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

Thank you and welcome to BEFRA's Fourth Quarter 2024 Earnings Conference Call. Speaking on today's call are BEFRA's Executive Chairman, Luis Campos, Chief Executive Officer, Andres Campos, and Chief Financial Officer, Alejandro Ulla. Before we begin the remarks, the company would like to remind you that today's call will include forward-looking statements, which are subject to various risks and uncertainties that could cause actual results that differ materially from those expectations. Any such statements should be considered in conjunction with the cautionary statements and the safe harbor statement in the earnings release issued yesterday and risk factors discussed in reports filed with the SEC. Fairfair assumes no obligation to update any of these forward-looking statements or information. A reconciliation of and other information regarding non-GAAP financial measures discussed on today's call can also be found in the earnings release as well as in the investors section of the company's website. Now I turn the conference over to the company's chairman, Luis Campos. Thank you. You may begin.

Thank you, operator, and good afternoon, everyone. 2024 was a year filled with important achievements and continued strong momentum for BFRA. We delivered double-digit revenue growth of 11.1% in Q4 2024, compared to the same period last year. This growth was fueled by the exceptional results of Jafra Mexico, which achieved remarkable 22.2% growth in the quarter. And despite the challenging operating environment, Better Wear Mexico demonstrated resilience and continued to grow for the fifth straight quarter, exceeding last year results by 1.5% in the quarter. This strong finish to the year propel BFRA to 8.4% revenue growth for the full year 2024 compared to 2023. Both Jaffa Mexico and Better Work Mexico contribute to this success with Jaffa achieving a 13% increase and better were a 4.6% increase. While our consolidated revenue was in the middle of our 2024 guidance range, we faced unexpected and temporary external headwinds that hinder profitability. Despite EBITDA increasing to 2.8 billion versus 2023, this was slightly below the low end of our guidance range, which was 2.9 billion. This slight shortfall was primarily due to the unexpected challenges in Better World Mexico's international supply chain. where we suffered headwinds in the second semester from sharp Mexican peso depreciation, rate price increase, and availability of products, and growing product import duties, but was partially offset by a 15.4% increase in Jafran Mexico's EBITDA. Changing gears, And looking ahead for 2025, I want to point out three relevant milestones that we will reach this year. Number one, Better World Mexico will celebrate its 30th anniversary. These milestones reflect a long story of outstanding growth. Over the past 23 years, BETA World Mexico has achieved a remarkable KGR of 18% in revenue and 19% in EBITDA and expanded its associate base from 5,000 to 675,000, reaching an estimated 8 million Mexican households today. With an estimated 4% market share in the household product market, we are ready to seize the significant opportunity to deepen our market penetration and drive additional growth in the years to come. Number two, it will be five years since our U.S. IPO despite the difficulties these five years have laid forward, this period has been marked by achieving accelerated growth for the group. In the IPO, BFRA has multiplied revenue by 4.6 times, which represents a 35.5% KGR. And even that, by 3.3 times a 26.7% KGR. At the same time, the value of BIFRA assets has increased 2.4 times, and the company has paid a total of 4.8 billion pesos in dividends. All of this reflects our commitment and ability to consistently deliver strong results. Number three, it's been three years since the acquisition of Java. This strategic move brought a valuable brand, increased category diversification, and demonstrated our ability to execute on our M&A strategies. Under BIFAS leadership, Jafra has experienced a resurgence in growth and profitability, with sales multiplying by 1.4 times, profitability by 1.6 times, and EBITDA margins expanding from 13% to 20.7% at Jafra Mexico. While new acquisitions are part of our long-term strategy, Jafra's success makes us confident on our underlying hypothesis of adding value to new brands through our operating model. With these achievements as our foundation, we are poised to continue our legacy of excellence. driving sustainable growth and unlocking new opportunities in the years ahead. Before I pass the call over to Alejandro and Andres, I would like to communicate that Andres has been appointed by the board as president and CEO of the Bifra Group. After 13 years of experience and great results, including as Beto O. Mexico's CEO since 2018, I have full confidence in his vision and our exceptional team. The strong foundation of growth that we have built, mainly a proven and resilient business model, will continue to drive success. I am certain that 2025 will be a year of even more achievements and help solidify our leadership in the industry. I will remain on board as non-executive chairman of the BFRAS Board and will support Andrés and the whole team in making all the strategic decisions. With that, let me hand the call to Alejandro, and I will return later with some closing remarks. Thank you, Luis, and good afternoon, everyone. As a reminder, all figures I will reference today are in Mexican pesos, our functional and reporting currency. Additional details are available in our earnings release published earlier. Before I begin my review, of our quarterly and full year results, I would like to briefly comment on two relevant accounting changes that we have made derived from our 2024 audit revision by PWC. Specifically, and in compliance with IIS 2 and IAS 8, we are reclassifying labor and indirect manufacturing costs or 430 million pesos in 2024 from operating expenses to cost of goods sold in our Jaffa, Mexico business. This measure affects Q2 2022 onwards, but has no impact on net revenue, EBITDA, or net income. Finally, as we laid out in our earnings release document, We are presenting adjusted EBITDA and earnings per share for 2024, eliminating the accounting and non-cash loss derived from the sale of non-strategic land that Jafra owned, which accounted for a total of 696 million pesos. That said, returning to our most recent financial results, Consolidated net revenue grew 11.1% in the fourth quarter of 2024 compared to the same period in 2023, derived by the strong performance of Jafra Mexico and relatively stable results from Better World Mexico, partially offset by Jafra U.S. results. Jafra Mexico's revenue surged 22.2% in Q4. fueled by commercial strategies that successfully revitalized the brand and strengthened its market presence, a clear testament to its growth potential and competitive positioning. Despite external headwinds, Better World Mexico achieved 1.5% net revenue growth in the quarter, thanks to diverse effective commercial strategies. but was tempered by rising product import duties and price costs that impacted our ability to be more competitive, and by a slight decline in associate engagement and activity following the second quarter stock-outs of key products. Net revenue at Jafla U.S. decreased 17.6% in U.S. dollars. mainly due to lost momentum related to the implementation of Shopify Plus in the second half of the year, where we experienced adoption difficulties with some associates. This came after we had successfully stabilized this business earlier in the year, following years of decline. The revenue decrease was partially offset by the depreciation of the Mexican peso, with revenues decreasing 6% in pesos. For the full year, our group delivered an 8.4% increase in net revenues, but only due to, number one, Better Wear Mexico grew 4.6% and was supported by strong performance in the first half of the year and continued growth in the second half. Number two, Jafra, Mexico, which achieved an outstanding 13% net revenue increase, marking its second consecutive year of double-digit growth since the acquisition. And number three, Jafra, U.S., only slightly below last year's results with a decrease of 2.7% in U.S. dollars and decreasing only 0.3% in Mexican pesos. Our consolidated growth margin improved slightly. rising 116 basis points to 67.3% in Q4. This was largely fueled by a 675 basis point expansion in Better World Mexico's gross margin, which derived from better promotional performance despite FX volatility, higher price troughs, and product import duties increases. However, this was partially offset a 469 basis point contraction in Japan-Mexico gross margin due to prior year synergies and cost reduction that positively impacted Q4 of 2023 and are now distributed throughout the whole year in 2024. Adjusting for this, our Q4 2024 gross margin was in line with the previous year. For the full year 2024, our gross margin expanded by 70 basis points to 67.9%, driven by Jafra Mexico's strong 131 basis point increase to 76.3%, surpassing expectations due to a more favorable product mix, differentiated pricing strategy, and continued efficiency benefits from scale. Better Wear Mexico maintained a stable margin despite external cost pressures supported by strategic pricing and optimization of certain costs. Despite significant external challenges, Better Wear Mexico demonstrated strong resilience and effective risk management throughout the year. While our pricing strategy had a moderate impact on sales, The company successfully navigated market volatility in supply chain costs, maintaining full-year profitability nearly in line with the prior year. In Q4, consolidated adjusted EBITDA declined 5.8% with a 367 basis points margin contraction. primarily due to Japan-Mexico's EBITDA declining 17.3%. Also, derived from prior year synergies and cost optimization benefits that were reflected in Q4 2023, creating an unfavorable year-over-year comparison. However, decline was partially offset by Delaware-Mexico's strong performance. where EBITDA surged 31.8%, with a 508 basis points margin expansion derived from better performance of promotional initiatives and expense control in Q4 2024. That created, in this case, a favorable year-over-year comparison. For the full year, adjusted EBITDA increased 2%, This was mainly due to a 9.6% decline in Delaware, Mexico's EBITDA, bringing its margin down 341 basis points to 21.6%, partially offset by a 15.4% increase in Jaffa, Mexico's EBITDA, a margin expansion of 42 basis points to 20.7%. Delaware's margin contraction was derived from higher operating expenses linked to supply chain disruptions, as well as other administrative expenses, all of which we will reduce during 2025. On the other hand, GAFRA U.S. experienced a loss of $458,000 for the full year But it is important to note that this was mainly due to one-time expenses of approximately $1 million related to legal settlements, without which we would have risen above the break-even point with EBITDA of around $500,000. free cash flow declined by 21.6% for the year, primarily driven by an extraordinary cash inflow in 2023 derived from increasing supplier payment terms in Jafra, Mexico, which resulted in an extraordinary 87% increase in free cash flow to EBITDA ratio for 2023. Despite this, our 2024 Cash flow represented 67% free cash flow conversion on EBITDA, which is within our normal historical range. Adjusted earnings per share grew by 10.5% in Q4 and 17.3% for the field year, driven by lower interest expense and gains on derivative instruments. During the year, we remained focused on strengthening our financial position reducing total net debt and closing the year with a net debt to EBITDA ratio of 1.76 times, slightly lower than in the end of 2023. Our target for 2025 is to lower our net debt to EBITDA ratio to 1.5 times or below, maintaining a balance sheet that is both healthy and strategically positioned to support future growth. Given its confidence in our growth trajectory, the Board of Directors has proposed a dividend of 250 million pesos for Q4, subject to ratification at the Ordinary General Shareholders' Meeting on March 7th. This would mark our 20th consecutive dividend since our 2020 IPO, underscoring our unwavering commitment to delivering sustainable, long-term shareholder value with a total dividend state in 2024 of almost 1,000 million pesos. Looking ahead to 2025, we expect mid to high single-digit growth for both net revenues and EBITDA in the range of 6% to 9%. We remain excited about our ability to capitalize on new growth opportunities. while generating robust cash flow and maximizing shareholder value. Our focus continues to be on delivering long-term sustainable success, ensuring we maintain strong, consistent performance for years to come. Let me now pass the call to Andres, who will review our strategies to achieve these goals. Thank you, Alejandro, and good afternoon, everyone. As Luis mentioned earlier, 2025 is a year of celebrations, but more importantly, the consolidation of strategic focus and transformation. While we honor our past, we remain firmly committed to the future, embracing innovation, operational excellence, and new opportunities for sustainable growth. BFRA centralizes our renewed vision encompassing a portfolio of successful brands under a unified strategic framework while preserving the unique qualities and characteristics of each. The foundation of our confidence in the future lies in the strength of our business model, built upon two core elements, great brands and one essence.

First are brands.