20-F: Betterware de Mxico Reports Annual Results for 2024, Highlights JAFRA Acquisition and Strategic Initiatives

Betterware de Mxico's 2024 annual report details financial performance, strategic initiatives including Betterware USA launch, and a restatement of prior financials due to accounting errors.

Summary

• Betterware de Mxico, S.A.P.I. de C.V. reported its annual results for the fiscal year ended December 31, 2024.
• The report includes audited consolidated financial statements and a restatement of previously issued financial statements for 2023 and 2022 due to errors in lease accounting and expense classification.
• Net revenue increased by 8.4% to Ps.14,100.8 million, with the JAFRA segment contributing 57.5% and the Betterware segment 42.5%.
• The company launched Betterware USA, targeting the Hispanic market, and divested some JAFRA properties to enhance liquidity.
• Material weaknesses in internal control over financial reporting were identified, particularly in the business combination process, period-end financial reporting, and IT general controls.
• Management is implementing measures to remediate these weaknesses.
• Campalier, S.A. de C.V., remains the controlling shareholder with approximately 53.91% ownership.
• The company is subject to various risks, including those related to its operations in Mexico, competition, and regulatory changes.

Sentiment

Score: 6

Explanation: The document presents a mixed sentiment. While there is revenue growth and strategic initiatives, the identified material weaknesses in internal control and the decrease in EBITDA raise concerns. The company is taking steps to address these issues, but the overall outlook is cautiously optimistic.

Positives

• Net revenue increased by 8.4% to Ps.14,100.8 million.
• JAFRA segment revenue increased by 11.3%, driven by product innovation and strategic initiatives.
• Gross profit increased by 4.2% for Betterware and 12.7% for JAFRA.
• The company is actively addressing and remediating material weaknesses in internal control.
• The company launched Betterware USA, targeting the Hispanic market in Texas.
• JAFRA Mexico completed property transactions, selling land and buildings for Ps.402.2 million.
• Adjusted EBITDA increased 14.9% for JAFRA.
• The company is committed to sustainable development goals and has a 3P strategy focusing on People, Planet, and Profit.

Negatives

• Material weaknesses were identified in internal control over financial reporting.
• EBITDA decreased by 23.6% to Ps.2,078.4 million.
• Cost of sales increased by 6.1% to Ps.4,520.2 million, impacted by peso depreciation and increased import duties for Betterware.
• Administrative expenses increased by 14.2% to Ps.2,702.9 million, due to higher wages and service fees.
• Selling expenses increased by 15.5% to Ps.3,997.9 million, driven by higher incentive programs and sales bonuses.
• The company recognized a loss of Ps.529.7 million from the sale of JAFRA properties.
• The company recognized an impairment loss of Ps.166.6 million on assets held for sale.

Risks

• Inability to retain or recruit independent distributors, leaders, and consultants.
• Decline in customers' purchasing power or consumer confidence.
• Failure to successfully develop new products.
• Dependence on contract manufacturers, mostly in China.
• Disruptions or delays at the facility in Queretaro, Mexico.
• Volatility in costs and disruptions in the supply of materials and services.
• Competition from other multi-national manufacturers.
• Adverse publicity regarding the industry, business, or products.
• Failure of technology initiatives to create sustained enthusiasm.
• Cybersecurity risks and dependence on information and communication technologies.
• Difficulties in managing cross-border business operations.
• Inflation and potential impairments of goodwill, property, plant, and equipment.
• Political, economic, legal, and regulatory risks specific to Mexico.
• Currency exchange rate fluctuations, particularly with respect to the US dollar/Mexican peso exchange rate.
• Security risks in Mexico, including increasing criminal activity.
• Anti-corruption, anti-bribery, anti-money laundering, and antitrust laws and regulations in Mexico.
• Potential difficulty enforcing rights against Betterware and its directors and executive officers.
• Potential adverse U.S. federal income tax consequences if Betterware is characterized as a passive foreign investment company (PFIC).

Future Outlook

The company plans for growth through organic and inorganic initiatives, including new product categories, web marketing, international expansion, and strategic business acquisitions.

Management Comments

• The report mentions that the 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.

Industry Context

The company operates within the direct selling retail industry, which differs from broader retail by allowing entrepreneurial-minded individuals to build a business with low start-up costs.

Comparison to Industry Standards

• The report mentions that the company competes 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.

Management Changes

Corporate Governance

Legal Proceedings

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

Related Party Transactions

• On June 23, 2022, our subsidiary Programa Lazos, as borrower, entered into a loan agreement for an amount of Ps.150,000 with Campalier, as lender.
• In October 2023, 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, such as: consulting, accounting and financial advice, with monthly payments.

Stakeholder Impact

• The company identifies seven main Stakeholder Groups: (i) associates, (ii) distributors, (iii) final customers, (iv) collaborators, (v) investors, (vi) suppliers and (vii) community, that may be affected by our business commercial practices, as well as by the environmental and social impacts of our organization.

Next Steps

• The home organization segment launch to Latin America is expected to start operations in June 2025, which will be our first move to the Andean region (Peru, Ecuador, Colombia).
• For 2025, we are working on implementing actions to reduce water consumption by between 2 and 3%.
• By 2025, strategies are being proposed to reduce the impact of waste generation, reaching the end customer, where waste from shipped products can be recovered.
• In 2025, we will execute a comprehensive rollout of the COSO framework, placing particular emphasis on enhancing our Risk Assessment, Control Activities, and Monitoring processes to ensure a sustainable and effective internal control environment.

Key Dates

Keywords

Betterware, JAFRA, financial results, annual report, direct selling, Mexico, EBITDA, revenue, internal control, risk factors