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, Andrés, 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 Well, first of all, I think the complete other way around than being outdated, I think the direct selling model is more vibrant and disruptive than ever.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, Raúl. 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- 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%- 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. First of all, regaining confidence from all the sellers and all of our distributors out there, to build the confidence again that now they are under a good group that is going to invest, it is going to invest in innovation, it is going to invest in everything that we do such that we bring back growth. Confidence has been restored in the distributors and sales force. Now, together with that, we are obviously starting to lay out new commercial strategies, new innovation, new technology to turn around the growth.
We are seeing early signs. We expect in the next maybe 2-3 quarters to reach an inflection point, and then start growing from there. I think it is going to be a very interesting story for the group. It is a pretty neat and sizable business, around $100 million business, and we think it is a good platform to start growing and to really make a difference in that country, which is the most important market in LATAM.
Yeah. Sounds good. In terms of when you look at overall Tupperware, the acquisition, it generates an EBITDA margin of roughly 27%, and that's a great margin, despite the fact that there was decline in the last couple of years. How much reinvestment do you think is needed? Because that margin is so high, I suspect that it needs reinvestment, in product innovation, brand building, digital tools, et cetera. How much of that is needed, and what would you consider to be a sustainable margin?
Yeah. Thank you, Linda. I would say it's early to answer the question. We wouldn't like to give a specific answer to that at the moment because we're still looking at all the details. Obviously, as you mentioned, there was no innovation team, so we're putting together the new innovation team and capabilities. There was no technology, so we're putting together the technology. I think in general, I would not expect too big of an impact, really. We already lived this four and a half years ago with Jafra, which was very similar, and we were able to actually even expand the margin in Jafra's case. I would not say that we can expand the margin in Tupperware. I think it has pretty high margins at the moment, and it's more maybe of a small impact.
But I would at most expect a very small impact, not too much, because the reality is that as we implement everything that we need to implement, we have to spend more, but at the same time, we have some efficiencies that we gain. As we invest in technology, we gain some efficiencies. We invest in innovation, but we stop investing in some things that are not necessary. I think maybe in the next 12 months, more or less, we will see more or less of the normalized figure that we will have, which should not be too different.
Okay. That sounds good. Just in terms of one of the things you have mentioned with Tupperware is that their supplier terms are close to zero days, and that you intend to move more toward BeFra's standard of approximately 120 days. Where does that process stand? When should the cash benefit appear? Is it going to be kind of a one-time benefit, or is there going to also be some recurring benefits?
I think I will leave that to Raúl as well.
Thank you, Andrés. I will take that. Yes. As you may know, following Tupperware's bankruptcy process, suppliers very understandably limited the credit terms that they provided to Tupperware, and they actually, in some cases, switched those terms to advance payments, and that was very understandable. That reflected the profile of uncertainty that was surrounding the global organization. But it is very important to note that the underlying quality of the business in Latin America was totally different. Tupperware had a profitable and cash-generating business in Latin America that was, in a way, contaminated by the worldwide Tupperware issue. Now that Tupperware is part of a strong financial group such as BeFra, we are rebuilding the supplier confidence and negotiating improved terms with all of our suppliers.
By doing that, we expect to have analyzed the benefits this year of around MXN 3 million. That is just scratching the surface because we know that the potential in terms of cash flow generation or additional cash flow generation is around $25 million. We should be able to capture that within the next 9- 12 months. That is really where we see working capital going.
Okay, that makes sense. Switching a little bit more to the bigger picture strategy, you have acquired these various brands, but you sort of keep them separate in the marketplace is my understanding, with separate sales brochures. Can you explain why you think that's the best approach? Can there be some things that are shared across the brands, like shared services in any areas that might lead to cost synergies or scale economies, like purchasing or brochure design? Also, consumer analytics in a particular market, like what you do in Brazil, can that be shared across all the brands?
Yeah. Thank you, Linda. It's a very good question, and it's obviously one of the most strategic questions and situations that we need to assess. I will divide it into two or three comments. Number one, in Mexico, which is our biggest market, if you see it on a running basis, Mexico is around 80% of our business now, and I'm talking like a yearly basis with Tupperware. In Mexico, each brand has a huge sales force. Jafra has almost 500,000 associates, Betterware has almost 700,000, and Tupperware Mexico, like 250,000. In Mexico, we have to be very careful. We're not doing anything specific to put the sellers together or anything like that. Each brand, there's a big attachment of all of our associates to their brand, and we're keeping it separate such that the only thing commercially that we're sharing is good practices for each company.
Obviously, we're helping Jafra gain better technology. We're also helping Tupperware gain better technology or better catalog design. We're doing a best practices approach for every company and learning from one another to bring best practices to all. Now, that said, we know that on average, every associate from all the different brands normally sells between one and a half or two catalogs per associate on average. We know that our associates are selling other brands, or some associates are selling both Betterware and Jafra without us doing anything, just because they want to. What we're telling them now is that they're allowed to sell all of our brands, and that it's preferably that they sell our brands, but we're not obligating them to anything. It's just an opportunity. That's what we're doing in Mexico.
Now, in LATAM, today we have Tupperware in Brazil, Betterware in the Andean region, and not LATAM, but Jafra in the U.S., so each brand has their region. Going forward, we might give the other brand to the sellers so they can sell both brands and kind of pivot from there. Just to give you an example, Tupperware Brazil, we might tell our sellers, "Hey, we're launching Betterware. Here's the Betterware catalog. You can start selling the Betterware catalog." So there we will pivot on the associates that exist today. Now, just a couple of more things. One is, it's very important in terms of the catalog, we will always maintain, or that's the way we think now, always maintain one catalog for each brand, because you cannot mix and match brands and categories on the same catalog because you will confuse the customer.
In the catalogs, you will always see the brands separate. If the same sellers start selling the two or three or five catalog, whatever, that could happen going forward in the different countries. Hopefully, I was clear on this part. The last thing I would say is, specifically in Mexico, we are so big in the three brands that we are starting to capture back office synergies.
For instance, we are starting to deploy the same technology for every brand. It is a great synergy in terms of technology with developers, having the same developers working on the same technology for the three brands. Or we are working on a logistics synergy so we can do our deliveries with the same suppliers and with an integrated model, we can deliver. Things like that in the back office, we are doing synergies, and we are seeing great impacts from this on our bottom line.
Sounds good. Switching a little bit more back to the financial. You have mentioned that your leverage really did not change as a result of the Tupperware deal. Your pro forma net leverage is around 1.6 times, I believe. How should we think about capital allocation over the next, say, 12- 24 months? Should we think about organic investment, deleveraging, dividends, repurchases? What are your thoughts there, and then what financial guardrails guide those decisions?
Do you want me to take that, Andrés?
Sure.
Thank you, Linda. First of all, let me tell you that we really do not plan to make any changes to our capital allocation practice. Our priorities have always been to fund the business and now, of course, to fund the Tupperware acquisition. We always invest in attractive organic opportunities. And we do all this while maintaining a very strong leverage profile and also preserving the dividend policy that we have been following. And on that, I can tell you that it is important for you to know that in the second quarter, we increased the dividend we paid to MXN 250 million, and this increase was not only designed to preserve the dividend value of the shares, but also to increase the total value that we give out to shareholders. This was our 26th consecutive quarterly dividend since we became public.
Another part that is important for you to know is that Tupperware is very profitable, and in practical ways, Tupperware is going to be paying for its own acquisition. Even that cash and cash generation that Tupperware generates supports our de-leveraging path. This is very attractive and, as you just mentioned, because our net leverage after the acquisition remained at 1.6 times on a pro forma basis. Regarding M&A, it's also important for you to know that we don't acquire just for the sake of becoming larger. Opportunities happen occasionally, and we act only when there is a strong fit to our group. When the valuation is right, the transaction creates value to the group, and for us, cash flow is always king. Summarizing it all, today our priorities are integration, organic growth, de-leveraging, and dividends.
Okay. That's very clear. Thank you. Finally, I think that investors have found it very interesting that your Tupperware license for the use of the brand is exclusive, perpetual, and royalty-free throughout Latin America. Beyond Mexico and Brazil, what are your plans for geographic expansion of the brand, and which markets do you think offer the greatest long-term opportunity?
Yeah. Thank you, Linda. I think I will use this to reinforce what Raúl was talking about for capital allocation. Obviously, our first priority is to fund any organic growth that the group needs. We think that we can obtain very good organic growth, I will talk about that in a second, in the different countries where we operate today. That's where our first focus will be. Obviously, after funding that organic growth, we look at maintaining a stable dividend for investors. We're a high cash-generating business. We've been able to pay dividends, as Raúl mentioned, for 26 consecutive quarters. We just increased the dividend because with the Tupperware acquisition, we will not only be able to repay debt, but we were able to fund an increased dividend. We will maintain a steady dividend for investors.
From there, as a third priority, we're looking at inorganic possibilities. We're not chasing them with any urgency. We're looking out for possibilities, and we act from time to time where investors, just as we did with Jafra and we did with Tupperware. Obviously, these acquisitions will remain within our focus on acquiring great brands in different categories that can be sold through person-to-person selling, so that we can continue to build a powerhouse of brands that are sold through person-to-person selling going forward. That said, returning to your question, and it has everything to do, we plan to expand with a lot of discipline in Latin America.
Obviously, our first priority is to continue to grow in Mexico. Mexico is our biggest market, but at the same time, it has a great runway going forward for the three brands today. This is our biggest focus and our first priority, as we have mentioned before.
In terms of geographic expansion, I would say that as a second priority come Brazil and the U.S. Brazil, we now have it with Tupperware. Our first focus in Brazil will be to revamp growth with Tupperware, because of all the opportunity and the size of the market. As you know, in the U.S., we are focused on the Jafra brand, where we already reached the inflection point, and we expect to see a revamped growth. I would like to talk about the U.S. because it is very important for our strategy. U.S. used to be unprofitable. This year, after all the work we have done, the Jafra USA is now a profitable business. We are starting to see early signs of inflection to growth, and we plan to focus on the Jafra brand to revamp that growth in the U.S.
I would say after Brazil and U.S., as you know, last year, we started our incursion into the Andean region. The Andean region being Peru, Colombia, Ecuador, Bolivia. That region together is almost 70% of the Mexican market altogether. We started our incursion into that region with Betterware last year. We started with Ecuador. This year, we launched Colombia. We plan to launch, in the coming years, Peru as well. We are attacking that region with the Betterware brand. As you see, we are being very strategic about which brand we use to attack each market, depending on the competitive landscape and the opportunities. We are being very disciplined in this sense. Our focus in each one of those markets is the brand I mentioned.
Eventually, in the medium or long term, it is very important to understand that now, as we become a powerhouse of brands, we can decide to launch other brands in those countries as well going forward. For instance, once Tupperware in Brazil starts taking off, we could eventually launch Betterware in Brazil or whichever brand we have, because we start to build a momentum, and we start to build being relevant in that market, and eventually we can commercialize all three brands. We will be very disciplined, very focused on each step that we make, such that the international component of BeFra becomes more and more important. Just five years ago, we were only one brand in one country. Today, five years later, we are three brands in six countries.
Yes.
And if you see very strategic movements that we have made in that, we plan to continue making those strategic movements such that the international component becomes more and more relevant for BeFra going forward, without forgetting that Mexico still has a good runway to go.
Thank you. That's a great growth story. You have a lot of opportunity ahead of you. Well, I'd like to hear more, but our time is up, I think. So thank you very much, Andrés and Raúl, for joining us for this session of our WTR Insights Conference. Thank you to everyone who participated. If you want additional content on Betterware de México, please look at our website, www.watertowerresearch.com. For those with further questions or for investors wishing to meet with management after this event, please reflect that interest through the conference portal. Our next conference session will be starting shortly, and we invite you to stay with us. Thank you very much.
Thank you, Linda. Thank you, Raúl.
Thank you.
Bye-bye.