Betterware de Mexico, S.A.P.I. de C.V. Water Tower Research Virtual Insights Conference

Thank you for joining us for this session of the WTR Insights Conference featuring Betterware de México, also known as BeFra Group. Ticker is BWMX. I'm Linda Bolton Weiser, Managing Director, Consumer Research here at Water Tower Research, and I'll be your host today. We're pleased to be joined by CEO, Andrés Campos, and CFO, Raúl del Villar. Welcome to you, and thank you for being here. Before we begin, I want to remind participants that this session may contain forward-looking statements, which are subject to various risks and uncertainties that could cause actual results to differ materially from expectations. Please consider these statements alongside the cautionary language and safe harbor statement on the company's website, as well as the risk factors outlined in BeFra's SEC filings. BeFra undertakes no obligations to update any forward-looking statements.

We'll aim to address investor questions submitted during today's conversation, or in the management series report that will follow. Please enter your questions in the chat. Investors interested in scheduling a meeting with BeFra can indicate that interest within the conference portal. With all those housekeeping items covered, let's jump right into our conversation. First of all, Andres, some investors think that direct selling is an outmoded selling channel, especially in developed countries like the U.S. and U.K. Do you agree or disagree? From a financial perspective, what evidence in your results gives you confidence that your increasingly digital person-to-person model remains economically attractive and scalable?

Hi, Linda, and thank you for having us here, and very nice to meet with you and the audience. Well, first of all, I think the complete other way around than being outdated, I think the direct selling model is more vibrant and disruptive than ever. But I think to understand this, we need to understand some fundamentals that are very important. First of all, investors need to think of us as a house of brands and a company that is building brands. We are not a retailer, or we are not similar to an e-commerce company. In a way, I would do the similarity or the analogy of we're more similar to a Procter & Gamble or Unilever, more than being similar to a Walmart or Amazon. We are not a retailer, we are the brand.

Now, we decide to sell our brands through the person-to-person or direct selling channel instead of selling it through traditional channels like brick and mortar or e-commerce, because this channel, which we manage ourselves, is very relevant and helps us grow a lot. This is very important to understand as a fundamental. Now, to understand this, there's two things to understand about the company, the brand building side and the channel management side. On the brand building side, which is the most important, we're experts in building brands. Betterware today is the number one home solutions brand in Mexico. We have built that throughout 25 years. We are dominantly the number one home solutions company in Mexico.

Jafra, which we acquired four years ago, used to be the number 14 beauty brand in Mexico, and as of the close of last year, we are number 7 in Mexico. We have grown more than almost 70% since we acquired the company, and now we are number 7 in the beauty category, and we are aiming to become among the top five beauty brands in Mexico. I am talking about any other brand like L'Oréal or Unilever, whomever. Now we just acquired Tupperware, and Tupperware, it is a great legacy brand. It is the reference brand in its category, but it needs to be well managed such that it can be the dominant powerhouse in the food containment, drinkware, and kitchen solutions in its market. We are building these brands. We work a lot to build these brands. The second thing is the channel.

The channel we think is more vibrant than ever as well because it forms part of what is known as the gig economy, which many of you have heard of. There are new companies that have risen in the gig economy lately, like Uber or DoorDash, or even Airbnb, that have helped people to make an extra income. We are within that economy, helping people to make an extra income. The difference is that they make an extra income by selling our brands. What we have done with the channel is differently than many other companies, is we have evolved it with technology, with innovation, with a lot of business intelligence to know how to incentivize the sellers, how to better motivate them, how to make their business work easier with technology such that they can focus on servicing their customers instead of focusing on other things.

We have evolved it in such a way that it is a great gig for them, and this has become one of the differences with us. Now, looking forward, we think that this is going to continue. You see the economy with great inflation, you see a great separation of income in all economies, and this gives entrance into companies like us to help people make an extra income. We just have to make it easy for them to sell, and we have to build a great brand such that they can sell a great brand, because it becomes easier to sell. That is the way we are working right now. Talking about the big countries, the U.S. is still the number one direct selling country in the world, China the second, Japan the third, and Germany the fourth.

The reality is that it is more vibrant than ever, even in developed countries, but, only for those companies who have evolved such that it becomes great at selling their brands. You see a lot of legacy companies who have come down a bit, and it is because they have not been able to evolve the brand or evolve the channel. Just like any other company, you need to keep evolving such that you stay relevant. But we think that there is a lot of room to go, and consumers want great brands, and people who need an extra income need a great opportunity. We think those two together will be a great future for Betterware.

Thanks. That makes sense. You alluded to the various brands that you have. You operate three brands now, but they each have meaningfully different gross margins and cost structures. As the revenue mix evolves, how should investors be thinking about your overall normalized EBITDA margin? Which factors, whether it is mix, reinvestment, leverage, synergies, will have the greatest influence over time?

Thank you for that question, Linda. Let me try to address it this way. First of all, the acquisition of Tupperware is very relevant to our group. We added, in just one single transaction, approximately 30% more in sales and in EBITDA without changing the leverage that we had prior to the acquisition. Also, we believe that Tupperware is going to bring additional margin going forward, and that is because of the power of the brand. Keep in mind that, at least in Latin America, Tupperware is a very iconic brand with a very top of mind presence. When you ask for a food container in Latin America, you do not ask for a food container, you really ask for a Tupperware. We know that the brand is very powerful.

We will be, of course, assessing how much we need to invest in additional capabilities to the brand and what we need to do in terms of innovation. But we are sure that we will be capturing additional revenue and margin in the long run. Lastly, we will probably be incorporating additional brands or additional regions to the group, and margins, because of that, may change a bit from time to time. But what we will always make sure is that we have the best returns and we have the best economics in each one of these transactions, just as we did with Jafra, and now we are doing with Tupperware.

Great. Thank you, Raul. That is very helpful. Switching a little to just delve a little more deeper into Tupperware. That acquisition gives you an immediate platform in Brazil. Maybe you can tell us a little bit about why the business historically declined, and what are the two or three commercial levers that you are changing, and what milestones should investors watch for over the next 12 to 24 months?

Linda, thank you. I think that brings up something very relevant. Brazil is the biggest country in the region. It is about 50% bigger than even Mexico, so it is obviously the biggest market, and it is always very attractive when you are playing LATAM. It is very important to understand how you play Brazil, how you enter Brazil when you do so. This transaction was very important because it lets us put a foot in Brazil with an operation that has been there for over 40 years straight. It has a manufacturing plant in Brazil, and it already has these 40 years being profitable and being a nice platform on which to build on. Now, obviously, as you mentioned, the last three years, Brazil sales have declined in Tupperware.

When we went into understanding this, we understood that it was because of the lack of innovation, the lack of commercial activity, and the lack of confidence that everything that happened to Tupperware globally impacted on Brazil. We see this more than a problem, we see it as an opportunity to revamp the growth. Just three years ago, the business was double the size, and I think in its best moment, it was even a little bit bigger. We see this as a great opportunity. Now, we have seen early signs of the turnaround in Brazil. In the last three years, it had been declining around 10% to 15% each quarter versus last year. In the June, which we just reported, we saw only, I think, a 6% decline. We are starting to see the gap starting to change. Why is this? Number one, we have dedicated I spent a lot of time in Brazil, even the last call, I did it from Brazil.