20-F: Betterware de México Reports Financial Results for Fiscal Year 2023

Betterware de México's 20-F filing reveals a 13.1% increase in consolidated net revenue for 2023, driven by JAFRA's strong performance, despite identified material weaknesses in internal controls.

Summary

• Betterware de México, S.A.P.I. de C.V. filed its 20-F form with the SEC for the fiscal year ended December 31, 2023.
• The company reported a 13.1% increase in consolidated net revenue, reaching Ps. 13,009,507.
• This growth was primarily driven by the Beauty and Personal Care (B&PC) segment (JAFRA), which saw a 41.0% increase in net revenue.
• The Home Organization segment (BWM) experienced a 9.7% decrease in net revenue.
• The company identified material weaknesses in its internal control over financial reporting as of December 31, 2023, related to the business combination process, period-end financial reporting, and IT general controls.
• Management is implementing measures to strengthen internal controls, including deploying IT applications and creating a dedicated internal control area.
• The company's Board of Directors approved the appointment of PricewaterhouseCoopers, S.C. as their independent registered public accounting firm.
• Betterware plans to launch an enhanced direct selling model in the United States, targeting the Hispanic population, with an expected investment of approximately USD$6 million in 2024.
• The company is progressing with its brand expansion into Latin America.

Sentiment

Score: 6

Explanation: The sentiment is neutral. While the company shows revenue growth, the identified material weaknesses in internal controls raise concerns. The future outlook is cautiously optimistic, pending successful implementation of remediation efforts and expansion plans.

Positives

• Consolidated net revenue increased by 13.1% in 2023.
• JAFRA's net revenue increased by 41.0% due to business model improvements and a full year of consolidation.
• The company is expanding its brand into Latin America.
• The company is launching an enhanced direct selling model in the United States, targeting the Hispanic population.

Negatives

• BWM's net revenue decreased by 9.7% in 2023.
• Material weaknesses were identified in internal control over financial reporting as of December 31, 2023.
• The company's disclosure controls and procedures were not effective as of December 31, 2023.

Risks

• The company's business and results of operations are subject to political, economic, legal, and regulatory risks specific to Mexico.
• Currency exchange rate fluctuations, particularly with respect to the US dollar/Mexican peso exchange rate, could lower margins.
• The company's revenue and profitability may be affected if it fails to acquire new companies or integrate those that it has already acquired, such as JAFRA.
• The company's indebtedness and any future inability to meet any of its obligations under its indebtedness, could adversely affect it by reducing its flexibility to respond to changing business and economic conditions.
• Environmental, social and corporate governance (ESG) issues, including those related to climate change and sustainability, may have an adverse effect on the company's business, financial condition and results of operations and damage its reputation.

Future Outlook

Betterware plans to launch an enhanced direct selling model in the United States, targeting the Hispanic population, with an expected investment of approximately USD$6 million in 2024 and continues to progress with expansion of its brand into Latin America.

Industry Context

The direct selling industry is evolving, with companies increasingly relying on technology and e-commerce to reach customers and distributors. Betterware's focus on innovation, business intelligence, and a strong distributor network positions it to compete effectively in this changing landscape.

Comparison to Industry Standards

• Direct selling companies like Avon, Natura &Co, and Tupperware Brands also operate with independent sales representatives, but Betterware's focus on home organization provides a unique niche.
• Nu Skin Enterprises and Herbalife Nutrition are other comparible companies that operate with a similar business model.
• The company's 24.5% household penetration in Mexico is a strong indicator of its market presence, but it needs to maintain and grow this penetration to sustain growth.
• The company's investment in technology and business intelligence is in line with industry trends, but it needs to ensure that these investments translate into tangible results.

Management Changes

Related Party Transactions

• Programa Lazos replaced a loan with Campalier by a loan with Betterware de Mexico as a lender.
• Betterware de Mxico, S.A.P.I. de C.V. and Campalier, S.A. de C.V., signed a service agreement in which Betterware undertakes to provide Campalier with specialized services in an arms length transaction.

Stakeholder Impact

• Shareholders may be concerned about the identified material weaknesses in internal controls.
• Employees may be affected by the company's restructuring and cost-cutting measures.
• Customers may benefit from the company's focus on product innovation and expansion into new markets.
• Suppliers may be affected by the company's efforts to negotiate better terms and manage its supply chain.

Next Steps

• Implement measures to strengthen internal control over financial reporting.
• Deploy IT applications to enable and automate the consolidation and ITGC process.
• Continue working on the implementation of a formal internal control over financial reporting program based on a top-down risk assessment.
• Launch an enhanced direct selling model in the United States, targeting the Hispanic population.
• Progress with brand expansion into Latin America.

Key Dates

Keywords

Betterware, JAFRA, Net Revenue, Internal Control, Financial Reporting, Direct Selling, Mexico