Betterware de Mexico, S.A.P.I. de C.V.

Thank you, and welcome to BetterWare's third quarter fiscal year 2022 earnings conference call. With me on the call today are BetterWare's Executive Chairman, Luis Campos, Chief Executive Officer, Andres Campos, and Corporate Chief Financial Officer, Alejandro Ulloa. Before we get started, I'd like to remind you that This call will include forward-looking statements which are subject to various risks and uncertainties that could cause actual results to differ materially from expectations. Any such statement should be considered in conjunction with the cautionary statements and the safe harbor statement in the earnings release and risk factors discussed in the reports filed with the SEC. Betterware assumes no obligation to update any of these forward-looking statements or information. A reconciliation and other information regarding non-GAAP financial measures discussed on the call can be found in the earnings release issued yesterday as well as the investors section of the company's website. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the call over to the company's executive chairman, Luis Campos. Please go ahead, sir.

Thank you, operator, and good morning, everyone. Thank you for joining our third quarter 2022 earnings call. In terms of the agenda for today, I will begin my remarks by providing highlights on the performance of the whole Better Work Jafra group, as well as Jafra's business strategies. Then, Andrés will discuss the progress made in Better World's business strategies and the actions taken to recover our profitability. And finally, Alejandro will discuss our quarterly and year-to-date financial results and our expectations for the rest of the year. We are encouraged about third quarter results for both Better World and Jaffa. As for BetterWear, we are particularly proud of our team's ability to stabilize our sales force in Q3, as well as the completion of the organizational and expenditure restructuring in this quarter. Continuing with our strategic transformation plan, which will deliver annual savings of around 300 million pesos in 2023. Both achievements will be key to resume accelerated growth and increased profitability starting in Q1 2023. As for Jafra Mexico's results, we are very pleased with the strong results delivered this quarter, with revenue growth of 11% from Q3 2021. marking the first period since 2017 that revenue grew year over year. Our focus on adding new consultants to our base was successful and has been key to achieve this improving trend. In particular, September saw the addition of 51,000 new consultants. an outcome not seen since May 2021. We expect to build upon this growth as we release a renewed product catalog and execute promotional campaigns which will give our sales force additional tools from which to drive sales. The identification and execution of synergies and efficiencies is paying well, which along with continued focus on our strategic priorities, have us poised to continue improving Jafra Mexico's profitability and cash flow generation. To achieve continuous growth and profitability, we have established strategic imperatives in the commercial front focused on products. sales program, and digital capabilities. Aim at growing our market share, growing our sales network, and improving consultants' and end consumers' experience. The launching of new products within our skin and color portfolios target promotions to increase average sales tickets, Brand renewal and repositioning will increase our share of market. An innovative incentive plan to accelerate incorporation of our consultants, geographic expansion, and penetrating new segments will drive our sales network growth. As we look to leverage the power of social media amongst our consultants, to grow brand awareness, we are also developing digital tools such as our Jafra app currently being deployed, a virtual store, an artificial intelligence which will give drive efficiencies and productivity jointly with an improved experience for consultants and end consumers. Combined, we expect these initiatives will give us the ability to deliver high single to low double-digit growth in net revenues in 2023. Regarding Jafra USA, which is still a small contributor to the whole group and is performing below its underlying potential, our efforts remain focused in resolving issues that existed prior to the acquisition. Corrective actions are ongoing to regain control, profitability, and growing the sales force with the aim of resuming net revenue growth and achieving improved profitability by Q3 of 2023. We reaffirm that the Jafra acquisition is accretive, as demonstrated already by its better-than-expected results, which represent progress toward our goal of resuming revenue and earnings growth. Jafra's and Betterworld's management teams will remain focused on their respective business and continue operating as independent companies, while supported by the corporate structure which will be overseeing both companies. Successfully mirroring Better Works business model at Jafra will be key to achieve outstanding results and solidify its position as a leading consumer products company. As we look ahead to consolidate the group's expansion, we continue making progress for better work to begin operations in the USA in late 2023, followed by further international expansion in Colombia and Peru between 2025 and 2026. Jafra will enter Guatemala in 2023, and Colombia and Peru will follow in the coming years. This will pave the way to entry into other new geographies in the longer term, while we continue leveraging our business model to elevate Jafra's distribution model. We have never been more confident in our future. We are uniquely positioned to establish Better World Jafra Group as a benchmark of constant growth, profitability, and cash flow generation, laying the foundation for long-term sustained shareholder value. I will now turn the call over to Andres to discuss Better World's business strategies.

Thank you, Luis, and good morning to everyone. Having stabilized our sales force at an average of 870,000 associates and 43,000 distributors from mid-May to date, in line with second quarter's favorable trend, and having completed our operational and expense restructuring, our focus is now on gradually resuming growth and profitability throughout 2023. To this end, our powerful innovation pipeline will lead the way by increasing our product offering, serving an ever-expanding customer base, and maintaining customer engagement. The launch of our differentiated cleaning products line and new product categories such as baby and kids and wellness, jointly with an increased range of products within the hydration, home improvement, and tabletop territories, will be part of our focus for 2023. In addition to innovation, we are advancing in five key commercial initiatives which are already in place. First, our digital and physical catalogs are both undergoing a profound renovation. Regarding the digital catalog, developed under a mobile-first approach, It will have improvements that will allow our sales force to easily pass it along and connect with new customers in the short term, improve our knowledge of the end consumer, and allow for an easy interaction within WhatsApp to achieve a higher sales conversion rate. On the other hand, we are leveraging our physical catalog to achieve maximum visual appeal. while making it easier for customers to understand offerings in each category using improved marketing techniques, as well as including promotions that create a sense of opportunity that will drive net revenue growth. Second, we have identified relevant opportunities to add value to our commercial business model through predictive turn models and incentive structures to be developed and released in the short term, with the purpose of growing our sales force segmentedly. Third, aligned with the return to normality and with the aim of attracting new associates, we have relaunched our person-to-person companion program to support our associates in developing their business. Also, the resumption of live sales meetings will contribute towards our deeply in rooted person-to-person business model. Fourth, the launch of Better Work Experts, which is our master class type digital training platform, which is complementary and additive to our traditional training programs. It is helping us achieve enhanced results among our associates and distributors, with over 50% of them already leveraging on the power of digital connectivity to build engagement. And finally, we continue to make progress in e-commerce as we review our strategy and business model to improve results. Accordingly, we are in the process of upgrading our e-commerce website, which will allow us to increase our penetration, attract new customers who are currently not served by our traditional model, and improve our data analysis and consumer insight capabilities. We firmly believe in our model, and we will continue betting on it in our group's net revenue and EBITDA growth strategy. Finally, we will continue evolving and enhancing our core model, which is part of our competitive advantages and key to continued growth in the future. We will remain focused on increasing profitability while executing internal actions to stabilize and improve our business trend. I will now turn the call to Alejandro, who will discuss our financial results for the quarter. Thank you, Andres. Good morning, everyone. From a financial standpoint, a summary of the quarter's results would be as follows. In the case of BetterWorks, We laid the foundations for a recovery of net revenue and profitability by stabilizing the sales network and streamlining expenses. In the case of Jafra, we grew revenues and increased margins and are strongly poised to continue delivering consistent growth and profitability well into the future. Our focus is on generating value for our shareholders. And to that end, the short to medium-term priorities going forward are, one, Growth. In the case of BetterWear, resume sequential and year-over-year growth. As for Jafra, realizing its full potential. Two, profitability. Deliver increased profitability for both BetterWear and Jafra with a special focus on Jafra USA. Three, cash flow. Generate greater operating and non-operating cash flow to reduce the debt burden and return value to shareholders through dividends. Based on these priorities, in the case of BetterWear, it is imperative to consolidate net revenue growth and profitability in the coming quarters. As far as the top line is concerned, the key actions behind it are embedded in the commercial strategy commented by Andres, all of which will drive the growth of our sales force and sales. The higher operating leverage resulting from increased sales reported by a streamlined expense structure coupled with a good standing inventory after the promotional investment made in recent months will return our EBITDA margin to historical levels of 20%. As for GAFRA, we should separate between Mexico and the U.S. businesses. In the case of Mexico, the results are tangible just a few months after the acquisition, registering year-over-year and sequential growth already, demonstrating our ability to attract consultants, identify opportunities, and execute them in an agile and accurate manner while preserving the essence of the business and the brand. In this way, in this case of Japa, Mexico, the top-line profitability will continue to grow through a renewed product base, strengthened and bigger sales force, and propelled by the commercial strategies already mentioned by Luis. In the case of Jafra USA, we do not expect to obtain results like those of Jafra Mexico in the immediate term, as we are rebuilding the fundamentals of the business to prepare for and achieve future and consistent growth, of which we are certain. Within this, the rebound in the sales force achieved in the quarter is certainly encouraging, but there is still a lot to be accomplished within our strategy. Today, The U.S. business has a negative contribution for the entire group, but once the structural issues are resolved, we will achieve break-even, and then we will be able to accelerate the penetration of the American market and grow this business. In the long term, we aim at continuing with the expansion of Better World JAPRA Group through the scalability of our model and penetrating new markets in the continent in a gradual and orderly manner. Finally, I would like to conclude my remarks by highlighting several relevant points at the entire group level. One, portfolio complementarity between Jafra and BetterWorks will translate into stronger financial performance. While Jafra's portfolio's big consumable duty and personal care groups involves frequent repurchases, BetterWorks' portfolio is more durable and seasonally driven. The independence of complementary product portfolios become valuable assets that contribute to the group's residing growth, financial stability, and improved performance in challenging market conditions as today's. That is, the Jafra position translates into a built-in operating hedge. Two, the current level of leverage resulting from Jafra position will be resolved not only from continued financial discipline and enhanced operating cash flow generation resulting from the recovery of net revenues and profitability, but also from the sale of unproductive assets, improvements in terms of credit synergies and efficiencies, all of which add up a cash inflow of 700 to 900 million pesos in 2023. Three. the Board of Directors has determined a dividend payment of 50 million pesos for this term. The total dividends payout during full year 2022 will sum up to 950 million pesos. The Board will be discussing the long-term dividend policy that the group will follow as we move forward with the ongoing initiatives. Last, in the expansion of the group's scalability core model, penetrating new markets in the continent in a gradual and orderly manner. Over and above third quarter results, I would like to mention that my priority as corporate CFO of the Whole Better Growth Viapra Group will be on developing and executing financial strategies for the company to optimize the use of resources and maximize profitability. After a period where we experienced massive growth alongside the acquisition of Viapra, it is now time to focus on finding efficiencies all over the organization. Our high-performance management team has already identified potential synergies that will balance and increase profitability. Now, our main concern is to make things happen in this regard, together with strengthening the team and reinstating planning and controls. Henceforth, we will be concentrating on five main elements that will reinforce our financial performance. One, people. We're working on hiring, retaining, and developing the best time to have solid teams. The objective is to achieve high-performance teams accountable for every function that they execute. Teams focus on continuous improvement across the company. Two, planning. Whether financial or strategic, we will work on data mining to better predict results and have medium and long-term visibility of risk and opportunities ahead. Three, control. Standardize policies, processes, and procedures across the companies to enhance internal control without interfering business growth. Four, business partner approach. Flowing with a new trend, I will be strategically supporting businesses, identifying windows of opportunity, and adding value to the organization by allocating optimal resources to every project or investment. Five, technology. All the previews will be supported with the best use of technology to optimize organizational structures, job quality, kinds of response and controls, among others. The goal is to better be prepared to deal with externalities and competitors in today's dynamic market.