Betterware Reports First Quarter Fiscal Year 2023 Results

GUADALAJARA, Mexico, April 27, 2023

1Q2023 Highlights

Group	The acquisition of Jafra proves accretive, creating a resilient consolidated group with diversified and complimentary product lines, uniquely positioned for growth in attractive markets in Mexico and the United States. Solid progress achieved during the period, with the behavior of the main variables stabilizing and in line with the estimates for each business. Confirmed flexibility of our business model and on our ability to adapt to different market conditions, translates into improved profitability through cost control and efficient expenses, which are mostly variable. The implemented initiatives at Betterware and Jafra, which represent a solid foundation for growing revenue, profitability, and more value for our shareholders, are already showing positive results. Strong Balance Sheet, reducing total debt during the quarter and improving leverage ratio due to high cash flow generation.
Betterware	After a seasonal decline in associate's base during the first four weeks of the year, our base grew 2.6% during the last two months of the quarter, confirming the positive trends. Distributor's EOP base grows 1.5% relative to 4Q2022, which gives us strength to boost growth in our associates base going forward. Improving conditions in terms of international freight and input costs, coupled with an improved expense structure, result in significant improvements in terms of EBITDA and EBITDA margin relative to 4Q2022.
Jafra Mexico	ARIVA.DE Börsen-Geflüster Kurse Betterware de México 17,33 $ -11,5% JAFRA Mexico delivers exceptional performance, ahead of our plans for the quarter, boosted by a growing average consultant's base, coupled with higher activity and productivity rates. New Jafranet 2.0 App, expected during May 2023, will improve leaders and consultants' capabilities to better manage their own business and become more efficient. Improved working capital management significantly reduced cash conversion cycle, increasing days payable and reducing inventory days in 1Q2023.
Jafra USA	Focused on business turnaround, adapting our commercial strategies to improve client and consultant opportunity with a goal to bring stability to the business. Early progress from reactivation and retention strategies allowed us to move from a consultant activity rate of 37.1% in February to 53.8% in March. Reactivation and retention will continue to be an important focus of Jafra USA. Strong reactivation strategy with reactivation 99% above expectations and 84% above prior year.

1Q2023 Selected Financial Information

Message from Betterware's Chairman

The Group's results for the first quarter of the year closed in line with our expectations. The behavior of the main variables remained stable and in line with the forecasts for each business. We are proud of the progress attained during the period, and we know that we are on the right path implementing proven strategies that are gaining traction and are expected to deliver increasing progress as we move through the year. 

I am equally pleased with our acquisition of Jafra. While only a year since we have completed the acquisition, we have accomplished so much and Jafra's results have surpassed our expectations. The team has adapted very quickly to the culture and dynamics of Betterware, injecting more energy and aggressiveness into the commercial part of the business and products' innovation, both in its process and in the renewal of some of its brands. Discipline, coupled with administrative and financial control have managed to improve the profitability of the company, reaching higher levels of stability in the product cost, as well as in the direct and operating expenses. It is important to highlight that, since 3Q 2022, Jafra's sales force in Mexico has been gradually recovering, both in attracting new consultants, as well as in their retention and activity. With the return to normality, we have brought back in-person training and events with the sales force, which are essential to keep them motivated and assisting them to grow their business. Taking care of promotional cycles has helped us maintain our sales force and the activity month after month. Jafra's attractive and complimentary product portfolio has also helped us diversify the Group, which favors cash flow generation and maintains our financial strength in the face of an uncertain and changing environment, both nationally and internationally.

For Betterware, our performance during the first quarter of 2023 was key, laying the foundation for us to achieve our expected result for the year. We have several accomplishments to share, during the quarter we stabilized the business by reversing the downward trend in the sales force. In fact, in February and March we had net growth in both Associates and Distributors, improving the incorporation rate and reducing churn. This demonstrates the strength of our reinforced Sales Staff who have begun to show positive results; we are confident that this will be the basis to start growing our platform in the coming months and, consequently, enhance our sales. On the other hand, we have improved the catalog since January, both in design and in the product offering (we increased the number of SKUs, recovered the strength of our core product line, incorporated new categories, and encouraged the use of the digital catalog). All this effort helped to maintain sales at an appropriate level. And, although there is still more work to do, we were able to observe a different dynamic that allows us to be optimistic about what we can achieve from here on. In addition, I am pleased to remark that we returned to the margin levels we had at the beginning of 2022, which helps us to be in line with the EBITDA estimated for this period and for the year.

It is essential to remember that part of our success is based on the flexibility of our asset-light business model and on our ability to adapt to different market conditions, which translates into preserving our profitability through cost control and efficient expenses, which are mostly variable. This applies to both Betterware and Jafra, and we will leverage this to achieve better profitability and higher cash flow generation. Our solid business model, our knowledge and experience in direct selling companies, and our involvement in the business as the controlling group, completely differentiate Betterware de México from other public direct selling companies. We are proud of our track record of success since we started this company, recently demonstrated by a 2019-2022 sales CAGR of 55% and EBITDA CAGR of 38%, considering Jafra, and only considering Betterware's operations, a 2019-2022 sales CAGR of 27% and EBITDA CAGR of 18%. More impressively, from 2001 to 2022, Betterware achieved a 20% net revenue CAGR and a 22% EBITDA CAGR.

Although the world's macroeconomic environment is still uncertain, we are confident that our different business units are heading in the right direction. The decisions made so far, and the initiatives we are implementing at Betterware and Jafra represent a solid foundation for growing revenue, profitability, and more value for our shareholders. I am sure that we will achieve our 2023 objectives and maintain sustained growth in the long term.

Luis G. Campos
Executive Chairman of the Board

Group's Consolidated Financial Results

• Net Revenue

Consolidated net revenue for 1Q2023 increased 74.9% to Ps. 3,268.9M from Ps. 1,869.1M in 1Q2022, mainly attributed to the inclusion of Jafra Mexico and Jafra USA results in this year's results, which during the quarter accounted for 51% and 7% of consolidated net revenue, respectively.

Comparable net revenue, which only includes Betterware's net revenue, decreased 25.4% YoY mostly due to a lower average associates and distributors base, partially offset by a higher average associate order.

On a QoQ basis, consolidated net revenue increased by 1.2%.

• Gross Margin

Consolidated gross margin for 1Q2023 expanded 919-bps to 72.8%, compared to 63.6% in 1Q2022. Margin expansion is mainly explained by the inclusion of Jafra Mexico and Jafra USA results during 2022, partially offset by a 243-bps margin contraction in Betterware due to abnormally high gross margin during 1Q2022.

On a QoQ basis, consolidated gross margin expanded 306-bps mainly attributed to margin expansion in Betterware due to improved conditions in international freight prices.

• EBITDA and EBITDA Margin

Consolidated EBITDA for 1Q2023 increased 20.3% to Ps. 659.0M from Ps. 547.8M in 1Q2022, largely attributed to the inclusion of Jafra Mexico in this year's results, which during the quarter accounted for Ps. 277.5M and partially offset by a decline in EBITDA for Betterware and negative EBITDA contribution from Jafra USA. Comparable EBITDA (only Betterware) for 1Q2023 decreased 23.9%.

Consolidated EBITDA margin for the quarter contracted 915-bps mainly explained by the inclusion of Jafra Mexico and Jafra USA to our results, partially offset by a 59-bps margin expansion in Betterware due to increased operating leverage related to the alignment of expense structure to current operations.

On a QoQ basis, consolidated EBITDA increased 16.4% and consolidated EBITDA margin expanded 262-bps.

• Net Income and EPS

Consolidated net income for 1Q2023 declined 28.3% to Ps. 191.7M from Ps. 267.3M in 1Q2022, essentially explained by a 617% increase in interest expenses due increased leverage to complete the Jafra Acquisition in April 2022, coupled with higher interest rates in Mexico. Earnings Per Share (EPS) for 1Q2023 was Ps. 5.15, compared to Ps. 7.16 in 1Q2022.

On a QoQ basis, consolidated net income decreased 8.4%.

• Cash Flow

Consolidated cash flow from operations for 1Q2023 significantly improved to Ps. 682.0M, from Ps. (91.9M) in 1Q2022, due to efficient inventory management, coupled with cost and expense savings related to the corporate restructure to align to the new level of sales in Betterware, and the inclusion of Jafra's operations in our results.

Consolidated CAPEX for 1Q2023 decreased 93.5% to Ps. 3.2M in 1Q2023 from Ps. 49.2M in 1Q2022, explained by lower investment requirements after the completion of Betterware's distribution center during 2021 and low investment requirements in Jafra due to the current installed capacity.

Consolidated free cash flow, measured as cash flow from operations minus CAPEX, for 1Q2023 significantly improved to Ps. 678.8M from Ps. (141.1M) in 1Q2022, boosted mainly by a cash flow generation improvement in Betterware.

• Balance Sheet

As of the end of 1Q2023, the Company's balance sheet reflects strength, reinforced by the main attributes of our differentiated business model, namely high cash flow generation and asset-light business model. These key attributes, coupled with financial discipline and a special focus on the improvement of Jafra's cash conversion cycle will allow us to reduce our leverage ratio to below 2.0x net debt to EBITDA by the end of 2023.

YoY, Inventories rose 9.7% to Ps 1,832.2M by the end of 1Q2023, mainly reflecting the incorporation of Jafra into our balance sheet. As mentioned in our previous earnings release, we had excess inventories worth Ps. 300M in Betterware due to lower-than-expected sales, and we have plans to gradually reduce inventory to align with sales growth during 2023 and 2024, without compromising sales of better-performing products and categories. Excess inventories were reduced by approximately Ps. 65M during the quarter, slightly ahead of our plans.

Net debt at quarter end was Ps. 5,388.1M, which represents a relevant increase relative to 1Q2022, almost exclusively related to the Jafra acquisition. Our leverage ratio increased in a YoY basis, from 0.4x Net Debt to Trailing-Twelve-Month EBITDA ratio in 1Q2022 to 2.3x in 1Q2023, but improving in a QoQ basis, compared to 2.6x in 4Q2022, which shows we are in the right track to reduce our leverage ratio.

1Q2023 Financial Results by Business

Betterware

• Key Operating and Financial Metrics

		1Q2023	1Q2022	% vs. 1Q2022	4Q2022	% vs. 4Q2022
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