UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
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the Fiscal Year Ended
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For the transition period from __________ to __________
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Date of event requiring this shell company report __________
Commission
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol | Name of each exchange in which registered | ||
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Securities registered pursuant to Section 12(g) of the Act: None
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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
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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.
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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).
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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 ☐ | 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. ☐
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☐ 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).
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Yes
TABLE OF CONTENTS
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; |
● | 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.
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SUMMARY OF RISK FACTORS
The Company’s business, results of operations, financial conditions and cash flows are subject to, and could be materially adversely affected by a number of risks and uncertainties, including risks relating to the nature of the Company’s business and its operations in Mexico. The following list summarizes some, but not all, of these risks. Please read the information in the section entitled “Risk Factors” for a more thorough description of these and other risks.
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. |
● | The loss of key high-level distributors, leaders or consultants could negatively impact our growth and our 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. |
● | Failure to successfully develop new products could harm our business. |
● | 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. |
● | 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. |
● | Volatility in costs, along with delays and disruptions in the supply of materials and services, could have a material adverse effect on our business, prospects, results of operations, 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. |
● | If the industry in which we operate, our business or our products are subject to adverse publicity, our business may suffer. |
● | 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 are dependent on information and communication technologies, and our systems and infrastructures face certain risks, including cybersecurity risks. |
● | Because of the costs and difficulties inherent in managing cross-border business operations, our results of operations may be negatively impacted. |
● | 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. |
● | Inflation could adversely affect our business and results of operations. |
● | 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. |
● | 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 materially adversely affected. |
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● | Our controlling shareholder may have interests that conflict with your interests. |
● | 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. |
● | 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. |
● | 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. |
● | Changes in taxes and other assessments may adversely affect us. |
● | We are subject to environmental laws and regulations risks that could affect our business, results of operations and financial condition. |
● | 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. |
● | 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. |
Risks Related to Mexico
● | Since more that 90% our operations are concentrated in Mexico, we are subject to political, economic, legal, and regulatory risks specific to Mexico and are vulnerable to an economic downturn, other changes in market conditions, acts of violence, or natural disasters in s in Mexico which may adversely affect our business and results of operations. |
● | The political situation in Mexico could negatively affect our operating results. |
● | Currency exchange rate fluctuations, particularly with respect to the US dollar/Mexican peso exchange rate, could lower margins. |
● | Any adverse changes in our business operations in Mexico would adversely affect our revenue and profitability. |
● | Economic and political developments in Mexico and the United States may adversely affect Mexican economic policy. | |
● | Mexico is an emerging market economy, with attendant risks to our results of operations and financial condition. | |
● | Investments in Mexican companies entail substantial risk; the Mexican government has exercised, and continues to exercise, an important influence on the Mexican economy. |
● | Our business may be significantly affected by the Mexican economy’s general condition, by the depreciation of the peso, inflation, and high-interest rates in Mexico. |
● | If the Mexican government imposes exchange controls and/or other similar restrictions, the Mexican economy and our operations may be negatively affected. |
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● | Security risks in Mexico could increase, and this could adversely affect the Mexican economy and our business, financial condition, and results of operations. |
● | We are subject to anti-corruption, anti-bribery, anti-money laundering, and antitrust laws and regulations in Mexico. |
● | The regulatory environment in which we operate is evolving, and our operations may be modified or otherwise adversely affected by regulatory changes, subjective interpretations of laws or an inability to work effectively with national and local government agencies. |
● | Laws and regulations may restrict our direct sales efforts and adversely affect our revenue and profitability. |
● | You may have difficulty enforcing your rights against Betterware and our directors and executive officers. |
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 permitted to follow certain home country corporate governance practices in lieu of certain Nasdaq requirements applicable to U.S. issuers. |
● | 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’s shares could decline. |
● | There can be no assurance that Betterware will be able to comply with the continued listing standards of Nasdaq. |
● | 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. |
● | 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 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 anti-takeover protections included in our Bylaws and others provided under Mexican Law may deter potential acquirors. |
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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 |
● | “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, 2023, 2022, and 2021, and for our fiscal years ended December 31, 2023, 2022 and 2021 (collectively, our “Audited Consolidated Financial Statements”).
During the preparation of the Company’s consolidated financial statements as of and for the year ended December 31, 2022, 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 year ended December 31, 2021 under the SEC’s Staff Accounting Bulletin No. 99, could not be corrected on an out-of-period basis in the 2022 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 year ended December 31, 2022, for accounting purposes decreased to approximately half of the materiality levels established in the year ended December 31, 2021. 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 years covered by our Audited Consolidated Financial Statements.
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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 as of and for the years ended December 31, 2023, and 2022 have been audited by PricewaterhouseCoopers, S. C. (“PWC”), an independent registered public accounting firm, whose report dated April 30, 2024 is also included in this annual report. Our Audited Consolidated Financial Statements as of and for the year ended December 31, 2021, was audited by Galaz, Yamazaki, Ruiz Urquiza, S.C., affiliated member firm 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.
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”), Programa Lazos, S.A. de C.V., Betterware de Guatemala, S.A., Finayo, S.A.P.I. de C.V. SOFOM ENR, Betterware America, LLC 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 Results—Reconciliation 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.
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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.
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 Ps.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 Ps.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.
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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 Ps.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. |
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.
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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.
Transactions during 2021
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.
Transactions during 2022
On March 25, 2022, Betterware and Programa Lazos, S.A acquired 2% and 98%, respectively, of the shares of Finayo, S.A.P.I. de C.V. (“Finayo”), a Mexican sociedad anónima promotora de inversión de capital variable for the aggregate purchase price of Ps.1.1 million. Finayo focuses on granting loans, financial leasing and factoring operations. In June 2023, Betterware acquired additional shares of stock in Finayo for Ps.5 million, increasing its participation from 2% to 99.05%, and at the same time Programa Lazos decreased its participation in Finayo from 98% to 0.95%.
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.”
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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.”
Subsequent Events during 2024
At the end of 2023, the Group announced that beginning in the second quarter of 2024. Betterware plans to launch an enhanced direct selling model related to of sale of products from our home organization segment, initially focusing on the Hispanic population in the United States, with an expected annual investment of approximately USD$6 million in 2024. Additionally, Betterware continues to progress with expansion of its brand into Latin America.
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.
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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 distributors, leaders, and consultants and to 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; |
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● | issues with the quality of new products; |
● | 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 ones, 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 or to recruit new ones.
The loss of key high-level distributors, leaders or consultants could negatively impact our growth and our revenue.
As of December 31, 2023, BWM had approximately 741,170 active associates and 41,825 distributors, and JAFRA had approximately 498,853 and 20,512 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.
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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 year 2023, products supplied by Chinese manufacturers accounted for approximately +91% 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 on health epidemics or pandemics, or any other cause, this could adversely affect our overall business, results of 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 on Chinese products, could have a material adverse effect on our business, financial condition and results of operations.
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 accounted for 84.3% of JAFRA sales, and as of December 31, 2023, represented 56% 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, 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, our business could be materially adversely affected. 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, 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.
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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 our leaders and consultants. Such events, if not promptly remedied, could have a material adverse effect on our business, prospects, reputation, results of operations, 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.
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 on our results of operations.
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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 increase 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.
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 2023, we experienced 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 that we were able to successfully quarantine and contain, as well as sporadic attempted attacks, that were minor and unsuccessful, on our infrastructure. None of such incidents were material nor had any significant effect on our business or operations. 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.
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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, results of operations and financial condition.
Inflation could adversely affect our business and results of operations.
The impact of geopolitical developments such as the Russia-Ukraine conflict and Israeli-Palestinian conflict, and the global supply chain disruptions could 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. An increase in inflation could 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 could 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.
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.
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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 materially adversely affected.
As of December 31, 2023, 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 management concluded that we did not design and maintain effective controls over the (i) the effectiveness of the controls over the business combination process, specifically, we did not design and maintain controls to determine the ongoing impairment assessment; (ii) the effectiveness of the controls in the period-end financial reporting and consolidation process, as we did not design and maintain formal accounting policies, procedures and controls to ensure complete, accurate and timely reporting in the consolidated financial statements; and; and (iii) the effectiveness of 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 strengthen 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.”
At the end of 2021, the Company changed its status from an emerging growth company to a large, accelerated filer. At the end of 2022, the Company changed its status to an accelerated filer and maintained that status during 2023 and at the end of 2023. The Company continues working on the implementation of a formal internal control over financial reporting program based on a top-down risk assessment ensure the existence of controls over significant accounts, processes, applications and IT environments. See “Item 15—Controls and Procedures—Disclosure Controls and Procedures.”
If we fail to establish and maintain proper and effective internal controls over financial reporting or fail to adequately resolve our existing material weaknesses, our results of operations and our ability to operate our business may be materially adversely affected.
Our controlling shareholder may have interests that conflict with your interests.
As of the date of this annual report, Campalier owns approximately 53.91% 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 and to make 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.
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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 their 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 materially adversely affected.
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.
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 materially adversely affected.
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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, 2023, we had Ps.5,504 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.
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.
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In December 2021, the Organization for Economic Cooperation and Development “OECD” released the pillar two model rules (the Global Anti-Base Erosion Proposal, or “GloBE”) to reform international corporate taxation. Large multinational enterprises within the scope of the rules are required to calculate their GloBE effective tax rate for each jurisdiction where they operate. They will be liable to pay a top-up tax for the difference between their GloBE effective tax rate per jurisdiction and the 15% minimum rate.
As of December 31, 2023, the Group is not within the scope of the pillar two model rules because this legislation has not been enacted in the jurisdictions where it operates. Since pillar two legislation is not effective at the reporting date, the Group has no current tax exposure; however, the Group will be analyzing the potential implications of the application of the pillar two rules, including evaluating whether the requirements in each jurisdiction qualify as income taxes under the scope of IAS 12. We cannot provide any assurance regarding the effect, if any, that such rules would have on our results of operations or financial condition.
We are subject to environmental laws and regulations risks that could affect our business, results of operations and financial condition.
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.”
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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.
On March 6, 2024, the Securities and Exchange Commission issued the final rule on The Enhancement and Standardization of Climate-Related Disclosures for Investors. This rule mandates the disclosure of information regarding a registrant’s climate-related risks that have materially impacted or are reasonably likely to have a material impact on, its business strategy, results of operations, or financial condition. Although we will not be subject to the new disclosure requirements until 2026, the Group is currently assessing the impact of this rule for disclosure to investors.
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, results of operations or financial condition.
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.
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Risks Related to Mexico
Since more that 90% our operations are concentrated in Mexico, we are subject to political, economic, legal, and regulatory risks specific to Mexico and are vulnerable to an economic downturn, other changes in market conditions, acts of violence, or natural disasters in s in Mexico which 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, 2022 and 2023, GDP in Mexico grew by 4.8%, decreased by 3.9% and increased by 3.1% respectively.
During 2023, 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, results of operation and financial condition.
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.
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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, results of operations and financial condition.
The political situation in Mexico could negatively affect our operating results.
In Mexico, political instability has been a determining factor in business investment. Significant changes in laws, public policies and/or regulations could affect Mexico’s political and economic situation, which could, in turn, adversely affect our business. Mexican political events may affect our business operations. President Lopez Obrador’s political party and its allies hold a majority in the Chamber of Deputies (Cámara de Diputados) and the Senate (Senado de la República) and have 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 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. 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 in the Mexican political or social environment may cause disruptions to our business operations and decreases in our sales and net income.
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, we 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 December 2024. 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.
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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; |
● | 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.
Mexico’s economy is vulnerable to global market downturns and economic slowdowns. Moreover, Mexico’s economy is largely influenced by economic conditions in the United States and Canada as a result of various factors, including the volume of commercial transactions under the United States–Mexico–Canada Agreement (the “USMCA”) and the level of U.S. investments in Mexico.
Therefore, events and conditions that affect the U.S. economy can also directly and indirectly affect our business, financial condition, and results of operations. The global economy, including Mexico and the United States, has been materially and adversely affected by a significant lack of liquidity, disruption in the credit markets, reduced business activity, rising unemployment, a decline in interest rates, and erosion of consumer confidence during recent periods of recession. 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. The risks associated with current and potential changes in the Mexican and United States economies are significant and could have a material adverse effect on our business, financial condition, 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, results of operations and financial condition.
We cannot make assurances that any events in the United States or elsewhere will not materially and adversely affect us.
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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 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.
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 condition and results of operations 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, 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 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.
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Our business may be significantly affected by the Mexican economy’s general condition, by the depreciation of the peso, inflation, and high-interest rates in Mexico.
Declines in growth, high rates of inflation, and high-interest rates in Mexico could materially adversely affect our business. 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.
In the past, the rating agencies rating Mexico have downgraded Mexico and/or placed Mexico on negative outlooks. On June 16, 2023, Fitch Ratings affirmed Mexico’s Long-Term (LT) Foreign Currency (FC) Issuer Default Rating (IDR) at ‘BBB-’; with a stable rating outlook. On July 14, 2023, Moody’s assigned Mexico a rating of Baa2; with a stable rating outlook. We cannot ensure that the rating agencies will not announce additional downgrades of Mexico in the future. These downgrades could adversely affect the Mexican economy and, consequently, our business, financial condition, results of operations, and prospects.
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.
If the Mexican government imposes exchange controls and/or other similar restrictions, the Mexican economy and our operations may be negatively affected.
In the past, the Mexican economy has experienced a balance of payment deficits and shortages in foreign exchange reserves. There can be no assurance that the Mexican government will not institute a restrictive exchange control policy or other restrictions. If the Mexican government imposes exchange controls and/or other similar restrictions, the Mexican economy and our operations may be negatively affected.
Security risks in Mexico could increase, and this could adversely affect the Mexican economy and our business, financial condition, and results of operations.
In recent years, Mexico has experienced a period of increasing criminal activity and particularly high homicide rates, primarily due to organized crime. The presence of violence among drug cartels, and between drug cartels and the Mexican law enforcement and armed forces, or an increase in other types of crime, pose a risk to our business, and could negatively impact business continuity. This situation in Mexico could worsen if the economy continues to deteriorate.
We are subject to anti-corruption, anti-bribery, anti-money laundering, and antitrust laws and regulations in Mexico.
We are subject to anti-corruption, anti-bribery, anti-money laundering, antitrust and other international laws and regulations and are required to comply with the applicable laws and regulations of Mexico. In addition, we are subject to regulations on economic sanctions that restrict our dealings with certain sanctioned countries, individuals, and entities. There can be no assurance that our internal policies and procedures will be sufficient to prevent or detect all inappropriate practices, fraud, or violations of law by our affiliates, employees, directors, officers, partners, agents, and service providers or that any such persons will not take actions in violation of our policies and procedures. Any violations by us of anti-bribery and anti-corruption laws or sanctions regulations could have a material adverse effect on our business, reputation, results of operations and financial condition.
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The regulatory environment in which we operate is evolving, and our operations may be modified or otherwise adversely affected by regulatory changes, subjective interpretations of laws or an inability to work effectively with national and local government agencies.
Although we review 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.
Laws and regulations may restrict our direct sales efforts and adversely affect 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 us 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 us reporting requirements to regulatory agencies; and/or |
● | require us to ensure that distributors, leaders and consultants are not being compensated solely based upon the recruitment of new of them. |
Complying with these 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.
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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 permitted 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.
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 permitted 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’s shares could decline.
The trading market for the Company’s 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’s shares adversely or provide more favorable relative recommendations about the Company’s competitors, the price of the Company’s 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.
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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’s shares; |
● | a limited amount of analyst coverage; and |
● | a decreased ability to issue additional securities or obtain additional financing in the future. |
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 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.
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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.
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.”
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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 |
All amounts in this section marked with “Ps.” are in thousands of Mexican pesos, unless otherwise noted
● | 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 ready for use in 2021, with construction completed in 2023, for a total investment of Ps.1,110,807. |
● | 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. |
● | During 2023, the Group decreased long-term debt by approximately Ps.1,000,000 compared to 2022, through the following movements (See “Indebtedness” for additional information”):
a) On July 5, 2023, Betterware signed an agreement with BBVA to acquire a simple line of credit for Ps.1,500,000.
b) On July 7, 2023, Betterware successfully concluded the third and fourth bond offerings for a total of Ps.813,974, with four and seven-year maturities, issued in the Mexican market.
c) As of July 10, 2023, Betterware fully prepaid the debt of the syndicated loan related to the JAFRA Acquisition in 2022, using the new cash provided from the long-term debt with BBVA and the third and fourth bond issuances, plus the proceeds from short-term debt under revolving credit lines.
d) On September 12, 2023, Betterware signed an agreement with HSBC to acquire a simple line of credit for Ps.950,000. |
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B. | BUSINESS OVERVIEW |
We are a leading company in the direct sales industry, offering a product portfolio divided into two segments:
● | Home organization segment (BWM) comprised of seven different categories: kitchen and food preservation, home solutions, bathroom, laundry & cleaning, tech and mobility, bedroom and wellness. For the year 2023, this segment represented 44% of our net revenue on a consolidated basis. |
● | Beauty and personal care (B&PC) segment (JAFRA) comprised of four main categories: fragrance, color, skin care and toiletries. For the year 2023, this segment represented 56% of our net revenue on a consolidated basis. |
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, well-being 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 where we exhibit approximately 356 products per catalogue. During 2023, BWM launched 678 new products (compared to 568 during 2022), with a balance of 506 new developments (compared to 397 during 2022) and 172 bring-backs (compared to 171 during 2022). During 2023, BWM increased innovation in order to promote sales by focusing on market trends and to attract and maintain a diverse customer base. We added to our catalogs trend products related to babies, pets and wellness, among others. In 2023 our products included more than 4,277 SKUs (product codes) throughout the year (achieving a 12.5% growth compared to 3,800 SKUs during 2022). All of our home organization’s products are branded with unique characteristics and manufactured by more than 350 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, 2023, more than 41,825 distributors and 741,170 associates across Mexico, who have approximately 24.5% household penetration in Mexico; and 77% of distributors and 27% 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 our 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.
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Beauty and Personal Care Segment (JAFRA)
Our beauty and personal care segment has a portfolio of more than 1,200 products within four main categories: fragrances, color, skin care and toiletries. JAFRA has been leader in the fragrance market since 2015. In 2023, our beauty and personal care segment’s products were sold through 12 promotional catalogues published on a monthly basis offering 400 products in average per catalogue, as well as a brochure with annually available products at regular price. JAFRA develops approximately 160 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 penetration in sales of 13% in fragrances, 3.5% in color and 1.1% in skin care in México.
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: |
Ø |
the home organization segment through seven different categories: kitchen and food preservation, home solutions, bathroom, laundry & cleaning, tech and mobility, bedroom, and well-being. |
Ø |
the 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. |
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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 41,825 distributors and 741,170 associates as of December 31, 2023. |
● | Our home organization segment’s distributors and associates have approximately 24.5% household penetration in Mexico and 77% of distributors and 27% 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 20,512 leaders and 498,853 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, 94% of leaders and 52% 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. |
Unparalleled Logistics and Supply Chain Platform
Our home organization segment’s products are manufactured by more than 350 third-party certified factories located in China and Mexico following BWM’s quality standards. 84.3% 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. |
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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. |
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, 2023, sales and marketing expenses represented 3.1% 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 and events, which as of December 31, 2023, represented 2.4% of our net revenue. |
Seasonality
We have not experienced and do not expect to experience, any material seasonal fluctuations which could affect our business and results of operations.
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. |
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● | 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.
Some of the environmentally 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).
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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
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 preferred parking spaces. |
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● | 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. |
● | 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 collaborator’s 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. |
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● | 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.
Sustainability Events during 2023
During the last quarter of 2023, we devoted our efforts on sustainability to the development of a comprehensive strategy that recognizes that our impact on the environment and society is material to our financial performance, with a focus on our core values and views: People, Planet and Profit.
These three pillars encompass our short and mid-term vision regarding what we are striving to accomplish not only as a Group, but also in our commitment towards the UN Sustainable Development Goals.
People: Our mission is to create opportunities for those who can and want to seize them. Our business model allows over a million people (90% of them women) to have a source of income that brings them independence, flexibility, and amazing growth opportunities.
Additionally, we care for the wellbeing of all our workforce with excellent working conditions that promote the integrity of our employees prioritizing their physical, emotional, and mental health.
Our goals for 2024 include:
● | The re-launch of our Non-Profit organization |
● | Social projects that will benefit our neighbor communities |
● | Strategic alliances with other non-profit organizations that will increase our impact. |
Planet: We are committed to preserving the environment and to compensating for the carbon footprint that our activities have on the environment. We are aware of the urgent water and climate-change crisis that our world is going through, and we believe that awareness and education are key to shifting this crisis. Therefore, our main efforts will focus on creating conscience on our employees and sales force on how each one of us can take action and contribute to assume responsibility of the impact we generate on the environment.
Our key goals for 2024 include:
● | Measurement of our carbon footprint (scope 1 and 2) |
● | Investment in solar panels |
● | Nation-wide recycling campaign |
● | Printing reduction goals |
● | Reforestation of more than a thousand species in two states in Mexico |
● | Education on water conservation, circular economy, climate change and upcycling for our employees and sales force. |
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Profit: Our view on business growth is aligned with our social view. If our sales force grows, we grow. However, we want to ensure that our growth is fair and in sync with our core ethical values.
Our governance goals for 2024 include:
● | Communication of our new code of ethics |
● | Gender equality across all levels of our group |
● | Long-term ESG goals |
● | Publishing of our 2023 sustainability report |
● | JAFRA’s recognition that its impact on the environment and society is material to its financial performance. |
C. | ORGANIZATIONAL STRUCTURE |
The following diagram depicts the organizational structure of the Group as of the date of this annual report:
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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 2023 and the total investment amounted to Ps.1,111 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.
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.
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Net Revenue
We generate revenue mainly through sale of products within two main segments:
Ø |
Home 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, bedroom and wellness. 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 |
Ø |
Beauty and personal care (B&PC) segment, under JAFRA’s brand. Our beauty and personal care segment include 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, 2023, JAFRA contributed 56% of our consolidated net revenue and BWM contributed 44%.
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 is recognized when points are actually redeemed and exchanged by distributors, associates, leaders and consultants.
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.
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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 for the Year 2021
During the preparation of the Company’s consolidated financial statements as of and for the year 2022, 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 year 2021 under the SEC’s Staff Accounting Bulletin No. 99, could not be corrected on an out-of-period basis in the 2022 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 year 2022 for accounting purposes decreased to approximately half of the materiality levels established in the year 2021. 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 year 2021. Below we provide a representation of the effects of these immaterial corrections:
Consolidated Statement of Financial Position as of December 31, 2021
(In Thousands of Mexican pesos)
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
(In Thousands of Mexican pesos)
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 | ) |
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 of our Audited Financial Statements, which was not recorded previously. |
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Results of Operations — For the Year 2023 Compared to the Year 2022:
All amounts in this section marked with “Ps.” are in thousands of Mexican pesos unless otherwise noted
Net Revenue
December 31, | December 31, | |||||||||||||||
2023 | 2022 | Var. $ | Var.% | |||||||||||||
The Group’s net revenue | ||||||||||||||||
BWM | Ps. | 5,726,608 | 6,343,344 | (616,736 | ) | (9.7 | )% | |||||||||
JAFRA(1) | 7,282,899 | 5,164,205 | 2,118,694 | 41.0 | % | |||||||||||
Total net revenue | Ps. | 13,009,507 | 11,507,549 | 1,501,958 | 13.1 | % |
(1) | The period ended December 31, 2022, covers the period from April 7 to December 31 in the case of JAFRA. |
BWM:
Net revenue decreased by 9.7%, or Ps.616,736, to Ps.5,726,608 for the year 2023 compared to Ps.6,343,344 for the year 2022, due to the Company continuing to stabilize the number of distributors and associates that comprise our sales network post-pandemic. During the year ended December 31, 2023, distributors increased by 6.1% to 41,825 (compared to 39,413 in 2022), and associates decreased by 4.8% to 741,170 (compared to 778,845 in 2022), which resulted in a decrease of approximately 2.3% in the average monthly order. Volume of units sold decreased 20.8% from 100.3 million in 2022 to 79.4 million in 2023, while the average price per unit increased 13.1% during the same period.
JAFRA:
Net revenue increased by 41.0%, or Ps.2,811,694, to Ps.7,282,899 for the year 2023 compared to Ps.5,164,205 for the year 2022. This increase resulted mainly from (i) the implementation and execution of our business model, which included refreshing the brand and accelerating product innovation with time-to-market being reduced to 7.8 months in 2023 (compared to 18 months in 2022), applying commercial technology, redesigning our catalog, enhancing incentive programs, and boosting overall sales force motivation, among other initiatives, and (ii) consolidation of a full year of net revenue from JAFRA in 2023 compared to only nine months of net revenue in 2022 (April to December).
Cost of Sales
December 31, | December 31, | |||||||||||||||
2023 | 2022 | Var. $ | Var.% | |||||||||||||
The Group’s cost of sales | ||||||||||||||||
BWM | Ps. | 2,443,229 | 2,576,179 | (132,950 | ) | (5.2 | )% | |||||||||
JAFRA(1) | 1,258,026 | 1,002,914 | 255,112 | 25.4 | % | |||||||||||
Total cost of sales | Ps. | 3,701,255 | 3,579,093 | 122,162 | 3.4 | % |
(1) | The period ended December 31, 2022, covers the period from April 7 to December 31 in the case of JAFRA. |
BWM:
Cost of sales decreased 5.2%, or Ps.132,950, to Ps.2,443,229 for the year 2023 compared to Ps.2,576,179 for the year 2022 as a result of decreased revenue, resulting in a gross profit of Ps.3,283,379 for the year 2023 compared to Ps.3,767,165 for the year 2022. As a percentage of net revenue, cost of sales was 42.7% for the year 2023 and 40.6% for the year 2022. The increase of cost of sales as a percentage of net revenues was primarily due to promotions resulting in discounts to our distributors which increased volume of sales but decreased gross margin.
36
JAFRA:
Cost of sales increased 25.4%, or Ps.255,112, to Ps.1,258,026 for the year 2023 compared to Ps.1,002,914 for the year 2022, as a result of increased revenue of 41.0%. JAFRA historically has had higher gross margins, because of manufacturing most of its products within Mexico and not having to bear international freight costs as does BWM. Gross profit increased 44.8%, or Ps.1,863,582 to Ps.6,024,873 for the year 2023 compared to Ps.4,161,291 for the year 2022.As a percentage of net revenue, cost of sales decreased 2.1% to 17.3% for the year 2023 compared to 19.4% for the year 2022, due to (i) reduced costs achieved through supplier negotiations, (ii) a favorable exchange rate, (iii) a favorable variation in production volume and mix.
Administrative Expenses
December 31, | December 31, | |||||||||||||||
2023 | 2022 | Var. $ | Var.% | |||||||||||||
The Group’s administrative expenses | ||||||||||||||||
BWM | Ps. | 987,981 | 1,098,426 | (110,445 | ) | (10.1 | )% | |||||||||
JAFRA(1) | 1,920,964 | 1,498,216 | 422,748 | 28.2 | % | |||||||||||
Total administrative expenses | Ps. | 2,908,945 | 2,596,642 | 312,303 | 12.0 | % |
(1) | The period ended December 31, 2022, covers the period from April 7 to December 31 in the case of JAFRA. |
Administrative expenses by department are as follows:
December 31, 2023 | December 31, 2022 | Var. $ | Var.% | |||||||||||||||||||||||||||||||||||||||||||||
BWM | JAFRA | GROUP | BWM | JAFRA(1) | GROUP | BWM | JAFRA | GROUP | BWM | JAFRA | GROUP | |||||||||||||||||||||||||||||||||||||
Operations | Ps. | 549,070 | 1,150,289 | 1,699,359 | 641,575 | 785,416 | 1,426,991 | (92,505 | ) | 364,873 | 272,368 | (14.4 | )% | 46.5 | % | 19.1 | % | |||||||||||||||||||||||||||||||
Depreciation | 128,450 | 246,684 | 375,134 | 109,055 | 178,647 | 287,702 | 19,395 | 68,037 | 87,432 | 17.8 | % | 38.1 | % | 30.4 | % | |||||||||||||||||||||||||||||||||
IT | 82,853 | 193,733 | 276,586 | 107,304 | 172,392 | 279,696 | (24,451 | ) | 21,341 | (3,110 | ) | (22.8 | )% | 12.4 | % | (1.1 | )% | |||||||||||||||||||||||||||||||
Finance | 115,906 | 146,669 | 262,575 | 128,832 | 148,450 | 277,282 | (12,926 | ) | (1,781 | ) | (14,707 | ) | (10.0 | )% | (1.2 | )% | (5.3 | )% | ||||||||||||||||||||||||||||||
Marketing | 46,557 | 111,107 | 157,664 | 44,562 | 146,516 | 191,078 | 1,995 | (35,409 | ) | (33,414 | ) | 4.5 | % | (24.2 | )% | (17.5 | )% | |||||||||||||||||||||||||||||||
Quality | 23,767 | - | 23,767 | 27,845 | - | 27,845 | (4,078 | ) | - | (4,078 | ) | (14.6 | )% | - | % | (14.6 | )% | |||||||||||||||||||||||||||||||
Others | 41,378 | 72,482 | 113,860 | 39,253 | 66,795 | 106,048 | 2,125 | 5,687 | 7,812 | 5.4 | % | 8.5 | % | 7.4 | % | |||||||||||||||||||||||||||||||||
Total | Ps. | 987,981 | 1,920,964 | 2,908,945 | 1,098,426 | 1,498,216 | 2,596,642 | (110,445 | ) | 422,748 | 312,303 | (10.1 | )% | 28.2 | % | 12.0 | % |
(1) | The period ended December 31, 2022, covers the period from April 7 to December 31 in the case of JAFRA. |
BWM:
Administrative expenses decreased 10.1%, or Ps.110,445, to Ps.987,981 for the year 2023 compared to Ps.1,098,426 for the year 2022, mainly due to a more streamlined operational structure and effective administrative expenses control as a result of decreased revenue, which resulted in: (i) a reduction in wages paid to employees (due to our slimer structure in 2023), (ii) a reduction in warehouse rent payments and (iii) a lower impairment loss on trade account receivable compared to 2022 due to a greater loss on collection recoverability that occurred post pandemic in 2022. The decrease in administrative expenses was mostly offset by the increase in depreciation of fixed assets. As a percentage of net revenues, administrative expenses remained at the same percentage of 17.3% for the years 2023 and 2022 due to the stabilization of our operational structure.
JAFRA:
Administrative expenses increased 28.2%, or Ps.422,748, to Ps.1,920,964 for the year 2023 compared to Ps.1,498,216 for the year 2022, primarily due to consolidation of a full year of administrative expenses from JAFRA in 2023 compared to only nine months of net revenue in 2022 and to increases in wages paid to employees, services fee payments, depreciation of fixed assets including machinery, leases of vehicles, warehouses and buildings, all of which supported operation growth. As a percentage of net revenues, these expenses represented 26.4% and 29.0% for the years 2023 and 2022, respectively, due to operating leverage.
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Selling Expenses
December 31, | December 31, | |||||||||||||||
2023 | 2022 | Var. $ | Var.% | |||||||||||||
The Group’s selling expenses | ||||||||||||||||
BWM | Ps. | 770,008 | 1,021,281 | (251,273 | ) | (24.6 | )% | |||||||||
JAFRA(1) | 2,690,359 | 1,786,749 | 903,610 | 50.6 | % | |||||||||||
Total of selling expenses | Ps. | 3,460,367 | 2,808,030 | 652,337 | 23.2 | % |
(1) | The period ended December 31, 2022, covers the period from April 7 to December 31 in the case of JAFRA. |
The selling expenses major line items include:
December 31, 2023 | December 31, 2022 | Var. $ | Var.% | |||||||||||||||||||||||||||||||||||||||||||||
BWM | JAFRA | GROUP | BWM | JAFRA(1) | GROUP | BWM | JAFRA | GROUP | BWM | JAFRA | GROUP | |||||||||||||||||||||||||||||||||||||
Reward program | Ps. | 144,374 | 908,037 | 1,052,411 | 364,945 | 525,818 | 890,763 | (220,571 | ) | 382,219 | 161,648 | (60.4 | )% | 72.7 | % | 18.1 | % | |||||||||||||||||||||||||||||||
Sales commission | - | 1,271,953 | 1,271,953 | -. | 853,198 | 853,198 | - | 418,755 | 418,755 | - | % | 49.1 | % | 49.1 | % | |||||||||||||||||||||||||||||||||
Sales catalogue | 282,245 | 117,258 | 399,503 | 345,265 | 100,488 | 445,753 | (63,020 | ) | 16,770 | (46,250 | ) | (18.3 | )% | 16.7 | % | (10.4 | )% | |||||||||||||||||||||||||||||||
Sales bonuses and wages | 157,821 | 136,178 | 293,999 | 117,235 | 108,941 | 226,176 | 40,586 | 27,237 | 67,823 | 34.6 | % | 25.0 | % | 30.0 | % | |||||||||||||||||||||||||||||||||
Events and conventions | 48,449 | 197,529 | 245,978 | 34,966 | 38,477 | 73,443 | 13,483 | 159,052 | 172,535 | 38.6 | % | 413.4 | % | 234.9 | % | |||||||||||||||||||||||||||||||||
Others | 137,119 | 59,404 | 196,523 | 158,870 | 159,827 | 318,697 | (21,751 | ) | (100,423 | ) | (122,174 | ) | (13.7 | )% | (62.8 | )% | (38.3 | )% | ||||||||||||||||||||||||||||||
Total | Ps. | 770,008 | 2,690,359 | 3,460,367 | 1,021,281 | 1,786,749 | 2,808,030 | (251,273 | ) | 903,610 | 652,337 | (24.6 | )% | 50.6 | % | 23.2 | % |
(1) | The period ended December 31, 2022, covers the period from April 7 to December 31 in the case of JAFRA. |
BWM:
Selling expenses decreased 24.6%, or Ps.251,273, to Ps.770,008 for the year 2023 compared to Ps.1,021,281 for the year 2022, due to efficient promotions to the sales force, and reduced catalogs and packaging materials costs. BWM’s selling expenses were 13.4% of net revenue for the year 2023 compared to 16.1% of net revenue for the year 2022. The decrease in selling expenses as a percentage of net revenues was mainly due to the efficient management of selling expenses.
JAFRA:
Selling expenses increased 50.6%, or Ps.903,610, to Ps.2,690,359 for the year 2023 compared to Ps.1,786,749 for the year 2022, primary due to consolidation of a full year of selling expenses from JAFRA in 2023 compared to only nine months of net revenue in 2022 and to an increase in our rewards program, sales commissions, expenses incurred in the volume of sales catalogues printed in order to promote and satisfy the demand of our leaders and consultants. JAFRA’s selling expenses was 36.9% of the net revenue for the year 2023 compared to 34.6% for the year 2022.
Distribution Expenses
December 31, | December 31, | |||||||||||||||
2023 | 2022 | Var. $ | Var.% | |||||||||||||
The Group’s distribution expenses | ||||||||||||||||
BWM | Ps. | 219,339 | 218,084 | 1,255 | 0.6 | % | ||||||||||
JAFRA(1) | 373,835 | 255,432 | 118,403 | 46.4 | % | |||||||||||
Total of distribution expenses | Ps. | 593,174 | 473,516 | 119,658 | 25.3 | % |
(1) | The period ended December 31, 2022, covers the period from April 7 to December 31 in the case of JAFRA. |
38
BWM:
Distribution expenses increased 0.6%, or Ps.1,255, to Ps.219,339 for the year 2023 compared to Ps.218,084 for the year 2022. During 2023, BWM maintained an efficient management of distribution expenses.
JAFRA:
Distribution expenses increased 46.4%, or Ps.118,403, to Ps.373,835 for the year 2023 compared to Ps.255,432 for the year 2022, as a result of the increase in net revenue by 41.0% and consolidation of a full year of distribution expenses from JAFRA in 2023 compared to only nine months of net revenue in 2022.
Financing Income (Cost)
December 31, 2023 | December 31, 2022 | Var. $ | Var.% | |||||||||||||||||||||||||||||||||||||||||||||
Financing income (cost) | BWM | JAFRA | GROUP | BWM | JAFRA(1) | GROUP | BWM | JAFRA | GROUP | BWM | JAFRA | GROUP | ||||||||||||||||||||||||||||||||||||
Interest expense (1) | Ps | (794,231 | ) | (26,031 | ) | (820,262 | ) | (532,282 | ) | (11,039 | ) | (543,321 | ) | (261,949 | ) | (14,992 | ) | (276,941 | ) | 49.2 | % | 135.8 | % | 51.0 | % | |||||||||||||||||||||||
Interest income | 10,033 | 35,023 | 45,056 | 10,607 | 18,082 | 28,689 | (574 | ) | 16,941 | 16,367 | (5.4 | )% | 93.7 | % | 57.0 | % | ||||||||||||||||||||||||||||||||
Unrealized loss in valuation of financial derivative instruments (2) | (32,591 | ) | - | (32,591 | ) | (43,522 | ) | - | (43,522 | ) | 10,931 | - | 10,931 | (25.1 | )% | - | % | (25.1 | )% | |||||||||||||||||||||||||||||
Foreign exchange gain (3) | 230,536 | 36,827 | 267,363 | 233,903 | 20,295 | 254,198 | (3,367 | ) | 16,532 | 13,165 | (1.4 | )% | 81.5 | % | 5.2 | % | ||||||||||||||||||||||||||||||||
Foreign exchange loss (3) | (340,645 | ) | (33,565 | ) | (374,210 | ) | (315,115 | ) | (22,451 | ) | (337,566 | ) | (25,530 | ) | (11,114 | ) | (36,644 | ) | 8.1 | % | 49.5 | % | 10.9 | % | ||||||||||||||||||||||||
Total | Ps | (926,898 | ) | 12,254 | (914,644 | ) | (646,409 | ) | 4,887 | (641,522 | ) | (280,489 | ) | 7,367 | (273,122 | ) | 43.4 | % | 150.7 | % | 42.6 | % |
(1) | The period ended December 31, 2022, covers the period from April 7 to December 31 in the case of JAFRA. |
GROUP:
(1) | Interest expense increased 51.0% or Ps.276,941 to Ps.820,262 in 2023 as compared to Ps.543,321 in 2022, mainly due to interest payments on loans obtained to fund the JAFRA Acquisition as of March 31, 2022 (and interest payments associated with our bonds issuance in Mexico in 2023, which increased compared to 2022 due to: (i) cancellation of issuance cost of Syndicated Credit for Ps.50,447, and (ii) increase in the annual average variable rates (TIIE 28 days) of 11.40% in 2023 compared to the 7.91% in 2022, related to interest on our credit lines. (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, 2023, Betterware had US$97.3 million of forwards contracts, with an average exchange rate of Ps.17.96 compared to US$41.8 million of forwards contracts as of December 31, 2022, with an average exchange rate of Ps.20.31. The difference between the average exchange rate of the forward contracts and the real average exchange rate of Ps.17.74 and Ps.20.12 in each year resulted in the losses in 2023 and 2022. |
(3) | Our exposure to currency exchange rate fluctuations and how we mitigate this risk is described in the sections entitled “Risk Factors—Risks Related to Mexico” and “Currency Exchange Rate Fluctuations.” The unrealized loss in valuation of financial derivative instruments as of December 31, 2022 resulted in a foreign exchange loss due to the difference between the agreed exchange rate and exchange rate used to pay the forwards during 2023. |
39
Income Tax Expense
December 31, 2023 | December 31, 2022 | Var. $ | Var.% | |||||||||||||||||||||||||||||||||||||||||||||
Income tax expense | BWM | JAFRA | GROUP | BWM | JAFRA(1) | GROUP | BWM | JAFRA | GROUP | BWM | JAFRA | GROUP | ||||||||||||||||||||||||||||||||||||
Current | Ps. | 282,187 | 363,334 | 645,521 | 350,320 | 183,202 | 533,522 | (68,133 | ) | 180,132 | 111,999 | (19.4 | )% | 98.3 | % | 21.0 | % | |||||||||||||||||||||||||||||||
Deferred | (141,425 | ) | (119,712 | ) | (261,137 | ) | 16,846 | (33,448 | ) | (16,602 | ) | (158,271 | ) | (86,264 | ) | (244,535 | ) | (939.5 | )% | 257.9 | % | 1,472.9 | % | |||||||||||||||||||||||||
Total | Ps. | 140,762 | 243,622 | 384,384 | 367,166 | 149,754 | 516,920 | (226,404 | ) | 93,868 | (132,536 | ) | (61.7 | )% | 62.7 | % | (25.6 | )% |
(1) | The period ended December 31, 2022, covers the period from April 7 to December 31 in the case of JAFRA. |
BWM:
Income taxes decreased 61.7% or Ps.226,404 to Ps.140,762 for the year 2023 compared to Ps.367,166 for the year 2022, due to higher pre-tax profits paid during the year 2022 as compared to the year 2023, where BWM’s net revenue decreased by 9.7% and interest expense increased by 49.2%.
JAFRA:
Income taxes increased 62.7% or Ps.93,868 to Ps.243,622 for the year 2023 compared to Ps.149,754 for the year 2022, because of the increase in net revenue of 41.0% and consolidation of JAFRA for a full year in 2023 compared to only nine months in 2022.
GROUP:
The effective income tax rate was 27% in 2023 and 37% in 2022 The difference is derived principally from a decrease in certain non-deductible expenses of JAFRA and lower inflation effects in 2023.
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, 2023 | December 31, 2022 | Var. $ | Var.% | |||||||||||||||||||||||||||||||||||||||||||||
In thousands of Mexican pesos | BWM | JAFRA | GROUP | BWM | JAFRA(2) | GROUP | BWM | JAFRA | GROUP | BWM | JAFRA | GROUP | ||||||||||||||||||||||||||||||||||||
Net income for the year | Ps. | 90,847 | 955,891 | 1,046,738 | 376,902 | 493,062 | 869,964 | (286,055 | ) | 462,829 | 176,774 | (75.9 | )% | 93.9 | % | 20.3 | % | |||||||||||||||||||||||||||||||
Add: Total income taxes | 140,762 | 243,622 | 384,384 | 367,166 | 149,754 | 516,920 | (226,404 | ) | 93,868 | (132,536 | ) | (61.7 | )% | 62.7 | % | (25.6 | )% | |||||||||||||||||||||||||||||||
Add: Financing cost, net (1) | 1,074,442 | (159,798 | ) | 914,644 | 661,104 | (19,582 | ) | 641,522 | 413,338 | (140,216 | ) | 273,122 | 62.5 | % | 716.0 | % | 42.6 | % | ||||||||||||||||||||||||||||||
Add: Depreciation and amortization | 128,450 | 246,684 | 375,134 | 109,055 | 178,647 | 287,702 | 19,395 | 68,037 | 87,432 | 17.8 | % | 38.1 | % | 30.4 | % | |||||||||||||||||||||||||||||||||
EBITDA | Ps. | 1,434,501 | 1,286,399 | 2,720,900 | 1,514,227 | 801,881 | 2,316,108 | (79,726 | ) | 484,518 | 404,792 | (5.3 | )% | 60.4 | % | 17.5 | % |
(1) | The amount of financing cost net is presented before elimination of interest expense between BWM and JAFRA of Ps.147,550 in 2023 and Ps.14,695 in 2022 (See —Note 27 “Segment Information” to the Audited Consolidated Financial Statements). |
(2) | The period ended December 31, 2022, covers the period from April 7 to December 31 in the case of JAFRA. |
40
BWM:
For the year 2023, EBITDA decreased 5.3% or Ps.79,726, to Ps.1,434,501 compared to Ps.1,514,227 in 2022, mainly due to a decrease in net revenue of 9.7% and offset by the stabilization of operating expenses in 2023.
JAFRA:
For the year 2023, EBITDA increased 60.4% or Ps.484,518, to Ps.1,286,399 compared to Ps.801,881 in 2022, mainly due to an increase in net revenue of 41.0% and reduced costs achieved through supplier negotiations (1.7-pps), among other factors during 2023.
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 of property for the years 2023, 2022 and 2021 amounted to Ps.2,349, Ps.37,500, and Ps.397,000 respectively. The total investment of our new headquarters and distribution center amounted to Ps.1,110,807, and it was completed in 2023.
Results of Operations — For the Year 2022 Compared to the Year 2021 (as adjusted):
All amounts in this section marked with “Ps.” 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 Ps.1,439,866, to Ps.11,507,549 for the year 2022 compared to Ps.10,067,683 for the year 2021, 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 Ps.5,164,205 in our beauty and personal care product segments sales with: (i) Ps.3,472,919 from the fragrances product line, (ii) Ps.642,876 from color product line, (iii) Ps.611,905 from skin care product line, and (iv) Ps.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.
BWM:
Net revenue decreased by 37.0%, or Ps.3,724,339, to Ps.6,343,344 for the year 2022 compared to Ps.10,067,683 for the year 2021, 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).
41
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 Ps.918,915, to Ps.3,579,093 for the year 2022 compared to Ps.4,498,008 for the year 2021, 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 does BWM. Gross profit increased by Ps.2,358,781 from Ps.5,569,675 for the year 2021 to Ps.7,928,456 for the year 2022. As a percentage of net revenue, cost of sales was 31.1% for the year 2022 and 44.7% for the year 2021.
BWM:
Cost of sales decreased 42.7%, or Ps.1,921,829, to Ps.2,576,179 for the year 2022 compared to Ps.4,498,008 for the year 2021 as a result of decreased revenue, resulting in a gross profit of Ps.3,767,165 for the year 2022 compared to Ps.5,569,675 for the year 2021. As a percentage of net revenue, cost of sales was 40.6% for the year 2022 and 44.7% for the year 2021. 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 Ps.1,348,900, to Ps.2,596,642 for the year 2022 compared to Ps.1,247,742 for the year 2021 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 Ps.149,316, to Ps.1,098,426 for the year 2022 compared to Ps.1,247,742 for the year 2021 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 years 2022 and 2021, respectively. Increase in administrative expenses as a percentage of net revenues was due to a loss of operating leverage because the decrease in sales.
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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 Ps.1,551,741, to Ps.2,808,030 for the year 2022 compared to Ps.1,256,289 for the year 2021, 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 Ps.235,008, to Ps.1,021,281 for the year 2022 compared to Ps.1,256,289 for the year 2021, 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 year 2022 compared to 12.5% of net revenue for the year 2021. 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 | 28,568 | 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 | 200,669 | 118,028 | 58.8 | % | |||||||||||||||||
Total | Ps. | 1,021,281 | 1,786,749 | 2,808,030 | 1,256,289 | 1,551,741 | 123.5 | % |
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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 Ps.9,737, to Ps.473,516 for the year 2022 compared to Ps.463,779 for the year 2021. This increase was mainly the result of a 53.9% 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 Ps.245,695, to Ps.218,084 for the year 2022 compared to Ps.463,779 for the year 2021. 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 Ps.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 year resulted in the (loss) and gain in 2022 and 2021, respectively. |
(3) | Our exposure to currency exchange rate fluctuations and how we mitigate this risk is described in the sections entitled “Risk Factors—Risks Related to Mexico” and “Currency Exchange Rate Fluctuations.” The unrealized gain in valuation of financial derivative instruments from 2021 was converted in foreign exchange loss when forwards were paid during 2022. |
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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 Ps.297,636 to Ps.516,920 for the year 2022 compared to Ps.814,556 for the year 2021 due to higher pre-tax profits paid during the year 2021 as compared to the year 2022. The effective income tax rate was 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 (1) | 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 |
(1) | The amount of financing cost net is presented before elimination of interest expense between BWM and JAFRA of Ps.14,695 in 2022 (See. —Note 27 “Segment Information” to the Audited Consolidated Financial Statements). |
The Group:
For the year 2022, 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.
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B. | LIQUIDITY AND CAPITAL RESOURCES |
All amounts in this section marked with “Ps.” are in thousands of Mexican pesos unless otherwise noted
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, 2023, 2022 and 2021 our cash and cash equivalents were Ps.549,730, Ps.815,644 and Ps.1,175,198, and in each case the balance was higher than our minimum expected cash and cash equivalent balance.
One of our management’s objectives is to prepay long-term debt in order to achieve a leverage index lower than 2x. We currently finance our long-term debt with sources of cash flow generated mainly by JAFRA.
During 2023, BWM imported approximately 91% 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 December 2024.
JAFRA has been a highly accretive acquisition for the Company. Prior to the acquisition, Jafra Mexico faced a declining trend in net revenue, which we successfully reversed to secure double-digit growth in 2023. Similarly, EBITDA and EBITDA margin have followed this positive trend. JAFRA has provided us with an attractive portfolio of products that diversify our product offering, with unique brands in different market segments in Mexico and the United States, allowing us to ramp up our international operations in the United States.
Cash Flow
Year Ended December 31, 2023, Compared with Year Ended December 31, 2022
Cash Flows from Operating Activities
Cash flows provided by operating activities increased 40.4%, or Ps.957,077, to Ps.2,366,779 for the year ended December 31, 2023, compared to Ps.1,409,702 for the year ended December 31, 2022, mainly due to a decrease in our Group’s working capital investment (net of accounts receivable, inventory and suppliers) by Ps.408,993 in 2023 compared to 2022. Historically, the Group 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). Our inventory turnover increased from 174 days for the year ended December 31, 2022, to 205 days for the year ended December 31, 2023, our days of payables decreased from 171 for the year ended December 31, 2022, to 156 for the year ended December 31, 2023, and our days of receivables increased from 27 days for the year ended December 31, 2022, to 29 days for the year ended December 31, 2023.
Cash Flows from Investing Activities
Cash flows used in investing activities decreased 98.6.%, or Ps.4,759,894, to Ps.(65,328) for the year ended December 31, 2023 compared to Ps.(4,825,222) for year ended December 31, 2022 mainly due to the cash paid in 2022 for the JAFRA Acquisition which amounted to Ps.4,698,463. Cash flows used in investing activities include investment in business acquisitions, technological platform, product innovation, equipment, and property.
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Cash Flows from Financing Activities
Cash flows (used in) generated from financing activities decreased by 184.0%, or Ps.(5,623,331) to Ps.(2,567,365) for the year 2023 compared to Ps.3,055,966 for the year 2022. During 2023, we received Ps.3,263,974 under our long-term financing agreements as follows: (i) Ps.1,500,000 from BBVA, (ii) Ps.950,000 from HSBC, (iii) Ps.813,974 from new bonds issuances. Additionally, a total of Ps.3,235,020 was disbursed under our short-term financing agreements as follows: (i) Ps.700,000 from Banamex, (ii) Ps.300,000 from HSBC, (iii) Ps.1,855,020 from BBVA, and (iv) Ps.380,000 from Santander. As of December 31, 2023, we repaid an aggregate amount of Ps.3,135,020 under these short-term financing agreements, of which: (i) Ps.900,000 was paid to Banamex, (ii) Ps.300,000 was paid to HSBC, (iii) Ps.1,555,020 was paid to BBVA, and (iv) Ps.380,000 was paid to Santander. On July 10, 2023, we fully prepaid the syndicated loan with the proceeds from our long-term agreements with BBVA, HSBC and our bonds issuance. For the years ended December 31, 2023, and 2022, we paid dividends in the amount of Ps.648,735 and Ps.949,610, respectively. For the year ended December 31, 2023, we paid interest of Ps.652,313, or 29.6% more compared to Ps.502,847 paid for the year ended December 31, 2022, mainly due to the increase in variable rates under our loans. See “—Liquidity and Capital Resources—Indebtedness.”
Year ended December 31, 2022, compared with year ended December 31, 2021
Cash Flows from Operating Activities
Cash flows provided by operating activities decreased 3.8%, or Ps.55,895, to Ps.1,409,702 for the year ended December 31, 2022 compared to Ps.1,465,597 for the year ended December 31, 2021, mainly derived from a decline in net income in our home organization segment of Ps.1,371,037, decreasing from Ps.1,747,939 in 2021 to Ps.376,902 in 2022, mainly as a result of lower contribution margin driven by lower net sales, which was partially offset by the Ps.493,062 increase in net income arising from our beauty and personal care segment in 2022. Additionally, there was (i) an increase of Ps.287,987 in trade accounts receivable due to the JAFRA Acquisition, (ii) a decrease of Ps.875,340 in accounts payable related to a decrease in sales of BWM which resulted in lower purchases of inventories, and (iii) an increase in interest expense cashflows of Ps.467,503 due to 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 year ended December 31, 2022 and due to the decrease in sales, we made an investment in working capital of Ps.659,652 as inventory turnover increased from 104 days during the year ended December 31, 2021, to 174 days during the year ended December 31, 2022, days of payables increased from 165 during the year ended December 31, 2021 to 171 days during the year ended December 31, 2022, and days of receivables were maintained at 27 days for the years ended December 31, 2021 and 2022.
Cash Flows from Investing Activities
Cash flows used in investing activities increased by 1,406.1%, or Ps.(4,504,844), to Ps.(4,825,222) for the year 2022 compared to Ps.(320,378) for year 2021 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.
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Cash Flows from Financing Activities
Cash flows generated from (used in) financing activities increased by 593.0%, or Ps.3,675,807, to Ps.3,055,966 for the year ended December 31, 2022 compared to Ps.(619,841) for the year ended December 31, 2021. During 2022, we received Ps.4,498,695 under the long-term financing agreement entered with a group of banks integrated by Banamex, HSBC, BBVA, BanBajio, Bancopel and Scotiabank (the “Syndicated Loan”), which was used to pay the purchase price and other associated expenses under and in connection with the JAFRA Acquisition. Additionally, Ps.1,320,010 was disbursed under the short-term financing agreements as follows: (i) Ps.250,000 by Banamex, (ii) Ps.620,000 by HSBC, and (iii) Ps.450,010 by BBVA. As of the date of this annual report, we have repaid an aggregate amount of Ps.1,120,025 under these short-term financing agreements, of which: (i) Ps.50,000 was paid to Banamex, (ii) Ps.620,000 was paid to HSBC, and (iii) Ps.450,010 was paid to BBVA. For the years ended December 31, 2022, and 2021, we paid dividends in the amount of Ps.949,610 and Ps.1,400,000, respectively. For the year ended December 31, 2022, we paid interest of Ps.502,847, a 923.6% increase compared to Ps.49,123 paid for the year ended December 31, 2021, mainly due to the interest paid on our new credit line Syndicated Loan. See “—Liquidity and Capital Resources—Indebtedness.”
Indebtedness
Long Term Debt - Credit Line with HSBC
On September 12, 2023, Betterware signed an agreement with HSBC to acquire a simple line of credit of up to Ps.950,000, with a term through September 13, 2029 and payment of monthly interest at the TIIE rate (the of interbank interest rate) at 28 days published in BANXICO plus 1.3bp. Ordinary interest will be calculated by the number of days effectively elapsed over the base of a year 360 days. In addition, in case of a default, interest will be paid at the ordinary interest rate multiplied by 2.0pp, and it will be calculated by the number of days effectively elapsed over the base of a year of 360 days.
On September 13, 2023, Betterware drew down all of the Ps.950,000 of the credit line with HSBC to pay our revolving lines.
Long Term Debt - Offering of Bonds in Securities Commission and listed on the Mexican Stock Exchange (BWMX 23 and BWMX 23-2)
On July 7, 2023, Betterware successfully concluded the offering of a two-tranche bond issuance for a total of Ps.813,974, with maturities of four and seven years, offered in the Mexican market. The third offer of bonds for Ps.313,374 started paying interest at 12.41% rate and for the subsequent monthly payments, the rate will be based on the 28-day TIIE rate issued by BANXICO plus 0.90%, and the fourth offer of Ps.500,000 will pay interest semi-annually at a fixed rate of 11.23% during the bond term. Principal is to be paid upon each bond’s maturity.
On July 10, 2023, Betterware used the proceeds of the bonds, net of issuance costs of Ps.810,197, to pay the syndicated credit line.
Long Term Debt - Credit Line with BBVA
On July 5, 2023, Betterware entered into a credit agreement with BBVA, for up to Ps.1,500,000, with a term of 60 months and monthly interest payments at 28-day TIIE rate published in BANXICO (on non-business days, the TIIE rate could be at 26, 27 or 29 days) plus the applicable margin. Ordinary interest will be calculated by the number of days effectively elapsed over the base of a year 360 days. In addition, in case of a default, interest will be paid at the ordinary interest rate multiplied by 2.0pp and it will be calculated by the number of days effectively elapsed over the base of a year of 360 days.
On July 10, 2023, Betterware used the Ps.1,500,000 of the credit line with BBVA to pay the syndicated credit line.
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Long Term Debt - 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 the JAFRA Acquisition in Mexico and the United States. The credit line has a maturity of 5 years from the date of signing the contract in March 2022, which pays monthly interest at the 28-day TIIE rate plus the applicable margin established in the contract. The first 24 months the credit line has no principal payments, and from month 25 principal payments begin in an increasing manner, with a remaining payment of 30% in month 60. JAFRA’s subsidiaries are jointly responsible for this credit.
During the months of March and June 2023, Betterware made two principal payments for Ps.1,000,000 and Ps.250,000, respectively. On July 10, 2023, the remaining principal of the syndicated loan for Ps.3,248,695 was settled. The resources used came from long-term debt: Ps.1,500,000 from BBVA and Ps.810,197 from the new bond issue; and short-term loans: Ps.550,000 from the revolving line with BBVA, Ps.150,000 from the revolving line with Santander, Ps.50,000, from the revolving line with HSBC, Ps.150,000 from the loan with Jafra Cosmetics International, S.A. de C.V., and the remaining amount of Ps.38,498 was provided from Betterware’s available cash on the settlement date.
Management considered the transaction as an extinguishment of the original debt (Syndicated Loan) and a new debt was recognized for the long-term simple credit lines with BBVA and HSBC, mainly due to substantial differences in financial obligations. As a result of the extinguishment of the debt from July to December 2023, the Company cancelled in profit or loss the outstanding remainder of the initial issuance costs for the original debt (syndicated credit), which amounted to Ps.(50,447).
Long Term Debt - Offering of Bonds in Securities Commission and listed on the Mexican Stock Exchange (BWMX 21X and BWMX 21-2X)
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 of four and seven years, offered in the Mexican market and issued at favorable conditions for the Company. 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%. 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. Principal is to be paid upon each bond’s maturity.
On August 31, 2021, Ps.588,300 of proceeds received from the bond offering were used for the prepayment of the following long-term debt: Ps.521,449 were paid to the secured credit line with Banamex, plus an additional Ps.18,172 to cancel the swap linked to that loan, and Ps.48,679 to the credit line with BBVA. The rest of the proceeds were used for general corporate purposes, including additional investments in Campus Betterware and other initiatives with positive environmental and social impacts.
Banamex- Unsecured Credit Line
Betterware has an unsecured credit line with Banamex of up to Ps.400,000, amounted to 28-days TIIE plus 110 basis points. As of December 31, 2021, the interest rate was 28-days TIIE plus 285 basis points. During 2023 and 2022, Betterware drew down Ps.700,000 and Ps.250,000, respectively, and as of December 31, 2023, and 2022 has been reimbursed to Ps.900,000 and Ps.50,000, respectively. During 2021, BWM did not draw down under this credit line.
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HSBC-Credit Line
On March 10, 2020, Betterware entered into a current account credit line agreement with HSBC México, S.A., for an amount of Ps.50,000, with provisions by means of promissory notes specifying payment of principal and interest. BLSM is jointly liable for this credit. On May 4, 2020, the first amendment agreement was signed, in which the amount of the credit line was increased to Ps.150,000. During the years 2023, 2022 and 2021, Betterware received Ps.300,000, Ps.620,000 and Ps.20,000, respectively, which, as of December 31, 2023, 2022 and 2021, had been paid. This credit line matured on March 24, 2024.
BBVA-Credit Line
On April 5, 2022, the Group entered into a credit line with BBVA for up to Ps.400,000 and as of May 31, 2022, through an amending agreement, the amount was increased to up to 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 the years 2023 and 2022, Betterware drew down Ps.1,855,020 and Ps.450,010, respectively, and repaid Ps.1,555,020 and Ps.450,010, respectively.
Santander-Credit Line
On May 30, 2022, Betterware entered into a current account credit agreement with Santander México, S.A., for an amount of Ps.200,000. BLSM is jointly and severally liable for this credit. This line of credit accrued interest at the TIIE rate plus 190 basis points. During fiscal year 2023, Betterware drew down Ps.380,000 under this credit line and which has been repaid to Santander. This line of credit matured on May 30, 2023.
Banamex- Secured Credit Line
In December 2018, the Group obtained a secured credit line with Banamex for an amount of Ps.400,000 to build the new Campus Betterware. On January 30, 2020, the Group renegotiated the interest rate of the secured credit line with Banamex, which changed from the TIIE rate plus 317 basis points to the TIIE rate plus 260 basis points. In addition, withdrawals from this credit line were extended to August 2020, and were payable on a quarterly basis from September 2020 up to December 18, 2025.
On July 30, 2020, a total amount of Ps.195,000 was withdrawn from a credit agreement signed on June 3, 2020, with Banamex. This loan bears interest at the TIIE rate plus 295 basis points maturing on December 30, 2025.
During the first seven months of 2021, Betterware made payments to secured credit line with Banamex, for Ps.46,167. The full amount of Ps.521,449 of the loan, including interest, was repaid on August 31, 2021.
BBVA - Simple Credit Line
On September 20, 2020, the Group entered into a credit line with BBVA for up to Ps.75,000 bearing interest at 7.5%, payable monthly. The credit line had racks in the Group’s distribution center pledged as collateral for an amount of Ps.80,901.
During the first seven months of 2021, Betterware made payments to credit line with BBVA, for Ps.16,325. The full amount of Ps.48,679 of the loan, including interest, was repaid on August 31, 2021.
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Our debt instruments contained the following financial ratios and covenants.
The long-term debt of the credit line with HSBC contains the following financial ratios:
a) | A leverage ratio less than or equal to 3.00. |
b) | A debt service coverage ratio equal to or greater than 1.25. |
The long-term debt of the credit line with BBVA contains the following financial ratios:
a) | A leverage ratio equal to or less than 3.50 to 1.0. |
b) | A debt service coverage ratio greater than or equal to 1.25 to 1.0. |
The long-term debt of the syndicated credit line contains the following financial ratios:
a) | A leverage ratio equal to or less than 3.00. |
b) | A debt service coverage ratio equal to or greater than 1.25. |
c) | A minimum stockholders’ equity equivalent to 90% of stockholders’ equity at the close of the last immediately preceding fiscal year. |
The short and long-term debt of credit lines with banks contain the following covenants, among others:
a) | Provide the quarterly financial statements 20 days after the end of each quarter (1st to 3rd) and 40 days after the end of the 4th quarter and provide the audited consolidated financial statements 120 days after at the end of the fiscal year. |
b) | Compliance with fiscal, social security and environmental laws and contractual obligations, among others; and payments of any taxes or related expenses. |
c) | Maintain current payments of insurance policies. |
d) | No mergers, splits or liens without the consent of the agent. |
The long-term debt of the bond issue contains the following covenants, among others:
a) | Use the funds from the placement of the Stock Certificates for the permitted purposes. |
b) | Compliance with the general provisions applicable to securities issuers and other participants; among them, the delivery of quarterly financial information and an annual report to the Banking Commission (CNBV, for its acronym in Spanish) and BMV. |
c) | Compliance with the general provisions applicable to entities and issuers supervised by the CNBV that hire external audit services. |
The Group was in compliance with all covenants as of December 31, 2023, 2022 and 2021. As of December 31, 2022, we obtained a waiver from the agent bank of the requirement to maintain minimum stockholders’ equity equivalent to at least 90% of stockholders’ equity at the close of the last immediately preceding fiscal year. This wavier was necessary as a result of a 10% decrease of stockholders’ equity due to the effects of the pandemic. The agent bank agreed to reduce the requirement to 80% of stockholders’ equity and the waiver was valid from October 27, 2022, through March 31, 2023, at which point our stockholders’ equity was in compliance with the 90% requirement.
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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 |
Other than as disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events for the year ended December 31, 2023 that are reasonably likely to have a material and adverse effect on our revenues, income, profitability, liquidity or capital resources, or that would cause the disclosed financial information in this annual report to be not necessarily indicative of our future results of operations or financial condition.
E. | CRITICAL ACCOUNTING JUDGMENTS AND ESTIMATES |
See —Note 4 “Critical accounting judgments and key sources of estimation uncertainty” to the Audited Consolidated Financial Statements.
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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 German Campos Orozco | 71 | Chairman of the Board | ||
Andres Campos Chevallier | 41 | Group Chief Executive Officer and Board Member | ||
Santiago Campos Chevallier | 32 | Managing Director of BWM and Board Member | ||
Maria Dolores Sanchez Cano Gascon (1) | 62 | Managing Director of JAFRA Mexico and Board Member | ||
Pilar Sanchez Valdovinos (2) | 48 | Managing Director of JAFRA Mexico | ||
Virginia Cervantes | 57 | Jafra North America Region Director | ||
Alejandro Ulloa Miranda | 50 | Corporate Chief Financial Officer | ||
Mauricio Alvarez Morphy | 54 | Corporate Chief Information Officer | ||
Leonardo de Jesus Ayala Latapí | 52 | Corporate Chief Business Intelligence Officer | ||
José Carlos Gómez Rosales | 64 | Vice President of JAFRA Manufacturing | ||
Eduardo Vladimir Symanski Mantey | 46 | Corporate Human Resources Director | ||
Jose de Jesus Valdez Simancas | 71 | Independent Board Member | ||
Dr. Martín M. Werner Wainfeld | 61 | Independent Board Member | ||
Dr. Guillermo Ortiz Martinez | 74 | Independent Board Member | ||
Federico Clariond Domene | 50 | Independent Board Member | ||
Salvador Alva Gomez | 63 | Independent Board Member | ||
Silvia Lucia Davila Kreimerman | 53 | Independent Board Member | ||
Reynaldo Vizcarra Mendez | 58 | Secretary |
(1) | Maria Dolores Sanchez Cano was the Managing Director of JAFRA Mexico until December 31, 2023. |
(2) | Pilar Sanchez Valdovinos was named the Managing Director of JAFRA Mexico since January 1, 2024. |
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. On January 4, 2024, Andres was appointed Betterware Group CEO, which includes Betterware and Jafra brands, both in Mexico and abroad. Andres will report directly to Luis Campos, Chairman of the Board. During his eleven years in Betterware, Andres has been a key contributor to the company’s different stages of outstanding growth, where his leadership strength and strategic vision added to the company´s overall success. Andres Campos is son of Luis Campos and brother of Santiago Campos. |
● | Santiago Campos has served as Director of Innovation and Communication at Betterware since 2018. Before assuming the CMO role in 2019, he worked rotational periods with the Sales team, and lived in China for 6 months working with our Quality team. Prior to joining Betterware, he served as Commercial Director at a local Real Estate Development company. On January 4, 2024, Santiago assumed the position of Managing Director of Betterware Mexico, reporting directly to Andres Campos. Santiago holds a bachelor’s degree in public accounting and finance from Instituto Tecnológico y de Estudios Superiores de Monterrey, LEAD Professional Degree from Stanford University and Design Thinking Certificate from Kellog Executive Education. Santiago was selected to serve on Betterware’s board of directors due to his instinct in product innovation and household needs in the Company’s market target group. Santiago Campos is son of Luis Campos and brother of Andres Campos. |
● | Maria Dolores Sanchez Cano served as Jafra Mexico’s Managing Director for the past 18 years and as a member of the Betterware Board since June 6th, 2023. On November 6, 2023, she was appointed as the South America Expansion Director, effective January 1, 2024. Ms. Sánchez-Cano will oversee the expansion into the South American markets where the company will initially enter Peru and Colombia. Ms. Sánchez-Cano possesses over 30-years’ experience with the company a. Ms. Sánchez-Cano has a B.A. in Communication from Universidad Iberoamericana. |
● | Pilar Sanchez joined Jafra Mexico with extensive experience in leading consumer goods organizations, driving categories growth, building brands value, launching breakthrough innovation, and developing high-performance teams. In her previous experience she served as Chief Marketing Officer of Mondelez Mexico, and before that, she held various local, regional, and global positions of increasing responsibility at PepsiCo for 17 years, serving in broad functional roles such as marketing, innovation, strategy, and R&D. Pilar has immersed herself into the business since joining the company in July, 2023, and has been appointed as the Managing Director of Jafra Mexico, effective January 1, 2024. |
● | Virginia Cervantes has extensive expertise and track record in brand building strategy and business management for multinational companies (FMCG). Her experience crosses multiple categories (Cosmetics & Personal Care, Food & Beverages, Nutrition), multiple geographies (North America, Latin America, Western Europe) and multiple roles as CMO and Managing Director in companies such as PepsiCo, Kellogg’s, Avon Cosmetics, and Kraft Foods. She has thus become a key industry player in areas like brand positioning, business expansion, and P&L turnarounds. Virginia, former director of Commercial Planning for Jafra Mexico and the United States became the new Jafra North America Region Director for the Group, leading the markets of Mexico, the United States and, eventually Canada, effective January 1, 2024. |
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● | 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 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. |
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● | Leonardo Ayala has worked for ten years developing business analysis capabilities for Betterware. Previously he held positions in Business Analysis and Commercial Strategy for telecommunications companies such as Telefónica Movistar (2007-2012) and in the financial sector (Grupo Profuturo 1996-2006). Leonardo holds a B.A. in Business Administration from Universidad Nacional Autonoma de México (UNAM). |
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● | José Carlos Gómez has established himself as a strategic and decisive global leader, with 32 years of experience in multinational consumer products and cosmetics. Within Jafra he has focused on elevating the Company’s brand and value, as well as improving the customer experience through the people-first approach. He maintains a leadership style that allows him to share different perspectives and bring diversity to drive change and operational excellence in the business. He graduated as a Food Engineer and has a Master’s in Finance from the Universidad de las Americas, Puebla. He also has a Diploma in Supply Chain Innovation from Instituto Tecnologico y de Estudios Superiores de Monterrey (ITESM), coursed programs in Leadership Development, Human Resources Management, Marketing, and Management Practices in different institutions such as Harvard Business School, Polytechnic University of Valencia, Spain and AOA Intercultural Nantes France. |
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● | Eduardo Szymanski joined Betterware de Mexico as Human Resources Director in June 2022 and since May 2023 he took the position of Corporate Human Resources Officer for the Group. Prior to joining Betterware, Eduardo worked for companies such as Grupo Modelo, Grupo Posadas, Aeromexico, and Aleatica de Mexico in different leadership roles within the Human Resources areas. Mr. Szymanski holds a bachelor’s degree in psychology from the Universidad Iberoamericana and a Master’s degree in Organizational Development from the Instituto de Estudios de Posgrado en Ciencias y Humanidades. |
● | Jose de Jesus Valdez. 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’s 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. |
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