Because of these inherent limitations, our disclosure controls and procedures may not prevent or detect misstatements. Additionally, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

The CEO and CCFO oversee and review all materials for which there is a disclosure requirement, together with all data required to support the documents mentioned above. These executives meet at regular intervals in order to review all data. Our CEO and CCFO conducted an evaluation of the effectiveness of our disclosure controls and procedures (pursuant to Rule 13a-15(e) under the Exchange Act) as of December 31, 2022. Based on that evaluation, our CEO and CCFO have concluded that the Company’s disclosure controls and procedures were not effective as of December 31, 2022, due to the existence of material weaknesses in our internal controls over financial reporting.

 

See Exhibits 12.1 and 12.2 for the certifications required by this Item.

 

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B.MANAGEMENT’S ANNUAL ASSESSMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

 

Betterware’s management is responsible for establishing and maintaining adequate internal control over financial reporting for Betterware as defined in Exchange Act Rule 13a-15(f) and 15d-15(f). Our internal control over financial reporting was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board. Internal control over financial reporting includes those policies and procedures that:

 

pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of Betterware;

 

provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with IFRS and that receipts and expenditures of Betterware are being made only in accordance with authorizations of Management and directors of Betterware; and

 

provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of Betterware’s assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements due to the possibility that a control can be circumvented or overridden or that misstatements due to error or fraud may occur that are not detected. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that a reasonable possibility exists that a material misstatement of our annual or interim financial statements would not be prevented or detected on a timely basis.

 

As of December 31st, 2022, our management assessed the effectiveness of our internal control over financial reporting based on the criteria of Internal Control - Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.

 

Our assessment concluded the following material weaknesses.

 

The Company did not design and maintain an effective risk assessment process and monitoring activities, commensurate with our financial reporting requirements, related to identifying and assessing significant changes in the business that could affect our internal control over financial reporting, and conducting timely follow-up to determine whether the components of internal control are present and functioning effectively. These material weaknesses contributed to the following material weaknesses associated with:

 

(i) business combination process specifically, the Company did not design and maintain controls to determine the goodwill and long-lived assets, including the review of the data and assumptions used to determine the fair value of the assets and liabilities acquired;

 

(ii) the period-end financial reporting and consolidation process. Specifically, the Company did not design and maintain formal accounting policies, procedures and controls to ensure complete, accurate and timely reporting in the consolidated financial statements; and

 

(iii) certain information technology (“IT”) general controls for information systems that are relevant to the preparation of its consolidated financial statements. Specifically, the Company did not design and maintain (i) program change management controls to ensure the completeness of IT program and data changes affecting IT applications and underlying accounting records are identified, tested, authorized and implemented appropriately, (ii) certain user access controls to ensure appropriate segregation of duties that adequately restrict user and privileged access to its financial applications and data to appropriate Company personnel, (iii) computer operations controls to ensure certain critical data interfaces between key systems are appropriately monitored.

 

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These material weaknesses resulted in revisions to previously issued consolidated financial statements as of and for the years ended December 31, 2021 and January 3, 2021, and certain adjustments recorded in the current year consolidated financial statements. Additionally, each of these material weaknesses could result in further misstatements of account balances or disclosures that would result in a material misstatement to the consolidated financial statements that would not be prevented or detected.

 

We are in the process of implementing several measures to strengthen our internal control over financial reporting such as the deployment of IT applications to enable and automate the consolidation, creation and updating of policies and procedures for internal control reporting, creation of an internal control area which shall be responsible of monitoring the internal control, and IT General Control process as implementation of new tools for managing IT system changes such as ITSM.

 

Notwithstanding the material weaknesses in our internal control over financial reporting, we have concluded that the Consolidated Financial Statements included in this annual report present fairly, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with IFRS.

 

During 2021, the Company ceased to be classified as an emerging growth company (“EGC”) and its status was changed to that of large accelerated filer. Consequently, the Company was no longer eligible for an exception from compliance with the requirements of section 404 of the Sarbanes-Oxley Act of 2022, which stipulates those enterprises must establish internal controls for financial reporting and must have processes to document, test and maintain internal controls continuously. The Company started in 2021 the implementation of a formal Internal Control over Financial Reporting Program based on a top-down risk assessment to validate the existence of controls over significant, accounts, processes, applications and IT environments. Our management has worked, and continues to work, to strengthen our internal control over financial reporting, however, we have not completed all remediation efforts. Accordingly, we will continue to enhance the internal control environment and focus on the remediation of the material weaknesses described above, performing additional procedures prescribed by management, including the use of manual mitigating control procedures and employing any additional tools and resources deemed necessary to ensure that our consolidated financial statements are fairly stated in all material respects.

 

Management conducted an evaluation of the effectiveness of Betterware’s internal control over financial reporting based on the framework in Internal Control – Integrated Framework 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO 2013”). Based on its evaluation, Management concluded that Betterware’s internal control over financial reporting was not effective as of December 31, 2022.

 

Guadalajara, Mexico

 

May 15, 2023

 

     
/s/ Andres Campos   /s/ Alejandro Ulloa
Andrés Campos, CEO   Alejandro Ulloa, CCFO

 

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C.REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROLS

 

PricewaterhouseCoopers, S.C., the Company’s independent registered public accounting firm, has audited the effectiveness of the Company’s internal controls over financial reporting as of December 31, 2022 as stated in their report, which appears in “Item 18. Financial Statements.”

 

D.CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

 

During 2022, we implemented certain changes in our internal control over financial reporting to address our material weaknesses identified in 2021, which include:

 

Completed the design and implementation of an Internal Control over Financial Reporting (ICFR) program, which is aligned with leading control frameworks such as COSO and COBIT.

 

Our ICFR program focuses on the identification, documentation, and testing of the controls intended to mitigate the risk of material financial statement misstatements and is the basis to assess the effectiveness of our ICFR as of the end of each fiscal year.

 

Documented processes and controls, by which transactions are initiated, authorized, recorded, processed, corrected as necessary, transferred to the general ledger and reported in our consolidated financial statements;

 

Finalized the implementation of the controls intended to mitigate risks on areas of higher risk to financial reporting.

 

Documented a remediation plan which included the deficiencies identified and the controls to be implemented for each one of them and the time of when remediation was going to be completed.

 

We acknowledge that material weaknesses in our ICFR have been identified. We will continue to work to enhance the maturity level of our implemented ICFR.

 

ITEM 16. Reserved

 

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

 

See “Directors, Senior Management and Employees—Board Practices—Board Committees—Audit Committee.” Our Board of Directors has determined /that Joaquin Gandara Ruiz Esparza qualifies as an “audit committee financial expert” under applicable SEC rules.

 

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ITEM 16B. CODE OF ETHICS

 

We have a Code of Ethics that applies to all directors, officers and employees of the Group, including our Chief Executive Officers, Chief Financial Officers, principal accounting officers, controller and persons performing similar functions. Our Code of Ethics is included as an exhibit to this annual report on Form 20-F.

 

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

 

Fees Paid to the Company’s Principal Accountant

 

The following table sets forth the fees for the 2022 and 2021 periods, respectively:

 

   For the Year Ended 
   December 31,   December 31, 
   2022   2021 
   (in thousands of MX$) 
Audit fees   17,015    6,945 
Audit related fees   312    2,258 
Other fees   2,005    2,064 
Total   19,332    11,267 

  

Audit Fees

 

Audit fees were paid for professional services rendered by the auditors for the audit of the Consolidated Financial Statements and the statutory financial statements of the Group.

 

Audit-Related Fees

 

Audit-related fees are typically services that are reasonably related to the performance of the audit or review of the Consolidated Financial Statements and are not reported under the audit fee item above. This item includes fees for attestation services on financial information of the Group included in the Group’s registration statements on Form F-1 and Form F-4 as well as its listing process in the Bolsa Institucional de Valores (“BIVA”, Mexican Stock Exchange) in 2021 the listing process in Bolsa Mexicana de Valores (“BMV”).

 

Other Fees

 

Other fees were paid for transfer pricing services and social security compliance.

 

Audit Committee’s Pre-approval Policies and Procedures

 

The Group’s audit committee is responsible for, among other things, the oversight of the Group’s independent auditors. The audit committee has adopted a policy of pre-approval of audit and permissible non-audit services provided by its independent auditors in its charter.

 

Under the policy, the audit committee makes its recommendations through the Board of Directors to the shareholders’ meeting concerning the continuing appointment or termination of the Group’s independent auditors. On a yearly basis, the audit committee reviews together with management and the independent auditor, the audit plan, audit related services and other non-audit services and approves the related fees. Any changes to the approved fees must be reviewed and approved by the audit committee. In addition, the audit committee delegated to its Chairman the authority to consider and approve, on behalf of the Audit Committee, additional non-audit services that were not recognized at the time of engagement, which must be reported to the other members of the audit committee at its next meeting. No services outside the scope of the audit committee’s approval can be undertaken by the independent auditor.

 

ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

 

Not applicable.

 

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ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

 

None.

 

ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT.

 

On August 4, 2022, our Board of Directors approved the appointment of PricewaterhouseCoopers,, S.C. (“PWC”), as our auditors for the audit as of December 31, 2022. The change in the Group’s external auditor was decided in connection with the JAFRA Acquisition in April 2022. At the time of the acquisition, PWC acted as external auditor of JAFRA. Likewise, Galaz, Yamazaki, Ruiz Urquiza, S.C. (“Deloitte”) was the Company’s external auditor. Since it was not possible for the Company to have two external auditors’ firms, the Company’s Audit Committee requested both of them to submit separate proposals to act as external auditors of the Company in a consolidated basis. After careful review of such proposals, the appointment of PWC was recommended by the Company’s Audit Committee and was approved by the Company’s Board of Directors. At the same time, Deloitte was dismissed.

 

During the two fiscal years ended December 31, 2021 and January 3, 2021, and the subsequent interim period through August 4, 2022 there were no disagreements with Deloitte, on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreements if not resolved to their satisfaction would have caused them to make reference in connection with their opinion to the subject matter of the disagreement.

 

The audit reports of Deloitte on the consolidated financial statements of the Group as of December 31, 2021 and January 3, 2021, respectively, and for the years then ended did not contain any adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope, or accounting principle.

 

The Registrant has requested that Deloitte furnish it with a letter addressed to the SEC stating whether or not it agrees with the above statements. A copy of such letter, dated May 15, 2023, is filed as Exhibit 16 to this Form 20-F.

 

ITEM 16G. CORPORATE GOVERNANCE

 

As a Mexican company listed on the Nasdaq, we are subject to the Nasdaq corporate governance listing standards. However, Nasdaq rules permit a foreign private issuer like us to follow the corporate governance practices of its home country. Certain corporate governance practices in Mexico, which is our home country, may differ significantly from the Nasdaq corporate governance listing standards. Currently, we rely on home country practice. As a result, our shareholders could be subject to less protection than they would otherwise enjoy under the Nasdaq corporate governance listing standards applicable to U.S. domestic issuers. See “Risk Factors—As a “foreign private issuer” under the rules and regulations of the SEC, Betterware is permitted to, and is expected to, file less or different information with the SEC than a company incorporated in the United States or otherwise subject to these rules, and is expected to follow certain home country corporate governance practices in lieu of certain Nasdaq requirements applicable to U.S. issuers.”

 

ITEM 16H. MINE SAFETY DISCLOSURE

 

Not applicable.

 

ITEM 16I. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

 

Not applicable.

 

ITEM 16J. INSIDER TRADING POLICIES

 

Not applicable.

 

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PART III