Business context and reporting period
Betterware de México, S.A.P.I. de C.V. filed its annual Form 20-F for the fiscal year ended December 31, 2022. The filing reports full-year results, not standalone fourth-quarter results; it does not provide a clear set of Q4-only financial figures. Financial statement amounts below are in thousands of Mexican pesos (Ps.) unless noted. The statements are prepared under IFRS. The 2021 comparative figures were adjusted for immaterial prior-period errors.
The group sells through direct-sales networks in two segments: Betterware’s home organization products and JAFRA’s beauty and personal care products. JAFRA was acquired on April 7, 2022, so its results are included only from that date. It contributed 44.9% of 2022 consolidated net revenue.
Key financial metrics
| Metric | FY2022 | FY2021 adjusted | Change / context |
|---|---|---|---|
| Net revenue | Ps. 11,507,549 | Ps. 10,067,683 | Up 14.3%; includes JAFRA from April 7 |
| Gross profit | Ps. 7,928,456 | Ps. 5,569,675 | Gross margin 68.9%, versus 55.3% |
| Operating income | Ps. 2,028,406 | Ps. 2,601,865 | Down 22.0%; operating margin about 17.6%, versus 25.8% |
| Net income | Ps. 869,964 | Ps. 1,747,939 | Down 50.2%; net margin about 7.6%, versus 17.4% |
| EBITDA, non-IFRS | Ps. 2,316,108 | Ps. 2,683,987 | Down 13.7%; margin about 20.1%, versus 26.7% |
| Operating cash flow | Ps. 1,409,702 | Ps. 1,465,597 | Down 3.8% |
| Investing cash flow | Ps. (4,825,222) | Ps. (320,378) | Primarily reflects JAFRA acquisition spending |
| Financing cash flow | Ps. 3,055,966 | Ps. (619,841) | Includes borrowing to fund JAFRA |
| Cash and cash equivalents, year-end | Ps. 815,644 | Ps. 1,175,198 | Down Ps. 359,554 during 2022 |
Net income attributable to owners was Ps. 872,557; basic EPS was Ps. 23.42, compared with Ps. 47.38 in 2021. The company defines EBITDA as a non-IFRS measure; it should not be treated as a substitute for IFRS results.
Material changes versus the prior comparable period
- Acquisition-driven growth: JAFRA added Ps. 5,164,205 in revenue and Ps. 493,062 in net income from the acquisition date through year-end. JAFRA’s higher gross margins helped lift consolidated gross margin.
- Weaker Betterware segment: Home organization revenue fell 37.0% to Ps. 6,343,344. Distributors declined 22.7% to 39,413 and associates declined 26.8% to 778,845, following the reversal of unusually strong pandemic-period demand.
- Higher operating costs and financing burden: Administrative expenses rose 108.1% and selling expenses rose 123.5%, largely reflecting JAFRA’s inclusion. Interest expense increased to Ps. 543,321 from Ps. 75,818, primarily because of acquisition financing and bond interest.
- Profitability fell despite revenue growth: Consolidated operating income, net income and EBITDA all declined. Management attributed EBITDA pressure mainly to lower operating leverage at Betterware, partly offset by improved gross margin and reduced fixed operating costs.
- Working capital and inventory: Inventory rose to Ps. 2,122,670 from Ps. 1,286,155. The filing says inventory turnover increased to 174 days from 104 days; management reported a Ps. 659,652 working-capital investment during 2022.
Debt, liquidity, outlook and risks
At year-end, debt and borrowings were Ps. 6,148,675 and lease liabilities were Ps. 291,908; the filing describes total indebtedness, including leases, of approximately Ps. 6,441 million. Cash was Ps. 815,644. The company obtained a five-year syndicated facility of Ps. 4,498,695 to fund JAFRA, with a floating TIIE-linked rate; principal payments are deferred for the first 24 months, then begin in month 25. It also had Ps. 1,485,545 outstanding under its 2021 sustainability bonds. Management reported compliance with debt covenants after obtaining a waiver for one syndicated-loan covenant.
Management said it seeks to maintain at least Ps. 400,000 in monthly cash and equivalents and believed available resources would support timely debt service. The company hedged 100% of Betterware’s product needs through August 2023 using U.S. dollar–peso forwards; outstanding forwards at year-end totaled US$41.8 million at an average rate of Ps. 20.31. This does not eliminate future currency or interest-rate exposure.
No quantified earnings or revenue guidance is provided. Management described growth plans involving new products, e-commerce, service capacity, international expansion and potential acquisitions, and said JAFRA was expected to diversify the portfolio and support North American expansion. Subsequent to year-end, the company made a Ps. 1,000,000 advance payment on the syndicated loan on March 31, 2023, reducing its principal balance to Ps. 3,498,695.
- Internal controls: Management and the auditor concluded internal control over financial reporting was ineffective at December 31, 2022 due to material weaknesses involving risk assessment and monitoring, business-combination accounting, period-end reporting and consolidation, and IT general controls. The 2022 financial statements received an unqualified audit opinion, but JAFRA—49% of consolidated assets and 45% of revenue—was excluded from the ICFR assessment and audit.
- Prior-period corrections: Adjusted 2021 net income was Ps. 1,747,939, Ps. 52,945 below the previously reported amount. Corrections involved revenue cut-off, inventory and freight assumptions, catalog expense timing, provisions, capital classification and tax accruals.
- Other risks and unusual items: The company cites distributor retention, discretionary consumer demand, reliance on Chinese suppliers (about 93% of Betterware revenue was associated with products supplied by Chinese manufacturers), supply-chain and input-cost volatility, dependence on JAFRA’s Querétaro facility, integration and goodwill impairment risks, inflation, peso–dollar movements, leverage, and Mexican regulatory and economic conditions. JAFRA acquisition accounting recorded Ps. 1,250,132 of goodwill; no impairment was identified at year-end. Withdrawals from GurúComm and Innova generated losses of Ps. 16,610 and Ps. 5,252, respectively.
- Contingency: A tax dispute concerning the 2010 income-tax filing was withdrawn in early 2023; a Ps. 5,331 historical tax credit, plus updates and surcharges, was paid on April 26, 2023. Management reported no material legal proceedings expected to adversely affect the group.
- Distributions: The company paid Ps. 949,610 in dividends during 2022, versus Ps. 1,400,000 in 2021; it has no adopted dividend policy.
Important facts for investors to verify
- Separate organic performance from acquisition effects: confirm JAFRA’s full-year contribution and the trajectory of Betterware’s distributor network, revenue and margins.
- Review the remediation and independent testing of the disclosed material weaknesses, including whether JAFRA has been brought into the ICFR assessment.
- Check debt amortization, floating-rate exposure, covenant headroom and the effect of the March 2023 Ps. 1 billion prepayment on liquidity and interest expense.
- Monitor inventory levels, turnover, receivables and credit-loss provisions; the auditor identified the receivables allowance as a critical audit matter.
- Assess JAFRA integration, acquisition valuations and goodwill assumptions, including projected margins, growth and discount rates.
- Verify whether lower freight costs, currency hedging and other cost actions can sustain margins amid supplier, inflation and consumer-demand risks.